-----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, BF93LDCtG5G3awuqGpPptYODQqilCyml6JF4AehqD8eYk8xYUek5ZXlW5ccxoBkt SicF4w6tolzP1nSOEQbQKg== 0001047469-98-012552.txt : 19980331 0001047469-98-012552.hdr.sgml : 19980331 ACCESSION NUMBER: 0001047469-98-012552 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 16 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980330 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENTURA SOFTWARE CORP CENTRAL INDEX KEY: 0000895021 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 942874178 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-21010 FILM NUMBER: 98579346 BUSINESS ADDRESS: STREET 1: 975 ISLAND DR CITY: REDWOOD SHORES STATE: CA ZIP: 94025 BUSINESS PHONE: 6505963400 MAIL ADDRESS: STREET 1: 1060 MARSH ROAD CITY: MENLO PARK STATE: CA ZIP: 94025 10-K 1 FORM 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] FOR THE TRANSITION PERIOD TO COMMISSION FILE NUMBER: 0-21010 CENTURA SOFTWARE CORPORATION (FORMERLY GUPTA CORPORATION) (Exact name of registrant as specified in its charter) CALIFORNIA 94-2874178 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 975 ISLAND DRIVE, REDWOOD SHORES, CALIFORNIA 94065 (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (650) 596-3400 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to section 12(g) of the Act: COMMON STOCK, $.01 PAR VALUE PER SHARE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No _ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment of this Form 10-K. [ ] The aggregate market value of the voting stock held by non-affiliates of the Registrant was approximately $27,166,615 as of February 28, 1998, based upon the closing sale price on the NASDAQ National Market reported for such date. Shares of Common Stock held by each officer and director and by each person who owns 5% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. As of February 28, 1998, there were 29,526,171 shares of the Registrant's Common Stock outstanding. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART I ITEM 1. BUSINESS Except for the historical information contained herein, the matters discussed in this document are forward-looking statements that involve certain risks and uncertainties, including the risks and uncertainties under "Risk Factors". OVERVIEW Centura Software Corporation (the "Company" or "Centura"), formerly Gupta Corporation, provides a suite of products usable by application developers to build and deploy component based distributed business applications. Centura products include an embedded database that scales from Smart Cards to the Web, and application development tools for Windows and Web clients. Centura products are designed to be deployed in both thin- and fat-client environments, using business logic objects that can be reused in multi-tier architectures in distributed environments (The Internet is referred to hereinafter as the "World Wide Web" or the "Web" and corporate internal Webs are referred to as "Intranets"). The Company's product lines include a family of embedded databases, (SQLBASE), application development tools, (CENTURA TEAM DEVELOPER, THE 32-BIT VERSION OF SQLWINDOWS, SQLWINDOWS AND CENTURA NET.DB) and PC to mainframe connectivity products (SQLHOST). Now in its seventh generation, SQLBASE was the first Relational Database Management System ("RDBMS") available in the PC and PC LAN environment offering similar RDBMS functions previously found only in high-end databases. The Company's products have historically been market leaders in the Windows client/server environment, used both in work-group/departmental business applications, as well as packaged applications sold by third party software vendors to small and medium size businesses. The Company is continuing to enhance its existing Windows client product line. At the same time, the Company is enhancing its products into new market opportunities for thin-clients (the Web, Portable Device Applications ("PDAs") and smart appliances. In these markets, a small memory requirement (or "footprint"), client/server or embedded application and database architecture has a natural fit. The Company's embeddable database, SQLBASE, is a robust, small footprint RDBMS, which requires no database administrator ("DBA"). Business applications that embed SQLBASE operate with a single set of source code on a desktop PC, a PC LAN, the Web, and connected mobile client environments. The Company's development tools, CENTURA TEAM DEVELOPER and SQLWINDOWS, are 4GL object oriented tools offering improved programmer productivity. The Company recently introduced CENTURA NET.DB, a browser-based SQL to HTML Web authoring tool. CENTURA NET.DB makes it easy to connect corporate databases with end users, providing dynamic access to SQL databases in JavaScript enabled Web browsers. In addition, as CENTURA NET.DB is browser based, it can run on any client platform capable of running a browser. SQLHOST allows organizations to integrate DB2 or legacy data into a client/server environment without compromising performance, control, or security. The primary customers of Centura products are application developers, including Fortune 1000 developers who deploy Centura products throughout company branch offices and customers' offices, Independent Software Vendors (ISVs) who develop and deploy shrink-wrapped, packaged applications for small and medium size business, and Value Added Resellers who develop customized software for end-users. A new set of customers is emerging which embed SQLBASE in smart and/or mobile electronic devices, such as the government of Mexico which imbeds SQLBASE in Smart Cards for NAFTA export control. Some application developers deploy both the embedded database and the application development tools in their applications. Other developers deploy only the embedded database, connecting SQLBASE to other business logic application tools such as Java or Visual Basic, or to application development tools sitting on top of other, larger databases. The Company has established multiple distribution channels that provide broad market coverage for its products and address the specific needs of its varied customer segments worldwide. The Company's 2 products are used in at least 75 countries. Its customers include include Automatic Data Processing ("ADP"), Aurum, CamData, Citibank N.A., Daimler-Benz, Ford Motor Company, SQL Financials, IFS, Help Desk Software, Norfolk Southern, Ontario Hydro, Lilly Software, Siemens-Nixdorf Informations Systeme AG ("Siemens-Nixdorf"), The Southern Company, United Airlines, United Parcel Service, Deutsch Bank, M-5, Xerox, Computer Asssociates, and the governments of Mexico, France, Australia and the United Kingdom. INDUSTRY OVERVIEW Over the past few decades, organizations have increasingly used their computing systems to improve their management of mission-critical business functions, such as manufacturing, distribution, customer support, finance and administration. In the 1970s and 1980s, computing environments for such applications were dominated by large computer systems with a mainframe or minicomputer acting as a host processor for terminals with very limited computing power. These traditional host-based systems are expensive to install and maintain, and related software development is typically time consuming. In addition, management of and access to the critical information resources residing on these systems is generally limited to a staff of dedicated management information systems ("MIS") professionals and relatively inaccessible to a broader base of users. In the late 1980s, a new architecture for information processing called "client/server" computing emerged to address the many shortcomings of host-based systems. Client/server computing typically provides increased functionality at a lower hardware and software cost, an easier-to-use operating environment and information access by a broader base of users. A client/server system typically consists of multiple intelligent desktop client computers linked in a network with high performance server computers. The client replaces the dumb terminal employed in host-based systems and has resident software that manages the user interface and performs local data access and manipulation. The server performs many of the functions previously performed by the host in a host-based system, such as network management, data storage, printing, communications, and data security and integrity. The widespread use of increasingly powerful PCs has made it possible for organizations to deploy client/server systems based on local area networks ("LANs"), thereby increasing the benefits of the large existing installed base of PCs. A LAN is a group of computers connected for the purpose of sharing data and networked resources such as printers and data storage devices. PC client/server computing combines the benefits of host-based systems with the cost-effectiveness and ease of use of PCs. Other factors increasing the deployment of PC client/server systems include the continued decline in the costs of high-performance PCs and improvements to PC operating systems, including easy-to-use graphical user interfaces such as those incorporated in Microsoft Corporation's ("Microsoft's") Windows and Windows 95, and Windows NT operating systems. In addition, connectivity software is available to enable PC clients to access varied data sources, including existing mainframes and minicomputers, thereby protecting an organization's investment in these host-based systems. Today, the traditional fat-client PC and PC LAN environment continues to exist as a platform for business applications. At the same time, new form factors are emerging with a need for the company's products. As suggested by the creation of network computers there is an increasing trend among end-users to move the business logic from the PC to the server, which generally provides an easier way to maintain consistent and secure up to date applications and data. In addition, due to the proliferation of PCs to millions of end-users, the costs of maintaining a PC has become a matter of concern to many enterprises. This client/server architecture is referred to as a thin-client, and can refer to both a Windows network computer as well as a Web browser client. The Company believes the introduction of small, smart server centric access devices, such as palm top organizers, smart phones, PDAs and WebTV-TM- will continue to increase. This new multi- or n-tier, thin-client establishes a need for a new software application architecture, creating an opportunity for software tools such as those available from the Company that fit the needs of the thin-client world. 3 The Web is an example of a thin-client architecture. The Web opens the corporate data sources and applications to new and highly distributed end-users who typically operate through standard platform-independent user environments, commonly known as "browsers" which typically also run on PCs, but will increasingly be accessible through mobile, smart devices. Industry analysts are expecting millions of new small, form factors that will provide mobile access to servers over the next 5 years. Similar to the rapid emergence of PCs and LANs in the late 1980s and early 1990s, the emergence of the Web and multiple types of access devices raises new challenges and opportunities for organizations and the business applications they choose to manage their business. More than ever before, the use of technology will impact the bottom line of a business, as recent studies continue to support the effectiveness of the Web for performing business transactions. Corporations will increasingly provide direct, electronic access to back office data to their employees, customers and suppliers. Web-based systems can be deployed as simple departmental systems or highly distributed networks that can provide access to end-users in locations and geographies outside the corporate network. There is also an increasing trend toward disconnected or so-called distributed or "mobile" applications where a stand-alone PC, laptop PC, Smart Card or other thin-clients manages data locally and may be connected asynchronously to centralized, host-based data sources. Such systems can also be deployed as part of an overall enterprise system combining stand-alone PCs, multiple PC client/servers and enterprise-wide servers. With the continued price/performance curve of the microprocessor, new form factors of thin-clients will continue to evolve and proliferate, such as palm top organizers, PDAs, smart phones and WebTV-TM-. Industry analysts are forecasting shipments of millions of units of new smart, thin-clients. These mobile devices can instantaneously connect end-users to remote server information, available for either information or transactions. These new thin-clients are catalysts for new technologies and new applications and provide an opportunity for a new generation of business applications taking advantage of the thin-client server-centric access architecture. These thin-clients need robust, small footprint embedded databases. The increase in the deployment of PCs--in both traditional fat client/server environments and increasingly for implementation and access to thin-client Web-based or multi-tier environments--is fueling demand by organizations for new applications utilizing this thin-client architecture. One other industry trend is changing the architectural design of today's business applications. Organizations want to integrate the data generated by the back office throughout the enterprise and, increasingly, with its customers. Customer service account representatives need access to the latest information about corporate customers and sales activity and desire electronic connection or integration to company accounting records. Organizations generally want to eliminate the information time lag between disparate information systems throughout the enterprise and the external supply chain and tend to prefer enterprise wide applications, regardless of their size. It would be unlikely that one software vendor can provide all the applications required within an organization. What is important is that the business logic of one application can be shared between other applications operating in the organization. This integration between disparate applications places an increased demand for business applications built with components and objects. Existing software applications and new software applications are being redesigned to meet the changing demands for integration and access to metadata, and center on the use and design of components, objects and reusable code that can operate in a distributed COM/DCOM environment. Additionally, Java has emerged as a clear player in the development arena. Java offers a great opportunity to help deliver and use server side components via Java Enterprise Beans deployed under the CORBA Architecture. Java objects running on the server will provide the scalability and platform independence needed to build distributed applications. The Company was founded to provide application development tools deployed in applications operating in the Windows client/server environment. In 1996, 1997 and 1998 the Company announced and delivered extensions that operate in a Web browser client/server environment. The Company will continue 4 to invest in tools for both the thin- and fat-client Windows world, and will take advantage of new opportunities for its products in the emerging thin-client world of the Web and smart mobile devices, which is a natural extension of Intranet and network-centric computing. The Company's current product offerings are fully compliant with and accommodate data structures for years beginning after January 1, 2000. COMPANY STRATEGIES The Company products have historically been used by its customers to design client/server applications with Windows clients. As the client/server world continues to evolve with new types of clients accessing a server-centric architecture, the Company is transitioning its products to meet the needs of developers whose applications link the new thin-clients (the Web, PDAs, smart phones, etc.) to servers. At the same time, the Company will continue to evolve its object oriented application development tools so that class libraries can use and generate components and objects in a distributed COM/DCOM and CORBA environment. Key elements of its strategies are highlighted below. Finally, the Company believes its small footprint RDBMS can be embedded in other types of new smart electronic devices, such as copiers and routers. EMBEDDED DATABASE. The Company believes several industry trends will drive demand for a robust, non-DBA, small footprint embedded database. An embedded database is integrated with business application code, and is invisible to the end user. An embedded database has high server programmability, allowing developers to control the database server from the applications, reducing the need for a DBA through self tuning and self recovery functions. A robust embedded database is scalable, and can support hundreds of simultaneous users. One growth factor for embedded databases is the expectation by certain industry analysts that the next growth opportunity for PCs is the implementation of enterprise wide applications in mid-size businesses. This mid-size market is being targeted by application vendors now selling to large corporations, as well as application vendors now selling to small businesses. Both of these application vendors may find their existing choice of a database is not appropriate for the mid size business. Application vendors sold to Fortune 1000 customers typically run on top of large databases. These Fortune 1000 databases generally require large license fees, a large footprint, and a requirement for an in house DBA--attributes that do not match the mid-size business market requirements. On the other hand, current small business application vendors will discover their existing embedded database probably provides adequate response for transactions happening with a small number of end-users, but will not scale up to several hundred end-users, and will be unable to respond to the transaction needs of mid-size companies. The demand for robust, non-DBA, scalable, embedded databases that operate in either a LAN-based or Web-based environment will continue to grow as more and more small and medium size businesses buy and implement enterprise transaction-based applications. These small and mid-size businesses do not have an internal DBA, and cannot afford the expense of hiring such a person. The other trend impacting the growing need for embedded databases is the emerging market for distributed, mobile thin-clients, such as WebTV-TM-, palm top organizers and smart devices, such as cellular phones and Smart Cards. These new thin-clients and smart appliances require a robust, small footprint embedded database that can also synchronize and exchange data between a server and the mobile client. SQLBASE EXCHANGE, the add-on product sold with SQLBASE, is a database replication tool, enabling an embedded database on a mobile, thin-client to easily exchange data with a remote server. With the proliferation of the Web, there is a growing need for small, non-dba databases for use with common application development tools, such as Java and Visual Basic. The SQLBASE API makes it easy for application developers to connect SQLBASE within their application development process. SQLBASE supports open connectivity to a variety of development tools, including Visual Basic, Java and Visual C++, utilizing high performance ODBC and JDBC level 4. SQLBASE offers a 100% Java JDBC driver (Level 4) 5 that permits Java developers to optimize their SQLBASE connectivity requirements. Further, as part of the embedded oriented features of SQLBASE, Centura currently offers external functions, which allow developers to call DLL base procedures from Triggers and Stored Procedures. Due to the importance of Java, it is the Company's intention to incorporate Java base external functions in future releases of SQLBASE. There can be no assurance that the Company will be successful in these efforts. The foregoing factors combine to create, what the Company believes, is a compelling opportunity for the Company's embedded database products. APPLICATION DEVELOPMENT TOOLS. The Company believes there will be a continued demand for building applications that run in an n-tier environment, with access to common, reusable business logic objects for both fat-clients and thin-clients. CENTURA TEAM DEVELOPER is a 4GL, object-oriented development tool, designed to maximize developer's investment in developing business logic code. CENTURA TEAM DEVELOPER applications have native connectivity not only to SQLBASE, but Oracle, Sybase and Microsoft SQLServer with the same set of APIs. The same CENTURA TEAM DEVELOPER business logic can be deployed as both a Windows and browser client, with minimal reprogramming of code, providing an easy redefinition of application packages to support Internet-based customer-to-supplier value chains. With the continued trend toward enterprise wide applications, Centura expects a continued interest in the use of application development tools that access and create components and business logic objects available on either the server or the client. Developers will be able to create new application solutions throughout the enterprise by customizing and modifying existing components. These components will provide a common linkage between disparate applications. Sales automation systems can be linked to accounting systems, and companies can post and retrieve applications via thin- and fat-clients--all possible by using common business logic components created with CENTURA TEAM DEVELOPER. The Company expects that in the future, a component's location on the network will become irrelevant to the developer. Developers will expect to be able to compose, distribute, and debug applications from any location. The Company plans to offer enhancements for CENTURA TEAM DEVELOPER in 1998 that are designed to make it easy to manage and distribute ActiveX components in a COM/DCOM distributed architecture. As Java servlets or Java Beans can be invoked from COM interfaces, the Company intends to enhance CENTURA TEAM DEVELOPER to be able to use these types of objects as well as pure COM objects. In addition, it is the Company's intention that CENTURA TEAM DEVELOPER may, in the future support integration with CORBA environments to expose and use Java objects. There can be no assurance that the Company will be successful in these efforts. The Company expects companies to gradually move away from buying custom applications towards the building of new systems by integrating and customizing existing components. The competitive advantage will come from customizing off-the-shelf applications. This "buy and customize" approach offers the best of both worlds: rapid development and the ability to customize the application to meet existing business processes requirements. The object architecture provided by CENTURA TEAM DEVELOPER is conducive to individual customization of applications. This component, reusable architecture, provides an advantage to the Company's application developers, especially in sales situations where evaluation criteria might be the ease in which components can be customized. CENTURA NET.DB is a Web authoring tool, enabling Webmasters or software developers to design SQL to HTML dynamic queries deployed within any JavaScript-enabled Web browser. CENTURA NET.DB is browser-based for both design and deployment. CENTURA NET.DB requires no special SQL, HTML, CGI, Perl, or C/ C++ expertise--and there is no requirement for browser plug-ins and other server software. The CENTURA NET.DB architecture is intelligent about its use of resources, accessing only the business logic code necessary to satisfy a user/program request, and enabling hundreds of simultaneous accesses on a single NT server. The Company expects to offer a version of CENTURA NET.DB that will enable transaction processing via the Web. TOTAL COST OF OWNERSHIP. The Company's products are built to be cost effective for both the software developer and the end user. 6 The Company's products offer several advantages for the developer. The Company's products are scalable, allowing a single set of source code to be deployed on multiple platforms. Business applications that embed SQLBASE can be installed as a single user desktop or a server environment from a single SKU. Applications written with CENTURA TEAM DEVELOPER can interface with SQLBASE, as well as Oracle, with a single set of code. This single set of source code approach may reduce the amount of quality assurance resources required by application developers, which can sometimes exceed the cost of developing the application source code. CENTURA TEAM DEVELOPER maximizes the investment dollar spent to develop and test business logic objects. Using the CENTURA TEAM DEVELOPER class libraries, application developers can easily share business logic code between applications. CENTURA TEAM DEVELOPER can deploy a single set of business logic as either a Windows or a browser client, enabling the transformation of business applications from Windows clients to Web clients, without reprogramming the original Windows client logic. Using the built-in revision control features of CENTURA TEAM DEVELOPER, programming teams have access to the latest code, making it easier to develop complex applications on time and on budget. CENTURA TEAM DEVELOPER is well positioned for the emerging need to develop complex, enterprise-wide component based architecture applications. Self recovery and self tuning features found in SQLBASE typically result in fewer support calls from end-users providing better customer satisfaction between the end user and the application developer. The Company's products also offer a low total cost of ownership to end-users. SQLBASE is a very small, yet robust database. This means applications can run very effectively on a small footprint PC, reducing the hardware cost required to install and operate applications which embed SQLBASE. SQLBASE applications can include, within the application, log-in and assignment of password features for new users, eliminating the need for end-users to know how to operate the database. With built-in self-tuning and self-recovery processes, SQLBASE applications automatically reboot and reestablish the database when a PC loses power. SQLBASE applications reduce the need for internal MIS or data base administrators, and reduces the amount of support calls for which an end user would typically pay. End-users do not have to upgrade to 32-bit architectures before installing applications built with the Company's products. CENTURA NET.DB operates in a 16-bit browser environment, making it easy to connect end-users around the world who may not yet have upgraded to a 32-bit PC. Both CENTURA TEAM DEVELOPER and CENTURA NET.DB make it easy to webify an application built with CENTURA TEAM DEVELOPER or SQLBASE, allowing access by employees and customers to corporate data. The Company's products are priced for a PC client/server environment, minimizing the cost of client/server solutions. This enables a low cost of entry for small and medium size businesses. The Company's products are cross platform, enabling applications to operate on Windows NT, Windows 95, Windows 3.1, DOS and NetWare with minimal programming changes. See "Risk Factors-- New Product Risks; Rapid Technological Change" and "--Highly Competitive Markets". DISTRIBUTION CHANNELS, PARTNERSHIPS AND STRATEGIC ALLIANCES. The Company distributes its products using a blended distribution model that provides incentives for its direct sales force to work closely with business partners. The Company's Synergy Partner Program is designed to meet the needs of businesses that include resellers, commercial application developers, consultants, independent software vendors ("ISVs"), and complementary tools providers. A number of companies, including SQL Financials, ADP and Aurum have a partnership with Centura, whereby Centura provides these application developers the right to remanufacture the SQLBASE product. See "Risk Factors--Dependence Upon Distribution Channels" and "--Dependence on Third-Party Organizations". WORLDWIDE MARKETS. The Company has designed its products and established its marketing and sales channels to address the worldwide market opportunities, including markets requiring double-byte enabled source code, for embeddable databases and PC client/server systems. The Company has established operations on six continents that have exclusive rights through either wholly-owned subsidiaries or third-party distribution partners. CENTURA TEAM DEVELOPER is shipped with OBJECT NATIONALIZER, which facilitates application development in multiple languages. Approximately 58% of the Company's net revenues for 1997 were derived from sales outside the United States, and its products are installed in at least 75 countries. The Company generally launches new products on a worldwide basis. The Company's software 7 products support international data conventions, and certain products have been localized into French, German and Japanese language editions. SUPPORT PROGRAMS. The Company provides product support services directly and through third-party vendors to enable easy customer implementation of its client/server systems. The Company provides a variety of programs to support customers ranging from small development groups to those who require access to qualified support engineers 24 hours a day, seven days a week. Traditional service offerings are augmented with an informal support network through a forum on CompuServe, an Internet news group, and a strong presence on the World Wide Web. A pay per request program is being implemented, and is scheduled to be offered beginning in 1998. The Company-certified training partners offer courses each year to assure customers of the right mix of classroom or on-site training. Customers can also opt to study at their own pace with a specially developed computer-based training course. In addition, a team of professional consulting engineers are available to help companies develop application systems using Centura products. CHANGES IN STRATEGIC DIRECTION On January 6, 1997, in an effort to expand its product offerings in areas complimentary with the Company's core products, technology and overall strategic concept and into architectures embracing the World Wide Web, the Company entered into a definitive agreement to acquire Infospinner, Inc. ("Infospinner") of Richardson, Texas (the "Merger Agreement"). The Company did not obtain the majority vote of its shareholders required for approval of the proposed merger within the designated time frame, and as such, Infospinner elected to exercise its right, pursuant to the Merger Agreement, to terminate the transaction. Beginning in the second half, and culminating in the fourth quarter of 1997, the Company refocused and restructured its operations to leverage its core technological competencies into next generation products which continue to embrace a distributed architecture with components accessible through both the client and the server and operating in both the Web and other thin-clients. With the addition of CENTURA NET.DB, the Company's products now encompass a comprehensive architecture for the development and deployment of information systems and applications from a host environment, through two-tier client/server and SQL databases, to the multi-tier environment of the World Wide Web. See "Risk Factors--Changes in Strategic Direction: Restructuring;" "--New Product Risks; Rapid Technological Change". PRODUCTS The Company's embeddable database, development environments, family of connectivity products, and Web-based development environments, enable teams of developers to embed, build and deploy scaleable client/server applications throughout distributed computing environments. The Company's major products include: SQLBASE--THE SQLBASE family consists of embeddable and small-footprint database products that enable application developers to provide low cost of ownership applications with complete and robust RDBMS functionality and help businesses deploy decentralized applications easily and cost-effectively. These products--SQLBASE SERVER and SQLBASE DESKTOP--help organizations store data on machines ranging from small mobile devices and single-user PCs to workgroup servers and company-wide LAN and Web database servers. New versions of SQLBASE, referred to as the SQLBASE MICROSERVERS, are being designed to meet the needs of thin-clients and Smart Cards. CENTURA TEAM DEVELOPER AND SQLWINDOWS--THE CENTURA TEAM DEVELOPER AND SQLWINDOWS products enable customers to develop and deploy 32- and 16-bit, next generation and Web-centric client/server object-oriented applications. CENTURA TEAM DEVELOPER and SQLWINDOWS are created specifically to meet the needs of application development teams seeking the power to move from workgroup and enterprise pilot projects into large enterprise applications. These products deliver client/server application scalability, new Internet integration, and drag-and-drop replication functionality. The product family includes CENTURA TEAM DEVELOPER and SQLWINDOWS, CENTURA APPLICATION SERVER, and the CENTURA DEVELOPERS KIT, a set of 8 object-oriented interfaces that help developers create reusable objects in the CENTURA TEAM DEVELOPER 32-bit and SQLWINDOWS 16-bit environments. CENTURA WEB DEVELOPER--CENTURA WEB DEVELOPER, a subset of CENTURA TEAM DEVELOPER, enables the development of Web-based, thin-client applications which allow the deployment of CENTURA TEAM DEVELOPER business logic and transaction processing applications in thin-client environments. SQLHOST--THE SQLHOST products allow organizations to integrate DB2 or legacy data into a client/ server environment without compromising performance, control or security. SQLHOST for Visual Basic allows Visual Basic applications to access host-based data. CENTURA NET.DB--CENTURA NET.DB is a SQL to HTML browser-based Web authoring tool. CENTURA NET.DB reads the referential integrity of a SQL database, and automatically generates an HTML page view of each table. Using smart wizards, Webmasters can easily customize and design dynamic SQL queries and updates of live databases. The SQL queries can be deployed in any JavaScript enabled browser and are therefore platform independent. No special browser plug-ins or server software is needed. 9 END-USERS AND APPLICATIONS No customer accounted for more than 10% of net revenues during the fiscal years ended December 31, 1997, 1996, or 1995. The Company's products are used by end-users in a wide variety of industries for different applications:
INDUSTRY APPLICATION - ------------------------------------ ---------------------------------------------------- Aerospace........................... Engineering information tracking and analysis Automotive Products................. Multi-media-based information management Consulting Services................. Information and human resource management Consumer Products................... Sales tracking Central repository for corporate financial data Financial Services.................. Accounting solutions Payroll services Various commercial real estate applications Portfolio and credit tracking Decision support for insurance underwriters Tax preparation automation On-line remote banking Government.......................... Child welfare case management and others Industrial Products................. Sales administration and analysis Petroleum and Chemicals............. Chemical hazard assessment and evaluation Pharmaceuticals..................... Document creation and management Retail, Wholesale and Distribution...................... Enterprise security On-line help desk telecommunications maintenance Mission-critical pricing and production management Import/Export tracking via Smart Card technology Systems Integration Services........ Document-image processing Telecommunications.................. Call tracking for technical support Human resources management Transportation...................... Economic analysis Utilities........................... Decision-support for purchasing Marketing contact and customer support
MARKETING, DISTRIBUTION AND PRODUCT SUPPORT The Company's marketing and sales efforts are targeted to worldwide users and developers of PC client/server systems and applications. These users, ranging from individual PC application developers to MIS departments of large corporations, typically purchase client/server software through different channels and require different levels of support. 10 The Company generally segregates its customers, and accordingly its sales force, into two basic categories: EMBEDDED APPLICATIONS/LARGE SCALE DEPLOYMENT. Many customers purchase the Company's products as part of a larger scale application deployment activity, such as embedding a database in an application to be sold or otherwise marketed, or creating an enterprise specific system solution using one or more of the Company's products. As these applications can be complex and in some cases critical to the business of an enterprise, these customers typically require a greater degree of individual attention both from the Company's direct sales force and technical support organizations, or from technically sophisticated third parties, than do users who purchase the Company's products for a single use or one-time development activity. To address the requirements of these customers, the Company has established a field sales organization, which operates in the United States, Canada, Mexico, Brazil, France, Germany, Italy, Switzerland, Austria, the Netherlands, Belgium, the United Kingdom, Australia and Japan. See "Risk Factors--International Sales and Operations" and "--Recent Company Losses; Fluctuations in Quarterly Results". These customers include vertical software partners, hardware original equipment manufacturers ("OEMs"), systems integrators and ISVs with whom the Company generally has established marketing or licensing arrangements. Such partners include Automated Data Processing, Inc (payroll systems), Learmonth and Burchett Management Systems PLC (CASE tools), Artemis International (project management), PeopleSoft, Inc. (human resources), Project Software & Development, Inc. (facilities management), Aurum Software Inc. (sales management) and Spectrum Associates (manufacturing). In addition, the Company has an architecture which enables ISVs to use the Company's products to co-engineer enterprise-wide client/server applications or deliver add-on software. Hardware OEMs purchase the Company's products and bundle them with their personal computer hardware or applications software for resale to their customers. The Company currently has OEM relationships with NCR, IBM, Siemens-Nixdorf, Computer Associates International, Inc. ("CA") and other computer vendors. The Company has entered into cooperative arrangements with system integrators, such as Electronic Data Systems, that build large, custom turnkey solutions for their corporate customers using the Company's products. SINGLE USE OR ONE-TIME DEVELOPMENT. These customers generally utilize outside services to specify, design, build and deploy limited client/server systems within the enterprise. In addition, ISVs may utilize the Company's development tools in the early stages of application development. These customers include small, medium and large size businesses. The Company reaches these customers through its corporate telesales organization and through an indirect distribution channel, consisting of resellers, application developers, distributors, value-added resellers ("VARs") and consultants. The Company also distributes its products through major independent distributors that may in turn sell such products to smaller VARs, resellers and dealers. The Company presently has a distribution agreement with DistribuPro, for distribution of the Company's products in North America. The Company also has a network of international distributors, including Computer 2000 AG GmbH in Europe and Mitsubishi Corporation in Japan. Many of the Company's distributors carry competing product lines. The Company's distributors may from time to time be granted stock exchange or rotation rights. Such returns or exchanges are generally offset by an immediate replacement order of equal or greater value. Although the Company believes that, to date, it has provided adequate allowances for exchanges and returns, there can be no certainty that actual returns will not exceed the Company's allowances, particularly in connection with introduction of new products or enhancements. See "Risk Factors--Dependence Upon Distribution Channels" and "--International Sales and Operations." In a number of markets, including rapidly growing client/server markets such as Japan and Korea, the Company has entered into multi-year master distribution agreements with unrelated companies that have also licensed the use of the Company's name. These organizations are in place to increase the Company's opportunities and penetration in such markets where the rapid adoption of client/server technologies is 11 anticipated. While the Company believes that to date these agreements have increased the Company's penetration in these markets, there can be no certainty that this performance will continue or that these relationships will remain in place. The Company has the option to acquire 100% of the outstanding stock of one of its foreign distributors, using a purchase price formula based on net profits and revenues. See "Risk Factors--Dependence Upon Distribution Channels." The Company also sells its products through a worldwide network of VARs and consultants that specialize in developing customized solutions for smaller, departmental networks. These VARs bundle the Company's products and products of other software vendors into systems that are sold directly to end-users. The Company has certified over 1,000 VARs marketing to industries such as financial services, telecommunications, publishing, transportation and health care. See "Risk Factors--Dependence Upon Distribution Channels." MARKETING. To support its sales organizations, the Company conducts comprehensive marketing programs and cooperative selling arrangements with the Company's strategic partners. The Company's marketing programs include direct mail, public relations, advertising, seminars, trade shows and ongoing customer communication programs. The Company has entered into cooperative selling arrangements with strategic partners, including NCR, ICL Personal Systems and Siemens-Nixdorf that provide joint marketing or network solutions for incorporating their products with the Company's products. The Company also cooperates with suppliers of competitive client/server software, such as Oracle Corporation ("Oracle") and Sybase, Inc., ("Sybase"), when customers desire large-scale, joint solutions that include front-end tools from the Company or deployment of desktop or mobile database applications. The majority of the Company's revenues have been derived from the licensing of software products for PC client/server systems, and such products are expected to continue to account for substantially all of the Company's revenues for the foreseeable future. Accordingly, broad market acceptance of PC client/ server systems is critical to the Company's future success. Failure of the Company to successfully implement its sales and marketing strategies, or the loss of one or more resellers, distributors, vertical software partners or other marketing partners, could have a material adverse effect on the Company's business, operating results and financial condition. See "Risk Factors--Dependence Upon Distribution Channels" and "--Market Acceptance of PC Client/Server Systems". CUSTOMER SUPPORT AND SERVICE. The Company is committed to providing timely, high-quality technical support, which the Company believes is critical to maintaining customer satisfaction in the PC client/server market. Customer requirements for support and service vary depending on factors such as the number of different hardware and software vendors involved in an installation, the complexity of the application and the nature of the hardware configuration. The Company offers flexible multi-tiered technical support programs tailored to these specific customer needs. The Company offers a licensed maintenance service to all its customers to provide bug fixes and software enhancements. In addition, the Company provides technical support through a telephone hotline service. For the large enterprise-wide customer, the Company offers comprehensive premium support programs. The Company broadens its support coverage through its worldwide network of authorized support centers, certified business partners and authorized consultants. See "Risk Factors--Dependence on Third-Party Organizations". RESEARCH, PRODUCT DEVELOPMENT AND ENGINEERING Since inception, the Company has made substantial investments in research and product development. During 1997, 1996 and 1995, the Company's expenditures in research and development, net of capitalized software, were $9.7 million, $11.0 million and $14.4 million, representing 17%, 17% and 22% of net revenues, respectively. The Company's products have been developed by its internal product development staff and, in certain instances, by strategic use of outside consultants. The Company believes that timely development of new products and enhancements to existing products is essential to maintain its competitive position. 12 The Company is committed to continued development of new technologies for PC client/server computing. The Company supports major 32-bit operating systems, including Microsoft Windows 95, Microsoft Windows NT and Novell NetWare. In addition, the Company plans to continue to offer upgrades to its products. Delays or difficulties associated with new products or product enhancements could have a material adverse effect on the Company's business, operating results and financial condition. See "Risk Factors--New Product Risks; Rapid Technological Change" and "--Component Software Markets". COMPETITION The market for embedded databases and application development tools system software is intensely competitive and rapidly changing. The Company's products are specifically targeted at the emerging portion of this market relating to embeddable database PC and Web client/server software, and the Company's current and prospective competitors offer a variety of solutions to address this market segment. EMBEDDABLE DATABASE MARKET. As database capacity is often indicative of differences in customer application, segments within the PC client/server market in which the Company competes can generally be distinguished and segregated by the number of anticipated users and target capacity of the database utilized. The Company generally markets its database products in environments utilizing capacity ranging from small, five kilobyte Smart Card environments to those in excess of five Gigabytes. Competitors of the Company include Microsoft, Oracle, Computer Associates, IBM, Sybase, Pervasive, and Informix, and generally have product offerings which compete with the Company's products in some or all of these capacity ranges. In addition, some of these competitors are providers of sophisticated database software, originally designed and marketed primarily for use with mainframes and minicomputers, which, if successfully re-configured to provide similar functionality in PC client/server, or smaller capacity environments, could materially and adversely impact the Company's revenues, results of operations and financial condition. TOOLS AND CONNECTIVITY MARKETS. The Company faces competition from providers of application development software, such as Sybase's Powersoft Division, Microsoft, and Borland, and connectivity software competitors such as IBM. The Company also faces potential competition from vendors of applications development tools based on 4GLs (fourth-generation languages) or CASE (Computer Aided Software Engineers) technologies. With the emergence of the World Wide Web as an important platform for application development and deployment, additional competitors or potential competitors have emerged. Many of the Company's competitors have longer operating histories and significantly greater financial, technical, sales, marketing and other resources, as well as greater name recognition and a larger installed base, than the Company. In addition, many competitors have established relationships with customers of the Company. The Company's competitors could in the future introduce products with more features and lower prices than the Company's offerings. These companies could also bundle existing or new products with more established products to compete with the Company. Furthermore, as the PC and Web client/ server market expands, a number of companies, with significantly greater resources than the Company, could attempt to increase their presence in this market by acquiring or forming strategic alliances with competitors of the Company, or by introducing products specifically designed for the PC and Web client/ server market. The principal competitive factors affecting the market for the Company's products include breadth of distribution and name recognition, product architecture, performance, functionality, price, product quality, customer support, and the Company's financial viability. The Company experienced increased competition during 1997, 1996, and 1995, resulting in loss of market share. The Company must continue to introduce enhancements to its existing products and offer new products on a timely basis in order to remain competitive. However, even if the Company introduces such products in this manner, it may not be able to 13 compete effectively because of the significantly larger resources available to many of the Company's competitors. There can be no assurance that the Company will be able to compete successfully or that competition will not have a material adverse effect on the Company's business, operating results and financial condition. See "Risk Factors--Highly Competitive Markets" and "--Market Acceptance of PC Client/Server Systems". INTELLECTUAL PROPERTY The Company currently has one patent issued with respect to its SQLWINDOWS and CENTURA TEAM DEVELOPER products and relies on a combination of trademark, copyright and trade secret protection and nondisclosure agreements to establish and protect its proprietary rights. Policing unauthorized use of the Company's technology is expensive and difficult, and there can be no assurance that these measures will be successful. While the Company's competitive position may be affected by its ability to protect its proprietary information, the Company believes that ultimately factors such as the technical expertise and innovative skill of its personnel, its name recognition, and ongoing product support and enhancements may be more significant in maintaining the Company's competitive position. The Company provides its software products to customers under non-exclusive, non-transferable license agreements. As is customary in the software industry to protect intellectual property rights, the Company does not sell or transfer title to its software products to customers. Under the Company's current standard form of end user license agreement, licensed software may be used solely for the customer's internal operations and, except for limited deployment rights provided in certain of its SQLWINDOWS packages, only on designated computers at specified sites. The Company relies primarily on "shrink-wrap" licenses for the protection of products intended for single, one-time use or limited deployment. A shrink-wrap license agreement is a printed license agreement included within packaged software that sets forth the terms and conditions under which the purchaser can use the product, and binds the purchaser by its acceptance and purchase of the software products to such terms and conditions. Shrink-wrap licenses typically are not signed by the licensee and therefore may be unenforceable under the laws of certain jurisdictions. The Company has entered into source code escrow agreements with a number of resellers and end users that require release of source code to such parties with a limited, nonexclusive right to use such code in the event that there is a bankruptcy proceeding by or against the Company, the Company ceases to do business or the Company breaches its contractual obligations to the customer. The Company has, in certain cases, licensed its source code to customers for specific uses. There can be no assurance that third parties will not assert infringement claims against the Company in the future with respect to current or future products or that any such assertion may not result in costly litigation or require the Company to obtain a license to intellectual property rights of third parties. There can be no assurance that such licenses will be available on reasonable terms, or at all. As the number of software products in the industry increases and the functionality of these products further overlap, the Company believes that software developers may become increasingly subject to infringement claims. Any such claims, with or without merit, can be time consuming and expensive to defend. EMPLOYEES As of December 31, 1997, the Company had 180 full-time employees, including 31 in research and development, 6 in manufacturing, 94 in sales and marketing, 16 in technical services and support and 33 in finance and administration. The Company maintains competitive compensation, benefits, equity participation and work environment policies to assist in attracting and retaining qualified personnel. None of the Company's employees are covered by collective bargaining agreements. The Company believes its relationship with its employees is good. The Company believes that the success of its business will depend in large 14 part on its ability to attract and retain qualified personnel. Competition for such personnel is intense, and there can be no assurance that the Company will be successful in attracting and retaining such personnel. RISK FACTORS This Annual Report on Form 10-K contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Actual results could differ materially from those projected in the forward-looking statements as a result of certain of the risk factors set forth below and elsewhere in this Annual Report on Form 10-K. In evaluating the Company's business, prospective investors should carefully consider the following factors in addition to the other information presented in this report. CHANGES IN STRATEGIC DIRECTION: RESTRUCTURING. In efforts to stem losses and maximize return on the Company's core assets and technologies, the Company has restructured its operations and announced changes in strategic direction several times in recent financial periods. The first of these changes, which began in December 1995, encompassed a change in the Company's name from Gupta Corporation to Centura Software Corporation and the identification of a flagship product bearing the name CENTURA. In early 1997, the Company refocused its marketing and sales efforts away from RDBMS and development tools products to a middleware connectivity product and the related Merger Agreement with Infospinner for which the Company did not obtain required shareholder approval within the specified time frame and, as such, was not consummated. In the second half of 1997, however, the Company restructured and refocused operations on its core competencies, products and technologies and terminated its distribution arrangement with Infospinner. There can be no assurance that the restructuring efforts the Company has engaged in to date will be successful or that the Company will be able to sustain profitability on a quarterly or annual basis. In addition, there can be no assurance that the Company's management will not deem it appropriate to undertake other major restructuring efforts or changes in strategic direction in the future or to what degree any of these efforts will result in improved operational performance, if at all. RECENT CHANGES IN SENIOR MANAGEMENT. In the fourth quarter of 1997, the Company announced significant changes in senior management. Such changes included the appointment of Scott R. Broomfield as Chief Executive Officer, John W. Bowman as Chief Financial Officer, and Kathy Lane as Senior Vice President of Marketing, and the election of Messrs. Jack King, Phillip Koen, Jr., and Earl Stahl to the Company's Board of Directors, and the retirement of Samuel M. Inman, III, Earl Stahl and Richard Gelhaus from their positions as officers of the Company. In February 1998 the Company announced the election of Messrs. William D. Nicholas and Peter Micciche to the Board of Directors and the appointment of Scott R. Broomfield to the position of Chairman & CEO. There can be no assurance that the new management team will be successful in execution of its objectives or that the successful execution of these objectives will result in improved operating results or financial position of the Company. DEPENDENCE ON KEY PERSONNEL. The Company's future performance is substantially dependent on the performance of its executive officers and key product development, technical, sales, marketing and management personnel. The Company does not have employment or non-competition agreements with any of its employees. The loss of the services of any executive officer or other key technical or management personnel of the Company for any reason could have a material adverse effect on the business, operating results and financial condition of the Company. In addition, the Company needs to recruit a Vice President, Engineering/Chief Technology Officer. The Company considers this position critical to the success of its ongoing competitive position in defined markets and operations. There can be no assurance that an appropriate individual will be located to fill this position on a timely basis on terms reasonable to the Company, or at all. The future success of the Company also depends on its continuing ability to identify, hire, train, motivate and retain other highly qualified technical and managerial personnel. Competition for such personnel is intense and the Company has experienced difficulty in identifying and hiring qualified 15 engineering and software development personnel. There can be no assurance that the Company will be able to attract, assimilate or retain other highly qualified technical and managerial personnel in the future. The inability to attract and retain the necessary technical and managerial personnel could have a material and adverse effect upon its business, operating results and financial condition. See "Business--Employees" and "--Executive Officers of Registrant". RECENT COMPANY LOSSES; FLUCTUATIONS IN QUARTERLY RESULTS. The Company has experienced in the past and may in the future to continue to experience significant fluctuations in quarterly operating results. The Company reported a loss of $0.6 million for fiscal year 1997, a profit of $2.0 million for 1996, and a loss of $44.1 million for 1995. There can be no assurance that the restructuring efforts the Company has engaged in to date will be successful or that the Company will be able to sustain profitability on a quarterly or annual basis. Many of the Company's product licensing arrangements are subject to revenue recognition on a per-unit deployed basis as the Company's deferred obligation to such customers is gradually extinguished. Revenue recognition in such cases is therefore dependent upon the business activities of the Company's customers and the timely and accurate reporting of such activities to the Company, which makes predictability of the related revenue extremely uncertain. In addition, quarterly operating results of the Company will depend on a number of other factors that are difficult to forecast, including, general market demand for the Company's products; the size and timing of individual orders during a quarter; the Company's ability to fulfill such orders; introduction, localization or enhancement of products by the Company; delays in the introduction and/or enhancement of products by the Company and its competitors; market acceptance of new products; reviews in the industry press concerning the products of the Company or its competitors; software "bugs" or other product quality problems; competition and pricing in the software industry; sales mix among distribution channels; customer order deferrals in anticipation of new products; reduction in demand for existing products and shortening of product life cycles as a result of new product introductions; changes in operating expenses; changes in the Company's strategy; personnel changes; foreign currency exchange rates; mix of products sold; inventory obsolescence; product returns and rotations; and general economic conditions. Sales of the Company's products also may be negatively affected by delays in the introduction or availability of new hardware and software products from third parties. The Company's financial results also may vary as a result of seasonal factors including year and quarter end purchasing and the timing of marketing activities, such as industry conventions and tradeshows. Although the Company has operated historically with little or no backlog of traditional boxed product shipments, it has experienced a seasonal pattern of product revenue decline between the fourth quarter and the succeeding first quarter, contributing to lower worldwide product revenues and operating results during such quarters. It has generally realized lower European product revenues in the third quarter as compared to the rest of the year. The Company has also experienced a pattern of recording a substantial portion of its revenues in the third month of a quarter. As a result, product revenues in any quarter are dependent on orders booked in the last month. Because the Company's staffing and other operating expenses are based in part on anticipated net revenues, a substantial portion of which may not be generated until the end of each quarter, delays in the receipt or shipment of orders, including delays that may be occasioned by failures of third party product fulfillment firms to produce and ship products, or the actual loss of product orders can cause significant variations in operating results from quarter to quarter. The Company may be unable to adjust spending in a timely manner to compensate for any unexpected revenue shortfall. Accordingly, any significant shortfall in sales of the Company's products in relation to the Company's expectations could have an immediate adverse impact on the Company's business, operating results and financial condition. To the extent that the Company's expenses exceed expected revenues in any fiscal period, its business, operating results and financial condition could be materially and adversely affected. Due to the foregoing factors, it is likely that the Company's operating results may, during any fiscal period, fall below the expectations of securities analysts and investors. In such event, the trading price of the Company's common stock could be materially and adversely affected. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations". 16 VOLATILITY OF THE COMPANY'S COMMON STOCK PRICE. The market for the Company's common stock is highly volatile. The trading price of the Company's common stock fluctuated significantly in 1997, 1996 and 1995, and may continue to be subject to wide fluctuations in response to quarterly variations in operating and financial results, announcements of new products or customer contracts by the Company or its competitors, litigation and other factors. Any shortfall in revenue or earnings from levels expected by securities analysts or others could have an immediate and significant adverse effect on the trading price of the Company's common stock in any given period. Additionally, the Company may not learn of, or be able to confirm, revenue or earnings shortfalls until late in the fiscal quarter or following the end of the quarter, which could result in an even more immediate and adverse effect on the trading of the Company's common stock. Finally, the Company participates in a highly dynamic industry, which often results in significant volatility of its common stock price. DILUTIVE AND POTENTIAL DILUTIVE EFFECT TO SHAREHOLDERS. The Company has engaged in a number of transactions which have resulted in dilution to the Company's shareholders. On May 2, 1994, a lawsuit was filed against the Company and certain of its officers and directors by a holder of the Company's common stock, on his own behalf and purportedly on behalf of a class of others similarly situated (the "Class Action Lawsuit"). The Company reached a binding settlement agreement (the "Settlement Agreement") with plaintiffs' counsel in the lawsuit, and gained court approval of the Settlement Agreement on September 30, 1996. As part of the settlement, the Company agreed to provide up to a maximum of 2,500,000 shares of its common stock (the "Settlement Shares") to a fund to be distributed among the members of the plaintiff class. As of December 31, 1997, 2,500,000 Settlement Shares have been issued and distributed in full settlement of the Class Action Lawsuit. Issuance of the Settlement Shares was exempt from the registration requirements of Section 5 of the Securities Act of 1933, as amended (the "Securities Act"), pursuant to Section 3(a)(10) of the Securities Act, which provides for exemption of registration under the Securities Act for securities issued pursuant to terms and conditions which have been approved, after a hearing on the fairness of such terms and conditions, by a United States court. As a result, the Settlement Shares, when issued and delivered in accordance with the Settlement Agreement approved by the United States District Court for the Northern District of California, were fully tradeable, fully paid and non-assessable. See Note 6 of Notes to Consolidated Financial Statements. In February 1998, Computer Associates, Inc. ("CA"), and Newport Acquisition Company, LLP ("NAC") entered into a Note Purchase and Sale Agreement (to which the Company consented) and the Company and NAC entered into a Note Conversion Agreement (the "Agreements"). Under the terms of the Agreements, a promissory note, plus accrued interest, in the amount of $12,251,000, payable to CA (the "CA Note") was acquired by NAC, and immediately converted into 11,415,094 shares of the Company's common stock (the "Shares"). Concurrently with execution of the Agreements, the Company and NAC entered into an Investor Rights Agreement (the "Rights Agreement") wherein the Company has agreed to register the Shares under the Securities Act, effective February 27, 1999. Also in February 1998, pursuant to the terms a Common of Stock and Warrant Purchase Agreement, the Company completed a management-led private placement of 2,330,191 shares of the Company's common stock (the "Private Placement"), resulting in gross proceeds to the Company of $2,470,000. Transaction costs associated with both the Agreements and the Private Placement are estimated to be approximately $600,000. The Company has agreed to register the Private Placement shares under the Securities Act. In June 1997, the Company issued warrants to purchase 90,000 and 10,000 shares of common stock to Pacific Business Funding Corporation and its affiliate Sand Hill Capital, LLC, respectively, at an exercise price of $2.094 per share. The warrants expire on June 30, 2002. In February 1998, in connection with the Agreements, the Company entered into a Warrant Purchase Agreement with CA wherein the Company issued and sold to CA, a warrant to purchase 500,000 shares of the Company's common stock (the "CA Warrant"). The CA Warrant is exercisable at $1.906 per share and expires on February 27, 2003. The Company has agreed to register the shares issuable upon exercise of the CA Warrant under the Securities 17 Act, no later than April 29, 1998. Also in February 1998, in connection with the Private Placement the Company issued warrants to purchase 582,548 shares of the Company's common stock at an exercise price of $1.25 per share (the "Private Placement Warrants"). The Private Placement Warrants expire on February 27, 2003. Also, in consideration of services rendered in connection with the Private Placement, the Company issued to Rochon Capital Group, Ltd. warrants to purchase 354,717 shaes of the Company's common stock at an exercise price of $2.12 (the "Rochon Warrants"). The Rochon Warrants expire on February 27, 2003. The Company has agreed to register the shares issuable under the terms of the Private Placement Warrants and the Rochon Warrants under the Securities Act. In March 1998 the Company issued to NAC an additional warrant to purchase 893,320 shares of the Company's Common Stock at an exercise price of $1.81 per share (the "NAC Warrant"), pursuant to a Right of First Refusal provision contained in the Rights Agreement. The NAC Warrant is subject to three-year vesting. From time to time, the Company issues shares of common stock pursuant to its 1992 Employee Stock Purchase Plan and pursuant to options granted under its 1995 Incentive Stock Option Plan, 1998 Employee Stock Option Plan and 1996 Directors' Stock Option Plan. Additional options remain outstanding and are exercisable pursuant to the Company's 1986 Incentive Stock Option Plan, which terminated in July 1996. In addition, the Company has issued non-plan options to purchase an aggregate of 1,500,000 shares of common stock to the Company's Chief Executive Officer, Chief Financial Officer and Sr. Vice President of Marketing. In March 1998, the Company's Board of Directors approved the 1998 Employee Stock Option Plan, under which options to purchase 1,415,000 shares of common stock are issuable to non-officer employees. Future issuance of such shares of the Company's common stock pursuant to any of the foregoing will dilute the beneficial ownership of existing Company shareholders. NEED FOR ADDITIONAL EQUITY FINANCING. The Company may be required to seek additional equity financing to finance the acquisition of new products and technologies, capital equipment and continuing operations. If the Company needs further financing, there can be no assurance that it will be available on reasonable terms or at all. Any additional equity financing will result in dilution to the Company's shareholders. NEW PRODUCT RISKS; RAPID TECHNOLOGICAL CHANGE. The markets for the Company's software products and services are characterized by rapid technological developments, evolving industry standards, swift changes in customer requirements and computer operating environments, and frequent new product introductions and enhancements. As a result, the success of the Company depends substantially upon its ability to continue to enhance existing products, develop and introduce in a timely manner, new products incorporating technological advances and meet increasing customer expectations, all on a timely and cost-effective basis. To the extent one or more competitors introduce products that better address customer needs, the Company's businesses could be adversely affected. The Company's success will also depend on the ability of its primary products, SQLBASE, CENTURA TEAM DEVELOPER, SQLWINDOWS, CENTURA NET.DB, and SQLHOST, to perform well with existing and future leading, industry-standard application software products intended to be used in connection with RDBMS. Any failure to deliver these products as scheduled or their failure to achieve early market acceptance as a result of competition, technological change, failure of the Company to timely release new versions or upgrades, failure of such upgrades to achieve market acceptance or otherwise, could have a material adverse effect on the business, operating results and financial condition of the Company. In addition, commercial acceptance of the Company's products and services could be adversely affected by critical or negative statements or reports by industry and financial analysts concerning the Company and its products, or other factors such as the Company's financial performance. If the Company is unable to develop and introduce new products or enhancements to existing products in a timely manner in response to changing market conditions or customer requirements, its business, operating results and financial condition could be materially and adversely affected. 18 The Company depends substantially upon internal efforts for the development of new products and product enhancements. The Company has in the past experienced delays in the development of new products and product versions, which resulted in loss or delays of product revenues, and there can be no assurance that the Company will not experience further delays in connection with its current product development or future development activities. Also, software products as complex as those offered by the Company may contain undetected errors when first introduced or as new versions are released. The Company has in the past discovered software errors in certain of its new products and enhancements, respectively, after their introduction. Although the Company has not experienced material adverse effects resulting from any such errors to date, there can be no assurance that errors will not be found in new products or releases after commencement of commercial shipments, resulting in adverse product reviews and a loss of or delay in market acceptance, which could have a material adverse effect upon the Company's business, operating results and financial condition. From time to time, the Company or its competitors may announce new products, product versions, capabilities or technologies that have the potential to replace or shorten the life cycles of the Company's existing products. The Company has historically experienced increased returns of a particular product version following the announcement of a planned release of a new version of that product. The Company provides allowances for anticipated returns, and believes its existing policies result in the establishment of allowances that are adequate, and have been adequate in the past, but there can be no assurance that product returns will not exceed such allowances in the future. The announcement of currently planned or other new products may cause customers to delay their purchasing decisions in anticipation of such products, which could have a material adverse effect on business, operating results and financial condition of the Company. See "Business--Research and Product Development" and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations". YEAR 2000 ISSUE. The "Year 2000 Issue" arises because most computer systems and programs were designed to handle only a two-digit year, as opposed to a four digit year. When the year 2000 begins these computers may interpret "00" as the year 1900 and could either stop processing date-related computations or could process them incorrectly. As customers and potential customers of the Company begin to devote incremental resources to this issue, resources previously allocated to other information systems requirements may be redirected to address the Year 2000 issue. To the extent that the Company's products are not selected as part of customers' overall Year 2000 solution, redirection of these customer resources could have a material adverse effect on the Company's results of operations and financial condition. In addition, the Year 2000 Issue creates risk for the Company from unforeseen problems in its internal computer systems and from third parties with which the Company interacts. Such failures of the Company's and/or third parties' computer systems could have a material impact on the Company's ability to conduct its business, and to process and account for the transfer of funds electronically. EMBEDDABLE DATABASE MARKET. Since database capacity is often indicative of differences in customer application, segments within the PC client/server market in which the Company competes can generally be distinguished and segregated by the target capacity of the database utilized. The Company generally markets its database products in environments utilizing capacity ranging from small, five kilobyte Smart Card environments to those in excess of five Gigabytes. Competitors of the Company, including Microsoft, Oracle, CA, IBM, Sybase, Borland, Pervasive, and Informix, generally have product offerings which compete with the Company's products in some or all of these capacity ranges. In addition, some of these competitors are providers of sophisticated database software, originally designed and marketed primarily for use with mainframes and minicomputers, which, if successfully re-configured to provide similar functionality in Windows or Browser clients, or smaller capacity environments, could materially and adversely impact the Company's revenues, results of operations and financial condition. COMPETITION. The market for embedded databases and application development tools system software is intensely competitive and rapidly changing. The Company's products are specifically targeted at 19 the emerging portion of this market relating to embeddable PC and Web client/server software, and the Company's current and prospective competitors offer a variety of solutions to address this market segment. The Company faces competition from providers of application development software, such as Oracle, Sybase's Powersoft Division, Microsoft, and Borland, and connectivity software competitors such as IBM. The Company also faces potential competition from vendors of applications development tools based on 4GLs (generation languages) or CASE (Computer Aided Software Engineers) technologies. With the emergence of the World Wide Web as an important platform for application development and deployment and a variety of newly created Java based development tools, additional competitors or potential competitors have emerged. Many of the Company's competitors have longer operating histories and significantly greater financial, technical, sales, marketing and other resources, as well as greater name recognition and a larger installed base, than the Company. In addition, many competitors have established relationships with customers of the Company. The Company's competitors could in the future introduce products with more features and lower prices than the Company's offerings. These companies could also bundle existing or new products with more established products to compete with the Company. Furthermore, as the PC and Web client/ server market expands, a number of companies, with significantly greater resources than the Company, could attempt to increase their presence in this market by acquiring or forming strategic alliances with competitors of the Company, or by introducing products specifically designed for the PC and Web client/ server market. The principal competitive factors affecting the market for the Company's products include breadth of distribution and name recognition, product architecture, performance, functionality, price, product quality, customer support. The Company experienced increased competition during 1997, 1996, and 1995, resulting in loss of market share. The Company must continue to introduce enhancements to its existing products and offer new products on a timely basis in order to remain competitive. However, even if the Company introduces such products in this manner, it may not be able to compete effectively because of the significantly larger resources available to many of the Company's competitors. There can be no assurance that the Company will be able to compete successfully or that competition will not have a material adverse effect on the Company's business, operating results and financial condition. See "Business--Competition". MARKET ACCEPTANCE OF PC CLIENT/SERVER SYSTEMS. To date, substantially all of the Company's revenues have been derived from the licensing of software products for PC client/server systems and licensing of such products is expected to continue to account for substantially all of the Company's revenues for the foreseeable future. With the increasing focus on enterprise-wide systems that embrace the World Wide Web, some customers may opt for solutions that favor mainframe or mini-computer solutions with associated Web connectivity. Accordingly, some companies may abandon use of PC client/server systems, which could have a material adverse effect on the Company's future success. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations". COMPONENT SOFTWARE MARKETS. The advent of so-called "component" software may alter the way in which customers buy software. In this structure, logical statements or discreet "units of activity" can be distributed pursuant to executable statements within a Windows or Browser client environment. As specific software functionality can be bundled into smaller units or objects rather than in broad, highly functional products such as the Company's development tools, customers may be less willing to buy such broad, highly functional products. If such a trend continues, the Company may choose to introduce component-type products. The costs and efforts necessary to package and distribute such components are largely unknown and there can be no assurance that the Company will be able to repackage and distribute its products in such a component-type software structure, in an efficient manner, or at all. INTERNET SOFTWARE MARKET. The market for Internet software in general, and the segments of such market addressed by the Company's products in particular, are relatively new. The future financial performance of the Company will depend in part on the continued expansion of this market and these 20 market segments and the growth in the demand for other products developed by the Company, as well as increased acceptance of the Company's products by MIS professionals. There can be no assurance that the Internet software market and the relevant segments of the market will continue to grow, that the Company will be able to respond effectively to the evolving requirements of the market and market segments, or that MIS professionals will accept the Company's products. If the Company is not successful in developing, marketing, localizing and selling applications that gain commercial acceptance in these markets and market segments on a timely basis, the Company's business, operating results and financial condition could be materially and adversely affected. See "Business--Overview". DEPENDENCE UPON DISTRIBUTION CHANNELS. The Company relies on relationships with value-added resellers and independent third party distributors for a substantial portion of its sales and revenues. Some of the Company's resellers and distributors also offer competing products. Most of the Company's resellers and distributors are not subject to any minimum purchase requirements, they can cease marketing the Company's products at any time, and they may from time to time be granted stock exchange or rotation rights. Moreover, the introduction of new and enhanced products may result in higher product returns and exchanges from distributors and resellers. Any product returns or exchanges in excess of recorded allowances could have a material adverse effect on the Company's business, operating results and financial condition. The Company also maintains strategic relationships with a number of vertical software vendors and other technology companies for marketing or resale of the Company's products. Any termination or significant disruption of the Company's relationship with any of its resellers or distributors, or the failure by such parties to renew agreements with the Company, could materially and adversely affect the Company's business, operating results and financial condition. Since 1994 the Company has reduced its resources devoted to North American corporate sales and also decreased its expenditures on corporate and product marketing. Failure of the Company to successfully implement, support and manage its sales strategies could have a material adverse effect on the Company. The distribution channels through which client/server software products are sold have been characterized by rapid change, including consolidations and financial difficulties of distributors, resellers and other marketing partners including certain of the Company's current distributors. The bankruptcy, deterioration in financial condition or other business difficulties of a distributor or retailer could render the Company's accounts receivable from such entity uncollectible, and this could result in a material adverse effect on the Company's business, operating results and financial condition. There can be no assurance that distributors will continue to purchase the Company's products or provide the Company's products with adequate promotional support. Failure of distributors to do so could have a material and adverse effect on the Company's business, operating results and financial condition. In a number of international markets the Company has entered into quasi-exclusive, multi-year agreements with independent companies that have also licensed the use of the Company's name. These agreements are in place to increase the Company's opportunities and penetration in such markets where the rapid adoption of client/server technologies is anticipated. While the Company believes that to date these agreements have increased the Company's penetration in such markets, there can be no certainty that this performance will continue nor that these relationships will remain in place. The Company's future cost of maintaining its business in these markets could increase substantially if these agreements are not renewed. See "Business--Marketing, Distribution and Product Support". DEPENDENCE ON THIRD-PARTY ORGANIZATIONS. The Company is increasingly dependent on the efforts of third party "partners", including consultants, system houses and software developers to implement, service and support the Company's products. These third parties increasingly have opportunities to select from a very broad range of products from the Company's competitors, many of whom have greater resources and market acceptance than the Company. In order to succeed, the Company must actively recruit and sustain relationships with these third parties. There can be no assurance that the Company will be successful in recruiting new partners or in sustaining its relationships with its existing partners. 21 INTERNATIONAL SALES AND OPERATIONS. International sales represented 58%, 60% and 61% of the Company's net revenues for the years ended December 31, 1997, 1996 and 1995, respectively. A key component of the Company's strategy is continued expansion into international markets, and the Company currently anticipates that international sales, particularly in new and emerging markets, will continue to account for a significant percentage of total revenues. The Company will need to retain effective distributors, and hire, retain and motivate qualified personnel internationally to maintain and/or expand its international presence. There can be no assurance that the Company will be able to successfully market, sell, localize and deliver its products in these international markets. In addition to the uncertainty as to the Company's ability to sustain or expand its international presence, there are certain risks inherent in doing business on an international level, such as unexpected changes in regulatory requirements and government controls, problems and delays in collecting accounts receivable, tariffs, export license requirements and other trade barriers, difficulties in staffing and managing foreign operations, longer payment cycles, political and economic instability, fluctuations in currency exchange rates, seasonal reductions in business activity during summer months in Europe and certain other parts of the world, restrictions on the export of critical technology, and potentially adverse tax consequences, which could adversely impact the success of international operations. Sales of the Company's products are denominated both in local currencies of the respective geographic region and in US dollars, depending upon the economic stability of that region and locally accepted business practices. Accordingly, any increase in the value of the US dollar relative to local currencies in these markets may negatively impact revenues, results of operations and financial condition. An increase in the relative value of the US dollar would serve to increase the relative foreign currency cost to the customer of a US dollar denominated purchase, which may negatively affect the Company's sales in foreign markets. In addition, the US dollar value of a sale denominated in a region's local currency decreases in proportion to relative increases in the value of the US dollar. In addition, effective copyright and trade secret protection may be limited or unavailable under the laws of certain foreign jurisdictions. There can be no assurance that one or more of such factors will not have a material adverse effect on the Company's international operations and, consequently, on the Company's business, operating results and financial condition. See "Business--Marketing, Distribution and Product Support--Customer Support and Service". PROPRIETARY RIGHTS. The success and ability of the Company to compete is dependent in part upon the Company's proprietary technology. While the Company relies on trademark, trade secret and copyright laws to protect its technology, the Company believes that factors such as the technological and creative skills of its personnel, new product developments, frequent product enhancements, name recognition and customer support are more essential to establishing and maintaining a technology leadership position. The Company has one patent with respect to its SQLWINDOWS and CENTURA TEAM DEVELOPER products. The Company believes that the ownership of patents is not presently a significant factor in its business and that its success does not depend on the ownership of patents, but primarily on the innovative skills, technical competence and marketing abilities of its personnel. Also, there can be no assurance that others will not develop technologies that are similar or superior to the Company's technology. The source code for the Company's proprietary software is protected both as a trade secret and as a copyrighted work. Despite these precautions, it may be possible for a third party to copy or otherwise obtain and use their products or technology without authorization, or to develop similar technology independently. In addition, effective copyright and trade secret protection may be unavailable or limited in certain foreign countries. The Company generally enters into confidentiality or license agreements with its employees, consultants and vendors, and generally controls access to and distribution of its software, documentation and other proprietary information. Despite efforts to protect proprietary rights, unauthorized parties may attempt to copy aspects of the Company's products or to obtain and use information that is regarded as proprietary. Policing such unauthorized use is difficult. There can be no assurance that the steps taken by the Company will prevent misappropriation of the Company's technology or that such agreements will be enforceable. In addition, litigation may be necessary in the future to enforce intellectual property rights, to protect trade secrets or to determine the validity and scope of the proprietary rights of others. Such 22 litigation could result in substantial costs and diversion of resources and could have a material adverse effect on the Company's business, operating results and financial condition. There can be no assurance that third parties will not claim infringement by the Company with respect to current or future products, and the Company expects that it will increasingly be subject to such claims as the number of products and competitors in the client/server and Internet connectivity software market grows and the functionality of such products overlaps with other industry segments. In the past, the Company has received notices alleging that its products infringe trademarks of third parties. The Company has historically dealt with and will in the future continue to deal with such claims in the ordinary course of business, evaluating the merits of each claim on an individual basis. There are currently no material pending legal proceedings against the Company regarding trademark infringement. Any such third party claims, whether or not they are meritorious, could result in costly litigation or require the Company to enter into royalty or licensing agreements. Such royalty or license agreements, if required, may not be available on terms acceptable to the Company, or at all. If the Company was found to have infringed upon the proprietary rights of third parties, it could be required to pay damages, cease sales of the infringing products and redesign or discontinue such products, any of which could have a material adverse effect on the Company's business, operating results and financial condition. See "Business--Intellectual Property". MANAGEMENT OF POTENTIAL GROWTH. In recent years, the Company has experienced both expansion and contraction of its operations each of which has placed significant demands on the Company's administrative, operational and financial resources. To manage future growth, if any, the Company must continue to improve its financial and management controls, reporting systems and procedures on a timely basis and expand, train and manage its work force. There can be no assurance that the Company will be able to perform such actions successfully. The Company intends to continue to invest in improving its financial systems and controls in connection with higher levels of operations. Although the Company believes that its systems and controls are adequate for the current level of operations, the Company anticipates that it may need to add additional personnel and expand and upgrade its financial systems to manage any future growth. The Company's failure to do so could have a material adverse effect upon the Company's business, operating results and financial condition. LEGAL PROCEEDINGS. On September 17, 1997, Technology Venture (Software) Holdings Limited, formerly known as Eagerquest Investments Limited ("Eagerquest") filed suit against the Company in the United States District Court for the Central District of California alleging that the Company acted improperly in terminating its contract with Eagerquest for the distribution of the Company's products in the territories of Hong Kong and China and that the Company's actions illegally damaged Eagerquest. The Company believes that its actions were within its rights under its contract with Eagerquest and that the allegations are without merit. The Company intends to defend itself vigorously in this action and that the outcome will not have a material adverse affect on the Company's financial situation or business prospects. Other than the above, there are currently no material pending legal proceedings against the Company or any of its subsidiaries. The Company operates in an environment, however, where litigation may occur in the course of its normal business operations. In the complex and volatile industry in which the Company operates, disputes, litigation, regulatory proceedings and other actions are a necessary risk of doing business. There can be no assurance that the Company will not participate in such legal proceedings and that the costs and charges will not have a material adverse impact on the Company's future success. 23 DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT The following table sets forth information as of February 28, 1998, regarding the directors and executive officers of the Company:
NAME AGE POSITION - ------------------------------------ --- --------------------------------------------------------------------- Scott R. Broomfield................. 41 President and Chief Executive Officer (Principal Executive Officer), Chairman of the Board of Directors John W. Bowman...................... 43 Senior Vice President, Finance and Operations and Chief Financial Officer (Principal Financial Officer) Michael Moore....................... 60 Senior Vice President, World Wide Sales Kathy Lane.......................... 55 Senior Vice President, Marketing Ann Bontatibus...................... 53 Vice President, Technical Services and Support Lionel Carrasco..................... 35 Vice President, Business Development John Griffin........................ 50 Vice President, European Operations Richard Lucien...................... 40 Vice President, Corporate Controller (Principal Accounting Officer) Samuel M. Inman, III(1)............. 47 Director Jack King(2)........................ 64 Director Phillip Koen, Jr.(2)(1)............. 46 Director Peter Micciche(2)................... 44 Director William D. Nicholas(1).............. 49 Director Earl M. Stahl....................... 43 Director
- ------------------------ (1) Member of the Audit Committee of the Board of Directors. (2) Member of the Compensation Committee of the Board of Directors. Mr. Broomfield has served as Chief Executive Officer and a director of the Company since December 1997 and Chairman of the Board of Directors and Chief Executive Officer since February 1998. Prior to joining the Company, Mr. Broomfield was a principal with the firm of Hickey & Hill Incorporated ("Hickey & Hill") from February 1993 to December 1997, advising companies needing operational and financial restructuring. In this capacity, Mr. Broomfield assisted companies with executive management, strategy, operational and financial restructuring, business planning and business development. Prior to joining Hicky & Hill, Mr. Broomfield held senior management positions at Trilogy Systems, Inc., and Digital Equipment Corporation. Mr. Broomfield has a BS in psychology from Azusa Pacific University and an MBA, from Santa Clara University. Mr. Bowman has served as Chief Financial Officer of the Company since December 1997. Prior to joining the Company Mr. Bowman also served as a principal with the firm of Hickey & Hill from July 1997 to December 1997 where he assisted companies with executive management, strategy, operational and financial restructuring, business planning and business development. Prior to joining Hicky & Hill, Mr. Bowman was President of Country Club Foods, Inc. from November 1995 through June 1997 and from February 1992 through November 1995 served as Vice President of Finance for Speckels Sugar Co., Inc. Prior to this, from 1978 through 1992, Mr. Bowman held various senior financial management positions at Unisys Corporation. Mr. Bowman holds a BS in Business Management from San Diego State University and an MBA in Finance from the University of California, Berkeley. Mr. Moore joined the Company in January 1997 and served as Sr. Vice President of Sales for the Intercontinental Region from January 1997 through October 1997 and Senior Vice President, Worldwide 24 Sales since that time. Prior to joining the Company, Mr. Moore served in several senior sales management positions at Tandem Computer Corporation, including VP, Western US Operations, VP, Intercontinental Division, and VP, Worldwide Sales Operations, from 1981 until 1995. Prior to joining Tandem, Mr. Moore held sales management positions for both Honeywell Information Systems and Durango Systems. Mr. Moore holds a BA degree in Political Science from Long Beach State University, CA. Ms. Lane has served as Senior Vice President of Marketing since joining the Company in December 1997. Prior to this, Ms. Lane served as Vice President, Marketing for Harman Interactive from June 1994 until May 1997 when the company was sold to Intel. Prior to that, from September 1993 through June 1994, Ms. Lane founded and served at NewMedia Ware. From June 1991 through June 1993 Ms. Lane served as President, Professional Division at Chipsoft, (which was later acquired by Intuit, a leading provider of accounting and tax software for the desk-top). Prior to this, Ms. Lane served as CEO of Softview from September 1988 through June 1991 and in executive and senior marketing roles at several software and related companies, including Dataquest, a market research firm, and was elected to and chaired the Marketing Special Interest Group for the Software Publishers Association for four years. Ms. Lane received a B.S. in Business Administration from Fort Hays State College in Kansas. Ms. Bontatibus began her tenure at Centura Software Corporation in January, 1994 as Director of Professional Services and was promoted to the position of Vice President, Worldwide Services and Support in March 1997. Prior to joining Centura, from 1987 until January 1994, Ms. Bontatibus held the position of Director, Field Services at Ingres Corporation, a software company that developed and marketed the Ingres database and 4GL development tools. Prior to this Ms. Bontatibus held senior project management and consultant positions at Amdahl, Chevron and IBM. Ms. Bontatibus holds a B.S. degree in Accounting from New York University. Mr. Carrasco has served as Vice President, Business Development since November 1997. Mr. Carrasco joined the Company in June 1996 and served in various Senior Product Management positions from June 1996 until November 1997. Prior to joining the Company, from September 1995 until June 1996, Mr. Carrasco served as Chief Executive Officer and Chief Technical Officer of Ingenieria de Soluciones in Mexico City, a company that builds custom sized software applications and development tools. Prior to this, Mr. Carrasco was Chief Executive Officer and Chief Technical Officer of ISSA, a distribution partner of the Company in Mexico and was co-founder of Centura de Mexico, the Company's wholly owned subsidiary in Mexico. Mr. Carrasco brings several years of professional experience including working as an international consultant for the United Nations, and in various countries as an evangelist for new technologies. Mr. Carrasco's most important enterprise to date is ISOL, which is internationally recognized by Microsoft as one of the most valuable and technically capable software houses in Latin America. Currently, Mr. Carrasco is a member of the Board of Directors of two software houses in Mexico. Mr. Carrasco obtained his bachelors degree in History from the National School of Anthropology and History in Mexico in 1985 and his masters degree in Computer Science from the Arthuro Rosembluet Foundation in 1987. Mr. Griffin has served as Vice President and Managing Director for Europe at Centura Software Corporation since January 1, 1998. Mr. Griffin joined the Company in January 1997 and served as Managing Director, Northern Europe Region through December 1997. Prior to joining the Company, Mr. Griffin was Managing Director at BMC Software Limited from 1985 until 1995. He held various management positions at IBM UK Limited from 1970 to 1985. Mr. Griffin holds a Bachelor of Arts in Economics and Law from Keele University. Mr. Lucien has served as Vice President, Corporate Controller since joining the Company in December 1997 and served as a consultant to the Company from July 1997 through December 1997. Prior to joining the Company, Mr. Lucien was Corporate Controller at Berkeley Systems, Inc., a software games and entertainment company, from February 1996 through June 1997 and was Director of Corporate Reporting at Spectrum HoloByte, Inc., a software games and entertainment company, from July 1994 25 through February 1996. Prior to this, Mr. Lucien served in the International Consulting Practice of Tohmatsu & Co., the Japanese affiliate of Delloitte, Touche, Tohmatsu, International, in Osaka, Japan, from July 1991 through March 1994. Prior to this, Mr. Lucien served in various financial management positions at Nellcor, Inc., a manufacturer of non-invasive medical instruments from June 1987 through 1990. Mr Lucien began his professional career at Touche Ross & Co. in January 1985 and holds a B.S. degree in business administration from California State University, Hayward. Mr. Inman served as Chairman of the Board of Directors from September 1996 until February 1998 and as President and Chief Executive Officer (Principal Executive Officer) from December 1995 until December 1997, and President and Chief Operating Officer from April 1995 until November 1997. Prior to joining the Company, from March 1993 until April 1995, Mr. Inman served as President and Chief Operating Officer of Ingram Micro Inc., the largest microcomputer products distributor worldwide, where he was responsible for overseeing and managing Ingram's U.S. operations. Prior to joining Ingram, Mr. Inman, a 21-year veteran of IBM, served as President of IBM's Personal Computer Company for the Americas. He is a graduate of Purdue University, where he earned a B.S. degree in mathematics. Mr. King has served on the Company's Board of Directors since December 1997. Mr. King has been President and CEO of Zitel Corporation, a company specializing in Year 2000 software conversion consulting, systems integration and "intelligence-based" technology solutions, since November 1986. Prior to joining Zitel, Mr. King has held key executive and senior management positions at Dynamic Disk, Data Electronics, Memorex and Xerox Corporation. Mr. King holds a B.S. in Industrial Management from San Diego State University. Mr. Koen has has served on the Company's Board of Directors since December 1997. Mr. Koen has served as Senior Vice President, Finance and Chief Financial Officer of PointCast Corporation since June of 1997. Prior to this Mr. Koen served as Chief Financial Officer of Etec Systems from December 1993 until June 1997. Prior to that he was the Vice President of Finance, and then the Chief Financial Officer at Levelor Corporation from April 1989 to December 1993. Mr. Koen holds a B.A. in Economics from Claremont Mens College and an M.B.A in General Management from the University of Virginia. Mr. Micciche has served as a member of the Board of Directors since February 1998. Mr. Micciche has been President and CEO of SceneWare Corporation since September 1994. Prior to that he was Vice-President and General Manager, North America at The ASK Group from December 1992 until May, 1993, and was President of Cognos Corporation from December 1989 through December 1992. Mr. Micciche graduated from Boston College with a Bachelor of Science in Accounting and from Suffolk University with an MBA in Finance. Mr. Nicholas has served as a member of the Board of Directors since February 1998 and has been associated with Crossroads Capital Partners, LLC since June 1997. Prior ot this he was President of Integrated Consulting Solutions, Inc. from January 1994 through June 1997. From March 1981 until January 1994 Mr. Nicholas served as a Partner in the Information & Technology Group of Ernst & Young. Mr. Nicholas received a Bachelor of Arts in Mathematics from LaSalle University, holds a Bachelor of Science in Accounting from St. Joseph's University, and obtained a Masters in Business Administration from Villanova University. Mr. Nicholas is a Certified Public Accountant (CPA) and a Certified Data Processor (CDP). Mr. Stahl, served as Chief Technology Officer and Senior Vice President for the products organization at Centura Software Corporation from April 16, 1995 until December 1997. Mr. Stahl joined Centura in 1988 and has held various key positions within the company's development organization, including spearheading the company's client/server tools development effort. Mr. Stahl has more than 20 years of industry experience, which includes product development and support on mainframe, minicomputers, and PC systems. He holds a B.S. in computer science from San Diego State University and has previously managed development projects at Bell Northern Research, Dest Corporation, and VisiCorp. Mr. Stahl is currently Vice President of Engineering for DataMind Corporation. 26 The Board of Directors elects the Company's officers and such officers serve at the discretion of the Board of Directors of the Company. There are no family relationships among the officers or directors of the Company. ITEM 2. PROPERTIES The Company leases approximately 48,000 square feet of office, development and warehousing space in facilities in Redwood Shores, California. As of December 31, 1997, the Company also has offices in the metropolitan areas of Atlanta, Chicago, Dallas, Los Angeles, New York, Washington, D.C., Bruetten (Switzerland), Duesseldorf, Leuven (Belgium), London, Sydney (Australia), Mexico City, Milan, Maarssen (The Netherlands), Munich, Paris, and Vienna. The Company believes that its facilities are adequate for its current needs and that suitable additional space will be available as needed. ITEM 3. LEGAL PROCEEDINGS On September 17, 1997, Technology Venture (Software) Holdings Limited, formerly known as Eagerquest Investments Limited ("Eagerquest") filed suit against the Company in the United States District Court for the Central District of California alleging that the Company acted improperly in terminating its contract with Eagerquest for the distribution of the Company's products in the territories of Hong Kong and China and that the Company's actions illegally damaged Eagerquest. The Company believes that its actions were within its rights under its contract with Eagerquest and that the allegations are without merit. The Company intends to defend itself vigorously in this action and that the outcome will not have a material adverse affect on the Company's financial situation or business prospects. As of December 31, 1997, to the best of the Company's knowledge there were no other pending actions, potential actions, claims or proceedings against the Company that could result in potential damages in excess of $50,000. As noted in the "Legal Proceedings" section under "Risk Factors" above, the Company exists in a volatile legal and regulatory environment and it is not possible to anticipate or estimate the potential adverse impact of unknown claims or liabilities against the Company, its officers and directors, and as such no estimate is made in the Company's financial statements for such unknown claims or liabilities. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS--NOT APPLICABLE No matters were submitted to a vote of the Company's shareholders during the fiscal quarter ended December 31, 1997. 27 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS The Company's common stock is quoted on The Nasdaq SmallCap Market (the "SmallCap Market") under the trading symbol "CNTR". The following table sets forth, for the periods indicated, the quarterly high and low sale prices per share of the Company's common stock. The Company's common stock began trading on The Nasdaq National Market ("Nasdaq") on February 5, 1993 under the trading symbol "GPTA". At December 31, 1997 the Company did not meet the Nasdaq minimum tangible net worth requirements for continued listing. On January 13, 1998, the Company was notified that effective January 15, 1998, the Company's shares were to be listed on the SmallCap Market and that continued listing on the SmallCap Market was contingent upon meeting all continued listing standards adopted by the National Association of Securities Dealers (the "NASD"), effective February 27, 1998. At February 27, 1998, including, on a pro-forma basis, the effect of the Agreements and the Private Placement, the Company had met all the SmallCap Market continued listing requirements as required by the NASD. Continued listing of the Company on the SmallCap Market is predicated on continuing to meet the listing requirements adopted by the NASD.
HIGH LOW --------- --------- 1997 First Quarter............................................................ $ 5.125 $ 2.875 Second Quarter........................................................... 3.625 1.313 Third Quarter............................................................ 3.125 1.438 Fourth Quarter........................................................... 2.719 1.063 1996 First Quarter............................................................ $ 7.125 $ 5.563 Second Quarter........................................................... 6.750 4.688 Third Quarter............................................................ 5.625 4.375 Fourth Quarter........................................................... 4.750 2.750
The Company has not paid any cash dividends. The Company currently does not anticipate paying any cash dividends in the foreseeable future. As of February 28, 1998, there were approximately 1,036 shareholders of record (not including beneficial holders of stock held in street name) of the Company's common stock. 28 ITEM 6. SELECTED FINANCIAL DATA The following selected consolidated financial data should be read in conjunction with the Company's consolidated financial statements and related notes included elsewhere herein. The statements of operations data for the years ended December 31, 1997, 1996 and 1995 and the balance sheets data at December 31, 1997 and 1996 are derived from, and are qualified by reference to, the audited consolidated financial statements of the Company included elsewhere in this Annual Report on Form 10-K and should be read in conjunction with those consolidated financial statements and the notes thereto, which have been audited by Price Waterhouse, LLP, independent accountants, whose report is included elsewhere in this Annual Report on Form 10-K. The statement of operations data for the years ended December 31, 1994 and 1993 and the balance sheet data at December 31, 1995, 1994 and 1993 are derived from audited consolidated financial statements not included in this Annual Report on Form 10-K. Historical earnings per share data has been restated to reflect the adoption of Statement of Financial Accounting Standard No. 128, "Earnings per Share." The pro-forma balance sheet data for 1997 is unaudited. SELECTED CONSOLIDATED STATEMENTS OF OPERATIONS DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31, ----------------------------------------------------- 1997 1996 1995 1994 1993 --------- --------- --------- --------- --------- Net Revenues: Product.................................... $ 40,714 $ 45,452 $ 49,408 $ 46,134 $ 41,655 Service.................................... 17,232 17,781 16,306 10,398 5,820 --------- --------- --------- --------- --------- Net Revenues................................. 57,946 63,233 65,714 56,532 47,475 Cost of revenues............................. 12,218 14,578 19,640 17,146 11,407 --------- --------- --------- --------- --------- Gross Profit................................. $ 45,728 $ 48,655 $ 46,074 $ 39,386 $ 36,068 Operating income (loss)...................... $ 1,230 $ 2,484 $ (42,993) $ (32,981) $ (1,858) Net income (loss)............................ $ (649) $ 2,027 $ (44,079) $ (31,841) $ (1,908) Basic net income (loss) per share(3)......... $ (0.04) $ 0.15 $ (3.62) $ (2.66) $ (0.17) Basic weighted average common shares(3)...... 15,439 13,231 12,175 11,957 11,411 Diluted net income (loss) per share(3)....... $ (0.04) $ 0.15 $ (3.62) $ (2.66) $ (0.17) Diluted weighted average common shares(3).... 15,439 13,380 12,175 11,957 11,411
SELECTED CONSOLIDATED BALANCE SHEETS DATA (IN THOUSANDS)
YEAR ENDED DECEMBER 31, ------------------------------------------------------------------ 1997 1996 1995 1994 1993 --------- --------- --------- --------- --------- 1997 ----------- PRO-FORMA(1) Working Capital (Deficit)(2)..... $ (4,250) $ (18,232) $ (15,616) $ (25,604) $ 599 $ 40,919 Total Assets..................... 30,070 28,200 36,705 48,104 58,161 72,372 Long-term Obligations............ 856 856 12,188 11,744 1,939 477 Shareholders' Equity (Deficit)... $ 4,028 $ (9,954) $ (16,923) $ (24,057) $ 18,670 $ 49,223
- ------------------------------ (1) The December 1997 Pro-forma balances reflect adjustments to the December 31, 1997 balances for the conversion of the CA Note, plus accrued interest and a private placement of common stock which were completed on February 27, 1998. The balance of the CA Note plus accrued interest was approximately $12,112,000 at December 31, 1997 and gross proceeds from the Private Placement were $2,470,000. Transaction costs associated with both the sale and conversion of the CA Note and the Private Placement are estimated to be approximately $600,000. See Note 13 to the Consolidated Financial Statements. (2) Working Capital (Deficit) includes deferred revenue of $14,618,000, $21,891,000, $28,800,000, $21,879,000 and $12,261,000 at December 31, 1997, 1996, 1995, 1994 and 1993, respectively. (3) See Note 2 of Notes to Consolidated Financial Statements for an explanation of shares used in computing net income (loss) per basic and diluted common shares and equivalents. 29 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's discussion and analysis of the financial condition and results of operations should be read in conjunction with the audited consolidated financial statements and the notes thereto, as well as "Risk Factors" included in this Annual Report on Form 10-K. OVERVIEW The Company commenced operations in 1984 and provides a suite of products application developers use to build and deploy business applications in a cost effective manner. Centura products include an embedded database that scales from Smart Cards to the Web, and object oriented application development tools. Centura products are designed to be deployed in both thin- and fat-client environments, using business logic objects that can be reused in multi-tier architectures in distributed environments. The Company's product lines include an embedded database, (SQLBASE), application development tools, (CENTURA TEAM DEVELOPER, THE 32-BIT VERSION OF SQLWINDOWS, AND CENTURA NET.DB) and PC to mainframe connectivity products (SQLHOST). These products are expected to constitute the majority of the Company's net revenues for the foreseeable future. The Company cannot accurately predict the exact timing of new product releases or enhancements. Any failure to deliver products as scheduled, or such products' failure to achieve early market acceptance, could have a material adverse effect on the business, operating results and financial condition of the Company. The Company distributes its products in the United States and internationally through a corporate sales organization consisting of the Company's internal sales force complimented by marketing arrangements with vertical software partners, hardware original equipment manufacturers and systems integrators, and a channel sales organization consisting of value-added resellers and distributors. See "Item 1. Business--Risk Factors--New Product Risks; Rapid Technological Change," "--Highly Competitive Markets", "--Market Acceptance of PC Client/Server Systems" and "--Internet Software Market". The Company has experienced in the past and may in the future continue to experience significant fluctuations in quarterly operating results. The Company reported a loss of $0.6 million for fiscal year 1997, a profit of $2.0 million for 1996, and a loss of $44.1 million for 1995. Beginning in the fourth quarter of 1997, the Company refocused and restructured its operations to leverage its core technological competencies into next generation products, which include embeddable databases and continue to embrace object oriented application development and both thin- and fat-client environments. With the addition of CENTURA NET.DB, the Company's products now provide a comprehensive architecture for the development and deployment of information systems and applications from a host environment, through two-tier client/server and SQL databases, to the multi-tier environment of the World Wide Web. The Company recognized total restructuring charges of $1.0 million in 1997 and approximately $5.4 million in 1995. There can be no assurance that the restructuring efforts the Company has engaged in to date will be successful or that the Company will be able to sustain profitability on a quarterly or annual basis. Many of the Company's product licensing arrangements are subject to revenue recognition on a per-unit deployed basis as the Company's deferred obligation to its customers is gradually extinguished. Revenue recognition in such cases is therefore dependent upon the business activities of the Company's customers and the timely and accurate reporting of such activities to the Company, which makes predictability of the related revenue extremely uncertain. Although the Company has operated historically with little or no backlog of traditional boxed product shipments, it has experienced a seasonal pattern of product revenue decline between the fourth quarter and the succeeding first quarter, contributing to lower worldwide product revenues and operating results during such quarters. It has generally realized lower European product revenues in the third quarter as compared to the rest of the year. The Company has also experienced a pattern of recording a substantial portion of its revenues in the third month of a quarter. As a result, product revenues in any quarter are dependent on orders booked in the last month. Accordingly, any significant shortfall in sales of the Company's products in relation to the Company's expectations could have an immediate adverse impact on the Company's business, operating results and financial condition. 30 To the extent that the Company's expenses exceed expected revenues in any fiscal period, its business, operating results and financial condition could be materially and adversely affected. Due to the foregoing factors, it is likely that the Company's operating results may, during any fiscal period, fall below the expectations of securities analysts and investors. See "Part I, Item 1. Business, Risk Factors--Recent Company Losses; Fluctuations in Quarterly Results." RECENT DEVELOPMENTS SALE AND CONVERSION OF NOTE PAYABLE. In February 1998, Computer Associates, Inc. ("CA"), and Newport Acquisition Company, LLP ("NAC") entered into a Note Purchase and Sale Agreement and the Company and NAC entered into a Note Conversion Agreement (the "Agreements"). Under the terms of the Agreements, a promissory note, plus accrued interest, in the amount of $12.3 million, payable to CA (the "CA Note") was acquired by NAC, and immediately converted into 11,415,094 shares of the Company's common stock (the "Shares"). In February 1998, in connection with the Agreements, the Company entered into a Warrant Purchase Agreement with CA wherein the Company sold and issued to CA, at an issuance price of $.001 per share, a warrant to purchase 500,000 shares of the Company's common stock. The warrant is exercisable at $1.906 per share and expires on February 28, 2003. PRIVATE PLACEMENT. Also in February 1998, pursuant to the terms of Stock Purchase Agreements, the Company completed a private placement of 2,330,191 shares of the Company's common stock (the "Private Placement"), resulting in net proceeds to the Company, after deducting estimated transaction costs, of approximately $1.9 million. Under the terms of the Stock Purchase Agreements, the Company has agreed to register the shares, issued pursuant to the Stock Purchase Agreements under the Securities Act of 1933, no later than May 29, 1998. In connection with the Private Placement the Company issued warrants to purchase 582,548 shares of the Company's common stock. The warrants are exercisable at $1.25 per share and expire on February 28, 2003. Also, in consideration of services rendered in connection with the Private Placement, the Company issued to Rochon Capital Group, Ltd. Warrants to purchase 354,717 shares of the Company's common stock at an exercise price of $2.12 (the "Rochon Warrants"). The Rochon warrants expire on February 27, 2003. Transaction costs associated with both the Agreements and the Private Placement are estimated to be approximately $0.6 million. See Note 13, of Notes to The Consolidated Financial Statements. The Company had, on a pro-forma basis, including the effect of the Agreements and the Private Placement, deficit working capital of $4.3 million and net shareholders equity of $4.0 million at December 31, 1997. In addition, at December 31, 1997 the Company did not meet the Nasdaq minimum tangible net worth requirements for continued listing on the Nasdaq National Market. On January 13, 1998, the Company was notified that effective January 15, 1998, the Company's shares were to be listed on The Nasdaq SmallCap Market (the "SmallCap Market") and that continued listing on the Small Cap Market was contingent upon meeting listing standards adopted by the NASD, effective February 27, 1998. At February 27, 1998, including, on a pro-forma basis, the effect of the Agreements and the Private Placement, the Company had met all SmallCap Market listing requirements as required by the NASD. Continued listing on the SmallCap Market is predicated on the Company continuing to meet the listing requirements adopted by the NASD. 31 RESULTS OF OPERATIONS The following table sets forth consolidated statements of operations data as a percentage of net revenues for the periods indicated:
YEAR ENDED DECEMBER 31, ------------------------------------- 1997 1996 1995 ----------- ----------- ----------- Net revenues: Product.......................................................... 70% 72% 75% Service.......................................................... 30 28 25 --- --- --- Net revenues................................................... 100 100 100 Cost of revenues: Product.......................................................... 8 8 14 Service.......................................................... 13 15 16 --- --- --- Cost of revenues............................................... 21 23 30 --- --- --- Gross profit................................................. 79 77 70 --- --- --- Operating expenses: Sales and marketing.............................................. 45 46 65 Research and development......................................... 17 17 22 General and administrative....................................... 12 10 17 Acquisition expense.............................................. 1 1 -- Litigation expense............................................... -- (1) 23 Restructuring expense............................................ 2 -- 8 --- --- --- Total operating expenses....................................... 77 73 135 --- --- --- Operating income (loss)...................................... 2 4 (65) Other income (expense), net........................................ (3) -- -- Provision for income taxes......................................... -- 1 2 --- --- --- Net income (loss).................................................. (1)% 3% (67)% --- --- --- --- --- --- Gross Margins: Gross margin on product revenues................................. 88% 89% 82% Gross margin on service revenues................................. 57% 46% 34%
NET PRODUCT REVENUES. Net product revenues for 1997 decreased 10% to $40.7 million from $45.5 million in 1996 primarily due to decreased sales of SQLWINDOWS. Customers continued to migrate from the 16-bit to the 32-bit environment offered by the CENTURA TEAM DEVELOPER product, which partially offset the decline in SQLWINDOWS sales. Sales of the Company's SQLBASE products increased to $24.5 million or 60% of net product revenues in 1997 from $23.8 million or 52% of net product revenues in 1996. The CENTURA TEAM DEVELOPER product line, released in May 1996, accounted for $10.7 million or 26% of net product revenues for 1997 compared with $8.5 million or 19% of net product revenues in 1996. Net product revenues for 1996 decreased 8% from $49.4 million in 1995 primarily due to decreased sales of SQLWINDOWS. Sales of SQLBASE products in 1996 decreased slightly from $24.8 million or 50% of net product revenue in 1995. Sales of other tools and connectivity software accounted for $5.5 million or 14%, $13.1 million or 29% and $4.0 million or 8% of net product revenues for 1997, 1996 and 1995, respectively. International revenue accounted for 63%, 67% and 66% of total net product revenues for 1997, 1996 and 1995, respectively. NET SERVICE REVENUES. Net service revenues decreased 3% to $17.2 million in 1997 from $17.8 million in 1996. The Company believes the decrease corresponds to the overall decrease in net product revenues experienced in 1997, partially offset by renewals of customer support and service agreements from prior 32 years. Net service revenues increased in 1996 from $16.3 million in 1995 due primarily to a larger installed customer base, inception of a group focusing on sales of license maintenance and telephone support and marketing programs designed to encourage customers to reinstate support. License maintenance and telephone support contracts are typically paid in advance, and revenue is recognized ratably over the term of the contract. International service revenues accounted for 46%, 41% and 46% of total net service revenues for 1997, 1996 and 1995, respectively. In October 1997, the American Institute of Certified Public Accountants issued Statement of Position No. 97-2 ("SOP 97-2"), "Software Revenue Recognition", which the Company currently intends to adopt for transactions entered into in the fiscal year beginning January 1, 1998. SOP 97-2 provides guidance on recognizing revenue for software transactions and supersedes SOP 91-1, "Software Revenue Recognition". The Company believes that the adoption of SOP 97-2 will not have a significant impact on its current licensing or revenue recognition practices. COST OF PRODUCT REVENUES. Cost of product as a percentage of product revenues was 12%, 11% and 18% for 1997, 1996 and 1995, respectively. In December 1995, the Company completed a financial restructuring which included a decision to consolidate all warehouse and manufacturing functions into a single new vendor. This resulted in a non-recurring charge against cost of revenues for an estimated write-off of raw materials of approximately $0.6 million and led to a more efficient production process which contributed to the reduced cost of product in 1997 and 1996 from 1995 levels. Cost of product includes the cost of subcontracted production and the amortization of capitalized software. Cost of product varies significantly by distribution channel. Channel sales typically involve sales of packaged products and, as a result, generally have higher costs of production than embedded applications or large scale deployment sales, which generally involve software reproduction licenses. In accordance with Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed", the Company capitalizes internal development costs on a project when the technological feasibility of such project has been determined. The Company ceases capitalizing such expenses when the products derived from the project are released for sale. The capitalized costs are then amortized ratably over the useful life of the products, generally estimated to be two to three years. Amortization of capitalized software costs, which include the amortization software purchased from third parties, increased to $2.7 million in 1997 from $1.6 million in 1996. Amortization of capitalized software costs, including one time charge to write-off capitalized software, were $2.2 million in 1995. See Notes 2 and 3 of Notes to Consolidated Financial Statements. COST OF SERVICE REVENUES. Cost of service revenues, as a percentage of service revenues, decreased to 43% in 1997 from 54% in 1996 and 66% in 1995. Cost of service consists primarily of personnel costs related to maintenance, training and technical support. In December 1995 and August 1997, the Company completed operational restructurings which encompassed outsourcing certain support functions. The outsourcing activities enabled a lower infrastructural cost of service while maintaining adequate levels of support. It is likely that the Company will increase the levels of technical service in 1998 and as such, the cost of service as a percentage of service revenues may also increase, to the extent that service revenues do not grow at the same rate. SALES AND MARKETING EXPENSES. Sales and marketing expenses, consisting principally of salaries, sales commissions and costs of advertising and marketing campaigns, decreased 10% to $26.2 million in 1997 from $29.1 million in 1996. In 1996, sales and marketing expenses decreased 32% from $42.9 million in 1995. Sales and marketing expenses represented 45%, 46% and 65% of net revenues in 1997, 1996 and 1995, respectively. The decrease in sales and marketing expenses in 1997 was due to reductions in staffing, including the elimination of portions of the field sales organization which were focussed on the Foresite product which the Company discontinued in the fourth quarter of 1997. The decrease in sales and marketing expenses in 1996 as compared with 1995 related to the elimination of the telebusiness product 33 sales organization and the reduction of marketing staff and programs with the objective of targeting marketing at enterprise client/server solution providers. RESEARCH AND DEVELOPMENT EXPENSES. The table below sets forth gross research and development expenses, capitalized internal software development costs, and net research and development expenses in dollar amounts and as a percentage of net revenues for the periods indicated:
YEAR ENDED DECEMBER 31, ------------------------------- 1997 1996 1995 --------- --------- --------- (IN THOUSANDS) Gross research and development expenses...................... $ 10,742 $ 12,897 $ 16,662 Capitalized internal software development costs.............. (1,018) (1,865) (2,242) --------- --------- --------- Net research and development expenses........................ $ 9,724 $ 11,032 $ 14,420 --------- --------- --------- --------- --------- --------- As a percentage of net revenues: Gross research and development expenses.................... 19% 20% 25% Net research and development expenses...................... 17% 17% 22%
Research and development expenses decreased 12% to $9.7 million in 1997 from $11.0 million in 1996. The decrease reflects a reduction in staffing and associated continuing engineering costs required to develop new products in 1997. The Company anticipates that development costs will increase in 1998 as the Company expands its efforts to leverage core technologies into next generation products. Research and development expenses in 1995 reflected a $3.4 million write-off of previously capitalized software development costs in conjunction with the Company's restructuring efforts in that year. After accounting for this one-time charge, research and development expenses were essentially flat in 1996 as compared with 1995. The Company believes that the development of new products and the enhancement of existing products, are essential to its continued success, and the Company intends to continue to devote substantial resources to new product development. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses increased 5% to $7.0 million in 1997 from $6.7 million in 1996, due principally to increases in costs to retain key personnel, offset by staffing reductions in the second half of 1997. General and administrative expenses were $11.0 million in 1995 which included an approximate $1.3 million one time charge for accounting and professional fees for re-audits of the 1993 and 1994 fiscal year financial statements and the audit of the 1995 fiscal year financial statements. These expenses represented 12%, 10% and 17% of net revenues in 1997, 1996 and 1995, respectively. In 1995 and 1997, the Company completed operational restructuring which included staff reductions and the abandonment of certain MIS projects which led to reduced general and administrative expenses in 1996 as compared with 1995. See: --Year 2000 Issue. LITIGATION SETTLEMENT--CLASS ACTION LAWSUIT. (See Note 7 of Notes to Consolidated Financial Statements). The Company reached a binding settlement agreement with plaintiffs' counsel in a lawsuit filed against the Company and certain of its officers and directors by a holder of the Company's common stock and gained court approval of the settlement agreement on September 30, 1996. As part of the settlement, the Company agreed to provide up to a maximum of 2,500,000 shares of its common stock to a fund to be distributed among the members of the plaintiff class. As of December 31, 1997, 2,500,000 shares have been issued and distributed under the settlement agreement and no additional shares are required to be issued. The 1995 Consolidated Financial Statements include $15.3 million in litigation expense arising from the settlement agreement and associated legal expenses. ACQUISITION EXPENSES. On January 6, 1997, in an effort to expand its product offerings in areas complimentary with the Company's core products, technology and Internet applications, the Company entered into a definitive agreement to acquire Infospinner, Inc. (Infospinner) of Richardson, Texas (the "Merger Agreement"). The Company did not obtain the majority vote of its shareholders required for the 34 approval of the proposed merger, and as such, Infospinner elected to exercise its right, pursuant to the Merger Agreement, to terminate the transaction. In connection with the Merger Agreement, the Company entered into a non-exclusive distribution agreement with Infospinner which was subsequent terminated. See "Restructuring expenses." RESTRUCTURING EXPENSES. Beginning in the second half of 1997, the distribution agreement with Infospinner terminated and the Company restructured its operations to leverage its core technological competencies into next generation products, which include embeddable databases and development tools that continue to embrace object oriented development and both thin- and fat-client environments. In 1997 the Company incurred charges related to its restructuring efforts in the amount of approximately $1.5 million, which included the write-off of prepaid distribution royalties in connection with the termination of the Infospinner distribution agreement and severance costs, offset by the reversal of approximately $0.5 million in existing restructuring reserves, originally recorded in 1995. The results of operations for 1996 include the reversal of $0.2 million of restructuring reserves due to a change in estimated employee reduction costs. In 1995 the Company incurred restructuring costs of $5.0 million related primarily to severance, write-offs of purchased technology and prepaid license fees, facilities charges associated with early termination of leases and cancellations of distributor agreements. There can be no assurance that the restructuring efforts the Company has engaged in to date will be successful or that the Company will be able to achieve consistent levels of profitability on a quarterly or annual basis. In addition, there can be no assurance that the Company's management will not deem it appropriate to undertake other major restructuring efforts in the future or to what degree any of these efforts will result in improved operational performance, if at all. See "Item I Business--"Company Strategies" and "--Risk Factors--Change in Strategic Direction: Restructuring" and "--New Product Risks; Rapid Technological Change." In addition to the restructuring charges detailed above, the Company took certain one-time charges that were reflected in its 1995 operating results. These charges included $1.3 million in accounting and related professional fees for audits of the 1995, 1994 and 1993 financial statements, charged to general and administrative expense; a $3.4 million write-off of capitalized software development expense, charged to research and development; and $0.6 million in liquidation of inventories, charged to cost of revenues. OTHER INCOME (EXPENSE), NET. Other income (expense), net is comprised of interest income, interest expense and gains or losses on foreign currency transactions. The Company's gains or losses from foreign currency transactions have fluctuated from period to period, primarily as a result of fluctuating values of the U.S. dollar and instability in European and Latin American currency markets. The Company recorded a foreign currency loss of approximately $1.0 million in 1997, principally due to the decline in the value of certain European currencies in the first quarter of 1997. The Company recorded a foreign currency gain of $0.2 million in 1996 and a loss of $0.4 million in 1995. The Company expanded its hedging program in the second half of 1997 in an effort to hedge up to a targeted 90% of its exposure to foreign currency fluctuation. The costs of currency hedging are reflected in the reported gains and losses of foreign currency transactions. The Company anticipates that it will continue the hedging program in 1998. Nonetheless, a decrease in the value of foreign currencies relative to the value of the U.S. dollar could result in losses from foreign currency transactions. The Company's net interest expense was $0.8 million in 1997 and $0.2 million in 1996 and the Company had net interest income of $0.4 million in 1995. The decrease in interest income and the increase in interest expense over these periods is due principally to the decrease in cash available for investment. Sales of the Company's products are denominated both in local currencies of the respective geographic region and in U.S. dollars, depending upon the economic stability of that region and locally accepted business practices. Accordingly, any increase in the value of the U.S. dollar relative to local currencies in these markets may negatively impact revenues, results of operations and financial condition. An increase in the relative value of the U.S. dollar would serve to increase the relative foreign currency cost to the customer of a U.S. dollar denominated purchase, which may negatively affect the Company's 35 sales in those markets. The U.S. dollar value of a sale denominated in a region's local currency decreases in proportion to relative increases in the value of the U.S. dollar. PROVISION FOR INCOME TAXES. The provision for income taxes was $0.1 million in 1997, $0.5 million in 1996 and $1.1 million in 1995. The provision for income taxes related primarily to foreign withholding taxes. As of December 31, 1997, the Company had net operating loss carryforwards of approximately $70.2 million available to offset future federal taxable income and $30.8 million available to offset future state taxes, which expire in 2012. The availability and timing of these loss carryforwards to offset future taxable income may be limited due to the occurrence of certain events, including certain changes in ownership interests. At December 31, 1997, 1996 and 1995, the Company fully reserved its deferred tax assets due to the existence of uncertainty of the Company's ability to realize the deferred tax assets. The Company does not anticipate that recent developments, resulting in the issuance of approximately 13.7 million shares of common stock, will impair its ability to utilize net operating loss carryforwards available at December 31, 1997. See Note 8 and Note 13 of Notes to Consolidated Financial Statements and "--Recent Developments." YEAR 2000 ISSUE. The Company has commenced, for all of its information systems, a year 2000 date conversion project to address all necessary code changes, testing and implementation of mission critical applications. The "Year 2000 Issue" arises because most computer systems and programs were designed to handle only a two-digit year, as opposed to a four digit year. When the year 2000 begins these computers may interpret "00" as the year 1900 and could either stop processing date-related computations or could process them incorrectly. The Year 2000 Issue creates risk for the Company from unforeseen problems in its internal computer systems and from third parties with which the Company interacts. Such failures of the Company's and/or third parties' computer systems could have a material impact on the Company's ability to conduct its business, and to process and account for the transfer of funds electronically. Management has not completed its assessment of all of the potential Year 2000 compliance expenses and the related potential effect on the Company's earnings. INFLATION. The Company believes that inflation has not had a material impact on the Company's operating results and does not expect inflation to have a material impact on the Company's operating results in 1998. LIQUIDITY AND CAPITAL RESOURCES: At December 31, 1997, the Company had a deficit working capital position of approximately $18.2 million and a net shareholders deficit of approximately $10 million, due principally to deferred product and support revenue of $14.6 million, and a subordinated note, including accrued interest, in the amount of approximately $12.1 million. In February 1998, the Company entered into a series of transactions which resulted in the reduction of its working capital deficit to $4.3 million (deficit) and its net shareholders deficit to $4.0 million net shareholders equity, on a pro forma basis. See "--Recent Developments." The Company reached a binding settlement agreement with plaintiffs' counsel in a lawsuit filed against the Company and certain of its officers and directors by a holder of the Company's common stock and gained court approval of the settlement agreement on September 30, 1996. As part of the settlement, the Company agreed to provide up to a maximum of 2,500,000 shares of its common stock to a fund to be distributed among the members of the plaintiff class. As of December 31, 1997, 2,500,000 shares have been issued and distributed under the settlement agreement and no additional shares are required to be issued. See Note 6 of Notes to Consolidated Financial Statements. The Company entered into an unsecured floating rate convertible subordinated note for $10.0 million (the "Note") and a related agreement with Computer Associates Inc. ("CA") (the "CA Agreement") in March 1995. The Note would mature on March 31, 1998 and could be convertible into common stock at 36 the Company's option on May 1, 1998 for a number of shares based on the market price of the Company's common stock at the time of conversion if certain conditions had been met. Interest on the Note is calculated based on the one-month LIBOR plus 1.25% and was payable quarterly. At the Company's option interest payments could be deferred until the principal was due. Pursuant to the CA Agreement, the ability of the Company to convert the Note to common stock required the Company to maintain a minimum market capitalization of $40.0 million commencing on (and including) November 1, 1997, and continuing through the duration of the Note (the "Minimum Market Capitalization Requirement"). If the Company did not meet the Minimum Market Capitalization Requirement, the Company would lose the option to convert the Note into common stock, and all outstanding principal and interest would be due and payable on March 31, 1998. At December 31, 1997 the Company had approximately $6.0 million in unsecured foreign currency contracts, denominated in various European currencies, as part of a program to hedge the financial exposure arising from foreign denominated monetary assets and liabilities. The deferred product and support revenue of $14.6 million at December 31, 1997 reflects a delay in recognition of revenue in accordance with contractual agreements and requires minimal resources of the Company. Net cash used by operating activities was $3.3 million in 1997, $7.7 million in 1996 and $5.1 million in 1995. The use of cash in 1997 was due principally to decreases in deferred revenue and accounts payable and accrued liabilities, offset by depreciation and amortization and decreases in accounts receivable. In 1996, net income and increases in depreciation and amortization in 1996 were offset by decreases in accounts payable and accrued liabilities, litigation expense and deferred revenue. In 1995, increases in accrued litigation, depreciation and amortization, adjustments for capitalized software, deferred revenue, and provision for sales returns and allowances were offset by the net loss and the increase to accounts receivable. Inventories, which were located at the Company's third party turnkey vendor, decreased by $1.1 million in 1995. This decrease in 1995 was due in part to planned reductions of inventories and a consolidation of worldwide inventories into a single third party vendor location. Cash used in investing activities was $1.6 million in 1997, principally due to the purchase of equipment and capitalized software costs, partially offset by maturities of investments. Cash provided by investing activities was $4.6 million in 1996, principally due to maturities of investments offset by acquisition of property and equipment, and capitalization of software development costs. Cash used in investing activities of $2.7 million in 1995 was utilized for additions in the amount of $4.0 million of internally developed and purchased software and $3.1 million in additions to property and equipment, primarily computer and other capital equipment, partially offset by the sale of $5.4 million of short-term investments, net of purchases. Net cash provided by financing activities in 1997 and 1996 totaled $2.2 million and $0.2 million, respectively, primarily as a result of proceeds from short-term borrowings and issuance of common stock offset by repayment of the notes payable. Net cash provided by financing activities in 1995 totaled $10.5 million primarily as a result of the $10.0 million subordinated convertible debt financing by CA. The Company believes that expected cash flows from operations and existing cash balances, will be sufficient to meet the Company's currently anticipated working capital and capital expenditure requirements for the next 12 months. The Company may, however, choose to raise cash for operational or other needs sometime in the future. If the Company needs further financing, there can be no assurance that it will be available on reasonable terms or at all. Any additional equity financing will result in dilution to the Company's shareholders. The Company's capital requirements also may be affected by acquisitions of businesses, products and technologies that are complementary to the Company's business, which the Company considers from time to time. The Company regularly evaluates such opportunities. Any such transaction, if consummated, may further reduce the Company's working capital or require the issuance of equity. 37 In January 1998, the Company entered into a $5.0 million asset based loan facility with Coast Business Credit. The loan provides for borrowings of up to $5.0 million, secured by the Company's accounts receivable, combined with a $0.5 million capital equipment facility. The facility bears interest at a rate of 2.25% above the Bank of America Reference Rate, and provides for the ability to reduce interest costs based on the achievement of certain financial covenants. The facility matures in January 2000 and provides for the ability to extend the agreement for one year at the option of the Company. The facility replaces the Pacific Business Funding Corporation accounts receivable factoring agreement entered into by the Company in June 1997. FACTORS THAT MAY AFFECT FUTURE RESULTS The Company has experienced in the past and expects in the future to continue to experience significant fluctuations in quarterly operating results. The Company has at times recognized a substantial portion of its net revenues in the last month or last few weeks of a quarter. The Company generally ships products as orders are received and, therefore, has little or no backlog. As a result, quarterly sales and operating results generally depend on a number of factors that are difficult to forecast, including, among others, the volume and timing of and ability to fulfill orders received within the quarter. Operating results also may fluctuate due to factors such as demand for the Company's products, introduction, localization or enhancement of products by the Company and its competitors, market acceptance of new products, reviews in the industry press concerning the products of the Company or its competitors, changes or anticipated changes in pricing by the Company or its competitors, mix of distribution channels through which products are sold, mix of products sold, returns from the Company's distributors and general economic conditions. As a result, the Company believes that period-to-period comparisons of its results of operations are not necessarily meaningful and should not be relied upon as any indication of future performance. In addition, because the Company's staffing and other operating expenses are based in part on anticipated net revenues, a substantial portion of which may not be generated until the end of each quarter, delays in the receipt or shipment of orders and ability to achieve anticipated revenue levels can cause significant variations in operating results from quarter to quarter. The Company may be unable to adjust spending in a timely manner to compensate for any unexpected revenue shortfall. Accordingly, any significant shortfall in sales of the Company's products in relation to the Company's expectations could have an immediate adverse impact on the Company's business, operating results and financial condition. In addition, the Company currently intends to increase its operating expenses to fund greater levels of sales and marketing operations and expand distribution channels. To the extent that such expenses proceed or are not subsequently followed by increased net revenues, the Company's business, operating results and financial condition could be materially and adversely affected. In the future, the Company may make acquisitions of complementary companies, products or technologies. Managing acquired businesses entails numerous operational and financial risks, including difficulties in assimilating acquired operations, diversion of management's attention to other business concerns, amortization of acquired intangible assets and potential loss of key employees or customers of acquired operations. There can be no assurance that the Company will be able to effectively complete or integrate acquisitions, and failure to do so could have a material adverse effect on the Company's operating results. As of the date hereof, the Company has no understanding or agreement with any other entity regarding any potential acquisition or combination, the consummation of which is probable. In addition, quarterly operating results of the Company will depend on a number of other factors that are difficult to forecast, including factors listed in "Item 1. Business, --Risk Factors--Recent Company Losses; Fluctuations in Quarterly Results". 38 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Centura Software Corporation: In our opinion, the consolidated financial statements listed in the index appearing under Item 14(a)(1) and (2) on page 61 present fairly, in all material respects, the financial position of Centura Software Corporation at December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ Price Waterhouse LLP San Jose, California February 10 , 1998, except as to Note 13 which is dated February 27, 1998 39 CENTURA SOFTWARE CORPORATION CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT PER SHARE DATA)
PRO-FORMA AT DECEMBER DECEMBER 31, 31, -------------------- 1997 1997 1996 ------------- --------- --------- (UNAUDITED) (NOTE 13) ASSETS Current Assets: Cash and cash equivalents................................ $ 5,844 $ 3,974 $ 6,669 Short-term investments................................... -- -- 2,065 Accounts receivable, less allowances of $1,621 and $2,826................................................. 11,744 11,744 13,574 Inventories.............................................. 259 259 216 Other current assets..................................... 3,089 3,089 3,300 ------------- --------- --------- Total current assets................................... 20,936 19,066 25,824 Property and equipment, at cost, net of accumulated depreciation............................................. 3,511 3,511 3,622 Capitalized software, at cost, net of accumulated amortization............................................. 2,573 2,573 4,226 Long-term investments...................................... 1,263 1,263 1,221 Other assets............................................... 1,787 1,787 1,812 ------------- --------- --------- Total assets........................................... $ 30,070 $ 28,200 $ 36,705 ------------- --------- --------- ------------- --------- --------- LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) Current Liabilities: Current portion of long-term obligations................. $ -- $ 10,000 $ 336 Accounts payable......................................... 4,244 4,244 5,683 Accrued compensation and related expenses................ 1,521 1,521 2,484 Short-term borrowings.................................... 1,581 1,581 -- Other accrued liabilities................................ 3,013 5,125 4,313 Accrued litigation expenses.............................. 209 209 6,733 Deferred revenue......................................... 14,618 14,618 21,891 ------------- --------- --------- Total current liabilities.............................. 25,186 37,298 41,440 Long-term debt, less current portion....................... -- -- 10,032 Other long-term liabilities................................ 856 856 2,156 ------------- --------- --------- Total liabilities...................................... 26,042 38,154 53,628 Commitments and contingencies (Note 7) Shareholders' equity (deficit): Preferred stock, no par value; 2,000 shares authorized; none issued............................................ -- -- -- Common stock, par value $.01 per share; 60,000 shares authorized; 15,784 shares and 13,728 shares issued and outstanding (29,526 shares, pro forma)................. 84,618 70,636 63,047 Cumulative translation adjustment........................ (484 ) (484) (513) Accumulated deficit...................................... (80,106 ) (80,106) (79,457) ------------- --------- --------- Total shareholders' equity (deficit)................... 4,028 (9,954) (16,923) ------------- --------- --------- Total liabilities and shareholders' equity (deficit)... $ 30,070 $ 28,200 $ 36,705 ------------- --------- --------- ------------- --------- ---------
The accompanying notes are an integral part of these consolidated financial statements. 40 CENTURA SOFTWARE CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31, -------------------------------- 1997 1996 1995 --------- --------- ---------- Net revenues: Product.................................................................... $ 40,714 $ 45,452 $ 49,408 Service.................................................................... 17,232 17,781 16,306 --------- --------- ---------- Net revenues............................................................. 57,946 63,233 65,714 Cost of revenues: Product.................................................................... 4,779 5,060 8,878 Service.................................................................... 7,439 9,518 10,762 --------- --------- ---------- Cost of revenues......................................................... 12,218 14,578 19,640 --------- --------- ---------- Gross profit........................................................... 45,728 48,655 46,074 Operating expenses: Sales and marketing........................................................ 26,224 29,106 42,931 Research and development................................................... 9,724 11,032 14,420 General and administrative................................................. 6,990 6,667 11,043 Acquisition expense........................................................ 530 467 -- Litigation expense......................................................... -- (878) 15,323 Restructuring expense...................................................... 1,030 (223) 5,350 --------- --------- ---------- Total operating expenses................................................. 44,498 46,171 89,067 --------- --------- ---------- Operating income (loss)................................................ 1,230 2,484 (42,993) Other income (expense): Interest income............................................................ 234 637 1,127 Interest expense........................................................... (1,039) (831) (701) Foreign currency gain (loss)............................................... (1,012) 215 (439) --------- --------- ---------- Income (loss) before income taxes............................................ (587) 2,505 (43,006) Provision for income taxes................................................... 62 478 1,073 --------- --------- ---------- Net income (loss)............................................................ $ (649) $ 2,027 $ (44,079) --------- --------- ---------- --------- --------- ---------- Basic net income (loss) per share............................................ $ (.04) $ 0.15 $ (3.62) --------- --------- ---------- --------- --------- ---------- Basic weighted average common shares......................................... 15,439 13,231 12,175 --------- --------- ---------- --------- --------- ---------- Diluted net income (loss) per share.......................................... $ (.04) $ 0.15 $ (3.62) --------- --------- ---------- --------- --------- ---------- Diluted weighted average common shares....................................... 15,439 13,380 12,175 --------- --------- ---------- --------- --------- ----------
The accompanying notes are an integral part of these consolidated financial statements. 41 CENTURA SOFTWARE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED DECEMBER 31, -------------------------------- 1997 1996 1995 --------- --------- ---------- Cash flows from operating activities: Net income (loss).............................................................. $ (649) $ 2,027 $ (44,079) Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization................................................ 5,390 5,311 6,252 Adjustments to capitalized software development costs........................ -- -- 3,360 Issuance of stock warrants................................................... 103 165 -- Provision for doubtful accounts, sales returns and allowances................ 187 586 7,138 Non-cash restructuring charges............................................... 166 (223) 2,205 Changes in assets and liabilities: Accounts receivable........................................................ 1,643 (1,986) (4,978) Inventories................................................................ (43) 2 1,096 Other current assets....................................................... (429) (301) 169 Other assets............................................................... (12) (21) (155) Accounts payable and accrued liabilities................................... (2,416) (4,189) 2,099 Deferred revenue........................................................... (7,273) (6,909) 6,921 Accrued litigation expense................................................. 9 (2,877) 14,328 Other long-term liabilities................................................ -- 742 546 --------- --------- ---------- Net cash used in operating activities.................................... (3,324) (7,673) (5,098) Cash flows from investing activities: Maturities of investments...................................................... 2,065 8,748 19,812 Purchases of investments....................................................... -- (123) (14,419) Proceeds from sale of property and equipment................................... -- 341 -- Acquisitions of property and equipment......................................... (2,253) (1,262) (3,115) Capitalization of software costs............................................... (1,018) (2,890) (4,013) Capitalization of other intangibles............................................ (360) (202) (932) --------- --------- ---------- Net cash provided by (used in) investing activities...................... (1,566) 4,612 (2,667) Cash flows from financing activities: Repayment of note payable...................................................... (368) (327) (305) Proceeds from notes payable.................................................... -- -- 10,000 Proceeds from short-term borrowings, net....................................... 1,581 -- -- Repayment of capital lease obligations......................................... -- (32) (448) Proceeds from issuance of common stock, net.................................... 953 587 1,300 --------- --------- ---------- Net cash provided by financing activities................................ 2,166 228 10,547 Effect of exchange rate changes on cash and cash equivalents..................... 29 (363) 52 --------- --------- ---------- Net increase (decrease) in cash and cash equivalents............................. (2,695) (3,196) 2,834 Cash and cash equivalents at beginning of period................................. 6,669 9,865 7,031 --------- --------- ---------- Cash and cash equivalents at end of period....................................... $ 3,974 $ 6,669 $ 9,865 --------- --------- ---------- --------- --------- ---------- Supplemental disclosure of cash flow information: Cash paid for income taxes..................................................... $ 60 $ 154 $ 1,183 --------- --------- ---------- --------- --------- ---------- Cash paid for interest......................................................... $ 204 $ 62 $ 142 --------- --------- ---------- --------- --------- ----------
The accompanying notes are an integral part of these consolidated financial statements. 42 CENTURA SOFTWARE CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) (IN THOUSANDS, EXCEPT SHARE DATA)
COMMON STOCK CUMULATIVE -------------------- TRANSLATION (ACCUMULATED SHARES AMOUNT ADJUSTMENT DEFICIT) TOTAL --------- --------- ------------- ------------ ---------- Balances, December 31, 1994.......................... 12,041 $ 56,277 $ (202) $ (37,405) $ 18,670 Issuance of common stock under stock option plans............................................ 243 397 -- -- 397 Issuance of common stock under Employee Stock Purchase Plan.................................... 98 903 -- -- 903 Cumulative translation adjustment.................. -- -- 52 -- 52 Net loss........................................... -- -- -- (44,079) (44,079) --------- --------- ----- ------------ ---------- Balances, December 31, 1995.......................... 12,382 57,577 (150) (81,484) (24,057) Issuance of common stock under stock option plans............................................ 198 362 -- -- 362 Issuance of common stock under Employee Stock Purchase Plan.................................... 100 225 -- -- 225 Issuance of common stock in relation to settlement of class action securities litigation............ 1,048 4,718 -- -- 4,718 Issuance of stock warrants for 100,000 shares related to merger with InfoSpinner, Inc.......... -- 165 -- -- 165 Cumulative translation adjustment.................. -- -- (363) -- (363) Net income......................................... -- -- -- 2,027 2,027 --------- --------- ----- ------------ ---------- Balances, December 31, 1996.......................... 13,728 63,047 (513) (79,457) (16,923) Issuance of common stock under stock option plans............................................ 472 674 -- -- 674 Issuance of common stock under Employee Stock Purchase Plan.................................... 132 279 -- -- 279 Issuance of common stock in relation to settlement of class action securities litigation............ 1,452 6,533 -- -- 6,533 Issuance of stock warrants for 100,000 shares in connection with short-term borrowings............ -- 103 -- -- 103 Cumulative translation adjustment.................. -- -- 29 -- 29 Net loss........................................... -- -- -- (649) (649) --------- --------- ----- ------------ ---------- Balances, December 31, 1997.......................... 15,784 $ 70,636 $ (484) $ (80,106) $ (9,954) --------- --------- ----- ------------ ---------- --------- --------- ----- ------------ ----------
The accompanying notes are an integral part of these consolidated financial statements. 43 CENTURA SOFTWARE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. BUSINESS AND RISK FACTORS: Centura Software Corporation (the "Company"), formerly Gupta Corporation, develops, markets and supports an integrated set of software solutions for the PC client/server system market. On January 6, 1997, the Company entered into a definitive agreement (the "Agreement") to acquire InfoSpinner, Inc. ("InfoSpinner") of Richardson, Texas. The completion of the transaction was subject to the approval of both companies' shareholders as well as other legal requirements. In addition, under the terms of the Agreement, either party had the right to terminate the transaction if the merger had not been consummated by April 30, 1997. As of April 30, 1997, the Company did not obtain the majority vote of the shareholders required for the approval of the proposed merger, and as a result, the board of directors of InfoSpinner elected to exercise its right to terminate the transaction. The Company has in the past experienced significant losses from operations, and as a result its liquidity and capital resources have declined. Management implemented measures which improved its operating results, including cost-cutting measures, new product introductions and refocused marketing and technological efforts on the Company's core competencies. However, the Company's future profitability is subject to certain risks, including competition from larger companies with greater financial resources, its ability to raise additional financing, if needed, its ability to retain key personnel and its ability to successfully develop, produce and market new products. Management believes that the recent measures combined with the introduction of new products and the refocus on core competencies has heightened the possibility of the Company to improve cash flow. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reported period. Actual results could differ materially from those estimates. NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include the financial statements of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. CASH AND CASH EQUIVALENTS. The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. FINANCIAL INSTRUMENTS. Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, investments, and accounts receivable. At December 31, 1997, the Company's cash and cash equivalents include Money Market accounts and Certificates of Deposit. Cost approximates market value of the securities at December 31, 1997. The Company generally does not require collateral for its receivables and maintains reserves for potential credit losses. The Company accounts for investments under the Statement of Financial Accounting Standards No. 115 ("SFAS 115"), "Accounting for Certain Investments in Debt and Equity Securities". SFAS 115 establishes standards for financial accounting and reporting for investments in equity securities that have readily determinable fair values and for all investments in debt securities. Each investment is classified into one of three categories: held-to-maturity, available-for-sale or trading. Investments which the Company 44 CENTURA SOFTWARE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) has the intent and ability to hold until maturity are classified as held-to-maturity and are recorded at amortized cost. The Company enters into forward contracts to reduce the risks associated with foreign currency fluctuations on net assets denominated in foreign currencies. At December 31, 1997, the Company had $5,980,000 in forward contracts denominated in four European currencies; German Deutsche Marks, British Pounds Sterling, Netherland Guilders, and Italian Lire. At December 31, 1996 the Company had $400,000 forward contracts denominated in Mexican Pesos. The carrying value of all other financial instruments approximate their respective fair values. See Note 13, "Subsequent Events". INVENTORIES. Inventories are stated at the lower of cost (determined on a first-in, first-out basis) or market, and consist principally of finished goods. PROPERTY AND EQUIPMENT. Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of three to five years. Leasehold improvements are amortized over the life of the lease or the estimated useful life, whichever is shorter. CAPITALIZED SOFTWARE DEVELOPMENT COSTS. The Company capitalizes internally generated software development costs and purchased software in compliance with Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed". Capitalization of internally generated software development costs begins upon the establishment of technological feasibility of the product, which the Company defines as the time when a complete product is available. The Company makes an ongoing assessment of the recoverability of these costs which requires considerable judgment by management with respect to certain external factors, including but not limited to, anticipated future gross product revenue, estimated economic life and changes in software and hardware technology. Internally generated software development costs capitalized were $1,018,000 and $1,865,000 for the years ended December 31, 1997 and 1996, respectively. The Company did not capitalize and purchased software in 1997 and capitalized $1,025,000 of purchased software in 1996. Amortization of all capitalized software costs begins when a product is available for general release to customers, and is computed separately for each product as the greater of (a) current gross revenue for a product to the total of current and anticipated gross revenue for the product, or (b) the straight-line method over the remaining estimated economic life of the product, up to three years. Amortization and adjustments are included in cost of product revenues and amounted to $2,671,000, $1,644,000 and $5,580,000, which included the write-off of $3,360,000 in previously capitalized development costs, for the years ended December 31, 1997, 1996 and 1995, respectively. FOREIGN CURRENCY TRANSACTIONS. The functional currency of each foreign subsidiary is the local currency. For these operations, assets and liabilities are translated into U.S. dollars at period-end exchange rates, and income and expense accounts are translated at a rate that approximates the average exchange rate prevailing during the period. The resulting translation adjustments are recorded as a separate component of shareholders' equity (deficit). Gains and losses from foreign currency-denominated transactions effected by the Company's U.S. operations are included in other income (expense). REVENUE RECOGNITION. The Company receives licensing fees from certain resellers (including original equipment manufacturers) under product licensing arrangements. Such fees are recorded as revenue as 45 CENTURA SOFTWARE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) product is sold and reported to the Company by the reseller when ongoing significant post delivery obligations exist. When no such obligations exist, such fees are recorded as revenue when the product is shipped and collectability is probable. For licensing agreements with end-users, fees are recognized upon shipment of product, if there are no significant post-delivery obligations and collectibility is probable. Service revenues from customer maintenance fees for ongoing customer support and product updates, including maintenance bundled with software licenses, is recognized ratably over the period of the contract. When licensing agreements terminate, the Company records any licensing fees previously not recognized. Revenue from other services, including training, are recognized as performed. The Company enters into agreements with certain of its distributors involving boxed product. Revenues from these distributors are generally recognized when the product is shipped and are reduced by management's estimate of anticipated stock exchanges based on historical experience. License maintenance and telephone support contracts are typically paid in advance, and revenue is recognized ratably over the term of the contract. In October 1997, the American Institute of Certified Public Accountants issued Statement of Position No. 97-2 ("SOP 97-2"), "Software Revenue Recognition", which the Company currently intends to adopt for transactions entered into the fiscal year beginning January 1, 1998. SOP 97-2 provides guidance on recognizing revenue on software transactions and supersedes SOP 91-1, "Software Revenue Recognition". The Company believes that the adoption of SOP 97-2 will not have a significant impact on its current licensing or revenue recognition practices. NET INCOME (LOSS) PER SHARE. The Company has adopted Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share" ("SFAS 128"). SFAS 128 requires the presentation of basic earnings per share ("EPS") and diluted EPS, for companies with potentially dilutive securities, such as options. Earnings per share for all prior periods have been restated to conform with the provisions of SFAS 128. Basic earnings per share is computed using the weighted average number of shares of common stock. Diluted earnings per share is computed using the weighted average number of shares of common stock, common equivalent shares outstanding during the period. Common equivalent shares consist of convertible preferred stock (using the if converted method) and stock options and warrants (using the treasury stock method). Common equivalent shares are excluded from the computation if their effect is antidilutive. For the year ended December 31, 1996, 149,000 options and warrants to purchase common stock were included within the computation of diluted EPS. Antidilutive options and warrants to purchase 4,055,000, 2,935,000, and 3,633,000 shares of common stock were outstanding at December 31, 1997, 1996 and 1995, respectively. Antidilutive convertible debt to convert to 3,774,000 and 1,832,000 shares of common stock were outstanding at December 31, 1996, and 1995, respectively. No such shares were outstanding at December 31, 1997 as the Company lost the conversion option during 1997. STOCK-BASED COMPENSATION. During 1995, the FASB issued Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation", which requires companies to measure employee stock compensation based on the fair value method of accounting or to continue to apply the provisions of Accounting Principles Board Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to Employees", and provide pro forma footnote disclosure under the fair value method described in SFAS 123. The Company adopted SFAS 123 on January 1, 1996, and will continue to apply the principles of 46 CENTURA SOFTWARE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) APB 25, while providing the pro forma footnote disclosure required by SFAS 123. See Note 8 "Capital Stock," for the required pro-forma disclosure. RECENT ACCOUNTING PRONOUNCEMENT. In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 establishes standards for the reporting of comprehensive income and its components in a full set of general-purpose financial statements for periods ending after December 15, 1997. Reclassification of financial statements for earlier periods for comparative purposes is required. The Company will adopt SFAS 130 in 1998 and does not expect such adoption to have a material effect on the consolidated financial statements. 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 131"). SFAS 131 revises information regarding the reporting of operating segments. It also establishes standards for related disclosures about products and services, geographic areas and major customers. The Company will adopt SFAS 131 beginning in 1998 and has not evaluated the impact of such adoption on the notes to its consolidated financial statements. RECLASSIFICATIONS. In order to conform to the 1997 presentation, certain reclassifications have been made to the 1996 and 1995 consolidated financial statements. NOTE 3. BALANCE SHEET DETAIL: Property and equipment, at cost, net of accumulated depreciation consists of the following:
DECEMBER 31, ---------------------- 1997 1996 ---------- ---------- (IN THOUSANDS) Computer equipment.................................................... $ 16,418 $ 16,253 Furniture and fixtures................................................ 1,997 2,045 Leasehold improvements................................................ 2,075 491 ---------- ---------- 20,490 18,789 Less: accumulated depreciation and amortization....................... (16,979) (15,167) ---------- ---------- $ 3,511 $ 3,622 ---------- ---------- ---------- ----------
Capitalized software, at cost, net of accumulated amortization consists of the following:
DECEMBER 31, -------------------- 1997 1996 --------- --------- (IN THOUSANDS) Internally developed software............................................ $ 7,142 $ 6,124 Purchased software....................................................... 3,852 3,852 --------- --------- 10,994 9,976 Less: accumulated amortization........................................... (8,421) (5,750) --------- --------- $ 2,573 $ 4,226 --------- --------- --------- ---------
47 CENTURA SOFTWARE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 3. BALANCE SHEET DETAIL: (CONTINUED) Deferred revenue consists of the following:
DECEMBER 31, -------------------- 1997 1996 --------- --------- (IN THOUSANDS) Deferred product revenue................................................ $ 7,152 $ 15,002 Deferred support revenue................................................ 7,466 6,889 --------- --------- $ 14,618 $ 21,891 --------- --------- --------- ---------
NOTE 4. SHORT-TERM BORROWINGS On June 26, 1997, the Company entered into a one year agreement to factor, with recourse, certain accounts receivable. Under the terms of the agreement, the Company may factor accounts receivable at an advance rate of eighty percent of such eligible accounts receivable. Interest is calculated at the rate of 1.2% per month based on the average daily balance outstanding. As of December 31, 1997 total eligible accounts receivable factored were $1,581,000. See Note 8, "Capital Stock--Warrants" and Note 13, "Subsequent Events." NOTE 5. RESTRUCTURING CHARGES: In December 1995, the Company approved a plan to restructure its operations to meet emerging market opportunities in next generation client/server computing. In connection with the restructuring, the Company reduced its worldwide headcount by approximately 16% and consolidated facilities and operations to improve efficiency. The following analysis sets forth the significant components of the restructuring charge included in other accrued liabilities at December 31, 1997, 1996 and 1995:
SEVERANCE AND FACILITY BENEFITS CHARGES OTHER TOTAL ----------- ----------- --------- --------- Accrued liability at December 31, 1995......................... $ 1,623 $ 1,029 $ 493 $ 3,145 Less: payments applied......................................... (1,400) (466) (493) (2,359) Reversal of reserve............................................ (223) -- -- (223) ----------- ----------- --------- --------- Accrued liability at December 31, 1996......................... -- 563 -- 563 ----------- ----------- --------- --------- Less: payments applied......................................... (89) (89) Reversal of reserve............................................ -- (474) -- (474) ----------- ----------- --------- --------- Accrued liability at December 31, 1997......................... $ -- $ -- $ -- $ -- ----------- ----------- --------- --------- ----------- ----------- --------- ---------
In November 1997, the Company incurred restructuring charges of $1,504,000, which included a write-off of $640,000 in prepaid royalties, $344,000 of severance benefits for certain executives and employees and a $520,000 write-off of other assets, partially offset by the reversal of $474,000 of reserves established in prior periods due to changes in estimates. The decision to write-off the existing prepaid royalty and other assets was associated with the Company's decision to discontinue certain products. At December 31, 1997 $290,000 related to the restructuring charge was included in other current liabilities. The Company expects to pay all remaining obligations related to these charges in 1998. 48 CENTURA SOFTWARE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 5. RESTRUCTURING CHARGES: (CONTINUED) The 1996 results of operations include the reversal of $223,000 of restructuring reserves due to changes in estimates. NOTE 6. LONG-TERM DEBT: Long-term debt consists of the following:
DECEMBER 31, --------------------- 1997 1996 ---------- --------- (IN THOUSANDS) Subordinated note payable.............................................. $ 10,000 $ 10,000 Other note payable..................................................... -- 368 ---------- --------- 10,000 10,368 Less: current portion.................................................. (10,000) (336) ---------- --------- Long-term debt......................................................... $ -- $ 10,032 ---------- --------- ---------- ---------
The Company entered into an unsecured floating rate convertible subordinated note and related agreement CA (the "CA Agreement") in March 1995 for $10,000,000. The CA Agreement matures on March 31, 1998 and was convertible into common stock at the Company's option on the maturity date for a number of shares based on the market price of the Company's common stock at the time of conversion. Interest on the note is calculated based on the one-month LIBOR plus 1.25% and is payable quarterly. At the Company's option interest payments may be deferred until the principal is due. The conversion to common stock requires the Company to maintain a minimum market capitalization of $40.0 million commencing on (and including) November 1, 1997, and continuing through the duration of the note (the "Minimum Market Capitalization Requirement"). The Company did not meet the Minimum Market Capitalization Requirement and lost the option to convert the note into common stock. Accrued interest totaled $2,112,000 and $1,300,000 and is included in other accrued liabilities and other long-term liabilities at December 31, 1997 and 1996, respectively. See Note 13. "Subsequent Events". NOTE 7. COMMITMENTS AND CONTINGENCIES: The Company has long-term noncancelable lease commitments for office space and equipment. At December 31, 1997, future minimum rental payments under noncancelable operating leases are as follows (in thousands): 1998............................................................... $ 3,852 1999............................................................... 3,433 2000............................................................... 2,641 2001............................................................... 2,069 2002............................................................... 1,472 Thereafter......................................................... 121 --------- $ 13,588 --------- ---------
Rent expense for the years ended December 31, 1997, 1996 and 1995, amounted to $3,057,000, $3,235,000, and $3,524,000, respectively. 49 CENTURA SOFTWARE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 7. COMMITMENTS AND CONTINGENCIES: (CONTINUED) On May 2, 1994, a lawsuit was filed against the Company and certain of its officers and directors, by a holder of the Company's common stock, on his own behalf and purportedly on behalf of a class of others similarly situated. The lawsuit was subsequently amended, and alleged that the Company made false and misleading statements and failed to disclose material information relating to existing business conditions and the Company's prospects and that officers and directors violated the insider trading laws. The plaintiff was seeking damages of an unstated amount. The Company reached a binding settlement agreement (the "Settlement Agreement") with plaintiffs' counsel in the lawsuit, and gained court approval of the Settlement Agreement on September 30, 1996. As part of the settlement, the Company agreed to provide up to a maximum of 2,500,000 shares of its common stock (the "Settlement Shares") to a fund to be distributed among the members of the plaintiff class. As of December 31, 1997, 2,500,000 shares have been issued and distributed under the settlement agreement and no additional shares are required to be issued. The 1995 Consolidated Financial Statements include $15,300,000 in litigation expense arising from the settlement agreement and associated legal expenses. On September 17, 1997, Technology Venture (Software) Holdings Limited, formerly known as Eagerquest Investments Limited ("Eagerquest") filed suit against the Company in the United States District Court for the Central District of California alleging that the Company acted improperly in terminating its contract with Eagerquest for the distribution of the Company's products in the territories of Hong Kong and China and that the Company's actions illegally damaged Eagerquest. The Company believes that its actions were within its rights under its contract with Eagerquest and that the allegations are without merit. The Company intends to defend itself vigorously in this action and that the outcome will not have a material adverse affect on the Company's financial situation or business prospects. NOTE 8. CAPITAL STOCK INCENTIVE STOCK OPTION PLAN. Under the Company's 1986 Incentive Stock Option Plan, as amended, (the "86 ISOP"), 6,000,000 shares of common stock have been reserved for issuance to eligible employees, directors and consultants. Under the 86 ISOP, incentive stock options or nonstatutory stock options may be granted at prices not less than fair market value of the Company's common stock at the date of grant (85% for nonstatutory options). The options generally vest over a four year period, beginning one year after the date of grant. Unexercised options expire one to three months after termination of employment with the Company. In July 1996 the 86 ISOP was terminated and shares in the plan available for grant at that time have been canceled. Under the Company's 1995 Incentive Stock Option Plan, as amended, (the "95 ISOP"), 1,000,000 shares of common stock were initially reserved for issuance to eligible employees, directors and consultants. In September, 1996, an additional 1,000,000 shares were reserved increasing the total to 2,000,0000 shares. Under the 95 ISOP, incentive stock options or nonstatutory stock options may be granted at prices not less than fair market value of the Company's common stock at the date of grant (85% for nonstatutory options). The options generally vest over a four year period, beginning one year after the date of grant. Unexercised options expire three months after termination of employment with the Company. During 1997, 1996, and 1995, holders of stock options were granted the opportunity to exchange previously granted stock options for new stock options exercisable at $1.50, $5.94 and $9.00 per share, respectively, the fair market value of common stock on the dates of exchange. The remaining original 50 CENTURA SOFTWARE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 8. CAPITAL STOCK (CONTINUED) terms of the stock options were not changed. Options to purchase 2,844,000, 2,337,000, and 904,000 shares of common stock were exchanged in the 1997, 1996, and 1995 repricing, respectively. The following table summarizes the stock activity under the 86 ISOP and 95 ISOP:
OPTION PRICE PER OPTION SHARES SHARE -------------------------- -------------------- AVAILABLE OUTSTANDING LOW HIGH ----------- ------------- --------- --------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Balances, December 31, 1994.......................................... 682 2,333 $ 0.250 $ 27.250 Shares authorized.................................................... 1,000 -- Options granted...................................................... (3,606) 3,606 $ 6.625 $ 13.125 Options exercised.................................................... -- (243) $ 0.500 $ 10.750 Options canceled..................................................... 2,163 (2,163) $ 0.500 $ 20.000 ----------- ------ Balances, December 31, 1995.......................................... 239 3,533 $ 0.250 $ 27.250 Shares authorized.................................................... 1,000 -- Shares discontinued.................................................. (689) -- Options granted...................................................... (2,886) 2,886 $ 4.250 $ 6.625 Options exercised.................................................... -- (198) $ 3.375 $ 6.500 Options canceled..................................................... 3,536 (3,536) $ 1.250 $ 27.250 ----------- ------ Balances, December 31, 1996.......................................... 1,200 2,685 $ 0.250 $ 12.062 Shares discontinued.................................................. (545) -- Options granted...................................................... (3,682) 3,682 $ 1.500 $ 5.000 Options exercised.................................................... -- (472) $ .250 $ 1.625 Options canceled..................................................... 3,740 (3,740) $ 1.250 $ 10.750 ----------- ------ Balances, December 31, 1997.......................................... 713 2,155 ----------- ------ ----------- ------
DIRECTORS STOCK OPTION PLAN. Under the 1996 Directors' Stock Option Plan (the "96 DSOP"), 500,000 shares of common stock have been reserved for issuance to non-employee directors of the Company. The 96 DSOP provides that each outside Director will be automatically granted a non-statutory stock option to purchase 50,000 shares of common stock on the later of the following events occurring: (a) the effective date of the plan, or (b) the date on which such person first becomes a non-employee Director, provided that such Director agrees to cancel all options granted to such Director from a prior Directors' stock option plan, other than the initial 20,000 shares granted to the Director under such plan. The options become exercisable in installments cumulatively as to 1/48 of the shares on each of the first forty-eight monthly anniversaries of the grant date. The options will remain exercisable for up to ninety days following the optionee's termination of service as a director of the Company unless such termination is a result of death, in which case the options will remain exercisable for up to 6 month period. Options are granted at a price equal to the fair market value of the Company's common stock on the date of the grant. Options granted under the 96 DSOP have a term of ten years. 200,000 options were granted and 50,000 options were canceled in 1997. 250,000 options were granted and 100,000 options were canceled in 1996 under the 96 DSOP. At December 31, 1997 300,000 options are issued and outstanding and 200,000 options are available for future grants under the 96 DSOP. 51 CENTURA SOFTWARE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 8. CAPITAL STOCK (CONTINUED) OTHER STOCK OPTIONS. In November 1997, the Company granted 1,500,000 options to certain executive officers as an option grant external to the 86 ISOP, or the 95 ISOP. The options vest over a period of two years from the date of grant and exercisable at $1.91 per share. The following table summarizes information regarding all stock options outstanding at December 31, 1997:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------------------- ------------------------------ WEIGHTED- NUMBER NUMBER AVERAGE EXERCISABLE OUTSTANDING AT REMAINING WEIGHTED- AT DECEMBER WEIGHTED- DECEMBER 31, CONTRACTUAL AVERAGE 31, AVERAGE RANGE OF EXERCISE PRICES 1997 LIFE (YEARS) EXERCISE PRICE 1997 EXERCISE PRICE - --------------------------------------- -------------- --------------- --------------- ------------- --------------- $0.5000 to $1.9063..................... 3,627,853 5.24 $ 1.69 819,062 $ 1.49 $2.3125 to $5.9375..................... 171,000 8.41 $ 2.76 46,375 $ 3.90 $6.1250 to $10.750..................... 155,667 8.00 $ 6.29 77,072 $ 6.44 -------------- ----- ------------- 3,954,520 5.49 $ 1.92 942,509 $ 2.02 -------------- ----- ------------- -------------- ----- -------------
EMPLOYEE STOCK PURCHASE PLAN. Under the 1992 Employee Stock Purchase Plan (the "ESPP"), 300,000 shares of common stock were initially reserved for issuance to eligible employees. In 1996, 100,000 additional shares of common stock were reserved for issuance to eligible employees increasing the total to 400,000. The ESPP permits employees to purchase common stock through payroll deductions, which may not exceed 10% of an employee's compensation, at a price equal to the lower of 85% of the fair market value of the Company's common stock at the beginning or end of the offering period. The ESPP became effective upon the Company's initial public offering and 132,000, 100,000 and 98,000 purchase rights were issued in 1997, 1996 and 1995, respectively. At December 31, 1997 there were no ESPP shares available for employee purchases. WARRANTS. In June 1997, the Company issued warrants to purchase 90,000 and 10,000 shares of common stock to Pacific Business Funding Corporation and its affiliate Sand Hill Capital, LLC, at an exercise price of $2.09 per share. The warrants were valued at $103,000 using a risk-free rate of 6.33% and a volatility factor of 55%, and the related charge is included in general and administrative expenses in 1997. The warrants expire on June 30, 2002. Warrants to purchase 100,000 shares of common stock were issued by the Company on November 22, 1996 in connection with a potential acquisition of InfoSpinner, Inc. These warrants were valued at $165,000, using a risk-free rate of 5.97% and a volatility factor of 55%, and are included in acquisition expenses in 1996. Exercise of the warrants was contingent upon completion of the proposed acquisition. As the Company did not obtain the majority vote of its shareholders required for approval of the proposed acquisition within the designated time frame, the warrants have been cancelled. 52 CENTURA SOFTWARE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 8. CAPITAL STOCK (CONTINUED) SHARES RESERVED FOR FUTURE ISSUANCE. The following table summarizes shares of common stock reserved for future issuance as of December 31, 1997 (in thousands): Incentive stock option plan...................................... 713,437 Directors' stock option plan..................................... 200,000 Employee stock purchase plan..................................... -- --------- 913,437 --------- ---------
PRO FORMA STOCK COMPENSATION DISCLOSURE. The Company applies the provisions of APB 25 and related interpretations in accounting for compensation expense under the 95 ISOP, 96 DSOP and ESPP. Had compensation expense under these plans been determined pursuant to SFAS 123, the Company's net income (loss) and net income (loss) per share for the years ended December 31, 1997, 1996 and 1995 would have been as follows:
YEAR ENDED DECEMBER 31, -------------------------------- 1997 1996 1995 --------- --------- ---------- (IN THOUSANDS, EXCEPT, PER SHARE DATA) Net income (loss): As reported........................................... $ (649) $ 2,027 $ (44,079) Pro-forma............................................. $ (5,512) $ (3,594) $ (46,548) Basic and diluted net income (loss) per share: As reported........................................... $ (0.04) $ .15 $ (3.62) Pro-forma............................................. $ (.36) $ (.27) $ (3.82)
The fair value of each stock option granted under the 86 and 95 ISOP and 96 DSOP was estimated using the Black-Scholes model with the following assumptions: zero dividend yield; an expected life of 48 months; weighted average expected volatility of 65%, 63.54% and 67.49% in 1997, 1996 and in 1995; and a weighted average risk-free interest rate of 6.20%, 5.57% and 6.21% in 1997, 1996 and 1995. The weighted average fair value of stock options granted under the 95 ISOP, the 96 DSOP and non-plan options for the years ended December 31, 1997, 1996, and 1995 were $.91, $3.06 and $5.28, respectively. The fair value of the shares granted under the ESPP is considered to have an immaterial impact on this calculation. The above pro forma amounts include compensation expense based on the fair value of stock options granted and vesting during the years ended December 31, 1997, 1996 and 1995, and exclude the effects of stock options granted prior to January 1, 1995. Accordingly, the above pro forma net income and net income per share are not representative of the effects of computing stock compensation expense using the fair value method for future periods. SHAREHOLDER RIGHTS PLAN. In August 1994, the Company adopted a Shareholder Rights Plan pursuant to which one Preferred Share Purchase "Right" was distributed for each outstanding share of common stock. Each Right entitles shareholders to purchase a fraction of a share of Preferred Stock at an exercise price of $60.00 upon certain events. The Rights expire on August 3, 2004, unless earlier redeemed by the Company. 53 CENTURA SOFTWARE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 8. CAPITAL STOCK (CONTINUED) The Rights become exercisable if a person acquires 15% or more of the Company's common stock or announces a tender offer that would result in such person owning 15% or more of the Company's common stock. If the Rights become exercisable, the holder of each Right (other than the person whose acquisition triggered the exercisability of the Rights) will be entitled to purchase, at the Right's then current exercise price, a number of shares of the Company's common stock having a market value of twice the exercise price. In addition, if the Company were to be acquired in a merger or the Company sells more than 50% of its assets or earning power, each Right will entitle its holder to purchase, at the Right's then current exercise price, common stock of the acquiring company having a market value of twice the exercise price. The Rights are redeemable by the Company at a price of $.01 per Right at any time within ten days after a person has acquired 15% or more of the Company's common stock. NOTE 9. INCOME TAXES: Operating income (loss) before income taxes are attributable to the following jurisdictions:
YEAR END DECEMBER 31, -------------------------------- 1997 1996 1995 --------- --------- ---------- (IN THOUSANDS) Domestic....................................................... $ 360 $ 2,903 $ (42,182) Foreign........................................................ (947) (398) (1,897) --------- --------- ---------- $ (587) $ 2,505 $ (44,079) --------- --------- ---------- --------- --------- ----------
The provision for income taxes on income (loss) before income taxes primarily consists of foreign withholding taxes. The difference between income taxes at the statutory federal income tax rate and income taxes reported in the income statement are primarily the result of foreign withholding taxes. 54 CENTURA SOFTWARE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 9. INCOME TAXES: (CONTINUED) Deferred income taxes result from temporary differences in the recognition of certain expenses for financial and income tax reporting purposes. The net deferred tax asset consisted of the following:
DECEMBER 31, ---------------------- 1997 1996 ---------- ---------- (IN THOUSANDS) Deferred tax assets: Net operating losses................................................ $ 26,437 $ 21,414 Nondeductible reserves.............................................. 1,333 4,486 Credit carryforwards................................................ 4,521 3,756 Deferred revenue.................................................... 5,146 8,379 Depreciation........................................................ 482 534 ---------- ---------- Gross deferred tax asset.......................................... 37,919 38,569 Less: valuation allowance........................................... (37,133) (37,585) ---------- ---------- Net deferred tax asset............................................ 786 984 ---------- ---------- Deferred tax liabilities: Software capitalization............................................. (786) (984) ---------- ---------- Total net deferred tax assets (liabilities)........................... $ -- $ -- ---------- ---------- ---------- ----------
At December 31, 1997, the Company had net operating loss carryforwards of approximately $70.2 million available to offset future federal taxable income and $30.8 million available to offset future state taxes, which expire through 2012. The availability and timing of these carryforwards to offset future taxable income may be limited due to the occurrence of certain events, including certain changes in ownership interests. At December 31, 1997 and 1996, the Company fully reserved its deferred tax assets due to the existence of sufficient uncertainty with respect to its the ability to realize the deferred tax assets. 55 CENTURA SOFTWARE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 10. SEGMENT INFORMATION: The Company participates in one industry segment: the development and marketing of computer software and related services. No one customer has accounted for more than 10% of consolidated annual revenues. The following table presents a summary of operations by geographic region:
NORTH REST OF AMERICA EUROPE WORLD TOTAL ---------- --------- --------- ---------- (IN THOUSANDS) Year ended December 31, 1997: Total revenues................................ $ 24,473 $ 27,650 $ 5,823 $ 57,946 Operating income (loss)....................... (12,787) 11,742 2,275 1,230 Identifiable assets at year end............... 22,329 4,843 1,028 $ 28,200 Year ended December 31, 1996: Total revenues................................ $ 25,332 $ 27,551 $ 10,350 $ 63,233 Operating income (loss)....................... (4,472) 3,932 3,024 2,484 Identifiable assets at year end............... 30,281 5,443 981 36,705 Year ended December 31, 1995: Total revenues................................ $ 25,644 $ 28,679 $ 11,391 $ 65,714 Operating income (loss)....................... (38,936) (4,061) 4 (42,993) Identifiable assets at year end............... 40,482 7,124 498 48,104
Revenues have been allocated to geographic regions based primarily upon destination of product shipment. Operating income (loss) represents total revenue less operating expenses. In computing operating income (loss), all general corporate expenses have been allocated to North American operations, and cost of product revenues have been allocated based upon revenues attributable to each region. NOTE 11. EMPLOYEE BENEFIT PLAN: The Company has a Savings Plan (the "Plan") as allowed under Section 401(k) of the Internal Revenue Code. The Plan provides employees with tax deferred salary deductions and a number of investment options. The Plan allows for contributions by the Company as determined annually by the Board of Directors. The Company has not contributed to the Plan since its inception. NOTE 12. RELATED PARTY TRANSACTIONS: The Company recognized revenue of $750,000, $664,000 and $2,450,000 for the years ended December 31, 1997, 1996, and 1995 respectively, from Computer Associates International, Inc., the holder of the floating rate subordinated convertible debenture. The Company has the option to acquire 100% of the outstanding stock of one of its independent foreign distributors, using a purchase price formula based on net profits and revenues. The Company recognized revenue of $489,000, $1,783,000 and $2,007,000 for the years ended December 31, 1997, 1996, and 1995 from this distributor. NOTE 13. SUBSEQUENT EVENTS: LOAN FACILITY. In January 1998, the Company entered into a $5,000,000 asset based loan facility with Coast Business Credit, the "Facility". The loan provides for borrowings of up to $5,000,000, secured by the 56 CENTURA SOFTWARE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 13. SUBSEQUENT EVENTS: (CONTINUED) Company's accounts receivable, combined with a $500,000 capital equipment facility. The Facility bears interest at 2.25% above the Bank of America Reference Rate, and provides for ability to reduce interest cost based on the achievement of certain financial covenants. The Facility matures in January 2000 and provides for the ability to extend the agreement for one year at the option of the Company. The facility replaces an accounts receivable factoring agreement entered into by the Company in June 1997. SALE AND CONVERSION OF NOTE PAYABLE. In February 1998, Computer Associates, Inc. ("CA"), and Newport Acquisition Company, LLP ("NAC") entered into a Note Purchase and Sale Agreement and the Company and NAC entered into a Note Conversion Agreement (the "Agreements"). Under the terms of the Agreements, a promissory note, plus accrued interest, in the amount of $12,251,000, payable to CA (the "CA Note") was acquired by NAC, and immediately converted into 11,415,094 shares of the Company's common stock (the "Shares"). In February 1998, in connection with the Agreements, the Company entered into a Warrant Purchase Agreement with CA wherein the Company sold and issued to CA, at an issuance price of $.001 per share, a warrant to purchase 500,000 shares of the Company's common stock. The warrant is exercisable at $1.906 per share and expires on February 27, 2003. PRIVATE PLACEMENT. Also in February 1998, pursuant to the terms of Stock Purchase Agreements, the Company completed a private placement of 2,330,191 shares of the Company's common stock (the "Private Placement"), resulting in gross proceeds to the Company of $2,470,000. The Company has agreed to register the shares under the Securities Act of 1933, as amended. In connection with the Private Placement the Company issued warrants to purchase 582,548 shares of the Company's common stock. The warrants are exercisable at $1.25 per share and expire on February 28, 2003. Also, in consideration of services rendered in connection with the Private Placement, the Company issued to Rochon Capital Group, Ltd. warrants to purchase 354,717 shares of the Company's common stock at an exercise price of $2.12 (the "Rochon Warrants"). The Rochon Warrants expire on February 27, 2003. Transaction costs associated with both the Agreements and the Private Placement were approximately $600,000. 57 Schedule II CENTURA SOFTWARE CORPORATION VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
BALANCE AT ADDITIONS BALANCE AT BEGINNING OF CHARGED TO END OF DESCRIPTION THE YEAR EXPENSES WRITE-OFFS THE YEAR - --------------------------------------------------------------- ------------- ----------- ----------- ----------- 1997: Allowance for doubtful accounts.............................. $ 1,140 $ 530 $ (405) $ 1,265 Reserve for sales returns and allowances..................... 1,686 (343) (987) 356 ------ ----------- ----------- ----------- $ 2,826 $ 187 $ (1,392) $ 1,621 ------ ----------- ----------- ----------- ------ ----------- ----------- ----------- 1996: Allowance for doubtful accounts.............................. $ 1,529 $ 406 $ (795) $ 1,140 Reserve for sales returns and allowances..................... 1,946 180 (440) 1,686 ------ ----------- ----------- ----------- $ 3,475 $ 586 $ (1,235) $ 2,826 ------ ----------- ----------- ----------- ------ ----------- ----------- ----------- 1995: Allowance for doubtful accounts.............................. $ 1,007 $ 1,708 $ (1,186) $ 1,529 Reserve for sales returns and allowances..................... 1,884 5,430 (5,368) 1,946 ------ ----------- ----------- ----------- $ 2,891 $ 7,138 $ (6,554) $ 3,475 ------ ----------- ----------- ----------- ------ ----------- ----------- -----------
58 ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not Applicable. 59 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information regarding the executive officers and directors of the Company required by this item is contained in "Part I, Item 1. Business--Directors and Executive Officers of Registrant". Additional information required by this item is incorporated by reference from the Company's Proxy Statement for the 1998 Annual Meeting of Shareholders to be held June 17, 1998, a copy of which will be filed with the Securities and Exchange Commission no later than 120 days from the end of the Company's last fiscal year. ITEM 11. EXECUTIVE COMPENSATION Incorporated by reference from the Proxy Statement for the 1998 Annual Meeting of Shareholders to be held June 17, 1998, a copy of which will be filed with the Securities and Exchange Commission. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Incorporated by reference from the Proxy Statement for the 1998 Annual Meeting of Shareholders to be held June 17, 1998, a copy of which will be filed with the Securities and Exchange Commission. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Incorporated by reference from the Proxy Statement for the 1998 Annual Meeting of Shareholders to be held June 17, 1998, a copy of which will be filed with the Securities and Exchange Commission. 60 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this Report: (1) Financial Statements. The following financial statements of the Company are contained in Item 8 of this Annual Report on Form 10-K: 1. Report of Price Waterhouse LLP, Independent Accountants. 2. Consolidated Balance Sheets at December 31, 1997 and 1996. 3. Consolidated Statements of Operations for each of the three years in the period ended December 31, 1997. 4. Consolidated Statements of Shareholders' Equity (Deficit) at December 31, 1997, 1996 and 1995. 5. Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 1997. 6. Notes to Consolidated Financial Statements. (2) Financial Statement Schedules. The following financial statement schedules of the Company for the year ended December 31, 1997, 1996 and 1995 is contained in Item 8 of this Annual Report on Form 10-K: 1. II--Valuation and Qualifying Accounts 2. Report of Price Waterhouse LLP, Independent Accountants. Refer to Item 14(a)(1)1 above. Schedules not listed above have been omitted because they are either inapplicable or the required information has been given in Management's Discussion and Analysis of Financial Condition and Results of Operations or in the financial statements or the notes thereto. (3) Exhibits.--Refer to Item 14(c) below. (b) Reports on Form 8-K. The Company filed a report on Form 8-K dated December 9, 1997 announcing a change in its executive officers and Board membership and information relating to the Company's change in management. 61 (c) Exhibits:
EXHIBIT NUMBER DESCRIPTION - ---------------------- --------------------------------------------------------------------------------------------- 2.1 (1) Agreement and Plan of Reorganization dated January 6, 1997 by and among the Registrant, IS Acquisition Corporation and InfoSpinner, Inc. 2.2 (1) Form of Certificate of Merger among the Registrant, IS Acquisition Corporation and InfoSpinner, Inc. 3 (i)(2) Articles of Incorporation of Registrant, as amended on September 24, 1996. 3 (iii) Bylaws of Registrant, as amended effective February 27, 1998. 4.1 (13) Preferred Shares Rights Agreement, dated as of August 3, 1994, between the Registrant and Chemical Trust Company of California, including the Certificate of Determination of Rights, Preferences and Privileges of Series A Participating Preferred Stock, the form of Rights Certificate and the Summary of Rights, attached thereto as Exhibits A, B and C, respectively. 4.2 Amendment to Preferred Shares Rights Agreement effective February 27, 1998. 10.1 (3) Form of Directors' and Officers' Indemnification Agreement. 10.2 (4)(5) 1986 Incentive Stock Option Plan, as amended, and forms of agreements thereunder. 10.3 (3) 1991 United Kingdom Sub Plan and forms of agreement thereunder. 10.4 (2) 1992 Employee Stock Purchase Plan and forms of agreements thereunder, as amended on September 24, 1996. 10.5 (3)* 1992 Directors' Stock Option Plan and forms of agreements thereunder. 10.8 (3) Lease Agreement dated February 4, 1992 between Registrant and Bohannon Associates. 10.9 (6) 1996 Executive Officers' Compensation Plan. 10.12(3) Forms of License Agreements. 10.14(2) 1995 Stock Option Plan and forms of agreement thereunder, as amended on September 24, 1996. 10.16(7) Note Purchase Agreement dated March 31, 1996 between the Company and Computer Associates International, Inc. 10.17(8)* Executive Employment Agreement dated April 10, 1996 between the Company and Sam M. Inman III. 10.18(9)* Loan Agreement Secured by Property and Securities dated August 31, 1996 between the Company and Earl and Ann Stahl. 10.19(2)* 1996 Directors' Stock Option Plan and forms of agreement thereunder. 10.20(2) Stipulation of Settlement dated July 19, 1996, in regards to the Registrant's securities litigation between plaintiff's settlement counsel and the Registrant's counsel, including exhibits thereto, and related Final Judgment and Order of Dismissal dated September 30, 1996. 10.21(14) Distributorship Agreement dated January 6, 1997, between the Registrant and InfoSpinner, Inc. 10.22* Intentionally omitted.
62
EXHIBIT NUMBER DESCRIPTION - ---------------------- --------------------------------------------------------------------------------------------- 10.23(15) Factoring Agreement dated June 26, 1997, between Centura Software Corporation and Pacific Business Funding Corporation. 10.24(15) Warrant to Purchase Common Stock issued June 30, 1997 by Centura Software Corporation to Sand Hill Capital. 10.25(15)* 1997 Executive Retention Program. 10.26(16) Lease Agreement, dated October 14, 1996, between Westport Investment and the Registrant. 10.27* Letter Agreement dated November 5, 1997 between the Registrant and Hickey & Hill Incorporated, and form of Nonstatutory Stock Options issued to new Executives. 10.28* Settlement Agreements and Mutual Releases between the Registrant and Sam M. Inman, III and between the Registrant and Earl Stahl. 10.29 Loan and Security Agreement dated January 19, 1998 between the Registrant and Coast Business Credit, a division of Southern Pacific Bank. 10.30 Common Stock and Warrant Purchase Agreement dated February 27, 1998 between the Registrant and certain Purchasers of the Registrant's Common Stock. 10.31 Note Conversion Agreement dated February 27, 1998 between the Registrant and Newport Acquisition Company No. 2, LLC. 10.32 Warrant Purchase Agreement dated February 27, 1998 between the Registrant and Computer Associates International, Inc. 10.33 Investor Rights Agreement dated February 27, 1998 between the Registrant and Newport Acquisition Company No. 2, LLC. 10.34 Common Stock Purchase Warrants issued to Rochon Capital Group, Ltd. on February 27, 1998. 10.35* 1998 Employee Stock Option Plan and form of Nonstatutory Option Agreements thereunder. 11.1 (14) Statement regarding Computation of per share earnings. 16 (10)(11)(12) Letter regarding change in Certifying Accountant. 21 (1) Subsidiaries of Registrant. 23.1 Consent of Price Waterhouse LLP, Independent Accountants. 24.1 Power of Attorney. See Page 65. 27.1 Financial Data Schedules at December 31, 1997 and for the year ended December 31, 1997. 27.2 Financial Data Schedules for the three month periods ended March 31, June 30, and September 30, 1997, respectively, restated for the effect of the adoption of Statement of Financial Accounting Standard No. 128, "Earnings Per Share." 27.3 Financial Data Schedules for the three month periods ended March 31, June 30, and September 30, 1996, respectively, and years ended December 31, 1995 and 1996, restated for the effect of the adoption of Statement of Financial Accounting Standard No. 128, "Earnings Per Share."
- ------------------------ * Management Compensatory Plan or Arrangement. 63 (1) Incorporated by reference from the Company's Registration Statement on Form S-4 (No. 333-20491) filed with the Commission on January 27, 1997. (2) Incorporated by reference from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996. (3) Incorporated by reference from the Company's Registration Statement on Form S-1 (No. 33-55566), declared effective by the Commission on February 4, 1993. (4) Incorporated by reference from the Company's Registration Statement on Form S-8 (No. 33-62194) filed with the Commission on May 5, 1993. (5) Incorporated by reference from the Company's Registration Statement on Form S-8 (No. 33-83850) filed with the Commission on September 9, 1994. (6) Incorporated by reference from the Company's Annual Report on Form 10-K for the year ended December 31, 1995. (7) Incorporated by reference from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995. (8) Incorporated by reference from the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995. (9) Incorporated by reference from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995. (10) Incorporated by reference from the Company's Current Report on Form 8-K dated July 2, 1993. (11) Incorporated by reference from the Company's Current Report on Form 8-K dated October 11, 1995 as amended by Amendment No. 1 dated October 25, 1995 (Form 8-K/A). (12) Incorporated by reference from the Company's Current Report on Form 8-K dated January 8, 1996. (13) Incorporated by reference from the Company's Registration Statement on Form 8-A filed with the Commission on August 10, 1994. (14) Incorporated by reference from Amendment No. 1 to the Company's Registration Statement on Form S-4 filed with the Commission on March 10, 1997. (15) Incorporated by reference from the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997. (16) Incorporated by reference from the Company's Quarterly Report on Form 10-Q/A for the quarter ended June 30, 1997. 64 SIGNATURES Pursuant to the requirements of Section 13 and 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CENTURA SOFTWARE CORPORATION By: /s/ SCOTT R. BROOMFIELD Date: March 30, 1998 - ------------------------------ Scott R. Broomfield, PRESIDENT, CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF THE BOARD OF DIRECTORS (PRINCIPAL EXECUTIVE OFFICER) KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Scott R. Broomfield or John W. Bowman, or either of them, with the power to substitution, his attorney-in-fact and agents, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorney-in-fact, or substitute or substitutes may do or cause to be done by virtue thereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ SCOTT R. BROOMFIELD ------------------------------------------- Scott R. Broomfield, PRESIDENT, CHIEF EXECUTIVE Date: March 30, 1998 OFFICER AND CHAIRMAN OF THE BOARD OF DIRECTORS (PRINCIPAL EXECUTIVE OFFICER) /s/ JOHN W. BOWMAN ------------------------------------------- John W. Bowman, SENIOR VICE PRESIDENT, FINANCE Date: March 30, 1998 AND OPERATIONS AND CHIEF FINANCIAL OFFICER (PRINCIPAL FINANCIAL OFFICER) By: /s/ RICHARD LUCIEN ------------------------------------------- Richard Lucien, VICE PRESIDENT, CORPORATE Date: March 30, 1998 CONTROLLER (PRINCIPAL ACCOUNTING OFFICER) By: /s/ PETER MICCICHE ------------------------------------------- Date: March 30, 1998 Peter Micciche, DIRECTOR By: /s/ WILLIAM D. NICHOLAS ------------------------------------------- Date: March 30, 1998 William D. Nicholas, DIRECTOR By: /s/ EARL M. STAHL ------------------------------------------- Date: March 30, 1998 Earl M. Stahl, DIRECTOR 65 By: /s/ SAMUEL M. INMAN, III ------------------------------------------- Date: March 30, 1998 Samuel M. Inman, III, DIRECTOR By: /s/ PHILIP KOEN, JR. ------------------------------------------- Date: March 30, 1998 Philip Koen, Jr., DIRECTOR By: /s/ JACK KING ------------------------------------------- Date: March 30, 1998 Jack King, DIRECTOR
66 CENTURA SOFTWARE CORPORATION INDEX TO EXHIBITS
EXHIBIT SEQUENTIALLY NUMBER EXHIBIT NUMBERED PAGE - ---------------------- ------------------------------------------------------------------------------- ----------------- 2.1 (1) Agreement and Plan of Reorganization dated January 6, 1997 by and among the Registrant, IS Acquisition Corporation and InfoSpinner, Inc. 2.2 (1) Form of Certificate of Merger among the Registrant, IS Acquisition Corporation and InfoSpinner, Inc. 3 (i)(2) Articles of Incorporation of Registrant, as amended on September 24, 1996. 3 (iii) Bylaws of Registrant, as amended effective February 27, 1998. 4.1 (13) Preferred Shares Rights Agreement, dated as of August 3, 1994, between the Registrant and Chemical Trust Company of California, including the Certificate of Determination of Rights, Preferences and Privileges of Series A Participating Preferred Stock, the form of Rights Certificate and the Summary of Rights, attached thereto as Exhibits A, B and C, respectively. 4.2 Amendment to Preferred Shares Rights Agreement effective February 27, 1998. 10.1 (3) Form of Directors' and Officers' Indemnification Agreement. 10.2 (4)(5) 1986 Incentive Stock Option Plan, as amended, and forms of agreements thereunder. 10.3 (3) 1991 United Kingdom Sub Plan and forms of agreement thereunder. 10.4 (2) 1992 Employee Stock Purchase Plan and forms of agreements thereunder, as amended on September 24, 1996. 10.5 (3)* 1992 Directors' Stock Option Plan and forms of agreements thereunder. 10.8 (3) Lease Agreement dated February 4, 1992 between Registrant and Bohannon Associates. 10.9 (6) 1996 Executive Officers' Compensation Plan. 10.12(3) Forms of License Agreements. 10.14(2) 1995 Stock Option Plan and forms of agreement thereunder, as amended on September 24, 1996. 10.16(7) Note Purchase Agreement dated March 31, 1996 between the Company and Computer Associates International, Inc. 10.17(8)* Executive Employment Agreement dated April 10, 1996 between the Company and Sam M. Inman III. 10.18(9)* Loan Agreement Secured by Property and Securities dated August 31, 1996 between the Company and Earl and Ann Stahl. 10.19(2)* 1996 Directors' Stock Option Plan and forms of agreement thereunder. 10.20(2) Stipulation of Settlement dated July 19, 1996, in regards to the Registrant's securities litigation between plaintiff's settlement counsel and the Registrant's counsel, including exhibits thereto, and related Final Judgment and Order of Dismissal dated September 30, 1996.
EXHIBIT SEQUENTIALLY NUMBER EXHIBIT NUMBERED PAGE - ---------------------- ------------------------------------------------------------------------------- ----------------- 10.21(14) Distributorship Agreement dated January 6, 1997, between the Registrant and InfoSpinner, Inc. 10.22* Intentionally omitted. 10.23(15) Factoring Agreement dated June 26, 1997, between Centura Software Corporation and Pacific Business Funding Corporation. 10.24(15) Warrant to Purchase Common Stock issued June 30, 1997 by Centura Software Corporation to Sand Hill Capital. 10.25(15)* 1997 Executive Retention Program. 10.26(16) Lease Agreement, dated October 14, 1996, between Westport Investments and the Registrant. 10.27* Letter Agreement dated November 5, 1997 between the Registrant and Hickey & Hill Incorporated, and form of Nonstatutory Stock Options issued to new Executives. 10.28* Settlement Agreements and Mutual Releases between the Registrant and Sam M. Inman, III and between the Registrant and Earl Stahl. 10.29 Loan and Security Agreement dated January 19, 1998 between the Registrant and Coast Business Credit, a division of Southern Pacific Bank. 10.30 Common Stock and Warrant Purchase Agreement dated February 27, 1998 between the Registrant and certain Purchasers of the Registrant's Common Stock. 10.31 Note Conversion Agreement dated February 27, 1998 between the Registrant and Newport Acquisition Company No. 2, LLC. 10.32 Warrant Purchase Agreement dated February 27, 1998 between the Registrant and Computer Associates International, Inc. 10.33 Investor Rights Agreement dated February 27, 1998 between the Registrant and Newport Acquisition Company No. 2, LLC. 10.34 Common Stock Purchase Warrants issued to Rochon Capital Group, Ltd. on February 27, 1998. 10.35* 1998 Employee Stock Option Plan and form of Nonstatutory Option Agreements thereunder. 11.1 (14) Statement regarding Computation of per share earnings. 16 (10)(11)(12) Letter regarding change in Certifying Accountant. 21 (1) Subsidiaries of Registrant. 23.1 Consent of Price Waterhouse LLP, Independent Accountants. 24.1 Power of Attorney. See Page 65. 27.1 Financial Data Schedules at December 31, 1997 and for the year ended December 31, 1997. 27.2 Financial Data Schedules for the three month periods ended March 31, June 30, and September 30, 1997, respectively, restated for the effect of the adoption of Statement of Financial Accounting Standard No. 128, "Earnings Per Share."
EXHIBIT SEQUENTIALLY NUMBER EXHIBIT NUMBERED PAGE - ---------------------- ------------------------------------------------------------------------------- ----------------- 27.3 Financial Data Schedules for the three month periods ended March 31, June 30, and September 30, 1996, respectively, and years ended December 31, 1995 and 1996, restated for the effect of the adoption of Statement of Financial Accounting Standard No. 128, "Earnings Per Share."
- ------------------------ * Management Compensatory Plan or Arrangement. (1) Incorporated by reference from the Company's Registration Statement on Form S-4 (No. 333-20491) filed with the Commission on January 27, 1997. (2) Incorporated by reference from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996. (3) Incorporated by reference from the Company's Registration Statement on Form S-1 (No. 33-55566), declared effective by the Commission on February 4, 1993. (4) Incorporated by reference from the Company's Registration Statement on Form S-8 (No. 33-62194) filed with the Commission on May 5, 1993. (5) Incorporated by reference from the Company's Registration Statement on Form S-8 (No. 33-83850) filed with the Commission on September 9, 1994. (6) Incorporated by reference from the Company's Annual Report on Form 10-K for the year ended December 31, 1995. (7) Incorporated by reference from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995. (8) Incorporated by reference from the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995. (9) Incorporated by reference from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995. (10) Incorporated by reference from the Company's Current Report on Form 8-K dated July 2, 1993. (11) Incorporated by reference from the Company's Current Report on Form 8-K dated October 11, 1995 as amended by Amendment No. 1 dated October 25, 1995 (Form 8-K/A). (12) Incorporated by reference from the Company's Current Report on Form 8-K dated January 8, 1996. (13) Incorporated by reference from the Company's Registration Statement on Form 8-A filed with the Commission on August 10, 1994. (14) Incorporated by reference from Amendment No. 1 to the Company's Registration Statement on Form S-4 filed with the Commission on March 10, 1997. (15) Incorporated by reference from the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997. (16) Incorporated by reference from the Company's Quarterly Report on Form 10-Q/A for the quarter ended June 30, 1997. EX-3.(III) 2 EXHIBIT 3.(III) AMENDED AND RESTATED BYLAWS OF CENTURA SOFTWARE CORPORATION (formerly Gupta Corporation) as of February 27, 1998 TABLE OF CONTENTS
Page ---- ARTICLE I CORPORATE OFFICES. . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.1 PRINCIPLE OFFICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 OTHER OFFICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE II MEETINGS OF SHAREHOLDERS. . . . . . . . . . . . . . . . . . . . . . 1 2.1 PLACE OF MEETINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2.2 ANNUAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2.3 SPECIAL MEETING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2.4 NOTICE OF SHAREHOLDERS' MEETINGS . . . . . . . . . . . . . . . . . . . . . 2 2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE . . . . . . . . . . . . . . . 2 2.6 QUORUM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.7 ADJOURNED MEETING; NOTICE. . . . . . . . . . . . . . . . . . . . . . . . . 3 2.8 VOTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 2.9 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT. . . . . . . . . . . . . 4 2.10 SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING . . . . . . . . . 5 2.11 RECORD DATE FOR SHAREHOLDER NOTICE; VOTING; GIVING CONSENTS . . . . . . . 6 2.12 PROXIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 2.13 INSPECTORS OF ELECTION. . . . . . . . . . . . . . . . . . . . . . . . . . 7 ARTICLE III DIRECTORS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 3.1 POWERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 3.2 NUMBER OF DIRECTORS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS . . . . . . . . . . . . . . . . . 8 3.4 RESIGNATION AND VACANCIES. . . . . . . . . . . . . . . . . . . . . . . . . 8 3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE . . . . . . . . . . . . . . . . . 9 3.6 REGULAR MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 3.7 SPECIAL MEETINGS; NOTICE . . . . . . . . . . . . . . . . . . . . . . . . . 9 3.8 QUORUM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10 3.9 WAIVER OF NOTICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10 3.10 ADJOURNMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10 3.11 NOTICE OF ADJOURNMENT . . . . . . . . . . . . . . . . . . . . . . . . . .10 3.12 ACTION WITHOUT MEETING. . . . . . . . . . . . . . . . . . . . . . . . . .11 3.13 FEES AND COMPENSATION OF DIRECTORS. . . . . . . . . . . . . . . . . . . .11 3.14 APPROVAL OF LOANS TO OFFICERS . . . . . . . . . . . . . . . . . . . . . .11 3.15 SUPER MAJORITY VOTE OF DIRECTORS. . . . . . . . . . . . . . . . . . . . .11 ARTICLE IV COMMITTEES. . . . . . . . . . . . . . . . . . . . . . . . . . . . .12 4.1 COMMITTEES OF DIRECTORS. . . . . . . . . . . . . . . . . . . . . . . . . .12 4.2 MEETINGS AND ACTION OF COMMITTEES. . . . . . . . . . . . . . . . . . . . .12 ARTICLE V OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13 5.1 OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13 5.2 ELECTION OF OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . .13 5.3 SUBORDINATE OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . .13 5.4 REMOVAL AND RESIGNATION OF OFFICERS. . . . . . . . . . . . . . . . . . . .13 5.5 VACANCIES IN OFFICERS. . . . . . . . . . . . . . . . . . . . . . . . . . .14 5.6 CHAIRMAN OF THE BOARD. . . . . . . . . . . . . . . . . . . . . . . . . . .14 5.7 PRESIDENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14 5.8 VICE PRESIDENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14 5.9 SECRETARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14 5.10 CHIEF FINANCIAL OFFICER . . . . . . . . . . . . . . . . . . . . . . . . .15 ARTICLE VI INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15 6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS. . . . . . . . . . . . . . . . .15 6.2 INDEMNIFICATION OF OTHERS. . . . . . . . . . . . . . . . . . . . . . . . .16 6.3 PAYMENT OF EXPENSES IN ADVANCE . . . . . . . . . . . . . . . . . . . . . .16 6.4 INDEMNITY NOT EXCLUSIVE. . . . . . . . . . . . . . . . . . . . . . . . . .16 6.5 INSURANCE INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . .17 6.6 CONFLICTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17 ARTICLE VII RECORDS AND REPORTS. . . . . . . . . . . . . . . . . . . . . . . .17 7.1 MAINTENANCE AND INSPECTION OF SHARE REGISTER . . . . . . . . . . . . . . .17 7.2 MAINTENANCE AND INSPECTION OR BYLAWS . . . . . . . . . . . . . . . . . . .18 7.3 MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS. . . . . . . . . . .18 7.4 INSPECTION BY DIRECTORS. . . . . . . . . . . . . . . . . . . . . . . . . .19 7.5 ANNUAL REPORT TO SHAREHOLDERS; WAIVER. . . . . . . . . . . . . . . . . . .19 7.6 FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . .19 ARTICLE VIII GENERAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . .20 8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING. . . . . . . . . . .20 8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS. . . . . . . . . . . . . . . . .20 8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED. . . . . . . . . . . . .20 8.4 CERTIFICATES FOR SHARES. . . . . . . . . . . . . . . . . . . . . . . . . .21 8.5 LOST CERTIFICATES. . . . . . . . . . . . . . . . . . . . . . . . . . . . .21 8.6 CONSTRUCTION; DEFINITION . . . . . . . . . . . . . . . . . . . . . . . . .21 ARTICLE iX AMENDMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . .21 9.1 AMENDMENT BY SHAREHOLDERS. . . . . . . . . . . . . . . . . . . . . . . . .22 9.2 AMENDMENT BY DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . .22
-ii- CENTURA SOFTWARE CORPORATION ARTICLE I CORPORATE OFFICES 1.1 PRINCIPAL OFFICE The board of directors shall fix the location of the principal executive office of the corporation at any place within or outside the State of California. If the principal executive office is located outside such state and the corporation has one or more business offices in such state, then the board of directors shall fix and designate a principal business office in the State of California. 1.2 OTHER OFFICES The board of directors may at any time establish branch or subordinate offices at any place or places where the corporation is qualified to do business. ARTICLE II MEETINGS OF SHAREHOLDERS 2.1 PLACE OF MEETINGS Meetings of shareholders shall be held at any place within or outside the State of California designated by the board of directors. In the absence of any such designation, shareholders' meetings shall be held at the principal executive office of the corporation. 2.2 ANNUAL MEETING The annual meeting of shareholders shall be held each year on a date and at a time designated by the board of directors. In the absence of such designation, the annual meeting of shareholders shall be held on the 18th of April in each year at 10:00 a.m. However, if such day falls on a legal holiday, then the meeting shall be held at the same time and place on the next succeeding full business day. At the meeting, directors shall be elected, and any other proper business may be transacted. 2.3 SPECIAL MEETING A special meeting of the shareholders may be called at any time by the board of directors, or by the chairman of the board, or by the president, or by one or more shareholders holding shares in the aggregate entitled to cast not less than ten percent (10%) of the votes at that meeting. If a special meeting is called by any person or persons other than the board of directors or the president or the chairman of the board, then the request shall be in writing, specifying the time of such meeting and the general nature of the business proposed to be transacted, and shall be delivered personally or sent by registered mail or by telegraphic or other (facsimile transmission to the chairman of the board, the president, any vice president or the secretary of the corporation. The officer receiving the request shall cause notice to be promptly given to the shareholders entitled to vote, in accordance with the provisions of Sections 2.4 and 2.5 of these bylaws, that a meeting will be held at the time requested by the person or persons calling the meeting, so long as that time is not less than thirty-five (35) nor more than sixty (60) days after the receipt of the request. If the notice is not given within twenty (20) days after receipt of the request, then the person or persons requesting the meeting may give the notice. Nothing contained in this paragraph of this Section 2.3 shall be construed as limiting, fixing or affecting the time when a meeting of shareholders called by action of the board of directors may be held. 2.4 NOTICE OF SHAREHOLDERS' MEETINGS All notices of meetings of shareholders shall be sent or otherwise given in accordance with Section 2.5 of these bylaws not less than ten (10) (or, if sent by third-class mail pursuant to Section 2.5 of these bylaws, thirty (30)) nor more than sixty (60) days before the date of the meeting. The notice shall specify the place, date, and hour of the meeting and (i) in the case of a special meeting, the general nature of the business to be transacted (no business other than that specified in the notice may be transacted) or (ii) in the case of the annual meeting, those matters which the board of directors, at the time of giving the notice, intends to present for action by the shareholders (but subject to the provisions of the next paragraph of this Section 2.4 any proper matter may be presented at the meeting for such action). The notice of any meeting at which directors are to be elected shall include the name of any nominee or nominees whom, at the time of the notice, the board intends to present for election. If action is proposed to be taken at any meeting for approval of (i) a contract or transaction in which a director has a direct or indirect financial interest, pursuant to Section 310 of the Corporations Code of California (the "Code"), (ii) an amendment of the articles of incorporation, pursuant to Section 902 of the Code, (iii) a reorganization of the corporation, pursuant to Section 1201 of the Code, (iv) a voluntary dissolution of the corporation, pursuant to Section 1900 of the Code, or (v) a distribution in dissolution other than in accordance with the rights of outstanding preferred shares, pursuant to Section 2007 of the Code, then the notice shall also state the general nature of that proposal. 2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE Written notice of any meeting of shareholders shall be given either (i) personally or (ii) by first-class mail or (iii) by third class mail but only if the corporation has outstanding shares held of record by five hundred (500) or more persons (determined as provided in Section 605 of the Code) on the record date for the shareholders' meeting, or (iv) by telegraphic or other written communication. Notices not personally delivered shall be sent charges prepaid and shall be addressed to the shareholder at the address of that shareholder appearing on the books of the -2- corporation or given by the shareholder to the corporation for the purpose of notice. If no such address appears on the corporation's books or is given, notice shall be deemed to have been given if sent to that shareholder by mail or telegraphic or other written communication to the corporation's principal executive office, or if published at least once in a newspaper of general circulation in the county where that office is located. Notice shall be deemed to have been given at the time when delivered personally or deposited in the mail or sent by telegram or other means of written communication. If any notice addressed to a shareholder at the address of that shareholder appearing on the books of the corporation is returned to the corporation by the United States Postal Service marked to indicate that the United States Postal Service is unable to deliver the notice to the shareholder at that address, then all future notices or reports shall be deemed to have been duly given without further mailing if the same shall be available to the shareholder on written demand of the shareholder at the principal executive office of the corporation for a period of one (1) year from the date of the giving of the notice. An affidavit of the mailing or other means of giving any notice of any shareholders' meeting, executed by the secretary, assistant secretary or any transfer agent of the corporation giving the notice, shall be prima facie evidence of the giving of such notice. 2.6 QUORUM The presence in person or by proxy of the holders of a majority of the shares entitled to vote thereat constitutes a quorum for the transaction of business at all meetings of shareholders. The shareholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum. 2.7 ADJOURNED MEETING; NOTICE Any shareholders' meeting, annual or special, whether or not a quorum is present, may be adjourned from time to time by the vote of the majority of the shares represented at that meeting, either in person or by proxy. In the absence of a quorum, no other business may be transacted at that meeting except as provided in Section 2.6 of these bylaws. When any meeting of shareholders, either annual or special, is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place are announced at the meeting at which the adjournment is taken. However, if a new record date for the adjourned meeting is fixed or if the adjournment is for more than forty-five (45) days from the date set for the original meeting, then notice of the adjourned meeting shall be given. Notice of any such adjourned meeting shall be given to each shareholder of record entitled to vote at the adjourned meeting in accordance with the provisions of Sections 2.4 and 2.5 of these bylaws. At any adjourned meeting the corporation may transact any business which might have been transacted at the original meeting. -3- 2.8 VOTING The shareholders entitled to vote at any meeting of shareholders shall be determined in accordance with the provisions of Section 2.11 of these bylaws, subject to the provisions of Sections 702 through 704 of the Code (relating to voting shares held by a fiduciary, in the name of a corporation or in joint ownership). The shareholders' vote may be by voice vote or by ballot; provided, however, that any election for directors must be by ballot if demanded by any shareholder at the meeting and before the voting has begun. Except as provided in the last paragraph of this Section 2.8, or as may be otherwise provided in the articles of incorporation, each outstanding share, regardless of class, shall be entitled to one vote on, each matter submitted to a vote of the shareholders. Any shareholder entitled to vote on any matter may vote part of the shares in favor of the proposal and refrain from voting the remaining shares or, except when the matter is the election of directors, may vote them against the proposal; but, if the shareholder fails to specify the number of shares which the shareholder is voting affirmatively, it will be conclusively presumed that the shareholder's approving vote is with respect to all shares which the shareholder is entitled to vote. If a quorum is present, the affirmative vote of the majority of the shares represented and voting at a duly held meeting (which shares voting affirmatively also constitute at least a majority of the required quorum) shall be the act of the shareholders, unless the vote of a greater number or a vote by classes is required by the Code or by the articles of incorporation. At a shareholders' meeting at, which directors are to be elected, a shareholder shall be entitled to cumulate votes (i.e. cast for any candidate a number of votes greater than the number of votes which such shareholder normally is entitled to cast) if the candidates' names have been placed in nomination prior to commencement of the voting and the shareholder has given notice prior to commencement of the voting of the shareholder's intention to cumulate votes. If any shareholder has given such a notice, then every shareholder entitled to vote may cumulate votes for candidates in nomination either (i) by giving one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which that shareholder's shares are normally entitled or (ii) by distributing the shareholder's votes on the same principle among any or all of the candidates, as the shareholder thinks fit. The candidates receiving the highest number of affirmative votes, up to the number of directors to be elected, shall be elected; votes against any candidate and votes withheld shall have no legal effect. 2.9 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT The transactions of any meeting of shareholders, either annual or special, however called and noticed, and wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum be present either in person or by proxy, and if, either before or after the meeting, each person entitled to vote, who was not present in person or by proxy, signs a written waiver of notice or a consent to the holding of the meeting or an approval of the minutes thereof. The waiver of notice or consent or approval need not specify either the business -4- to be transacted or the purpose of any annual or special meeting of shareholders, except that if action is taken or proposed to be taken for approval of any of those matters specified in the second paragraph of Section 2.4 of these bylaws, the waiver of notice or consent or approval shall state the general nature of the proposal. All such waivers, consents, and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Attendance by a person at a meeting shall also constitute a waiver of notice of and presence at that meeting, except when the person objects at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. Attendance at a meeting is not a waiver of any right to object to the consideration of matters required by the Code to be included in the notice of the meeting but not so included, if that objection is expressly made at the meeting. 2.10 SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING Any action which may be taken at any annual or special meeting of shareholders may be taken without a meeting and without prior notice, if a consent in writing, setting forth the action so taken, is signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take that action at a meeting at which all shares entitled to vote on that action were present and voted. In the case of election of directors, such a consent shall be effective only if signed by the holders of all outstanding shares entitled to vote for the election of directors. However, a director may be elected at any time to fill any vacancy on the board of directors, provided that it was not created by removal of a director and that it has not been filled by the directors, by the written consent of the holders of a majority of the outstanding shares entitled to vote for the election of directors. All such consents shall be maintained in the corporate records. Any shareholder giving a written consent, or the shareholder's proxy holders, or a transferee of the shares, or a personal representative of the shareholder, or their respective proxy holders, may revoke the consent by a writing received by the secretary of the corporation before written consents of the number of shares required to authorize the proposed action have been filed with the secretary. If the consents of all shareholders entitled to vote have not been solicited in writing and if the unanimous written consent of all such shareholders has not been received, then the secretary shall give prompt notice of the corporate action approved by the shareholders without a meeting. Such notice shall be given to those shareholders entitled to vote who have not consented in writing and shall be given in the manner specified in Section 2.5 of these bylaws. In the case of approval of (i) a contract or transaction in which a director has a direct or indirect financial interest, pursuant to Section 310 of the Code, (ii) indemnification of a corporate "agent," pursuant to Section 317 of the Code, (iii) a reorganization of the corporation, pursuant to Section 1201 of the Code, and (iv) a distribution in dissolution other than in accordance with the rights of outstanding preferred shares, pursuant to Section 2007 of the Code, the notice shall be given at least ten (10) days before the consummation of any action authorized by that approval. -5- 2.11 RECORD DATE FOR SHAREHOLDER NOTICE; VOTING; GIVING CONSENTS For purposes of determining the shareholders entitled to notice of any meeting or to vote thereat or entitled to give consent to corporate action without a meeting, the board of directors may fix, in advance, a record date, which shall not be more than sixty (60) days nor less than ten (10) days before the date of any such meeting nor more than sixty (60) days before any such action without a meeting, and in such event only shareholders of record on the date so fixed are entitled to notice and to vote or to give consents, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date, except as otherwise provided in the Code. If the board of directors does not so fix a record date: (a) the record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the business day next preceding the day on which notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held; and (b) the record date for determining shareholders entitled to give consent to corporate action in writing without a meeting, (i) when no prior action by the board has been taken, shall be the day on which the first written consent is given, or (ii) when prior action by the board has been taken, shall be at the close of business on the day on which the board adopts the resolution relating to that action, or the sixtieth (60th) day before the date of such other action, whichever is later. The record date for any other purpose shall be as provided in Article VIII of these bylaws. 2.12 PROXIES Every person entitled to vote for directors, or on any other matter, shall have the right to do so either in person or by one or more agents authorized by a written proxy signed by the person and filed with the secretary of the corporation. A proxy shall be deemed signed if the shareholder's name is placed on the proxy (whether by manual signature, typewriting, telegraphic transmission or otherwise) by the shareholder or the shareholder's attorney-in-fact. A validly executed proxy which does not state that it is irrevocable shall continue in full force and effect unless (i) the person who executed the proxy revokes it prior to the time of voting by delivering a writing to the corporation stating that the proxy is revoked or by executing a subsequent proxy and presenting it to the meeting or by voting in person at the meeting, or (ii) written notice of the death or incapacity of the maker of that proxy is received by the corporation before the vote pursuant to that proxy is counted; provided, however, that no proxy shall be valid after the expiration of eleven (11) months from the date of the proxy, unless otherwise provided in the proxy. The dates contained on the forms of proxy presumptively determine the order of execution, regardless of the postmark dates on the envelopes in which they are mailed. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Sections 705(e) and 705(f) of the Code. -6- 2.13 INSPECTORS OF ELECTION Before any meeting of shareholders, the board of directors may appoint an inspector or inspectors of election to act at the meeting or its adjournment. If no inspector of election is so appointed, then the chairman of the meeting may, and on the request of any shareholder or a shareholder's proxy shall, appoint an inspector or inspectors of election to act at the meeting. The number of inspectors shall be either one (1) or three (3). If inspectors are appointed at a meeting. pursuant to the request of one (1) or more shareholders or proxies, then the holders of a majority of shares or their proxies present at the meeting shall determine whether one (1) or three (3) inspectors are to be appointed. If any person appointed as inspector fails to appear or fails or refuses to act, then the chairman of the meeting may, and upon the request of any shareholder or a shareholder's proxy shall, appoint a person to fill that vacancy. Such inspectors shall: (a) determine the number of shares outstanding and the voting power of each, the number of shares represented at the meeting, the existence of a quorum, and the authenticity, validity, and effect of proxies; (b) receive votes, ballots or consents; (c) hear and determine all challenges and questions in any way arising in connection with the right to vote; (d) count and tabulate all votes or consents; (e) determine when the polls shall close; (f) determine the result; and (g) do any other acts that may be proper to conduct the election or vote with fairness to all shareholders. ARTICLE III DIRECTORS 3.1 POWERS Subject to the provisions of the Code and any limitations in the articles of incorporation and these bylaws relating to action required to be approved by the shareholders or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the board of directors. -7- 3.2 NUMBER OF DIRECTORS The number of directors of the corporation shall be not less than five (5) nor more than nine (9).* The exact number of directors shall be seven (7) until changed, within the limits specified above, by a bylaw amending this Section 3.2, duly adopted by the board of directors or by the shareholders. This indefinite number may be changed, or a definite number may be fixed without provision for an indefinite number, by a duly adopted amendment to the articles of incorporation or by an amendment to this bylaw adopted by the vote or written consent of holders of a majority of the outstanding shares entitled to vote; provided, however, that an amendment reducing the fixed number or the minimum number of directors to a number less than five (5) cannot be adopted if the votes cast against its adoption at a meeting, or the shares not consenting in the case of an action by written consent, are equal to more than sixteen and two-thirds percent (16-2/3%) of the outstanding shares entitled to vote thereon. No reduction of the authorized number of directors shall have the effect of removing any director before that director's term of office expires. 3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS Directors shall be elected at each annual meeting of shareholders to hold office until the next annual meeting. Each director, including a director elected to fill a vacancy, shall hold office until the expiration of the term for which elected and until a successor has been elected and qualified. 3.4 RESIGNATION AND VACANCIES Any director may resign effective on giving written notice to the chairman of the board, the president, the secretary or the board of directors, unless the notice specifies a later time for that resignation to become effective. If the resignation of a director is effective at a future time, the board of directors may elect a successor to take office when the resignation becomes effective. Vacancies in the board of directors may be filled by a majority of the remaining directors, even if less than a quorum, or by a sole remaining director; however, a vacancy created by the removal of a director by the vote or written consent of the shareholders or by court order may be filled only by the affirmative vote of a majority of the shares represented and voting at a duly held meeting at which a quorum is present (which shares voting affirmatively also constitute a majority of the required quorum) or by the unanimous written consent of all shares entitled to vote thereon. Each director so elected shall hold office until the next annual meeting of the shareholders and until a successor has been elected and qualified. - ------------------------ * The number of directors of the corporation shall be not less than five (5) nor more than nine (9)-April 20, 1990. * The number of directors was fixed at seven on March 14, 1995. * The number of directors was fixed at five on April 17, 1997. * The number of directors was fixed at seven on February 28, 1998. -8- A vacancy or vacancies in the board of directors shall be deemed to exist (i) in the event of the death, resignation or removal of any director, (ii) if the board of directors by resolution declares vacant the office of a director who has been declared of unsound mind by an order of court or convicted of a felony, (iii) if the authorized number of directors is increased, or (iv) if the shareholders fail, at any meeting of shareholders at which any director or directors are elected, to elect the number of directors to be elected at that meeting. The shareholders may elect a director or directors at any time to fill any vacancy or vacancies not filled by the directors, but any such election other than to fill a vacancy created by removal, if by written consent, shall require the consent of the holders of a majority of the outstanding shares entitled to vote thereon. 3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE Regular meetings of the board of directors may be held at any place within or outside the State of California that has been designated from time to time by resolution of the board. In the absence of such a designation, regular meetings shall be held at the principal executive office of the corporation. Special meetings of the board may be held at any place within or outside the State of California that has been designated in the notice of the meeting or, if not stated in the notice or if there is no notice, at the principal executive office of the corporation. Any meeting, regular or special, may be held by conference telephone or similar communication equipment, so long as all directors participating in the meeting can hear one another; and all such directors shall be deemed to be present in person at the meeting. 3.6 REGULAR MEETINGS Regular meetings of the board of directors may be held without notice if the times of such meetings are fixed by the board of directors. 3.7 SPECIAL MEETINGS; NOTICE Special meetings of the board of directors for any purpose or purposes may be called at any time by the chairman of the board, the president, any vice president, the secretary or any two directors. Notice of the time and place of special meetings shall be delivered personally or by telephone to each director or sent by first-class mail or telegram, charges prepaid, addressed to each director at that director's address as it is shown on the records of the corporation. If the notice is mailed, it shall be deposited in the United States mail at least four (4) days before the time of the holding of the meeting. If the notice is delivered personally or by telephone or telegram, it shall be delivered personally or by telephone or to the telegraph company at least forty-eight (48) hours before the time of the holding of the meeting. Any oral notice given personally or by telephone may be communicated either to the director or to a person at the office of the director who the person giving the notice has reason to believe will promptly communicate -9- it to the director. The notice need not specify the purpose or the place of the meeting, if the meeting is to be held at the principal executive office of the corporation. 3.8 QUORUM A majority of the authorized number of directors shall constitute a quorum for the transaction of business, except to adjourn as provided in Section 3.10 of these bylaws. Every act or decision done or made by a majority of the directors present at a duly held meeting at which a quorum is present shall be regarded as the act of the board of directors, subject to the provisions of Section 310 of the Code (as to approval of contracts or transactions in which a director has a direct or indirect material financial interest), Section 311 of the Code (as to appointment of committees), Section 317(e) of the Code (as to indemnification of directors), the articles of incorporation, and other applicable law. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for that meeting. 3.9 WAIVER OF NOTICE Notice of a meeting need not be given to any director (i) who signs a waiver of notice or a consent to holding the meeting or an approval of the minutes thereof, whether before or after the meeting, or (ii) who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to such directors. All such waivers, consents, and approvals shall be filed with the corporate records or made part of the minutes of the meeting. A waiver of notice need not specify the purpose of any regular or special meeting of the board of directors. 3.10 ADJOURNMENT A majority of the directors present, whether or not constituting a quorum, may adjourn any meeting to another time and place. 3.11 NOTICE OF ADJOURNMENT Notice of the time and place of holding an adjourned meeting need not be given unless the meeting is adjourned for more than twenty-four (24) hours. If the meeting is adjourned for more than twenty-four (24) hours, then notice of the time and place of the adjourned meeting shall be given before the adjourned meeting takes place, in the manner specified in Section 3.7 of these bylaws, to the directors who were not present at the time of the adjournment. 3.12 ACTION WITHOUT MEETING Any action required or permitted to be taken by the board of directors may be taken without a meeting, provided that all members of the board individually or collectively consent in writing to that action. Such action by written consent shall have the same force and effect as a -10- unanimous vote of the board of directors. Such written consent and any counterparts thereof shall be filed with the minutes of the proceedings of the board. 3.13 FEES AND COMPENSATION OF DIRECTORS Directors and members of committees may receive such compensation, if any, for their services and such reimbursement of expenses as may be fixed or determined by resolution of the board of directors. This Section 3.13 shall not be construed to preclude any director from serving the corporation in any other capacity as an officer, agent, employee or otherwise and receiving compensation for those services. - --------------------- -11- 3.14 APPROVAL OF LOANS TO OFFICERS * The corporation may, upon the approval of the board of directors alone, make loans of money or property to, or guarantee the obligations of, any officer of the corporation or its parent or subsidiary, whether or not a director, or adopt an employee benefit plan or plans authorizing such loans or guaranties provided that (i) the board of directors determines that such a loan or guaranty or plan may reasonably be expected to benefit the corporation, (ii) the corporation has outstanding shares held of record by 100 or more persons (determined as provided in Section 605 of the Code) on the date of approval by the board of directors, and (iii) the approval of the board of directors is by a vote sufficient without counting the vote of any interested director or directors. 3.15 SUPER MAJORITY VOTE OF DIRECTORS. A two-thirds super majority vote of directors shall be required to approve any of the following actions: (a) consolidation or merger of the Company with or into any other corporation in which securities possessing more than fifty percent (50%) of the total combined voting power of the Company's outstanding securities are transferred to a person or persons different from the persons holding those securities immediately prior to such transaction (other than a consolidation or merger in which the surviving entity is the Company or one of its wholly-owned subsidiaries) or transfer or sale of all or substantially all of the assets of the Company; or (b) an increase in the Company's secured indebtedness to an aggregate amount in excess of $15 million." ARTICLE IV COMMITTEES 4.1 COMMITTEES OF DIRECTORS The board of directors may, by resolution adopted by a majority of the authorized number of directors, designate one (1) or more committees, each consisting of two or more directors, to serve at the pleasure of the board. The board may designate one (1) or more directors as alternate members of any committee, who may replace any absent member at any meeting of the committee. The appointment of members or alternate members of a committee requires the vote of a majority of the authorized number of directors. Any committee, to the extent provided in the resolution of the board, shall have all the authority of the board, except with respect to: (a) the approval of any action which, under the Code, also requires shareholders' approval or approval of the outstanding shares; - -------------------- * This section is effective only if it has been approved by the shareholders in accordance with Sections 315(b) and 153 of the Code. -12- (b) the filling of vacancies on the board of directors or in any committee; (c) the fixing of compensation of the directors for serving on the board or any committee; (d) the amendment or repeal of these bylaws or the adoption of new bylaws; (e) the amendment or repeal of any resolution of the board of directors which by its express terms is not so amendable or repealable; (f) a distribution to the shareholders of the corporation, except at a rate or in a periodic amount or within a price range determined by the board of directors; or (g) the appointment of any other committees of the board of directors or the members of such committees. 4.2 MEETINGS AND ACTION OF COMMITTEES Meetings and actions of committees shall be governed by, and held and taken in accordance with, the provisions of Article III of these bylaws, Section 3.5 (place of meetings), Section 3.6 (regular meetings), Section 3.7 (special meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice), Section 3.10 (adjournment), Section 3.11 (notice of adjournment), and Section 3.12 (action without meeting), with such changes in the context of those bylaws as are necessary to substitute the committee and its members for the board of directors and its members; provided, however, that the time of regular meetings of committees may be determined either by resolution of the board of directors or by resolution of the committee, that special meetings of committees may also be called by resolution of the board of directors, and that notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The board of directors may adopt rules for the government of any committee not inconsistent with the provisions of these bylaws. ARTICLE V OFFICERS 5.1 OFFICERS The officers of the corporation shall be a president, a secretary, and a chief financial officer. The corporation may also have, at the discretion of the board of directors, a chairman of the board, one or more vice presidents, one or more assistant secretaries, one or more assistant treasurers, and such other officers as may be appointed in accordance with the provisions of Section 5.3 of these bylaws. Any number of offices may be held by the same person. 5.2 ELECTION OF OFFICERS -13- The officers of the corporation, except such officers as may be appointed in accordance with the provisions of Section 5.3 or Section 5.5 of these bylaws, shall be chosen by the board, subject to the rights, if any, of an officer under any contract of employment. 5.3 SUBORDINATE OFFICERS The board of directors may appoint, or may empower the president to appoint, such other officers as the business of the corporation may require, each of whom shall hold office for such period, have such authority, and perform such duties as are provided in these bylaws or as the board of directors may from time to time determine. 5.4 REMOVAL AND RESIGNATION OF OFFICERS Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by the board of directors at any regular or special meeting of the board or, except in case of an officer chosen by the board of directors, by any officer upon whom such power of removal may be conferred by the board of directors. Any officer may resign at any time by giving written notice to the corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party. 5.5 VACANCIES IN OFFICES A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in these bylaws for regular appointments to that office. 5.6 CHAIRMAN OF THE BOARD The chairman of the board, if such an officer be elected, shall, if present, preside at meetings of the board of directors and exercise and perform such other powers and duties as may from time to time be assigned to him by the board of directors or as may be prescribed by these bylaws. If there is no president, then the chairman of the board shall also be the chief executive officer of the corporation and shall have the powers and duties prescribed in Section 5.7 of these bylaws. 5.7 PRESIDENT Subject to such supervisory powers, if any, as may be given by the board of directors to the chairman of the board, if there be such an officer, the president shall be the chief executive officer of the corporation and shall, subject to the control of the board of directors, have general supervision, direction, and control of the business and tee officers of the corporation. He shall preside at all meetings of the shareholders and, in the absence or nonexistence of a chairman of -14- the board, at all meetings of the board of directors. He shall have the general powers and duties of management usually vested in the office of president of a corporation, and shall have such other powers and duties as may be prescribed by the board of directors or these bylaws. 5.8 VICE PRESIDENTS In the absence or disability of the president, the vice presidents, if any, in order of their rank as fixed by the board of directors or, if not ranked, a vice president designated by the board of directors, shall perform all the duties of the president and when so acting shall have all the powers of, and be subject to all the restrictions upon, the president. The vice presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the board of directors, these bylaws, the president or the chairman of the board. 5.9 SECRETARY The secretary shall keep or cause to be kept, at the principal executive office of the corporation or such other place as the board of directors may direct, a book of minutes of all meetings and actions of directors, committees of directors and shareholders. The minutes shall show the time and place of each meeting, whether regular or special (and, if special, how authorized and the notice given), the names of those present at directors' meetings or committee meetings, the number of shares present or represented at shareholders' meetings, and the proceedings thereof. The secretary shall keep, or cause to be kept, at the principal executive office of the corporation or at the office of the corporation's transfer agent or registrar, as determined by resolution of the board of directors, a share register, or a duplicate share register, showing the names of all shareholders and their addresses, the number and classes of shares held by each, the number and date of certificates evidencing such shares, and the number and date of cancellation of every certificate surrendered for cancellation. The secretary shall give, or cause to be given, notice of all meetings of the shareholders and of the board of directors required to be given by law or by these bylaws. He shall keep the seal of the corporation, if one be adopted, in safe custody and shall have such other powers and perform such other duties as may be prescribed by the board of directors or by these bylaws. 5.10 CHIEF FINANCIAL OFFICER The chief financial officer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings, and shares. The books of account shall at all reasonable times be open to inspection by any director. The chief financial officer shall deposit all money and other valuables in the name and to the credit of the corporation with such depositaries as may be designated by the board of -15- directors. He shall disburse the funds of the corporation as may be ordered by the board of directors, shall render to the president and directors, whenever they request it, an account of all of his transactions as chief financial officer and of the financial condition of the corporation, and shall have such other powers and perform such other duties as may be prescribed by the board of directors or these bylaws. ARTICLE VI INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS 6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS The corporation shall, to the maximum extent and in the manner permitted by the Code, indemnify each of its directors and officers against expenses (as defined in Section 317(a) of the Code), judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with any proceeding (as defined in Section 317(a) of the Code), arising by reason of the fact that such person is or was an agent of the corporation. For purposes of this Section 6.1, a "director" or "officer" of the corporation includes any person (i) who is or was a director or officer of the corporation, (ii) who is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, or iii) who was a director, officer or employee of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation. 6.2 INDEMNIFICATION OF OTHERS The corporation shall have the power, to the extent and in the manner permitted by the Code, to indemnify each of its employees and agents (other than directors and officers) against expenses (as defined in Section 317(a) of the Code), judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with any proceeding (as defined in Section 317 (a) of the Code), arising by reason of the fact that such person is or was an agent of the corporation. For purposes of this Section 6.2, an "agent" of the corporation (other than a director or officer) includes any person (i) who is or was an agent of the corporation, (ii) who is or was serving at the request of the corporation as an agent of another corporation, partnership, joint venture, trust or other enterprise, or (iii) who was an agent of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation. 6.3 PAYMENT OF EXPENSES IN ADVANCE -16- Expenses incurred in defending any civil or criminal action or proceeding for which indemnification is required pursuant to Section 6.1 or for which indemnification is permitted pursuant to Section 6.2 following authorization thereof by the Board of Directors shall be paid by the corporation in advance of the final disposition of such action or proceeding upon receipt of any undertaking by or on behalf of the indemnified party to repay such amount if it shall ultimately be determined that the indemnified party is not entitled to be indemnified as authorized in this Article VI. 6.4 INDEMNITY NOT EXCLUSIVE The indemnification provided by this Article VI shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any bylaw, agreement, vote of shareholders or disinterested directors or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office, to the extent that such additional rights to indemnification are authorized in the Articles of Incorporation. 6.5 INSURANCE INDEMNIFICATION The corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation against any liability asserted against or incurred by such person in such capacity or arising out of such person's status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of this Article VI. 6.6. CONFLICTS No indemnification or advance shall be made under this Article VI, except where such indemnification or advance is mandated by law or the order, judgment or decree of any court of competent jurisdiction, in any circumstance where it appears: (1) That it would be inconsistent with a provision of the Articles of Incorporation, these bylaws, a resolution of the shareholders or an agreement in effect at the time of the accrual of the alleged cause of the action asserted in the proceeding in which the expenses were incurred or other amounts were paid, which prohibits or otherwise limits indemnification; or (2) That it would be inconsistent with any condition expressly imposed by a court in approving a settlement. ARTICLE VII RECORDS AND REPORTS 7.1 MAINTENANCE AND INSPECTION OF SHARE REGISTER -17- The corporation shall keep either at its principal executive office or at the office of its transfer agent or registrar (if either be appointed), as determined by resolution of the board of directors, a record of its shareholders listing the names and addresses of all shareholders and the number and class of shares held by each shareholder. A shareholder or shareholders of the corporation who holds at least five percent (5%) in the aggregate of the outstanding voting shares of the corporation or who holds at least one percent (1%) of such voting shares and has filed a Schedule 14B with the Securities and Exchange Commission relating to the election of directors, may (i) inspect and copy the records of shareholders' names, addresses, and shareholdings during usual business hours on five (5) days prior written demand on the corporation, (ii) obtain from the transfer agent of the corporation, on written demand and on the tender of such transfer agent's usual charges for such list, a list of the names and addresses of the shareholders who are entitled to vote for the election of directors, and their shareholdings, as of the most recent record date for which that list has been compiled or as of a date specified by the shareholder after the date of demand. Such list shall be made available to any such shareholder by the transfer agent on or before the later of five (5) days after the demand is received or five (5) days after the date specified in the demand as the date as of which the list is to be compiled. The record of shareholders shall also be open to inspection on the written demand of any shareholder or holder of a voting trust certificate, at any time during usual business hours, for a purpose reasonably related to the holder's interests as a shareholder or as the holder of a voting trust certificate. Any inspection and copying under this Section 7.1 may be made in person or by an agent or attorney of the shareholder or holder of a voting trust certificate making the demand. 7.2 MAINTENANCE AND INSPECTION OF BYLAWS The corporation shall keep at its principal executive office or, if its principal executive office is not in the State of California, at its principal business office in California the original or a copy of these bylaws as amended to date, which bylaws shall be open to inspection by the shareholders at all reasonable times during office hours. If the principal executive office of the corporation is outside the State of California and the corporation has no principal business office in such state, then the secretary shall, upon the written request of any shareholder, furnish to that shareholder a copy of these bylaws as amended to date. 7.3 MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS The accounting books and records and the minutes of proceedings of the shareholders, of the board of directors, and of any committee or committees of the board of directors shall be kept at such place or places as are designated by the board of directors or, in absence of such designation, at the principal executive office of the corporation. The minutes shall be kept in written form, and the accounting books and records shall be kept either in written form or in any other form capable of being converted into written form. -18- The minutes and accounting books and records shall be open to inspection upon the written demand of any shareholder or holder of a voting trust certificate, at any reasonable time during usual business hours, for a purpose reasonably related to the holder's interests as a shareholder or as the holder of a voting trust certificate. The inspection may be made in person or by an agent or attorney and shall include the right to copy and make extracts. Such rights of inspection shall extend to the records of each subsidiary corporation of the corporation. 7.4 INSPECTION BY DIRECTORS Every director shall have the absolute right at any reasonable time to inspect all books, records, and documents of every kind as well as the physical properties of the corporation and each of its subsidiary corporations. Such inspection by a director may be made in person or by an agent or attorney. The right of inspection includes the right to copy and make extracts of documents. 7.5 ANNUAL REPORT TO SHAREHOLDERS, WAIVER The board of directors shall cause an annual report to be sent to the shareholders not later than one hundred twenty (120) days after the close of the fiscal year adopted by the corporation. Such report shall be sent at least fifteen (15) days (or, if sent by third-class mail, thirty-five (35) days before the annual meeting of shareholders to be held during the next fiscal year and in the manner specified in Section 2.5 of these bylaws for giving notice to shareholders of the corporation. The annual report shall contain (i) a balance sheet as of the end of the fiscal year, (ii) an income statement, (iii) a statement of changes in financial position for the fiscal year, and (iv) any report of independent accountants or, if there is no such report, the certificate of an authorized officer of the corporation that the statements were prepared without audit from the books and records of the corporation. The foregoing requirement of an annual report shall be waived so long as the shares of the corporation are held by fewer than one hundred (100) holders of record. 7.6 FINANCIAL STATEMENTS If no annual report for the fiscal year has been sent to shareholders, then the corporation shall, upon the written request of any shareholder made more than one hundred twenty (120) days after the close of such fiscal year, deliver or mail to the person making the request, within thirty (30) days thereafter, a copy of a balance sheet as of the end of such fiscal year and an income statement and statement of changes in financial position for such fiscal year. If a shareholder or shareholders holding at least five percent (5%) of the outstanding shares of any class of stock of the corporation makes a written request to the corporation for an income statement of the corporation for the three-month, six-month or nine-month period of the then current fiscal year ended more than thirty (30) days before the date of the request, and for a balance sheet of the corporation as of the end of that period, then the chief financial officer shall -19- cause that statement to be prepared, if not already prepared, and shall deliver personally or mail that statement or statements to the person making the request within thirty (30) days after the receipt of the request. If the corporation has not sent to the shareholders its annual report for the last fiscal year, the statements referred to in the first paragraph of this Section 7.6 shall likewise be delivered or mailed to the shareholder or shareholders within thirty (30) days after the request. The quarterly income statements and balance sheets referred to in this section shall be accompanied by the report, if any, of any independent accountants engaged by the corporation or by the certificate of an authorized officer of the corporation that the financial statements were prepared without audit from the books and records of the corporation. ARTICLE VIII GENERAL MATTERS 8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING For purposes of determining the shareholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the shareholders entitled to exercise any rights in respect of any other lawful action (other than action by shareholders by written consent without a meeting), the board of directors may fix, in advance, a record date, which shall not be more than sixty (60) days before any such action. In that case, only shareholders of record at the close of business on the date so fixed are entitled to receive the dividend, distribution or allotment of rights, or to exercise such rights, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date so fixed, except as otherwise provided in the Code. If the board of directors does not so fix a record date, then the record date for determining shareholders for any such purpose shall be at the close of business on the day on which the board adopts the applicable resolution or the sixtieth (60th) day before the date of that action, whichever is later. 8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS From time to time, the board of directors shall determine by resolution which person or persons may sign or endorse all checks, drafts, other orders for payment of money, notes or other evidences of indebtedness that are issued in the name of or payable to the corporation, and only the persons so authorized shall sign or endorse those instruments. 8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED The board of directors, except as otherwise provided in these bylaws, may authorize any officer or officers, or agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation; such authority may be general or confined to specific -20- instances. Unless so authorized or ratified by the board of directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount. 8.4 CERTIFICATES FOR SHARES A certificate or certificates for shares of the corporation shall be issued to each shareholder when any of such shares are fully paid. The board of directors may authorize the issuance of certificates for shares partly paid provided that these certificates shall state the total amount of the consideration to be paid for them and the amount actually paid. All certificates shall be signed in the name of the corporation by the chairman of the board or the vice chairman of the board or the president or a vice president and by the chief financial officer or an assistant treasurer or the secretary or an assistant secretary, certifying the number of shares and the class or series of shares owned by the shareholder. Any or all of the signatures on the certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed on a certificate ceases to be that officer, transfer agent or registrar before that certificate is issued, it may be issued by the corporation with the same effect as if that person were an officer, transfer agent or registrar at the date of issue. 8.5 LOST CERTIFICATES Except as provided in this Section 8.5, no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the corporation and cancelled at the same time. The board of directors may, in case any share certificate or certificate for any other security is lost, stolen or destroyed, authorize the issuance of replacement certificates on such terms and conditions as the board may require; the board may require indemnification of the corporation secured by a bond or other adequate security sufficient to protect the corporation against any claim that may be made against it, including any expense or liability, on account of the alleged loss, theft or destruction of the certificate or the issuance of the replacement certificate. 8.6 CONSTRUCTION; DEFINITIONS Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the Code shall govern the construction of these bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term "person" includes both a corporation and a natural person. ARTICLE IX AMENDMENTS -21- 9.1 AMENDMENT BY SHAREHOLDERS New bylaws may be adopted or these bylaws may be amended or repealed by the vote or written consent of holders of a majority of the outstanding shares entitled to vote; provided, however, that if the articles of incorporation of the corporation set forth the number of authorized directors of the corporation, then the authorized number of directors may be changed only by an amendment of the articles of incorporation. 9.2 AMENDMENT BY DIRECTORS Subject to the rights of the shareholders as provided in Section 9.1 of these bylaws, bylaws, other than a bylaw or an amendment of a bylaw changing the authorized number of directors (except to fix the authorized number of directors pursuant to a bylaw providing for a variable number of directors), may be adopted, amended or repealed by the board of directors. -22- -23- EX-4.2 3 EXHIBIT 4.2 CENTURA SOFTWARE CORPORATION AMENDMENT TO PREFERRED SHARES RIGHTS AGREEMENT On February 17, 1998, the Board of Directors of Centura Software Corporation (the "COMPANY") voted to amend that certain Preferred Shares Rights Agreement dated as of August 3, 1994 (the "RIGHTS AGREEMENT") between the Company (formerly Gupta Corporation) and Chemical Trust Company of California (pursuant to Section 27 of the Rights Agreement), effective as of February 27, 1998, as follows: SECTION 1(a) "ACQUIRING PERSON". Section 1(a) of the Rights Agreement shall be amended and restated in its entirety to read as follows: "(a) "Acquiring Person" shall mean any Person who or which, together with all Affiliates and Associates of such Person, shall be the Beneficial Owner of 15% or more of the Common Shares then outstanding, but shall not include the Company, any Subsidiary of the Company or any employee benefit plan of the Company or of any Subsidiary of the Company, or any entity holding Common Shares for or pursuant to the terms of any such plan. Notwithstanding the foregoing, no Person shall be deemed to be an Acquiring Person either (i) as the result of an acquisition of Common Shares by the Company which, by reducing the number of shares outstanding, increases the proportionate number of shares beneficially owned by such Person to 15% or more of the Common Shares of the Company then outstanding; PROVIDED, HOWEVER, that if a Person shall become the Beneficial Owner of 15% or more of the Common Shares of the Company then outstanding by reason of share purchases by the Company and shall, after such share purchases by the Company, become the Beneficial Owner of any additional Common Shares of the Company, then such Person shall be deemed to be an Acquiring Person, or (ii) if within eight days after such Person would otherwise become an Acquiring Person (but for the operation of this clause (ii)), such Person notifies the Board of Directors that such Person did so inadvertently and within two days after such notification, such Person is the Beneficial Owner of less than 15% of the outstanding Common Shares. Notwithstanding the foregoing: (i) Umang P. Gupta ("Gupta") shall not be considered an "Acquiring Person" as a result of being, at any date, the Beneficial Owner of that number of Common Shares which he currently beneficially owns or which he is permitted or required to purchase on or before such date in accordance with the provisions of any plan, arrangement, agreement or transaction approved by the Board of Directors of the Company or any committee of the Board of Directors; PROVIDED, HOWEVER, that if Gupta shall, after the date hereof, become the Beneficial Owner of any Common Shares other than pursuant to a plan, arrangement, agreement or transaction approved by the Board of Directors of the Company or any committee of the Board of Directors, then, if Gupta would otherwise be an Acquiring Person, he shall be deemed to be an Acquiring Person and all Common Shares then beneficially owned by Gupta shall be counted for purposes of determining whether Gupta is an Acquiring Person; and (ii) neither Newport Acquisition Company No. 2, LLC ("NAC"), nor any of the Persons listed on Annex I attached hereto (collectively, the "Approved Persons") shall be considered an "Acquiring Person" as a result of (i) the purchase from Computer Associates International, Inc. by NAC of that certain Floating Rate Convertible Subordinated Note Due 1998 dated as of April 3, 1995 in the principal amount of $10,000,000 (the "Note"), (ii) the conversion of the Note by NAC into 11,415,094 shares of Common Stock of the Company (the "Conversion Shares") pursuant to a Note Conversion Agreement between the Company and NAC dated February 27, 1998 or (iii) any of such Approved Persons becoming the Beneficial Owner of additional Common Shares of the Company up to but not exceeding 14.99% of the Common Shares then outstanding, but not including in either the numerator or denominator for purposes of such percentage calculation any of the Conversion Shares." SECTION 1(g) "CONTINUING DIRECTOR". Section 1(g) of the Rights Agreement shall be amended and restated in its entirety to read as follows: "(g) "Continuing Director" shall mean (i) any member of the Board of Directors of the Company, while a member of the Board, who is not an Acquiring Person, or an Affiliate or Associate of an Acquiring Person, or a representative of an Acquiring Person or of any such Affiliate or Associate, and who was a member of the Board prior to the date of this Agreement, or (ii) any Person who subsequently becomes a member of the Board, while a member of the Board, who is not an Acquiring Person, or an Affiliate or Associate of an Acquiring Person, or a representative of an Acquiring Person or of any such Affiliate or Associate, if such Person's nomination for election or election to the Board is recommended or approved by a majority of the Continuing Directors; or (iii) any Person nominated to the Board of Directors by NAC." The undersigned, being the duly appointed Secretary of Centura Software Corporation, does hereby certify that the Rights Agreement was amended as set forth above effective as of February 27, 1998. /s/ Craig Johnson Craig Johnson Secretary EX-10.27 4 EXHIBIT 10.27 [LETTERHEAD] November 5, 1997 CONFIDENTIAL Board of Directors Centura Software Corporation 975 Island Drive Redwood Shores, California 94065 RE: HICKEY & HILL, INC. MANAGEMENT CONTRACT Gentlemen: This letter sets out the terms and conditions upon which HICKEY & HILL, INC. ("H&H") would be engaged to provide management services to Centura Software Corporation ("Centura" or the "Company"). Furthermore, it is our understanding that the Board is in agreement with the general terms and conditions of this effort and that the Company has the approvals necessary to execute this agreement. We are prepared to undertake this engagement per the following: SERVICES Services to be provided would be at the direction of the Company's Board of Directors. At present it is contemplated that such services would include the following: - Performing duties of the Chief Executive Officer, Chief Financial Officer and the principal marketing officer during the engagement, as appropriate. Such duties will be performed initially by Scott Broomfield, John Bowman and Kathy Lane, respectively. During the month of November, 1997, however, the positions being filed are that of the Chief Operations Officer, V.P. of Finance and the principal marketing officer. - Development and implementation of a plan to improve shareholder value, through development and implementation of an updated business plan, subject to the Company's Board of Directors. 1 - Assist the Board of Directors in execution of Progress Software's ("Progress") acquisition interest. Our understanding is that Progress will deliver a letter of intent, or equivalent by December 1, 1997. The initial term of this engagement will extend through December 31, 1999. Moreover, this engagement may be terminated by either party upon 90 days prior written notice. In the event of termination, the Options will continue to vest monthly for an additional 90 days (monthly basis) after written notice. COMPENSATION H&H would be compensated as follows: A. $70,000 per month for the first two months, $50,000 per month thereafter. The monthly fee will be due and payable in advance on the first day of each month. Reimbursable business expenses will be due upon presentation of an invoice. Further, the Company will pay H&H an additional $25,000 for work performed during the second half of October, 1997. B. Non-statutory stock options to purchase 1,500,000 shares of common stock of the Company at a price equal to the closing price on the NASDAQ stock market on the day prior to the signing of this contract, to be issued pursuant to a Company stock option plan (the "Options") approved and duly adopted by the Board of Directors of the Company, but not subject to shareholder approval (unless otherwise required by the NASDAQ). Such Options, unless the Progress acquisition occurs, will vest in increments of 25% every six months after commencement of the engagement, with an accelerated vesting in the event of a "Change of Control" (defined in Section E below). C. In the event that Progress enters into a letter of intent or memorandum of understanding by December 1, 1997 to acquire the Company and H&H is involved in the running of the business, then the Options will vest monthly beginning November 1, 1997 (at the beginning of the month -- 62,500 shares / month), plus the monthly cash compensation as defined above in Section A. D. Reimbursement of all reasonable business expenses. E. As used above in Section B., "Change of Control" shall mean any of the following events, subject to a Progress carve out: - All or substantially all of the assets of the Company are sold, exchanged or otherwise transferred in one or more transactions; - The Company is merged or consolidated with or into another corporation with the effect that the common stockholders with the effect that the common stockholders immediately prior to such merger or consolidation hold less than 75% of the ordinary voting power of the outstanding securities of the 2 surviving corporation of such merger or the corporation resulting from such consolidation; - A person or group (such as term is used in rule 13d-5 under the Securities and Exchange Act of 1934) shall, as a result of the tender or exchange offer, open market purchases, merger, private placement or otherwise, have become, directly or indirectly, the beneficial owner (within the meaning of the rule 13d-5 under the Securities and Exchange Act of 1934) or securities having 25% or more of the voting power of then outstanding securities of the Company. ADMINISTRATIVE MATTERS 1. The Company grants to H&H permission to participate in discussions, on the Company's behalf, with third parties and disclose such information which, in H&H's sole discretion, is considered appropriate. Any of the H&H representatives may be involved with these discussions. The Company further agrees that all written materials and documents prepared by or gathered by H&H are, or become, the property of H&H. 2. H&H makes no representation nor can offer any assurance that the Company can, in fact, become or remain profitable or that the means required in that attempt will be acceptable to the Company. H&H would commit its best effort and experience in this engagement, but it can provide no further commitment or guarantee of any kind as to the results. 3. Neither H&H nor any of its officers, directors, shareholders, agents, employees or associates will be liable to the Company, or any of its investors or to anyone who may claim any right due to a relationship with the Company for any acts or omissions in the performance of services under the terms of this agreement, unless the acts are due to gross negligence of H&H. The Company will indemnify and hold H&H and each of its officers, directors, shareholders, agents, employees and associates who become involved in providing services pursuant to the arrangement herein, free and harmless from obligations, costs, claims, losses, liabilities, damages, injuries, judgments and expenses, including, but not limited to, attorney's fees and any attachments arising from, growing out of or in any way connected with services rendered to the Company under the terms of this agreement unless H&H or any of its officers, directors, shareholders, agents, employees or associates is judged by a court of competent jurisdiction to be guilty of gross negligence. 4. Prior to commencing the performance of any services hereunder, H&H shall be satisfied that this agreement had been duly authorized by all necessary corporate action of the part of the Company, including, if applicable, shareholder approval. 5. H&H will be performing services hereunder as an independent contractor and not as an employee of the Company. The Company acknowledges and agrees to this action. 3 6. Further, if any action at law or in equity, including any action for declaratory relief, is brought to enforce or interpret the provisions of this agreement, the prevailing party will be entitled to reasonable attorney's fees. We appreciate the opportunity to work with the Board on this engagement. If you agree with the above, please sign both letters and return one copy to our firm. Sincerely, /s/ SRB Scott R. Broomfield Principal AGREED AND ACCEPTED THIS 6TH DAY OF NOVEMBER, 1997 --- BY: /s/ S INMAN , OF CENTURA SOFTWARE. -------------------------- Sam Inman, CEO 4 CENTURA SOFTWARE CORPORATION NOTICE OF NONSTATUTORY STOCK OPTION GRANT Optionee's Name and Address: Scott Broomfield Centura Software Corporation 975 Island Drive Redwood Shores, CA 94065 You have been granted an option to purchase Common Stock of Centura Software Corporation (the "Company"), as follows: Board Approval Date: November 6, 1997 ------------------------------------- Date of Grant (Later of Board Approval Date or Commencement of Employment/ Consulting): November 6, 1997 ------------------------------------- Exercise Price Per Share: $1.906 ------------------------------------- Total Number of Shares Granted: 750,000 ------------------------------------- Total Price of Shares Granted: $1,429,500.00 ------------------------------------- Term/Expiration Date: November 5, 2007 ------------------------------------- Vesting Commencement Date: November 5, 1997 ------------------------------------- Vesting Schedule: 25% of the shares subject to the option shall be exercisable as of the Vesting Commencement Date and thereafter 25% of the shares subject to the option shall become exercisable on each subsequent six month anniversary of the Vesting Commencement Date as follows: an additional 25% of the shares become exercisable on May 5, 1998, an additional 25% of the shares become exercisable on November 5, 1998 and and additional 25% of the shares become exercisable on May 5, 1999; provided, however, that 100% of the shares subject to the option shall become exercisable upon the occurrence of any of the following events: (i) All or substantially all of the assets of the Company are sold, exchanged or otherwise transferred in one or more transactions; (ii) The Company is merged or consolidated with or into another corporation with the effect that the common stockholders immediately prior to such merger or consolidation hold less than 75% of the ordinary voting power of the outstanding securities of the surviving corporation of such merger or the corporation resulting from such consolidation; or
1 (iii) A person or group (such as term is used in rule 13d-5 under the Securities and Exchange Act of 1934) shall, as a result of the tender or exchange offer, open market purchases, merger, private placement or otherwise, have become, directly or indirectly, the beneficial owner (within the meaning of rule 13d-5 under the Securities and Exchange Act of 1934) or securities having 15% or more of the voting power of then outstanding securities of the Company, excluding the issuance of securities in connection with the conversion of the Floating Rate Convertible Subordinated Note Due 1998 dated as of April 3, 1995 issued by the Company to Computer Associates International, Inc. and any transactions related thereto. (iv) The Board elects to expand its membership to 9, or if 3 of its existing members resign or are in some way removed from the Board. (v) The 2 Board members nominated by Newport Acquisition Company No 2 LLC or its successors ("Newport") vote the Newport shares. (vi) Termination of the employee or consultant by the Company for any reason without cause. Termination Period: Option may be exercised for a period of 5 years after termination of employment or consulting relationship with the Company (but in no event later than the Expiration Date).
By your signature and the signature of the Company's representative below, you and the Company agree that this option is granted under and governed by the terms and conditions of the Nonstatutory Stock Option Agreement attached and made a part of this document. OPTIONEE: CENTURA SOFTWARE CORPORATION By: - --------------------------------- ----------------------------------- Signature Title: - --------------------------------- ----------------------------------- Print Name
2 CENTURA SOFTWARE CORPORATION NONSTATUTORY STOCK OPTION AGREEMENT 1. GRANT OF OPTION. Centura Software Corporation, a California corporation (the "COMPANY"), hereby grants to the Optionee named in the Notice of Stock Option Grant attached to this Agreement ("OPTIONEE"), an option (the "OPTION") to purchase the total number of shares of Common Stock (the "SHARES") set forth in the Notice of Stock Option Grant, at the exercise price per share set forth in the Notice of Stock Option Grant (the "EXERCISE PRICE") subject to the terms, definitions and provisions of this Nonstatutory Stock Option Agreement (the "Agreement"). This Option is intended to be a Nonstatutory Stock Option. 2. EXERCISE OF OPTION. This Option shall be exercisable during its term in accordance with the Vesting Schedule set out in the Notice of Stock Option Grant as follows: (a) RIGHT TO EXERCISE. (i) This Option may not be exercised for a fraction of a share. (ii) In the event of Optionee's death, disability or other termination of employment, the exercisability of the Option is governed by Sections 6, 7 and 8 below, subject to the limitations contained in paragraph (iii) below. (iii) In no event may this Option be exercised after the date of expiration of the term of this Option as set forth in the Notice of Stock Option Grant. (b) METHOD OF EXERCISE. (i) This Option shall be exercisable by delivering to the Company a written notice of exercise (in the form attached as EXHIBIT A) which shall state the election to exercise the Option, the number of Shares in respect of which the Option is being exercised, and such other representations and agreements as to the holder's investment intent with respect to such Shares of Common Stock as may be required by the Company. Such written notice shall be signed by Optionee and shall be delivered in person or by certified mail to the Secretary of the Company. The written notice shall be accompanied by payment of the Exercise Price. This Option shall be deemed to be exercised upon receipt by the Company of such written notice accompanied by the Exercise Price. (ii) As a condition to the exercise of this Option, Optionee agrees to make adequate provision for federal, state or other tax withholding obligations, if any, which arise upon the exercise of the Option or disposition of Shares, whether by withholding, direct payment to the Company, or otherwise. (iii) No Shares will be issued pursuant to the exercise of an Option unless such issuance and such exercise shall comply with all relevant provisions of law and the requirements of any stock exchange upon which the Shares may then be listed. Assuming such compliance, for income tax purposes the Shares shall be considered transferred to Optionee on the date on which the Option is exercised with respect to such Shares. 3. OPTIONEE'S REPRESENTATIONS. In the event the Shares purchasable pursuant to the exercise of this Option have not been registered under the Securities Act of 1933, as amended (the "SECURITIES ACT"), at the time this Option is exercised, Optionee shall, if required by the Company, concurrently with the exercise of all or any portion of this Option, deliver to the Company an investment representation statement in customary form, a copy of which is available for Optionee's review from the Company upon request. 1 4. METHOD OF PAYMENT. Payment of the Exercise Price shall be by any of the following, or a combination of the following, at the election of Optionee: (a) cash; (b) check; (c) surrender of other Shares of Common Stock of the Company that (i) either have been owned by Optionee for more than six (6) months on the date of surrender or were not acquired, directly or indirectly, from the Company, and (ii) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised; (d) authorization from the Company to retain from the total number of Shares as to which the Option is exercised that number of Shares having a Fair Market value on the date of exercise equal to the exercise price for the total number of Shares as to which the Option is exercised; or (e) if there is a public market for the Shares and they are registered under the Securities Act, delivery of a properly executed exercise notice together with irrevocable instructions to a broker to deliver promptly to the Company the amount of sale or loan proceeds required to pay the exercise price. 5. RESTRICTIONS ON EXERCISE. This Option may not be exercised if the issuance of such Shares upon such exercise or the method of payment of consideration for such shares would constitute a violation of any applicable federal or state securities or other law or regulation, including any rule under Part 207 of Title 12 of the Code of Federal Regulations ("REGULATION G") as promulgated by the Federal Reserve Board. As a condition to the exercise of this Option, the Company may require Optionee to make any representation and warranty to the Company as may be required by any applicable law or regulation. 6. TERMINATION OF RELATIONSHIP. In the event of termination of Optionee's employment or consulting relationship with the Company, Optionee may, to the extent otherwise so entitled at the date of such termination (the "TERMINATION DATE"), exercise this Option during the Termination Period set out in the Notice of Stock Option Grant. To the extent that Optionee was not entitled to exercise this Option at the date of such termination, or if Optionee does not exercise this Option within the time specified in the Notice of Stock Option Grant, the Option shall terminate. 7. DISABILITY OF OPTIONEE. Notwithstanding the provisions of Section 6 above, in the event of termination of Optionee's employment or consulting relationship with the Company as a result of total and permanent disability (as defined in Section 22(e)(3) of the Internal Revenue Code), Optionee may, but only within five (5) years from the date of termination of such relationship (but in no event later than the date of expiration of the term of this Option as set forth in Section 10 below), exercise the Option to the extent otherwise so entitled at the date of such termination. To the extent that Optionee was not entitled to exercise the Option at the date of termination, or if Optionee does not exercise such Option (to the extent otherwise so entitled) within the time specified in this Agreement, the Option shall terminate. 8. DEATH OF OPTIONEE. In the event of the death of Optionee: (a) during the term of this Option and while an employee or consultant of the Company and having been an employee or consultant of the Company since the date of grant of the Option, the Option may be exercised, at any time within five (5) years following the date of death (but in no event later than the date of expiration of the term of this Option as set forth in Section 10 below), by Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance, including by an officer of High Technology Capital Management, but only to the extent of the right to exercise that would have accrued had Optionee continued living and remained as an employee of the Company three (3) months after the date of death; or (b) within thirty (30) days after the termination of Optionee's employment or consulting relationship with the Company, the Option may be exercised, at any time within five (5) years following the date of death (but in no event later than the date of expiration of the term of this Option as set forth in Section 10 below), by Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent of the right to exercise that had accrued at the date of termination. 2 9. NON-TRANSFERABILITY OF OPTION. This Option may not be transferred in any manner otherwise than by will or by the laws of descent or distribution. The designation of a beneficiary does not constitute a transfer. An Option may be exercised during the lifetime of Optionee only by Optionee or a transferee permitted by this section. The terms of this Option shall be binding upon the executors, administrators, heirs, successors and assigns of Optionee. 10. TERM OF OPTION. This Option may be exercised only within the term set out in the Notice of Stock Option Grant, and may be exercised during such term only in accordance with the terms of this Option. 11. NO ADDITIONAL EMPLOYMENT RIGHTS. Optionee understands and agrees that the vesting of Shares pursuant to the Vesting Schedule is earned only by continuing as an employee or consultant of the Company at the will of the Company (not through the act of being hired, being granted this Option or acquiring Shares under this Agreement). Optionee further acknowledges and agrees that nothing in this Agreement shall confer upon Optionee any right with respect to continuation as an employee or consultant of the Company, nor shall it interfere in any way with his or her right or the Company's right to terminate his or her employment or consulting relationship at any time, with or without cause. 12. TAX CONSEQUENCES. Optionee acknowledges that he or she has read the brief summary set forth below of certain federal tax consequences of exercise of this Option and disposition of the Shares under the law in effect as of the date of grant. OPTIONEE UNDERSTANDS THAT THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT HIS OR HER OWN TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES. (a) EXERCISE OF NONSTATUTORY STOCK OPTION. Optionee may incur regular federal income tax liability upon the exercise of the Option. Optionee will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the fair market value of the Shares on the date of exercise over the Exercise Price. In addition, if Optionee is an employee of the Company, the Company will be required to withhold from Optionee's compensation or collect from Optionee and pay to the applicable taxing authorities an amount equal to a percentage of this compensation income at the time of exercise. (b) DISPOSITION OF SHARES. Gain realized on the disposition of Shares will be treated as long-term or short-term capital gain depending on whether or not the disposition occurs more than one year after the exercise date. 13. SIGNATURE. This Stock Option Agreement shall be deemed executed by the Company and Optionee upon execution by such parties of the Notice of Stock Option Grant attached to this Stock Option Agreement. [REMAINDER OF PAGE LEFT INTENTIONALLY BLANK] 3 EXHIBIT A NOTICE OF EXERCISE To: Centura Software Corporation Attn: Stock Option Administrator Subject: Notice of Intention to Exercise Nonstatutory Stock Option ----------------------------------------------------
This is official notice that the undersigned ("OPTIONEE") intends to exercise Optionee's option to purchase shares of Centura Software Corporation Common Stock, under and pursuant to the Nonstatutory Stock Option Agreement dated , as follows: Grant Number: ------------------------------------------------ Date of Purchase: ------------------------------------------------ Number of Shares: ------------------------------------------------ Purchase Price: ------------------------------------------------ Method of Payment of Purchase Price: ------------------------------------------------ Social Security No.: ------------------------------------------------ The shares should be issued as follows: Name: ------------------------------------------------ Address: ------------------------------------------------ ------------------------------------------------ ------------------------------------------------ Signed: ------------------------------------------------ Date: ------------------------------------------------
CENTURA SOFTWARE CORPORATION NOTICE OF NONSTATUTORY STOCK OPTION GRANT Optionee's Name and Address: John Bowman Centura Software Corporation 975 Island Drive Redwood Shores, CA 94065 You have been granted an option to purchase Common Stock of Centura Software Corporation (the "Company"), as follows: Board Approval Date: November 6, 1997 ------------------------------------- Date of Grant (Later of Board Approval Date or Commencement of Employment/ Consulting): November 6, 1997 ------------------------------------- Exercise Price Per Share: $1.906 ------------------------------------- Total Number of Shares Granted: 375,000 ------------------------------------- Total Price of Shares Granted: $714,750.00 ------------------------------------- Term/Expiration Date: November 5, 2007 ------------------------------------- Vesting Commencement Date: November 5, 1997 ------------------------------------- Vesting Schedule: 25% of the shares subject to the option shall be exercisable as of the Vesting Commencement Date and thereafter 25% of the shares subject to the option shall become exercisable on each subsequent six month anniversary of the Vesting Commencement Date as follows: an additional 25% of the shares become exercisable on May 5, 1998, an additional 25% of the shares become exercisable on November 5, 1998 and and additional 25% of the shares become exercisable on May 5, 1999; provided, however, that 100% of the shares subject to the option shall become exercisable upon the occurrence of any of the following events: (i) All or substantially all of the assets of the Company are sold, exchanged or otherwise transferred in one or more transactions; (ii) The Company is merged or consolidated with or into another corporation with the effect that the common stockholders immediately prior to such merger or consolidation hold less than 75% of the ordinary voting power of the outstanding securities of the surviving corporation of such merger or the corporation resulting from such consolidation; or
1 (iii) A person or group (such as term is used in rule 13d-5 under the Securities and Exchange Act of 1934) shall, as a result of the tender or exchange offer, open market purchases, merger, private placement or otherwise, have become, directly or indirectly, the beneficial owner (within the meaning of rule 13d-5 under the Securities and Exchange Act of 1934) or securities having 15% or more of the voting power of then outstanding securities of the Company, excluding the issuance of securities in connection with the conversion of the Floating Rate Convertible Subordinated Note Due 1998 dated as of April 3, 1995 issued by the Company to Computer Associates International, Inc. and any transactions related thereto. (iv) The Board elects to expand its membership to 9, or if 3 of its existing members resign or are in some way removed from the Board. (v) The 2 Board members nominated by Newport Acquisition Company No 2 LLC or its successors ("Newport") vote the Newport shares. (vi) Termination of the employee or consultant by the Company for any reason without cause. Termination Period: Option may be exercised for a period of 5 years after termination of employment or consulting relationship with the Company (but in no event later than the Expiration Date).
By your signature and the signature of the Company's representative below, you and the Company agree that this option is granted under and governed by the terms and conditions of the Nonstatutory Stock Option Agreement attached and made a part of this document. OPTIONEE: CENTURA SOFTWARE CORPORATION By: - --------------------------------- ----------------------------------- Signature Title: - --------------------------------- ----------------------------------- Print Name
2 CENTURA SOFTWARE CORPORATION NONSTATUTORY STOCK OPTION AGREEMENT 1. GRANT OF OPTION. Centura Software Corporation, a California corporation (the "COMPANY"), hereby grants to the Optionee named in the Notice of Stock Option Grant attached to this Agreement ("OPTIONEE"), an option (the "OPTION") to purchase the total number of shares of Common Stock (the "SHARES") set forth in the Notice of Stock Option Grant, at the exercise price per share set forth in the Notice of Stock Option Grant (the "EXERCISE PRICE") subject to the terms, definitions and provisions of this Nonstatutory Stock Option Agreement (the "Agreement"). This Option is intended to be a Nonstatutory Stock Option. 2. EXERCISE OF OPTION. This Option shall be exercisable during its term in accordance with the Vesting Schedule set out in the Notice of Stock Option Grant as follows: (a) RIGHT TO EXERCISE. (i) This Option may not be exercised for a fraction of a share. (ii) In the event of Optionee's death, disability or other termination of employment, the exercisability of the Option is governed by Sections 6, 7 and 8 below, subject to the limitations contained in paragraph (iii) below. (iii) In no event may this Option be exercised after the date of expiration of the term of this Option as set forth in the Notice of Stock Option Grant. (b) METHOD OF EXERCISE. (i) This Option shall be exercisable by delivering to the Company a written notice of exercise (in the form attached as EXHIBIT A) which shall state the election to exercise the Option, the number of Shares in respect of which the Option is being exercised, and such other representations and agreements as to the holder's investment intent with respect to such Shares of Common Stock as may be required by the Company. Such written notice shall be signed by Optionee and shall be delivered in person or by certified mail to the Secretary of the Company. The written notice shall be accompanied by payment of the Exercise Price. This Option shall be deemed to be exercised upon receipt by the Company of such written notice accompanied by the Exercise Price. (ii) As a condition to the exercise of this Option, Optionee agrees to make adequate provision for federal, state or other tax withholding obligations, if any, which arise upon the exercise of the Option or disposition of Shares, whether by withholding, direct payment to the Company, or otherwise. (iii) No Shares will be issued pursuant to the exercise of an Option unless such issuance and such exercise shall comply with all relevant provisions of law and the requirements of any stock exchange upon which the Shares may then be listed. Assuming such compliance, for income tax purposes the Shares shall be considered transferred to Optionee on the date on which the Option is exercised with respect to such Shares. 3. OPTIONEE'S REPRESENTATIONS. In the event the Shares purchasable pursuant to the exercise of this Option have not been registered under the Securities Act of 1933, as amended (the "SECURITIES ACT"), at the time this Option is exercised, Optionee shall, if required by the Company, concurrently with the exercise of all or any portion of this Option, deliver to the Company an investment representation statement in customary form, a copy of which is available for Optionee's review from the Company upon request. 1 4. METHOD OF PAYMENT. Payment of the Exercise Price shall be by any of the following, or a combination of the following, at the election of Optionee: (a) cash; (b) check; (c) surrender of other Shares of Common Stock of the Company that (i) either have been owned by Optionee for more than six (6) months on the date of surrender or were not acquired, directly or indirectly, from the Company, and (ii) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised; (d) authorization from the Company to retain from the total number of Shares as to which the Option is exercised that number of Shares having a Fair Market value on the date of exercise equal to the exercise price for the total number of Shares as to which the Option is exercised; or (e) if there is a public market for the Shares and they are registered under the Securities Act, delivery of a properly executed exercise notice together with irrevocable instructions to a broker to deliver promptly to the Company the amount of sale or loan proceeds required to pay the exercise price. 5. RESTRICTIONS ON EXERCISE. This Option may not be exercised if the issuance of such Shares upon such exercise or the method of payment of consideration for such shares would constitute a violation of any applicable federal or state securities or other law or regulation, including any rule under Part 207 of Title 12 of the Code of Federal Regulations ("REGULATION G") as promulgated by the Federal Reserve Board. As a condition to the exercise of this Option, the Company may require Optionee to make any representation and warranty to the Company as may be required by any applicable law or regulation. 6. TERMINATION OF RELATIONSHIP. In the event of termination of Optionee's employment or consulting relationship with the Company, Optionee may, to the extent otherwise so entitled at the date of such termination (the "TERMINATION DATE"), exercise this Option during the Termination Period set out in the Notice of Stock Option Grant. To the extent that Optionee was not entitled to exercise this Option at the date of such termination, or if Optionee does not exercise this Option within the time specified in the Notice of Stock Option Grant, the Option shall terminate. 7. DISABILITY OF OPTIONEE. Notwithstanding the provisions of Section 6 above, in the event of termination of Optionee's employment or consulting relationship with the Company as a result of total and permanent disability (as defined in Section 22(e)(3) of the Internal Revenue Code), Optionee may, but only within five (5) years from the date of termination of such relationship (but in no event later than the date of expiration of the term of this Option as set forth in Section 10 below), exercise the Option to the extent otherwise so entitled at the date of such termination. To the extent that Optionee was not entitled to exercise the Option at the date of termination, or if Optionee does not exercise such Option (to the extent otherwise so entitled) within the time specified in this Agreement, the Option shall terminate. 8. DEATH OF OPTIONEE. In the event of the death of Optionee: (a) during the term of this Option and while an employee or consultant of the Company and having been an employee or consultant of the Company since the date of grant of the Option, the Option may be exercised, at any time within five (5) years following the date of death (but in no event later than the date of expiration of the term of this Option as set forth in Section 10 below), by Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent of the right to exercise that would have accrued had Optionee continued living and remained as an employee of the Company three (3) months after the date of death; or (b) within thirty (30) days after the termination of Optionee's employment or consulting relationship with the Company, the Option may be exercised, at any time within five (5) years following the date of death (but in no event later than the date of expiration of the term of this Option as set forth in Section 10 below), by Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent of the right to exercise that had accrued at the date of termination. 2 9. NON-TRANSFERABILITY OF OPTION. This Option may not be transferred in any manner otherwise than by will or by the laws of descent or distribution. The designation of a beneficiary does not constitute a transfer. An Option may be exercised during the lifetime of Optionee only by Optionee or a transferee permitted by this section. The terms of this Option shall be binding upon the executors, administrators, heirs, successors and assigns of Optionee. 10. TERM OF OPTION. This Option may be exercised only within the term set out in the Notice of Stock Option Grant, and may be exercised during such term only in accordance with the terms of this Option. 11. NO ADDITIONAL EMPLOYMENT RIGHTS. Optionee understands and agrees that the vesting of Shares pursuant to the Vesting Schedule is earned only by continuing as an employee or consultant of the Company at the will of the Company (not through the act of being hired, being granted this Option or acquiring Shares under this Agreement). Optionee further acknowledges and agrees that nothing in this Agreement shall confer upon Optionee any right with respect to continuation as an employee or consultant of the Company, nor shall it interfere in any way with his or her right or the Company's right to terminate his or her employment or consulting relationship at any time, with or without cause. 12. TAX CONSEQUENCES. Optionee acknowledges that he or she has read the brief summary set forth below of certain federal tax consequences of exercise of this Option and disposition of the Shares under the law in effect as of the date of grant. OPTIONEE UNDERSTANDS THAT THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT HIS OR HER OWN TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES. (a) EXERCISE OF NONSTATUTORY STOCK OPTION. Optionee may incur regular federal income tax liability upon the exercise of the Option. Optionee will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the fair market value of the Shares on the date of exercise over the Exercise Price. In addition, if Optionee is an employee of the Company, the Company will be required to withhold from Optionee's compensation or collect from Optionee and pay to the applicable taxing authorities an amount equal to a percentage of this compensation income at the time of exercise. (b) DISPOSITION OF SHARES. Gain realized on the disposition of Shares will be treated as long-term or short-term capital gain depending on whether or not the disposition occurs more than one year after the exercise date. 13. SIGNATURE. This Stock Option Agreement shall be deemed executed by the Company and Optionee upon execution by such parties of the Notice of Stock Option Grant attached to this Stock Option Agreement. [REMAINDER OF PAGE LEFT INTENTIONALLY BLANK] 3 EXHIBIT A NOTICE OF EXERCISE To: Centura Software Corporation Attn: Stock Option Administrator Subject: Notice of Intention to Exercise Nonstatutory Stock Option ----------------------------------------------------
This is official notice that the undersigned ("OPTIONEE") intends to exercise Optionee's option to purchase shares of Centura Software Corporation Common Stock, under and pursuant to the Nonstatutory Stock Option Agreement dated , as follows: Grant Number: ------------------------------------------------ Date of Purchase: ------------------------------------------------ Number of Shares: ------------------------------------------------ Purchase Price: ------------------------------------------------ Method of Payment of Purchase Price: ------------------------------------------------ Social Security No.: ------------------------------------------------ The shares should be issued as follows: Name: ------------------------------------------------ Address: ------------------------------------------------ ------------------------------------------------ ------------------------------------------------ Signed: ------------------------------------------------ Date: ------------------------------------------------
CENTURA SOFTWARE CORPORATION NOTICE OF NONSTATUTORY STOCK OPTION GRANT Optionee's Name and Address: Kathy Lane Centura Software Corporation 975 Island Drive Redwood Shores, CA 94065 You have been granted an option to purchase Common Stock of Centura Software Corporation (the "Company"), as follows: Board Approval Date: November 6, 1997 ------------------------------------- Date of Grant (Later of Board Approval Date or Commencement of Employment/ Consulting): November 6, 1997 ------------------------------------- Exercise Price Per Share: $1.906 ------------------------------------- Total Number of Shares Granted: 375,000 ------------------------------------- Total Price of Shares Granted: $714,750.00 ------------------------------------- Term/Expiration Date: November 5, 2007 ------------------------------------- Vesting Commencement Date: November 5, 1997 ------------------------------------- Vesting Schedule: 25% of the shares subject to the option shall be exercisable as of the Vesting Commencement Date and thereafter 25% of the shares subject to the option shall become exercisable on each subsequent six month anniversary of the Vesting Commencement Date as follows: an additional 25% of the shares become exercisable on May 5, 1998, an additional 25% of the shares become exercisable on November 5, 1998 and and additional 25% of the shares become exercisable on May 5, 1999; provided, however, that 100% of the shares subject to the option shall become exercisable upon the occurrence of any of the following events: (i) All or substantially all of the assets of the Company are sold, exchanged or otherwise transferred in one or more transactions; (ii) The Company is merged or consolidated with or into another corporation with the effect that the common stockholders immediately prior to such merger or consolidation hold less than 75% of the ordinary voting power of the outstanding securities of the surviving corporation of such merger or the corporation resulting from such consolidation; or
1 (iii) A person or group (such as term is used in rule 13d-5 under the Securities and Exchange Act of 1934) shall, as a result of the tender or exchange offer, open market purchases, merger, private placement or otherwise, have become, directly or indirectly, the beneficial owner (within the meaning of rule 13d-5 under the Securities and Exchange Act of 1934) or securities having 15% or more of the voting power of then outstanding securities of the Company, excluding the issuance of securities in connection with the conversion of the Floating Rate Convertible Subordinated Note Due 1998 dated as of April 3, 1995 issued by the Company to Computer Associates International, Inc. and any transactions related thereto. (iv) The Board elects to expand its membership to 9, or if 3 of its existing members resign or are in some way removed from the Board. (v) The 2 Board members nominated by Newport Acquisition Company No 2 LLC or its successors ("Newport") vote the Newport shares. (vi) Termination of the employee or consultant by the Company for any reason without cause. Termination Period: Option may be exercised for a period of five (5) years after termination of employment or consulting relationship with the Company (but in no event later than the Expiration Date).
By your signature and the signature of the Company's representative below, you and the Company agree that this option is granted under and governed by the terms and conditions of the Nonstatutory Stock Option Agreement attached and made a part of this document. OPTIONEE: CENTURA SOFTWARE CORPORATION By: - --------------------------------- ----------------------------------- Signature Title: - --------------------------------- ----------------------------------- Print Name
2 CENTURA SOFTWARE CORPORATION NONSTATUTORY STOCK OPTION AGREEMENT 1. GRANT OF OPTION. Centura Software Corporation, a California corporation (the "COMPANY"), hereby grants to the Optionee named in the Notice of Stock Option Grant attached to this Agreement ("OPTIONEE"), an option (the "OPTION") to purchase the total number of shares of Common Stock (the "SHARES") set forth in the Notice of Stock Option Grant, at the exercise price per share set forth in the Notice of Stock Option Grant (the "EXERCISE PRICE") subject to the terms, definitions and provisions of this Nonstatutory Stock Option Agreement (the "Agreement"). This Option is intended to be a Nonstatutory Stock Option. 2. EXERCISE OF OPTION. This Option shall be exercisable during its term in accordance with the Vesting Schedule set out in the Notice of Stock Option Grant as follows: (a) RIGHT TO EXERCISE. (i) This Option may not be exercised for a fraction of a share. (ii) In the event of Optionee's death, disability or other termination of employment, the exercisability of the Option is governed by Sections 6, 7 and 8 below, subject to the limitations contained in paragraph (iii) below. (iii) In no event may this Option be exercised after the date of expiration of the term of this Option as set forth in the Notice of Stock Option Grant. (b) METHOD OF EXERCISE. (i) This Option shall be exercisable by delivering to the Company a written notice of exercise (in the form attached as EXHIBIT A) which shall state the election to exercise the Option, the number of Shares in respect of which the Option is being exercised, and such other representations and agreements as to the holder's investment intent with respect to such Shares of Common Stock as may be required by the Company. Such written notice shall be signed by Optionee and shall be delivered in person or by certified mail to the Secretary of the Company. The written notice shall be accompanied by payment of the Exercise Price. This Option shall be deemed to be exercised upon receipt by the Company of such written notice accompanied by the Exercise Price. (ii) As a condition to the exercise of this Option, Optionee agrees to make adequate provision for federal, state or other tax withholding obligations, if any, which arise upon the exercise of the Option or disposition of Shares, whether by withholding, direct payment to the Company, or otherwise. (iii) No Shares will be issued pursuant to the exercise of an Option unless such issuance and such exercise shall comply with all relevant provisions of law and the requirements of any stock exchange upon which the Shares may then be listed. Assuming such compliance, for income tax purposes the Shares shall be considered transferred to Optionee on the date on which the Option is exercised with respect to such Shares. 3. OPTIONEE'S REPRESENTATIONS. In the event the Shares purchasable pursuant to the exercise of this Option have not been registered under the Securities Act of 1933, as amended (the "SECURITIES ACT"), at the time this Option is exercised, Optionee shall, if required by the Company, concurrently with the exercise of all or any portion of this Option, deliver to the Company an investment representation statement in customary form, a copy of which is available for Optionee's review from the Company upon request. 1 4. METHOD OF PAYMENT. Payment of the Exercise Price shall be by any of the following, or a combination of the following, at the election of Optionee: (a) cash; (b) check; (c) surrender of other Shares of Common Stock of the Company that (i) either have been owned by Optionee for more than six (6) months on the date of surrender or were not acquired, directly or indirectly, from the Company, and (ii) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised; (d) authorization from the Company to retain from the total number of Shares as to which the Option is exercised that number of Shares having a Fair Market value on the date of exercise equal to the exercise price for the total number of Shares as to which the Option is exercised; or (e) if there is a public market for the Shares and they are registered under the Securities Act, delivery of a properly executed exercise notice together with irrevocable instructions to a broker to deliver promptly to the Company the amount of sale or loan proceeds required to pay the exercise price. 5. RESTRICTIONS ON EXERCISE. This Option may not be exercised if the issuance of such Shares upon such exercise or the method of payment of consideration for such shares would constitute a violation of any applicable federal or state securities or other law or regulation, including any rule under Part 207 of Title 12 of the Code of Federal Regulations ("REGULATION G") as promulgated by the Federal Reserve Board. As a condition to the exercise of this Option, the Company may require Optionee to make any representation and warranty to the Company as may be required by any applicable law or regulation. 6. TERMINATION OF RELATIONSHIP. In the event of termination of Optionee's employment or consulting relationship with the Company, Optionee may, to the extent otherwise so entitled at the date of such termination (the "TERMINATION DATE"), exercise this Option during the Termination Period set out in the Notice of Stock Option Grant. To the extent that Optionee was not entitled to exercise this Option at the date of such termination, or if Optionee does not exercise this Option within the time specified in the Notice of Stock Option Grant, the Option shall terminate. 7. DISABILITY OF OPTIONEE. Notwithstanding the provisions of Section 6 above, in the event of termination of Optionee's employment or consulting relationship with the Company as a result of total and permanent disability (as defined in Section 22(e)(3) of the Internal Revenue Code), Optionee may, but only within five (5) years from the date of termination of such relationship (but in no event later than the date of expiration of the term of this Option as set forth in Section 10 below), exercise the Option to the extent otherwise so entitled at the date of such termination. To the extent that Optionee was not entitled to exercise the Option at the date of termination, or if Optionee does not exercise such Option (to the extent otherwise so entitled) within the time specified in this Agreement, the Option shall terminate. 8. DEATH OF OPTIONEE. In the event of the death of Optionee: (a) during the term of this Option and while an employee or consultant of the Company and having been an employee or consultant of the Company since the date of grant of the Option, the Option may be exercised, at any time within five (5) years following the date of death (but in no event later than the date of expiration of the term of this Option as set forth in Section 10 below), by Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent of the right to exercise that would have accrued had Optionee continued living and remained as an employee of the Company three (3) months after the date of death; or (b) within thirty (30) days after the termination of Optionee's employment or consulting relationship with the Company, the Option may be exercised, at any time within five (5) years following the date of death (but in no event later than the date of expiration of the term of this Option as set forth in Section 10 below), by Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent of the right to exercise that had accrued at the date of termination. 2 9. NON-TRANSFERABILITY OF OPTION. This Option may not be transferred in any manner otherwise than by will or by the laws of descent or distribution. The designation of a beneficiary does not constitute a transfer. An Option may be exercised during the lifetime of Optionee only by Optionee or a transferee permitted by this section. The terms of this Option shall be binding upon the executors, administrators, heirs, successors and assigns of Optionee. 10. TERM OF OPTION. This Option may be exercised only within the term set out in the Notice of Stock Option Grant, and may be exercised during such term only in accordance with the terms of this Option. 11. NO ADDITIONAL EMPLOYMENT RIGHTS. Optionee understands and agrees that the vesting of Shares pursuant to the Vesting Schedule is earned only by continuing as an employee or consultant of the Company at the will of the Company (not through the act of being hired, being granted this Option or acquiring Shares under this Agreement). Optionee further acknowledges and agrees that nothing in this Agreement shall confer upon Optionee any right with respect to continuation as an employee or consultant of the Company, nor shall it interfere in any way with his or her right or the Company's right to terminate his or her employment or consulting relationship at any time, with or without cause. 12. TAX CONSEQUENCES. Optionee acknowledges that he or she has read the brief summary set forth below of certain federal tax consequences of exercise of this Option and disposition of the Shares under the law in effect as of the date of grant. OPTIONEE UNDERSTANDS THAT THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT HIS OR HER OWN TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES. (a) EXERCISE OF NONSTATUTORY STOCK OPTION. Optionee may incur regular federal income tax liability upon the exercise of the Option. Optionee will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the fair market value of the Shares on the date of exercise over the Exercise Price. In addition, if Optionee is an employee of the Company, the Company will be required to withhold from Optionee's compensation or collect from Optionee and pay to the applicable taxing authorities an amount equal to a percentage of this compensation income at the time of exercise. (b) DISPOSITION OF SHARES. Gain realized on the disposition of Shares will be treated as long-term or short-term capital gain depending on whether or not the disposition occurs more than one year after the exercise date. 13. SIGNATURE. This Stock Option Agreement shall be deemed executed by the Company and Optionee upon execution by such parties of the Notice of Stock Option Grant attached to this Stock Option Agreement. [REMAINDER OF PAGE LEFT INTENTIONALLY BLANK] 3 EXHIBIT A NOTICE OF EXERCISE To: Centura Software Corporation Attn: Stock Option Administrator Subject: Notice of Intention to Exercise Nonstatutory Stock Option ----------------------------------------------------
This is official notice that the undersigned ("OPTIONEE") intends to exercise Optionee's option to purchase shares of Centura Software Corporation Common Stock, under and pursuant to the Nonstatutory Stock Option Agreement dated , as follows: Grant Number: ------------------------------------------------ Date of Purchase: ------------------------------------------------ Number of Shares: ------------------------------------------------ Purchase Price: ------------------------------------------------ Method of Payment of Purchase Price: ------------------------------------------------ Social Security No.: ------------------------------------------------ The shares should be issued as follows: Name: ------------------------------------------------ Address: ------------------------------------------------ ------------------------------------------------ ------------------------------------------------ Signed: ------------------------------------------------ Date: ------------------------------------------------
EX-10.28 5 EXHIBIT 10.28 CENTURA SOFTWARE CORPORATION SETTLEMENT AGREEMENT AND MUTUAL RELEASE This Settlement Agreement and Mutual Release ("AGREEMENT") is made by and between Centura Software Corporation, a California corporation (the "COMPANY"), and Samuel M. Inman ("MR. INMAN"). WHEREAS, Mr. Inman is employed by the Company; and WHEREAS, the Company and Mr. Inman have mutually agreed to terminate the existing employment relationship and to release each other from any claims arising from or related to the employment relationship. NOW, THEREFORE, in consideration of the mutual promises made herein, the Company and Mr. Inman (collectively referred to as the "PARTIES") hereby agree as follows: 1. RESIGNATION. Mr. Inman and the Company agree that Mr. Inman's status as President, Chief Executive Officer and Chairman of the Board of Directors of the Company and all other positions of the Company held by Mr. Inman shall terminate on December 8, 1997, provided, however, that Mr. Inman's employment with the Company shall continue beyond the termination of such status as provided in this Agreement; and provided further than Mr. Inman shall remain a Director of the Company until Mr. Inman resigns such position or is requested to resign by the Company's Board of Directors, at which time Mr. Inman agrees to resign such position. 2. CONTINUATION OF EMPLOYMENT. In consideration for the release of claims by Mr. Inman set forth below and other obligations under this Agreement, the Company and Mr. Inman agree to the following terms with respect to continuation of Mr. Inman's employment by the Company: (a) that Mr. Inman shall continue to work as a full-time employee of the Company until December 31, 1997 (the "Termination Date"), and shall be entitled to receive his current base salary and any earned but unpaid bonus and accrued vacation (less applicable withholding) through December 31, 1997 in accordance with the Company's regular payroll practices while so employed; and (b) that as a condition to Mr. Inman's continued employment with the Company, during the period commencing on January 1, 1998 and continuing through July 31, 1998 (the "Service Period"), Mr. Inman agrees to provide services to the Company as follows: (i) Mr. Inman shall be available to assist the President, or other employees of the Company as designated by the President, in fulfilling such projects reasonably consistent with Mr. Inman's prior position with the Company as requested by the President; (ii) Mr. Inman shall report directly to the President of the Company; and (iii) Mr. Inman shall contact the President no less frequently than monthly, at a day and time each month mutually agreed to by Mr. Inman and the President, to report the status of Mr. Inman's continuing projects for the Company. To facilitate Mr. Inman's rendering of services to the Company, as set forth above, during the Service Period, the Company agrees to maintain Mr. Inman's electronic mail addresses on the Company's systems. Mr. Inman hereby acknowledges and agrees that the performance of his services is on an at-will basis, and that his services may be terminated at any time for any reason by the Company or Mr. Inman upon ten (10) days' written notice. 3. PAYMENT. In consideration for the release of claims set forth below and Mr. Inman's continued services to the Company during the Service Period, the Company agrees to pay Mr. Inman a lump sum payment of $233,333.33, which is equal to seven months of current base salary (less applicable tax withholding), on or about January 5, 1998, the first business day of the Service Period. 4. EMPLOYEE BENEFITS. (a) Mr. Inman shall continue to receive the Company's life, medical, dental and vision insurance benefits at Company expense until the earlier of July 31, 1998 or the date on which Mr. Inman commences full or part-time employment with a new employer, which date shall be the "qualifying event" date under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"). Following such date, Mr. Inman shall have the right to continue, at his own expense, coverage under the Company's medical, dental and vision (but not life) insurance programs as provided by COBRA. (b) Except as otherwise provided above, Mr. Inman shall not be entitled to participate in any of the Company's benefit plans or programs offered to employees or officers of the Company, including, but not limited to, any accrual of vacation, after the Termination Date. 5. STOCK OPTIONS. Under the terms of the Stock Option Agreements issued to Mr. Inman over the course of his employment with the Company, Mr. Inman was granted options to purchase 479,999 (the "January 1996 Options"), and 120,000 (the "March 1997 Option") total shares of the Company's Common Stock under the Company's 1986 Stock Option Plan and 1995 Stock Option Plan, respectively. The January 1996 Options and the March 1997 Option may hereinafter be referred to collectively as the Options. As of the Termination Date, 260,000 shares under the January 1996 Options and 0 shares under the March 1997 Option have vested, respectively (the "Vested Shares") and 219,999 and 120,000 shares, respectively, have not vested (the "Unvested Shares"). Subject to the provisions set forth in the next sentence, in consideration for the release of claims set forth below and for Mr. Inman's continued services to the Company during the Service Period, as well as other obligations under this Agreement, the Options shall continue to vest at their regular monthly vesting rate during the Service Period or so long as Mr. Inman serves as a member of the Board, and such Options shall thereafter be -2- exercisable with respect to such fully vested option shares for 30 days after the later of the date on which Mr. Inman ceases to provide services to the Company in accordance with Section 2(b) above or ceases to serve as a director of the Company, but no later than 30 days after July 31, 1998. The foregoing provision shall be null and void and of no force or effect if: (i) in the opinion of the Company's independent auditors, such continued vesting would require the Company to recognize an additional compensation expense to its income statement for the fiscal year ending December 31, 1997 or 1998, or (ii) if it is determined by the Board of Directors, upon consultation with the Company's management and independent auditors, that such continued vesting would preclude accounting for any proposed business combination of the Company as a pooling of interests, and the Board otherwise desires to approve such a proposed business transaction which requires as a condition to the closing of such transaction that it be accounted for as a pooling of interests. Mr. Inman acknowledges and agrees that if the Options are not exercised within 90 days of the Termination Date, they shall no longer qualify as incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, and shall thereafter be nonstatutory stock options. Mr. Inman further acknowledges and agrees that he shall remain bound by all other terms of the Stock Option Agreements issued by the Company to him. 6. NO OTHER PAYMENTS DUE. The Company agrees that it will continue to pay to Mr. Inman the salary described in Section 2(a) through the Termination Date in accordance with the Company's normal payroll practices, and that the Company will pay to Mr. Inman on or before the Termination Date all salary as may then be due to Mr. Inman. Mr. Inman will execute an acknowledgment of receipt of all such payments as received and an acknowledgment that, in light of the payment by the Company of all wages due, or to become due to Mr. Inman, California Labor Code Section 206.5 is not applicable to the Parties hereto. That section provides in pertinent part as follows: No employer shall require the execution of any release of any claim or right on account of wages due, or to become due, or made as an advance on wages to be earned, unless payment of such wages has been made. 7. RELEASE OF CLAIMS. In consideration for the obligations of both parties set forth in this Agreement, Mr. Inman and the Company, on behalf of themselves, and their respective heirs, executors, officers, directors, employees, investors, stockholders, administrators and assigns, hereby fully and forever release each other and their respective heirs, executors, officers, directors, employees, investors, stockholders, administrators and assigns, of and from any claim, duty, obligation or cause of action relating to any matters of any kind, whether presently known or unknown, suspected or unsuspected, that any of them may possess arising from any omissions, acts or facts that have occurred up until and including the date of this Agreement including, without limitation: (a) any and all claims relating to or arising from Mr. Inman's employment relationship with the Company and the termination of that relationship; -3- (b) any and all claims relating to, or arising from, Mr. Inman's right to purchase, or actual purchase of shares of stock of the Company; (c) any and all claims for wrongful discharge of employment; breach of contract, both express and implied; breach of a covenant of good faith and fair dealing, both express and implied, negligent or intentional infliction of emotional distress; negligent or intentional misrepresentation; negligent or intentional interference with contract or prospective economic advantage; negligence; and defamation; (d) any and all claims for violation of any federal, state or municipal statute, including, but not limited to, Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Age Discrimination in Employment Act of 1967, the Americans with Disabilities Act of 1990, and the California Fair Employment and Housing Act; (e) any and all claims arising out of any other laws and regulations relating to employment or employment discrimination; and (f) any and all claims for attorneys' fees and costs. The Company and Mr. Inman agree that the release set forth in this Section 6 shall be and remain in effect in all respects as a complete general release as to the matters released. This release does not extend to any obligations incurred or specified under (i) this Agreement, (ii) the Indemnification Agreement dated _____, 199___ between Mr. Inman and the Company (the "Indemnification Agreement"), or (iii) attributable to any act of fraud by any party hereto. Except as expressly provided herein, this Agreement shall supersede and render null and void any and all prior agreements between the parties other than the Indemnification Agreement, the Options, and the Confidentiality Agreement as defined in Section 10 hereof. 8. ACKNOWLEDGMENT OF WAIVER OF CLAIMS UNDER ADEA. Mr. Inman acknowledges that he is waiving and releasing any rights he may have under the Age Discrimination in Employment Act of 1967 ("ADEA") and that this waiver and release is knowing and voluntary. Mr. Inman and the Company agree that this waiver and release does not apply to any rights or claims that may arise under ADEA after the Effective Date of this Agreement. Mr. Inman acknowledges that the consideration given for this waiver and release Agreement is in addition to anything of value to which Mr. Inman was already entitled. Mr. Inman further acknowledges that he has been advised by this writing that (a) he should consult with an attorney PRIOR to executing this Agreement; (b) he has at least twenty-one (21) days within which to consider this Agreement; (c) he has at least seven (7) days following the execution of this Agreement by the Parties to revoke the Agreement (the "Revocation Period"); and (d) this Agreement shall not be effective until the Revocation Period has expired. 9. CIVIL CODE SECTION 1542. The Parties represent that they are not aware of any claim by either of them other than the claims that are released by this Agreement. Mr. Inman and the Company acknowledge that they have been advised by legal counsel and are familiar with the provisions of California Civil Code Section 1542, which provides as follows: -4- A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR. Mr. Inman and the Company, being aware of said Code section, agree to expressly waive any rights they may have thereunder, as well as under any other statute or common law principles of similar effect. 10. NONDISCLOSURE OF CONFIDENTIAL AND PROPRIETARY INFORMATION. Mr. Inman understands and agrees that his obligations to the Company under his existing Proprietary Information and Inventions Assignment and Confidentiality Agreement between Mr. Inman and the Company (the "CONFIDENTIALITY AGREEMENT"), a copy of which is attached hereto as EXHIBIT A, shall continue through the Termination Date and shall survive termination of his relationship with the Company under this Agreement and that Mr. Inman shall continue to maintain the confidentiality of all confidential and proprietary information of the Company as provided by the Confidentiality Agreement. Mr. Inman agrees that at all times hereafter, he shall not intentionally divulge, furnish or make available to any party any of the trade secrets, patents, patent applications, price decisions or determinations, inventions, customers, proprietary information or other intellectual property of the Company, until after such time as such information has become publicly known otherwise than by act of collusion of Mr. Inman. 11. NONCOMPETITION AND NONSOLICITATION. Mr. Inman agrees that through the Service Period, Mr. Inman shall not, without the prior written consent of the Company, at any time, directly or indirectly, whether or not for compensation, engage in, or have any interest in Pervasive Software Company or Sybase Corporation (whether as an employee, officer, director, agent, security holder, creditor, consultant, partner or otherwise). Mr. Inman further agrees that through the Service Period and a period of one year thereafter, Mr. Inman shall not induce or attempt to induce any person who is an employee of the Company, or any affiliated company, to leave the Company, or any affiliated company, to become an employee of any person, firm, corporation or business that engages in any activity that is in direct competition with the Company. It is expressly agreed by the Parties that after the Termination Date Mr. Inman may pursue and engage in full-time employment that does not conflict with his obligations under this Section 11 and that such employment shall not constitute a breach of this Agreement by Mr. Inman. The Parties intend that the covenant contained in the preceding paragraph shall be construed as a series of separate covenants, one for each county or other geographic or political subdivision of each jurisdiction in which the Company conducts business. If, in any judicial proceeding, a court shall refuse to enforce any of the separate covenants deemed included in this paragraph, then the unenforceable covenant shall be deemed eliminated from the provisions for the purpose of those proceedings to the extent necessary to permit the remaining separate covenants to be enforced. -5- 12. NON-DISPARAGEMENT. Each Party agrees to refrain from any disparagement, criticism, defamation, slander of the other, or tortious interference with the contracts and relationships of the other. The Company's personnel records will reflect that Mr. Inman voluntarily terminated his employment on the Employment Termination Date. 13. AUTHORITY. The Company represents and warrants that the undersigned has the authority to act on behalf of the Company and to bind the Company and all who may claim through it to the terms and conditions of this Agreement. Mr. Inman represents and warrants that he has the capacity to act on his own behalf and on behalf of all who might claim through him to bind them to the terms and conditions of this Agreement. Each Party warrants and represents that there are no liens or claims of lien or assignments in law or equity or otherwise of or against any of the claims or causes of action released herein. 14. NO REPRESENTATIONS. Neither Party has relied upon any representations or statements made by the other Party hereto which are not specifically set forth in this Agreement. 15. SEVERABILITY. In the event that any provision hereof becomes or is declared by a court or other tribunal of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision. 16. ARBITRATION. The Parties shall attempt to settle all disputes arising in connection with this Agreement through good faith consultation. In the event no agreement can be reached on such dispute within fifteen (15) days after notification in writing by either Party to the other concerning such dispute, the dispute shall be settled by binding arbitration to be conducted in Santa Clara County before the American Arbitration Association under its California Employment Dispute Resolution Rules, or by a judge to be mutually agreed upon. The arbitration decision shall be final, conclusive and binding on both Parties and any arbitration award or decision may be entered in any court having jurisdiction. The Parties agree that the prevailing party in any arbitration shall be entitled to injunctive relief in any court of competent jurisdiction to enforce the arbitration award. The Parties further agree that the prevailing Party in any such proceeding shall be awarded reasonable attorneys' fees and costs. This Section 16 shall not apply to the Confidentiality Agreement. THE PARTIES HEREBY WAIVE ANY RIGHTS THEY MAY HAVE TO TRIAL BY JURY IN REGARD TO ARBITRABLE CLAIMS. 17. ENTIRE AGREEMENT. This Agreement, and the exhibit hereto, represent the entire agreement and understanding between the Company and Mr. Inman concerning Mr. Inman's separation from the Company, and supersede and replace any and all prior agreements and understandings concerning Mr. Inman's relationship with the Company and his compensation by the Company, other than the Stock Option Agreements described in Section 4 and the Confidentiality Agreement described in Section 10. 18. NO ORAL MODIFICATION. This Agreement may only be amended in writing signed by Mr. Inman and the Company. 19. GOVERNING LAW. This Agreement shall be governed by the laws of the State of California, without regard to its conflicts of law provisions. -6- 20. EFFECTIVE DATE. This Agreement is effective seven days after it has been signed by both Parties and such date is referred to herein as the "EFFECTIVE DATE." 21. COUNTERPARTS. This Agreement may be executed in counterparts, and each counterpart shall have the same force and effect as an original and shall constitute an effective, binding agreement on the part of each of the undersigned. 22. ASSIGNMENT. This Agreement may not be assigned by Mr. Inman or the Company without the prior written consent of the other party. Notwithstanding the foregoing, this Agreement may be assigned by the Company to a corporation controlling, controlled by or under common control with the Company without the consent of Mr. Inman. 23. VOLUNTARY EXECUTION OF AGREEMENT. This Agreement is executed voluntarily and without any duress or undue influence on the part or behalf of the Parties hereto, with the full intent of releasing all claims. The Parties acknowledge that: (a) they have read this Agreement; (b) they have been represented in the preparation, negotiation, and execution of this Agreement by legal counsel of their own choice or that they have voluntarily declined to seek such counsel; (c) they understand the terms and consequences of this Agreement and of the releases it contains; and (d) they are fully aware of the legal and binding effect of this Agreement. [SIGNATURE PAGE FOLLOWS] -7- IN WITNESS WHEREOF, the Parties have executed this Agreement and Mutual Release on the respective dates set forth below. CENTURA SOFTWARE CORPORATION Dated as of December 8, 1997 By: /s/ Samuel Inman ------------------------------------ Title: President & Chief Executive Officer SAMUEL M. INMAN, an individual Dated as of December 8, 1997 /s/Samuel Inman ------------------------------------ Samuel M. Inman -8- EXHIBIT A CONFIDENTIALITY AGREEMENT CENTURA SOFTWARE CORPORATION SETTLEMENT AGREEMENT AND MUTUAL RELEASE This Settlement Agreement and Mutual Release ("AGREEMENT") is made by and between Centura Software Corporation, a California corporation (the "COMPANY"), and Earl M. Stahl ("MR. STAHL"). WHEREAS, Mr. Stahl is employed by the Company; and WHEREAS, the Company and Mr. Stahl have mutually agreed to terminate the existing employment relationship and to release each other from any claims arising from or related to the employment relationship. NOW, THEREFORE, in consideration of the mutual promises made herein, the Company and Mr. Stahl (collectively referred to as the "PARTIES") hereby agree as follows: 1. RESIGNATION. Mr. Stahl and the Company agree that Mr. Stahl's status as Senior Vice President, Engineering and Chief Technical Officer of the Company, all other positions of the Company held by Mr. Stahl, and Mr. Stahl's full-time employment with the Company shall terminate on December 8, 1997 (the "Termination Date"), provided, however, that Mr. Stahl shall remain a Director of the Company until Mr. Stahl resigns such position or is requested to resign by the Company's Board of Directors, at which time Mr. Stahl agrees to resign such position. 2. CONTINUATION OF EMPLOYMENT. During the period commencing on December 9, 1997 and continuing thereafter until terminated by the Company or Mr. Stahl in accordance with this Section 2 (the "Service Period"), Mr. Stahl agrees to provide services to the Company as follows: (i) Mr. Stahl shall be available to assist the President, or other employees of the Company as designated by the President, in fulfilling such projects reasonably consistent with Mr. Stahl's prior position with the Company as requested by the President, including without limitation providing technical product support on SQL Windows and CTD for bug fixes, architecture changes and other matters; (ii) Mr. Stahl shall report directly to the President of the Company; and (iii) Mr. Stahl shall contact the President no less frequently than monthly, at a day and time each month mutually agreed to by Mr. Stahl and the President, to report the status of Mr. Stahl's continuing projects for the Company. To facilitate Mr. Stahl's rendering of services to the Company, as set forth above, during the Service Period, the Company agrees to maintain Mr. Stahl's electronic mail addresses on the Company's systems, maintain a voice mailbox, and continue to provide computer equipment as needed. Mr. Stahl hereby acknowledges and agrees that the performance of his services is on an at-will basis, that his services may be terminated at any time for any reason by the Company or Mr. Stahl upon ten (10) days' written notice, and that upon such termination the Company's compensation obligations to Mr. Stahl under Section 3 below shall terminate. 3. PAYMENT AND LOAN AGREEMENT. In consideration for the release of claims set forth below and for Mr. Stahl's continued services to the Company during the Service Period, for each month for which Mr. Stahl performs services during the Service Period, the Company will credit an amount equal to Mr. Stahl's current monthly base salary (less applicable withholding) first to accrued interest and then to the outstanding principal balance under the loan pursuant to that certain Loan Agreement Secured by Property and Securities dated August 31, 1995 by and between the Company and Earl and Ann Stahl (the "Loan" and "Loan Agreement"). Mr. Stahl acknowledges that he shall not be entitled to any other payments from the Company for services performed during the Service Period. The Parties acknowledge and agree that in accordance with Section 3 of the Note Secured by Deed of Trust under the Loan 1 Agreement, all outstanding principal balance and accrued interest on the Loan shall become due and payable in full six (6) months after termination of the Service Period, or if earlier, upon the occurrence of any of the events specified in items (i), (ii), (iv), (v) and (vi) of such Section 3. The Parties agree that the Loan and Loan Agreement shall be unmodified and shall remain in full force and effect. 4. EMPLOYEE BENEFITS. Following the Termination Date, Mr. Stahl shall have the right to continue, at his own expense, coverage under the Company's medical, dental and vision insurance programs as provided by COBRA. Except as otherwise provided above, Mr. Stahl shall not be entitled to participate in any of the Company's benefit plans or programs offered to employees or officers of the Company. 5. STOCK OPTIONS. Options to purchase the Company's Common Stock held by Mr. Stahl will continue to vest at their regular monthly vesting rate during the Service Period or so long as Mr. Stahl serves as a member of the Board, and such options shall thereafter be exercisable with respect to such vested option shares thereunder for 30 days after the later of the date on which Mr. Stahl ceases to provide services to the Company in accordance with Section 2 above or ceases to serve as a Director of the Company. Mr. Stahl acknowledges and agrees that if the such options are not exercised within 90 days of the Termination Date, they shall no longer qualify as incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, and shall thereafter be nonstatutory stock options. Mr. Stahl further acknowledges and agrees that he shall remain bound by all terms of the Stock Option Agreements issued by the Company to him. 6. NO OTHER PAYMENTS DUE. Mr. Stahl acknowledges and agrees that the payments being made to him, and the obligations being undertaken by the Company, as described in this Agreement, constitute all payments which he is entitled to receive and that, except as expressly provided herein, he is not entitled to any further or additional compensation or benefit from the Company. Mr. Stahl acknowledges that, in light of the payment by the Company of all wages due, or to become due to Mr. Stahl, California Labor Code Section 206.5 is not applicable to the Parties hereto. That section provides in pertinent part as follows: No employer shall require the execution of any release of any claim or right on account of wages due, or to become due, or made as an advance on wages to be earned, unless payment of such wages has been made. 7. RELEASE OF CLAIMS. In consideration for the obligations of both parties set forth in this Agreement, Mr. Stahl and the Company, on behalf of themselves, and their respective heirs, executors, officers, directors, employees, investors, stockholders, administrators and assigns, hereby fully and forever release each other and their respective heirs, executors, officers, directors, employees, investors, stockholders, administrators and assigns, of and from any claim, duty, obligation or cause of action relating to any matters of any kind, whether presently known or unknown, suspected or unsuspected, that any of them may possess arising from any omissions, acts or facts that have occurred up until and including the date of this Agreement including, without limitation: (a) any and all claims relating to or arising from Mr. Stahl's employment relationship with the Company and the termination of that relationship; (b) any and all claims relating to, or arising from, Mr. Stahl's right to purchase, or actual purchase of shares of stock of the Company; (c) any and all claims for wrongful discharge of employment; breach of contract, both express and implied; breach of a covenant of good faith and fair dealing, both express and implied, negligent or intentional infliction of emotional distress; negligent or intentional misrepresentation; negligent or intentional interference with contract or prospective economic advantage; negligence; and defamation; 2 (d) any and all claims for violation of any federal, state or municipal statute, including, but not limited to, Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Age Discrimination in Employment Act of 1967, the Americans with Disabilities Act of 1990, and the California Fair Employment and Housing Act; (e) any and all claims arising out of any other laws and regulations relating to employment or employment discrimination; and (f) any and all claims for attorneys' fees and costs. The Company and Mr. Stahl agree that the release set forth in this Section 6 shall be and remain in effect in all respects as a complete general release as to the matters released. This release does not extend to any obligations incurred or specified under (i) this Agreement, (ii) the Indemnification Agreement dated , 199 between Mr. Stahl and the Company (the "Indemnification Agreement"), or (iii) attributable to any act of fraud by any party hereto. Except as expressly provided herein, this Agreement shall supersede and render null and void any and all prior agreements between the parties other than the Indemnification Agreement, Mr. Stahl's options, and the Confidentiality Agreement as defined in Section 10 hereof. 8. ACKNOWLEDGMENT OF WAIVER OF CLAIMS UNDER ADEA. Mr. Stahl acknowledges that he is waiving and releasing any rights he may have under the Age Discrimination in Employment Act of 1967 ("ADEA") and that this waiver and release is knowing and voluntary. Mr. Stahl and the Company agree that this waiver and release does not apply to any rights or claims that may arise under ADEA after the Effective Date of this Agreement. Mr. Stahl acknowledges that the consideration given for this waiver and release Agreement is in addition to anything of value to which Mr. Stahl was already entitled. Mr. Stahl further acknowledges that he has been advised by this writing that (a) he should consult with an attorney PRIOR to executing this Agreement; (b) he has at least twenty-one (21) days within which to consider this Agreement; (c) he has at least seven (7) days following the execution of this Agreement by the Parties to revoke the Agreement (the "Revocation Period"); and (d) this Agreement shall not be effective until the Revocation Period has expired. 9. CIVIL CODE SECTION 1542. The Parties represent that they are not aware of any claim by either of them other than the claims that are released by this Agreement. Mr. Stahl and the Company acknowledge that they have been advised by legal counsel and are familiar with the provisions of California Civil Code Section 1542, which provides as follows: A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR. Mr. Stahl and the Company, being aware of said Code section, agree to expressly waive any rights they may have thereunder, as well as under any other statute or common law principles of similar effect. 10. NONDISCLOSURE OF CONFIDENTIAL AND PROPRIETARY INFORMATION. Mr. Stahl understands and agrees that his obligations to the Company under his existing Proprietary Information and Inventions Assignment and Confidentiality Agreement between Mr. Stahl and the Company (the "CONFIDENTIALITY AGREEMENT"), a copy of which is attached hereto as EXHIBIT A, shall continue through the Termination Date and shall survive termination of his relationship with the Company under this Agreement and that Mr. Stahl shall continue to maintain the confidentiality of all confidential and proprietary information of the Company as provided by the Confidentiality Agreement. Mr. Stahl agrees that at all times hereafter, he shall not intentionally divulge, furnish or make available to any party any of the trade secrets, patents, patent applications, price decisions or determinations, inventions, customers, proprietary information or other 3 intellectual property of the Company, until after such time as such information has become publicly known otherwise than by act of collusion of Mr. Stahl. 11. NONCOMPETITION AND NONSOLICITATION. Mr. Stahl agrees that through the Service Period, Mr. Stahl shall not, without the prior written consent of the Company, at any time, directly or indirectly, whether or not for compensation, engage in, or have any interest in Pervasive Software Company or Sybase Corporation (whether as an employee, officer, director, agent, security holder, creditor, consultant, partner or otherwise). Mr. Stahl further agrees that through the Service Period and a period of one year thereafter, Mr. Stahl shall not induce or attempt to induce any person who is an employee of the Company, or any affiliated company, to leave the Company, or any affiliated company, to become an employee of any person, firm, corporation or business described above. It is expressly agreed by the Parties that after the Termination Date Mr. Stahl may pursue and engage in full-time employment that does not conflict with his obligations under this Section 11 and that such employment shall not constitute a breach of this Agreement by Mr. Stahl. The Parties intend that the covenant contained in the preceding paragraph shall be construed as a series of separate covenants, one for each county or other geographic or political subdivision of each jurisdiction in which the Company conducts business. If, in any judicial proceeding, a court shall refuse to enforce any of the separate covenants deemed included in this paragraph, then the unenforceable covenant shall be deemed eliminated from the provisions for the purpose of those proceedings to the extent necessary to permit the remaining separate covenants to be enforced. 12. NON-DISPARAGEMENT. Each Party agrees to refrain from any disparagement, criticism, defamation, slander of the other, or tortious interference with the contracts and relationships of the other. The Company's personnel records will reflect that Mr. Stahl voluntarily terminated his employment on the Employment Termination Date. 13. AUTHORITY. The Company represents and warrants that the undersigned has the authority to act on behalf of the Company and to bind the Company and all who may claim through it to the terms and conditions of this Agreement. Mr. Stahl represents and warrants that he has the capacity to act on his own behalf and on behalf of all who might claim through him, including his spouse, Ann Stahl, to bind them to the terms and conditions of this Agreement. Each Party warrants and represents that there are no liens or claims of lien or assignments in law or equity or otherwise of or against any of the claims or causes of action released herein. 14. NO REPRESENTATIONS. Neither Party has relied upon any representations or statements made by the other Party hereto which are not specifically set forth in this Agreement. 15. SEVERABILITY. In the event that any provision hereof becomes or is declared by a court or other tribunal of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision. 16. ARBITRATION. The Parties shall attempt to settle all disputes arising in connection with this Agreement through good faith consultation. In the event no agreement can be reached on such dispute within fifteen (15) days after notification in writing by either Party to the other concerning such dispute, the dispute shall be settled by binding arbitration to be conducted in Santa Clara County before the American Arbitration Association under its California Employment Dispute Resolution Rules, or by a judge to be mutually agreed upon. The arbitration decision shall be final, conclusive and binding on both Parties and any arbitration award or decision may be entered in any court having jurisdiction. The Parties agree that the prevailing party in any arbitration shall be entitled to injunctive relief in any court of competent jurisdiction to enforce the arbitration award. The Parties further agree that the prevailing Party in any such proceeding shall be awarded reasonable attorneys' fees and costs. This Section 16 shall not apply to the Confidentiality Agreement. THE PARTIES HEREBY WAIVE ANY RIGHTS THEY MAY HAVE TO TRIAL BY JURY IN REGARD TO ARBITRABLE CLAIMS. 4 17. ENTIRE AGREEMENT. This Agreement, and the exhibit hereto, represent the entire agreement and understanding between the Company and Mr. Stahl concerning Mr. Stahl's separation from the Company, and supersede and replace any and all prior agreements and understandings concerning Mr. Stahl's relationship with the Company and his compensation by the Company, other than the Loan and Loan Agreement described in Section 2, the Confidentiality Agreement described in Section 10, and the Option Agreements between the Company and Mr. Stahl, which agreements shall remain in full force and effect. 18. NO ORAL MODIFICATION. This Agreement may only be amended in writing signed by Mr. Stahl and the Company. 19. GOVERNING LAW. This Agreement shall be governed by the laws of the State of California, without regard to its conflicts of law provisions. 20. EFFECTIVE DATE. This Agreement is effective seven days after it has been signed by both Parties and such date is referred to herein as the "EFFECTIVE DATE." 21. COUNTERPARTS. This Agreement may be executed in counterparts, and each counterpart shall have the same force and effect as an original and shall constitute an effective, binding agreement on the part of each of the undersigned. 22. ASSIGNMENT. This Agreement may not be assigned by Mr. Stahl or the Company without the prior written consent of the other party. Notwithstanding the foregoing, this Agreement may be assigned by the Company to a corporation controlling, controlled by or under common control with the Company without the consent of Mr. Stahl. 23. VOLUNTARY EXECUTION OF AGREEMENT. This Agreement is executed voluntarily and without any duress or undue influence on the part or behalf of the Parties hereto, with the full intent of releasing all claims. The Parties acknowledge that: (a) they have read this Agreement; (b) they have been represented in the preparation, negotiation, and execution of this Agreement by legal counsel of their own choice or that they have voluntarily declined to seek such counsel; (c) they understand the terms and consequences of this Agreement and of the releases it contains; and (d) they are fully aware of the legal and binding effect of this Agreement. [Signature Page Follows] 5 IN WITNESS WHEREOF, the Parties have executed this Agreement and Mutual Release on the respective dates set forth below. CENTURA SOFTWARE CORPORATION Dated as of December , 1997 By:/s/ Samuel Inman Title: President & Chief Executive Officer EARL M. STAHL, an individual Dated as of December 8, 1997 /s/ Earl M. Stahl Earl M. Stahl
6 EXHIBIT A CONFIDENTIALITY AGREEMENT 7 EX-10.29 6 EXHIBIT 10.29 - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ LOAN AND SECURITY AGREEMENT by and between CENTURA SOFTWARE CORPORATION and COAST BUSINESS CREDIT, a division of Southern Pacific Bank Dated as of January 19, 1998 - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ TABLE OF CONTENTS PAGE ---- 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 Account Debtor. . . . . . . . . . . . . . . . . . . . . . . . . . . .1 Adjusted Net Worth. . . . . . . . . . . . . . . . . . . . . . . . . .1 Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 Audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 Borrower. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 Borrower's Address. . . . . . . . . . . . . . . . . . . . . . . . . .1 Business Day. . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . .1 Closing Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 Coast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 Collateral. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 Credit Limit. . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 Deposit Account . . . . . . . . . . . . . . . . . . . . . . . . . . .2 Dollars or $. . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 Early Termination Fee . . . . . . . . . . . . . . . . . . . . . . . .2 Eligible Foreign Receivables. . . . . . . . . . . . . . . . . . . . .2 Eligible Receivables. . . . . . . . . . . . . . . . . . . . . . . . .2 Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 Equipment Acquisition Loans . . . . . . . . . . . . . . . . . . . . .3 Event of Default. . . . . . . . . . . . . . . . . . . . . . . . . . .3 GAAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 General Intangibles . . . . . . . . . . . . . . . . . . . . . . . . .3 Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4 Investment Property . . . . . . . . . . . . . . . . . . . . . . . . .4 Loan Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . .4 Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4 Material Adverse Effect . . . . . . . . . . . . . . . . . . . . . . .4 Maturity Date . . . . . . . . . . . . . . . . . . . . . . . . . . . .4 Maximum Dollar Amount . . . . . . . . . . . . . . . . . . . . . . . .4 Minimum Monthly Interest. . . . . . . . . . . . . . . . . . . . . . .4 Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4 Permitted Liens . . . . . . . . . . . . . . . . . . . . . . . . . . .4 Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 Prime Rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 Receivable Loans. . . . . . . . . . . . . . . . . . . . . . . . . . .5 Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 Renewal Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 Renewal Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 Solvent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 Other Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 2. CREDIT FACILITIES . . . . . . . . . . . . . . . . . . . . . . . . . .6 2.1 Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 2.2 Intentionally Deleted. . . . . . . . . . . . . . . . . . . . .6 3. INTEREST AND FEES . . . . . . . . . . . . . . . . . . . . . . . . . .6 3.1 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . .6 3.2 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 4. SECURITY INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . .6 5. CONDITIONS PRECEDENT. . . . . . . . . . . . . . . . . . . . . . . . .6 5.1 Status of Accounts at Closing. . . . . . . . . . . . . . . . .6 5.2 Minimum Availability . . . . . . . . . . . . . . . . . . . . .6 5.3 Landlord Waiver. . . . . . . . . . . . . . . . . . . . . . . .6 5.4 Executed Agreement . . . . . . . . . . . . . . . . . . . . . .6 5.5 Opinion of Borrower's Counsel. . . . . . . . . . . . . . . . .7 5.6 Priority of Coast's Liens. . . . . . . . . . . . . . . . . . .7 5.7 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . .7 5.8 Borrower's Existence . . . . . . . . . . . . . . . . . . . . .7 5.9 Organizational Documents . . . . . . . . . . . . . . . . . . .7 5.10 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 5.11 Due Diligence. . . . . . . . . . . . . . . . . . . . . . . . .7 5.12 Other Documents and Agreements . . . . . . . . . . . . . . . .7 6. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER . . . . . .7 6.1 Existence and Authority. . . . . . . . . . . . . . . . . . . .7 6.2 Name; Trade Names and Styles . . . . . . . . . . . . . . . . .7 6.3 Place of Business; Location of Collateral. . . . . . . . . . .8 6.4 Title to Collateral; Permitted Liens . . . . . . . . . . . . .8 6.5 Maintenance of Collateral. . . . . . . . . . . . . . . . . . .8 6.6 Books and Records. . . . . . . . . . . . . . . . . . . . . . .8 6.7 Financial Condition, Statements and Reports. . . . . . . . . .8 -i- TABLE OF CONTENTS (CONTINUED) PAGE ---- 6.8 Tax Returns and Payments; Pension Contributions. . . . . . . .8 6.9 Compliance with Law. . . . . . . . . . . . . . . . . . . . . .9 6.10 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . .9 6.11 Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . .9 6.12 Computer Associates. . . . . . . . . . . . . . . . . . . . . .9 7. RECEIVABLES . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 7.1 Representations Relating to Receivables. . . . . . . . . . . .9 7.2 Representations Relating to Documents and Legal Compliance . .9 7.3 Schedules and Documents relating to Receivables. . . . . . . .9 7.4 Collection of Receivables. . . . . . . . . . . . . . . . . . 10 7.5 Remittance of Proceeds . . . . . . . . . . . . . . . . . . . 10 7.6 Disputes . . . . . . . . . . . . . . . . . . . . . . . . . . 10 7.7 Returns. . . . . . . . . . . . . . . . . . . . . . . . . . . 10 7.8 Verification . . . . . . . . . . . . . . . . . . . . . . . . 10 7.9 No Liability . . . . . . . . . . . . . . . . . . . . . . . . 10 8. ADDITIONAL DUTIES OF THE BORROWER . . . . . . . . . . . . . . . . . 11 8.1 Financial and Other Covenants. . . . . . . . . . . . . . . . 11 8.2 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . 11 8.3 Reports. . . . . . . . . . . . . . . . . . . . . . . . . . . 11 8.4 Access to Collateral, Books and Records. . . . . . . . . . . 11 8.5 Negative Covenants . . . . . . . . . . . . . . . . . . . . . 11 8.6 Litigation Cooperation . . . . . . . . . . . . . . . . . . . 12 8.7 Further Assurances . . . . . . . . . . . . . . . . . . . . . 12 9. TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 9.1 Maturity Date. . . . . . . . . . . . . . . . . . . . . . . . 12 9.2 Early Termination. . . . . . . . . . . . . . . . . . . . . . 12 9.3 Payment of Obligations . . . . . . . . . . . . . . . . . . . 12 10. EVENTS OF DEFAULT AND REMEDIES. . . . . . . . . . . . . . . . . . . 13 10.1 Events of Default. . . . . . . . . . . . . . . . . . . . . . 13 10.2 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . 14 10.3 Standards for Determining Commercial Reasonableness. . . . . 15 10.4 Power of Attorney. . . . . . . . . . . . . . . . . . . . . . 15 10.5 Application of Proceeds. . . . . . . . . . . . . . . . . . . 17 10.6 Remedies Cumulative. . . . . . . . . . . . . . . . . . . . . 17 11. GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . 17 11.1 Interest Computation . . . . . . . . . . . . . . . . . . . . 17 11.2 Application of Payments. . . . . . . . . . . . . . . . . . . 17 11.3 Charges to Accounts. . . . . . . . . . . . . . . . . . . . . 17 11.4 Monthly Accountings. . . . . . . . . . . . . . . . . . . . . 17 11.5 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . 18 11.6 Severability . . . . . . . . . . . . . . . . . . . . . . . . 18 11.7 Integration. . . . . . . . . . . . . . . . . . . . . . . . . 18 11.8 Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . . 18 11.9 No Liability for Ordinary Negligence . . . . . . . . . . . . 18 11.10 Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . 18 11.11 Time of Essence. . . . . . . . . . . . . . . . . . . . . . . 18 11.12 Attorneys Fees, Costs and Charges. . . . . . . . . . . . . . 18 11.13 Benefit of Agreement . . . . . . . . . . . . . . . . . . . . 19 11.14 Publicity. . . . . . . . . . . . . . . . . . . . . . . . . . 19 11.15 Paragraph Headings; Construction . . . . . . . . . . . . . . 19 11.16 Governing Law; Jurisdiction; Venue . . . . . . . . . . . . . 19 11.17 Mutual Waiver of Jury Trial. . . . . . . . . . . . . . . . . 19 -ii- - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ COAST LOAN AND SECURITY AGREEMENT Borrower: Centura Software Corporation Address: 975 Island Drive Redwood Shores, California 94065 Date: January __, 1998 THIS LOAN AND SECURITY AGREEMENT is entered into on the above date between COAST BUSINESS CREDIT, a division of Southern Pacific Bank ("Coast"), a California corporation, with offices at 12121 Wilshire Boulevard, Suite 1111, Los Angeles, California 90025, and the borrower(s) named above (the "Borrower"), whose chief executive office is located at the above address ("Borrower's Address"). The Schedule to this Agreement (the "Schedule") shall for all purposes be deemed to be a part of this Agreement, and the same is an integral part of this Agreement. (Definitions of certain terms used in this Agreement are set forth in Section 1 below.) 1. DEFINITIONS. As used in this Agreement, the following terms have the following meanings: "ACCOUNT DEBTOR" means the obligor on a Receivable or General Intangible. "ADJUSTED NET WORTH" means consolidated owner's equity plus subordinated debt otherwise permitted hereunder determined in accordance with GAAP. "AFFILIATE" means, with respect to any Person, a relative, partner, shareholder, director, officer, or employee of such Person, or any parent or subsidiary of such Person, or any Person controlling, controlled by or under common control with such Person. "AUDIT" means to inspect, audit and copy Borrower's books and records and the Collateral. "BORROWER" has the meaning set forth in the introduction to this Agreement. "BORROWER'S ADDRESS" has the meaning set forth in the introduction to this Agreement. "BUSINESS DAY" means a day on which Coast is open for business. "CHANGE OF CONTROL" shall be deemed to have occurred at such time as a "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934) (other than the current holders of the ownership interests in any Borrower) becomes the "beneficial owner" (as defined in Rule 13d-3 under the Securities Exchange Act of 1934), directly or indirectly, as a result of any single transaction, of more than forty nine percent (49%) of the total voting power of all classes of stock or other ownership interests then outstanding of any Borrower normally entitled to vote in the election of directors or analogous governing body. "CLOSING DATE" date of the initial funding under this Agreement. "COAST" has the meaning set forth in the introduction to this Agreement. -1- COAST BUSINESS CREDIT LOAN AND SECURITY AGREEMENT - ------------------------------------------------------------------------------ "CODE" means the Uniform Commercial Code as adopted and in effect in the State of California from time to time. "COLLATERAL" has the meaning set forth in Section 4 hereof. "CREDIT LIMIT" means the maximum amount of Loans that Coast may make to Borrower pursuant to the amounts and percentages shown on the Schedule. "DEFAULT" means any event which with notice or passage of time or both, would constitute an Event of Default. "DEPOSIT ACCOUNT" has the meaning set forth in Section 9105 of the Code. "DOLLARS or $" means United States dollars. "EARLY TERMINATION FEE" means the amount set forth on the Schedule that Borrower must pay Coast if this Agreement is terminated by Borrower or Coast pursuant to Section 9.2 hereof. "ELIGIBLE FOREIGN RECEIVABLES" means Receivables arising from Borrower's customers located outside the United States which Coast otherwise approves for borrowing in its sole and absolute discretion. Without limiting the foregoing, Coast will consider the following in determining the eligibility of such receivables: (i) whether the Borrower's goods are shipped backed by an irrevocable letter of credit satisfactory to Coast (as to form, substance, and issuer or domestic confirming bank) that has been delivered to Coast and is directly drawable by Coast, or (ii) whether the Borrower's customer is a large or rated company having a verifiable credit history, or (iii) whether Borrower's customer is a foreign subsidiary of a customer of Borrower that is a company that was formed and has its primary place of business within the United States, or (iv) whether Borrower's customer is a large foreign corporation, or (v) whether Borrower's customer is a foreign company with a Dun & Bradstreet rating of 3A2 or better, or (vi) whether Borrower's goods are shipped to a company that has credit insurance acceptable to Coast in its discretion. "ELIGIBLE RECEIVABLES" means Receivables and Eligible Foreign Receivables arising in the ordinary course of Borrower's business from the sale of goods or rendition of services, which Coast, in its sole judgment, shall deem eligible for borrowing, based on such considerations as Coast may from time to time deem appropriate. Eligible Receivables shall not include the following: (a) Receivables that the Account Debtor has failed to pay within 60 days of due date not to exceed 90 days of invoice date or Accounts with selling terms of more than 60 days; (b) Receivables owed by an Account Debtor or its Affiliates where twenty five percent (25%) or more of all Receivables owed by that Account Debtor (or its Affiliates) are deemed ineligible under clause (a) above; (c) Receivables with respect to which the Account Debtor is an employee, Affiliate, or agent of Borrower; (d) Receivables with respect to which goods are placed on consignment, guaranteed sale, sale or return, sale on approval, bill and hold, or other terms by reason of which the payment by the Account Debtor may be conditional; (e) Receivables, other than Eligible Foreign Receivables, that are not payable in Dollars or with respect to which the Account Debtor: (i) does not maintain its chief executive office in the United States, or (ii) is not organized under the laws of the United States or any State thereof, or (iii) is the government of any foreign country or sovereign state, or of any state, province, municipality, or other political subdivision thereof, or of any department, agency, public corporation, or other instrumentality thereof; (f) Receivables with respect to which the Account Debtor is either (i) the United States or any department, agency, or instrumentality of the United States (exclusive, however, of Accounts with respect to which Borrower has complied, to the satisfaction of Coast, with the Assignment of Claims Act, 31 U.S.C. " 3727), or (ii) any State of the United States (exclusive, however, of Receivables owed by any State that does not have a statutory counterpart to the Assignment of Claims Act); (g) Receivables with respect to which the Account Debtor is a creditor of Borrower, has or has asserted a right of setoff, has disputed its liability, or has made any claim with 2 COAST BUSINESS CREDIT LOAN AND SECURITY AGREEMENT - ------------------------------------------------------------------------------ respect to the Receivables or Receivables owing from Computer Associates unless a nonoffset letter satisfactory to Coast has been obtained; (h) Receivables with respect to an Account Debtor which is a domestic distributor whose total obligations owing to Borrower exceed 5% of all Eligible Receivables with a total concentration cap of 30% for domestic Eligible Receivables for all domestic distributors, to the extent of the obligations owing by such Account Debtor in excess of such percentage. A 25% concentration shall apply in all other cases. In order to exceed the above referenced limits, Borrower must obtain the prior written approval of Coast, which approval is subject to the discretion of Coast, reasonably exercised, on an Account Debtor by Account Debtor basis; (i) Receivables with respect to which the Account Debtor is subject to any reorganization, bankruptcy, insolvency, arrangement, readjustment of debt, dissolution or liquidation proceeding, or becomes insolvent, or goes out of business; (j) Receivables the collection of which Coast, in its reasonable credit judgment, believes to be doubtful by reason of the Account Debtor's financial condition; (k) Receivables with respect to which the goods giving rise to such Receivable have not been shipped and billed to the Account Debtor, the services giving rise to such Receivable have not been performed and accepted by the Account Debtor, or the Receivable otherwise does not represent a final sale; (l) Receivables with respect to which the Account Debtor is located in the states of New Jersey, Minnesota, Indiana, or West Virginia (or any other state that requires a creditor to file a Business Activity Report or similar document in order to bring suit or otherwise enforce its remedies against such Account Debtor in the courts or through any judicial process of such state), unless Borrower has qualified to do business in New Jersey, Minnesota, Indiana, West Virginia, or such other states, or has filed a Notice of Business Activities Report with the applicable division of taxation, the department of revenue, or with such other state offices, as appropriate, for the then-current year, or is exempt from such filing requirement; and (m) Receivables that represent progress payments or other advance billings that are due prior to the completion of performance by Borrower of the subject contract for goods or services. "EQUIPMENT" means all of Borrower's present and hereafter acquired machinery, molds, machine tools, motors, furniture, equipment, furnishings, fixtures, trade fixtures, motor vehicles, tools, parts, dies, jigs, goods and other goods (other than Inventory) of every kind and description used in Borrower's operations or owned by Borrower and any interest in any of the foregoing, and all attachments, accessories, accessions, replacements, substitutions, additions or improvements to any of the foregoing, wherever located. "EQUIPMENT ACQUISITION LOANS" means the Loans described in Section [2(d)] of the Schedule. "EVENT OF DEFAULT" means any of the events set forth in Section 10.1 of this Agreement. "GAAP" means generally accepted accounting principles as in effect from time to time in the United States, consistently applied. "GENERAL INTANGIBLES" means all general intangibles of Borrower, whether now owned or hereafter created or acquired by Borrower, including, without limitation, all choses in action, causes of action, corporate or other business records, Deposit Accounts, investment property, inventions, designs, drawings, blueprints, patents, patent applications, trademarks and the goodwill of the business symbolized thereby, names, trade names, trade secrets, goodwill, copyrights, registrations, licenses, franchises, customer lists, security and other deposits, rights in all litigation presently or hereafter pending for any cause or claim (whether in contract, tort or otherwise), and all judgments now or hereafter arising therefrom, all claims of Borrower against Coast, rights to purchase or sell real or personal property, rights as a licensor or licensee of any kind, royalties, telephone numbers, proprietary information, purchase orders, and all insurance policies and claims (including without limitation life insurance, key man insurance, credit insurance, liability insurance, property insurance and other insurance), tax refunds and claims, computer programs, discs, tapes and tape files, claims under guaranties, security interests or other security held by or granted to Borrower, all rights to indemnification 3 COAST BUSINESS CREDIT LOAN AND SECURITY AGREEMENT - ------------------------------------------------------------------------------ and all other intangible property of every kind and nature (other than Receivables). "INVENTORY" means all of Borrower's now owned and hereafter acquired goods, merchandise or other personal property, wherever located, to be furnished under any contract of service or held for sale or lease (including without limitation all raw materials, work in process, finished goods and goods in transit, and including without limitation all farm products), and all materials and supplies of every kind, nature and description which are or might be used or consumed in Borrower's business or used in connection with the manufacture, packing, shipping, advertising, selling or finishing of such goods, merchandise or other personal property, and all warehouse receipts, documents of title and other documents representing any of the foregoing. "INVESTMENT PROPERTY" has the meaning set forth in Section 9115 of the Code as in effect as of the date hereof. "LOAN DOCUMENTS" means this Agreement, the agreements and documents listed on Section 5 of the Schedule, and any other agreement, instrument or document executed in connection herewith or therewith. "LOANS" has the meaning set forth in Section 2.1 hereof. "MATERIAL ADVERSE EFFECT" means a material adverse effect on (i) the business, assets, condition (financial or otherwise) or results of operations of Borrower or any subsidiary of Borrower or any guarantor of any of the Obligations, (ii) the ability of Borrower or any guarantor of any of the Obligations to perform its obligations under this Agreement (including, without limitation, repayment of the Obligations as they come due) or (iii) the validity or enforceability of this Agreement or any other agreement or document entered into by any party in connection herewith, or the rights or remedies of Coast hereunder or thereunder. "MATURITY DATE" means the date that this Agreement shall cease to be effective, as set forth on the Schedule, subject to the provisions of Section 9.1 and 9.2 hereof. "MAXIMUM DOLLAR AMOUNT" has the meaning set forth in Section 2 of the Schedule. "MINIMUM MONTHLY INTEREST" has the meaning set forth in Section 3 of the Schedule. "OBLIGATIONS" means all present and future Loans, advances, debts, liabilities, obligations, guaranties, covenants, duties and indebtedness at any time owing by Borrower to Coast, whether evidenced by this Agreement or any note or other instrument or document, whether arising from an extension of credit, opening of a letter of credit, banker's acceptance, loan, guaranty, indemnification or otherwise, whether direct or indirect (including, without limitation, those acquired by assignment and any participation by Coast in Borrower's debts owing to others), absolute or contingent, due or to become due, including, without limitation, all interest, charges, expenses, fees, attorneys' fees (including attorneys' fees and expenses incurred in bankruptcy), expert witness fees, audit fees, letter of credit fees, collateral monitoring fees, closing fees, facility fees, termination fees, minimum interest charges and any other sums chargeable to Borrower under this Agreement or under any other present or future instrument or agreement between Borrower and Coast. "PERMITTED LIENS" means the following: (a) purchase money security interests in specific items of Equipment; (b) leases of specific items of Equipment; (c) liens for taxes not yet payable; (d) additional security interests and liens consented to in writing by Coast, which consent shall not be unreasonably withheld; (e) security interests being terminated substantially concurrently with this Agreement; (f) liens of materialmen, mechanics, warehousemen, carriers, or other similar liens arising in the ordinary course of business and securing obligations which are not delinquent; (g) liens incurred in connection with the extension, renewal or refinancing of the indebtedness secured by liens of the type described above in clauses (a) or (b) above, provided 4 COAST BUSINESS CREDIT LOAN AND SECURITY AGREEMENT - ------------------------------------------------------------------------------ that any extension, renewal or replacement lien is limited to the property encumbered by the existing lien and the principal amount of the indebtedness being extended, renewed or refinanced does not increase; (h) liens in favor of customs and revenue authorities which secure payment of customs duties in connection with the importation of goods; or (i) licenses or sublicenses of intellectual property granted in the ordinary course of Borrower's business not interfering in any material respect with the business of Borrower or of any licensor under any license provided that such licenses or sublicenses do not prohibit the grant of the security interest to Coast hereunder. Coast will have the right to require, as a condition to its consent under subparagraph (d) above, that the holder of the additional security interest or lien sign an intercreditor agreement on Coast's then standard form, acknowledge that the security interest is subordinate to the security interest in favor of Coast, and agree not to take any action to enforce its subordinate security interest so long as any Obligations remain outstanding, and that Borrower agree that any uncured default in any obligation in excess of $100,000 secured by the subordinate security interest shall also constitute an Event of Default under this Agreement. "PERSON" means any individual, sole proprietorship, general partnership, limited partnership, limited liability partnership, limited liability company, joint venture, trust, unincorporated organization, association, corporation, government, or any agency or political division thereof, or any other entity. "PRIME RATE" means the actual "Reference Rate" or the substitute therefor of the Bank of America NT & SA whether or not that rate is the lowest interest rate charged by said bank. If the Prime Rate, as defined, is unavailable, "Prime Rate" shall mean the highest of the prime rates published in the Wall Street Journal on the first business day of the applicable month, as the base rate on corporate loans at large U.S. money center commercial banks. "RECEIVABLE LOANS" means the Loans described in Section 2(a) of the Schedule. "RECEIVABLES" means all of Borrower's now owned and hereafter acquired accounts (whether or not earned by performance), letters of credit, contract rights, chattel paper, instruments, securities, documents, securities accounts, security entitlements, commodity contracts, commodity accounts, investment property and all other forms of obligations at any time owing to Borrower, all guaranties and other security therefor, all merchandise returned to or repossessed by Borrower, and all rights of stoppage in transit and all other rights or remedies of an unpaid vendor, lienor or secured party. "RENEWAL DATE" shall mean the Maturity Date if this Agreement is renewed pursuant to Section 9.1 hereof, and each anniversary thereafter that this Agreement is renewed pursuant to Section 9.1 hereof. "RENEWAL FEE" means the fee that Borrower must pay Coast upon renewal of this Agreement pursuant to Section 9.1 hereof, in the amount set forth on the Schedule. "SOLVENT" means, with respect to any Person on a particular date, that on such date (a) at fair valuations, all of the properties and assets of such Person are greater than the sum of the debts, including contingent liabilities, of such Person, (b) the present fair salable value of the properties and assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person is able to realize upon its properties and assets and pay its debts and other liabilities, contingent obligations and other commitments as they mature in the normal course of business, (d) such Person does not intend to, and does not believe that it will, incur debts beyond such Person's ability to pay as such debts mature, and (e) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person's properties and assets would constitute unreasonably small capital after giving due consideration to the prevailing practices in the industry in which such Person is engaged. In computing the amount of contingent liabilities at any time, it is intended that such liabilities will be computed at the amount that, in light of all the facts and circumstances existing at such time, represents the amount that reasonably can be expected to become an actual or matured liability. 5 COAST BUSINESS CREDIT LOAN AND SECURITY AGREEMENT - ------------------------------------------------------------------------------ "OTHER TERMS" All accounting terms used in this Agreement, unless otherwise indicated, shall have the meanings given to such terms in accordance with GAAP. All other terms contained in this Agreement, unless otherwise indicated, shall have the meanings provided by the Code, to the extent such terms are defined therein. 2. CREDIT FACILITIES. 2.1 LOANS. Coast will make loans to Borrower (the "Loans"), in amounts and in percentages to be determined by Coast in its good faith discretion, up to the Credit Limit, provided no Default or Event of Default has occurred and is continuing. In addition, Coast may create reserves against or reduce its advance rates based upon Eligible Receivables without declaring a Default or an Event of Default if it determines that there has occurred a Material Adverse Effect. 2.2 INTENTIONALLY DELETED. 3. INTEREST AND FEES. 3.1 INTEREST. All Loans and all other monetary Obligations shall bear interest at the rate shown on the Schedule, except where expressly set forth to the contrary in this Agreement. Interest shall be payable monthly, on the last day of the month. Interest may, in Coast's discretion, be charged to Borrower's loan account, and the same shall thereafter bear interest at the same rate as the other Loans. Regardless of the amount of Obligations that may be outstanding from time to time, Borrower shall pay Coast Minimum Monthly Interest during the term of this Agreement with respect to the Receivable Loans and the Inventory Loans in the amount set forth on the Schedule. 3.2 FEES. Borrower shall pay Coast the fee(s) shown on the Schedule, which are in addition to all interest and other sums payable to Coast and are deemed fully earned and are nonrefundable. 4. SECURITY INTEREST. To secure the payment and performance of all of the Obligations when due, Borrower hereby grants to Coast a security interest in all of Borrower's interest in the following, whether now owned or hereafter acquired, and wherever located: All Receivables, Inventory, Equipment, Investment Property, and General Intangibles, including, without limitation, all of Borrower's Deposit Accounts, and all money, and all property now or at any time in the future in Coast's possession (including claims and credit balances), and all proceeds of any of the foregoing (including proceeds of any insurance policies, proceeds of proceeds, and claims against third parties), all products of any of the foregoing, and all books and records related to any of the foregoing (all of the foregoing, together with all other property in which Coast may now or in the future be granted a lien or security interest, is referred to herein, collectively, as the "Collateral") 5. CONDITIONS PRECEDENT. The obligation of Coast to make the Loans is subject to the satisfaction, in the sole discretion of Coast, at or prior to the first advance of funds hereunder, of each, every and all of the following conditions: 5.1 STATUS OF ACCOUNTS AT CLOSING. No accounts payable shall be due and unpaid 120 days past invoice date except for such accounts payable being contested in good faith in appropriate proceedings and for which adequate reserves have been provided. 5.2 MINIMUM AVAILABILITY. Borrower shall have minimum availability immediately following the initial funding in the amount set forth on the Schedule. 5.3 LANDLORD WAIVER. Coast shall have received duly executed (a) landlord waivers and access agreements in form and substance satisfactory to Coast, in Coast's sole and absolute discretion, and, when deemed appropriate by Coast, in form for recording in the appropriate recording office, with respect to all leased locations where Borrower maintains any inventory or equipment. (b) warehouse waivers in form and substance satisfactory to Coast, in Coast's sole and absolute discretion, and when deemed appropriate by Coast, in form for recording in the appropriate recording office, with respect to all warehouse locations where Borrower maintains any inventory or equipment. 5.4 EXECUTED AGREEMENT. Coast shall have received this Agreement duly executed and in 6 COAST BUSINESS CREDIT LOAN AND SECURITY AGREEMENT - ------------------------------------------------------------------------------ form and substance satisfactory to Coast in its sole and absolute discretion. 5.5 OPINION OF BORROWER'S COUNSEL. Coast shall have received an opinion of Borrower's counsel, in form and substance satisfactory to Coast in its sole and absolute discretion. 5.6 PRIORITY OF COAST'S LIENS. Coast shall have received the results of "of record" searches satisfactory to Coast in its sole and absolute discretion, reflecting its Uniform Commercial Code filings against Borrower indicating that Coast has a perfected, first priority lien in and upon all of the Collateral, subject only to Permitted Liens. 5.7 INSURANCE. Coast shall have received copies of the insurance binders or certificates evidencing Borrower's compliance with Section 8.2 hereof, including lender's loss payee endorsements. 5.8 BORROWER'S EXISTENCE. Coast shall have received copies of Borrower's articles or certificate of incorporation and all amendments thereto, and a Certificate of Good Standing, each certified by the Secretary of State of the state of Borrower's organization, and dated a recent date prior to the Closing Date, and Coast shall have received Certificates of Foreign Qualification for Borrower from the Secretary of State of each state wherein the failure to be so qualified could have a Material Adverse Effect. 5.9 ORGANIZATIONAL DOCUMENTS. Coast shall have received copies of Borrower's By-laws and all amendments thereto, and Coast shall have received copies of the resolutions of the board of directors of Borrower, authorizing the execution and delivery of this Agreement and the other documents contemplated hereby, and authorizing the transactions contemplated hereunder and thereunder, and authorizing specific officers of Borrower to execute the same on behalf of Borrower, in each case certified by the Secretary or other acceptable officer of Borrower as of the Closing Date. 5.10 TAXES. Coast shall have received evidence from Borrower that Borrower has complied with all tax withholding and Internal Revenue Service regulations, in form and substance satisfactory to Coast in its sole and absolute discretion and that all taxes are current. 5.11 DUE DILIGENCE. Coast shall have completed its due diligence with respect to Borrower. 5.12 OTHER DOCUMENTS AND AGREEMENTS. Coast shall have received such other agreements, instruments and documents as Coast may require in connection with the transactions contemplated hereby, all in form and substance satisfactory to Coast in Coast's sole and absolute discretion, and in form for filing in the appropriate filing office, including, but not limited to, those documents listed in Section 5 of the Schedule. 6. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER. In order to induce Coast to enter into this Agreement and to make Loans, Borrower represents and warrants to Coast as follows, and Borrower covenants that the following representations will continue to be true, and that Borrower will at all times comply with all of the following covenants: 6.1 EXISTENCE AND AUTHORITY. Borrower is and will continue to be, duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization. Borrower is and will continue to be qualified and licensed to do business in all jurisdictions in which any failure to do so would have a Material Adverse Effect. The execution, delivery and performance by Borrower of this Agreement, and all other documents contemplated hereby (a) have been duly and validly authorized, (b) are enforceable against Borrower in accordance with their terms (except as enforcement may be limited by equitable principles and by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to creditors' rights generally), and (c) do not violate Borrower's articles or certificate of incorporation, or Borrower's by-laws, or any law or any material agreement or instrument which is binding upon Borrower or its property, and (d) do not constitute grounds for acceleration of any material indebtedness or obligation under any material agreement or instrument which is binding upon Borrower or its property. 6.2 NAME; TRADE NAMES AND STYLES. The name of Borrower set forth in the heading to this Agreement is its correct name. Listed on the Schedule are all prior names of Borrower and all of Borrower's present and prior trade names. Borrower shall give Coast thirty (30) days' prior written notice 7 COAST BUSINESS CREDIT LOAN AND SECURITY AGREEMENT - ------------------------------------------------------------------------------ before changing its name or doing business under any other name. Borrower has complied, and will in the future comply, with all laws relating to the conduct of business under a fictitious business name. 6.3 PLACE OF BUSINESS; LOCATION OF COLLATERAL. The address set forth in the heading to this Agreement is Borrower's chief executive office. In addition, Borrower has places of business and Collateral is located only at the locations set forth on the Schedule. Borrower will give Coast at least thirty (30) days' prior written notice before opening any additional place of business, changing its chief executive office, or moving any of the Collateral to a location other than Borrower's Address or one of the locations set forth on the Schedule. 6.4 TITLE TO COLLATERAL; PERMITTED LIENS. Borrower is now, and will at all times in the future be, the sole owner of all the Collateral, except for items of Equipment which are leased by Borrower. The Collateral now is and will remain free and clear of any and all liens, charges, security interests, encumbrances and adverse claims, except for Permitted Liens. Coast now has, and will continue to have, a first-priority perfected and enforceable security interest in all of the Collateral, subject only to the Permitted Liens, and Borrower will at all times defend Coast and the Collateral against all claims of others. None of the Collateral now is or will be affixed to any real property in such a manner, or with such intent, as to become a fixture. Borrower is not and will not become a lessee under any real property lease pursuant to which the lessor may obtain any rights in any of the Collateral and no such lease now prohibits, restrains, impairs or will prohibit, restrain or impair Borrower's right to remove any Collateral from the leased premises. Whenever any Collateral is located upon premises in which any third party has an interest (whether as owner, mortgagee, beneficiary under a deed of trust, lien or otherwise), Borrower shall, whenever requested by Coast, use its best efforts to cause such third party to execute and deliver to Coast, in form acceptable to Coast, such waivers and subordinations as Coast shall specify, so as to ensure that Coast's rights in the Collateral are, and will continue to be, superior to the rights of any such third party. Borrower will keep in full force and effect, and will comply with all the terms of, any lease of real property where any of the Collateral now or in the future may be located. 6.5 MAINTENANCE OF COLLATERAL. Borrower will maintain the Collateral in good working condition, and Borrower will not use the Collateral for any unlawful purpose. Borrower will immediately advise Coast in writing of any material loss or damage to the Collateral. 6.6 BOOKS AND RECORDS. Borrower has maintained and will maintain at Borrower's Address complete and accurate books and records, comprising an accounting system in accordance with GAAP. 6.7 FINANCIAL CONDITION, STATEMENTS AND REPORTS. All financial statements now or in the future delivered to Coast have been, and will be, prepared in conformity with GAAP (except, in the case of unaudited financial statements, for the absence of footnotes and subject to normal year-end adjustments) and now and in the future will fairly reflect the financial condition of Borrower, at the times and for the periods therein stated. Between the last date covered by any such statement provided to Coast and the date hereof, there has been no Material Adverse Effect. Borrower is now and will continue to be Solvent. 6.8 TAX RETURNS AND PAYMENTS; PENSION CONTRIBUTIONS. Borrower has timely filed, and will timely file, all tax returns and reports required by foreign, federal, state and local law, and Borrower has timely paid, and will timely pay, all foreign, federal, state and local taxes, assessments, deposits and contributions now or in the future owed by Borrower. Borrower may, however, defer payment of any contested taxes, provided that Borrower (i) in good faith contests Borrower's obligation to pay the taxes by appropriate proceedings promptly and diligently instituted and conducted, (ii) notifies Coast in writing of the commencement of, and any material development in, the proceedings, and (iii) posts bonds or takes any other steps required to keep the contested taxes from becoming a lien upon any of the Collateral. As of the date hereof, Borrower is unaware of any claims or adjustments proposed for any of Borrower's prior tax years which could result in additional taxes becoming due and payable by Borrower. Borrower has paid, and shall continue to pay all amounts necessary to fund all present and future pension, profit sharing and deferred compensation plans in accordance with their terms, and Borrower has not and will not withdraw from participation in, permit partial or complete termination of, or permit the occurrence of any other event with respect to, any such plan which 8 COAST BUSINESS CREDIT LOAN AND SECURITY AGREEMENT - ------------------------------------------------------------------------------ could result in any liability of Borrower, including any liability to the Pension Benefit Guaranty Corporation or its successors or any other governmental agency. Borrower shall, at all times, utilize the services of an outside payroll service providing for the automatic deposit of all payroll taxes payable by Borrower. 6.9 COMPLIANCE WITH LAW. Borrower has complied, and will comply, in all material respects, with all provisions of all material foreign, federal, state and local laws and regulations relating to Borrower, including, but not limited to, the Fair Labor Standards Act, and those relating to Borrower's ownership of real or personal property, the conduct and licensing of Borrower's business, and environmental matters. 6.10 LITIGATION. Except as disclosed in the Schedule, there is no claim, suit, litigation, proceeding or investigation pending or (to best of Borrower's knowledge) threatened by or against or affecting Borrower in any court or before any governmental agency (or any basis therefor known to Borrower) which may result, either separately or in the aggregate, in a Material Adverse Effect. Borrower will promptly inform Coast in writing of any claim, proceeding, litigation or investigation in the future threatened or instituted by or against Borrower involving an amount set forth on the Schedule. 6.11 USE OF PROCEEDS. All proceeds of all Loans shall be used solely for lawful business purposes. Borrower is not purchasing or carrying any "margin stock" (as defined in Regulation G of the Board of Governors of the Federal Reserve System) and no part of the proceeds of any Loan will be used to purchase or carry any "margin stock" or to extend credit to others for the purpose of purchasing or carrying any "margin stock." 6.12 COMPUTER ASSOCIATES. The Obligations of Borrower to Coast shall at all times constitute permitted Indebtedness as permitted in Section 7(e) of that certain Floating Rate Convertible Subordinated Note Due 1998 ("Floating Rate Convertible Note") in the face amount of $10,000,000 made by Borrower in favor of Computer Associates International, Inc. dated April 3, 1995. 7. RECEIVABLES. 7.1 REPRESENTATIONS RELATING TO RECEIVABLES. Borrower represents and warrants to Coast as follows: Each Receivable with respect to which Loans are requested by Borrower shall, on the date each Loan is requested and made, represent an undisputed bona fide existing unconditional obligation of the Account Debtor created by the sale, delivery and acceptance of goods or the rendition of services in the ordinary course of Borrower's business. 7.2 REPRESENTATIONS RELATING TO DOCUMENTS AND LEGAL COMPLIANCE. Borrower represents and warrants to Coast as follows: All statements made and all unpaid balances appearing in all invoices, instruments and other documents evidencing the Receivables are and shall be true and correct and all such invoices, instruments and other documents and all of Borrower's books and records are and shall be genuine and in all respects what they purport to be. All sales and other transactions underlying or giving rise to each Receivable shall fully comply with all applicable laws and governmental rules and regulations. All signatures and indorsements on all documents, instruments, and agreements relating to all Receivables are and shall be genuine, and all such documents, instruments and agreements are and shall be legally enforceable in accordance with their terms. 7.3 SCHEDULES AND DOCUMENTS RELATING TO RECEIVABLES. Borrower shall deliver to Coast via facsimile, unless otherwise directed by Coast, at such locations and at such intervals as Coast may request, transaction reports and loan requests, schedules of Receivables, and schedules of collections, all on Coast's standard forms; provided, however, that Borrower's failure to execute and deliver the same shall not affect or limit Coast's security interest and other rights in all of Borrower's Receivables, nor shall Coast's failure to advance or lend against a specific Receivable affect or limit Coast's security interest and other rights therein. Loan requests received after 10:30 A.M. Los Angeles, California time, will not be considered by Coast until the next Business Day. Together with each such schedule, or later if requested by Coast, Borrower shall furnish Coast with copies (or, at Coast's request, originals) of all contracts, orders, invoices, and other similar documents, and all original shipping instructions, delivery receipts, bills of lading, and other evidence of delivery, for any 9 COAST BUSINESS CREDIT LOAN AND SECURITY AGREEMENT - ------------------------------------------------------------------------------ goods the sale or disposition of which gave rise to such Receivables, and Borrower warrants the genuineness of all of the foregoing. Borrower shall also furnish to Coast an aged accounts receivable trial balance in such form and at such intervals as Coast shall request. In addition, Borrower shall deliver to Coast the originals of all instruments, chattel paper, security agreements, guarantees and other documents and property evidencing or securing any Receivables, upon receipt thereof and in the same form as received, with all necessary indorsements, all of which shall be with recourse. Borrower shall also provide Coast with copies of all credit memos as and when requested by Coast. 7.4 COLLECTION OF RECEIVABLES. Borrower shall have the right to collect all Receivables, unless and until an Event of Default has occurred. Borrower shall hold all payments on, and proceeds of, Receivables in trust for Coast, and Borrower shall deliver all such payments and proceeds to Coast within one (1) Business Day after receipt by Borrower, in their original form, duly endorsed to Coast, to be applied to the Obligations in such order as Coast shall determine. Coast may, in its discretion, require that all proceeds of Collateral be deposited by Borrower into a lockbox account, or such other "blocked account" as Coast may specify, pursuant to a blocked account agreement in such form as Coast may specify. Coast or its designee may, at any time, notify Account Debtors that Coast has been granted a security interest in the Receivables. 7.5 REMITTANCE OF PROCEEDS. All proceeds arising from the disposition of any Collateral shall be delivered to Coast within one (1) Business Day after receipt by Borrower, in their original form, duly endorsed to Coast, to be applied to the Obligations in such order as Coast shall determine. Borrower agrees that it will not commingle proceeds of Collateral with any of Borrower's other funds or property, but will hold such proceeds separate and apart from such other funds and property and in an express trust for Coast. Nothing in this Section limits the restrictions on disposition of Collateral set forth elsewhere in this Agreement. 7.6 DISPUTES. Borrower shall notify Coast promptly of all disputes or claims relating to Receivables. Borrower shall not forgive (completely or partially), compromise or settle any Receivable for less than payment in full, or agree to do any of the foregoing, except that Borrower may do so, provided that: (a) Borrower does so in good faith, in a commercially reasonable manner, in the ordinary course of business, and in arm's length transactions, which are reported to Coast on the regular reports provided to Coast; (b) no Default or Event of Default has occurred and is continuing; and (c) taking into account all such discounts settlements and forgiveness, the total outstanding Loans will not exceed the Credit Limit. Coast may, at any time after the occurrence of an Event of Default, settle or adjust disputes or claims directly with Account Debtors for amounts and upon terms which Coast considers advisable in its reasonable credit judgment and, in all cases, Coast shall credit Borrower's Loan account with only the net amounts received by Coast in payment of any Receivables. 7.7 RETURNS. Provided no Event of Default has occurred and is continuing, if any Account Debtor returns any Inventory to Borrower in the ordinary course of its business, Borrower shall promptly determine the reason for such return and promptly issue a credit memorandum to the Account Debtor in the appropriate amount. In the event any attempted return occurs after the occurrence of any Event of Default, Borrower shall (a) hold the returned Inventory in trust for Coast, (b) segregate all returned Inventory from all of Borrower's other property, (c) conspicuously label the returned Inventory as subject to Coast's security interest, and (d) immediately notify Coast of the return of any Inventory, specifying the reason for such return, the location and condition of the returned Inventory, and on Coast's request deliver such returned Inventory to Coast. 7.8 VERIFICATION. Coast may, from time to time, verify directly with the respective Account Debtors the validity, amount and other matters relating to the Receivables, by means of mail, telephone or otherwise, either in the name of Borrower or Coast or such other name as Coast may choose. 7.9 NO LIABILITY. Coast shall not under any circumstances be responsible or liable for any shortage or discrepancy in, damage to, or loss or destruction of, any goods, the sale or other disposition of which gives rise to a Receivable, or for any error, act, omission or delay of any kind occurring in the settlement, failure to settle, collection or failure to collect any Receivable, or for settling any Receivable in good faith for less than the 10 COAST BUSINESS CREDIT LOAN AND SECURITY AGREEMENT - ------------------------------------------------------------------------------ full amount thereof, nor shall Coast be deemed to be responsible for any of Borrower's obligations under any contract or agreement giving rise to a Receivable. Nothing herein shall, however, relieve Coast from liability for its own gross negligence or willful misconduct. 8. ADDITIONAL DUTIES OF THE BORROWER. 8.1 FINANCIAL AND OTHER COVENANTS. Borrower shall at all times comply with the financial and other covenants set forth in the Schedule. 8.2 INSURANCE. Borrower shall, at all times insure all of the tangible personal property Collateral and carry such other business insurance, with insurers reasonably acceptable to Coast, in such form and amounts as Coast may reasonably require, and Borrower shall provide evidence of such insurance to Coast, so that Coast is satisfied that such insurance is, at all times, in full force and effect. All liability insurance policies of Borrower shall name Coast as an additional insured, and all property casualty and related insurance policies of Borrower shall name Coast as a loss payee thereon and Borrower shall cause a lender's loss payee endorsement in form reasonably acceptable to Coast. Upon receipt of the proceeds of any such insurance, Coast shall apply such proceeds in reduction of the Obligations as Coast shall determine in its sole discretion, except that, provided no Default or Event of Default has occurred and is continuing, Coast shall release to Borrower insurance proceeds with respect to Equipment totaling less than the amount set forth in Section 8 of the Schedule, which shall be utilized by Borrower for the replacement of the Equipment with respect to which the insurance proceeds were paid. Coast may require reasonable assurance that the insurance proceeds so released will be so used. If Borrower fails to provide or pay for any insurance, Coast may, but is not obligated to, obtain the same at Borrower's expense. Borrower shall promptly deliver to Coast copies of all reports made to insurance companies. 8.3 REPORTS. Borrower, at its expense, shall provide Coast with the written reports set forth in Section 8 of the Schedule, and such other written reports with respect to Borrower (including budgets, sales projections, operating plans and other financial documentation), as Coast shall from time to time reasonably specify. 8.4 ACCESS TO COLLATERAL, BOOKS AND RECORDS. At reasonable times but not less frequently than quarterly and on three (3) Business Day's notice (1 Business Day if an Event of Default has occurred and is continuing), Coast, or its agents, shall have the right to perform Audits. Coast shall take reasonable steps to keep confidential all confidential information obtained in any Audit, but Coast shall have the right to disclose any such information to its auditors, regulatory agencies, and attorneys, and pursuant to any subpoena or other legal process. The Audits shall be at Borrower's expense and the charge for the Audits shall be Seven Hundred Fifty Dollars ($750) per person per day (or such higher amount as shall represent Coast's then current standard charge for the same), plus reasonable out-of-pocket expenses. Borrower will not enter into any agreement with any accounting firm, service bureau or third party to store Borrower's books or records at any location other than Borrower's Address, without first notifying Coast of the same and obtaining the written agreement from such accounting firm, service bureau or other third party to give Coast the same rights with respect to access to books and records and related rights as Coast has under this Loan Agreement. 8.5 NEGATIVE COVENANTS. Borrower shall not, without Coast's prior written consent, do any of the following: (a) merge or consolidate with another entity, except in a transaction in which (i) the owners of the Borrower hold at least fifty percent (50%) of the ownership interest in the surviving entity immediately after such merger or consolidation, and (ii) the Borrower is the surviving entity; (b) acquire any assets, except (i) in the ordinary course of business, or (ii) in a transaction or a series of transactions not involving the payment of an aggregate amount in excess of the amount set forth in Section 8 of the Schedule; (c) enter into any other transaction outside the ordinary course of business; (d) sell or transfer any Collateral, except for the sale of finished Inventory in the ordinary course of Borrower's business, and except for the sale of obsolete or unneeded Equipment in the ordinary course of business; 11 COAST BUSINESS CREDIT LOAN AND SECURITY AGREEMENT - ------------------------------------------------------------------------------ (e) store any Inventory or other Collateral with any warehouseman or other third party; (f) sell any Inventory on a sale-or-return, guaranteed sale, consignment, or other contingent basis; (g) make any loans of any money or other assets, except (i) advances to customers or suppliers in the ordinary course of business, (ii) travel advances, employee relocation loans and other employee loans and advances in the ordinary course of business, and (iii) loans to employees, officers and directors for the purpose of purchasing equity securities of the Borrower; (h) incur any debts, outside the ordinary course of business, which would have a Material Adverse Effect; (i) guarantee or otherwise become liable with respect to the obligations of another party or entity; (j) pay or declare any dividends or distributions on the ownership interests in Borrower (except for dividends or distributions payable solely in stock form of ownership interests in Borrower) provided that notwithstanding anything to the contrary herein and so long as no Event of Default has occurred and is continuing, Borrower may repurchase the stock of any terminated officer, director or employee in an amount not to exceed the then amount of Borrower's cash in banks located in the United States less the Obligations (other than the Loans against the Eligible Foreign Receivables) then owing to Coast; (k) make any change in Borrower's capital structure which would have a Material Adverse Effect; or (l) dissolve or elect to dissolve. Transactions permitted by the foregoing provisions of this Section are only permitted if no Default or Event of Default is continuing or would occur as a result of such transaction. 8.6 LITIGATION COOPERATION. Should any third-party suit or proceeding be instituted by or against Coast with respect to any Collateral or relating to Borrower, Borrower shall, without expense to Coast, make available Borrower and its officers, employees and agents and Borrower's books and records, to the extent that Coast may deem them reasonably necessary in order to prosecute or defend any such suit or proceeding. 8.7 FURTHER ASSURANCES. Borrower agrees, at its expense, on request by Coast, to execute all documents and take all actions, as Coast, may deem reasonably necessary or useful in order to perfect and maintain Coast's perfected security interest in the Collateral, and in order to fully consummate the transactions contemplated by this Agreement. 9. TERM. 9.1 MATURITY DATE. This Agreement shall continue in effect until the Maturity Date; provided that the Maturity Date shall automatically be extended, and this Agreement shall automatically and continuously renew, for successive additional terms of one year each, unless one party gives written notice to the other, not less than 120 days prior to the Maturity Date or the next Renewal Date, that such party elects to terminate this Agreement effective on the Maturity Date or such next Renewal Date. If this Agreement is renewed under this Section 9.1, Borrower shall pay to Coast a Renewal Fee in the amount shown in Section 3 of the Schedule. The Renewal Fee shall be due and payable on the Renewal Date and thereafter shall bear interest at a rate equal to the rate applicable to the Receivable Loans. 9.2 EARLY TERMINATION. This Agreement may be terminated prior to the Maturity Date as follows: (a) by Borrower, effective three (3) Business Days after written notice of termination is given to Coast; or (b) by Coast at any time after the occurrence of an Event of Default, without notice, effective immediately. If this Agreement is terminated by Borrower or by Coast under this Section 9.2, Borrower shall pay to Coast an Early Termination Fee in the amount shown in Section 3 of the Schedule. The Early Termination Fee shall be due and payable on the effective date of termination and thereafter shall bear interest at a rate equal to the rate applicable to the Receivable Loans. 9.3 PAYMENT OF OBLIGATIONS. On the Maturity Date or on any earlier effective date of termination, Borrower shall pay and perform in full 12 COAST BUSINESS CREDIT LOAN AND SECURITY AGREEMENT - ------------------------------------------------------------------------------ all Obligations, whether evidenced by installment notes or otherwise, and whether or not all or any part of such Obligations are otherwise then due and payable. Notwithstanding any termination of this Agreement, all of Coast's security interests in all of the Collateral and all of the terms and provisions of this Agreement shall continue in full force and effect until all Obligations have been paid and performed in full; provided that, without limiting the fact that Loans are subject to the discretion of Coast, Coast may, in its sole discretion, refuse to make any further Loans after termination. No termination shall in any way affect or impair any right or remedy of Coast, nor shall any such termination relieve Borrower of any Obligation to Coast, until all of the Obligations have been paid and performed in full. Upon payment and performance in full of all the Obligations and termination of this Agreement, Coast shall promptly deliver to Borrower termination statements, requests for reconveyances and such other documents as may be required to fully terminate Coast's security interests. 10. EVENTS OF DEFAULT AND REMEDIES. 10.1 EVENTS OF DEFAULT. The occurrence of any of the following events shall constitute an "Event of Default" under this Agreement, and Borrower shall give Coast immediate written notice thereof: (a) Any warranty, representation, statement, report or certificate made or delivered to Coast by Borrower or any of Borrower's officers, employees or agents, now or in the future, shall be untrue or misleading and results in a Material Adverse Effect; or (b) Borrower shall fail to pay when due any Loan or any interest thereon or any other monetary Obligation; or (c) the total Loans and other Obligations outstanding at any time shall exceed the Credit Limit; or (d) Borrower shall fail to deliver the proceeds of Collateral to Coast as provided in Section 7.5 above, or shall fail to give Coast access to its books and records or Collateral as provided in Section 8.4 above, or shall breach any negative covenant set forth in Section 8.5 above; or (e) Borrower shall fail to comply with the financial covenants (if any) set forth in the Schedule or shall fail to perform any other non-monetary Obligation which by its nature cannot be cured; or (f) Borrower shall fail to perform any other non-monetary Obligation, which failure is not cured within five (5) Business Days after the date due; or (g) Any levy, assessment, attachment, seizure, lien or encumbrance (other than a Permitted Lien) is made on all or any part of the Collateral which is not cured within ten (10) days after the occurrence of the same; or (h) any default or event of default occurs under any obligation in excess of $100,000 secured by a Permitted Lien, which is not cured within any applicable cure period or waived in writing by the holder of the Permitted Lien or if that certain Floating Rate Convertible Note is not converted to equity within 30 days from the date hereof or if there is a declared default or breach of the Floating Rate Convertible Note; or (i) Borrower breaches any material contract or obligation, which has or may reasonably be expected to have a Material Adverse Effect; or (j) Dissolution, termination of existence, insolvency or business failure of Borrower or any guarantor of any of the Obligations; or appointment of a receiver, trustee or custodian, for all or any part of the property of, assignment for the benefit of creditors by, or the commencement of any proceeding by Borrower or any guarantor of any of the Obligations under any reorganization, bankruptcy, insolvency, arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction, now or in the future in effect; or (k) the commencement of any proceeding against Borrower or any guarantor of any of the Obligations under any reorganization, bankruptcy, insolvency, arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction, now or in the future in effect, which is (i) not timely controverted, or (ii) not cured by the dismissal thereof within thirty (30) days after the date commenced; or 13 COAST BUSINESS CREDIT LOAN AND SECURITY AGREEMENT - ------------------------------------------------------------------------------ (l) revocation or termination of, or limitation or denial of liability upon, any guaranty of the Obligations or any attempt to do any of the foregoing, or commencement of proceedings by any guarantor of any of the Obligations under any bankruptcy or insolvency law; or (m) revocation or termination of, or limitation or denial of liability upon, any pledge of any certificate of deposit, securities or other property or asset of any kind pledged by any third party to secure any or all of the Obligations, or any attempt to do any of the foregoing, or commencement of proceedings by or against any such third party under any bankruptcy or insolvency law; or (n) Borrower or any guarantor of any of the Obligations makes any payment on account of any indebtedness or obligation which has been subordinated to the Obligations, other than as permitted in the applicable subordination agreement, or if any Person who has subordinated such indebtedness or obligations terminates or in any way limits his subordination agreement; or (o) Except as permitted under Section 8.5(a), Borrower shall suffer or experience any Change of Control without Coast's prior written consent, which consent shall be in the discretion of Coast in the exercise of its reasonable business judgment; or (p) Borrower shall generally not pay its debts as they become due, or Borrower shall conceal, remove or transfer any part of its property, with intent to hinder, delay or defraud its creditors, or make or suffer any transfer of any of its property which may be fraudulent under any bankruptcy, fraudulent conveyance or similar law; or (q) there shall be any Material Adverse Effect. Coast may cease making any Loans or extending any credit hereunder during any of the above cure periods. 10.2 REMEDIES. Upon the occurrence, and during the continuance, of any Event of Default, Coast, at its option, and without notice or demand of any kind (all of which are hereby expressly waived by Borrower), may do any one or more of the following: (a) Cease making Loans or otherwise extending credit to Borrower under this Agreement or any other document or agreement; (b) Accelerate and declare all or any part of the Obligations to be immediately due, payable and performable, notwithstanding any deferred or installment payments allowed by any instrument evidencing or relating to any Obligation; (c) Take possession of any or all of the Collateral wherever it may be found, and for that purpose Borrower hereby authorizes Coast without judicial process to enter onto any of Borrower's premises without interference to search for, take possession of, keep, store or remove any of the Collateral, and remain on the premises or cause a custodian to remain on the premises in exclusive control thereof, without charge for so long as Coast deems it reasonably necessary in order to complete the enforcement of its rights under this Agreement or any other agreement; provided, however, that should Coast seek to take possession of any of the Collateral by Court process, Borrower hereby irrevocably waives: (i) any bond and any surety or security relating thereto required by any statute, court rule or otherwise as an incident to such possession; (ii) any demand for possession prior to the commencement of any suit or action to recover possession thereof; and (iii) any requirement that Coast retain possession of, and not dispose of, any such Collateral until after trial or final judgment; (d) Require Borrower to assemble any or all of the Collateral and make it available to Coast at places designated by Coast which are reasonably convenient to Coast and Borrower, and to remove the Collateral to such locations as Coast may deem advisable; (e) Complete the processing, manufacturing or repair of any Collateral prior to a disposition thereof and, for such purpose and for the purpose of removal, Coast shall have the right to use Borrower's premises, vehicles, hoists, lifts, cranes, equipment and all other property without charge. 14 COAST BUSINESS CREDIT LOAN AND SECURITY AGREEMENT - ------------------------------------------------------------------------------ Coast 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, service marks, 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 agreements shall inure to Coast's benefit; (f) Sell, lease or otherwise dispose of any of the Collateral, in its condition at the time Coast obtains possession of it or after further manufacturing, processing or repair, at one or more public and/or private sales, in lots or in bulk, for cash, exchange or other property, or on credit, and to adjourn any such sale from time to time without notice other than oral announcement at the time scheduled for sale. Coast shall have the right to conduct such disposition on Borrower's premises without charge, for such time or times as Coast deems reasonable, or on Coast's premises, or elsewhere and the Collateral need not be located at the place of disposition. Coast may directly or through any affiliated company purchase or lease any Collateral at any such public disposition, and if permissible under applicable law, at any private disposition. Any sale or other disposition of Collateral shall not relieve Borrower of any liability Borrower may have if any Collateral is defective as to title or physical condition or otherwise at the time of sale; (g) Demand payment of, and collect any Receivables and General Intangibles comprising Collateral and, in connection therewith, Borrower irrevocably authorizes Coast to endorse or sign Borrower's name on all collections, receipts, instruments and other documents, to take possession of and open mail addressed to Borrower and remove therefrom payments made with respect to any item of the Collateral or proceeds thereof, and, in Coast's sole discretion, to grant extensions of time to pay, compromise claims and settle Receivables and the like for less than face value; and (h) Demand and receive possession of any of Borrower's federal and state income tax returns and the books and records utilized in the preparation thereof or referring thereto. All attorneys' fees, expenses, costs, liabilities and obligations incurred by Coast (including attorneys' fees and expenses incurred in connection with bankruptcy) with respect to the foregoing shall be due from the Borrower to Coast on demand. Coast may charge the same to Borrower's loan account, and the same shall thereafter bear interest at the same rate as is applicable to the Receivable Loans. Without limiting any of Coast's rights and remedies, from and after the occurrence of any Event of Default, the interest rate applicable to the Obligations shall be increased by an additional three percent per annum. 10.3 STANDARDS FOR DETERMINING COMMERCIAL REASONABLENESS. Borrower and Coast agree that a sale or other disposition (collectively, "sale") of any Collateral which complies with the following standards will conclusively be deemed to be commercially reasonable: (a) Notice of the sale is given to Borrower at least five (5) days prior to the sale, and, in the case of a public sale, notice of the sale is published at least five (5) days before the sale in a newspaper of general circulation in the county where the sale is to be conducted; (b) Notice of the sale describes the collateral in general, non-specific terms; (c) The sale is conducted at a place designated by Coast, with or without the Collateral being present; (d) The sale commences at any time between 8:00 a.m. and 6:00 p.m Los Angeles, California time; (e) Payment of the purchase price in cash or by cashier's check or wire transfer is required; and (f) With respect to any sale of any of the Collateral, Coast may (but is not obligated to) direct any prospective purchaser to ascertain directly from Borrower any and all information concerning the same. Coast shall be free to employ other methods of noticing and selling the Collateral, in its discretion, if they are commercially reasonable. 10.4 POWER OF ATTORNEY. Borrower grants to Coast an irrevocable power of attorney 15 COAST BUSINESS CREDIT LOAN AND SECURITY AGREEMENT - ------------------------------------------------------------------------------ coupled with an interest, authorizing and permitting Coast (acting through any of its employees, attorneys or agents) at any time, at its option, but without obligation, with or without notice to Borrower, and at Borrower's expense, to do any or all of the following, in Borrower's name or otherwise, but Coast agrees to exercise the following powers in a commercially reasonable manner: (a) Execute on behalf of Borrower any documents that Coast may, in its sole discretion, deem advisable in order to perfect and maintain Coast's security interest in the Collateral, or in order to exercise a right of Borrower or Coast, or in order to fully consummate all the transactions contemplated under this Agreement, and all other present and future agreements; (b) Execute on behalf of Borrower any document exercising, transferring or assigning any option to purchase, sell or otherwise dispose of or to lease (as lessor or lessee) any real or personal property which is part of Coast's Collateral or in which Coast has an interest; (c) Execute on behalf of Borrower, any invoices relating to any Receivable, any draft against any Account Debtor and any notice to any Account Debtor, any proof of claim in bankruptcy, any Notice of Lien, claim of mechanic's, materialman's or other lien, or assignment or satisfaction of mechanic's, materialman's or other lien; (d) Take control in any manner of any cash or non-cash items of payment or proceeds of Collateral; endorse the name of Borrower upon any instruments, or documents, evidence of payment or Collateral that may come into Coast's possession; (e) Endorse all checks and other forms of remittances received by Coast; (f) Pay, contest or settle any lien, charge, encumbrance, security interest and adverse claim in or to any of the Collateral, or any judgment based thereon, or otherwise take any action to terminate or discharge the same; (g) Grant extensions of time to pay, compromise claims and settle Receivables and General Intangibles for less than face value and execute all releases and other documents in connection therewith; (h) Pay any sums required on account of Borrower's taxes or to secure the release of any liens therefor, or both; (i) Settle and adjust, and give releases of, any insurance claim that relates to any of the Collateral and obtain payment therefor; (j) Instruct any third party having custody or control of any books or records belonging to, or relating to, Borrower to give Coast the same rights of access and other rights with respect thereto as Coast has under this Agreement; and (k) Take any action or pay any sum required of Borrower pursuant to this Agreement and any other present or future agreements. Any and all sums paid and any and all costs, expenses, liabilities, obligations and attorneys' fees incurred by Coast (including attorneys' fees and expenses incurred pursuant to bankruptcy) with respect to the foregoing shall be added to and become part of the Obligations, and shall be payable on demand. Coast may charge the foregoing to Borrower's loan account and the foregoing shall thereafter bear interest at the same rate applicable to the Receivable Loans. In no event shall Coast's rights under the foregoing power of attorney or any of Coast's other rights under this Agreement be deemed to indicate that Coast is in control of the business, management or properties of Borrower. Borrower shall pay, indemnify, defend, and hold Coast and each of its officers, directors, employees, counsel, agents, and attorneys-in-fact (each, an "Indemnified Person") harmless (to the fullest extent permitted by law) from and against any and all claims, demands, suits, actions, investigations, proceedings, and damages, and all attorneys fees and disbursements and other costs and expenses actually incurred in connection therewith (as and when they are incurred and irrespective of whether suit is brought), at any time asserted against, imposed upon, or incurred by any of them in connection with or as a result of or related to the execution, delivery, enforcement, performance, and administration of this Agreement and any other Loan Documents or the transactions contemplated herein, and with respect to any investigation, litigation, or proceeding related to 16 COAST BUSINESS CREDIT LOAN AND SECURITY AGREEMENT - ------------------------------------------------------------------------------ this Agreement, any other Loan Document, or the use of the proceeds of the credit provided hereunder (irrespective of whether any Indemnified Person is a party thereto), or any act, omission, event or circumstance in any manner related thereto (all the foregoing, collectively, the "Indemnified Liabilities"). Borrower shall have no obligation to any Indemnified Person hereunder with respect to any Indemnified Liability that a court of competent jurisdiction finally determines to have resulted from the gross negligence or willful misconduct of such Indemnified Person. This provision shall survive the termination of this Agreement and the repayment of the Obligations. 10.5 APPLICATION OF PROCEEDS. All proceeds realized as the result of any sale of the Collateral shall be applied by Coast first to the costs, expenses, liabilities, obligations and attorneys' fees incurred by Coast in the exercise of its rights under this Agreement, second to the interest due upon any of the Obligations, and third to the principal of the Obligations, in such order as Coast shall determine in its sole discretion. Any surplus shall be paid to Borrower or other persons legally entitled thereto; Borrower shall remain liable to Coast for any deficiency. If, Coast, in its sole discretion, directly or indirectly enters into a deferred payment or other credit transaction with any purchaser at any sale of Collateral, Coast shall have the option, exercisable at any time, in its sole discretion, of either reducing the Obligations by the principal amount of purchase price or deferring the reduction of the Obligations until the actual receipt by Coast of the cash therefor. 10.6 REMEDIES CUMULATIVE. In addition to the rights and remedies set forth in this Agreement, Coast shall have all the other rights and remedies accorded a secured party in equity, under the Code, and under all other applicable laws, and under any other instrument or agreement now or in the future entered into between Coast and Borrower, and all of such rights and remedies are cumulative and none is exclusive. Exercise or partial exercise by Coast of one or more of its rights or remedies shall not be deemed an election, nor bar Coast from subsequent exercise or partial exercise of any other rights or remedies. The failure or delay of Coast to exercise any rights or remedies shall not operate as a waiver thereof, but all rights and remedies shall continue in full force and effect until all of the Obligations have been indefeasibly paid and performed. 11. GENERAL PROVISIONS. 11.1 INTEREST COMPUTATION. In computing interest on the Obligations, all checks, wire transfers and other items of payment received by Coast (including proceeds of Receivables and payment of the Obligations in full) shall be deemed applied by Coast on account of the Obligations three (3) Business Days after receipt by Coast of immediately available funds, and, for purposes of the foregoing, any such funds received after 10:30 AM Los Angeles, California time, on any day shall be deemed received on the next Business Day. Coast shall be entitled to charge Borrower's account for such three (3) Business Days of "clearance" or "float" at the rate(s) set forth in Section 3 of the Schedule on all checks, wire transfers and other items received by Coast, regardless of whether such three (3) Business Days of "clearance" or "float" actually occur, and shall be deemed to be the equivalent of charging three (3) Business Days of interest on such collections. This across-the-board three (3) Business Day clearance or float charge on all collections is acknowledged by the parties to constitute an integral aspect of the pricing of Coast's financing of Borrower. Notwithstanding the foregoing, if a lock box or blocked account is established in form and substance acceptable in the discretion of Coast, the float or clearance days in this Section 11.1 shall be reduced to one (1) Business Day. Coast shall not, however, be required to credit Borrower's account for the amount of any item of payment which is unsatisfactory to Coast in its sole discretion, and Coast may charge Borrower's loan account for the amount of any item of payment which is returned to Coast unpaid. 11.2 APPLICATION OF PAYMENTS. Subject to Section 7.5 hereof, all payments with respect to the Obligations may be applied, and in Coast's sole discretion reversed and re-applied, to the Obligations, in such order and manner as Coast shall determine in its sole discretion. 11.3 CHARGES TO ACCOUNTS. Coast may, in its discretion, require that Borrower pay monetary Obligations in cash to Coast, or charge them to Borrower's Loan account, in which event they will bear interest from the date due to the date paid at the same rate applicable to the Loans. 11.4 MONTHLY ACCOUNTINGS. Coast shall provide Borrower monthly with an account of advances, charges, expenses and payments made 17 COAST BUSINESS CREDIT LOAN AND SECURITY AGREEMENT - ------------------------------------------------------------------------------ pursuant to this Agreement. Such account shall be deemed correct, accurate and binding on Borrower and an account stated (except for reverses and reapplications of payments made and corrections of errors discovered by Coast), unless Borrower notifies Coast in writing to the contrary within thirty (30) days after each account is rendered, describing the nature of any alleged errors or omissions. 11.5 NOTICES. All notices to be given under this Agreement shall be in writing and shall be given either personally or by reputable private delivery service or by regular first-class mail, facsimile or certified mail return receipt requested, addressed to Coast or Borrower at the addresses shown in the heading to this Agreement, or at any other address designated in writing by one party to the other party. Notices to Coast shall be directed to the Commercial Finance Division, to the attention of the Division Manager or the Division Credit Manager. All notices shall be deemed to have been given upon delivery in the case of notices personally delivered, faxed (at time of confirmation of transmission), or at the expiration of one (1) Business Day following delivery to the private delivery service, or two (2) Business Days following the deposit thereof in the United States mail, with postage prepaid. 11.6 SEVERABILITY. Should any provision of this Agreement be held by any court of competent jurisdiction to be void or unenforceable, such defect shall not affect the remainder of this Agreement, which shall continue in full force and effect. 11.7 INTEGRATION. This Agreement and such other written agreements, documents and instruments as may be executed in connection herewith are the final, entire and complete agreement between Borrower and Coast and supersede all prior and contemporaneous negotiations and oral representations and agreements, all of which are merged and integrated in this Agreement. THERE ARE NO ORAL UNDERSTANDINGS, REPRESENTATIONS OR AGREEMENTS BETWEEN THE PARTIES WHICH ARE NOT SET FORTH IN THIS AGREEMENT OR IN OTHER WRITTEN AGREEMENTS SIGNED BY THE PARTIES IN CONNECTION HEREWITH. 11.8 WAIVERS. The failure of Coast at any time or times to require Borrower to strictly comply with any of the provisions of this Agreement or any other present or future agreement between Borrower and Coast shall not waive or diminish any right of Coast later to demand and receive strict compliance therewith. Any waiver of any Default shall not waive or affect any other Default, whether prior or subsequent, and whether or not similar. None of the provisions of this Agreement or any other agreement now or in the future executed by Borrower and delivered to Coast shall be deemed to have been waived by any act or knowledge of Coast or its agents or employees, but only by a specific written waiver signed by an authorized officer of Coast and delivered to Borrower. Borrower waives demand, protest, notice of protest and notice of default or dishonor, notice of payment and nonpayment, release, compromise, settlement, extension or renewal of any commercial paper, instrument, account, General Intangible, document or guaranty at any time held by Coast on which Borrower is or may in any way be liable, and notice of any action taken by Coast, unless expressly required by this Agreement. 11.9 NO LIABILITY FOR ORDINARY NEGLIGENCE. Neither Coast, nor any of its directors, officers, employees, agents, attorneys or any other Person affiliated with or representing Coast shall be liable for any claims, demands, losses or damages, of any kind whatsoever, made, claimed, incurred or suffered by Borrower or any other party through the ordinary negligence of Coast, or any of its directors, officers, employees, agents, attorneys or any other Person affiliated with or representing Coast, but nothing herein shall relieve Coast from liability for its own gross negligence or willful misconduct. 11.10 AMENDMENT. The terms and provisions of this Agreement may not be waived or amended, except in a writing executed by Borrower and a duly authorized officer of Coast. 11.11 TIME OF ESSENCE. Time is of the essence in the performance by Borrower of each and every obligation under this Agreement. 11.12 ATTORNEYS FEES, COSTS AND CHARGES. Borrower shall reimburse Coast for all attorneys' fees (including attorneys' fees and expenses incurred pursuant to bankruptcy) and all filing, recording, search, title insurance, appraisal, audit, and other costs incurred by Coast, pursuant to, or in connection with, or relating to this Agreement (whether or not a lawsuit is filed), including, but not limited to, any attorneys' fees and costs (including attorneys' fees and expenses incurred pursuant to bankruptcy) Coast incurs in order to do the 18 COAST BUSINESS CREDIT LOAN AND SECURITY AGREEMENT - ------------------------------------------------------------------------------ following: prepare and negotiate this Agreement and the documents relating to this Agreement; obtain legal advice in connection with this Agreement or Borrower; enforce, or seek to enforce, any of its rights; prosecute actions against, or defend actions by, Account Debtors; commence, intervene in, or defend any action or proceeding; initiate any complaint to be relieved of the automatic stay in bankruptcy; file or prosecute any probate claim, bankruptcy claim, third-party claim, or other claim; examine, audit, copy, and inspect any of the Collateral or any of Borrower's books and records; protect, obtain possession of, lease, dispose of, or otherwise enforce Coast's security interest in, the Collateral; and otherwise represent Coast in any litigation relating to Borrower. If either Coast or Borrower files any lawsuit against the other predicated on a breach of this Agreement, the prevailing party in such action shall be entitled to recover its costs and attorneys' fees (including attorneys' fees and expenses incurred pursuant to bankruptcy), including (but not limited to) attorneys' fees and costs incurred in the enforcement of, execution upon or defense of any order, decree, award or judgment. Borrower shall also pay Coast's standard charges for returned checks and for wire transfers, in effect from time to time. All attorneys' fees, costs and charges (including attorneys' fees and expenses incurred pursuant to bankruptcy) and other fees, costs and charges to which Coast may be entitled pursuant to this Agreement may be charged by Coast to Borrower's loan account and shall thereafter bear interest at the same rate as the Receivable Loans. 11.13 BENEFIT OF AGREEMENT. The provisions of this Agreement shall be binding upon and inure to the benefit of the respective successors, assigns, heirs, beneficiaries and representatives of Borrower and Coast; PROVIDED, HOWEVER, that Borrower may not assign or transfer any of its rights under this Agreement without the prior written consent of Coast, and any prohibited assignment shall be void. No consent by Coast to any assignment shall release Borrower from its liability for the Obligations. Coast may assign its rights and delegate its duties hereunder by the sale of assignment or participation interests, all without the consent of Borrower. 11.14 PUBLICITY. Coast is hereby authorized, at its expense, to issue appropriate press releases and to cause a tombstone to be published announcing the consummation of this transaction and the aggregate amount thereof. 11.15 PARAGRAPH HEADINGS; CONSTRUCTION. Paragraph headings are only used in this Agreement for convenience. Borrower and Coast acknowledge that the headings may not describe completely the subject matter of the applicable paragraph, and the headings shall not be used in any manner to construe, limit, define or interpret any term or provision of this Agreement. The term "including", whenever used in this Agreement, shall mean "including (but not limited to)". This Agreement has been fully reviewed and negotiated between the parties and no uncertainty or ambiguity in any term or provision of this Agreement shall be construed strictly against Coast or Borrower under any rule of construction or otherwise. 11.16 GOVERNING LAW; JURISDICTION; VENUE. This Agreement and all acts and transactions hereunder and all rights and obligations of Coast and Borrower shall be governed by the internal laws of the State of California, without regard to its conflicts of law principles. As a material part of the consideration to Coast to enter into this Agreement, Borrower (a) agrees that all actions and proceedings relating directly or indirectly to this Agreement shall, at Coast's option, be litigated in courts located within California, and that the exclusive venue therefor shall be Los Angeles County; (b) consents to the jurisdiction and venue of any such court and consents to service of process in any such action or proceeding by personal delivery or any other method permitted by law; and (c) waives any and all rights Borrower may have to object to the jurisdiction of any such court, or to transfer or change the venue of any such action or proceeding. 11.17 MUTUAL WAIVER OF JURY TRIAL. BORROWER AND COAST EACH HEREBY WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PRESENT OR FUTURE INSTRUMENT OR AGREEMENT BETWEEN COAST AND BORROWER, OR ANY CONDUCT, ACTS OR OMISSIONS OF COAST OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH COAST OR BORROWER, IN ALL OF THE FOREGOING 19 COAST BUSINESS CREDIT LOAN AND SECURITY AGREEMENT - ------------------------------------------------------------------------------ CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE. BORROWER: CENTURA SOFTWARE CORPORATION By__________________________________ President or Vice President COAST: COAST BUSINESS CREDIT, a division of Southern Pacific Bank By__________________________________ Title:______________________________ 20 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- COAST SCHEDULE TO LOAN AND SECURITY AGREEMENT BORROWER: CENTURA SOFTWARE CORPORATION ADDRESS: 975 ISLAND DRIVE REDWOOD SHORES, CALIFORNIA 94065 DATE: JANUARY 19, 1998 This Schedule forms an integral part of the Loan and Security Agreement between Coast Business Credit, a division of Southern Pacific Bank, and the above-borrower of even date. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECTION 2 - CREDIT FACILITIES SECTION 2.1 - CREDIT LIMIT: Loans in a total amount at any time outstanding not to exceed the lesser of a total of Five Million Dollars ($5,000,000) at any one time outstanding (the "Maximum Dollar Amount"), or the sum of (a) and (b) below: (a) Receivable Loans in an amount not to exceed 70% of the amount of Borrower's Eligible Receivables (as defined in Section 1 of the Agreement), provided that for Eligible Foreign Accounts, the advance rate shall not exceed 60% and, except as permitted in the discretion of Coast, advances against Eligible Receivables owing from account debtors located in the United Kingdom shall not exceed $1,000,000 in the aggregate outstanding at any one time and advances owing from account debtors located in the European continent shall not exceed $1,000,000 outstanding at any one time, plus (b) Equipment Acquisition Loans, in minimum advances of One Hundred Thousand Dollars ($100,000), at three month interest only followed by a 36 month amortization of principal plus interest with the remaining balance due on January 31, 2000, in a total amount not to exceed the lesser of: (1) 80% of the invoice cost of new Equipment (after subtracting taxes and installation charges), or 80% of the appraised liquidation value of used Equipment acquired by Borrower -21- COAST BUSINESS CREDIT SCHEDULE TO LOAN AND SECURITY AGREEMENT - ------------------------------------------------------------------------------- (after subtracting taxes and installation charges), in each case to be located in the United States, or (2) Five Hundred Thousand Dollars ($500,000) The Equipment Acquisition Loans shall not be available unless Borrower has achieved and maintained a Total Debt Service Coverage Ratio of not less than 1.25:1, measured on a fiscal quarterly basis. Total Debt Service Coverage Ratio shall mean the quotient of (x) EBITDA less all capital expenditures permitted hereunder and actually made, except any portion thereof financed through indebtedness permitted hereunder and all taxes paid during such period, divided by (y) the sum of all principal, interest and other payments made or required to be made by Borrower on indebtedness during such period, including any fees and charges owed by Borrower in connection with any such indebtedness. "EBITDA" shall mean, for any period, the net income for such period of Borrower determined in accordance with GAAP (excluding any extraordinary income items, including, without limitation, gain on sale of assets, income relating to foreign exchange, swap or other derivative transactions and changes in GAAP), plus the following items, to the extent deducted from the revenues of Borrower in the calculation of net income or loss: (i) depreciation, (ii) amortization of intangibles and any other non-cash items, (iii) cash interest expense (excluding any interest paid-in-kind) and (iv) tax expense. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECTION 3 - INTEREST AND FEES SECTION 3.1 - INTEREST RATE: A rate equal to the Prime Rate plus 2.25% per annum, calculated on the basis of a 360-day year for the actual number of days elapsed, provided that in the event Borrower achieves and maintains a Total Debt Service Coverage Ratio (as defined above) of at least 1.5:1 measured on a quarterly basis following two consecutive quarters of full compliance with all the terms and conditions in this Agreement and provided no Event of Default has occurred and is continuing, the rate over the Prime Rate shall be reduced to 2.0%. If under the same terms and conditions as set forth in the preceding sentence the Total Debt Service Coverage Ratio is at least 1.75:1, the rate over the Prime Rate shall be reduced to 1.75%. The interest rate applicable to all Loans shall be adjusted monthly as of the first day of each month, and the interest to be charged for each month shall be based on the highest Prime Rate in effect during the prior month, but in no event shall the rate of interest charged on any Loans in any month be less than 9% per annum. SECTION 3.1 - MINIMUM MONTHLY Based on utilization of 40% of the INTEREST: Maximum Dollar Amount based on daily outstandings. 22 COAST BUSINESS CREDIT SCHEDULE TO LOAN AND SECURITY AGREEMENT - ------------------------------------------------------------------------------- SECTION 3.2 - LOAN FEE: 2.0% of the Maximum Dollar Amount, such amount being fully earned on the Closing Date, and payable 1.0 of the Maximum Dollar Amount on the Closing Date and the balance on the first anniversary of the Closing Date. SECTION 3.2 - FACILITY FEE: $5,200,. per quarter, payable on the Closing Date (prorated for any partial quarter at the beginning of the term of this Agreement) and continuing on the first day of each quarter thereafter. SECTION 9.1 - RENEWAL FEE: .5% of the Maximum Dollar Amount per year. SECTION 9.2 - EARLY TERMINATION An amount equal to three percent (3%) of FEE: the Maximum Dollar Amount (as defined in the Schedule), if termination occurs on or before the first anniversary of the effective date of this Agreement and two percent (2%) of the Maximum Dollar Amount, if termination occurs after the first anniversary of the effective date of this Agreement. - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ SECTION 5 - CONDITIONS PRECEDENT SECTION 5.2 - MINIMUM $500,000 at funding AVAILABILITY: SECTION 5.13 - OTHER DOCUMENTS 1. UCC-1 financing statements, fixture AND AGREEMENTS: filings and termination statements; 2. Security Agreements (including those covering copyrights, patents and trademarks). SECTION 5.14 - OTHER CONDITIONS: 1. Coast shall have a first priority perfected security interest in all the assets of Borrower. 2. All of Borrower's software shall have been registered with the federal copyright office together with a first priority mortgage of the software in favor of Coast. 3. Coast shall have obtained such guaranties (in such form as Coast shall request) from such of Borrower's foreign subsidiaries as shall be required by Coast. 4. Coast shall have reviewed and approved in its discretion Borrower's distributor's agreements. 5. Coast's obligations under this Agreement shall be subject to a re-audit of Borrower if required by Coast and with results satisfactory to Coast in its discretion. - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ SECTION 6 - REPRESENTATIONS, WARRANTIES AND COVENANTS SECTION 6.2 - PRIOR NAMES OF Gupta Corporation. BORROWER: SECTION 6.2 - PRIOR TRADE NAMES None. OF BORROWER: 23 COAST BUSINESS CREDIT SCHEDULE TO LOAN AND SECURITY AGREEMENT - ------------------------------------------------------------------------------- SECTION 6.2 - EXISTING TRADE NAMES None. OF BORROWER: SECTION 6.3 - OTHER LOCATIONS AND 400 Riverpark Drive ADDRESSES: North Reading, Massachusetts 01864 Sales Offices in Redwood City, California Los Angeles, California Chicago, Illinois Atlanta, Georgia Dallas, Texas Iselin, New Jersey Lake Oswego, Oregon Sterling, Colorado SECTION 6.10 - MATERIAL ADVERSE None. LITIGATION: SECTION 6.10 - FUTURE CLAIMS AND Borrower will promptly inform Coast LITIGATION: in writing of any claim, proceeding, litigation or investigation in the future threatened or instituted by or against Borrower involving any single claim of Fifty Thousand Dollars ($50,000) or more, or involving One Hundred Thousand Dollars ($100,000) or more in the aggregate. _______________________________________________________________________________ SECTION 8 - ADDITIONAL DUTIES OF BORROWER SECTION 8.1 - OTHER PROVISIONS 1. Borrower shall at all times AND COVENANTS: have a minimum Adjusted Net Worth of not less than {$8,000,000}. 2. Borrower shall at all times maintain all original sales documentation at its chief executive office. 3. Without otherwise limiting the right of Coast to create reserves, Coast shall have the right to create a reserve for the Lotus Development accounts payable past due balance. SECTION 8.2 - INSURANCE: Subject to the limitations set forth in Section 8.2 of the Agreement, Coast shall release to Borrower insurance proceeds with respect to Equipment totaling less than One Hundred Thousand Dollars ($100,000). SECTION 8.3 - REPORTING: Borrower shall provide Coast with the following: 1. Monthly Receivable agings, aged by invoice date and by customer in alphabetical order, within ten (10) days after the end of each month together with a monthly deferred revenue listing to be sorted by customer in alphabetical order. 2. Monthly accounts payable agings, aged by invoice date, and outstanding or held check registers within ten (10) days after the end of each month. 3. Monthly internally prepared financial statements, as soon as available, and in any event within thirty (30) days after the end of each month. 24 COAST BUSINESS CREDIT SCHEDULE TO LOAN AND SECURITY AGREEMENT - ------------------------------------------------------------------------------- 4. Quarterly internally prepared financial statements, as soon as available, and in any event within forty-five (45) days after the end of each fiscal quarter of Borrower. 5. Quarterly customer lists, including customer name, address, and phone number. 6. Annual financial statements, as soon as available, and in any event within ninety (90) days following the end of Borrower's fiscal year, containing the unqualified opinion of, and certified by, an independent certified public accountant acceptable to Coast. SECTION 8.5 - NEGATIVE COVENANTS One Hundred Thousand Dollars (ACQUIRED ASSETS): ($100,000). - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ SECTION 9 - TERM SECTION 9.1 - MATURITY DATE: the last Business Day of the month two (2) years from the Closing Date, subject to automatic renewal as provided in Section 9.1 of the Agreement, and early termination as provided in Section 9.2 of the Agreement. 25 EX-10.30 7 EXHIBIT 10.30 CENTURA SOFTWARE CORPORATION COMMON STOCK AND WARRANT PURCHASE AGREEMENT FEBRUARY 27, 1998 TABLE OF CONTENTS
PAGE 1. Purchase and Sale of Common Stock and Warrants. . . . . . . . . . . . . . . 1 1.1 Sale and Issuance of Common Stock and Warrants. . . . . . . . . . . . 1 1.2 Closing; Delivery . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2. Representations and Warranties of the Company . . . . . . . . . . . . . . . 2 2.1 Organization, Good Standing and Qualification . . . . . . . . . . . . 2 2.2 Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.3 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.4 Valid Issuance of Securities. . . . . . . . . . . . . . . . . . . . . 3 2.5 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.6 Compliance with Other Instruments . . . . . . . . . . . . . . . . . . 3 2.7 SEC Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 3. Representations and Warranties of the Purchasers. . . . . . . . . . . . . . 4 3.1 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 3.2 Purchase Entirely for Own Account . . . . . . . . . . . . . . . . . . 4 3.3 Disclosure of Information . . . . . . . . . . . . . . . . . . . . . . 4 3.4 Restricted Securities . . . . . . . . . . . . . . . . . . . . . . . . 5 3.5 Legends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 3.6 Accredited Investor . . . . . . . . . . . . . . . . . . . . . . . . . 5 4. Registration of Securities. . . . . . . . . . . . . . . . . . . . . . . . . 5 5. Resale Restrictions.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 6. Conditions of the Purchasers' Obligations at Closing. . . . . . . . . . . . 9 6.1 Representations and Warranties. . . . . . . . . . . . . . . . . . . . 9 6.2 Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 6.3 Compliance Certificate. . . . . . . . . . . . . . . . . . . . . . . .10 6.4 Qualifications. . . . . . . . . . . . . . . . . . . . . . . . . . . .10 6.5 Opinion of Company Counsel. . . . . . . . . . . . . . . . . . . . . .10 7. Conditions of the Company's Obligations at Closing. . . . . . . . . . . . .10 7.1 Representations and Warranties. . . . . . . . . . . . . . . . . . . .10 7.2 Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10 7.3 Qualifications. . . . . . . . . . . . . . . . . . . . . . . . . . . .10 8. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10 8.1 Survival of Warranties. . . . . . . . . . . . . . . . . . . . . . . .10 8.2 Transfer; Successors and Assigns. . . . . . . . . . . . . . . . . . .10 8.3 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 8.4 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 -i- TABLE OF CONTENTS PAGE 8.5 Titles and Subtitles. . . . . . . . . . . . . . . . . . . . . . . . .11 8.6 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 8.7 Company Advisor / Payment of Fees . . . . . . . . . . . . . . . . . .11 8.8 Attorney's Fees . . . . . . . . . . . . . . . . . . . . . . . . . . .11 8.9 Amendments and Waivers. . . . . . . . . . . . . . . . . . . . . . . .12 8.10 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . .12 8.11 Delays or Omissions. . . . . . . . . . . . . . . . . . . . . . . . .12 8.12 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . .12 8.13 Corporate Securities Law . . . . . . . . . . . . . . . . . . . . . .12 8.14 Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . . .13 8.15 Exculpation Among Purchasers . . . . . . . . . . . . . . . . . . . .13 8.16 Advice of Counsel. . . . . . . . . . . . . . . . . . . . . . . . . .13
-ii- CENTURA SOFTWARE CORPORATION COMMON STOCK AND WARRANT PURCHASE AGREEMENT This Common Stock and Warrant Purchase Agreement (the "AGREEMENT") is made as of the 27th day of February, 1998 by and between Centura Software Corporation, a California corporation (the "COMPANY") and the investors listed on EXHIBIT A attached hereto (each a "PURCHASER" and together the "PURCHASERS"). The parties hereby agree as follows: 1. PURCHASE AND SALE OF COMMON STOCK AND WARRANTS. 1.1 SALE AND ISSUANCE OF COMMON STOCK AND WARRANTS. Subject to the terms and conditions of this Agreement, each Purchaser agrees to purchase at the Closing and the Company agrees to sell and issue to each Purchaser at the Closing that number of shares of Common Stock indicated with respect to such Purchaser on EXHIBIT A attached hereto at a purchase price of $1.06 per share and a warrant in the form attached hereto as EXHIBIT B to purchase that number of shares of Common Stock indicated with respect to such Purchaser on EXHIBIT A at a purchase price of $1.25 per share of Common Stock issuable upon exercise of the warrant. The shares of Common Stock and the warrants issued to the Purchaser pursuant to this Agreement shall be hereinafter referred to as the "STOCK" and the "WARRANTS," respectively, and the shares of Common Stock issuable upon exercise of the Warrants shall be hereinafter referred to as the "WARRANT STOCK." The Stock, the Warrants and the Warrant Stock shall be hereinafter referred to as the "SECURITIES." 1.2 CLOSING; DELIVERY. (a) The purchase and sale of the Stock and the Warrants shall take place on February __, 1998, or at such other time as the Company and the Purchasers mutually agree upon, orally or in writing (which time is designated as the "CLOSING"). (b) At the Closing, each Purchaser shall cause the purchase price of the Stock and the Warrants being purchased to be delivered to the escrow agent as provided in the Escrow Agreement attached hereto as Exhibit E (the "ESCROW AGREEMENT"), and the Company shall cause a certificate representing the Stock being purchased by each Purchaser and a Warrant for each Purchaser exercisable for the applicable number of shares of Common Stock of the Company for such Purchaser to be delivered to the escrow agent as provided in the Escrow Agreement. Upon the satisfaction of all the conditions set forth in Sections 6 and 7 hereof, the escrow agent shall be instructed to release the purchase price to the Company, and the certificate representing the Stock and the Warrants to each Purchaser all in accordance with the terms of the Escrow Agreement. 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby represents and warrants to each Purchaser that, except as set forth on a Schedule of Exceptions attached hereto as EXHIBIT C, which exceptions shall be deemed to be representations and warranties as if made hereunder: 2.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of California and has all requisite corporate power and authority to carry on its business. 2.2 CAPITALIZATION. The authorized capital of the Company consists, or will consist, immediately prior to the Closing, of 60,000,000 shares of Common Stock, $0.01 par value per share, of which 15,780,886 shares were issued and outstanding as of February 9, 1998, and 2,000,000 shares of Preferred Stock, $0.01 par value per share, none of which are issued or outstanding. All such shares have been duly authorized, and all such issued and outstanding shares have been validly issued, are fully paid and nonassessable, are not subject to any preemptive rights or rights of first refusal (other than rights of first refusal held by the Company) under applicable law, the Articles of Incorporation or Bylaws of the Company, or any agreement to which the Company is a party or by which it is bound and are free of any liens or encumbrances other than any liens or encumbrances created by or imposed upon the holders thereof. The Company is concurrently with the Closing of the issuance and sale of the Securities hereunder closing an agreement providing for the conversion of approximately $12.2 million of outstanding indebtedness into shares of Common Stock of the Company at a conversion price of $1.06 per share. The Company has also reserved (i) an aggregate of 2,000,000 shares of Common Stock issuable to employees and consultants pursuant to the Company's 1995 Stock Option Plan, of which 1,164,947 shares are issuable upon exercise of outstanding options under such plan, (ii) an aggregate of 2,657,399 shares of Common Stock issuable to employees and consultants pursuant to the Company's 1986 Stock Option Plan, of which 2,657,399 shares are issuable upon exercise of outstanding options under such plan, (iii) an aggregate of 400,000 shares of Common Stock issuable to employees pursuant to the Company's 1992 Employee Stock Purchase Plan, of which no shares are available for future issuance under such plan, (iv) 500,000 shares of Common Stock issuable to non-employee directors pursuant to Company's 1996 Directors' Stock Option Plan, of which 300,000 shares are issuable upon exercise of outstanding options under such plan, (v) non-plan options issued to the Company's Chief Executive Officer, Chief Financial Officer and Vice President of Marketing to purchase up to an aggregate of 1,500,000 shares of Common Stock, (vi) up to 450,000 shares of Common Stock issuable upon exercise of warrants granted or to be granted to certain third parties, including vendors, suppliers and financial and investment advisors of the Company, prior to inclusion of the shares of Common Stock issuable upon exercise of the Warrants being purchased and sold hereunder and a Warrant being issued to Computer Associates International, Inc. concurrently on the date of the Closing. 2.3 AUTHORIZATION. All corporate action on the part of the Company, its officers, directors and shareholders necessary for the authorization, execution and delivery of this Agreement and the Warrants (collectively, the "TRANSACTION AGREEMENTS"), the performance of all obligations of the Company hereunder and thereunder and the authorization, issuance and delivery of the Securities has been taken or will be taken prior to the Closing, and the Transaction Agreements, when executed and delivered by the Company, shall constitute valid -2- and legally binding obligations of the Company, enforceable against the Company in accordance with their terms except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and other laws of general application affecting enforcement of creditors' rights generally, as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies, or (ii) to the extent the indemnification provisions contained in Section 4(g) herein below may be limited by applicable federal or state securities laws. 2.4 VALID ISSUANCE OF SECURITIES. The Stock and the Warrants that are being issued to the Purchasers hereunder, when issued and paid for in accordance with this Agreement, and the shares of Common Stock issuable upon exercise of the Warrants, when issued and paid for in accordance with the Warrants, will be validly issued, fully paid, and nonassessable, and not subject to any preemptive rights or rights of first refusal under applicable law, the Articles of Incorporation or Bylaws of the Company, or any agreement to which the Company is a party or by which the Company is bound, and are free of any liens or encumbrances other than liens or encumbrances created by or imposed upon the holders thereof; provided, however, that the Warrants (and the shares of Common Stock issuable upon exercise thereof) may be subject to restrictions on transfer as set forth in this Agreement, the Warrants, the Registration Statement on Form S-3 to be filed with the Securities and Exchange Commission pursuant to Section 4 hereunder, (the "RIGHTS AGREEMENT"), or the Articles of Incorporation or Bylaws of the Company. Based in part upon the representations of the Purchasers in this Agreement, the Stock and the Warrants will be issued in compliance with all applicable federal and state securities laws. 2.5 LITIGATION. There is no action, suit, proceeding or investigation pending or, to the Company's knowledge, currently threatened against the Company or any of its subsidiaries that is not disclosed in the Reports (as defined in Section 2.6 below) and that would have a material adverse effect on the Company or that questions the validity of the Transaction Agreements or the right of the Company to enter into them, or to consummate the transactions contemplated thereby. 2.6 COMPLIANCE WITH OTHER INSTRUMENTS. The execution, delivery and performance of the Transaction Agreements and the consummation of the transactions contemplated thereby will not result in any violation or default of any provisions of the Articles of Incorporation or Bylaws of the Company or of any instrument, judgment, order, writ, decree or contract to which the Company is a party or by which the Company is bound or, to the Company's knowledge, of any provision of federal or state statute, rule or regulation applicable to the Company, or be in conflict with or constitute, with or without the passage of time and giving of notice, either a default under any such provision, instrument, judgment, order, writ, decree or contract or an event which results in the creation of any lien, charge or encumbrance upon any assets of the Company. 2.7 SEC REPORTS. The Company has filed with the Securities and Exchange Commission (the "COMMISSION") via Edgar its Annual Report on Form 10-K for the year ended December 31, 1996 and its Quarterly Reports on Form 10-Q for the first three quarters of the -3- year ended December 31, 1997 (the "REPORTS"), and such Reports are available to Purchaser through Edgar in electronic format. As of their respective filing dates, the Reports complied in all material respects with the requirements of the Securities Exchange Act of 1934, as amended, and none of the Reports contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances in which they were made, not misleading, except to the extent corrected by a document subsequently filed with the Commission and provided to Purchaser prior to the date hereof. 3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. Each Purchaser hereby represents and warrants to the Company that: 3.1 AUTHORIZATION. Such Purchaser has full power and authority to enter into this Agreement. The Transaction Agreements, when executed and delivered by the Purchaser, will constitute valid and legally binding obligations of the Purchaser, enforceable in accordance with their terms, except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and any other laws of general application affecting enforcement of creditors' rights generally, and as limited by laws relating to the availability of a specific performance, injunctive relief, or other equitable remedies, or (b) to the extent the indemnification provisions contained in Section 4(g) herein below may be limited by applicable federal or state securities laws. 3.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made with the Purchaser in reliance upon the Purchaser's representation to the Company, which by the Purchaser's execution of this Agreement, the Purchaser hereby confirms, that the Securities to be acquired by the Purchaser will be acquired for investment for the Purchaser's own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and that the Purchaser has no present intention of selling, granting any participation in, or otherwise distributing the same. By executing this Agreement, the Purchaser further represents that the Purchaser does not presently have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participation to such person or to any third person, with respect to any of the Securities. The Purchaser has not been formed for the specific purpose of acquiring the Securities. 3.3 DISCLOSURE OF INFORMATION. The Purchaser has had an opportunity to discuss the Company's business, management, financial affairs and the terms and conditions of the offering of the Stock and the Warrants with the Company's management and has had an opportunity to review the Company's facilities. The Purchaser understands that such discussions, and any other written information delivered by the Company to the Purchaser, were intended to describe the aspects of the Company's business which it believes to be material. 3.4 RESTRICTED SECURITIES. The Purchaser understands that the Securities are characterized as "restricted securities" under applicable U.S. federal and state securities laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that, pursuant to these laws and applicable regulations, the Purchaser must hold the -4- Securities indefinitely unless they are registered with the Securities and Exchange Commission and qualified by state authorities, or an exemption from such registration and qualification requirements is available. The Purchaser further acknowledges that if an exemption from registration or qualification is available, it may be conditioned on various requirements including, but not limited to, the time and manner of sale, the holding period for the Securities, and on requirements relating to the Company which are outside of the Purchaser's control, and which the Company is under no obligation and may not be able to satisfy. In this connection, Purchaser represents that it is familiar with SEC Rule 144, as presently in effect, and understands the resale limitations imposed thereby and by the Securities Act of 1933, as amended (the "SECURITIES ACT"). 3.5 LEGENDS. The Purchaser understands that the Securities, and any securities issued in respect thereof or exchange therefor, may bear one or all of the following legends: (a) "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933." (b) Any legend set forth in the other Transaction Agreements. (c) Any legend required by the Blue Sky laws of any state to the extent such laws are applicable to the shares represented by the certificate so legended. 3.6 ACCREDITED INVESTOR. The Purchaser is an accredited investor as defined in Rule 501(a) of Regulation D promulgated under the Securities Act. 4. REGISTRATION OF SECURITIES. (a) As soon as possible after the Closing, the Company shall use its reasonable best efforts to prepare and file a registration statement on Form S-3 (the "REGISTRATION STATEMENT") with the Commission under the Act to register the resale of the Stock and the Warrant Stock (collectively, the "REGISTRABLE SECURITIES") and thereafter shall use its best efforts to secure the effectiveness of such Registration Statement. (b) The Company shall pay all Registration Expenses (as defined below) in connection with any registration, qualification or compliance hereunder, and Purchaser or any transferee of the Registrable Securities (each, a "HOLDER") shall pay all Selling Expenses (as defined below) and other expenses that are not Registration Expenses relating to the Registrable Securities resold by Holder. "Registration Expenses" shall mean all expenses, except for Selling Expenses, incurred by the Company in complying with the registration provisions herein -5- described, including, without limitation, all registration, qualification and filing fees, printing expenses, fees and disbursements of counsel for the Company, blue sky fees and expenses and the expense of any special audits incident to or required by any such registration. "Selling Expenses" shall mean all selling commissions, brokerage or underwriting fees and stock transfer taxes applicable to the Registrable Securities and all fees and disbursements of counsel for Holder. (c) In the case of any registration effected by the Company pursuant to these registration provisions, and subject to the limitations on registration set forth in Section 4(d) below, the Company will use commercially reasonable efforts to: (i) keep such registration effective until the earlier of (A) two (2) years after the date of the Closing or (B) such date as the Company shall be satisfied that then-current Holders may sell all of their Registrable Securities then outstanding within a three (3) month period; (ii) prepare and file with the Commission such amendments and supplements to such Registration Statement and the prospectus used in connection with such Registration Statement as may be necessary to comply with the provisions of the Act with respect to the disposition of all securities covered by such Registration Statement; (iii) furnish such number of prospectuses and other documents incident thereto, including any amendment of or supplement to the prospectus, as a Holder from time to time may reasonably request; (iv) register and qualify the securities covered by such Registration Statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions; (v) cause all such Registrable Securities registered as described herein to be listed on each securities exchange and quoted on each quotation service on which similar securities issued by the Company are then listed or quoted; and (vi) otherwise use commercially reasonable efforts to comply with all applicable rules and regulations of the Commission. (d) The Company may, by written notice to Holder, delay the filing or effectiveness of, or suspend, the Registration Statement, and require that Holder immediately cease sales of shares pursuant to such Registration Statement in any period during which the Company is engaged in any activity or transaction or preparations or negotiations for any activity or transaction ("COMPANY ACTIVITY") that the Company desires to keep confidential for business reasons, if the Company determines in good faith that the public disclosure requirements imposed on the Company under the Act in connection with the Registration Statement would require disclosure of the Company Activity; provided, however, that (A) the Company shall use commercially reasonable efforts to minimize the length of any such period of delay or suspension, (B) any such delay or suspension shall be applied in the same manner to any other resale registration statement then in effect, (C) no such suspension period shall extend longer than forty-five (45) consecutive calendar days, (D) no such suspension period may be imposed within forty-five (45) days following the completion of a prior suspension period, and (E) the Company shall not impose suspension periods which, in the aggregate, exceed ninety (90) days in any twelve (12) month period. If the Company delays or suspends the Registration Statement or requires Holder to cease sales of shares pursuant to this Section 4(d), the Company shall, as promptly as practicable following the termination of the circumstance which entitled the -6- Company to do so, take such actions as may be necessary to file or reinstate the effectiveness of the Registration Statement and/or give written notice to Holder authorizing it to resume sales pursuant to such Registration Statement. If as a result thereof the prospectus included in the Registration Statement has been amended to comply with the requirements of the Act, the Company shall enclose such revised prospectus with the notice to Holders given pursuant to this Section 4(d), and Holder shall make no offers or sales of shares pursuant to the Registration Statement other than by means of such revised prospectus. (e) If Holder shall propose to sell any Registrable Securities pursuant to the Registration Statement, it shall notify the Company of its intent to do so at least three (3) full business days prior to such sale, and the provision of such notice to the Company shall conclusively be deemed to establish an agreement by Holder to comply with the registration provisions herein described. Such notice shall be deemed to constitute a representation that any information required to be included in the Registration Statement and previously supplied by Holder is accurate as of the date of such notice. When Holder is entitled to sell and gives notice of its intent to sell in compliance with the foregoing, the Company shall promptly, furnish to Holder a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the Holders of such shares, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading or incomplete in the light of the circumstances then existing. Holder agrees that the Company may impose a legend setting forth the provisions of Sections 4(d) and 4(e) on the Registrable Securities. (f) With a view to making available to the holders the benefits of Rule 144 promulgated under the Act and any other rule or regulation of the Commission that may at any time permit Holder to sell Registrable Securities to the public without registration or pursuant to a registration on Form S-3, the Company hereby covenants and agrees to: (i) make and keep public information available, as those terms are understood and defined in Rule 144, at all times after the closing; and (ii) file with the Commission in a timely manner all reports and other documents required of the Company under the Act and Exchange Act. (g) Indemnification. (i) To the extent permitted by law, the Company will indemnify and hold harmless Holder, any underwriter (as defined in the Act) for Holder, its officers, directors, shareholders or partners and each person, if any, who controls Holder or underwriter within the meaning of the Act or the Exchange Act, against any losses, claims, damages, or liabilities to which they may become subject under the Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a "VIOLATION"): (A) any untrue statement or alleged untrue statement of a material fact contained in such Registration Statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto or (B) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading; and the Company will pay to each such Holder, -7- underwriter or controlling person, as incurred, any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this Section 4(g)(i) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability, or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable in any such case for any such loss, claim, damage, liability, or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by any such Holder, underwriter or controlling person; further provided, however, that the foregoing indemnity with respect to any untrue statement in or omission from any preliminary prospectus shall not inure to the benefit of any Holder from whom the person asserting any such losses, claims, damages or liabilities purchased the Registrable Securities if a copy of the final prospectus or any amendment thereto had not been sent or given to such person at or prior to the written confirmation of the sale of such Registrable Securities to such person if required by the Act and the untrue statement or omission of a material fact contained in such preliminary prospectus was corrected in the final prospectus or amendment and such final prospectus or amendment was distributed to the Holder prior to such sale of Registrable Securities. (ii) To the extent permitted by law, each selling Holder will indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the Registration Statement, each person, if any, who controls the Company within the meaning of the Act, any underwriter, any other Holder selling securities in such Registration Statement and any controlling person of any such underwriter or other Holder, against any losses, claims, damages, or liabilities to which any of the foregoing persons may become subject, under the Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Holder expressly for use in connection with such registration; and each such Holder will pay, as incurred, any legal or other expenses reasonably incurred by any person intended to be indemnified pursuant to this subsection 4(g)(ii), in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this subsection 4(g)(ii) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld; provided, that, in no event shall any indemnity under this subsection 4(g)(ii) exceed the net proceeds from the offering received by such Holder, except in the case of willful fraud by such Holder. (iii) Promptly after receipt by an indemnified party under this Section 4(g) of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 4(g), deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly -8- noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party (together with all other indemnified parties which may be represented without conflict by one counsel) shall have the right to retain one separate counsel, with the reasonable fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 4(g). 5. RESALE RESTRICTIONS. Holder agrees that it will not sell any Registrable Securities issued hereunder until the effectiveness of the Registration Statement to be filed pursuant to Section 4 above. Notwithstanding the foregoing, the Company may suspend resales by the Holder if an underwriter reasonably determines that such resales would adversely affect the Company's ability to raise additional capital in a public offering of the Company's equity securities and such underwriter issues a written opinion to the Company to that effect. Any such suspension of resales by the Holder pursuant to the foregoing sentence will not exceed 120 calendar days commencing on the date of the secondary offering. The volume and resale restrictions set forth in this Section 5 shall be set forth in any and all Registration Statements brought effective pursuant to Section 4 above, and the Company shall instruct its transfer agent, broker dealers and market makers to enforce the volume restrictions set forth herein. 6. CONDITIONS OF THE PURCHASERS' OBLIGATIONS AT CLOSING. The obligations of each Purchaser to the Company under this Agreement are subject to the fulfillment, on or before the Closing, of each of the following conditions, unless otherwise waived: 6.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Company contained in Section 2 shall be true and correct in all material respects on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the date of the Closing. 6.2 PERFORMANCE. The Company shall have performed and complied with all covenants, agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by it on or before the Closing. 6.3 COMPLIANCE CERTIFICATE. The President of the Company shall deliver to the Purchasers at the Closing a certificate certifying that the conditions specified in Sections 6.1 and 6.2 have been fulfilled. 6.4 QUALIFICATIONS. All authorizations, approvals or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful issuance and sale of the Stock and the Warrants pursuant to this Agreement shall be obtained and effective as of the Closing. -9- 6.5 OPINION OF COMPANY COUNSEL. The Purchasers shall have received from Venture Law Group, counsel for the Company, an opinion, dated as of the Closing, in substantially the form of EXHIBIT D. 7. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING. The obligations of the Company to each Purchaser under this Agreement are subject to the fulfillment, on or before the Closing, of each of the following conditions, unless otherwise waived: 7.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of each Purchaser contained in Section 3 shall be true and correct in all material respects on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the Closing. 7.2 PERFORMANCE. All covenants, agreements and conditions contained in this Agreement to be performed by the Purchasers on or prior to the Closing shall have been performed or complied with in all material respects. 7.3 QUALIFICATIONS. All authorizations, approvals or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful issuance and sale of the Stock and the Warrants pursuant to this Agreement shall be obtained and effective as of the Closing. 8. MISCELLANEOUS. 8.1 SURVIVAL OF WARRANTIES. Unless otherwise set forth in this Agreement, the warranties, representations and covenants of the Company and the Purchasers contained in or made pursuant to this Agreement shall survive the execution and delivery of this Agreement and the Closing for a period of one (1) year following the Closing. 8.2 TRANSFER; SUCCESSORS AND ASSIGNS. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 8.3 GOVERNING LAW. This Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of California, without giving effect to principles of conflicts of law. 8.4 COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument. -10- 8.5 TITLES AND SUBTITLES. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. 8.6 NOTICES. Any notice required or permitted by this Agreement shall be in writing and shall be deemed sufficient upon delivery, when delivered personally or by overnight courier or sent by telegram or fax, or forty-eight (48) hours after being deposited in the U.S. mail, as certified or registered mail, with postage prepaid, addressed to the party to be notified at such party's address as set forth on the signature page or EXHIBIT A hereto, or as subsequently modified by written notice, and if to the Company, with a copy to Craig W. Johnson, Venture Law Group, 2800 Sand Hill Road, Menlo Park, CA 94025. 8.7 COMPANY ADVISOR / PAYMENT OF FEES. Purchaser represents that it neither is nor will be obligated for any finder's fee or commissions to any third party in connection with this transaction. The Company represents that it has retained Rochon Capital Group, Ltd. ("ROCHON") as financial advisor in connection with the transactions contemplated by the Transaction Agreements and will be responsible for any fees payable to Rochon. The information provided to Purchaser by the Company has not been subjected to independent verification by Rochon, and no representation or warranty is made by Rochon as to the accuracy or completeness of such information or the advisability of Purchaser entering into this Agreement and consummating the transactions contemplated hereby. Purchaser acknowledges that it has not relied on any statements made by Rochon in connection with its decision to enter into and perform this Agreement and the transactions contemplated hereby. The Company agrees to indemnify and to hold harmless Purchaser from any liability for any compensation payable to Rochon (and the costs and expenses of defending against such liability or asserted liability) for which the Company is responsible. Each party agrees to indemnify and hold harmless Rochon and its officers, directors, principals, employees and agents (and their respective heirs, successors and assigns) from and against any liability arising from this Agreement (and the costs and expenses of defending against such liability or asserted liability), including the consummation of or the failure to consummate any or all of the transactions contemplated hereby. 8.8 ATTORNEY'S FEES. If any action at law or in equity (including arbitration) is necessary to enforce or interpret the terms of any of the Transaction Agreements, the prevailing party shall be entitled to reasonable attorney's fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled. 8.9 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended or waived only with the written consent of the Company and the holders of at least a majority of the Common Stock issued or issuable upon conversion of the Stock and the Warrant Stock. Any amendment or waiver effected in accordance with this Section 8.9 shall be binding upon the Purchasers and each transferee of the Securities, each future holder of all such Securities, and the Company. -11- 8.10 SEVERABILITY. If one or more provisions of this Agreement are held to be unenforceable under applicable law, the parties agree to renegotiate such provision in good faith. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (a) such provision shall be excluded from this Agreement, (b) the balance of the Agreement shall be interpreted as if such provision were so excluded and (c) the balance of the Agreement shall be enforceable in accordance with its terms. 8.11 DELAYS OR OMISSIONS. No delay or omission to exercise any right, power or remedy accruing to any party under this Agreement, upon any breach or default of any other party under this Agreement, shall impair any such right, power or remedy of such non-breaching or non-defaulting party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any party of any breach or default under this Agreement, or any waiver on the part of any party of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any party, shall be cumulative and not alternative. 8.12 ENTIRE AGREEMENT. This Agreement, and the documents referred to herein constitute the entire agreement between the parties hereto pertaining to the subject matter hereof, and any and all other written or oral agreements relating to the subject matter hereof existing between the parties hereto are expressly canceled. 8.13 CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF THE SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO THE QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON THE QUALIFICATION BEING OBTAINED UNLESS THE SALE IS SO EXEMPT. 8.14 CONFIDENTIALITY. Each party hereto agrees that, except with the prior written permission of the other party, it shall at all times keep confidential and not divulge, furnish or make accessible to anyone any confidential information, knowledge or data concerning or relating to the business or financial affairs of the other parties to which such party has been or shall become privy by reason of this Agreement, discussions or negotiations relating to this Agreement, the performance of its obligations hereunder or the ownership of Stock or Warrants purchased hereunder. The provisions of this Section 6.15 shall be in addition to, and not in substitution for, the provisions of any separate nondisclosure agreement executed by the parties hereto with respect to the transactions contemplated hereby. -12- 8.15 EXCULPATION AMONG PURCHASERS. Each Purchaser acknowledges that it is not relying upon any person, firm or corporation, other than the Company and its officers and directors, in making its investment or decision to invest in the Company. Each Purchaser agrees that no Purchaser nor the respective controlling persons, officers, directors, partners, agents, or employees of any Purchaser shall be liable to any other Purchaser for any action heretofore or hereafter taken or omitted to be taken by any of them in connection with the purchase of the Securities. 8.16 ADVICE OF COUNSEL. Each party to this Agreement acknowledges that Venture Law Group represents and is legal counsel for the Company only, and that Venture Law Group does not currently represent or render legal advice or services to any of the Purchasers as individuals nor has it done so in the past. Accordingly, each party to this Agreement hereby acknowledges that it has had an opportunity to seek advice of independent legal counsel of its choosing, and has read and understood all of the terms and provisions of this Agreement. This Agreement shall not be construed against any party by reason of the drafting or preparation hereof, [Signature Pages Follow] -13- The parties have executed this Common Stock and Warrant Purchase Agreement as of the date first written above. COMPANY: CENTURA SOFTWARE CORPORATION By: /s/ John Bowman ----------------------------- Name: John Bowman ----------------------------- (print) Title: CFO ---------------------------- By: /s/ Scott Broomfield ------------------------------- Name: Scott Broomfield ----------------------------- (print) Title: CEO ---------------------------- Address: 975 Island Drive Redwood Shores, CA 94065 FAX: 650-596-4376 PURCHASERS: Alfred University ---------------------------------- (Print name of Purchaser) By: /s/ Seymour L. Goldblatt ----------------------------- Name: Seymour L. Goldblatt ----------------------------- (print) Title: President of S(2) Technology ------------------------------ Investment Advisor for Alfred University ---------------------------------------- Address: See Attached SIGNATURE PAGE TO PURCHASE AGREEMENT PURCHASERS Core Technology Fund, Inc. ---------------------------------- (Print name of Purchaser) By: /s/ Seymour L. Goldblatt ----------------------------- Name: Seymour L. Goldblatt ----------------------------- (print) Title: President of S(2) Technology ------------------------------- Managing Director of Core ------------------------------- Address: See Attached Executive Technology LP ---------------------------------- (Print name of Purchaser) By: /s/ Seymour L. Goldblatt ----------------------------- Name: Seymour L. Goldblatt ----------------------------- (print) Title: President of S(2) Technology ----------------------------- Which is the Gen'l Ptr. of Exec. Tech ------------------------------------- Address: See Attached -2- PURCHASERS: Foundation Partners ---------------------------------- (Print name of Purchaser) By: /s/ Seymour L. Goldblatt ----------------------------- Name: Seymour L. Goldblatt ----------------------------- (print) Title: President of S(2) Technology ----------------------------- Investment Advisor for Foundation --------------------------------- Address: See Attached The Matrix Technology Group N.V. ---------------------------------- (Print name of Purchaser) By: /s/ Seymour L. Goldblatt ----------------------------- Name: Seymour L. Goldblatt ----------------------------- (print) Title: President of S(2) Technology ---------------------------- Managing Director of Matrix --------------------------- Address: See Attached -3- PURCHASERS: Rochester Institute of Technology ---------------------------------- (Print name of Purchaser) By: /s/ Seymour L. Goldblatt ----------------------------- Name: Seymour L. Goldblatt ----------------------------- (print) Title: President of S(2) Technology ---------------------------- Investment Advisor for RIT -------------------------- Address: See Attached Scitech Investment Ptrs L.P. ---------------------------------- (Print name of Purchaser) By: /s/ Seymour L. Goldblatt ----------------------------- Name: Seymour L. Goldblatt ----------------------------- (print) Title: President of S(2) Technology ---------------------------- Which is Gen'l Ptr. of Sci-tech ------------------------------- Address: See Attached -4- PURCHASERS: SG Partners LP ---------------------------------- (Print name of Purchaser) By: /s/ Seymour L. Goldblatt ----------------------------- Name: Seymour L. Goldblatt ----------------------------- (print) Title: President of S(2) Technology ---------------------------- Which is Gen'l Ptr. of SG -------------------------- Address: See Attached Tampsco II Partnership ---------------------------------- (Print name of Purchaser) By: /s/ Seymour L. Goldblatt ----------------------------- Name: Seymour L. Goldblatt ----------------------------- (print) Title: President of S(2) Technology ---------------------------- Investment Advisor for Tampsco ------------------------------ Address: See Attached -5- PURCHASERS: Yale University ---------------------------------- (Print name of Purchaser) By: /s/ Seymour L. Goldblatt ----------------------------- Name: Seymour L. Goldblatt ----------------------------- (print) Title: President of S(2) Technology ---------------------------- Investment Advisor for Yale --------------------------- Address: See Attached SIGNATURE PAGE TO PURCHASE AGREEMENT PURCHASERS: Yale University Retirement Plan for Staff Employees ---------------------------------- (Print name of Purchaser) By: /s/ Seymour L. Goldblatt ----------------------------- Name: Seymour L. Goldblatt ----------------------------- (print) Title: President of S(2) Technology ---------------------------- Investment Advisor for Yale --------------------------- Address: See Attached Camelot Capital LP ---------------------------------- (Print name of Purchaser) By: /s/ Scott Smith ----------------------------- Name: Scott Smith ----------------------------- (print) Title: GP ---------------------------- Address: Camelot Offshore Fund Ltd. ---------------------------------- (Print name of Purchaser) By: /s/ Scott Smith ----------------------------- Name: Scott Smith ----------------------------- (print) Title: Managing Director ---------------------------- Address: -2- PURCHASER: Dean Witter Reynolds, Custodian For John W. Bowman Ira Rollover-4-2-92 ---------------------------------- (Print name of Purchaser) By: /s/ John Bowman ----------------------------- Name: John Bowman ----------------------------- (print) Title: ---------------------------- Address: c/o Marian Lesnewski Dean Witter Retirement Plan Maintenance 5 World Trade Center, 6th Floor New York, NY 10048 Scott Broomfield ---------------------------------- (Print name of Purchaser) By: /s/ Scott Broomfield ------------------------------- Name: Scott Broomfield ----------------------------- (print) Title: CEO ---------------------------- Address: 1921 Adelaide Way San Jose, CA 95125 -3- PURCHASERS: JOHN B. GRIFFIN ---------------------------------- (Print name of Purchaser) By: /s/ John B. Griffin ----------------------------- Name: John B. Griffin ----------------------------- (print) Title: MR ---------------------------- Address: "Akenfield" 35 Greenhill Road Otford Kent TN14 5RR UK Larry Hill ---------------------------------- (Print name of Purchaser) By: /s/ Larry Hill ----------------------------- Name: Larry Hill ----------------------------- (print) Title: ---------------------------- Address: 816 Mountain View Drive Lafayette, CA 94549 -4- PURCHASERS: Kenneth Kneis ---------------------------------- (Print name of Purchaser) By: /s/ Kenneth Kneis ----------------------------- Name: Kenneth Kneis ----------------------------- (print) Title: ---------------------------- Address: 560 Montwood Circle Redwood City, CA 94061 William H. Lane III and Kathleen M. Lane Trust DTD December 26, 1995 ---------------------------------- (Print name of Purchaser) By: /s/ W. H. Lane ------------------------------ Name: W. H. Lane ----------------------------- (print) Title: Trustee ---------------------------- Address: 10695 Magdalena Los Altos Hills, CA 94024 -5- EXHIBITS Exhibit A - Schedule of Purchasers Exhibit B - Form of Warrant Exhibit C - Schedule of Exceptions to Representations and Warranties Exhibit D - Form of Legal Opinion of Venture Law Group Exhibit E - Form of Escrow Agreement EX-10.31 8 EXHIBIT 10.31 CENTURA SOFTWARE CORPORATION NOTE CONVERSION AGREEMENT FEBRUARY 27, 1998 TABLE OF CONTENTS
Page ---- 1. Conversion of Principal and Interest Indebtedness . . . . . . . . . . . . . 1 1.1 Issuance of Common Stock. . . . . . . . . . . . . . . . . . . . . . . 1 1.2 Delivery into Escrow. . . . . . . . . . . . . . . . . . . . . . . . . 2 1.3 Purchase and Sale Irrevocable . . . . . . . . . . . . . . . . . . . . 2 1.4 Closing; Delivery . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2. Representations and Warranties of the Company . . . . . . . . . . . . . . . 3 2.1 Organization, Good Standing and Qualification . . . . . . . . . . . . 3 2.2 Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.3 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 2.4 Intentionally Omitted . . . . . . . . . . . . . . . . . . . . . . . . 4 2.5 Compliance with Other Instruments . . . . . . . . . . . . . . . . . . 4 2.6 SEC Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.7 Compliance with SmallCap Continued Listing Requirements . . . . . . . 5 2.8 Absence of Certain Changes. . . . . . . . . . . . . . . . . . . . . . 5 2.9 Absence of Litigation . . . . . . . . . . . . . . . . . . . . . . . . 6 2.10 No Undisclosed Events, Liabilities, Developments or Circumstances. . 6 2.11 No General Solicitation. . . . . . . . . . . . . . . . . . . . . . . 6 2.12 Employee Relations . . . . . . . . . . . . . . . . . . . . . . . . . 6 2.13 Intellectual Property Rights . . . . . . . . . . . . . . . . . . . . 6 2.14 Title. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 2.15 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 2.16 Regulatory Permits . . . . . . . . . . . . . . . . . . . . . . . . . 7 2.17 Internal Accounting Controls . . . . . . . . . . . . . . . . . . . . 7 2.18 No Materially Adverse Contracts, Etc . . . . . . . . . . . . . . . . 7 2.19 Tax Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 2.20 Transactions With Affiliates . . . . . . . . . . . . . . . . . . . . 8 2.21 Consent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 3. Representations and Warranties of Purchaser . . . . . . . . . . . . . . . . 8 3.1 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 3.2 Purchase Entirely for Own Account . . . . . . . . . . . . . . . . . . 9 3.3 Accredited Investor . . . . . . . . . . . . . . . . . . . . . . . . . 9 3.4 Restricted Securities . . . . . . . . . . . . . . . . . . . . . . . . 9 3.5 Further Limitations on Disposition. . . . . . . . . . . . . . . . . . 9 3.6 Legends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10 3.7 Disclosure of Information . . . . . . . . . . . . . . . . . . . . . .10 3.8 Membership of the Purchaser . . . . . . . . . . . . . . . . . . . . .11 4. Registration of Securities. . . . . . . . . . . . . . . . . . . . . . . . .11 4.1 Rights Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . .11 TABLE OF CONTENTS (continued) Page ---- 4.2 Prohibition on Hedging. . . . . . . . . . . . . . . . . . . . . . . .11 5. Covenants of the Company. . . . . . . . . . . . . . . . . . . . . . . . . .11 5.1 Nomination of Directors . . . . . . . . . . . . . . . . . . . . . . .11 5.2 Bylaws Amendments . . . . . . . . . . . . . . . . . . . . . . . . . .12 5.3 Amendment to Preferred Shares Rights Agreement. . . . . . . . . . . .12 5.4 Form D and Blue Sky . . . . . . . . . . . . . . . . . . . . . . . . .12 5.5 Reporting Status. . . . . . . . . . . . . . . . . . . . . . . . . . .13 5.6 Financial Information . . . . . . . . . . . . . . . . . . . . . . . .13 5.7 Listing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13 5.8 Filing of Form 8-K. . . . . . . . . . . . . . . . . . . . . . . . . .13 5.9 Private Placement . . . . . . . . . . . . . . . . . . . . . . . . . .14 5.10 Coast Consent. . . . . . . . . . . . . . . . . . . . . . . . . . . .14 5.10 Coast Consent. . . . . . . . . . . . . . . . . . . . . . . . . . . .14 6. Covenants of the Purchaser. . . . . . . . . . . . . . . . . . . . . . . . .14 7. Conditions of the Purchaser's Obligations at the Closing. . . . . . . . . .14 7.1 Representations and Warranties. . . . . . . . . . . . . . . . . . . .14 7.2 Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14 7.3 Compliance Certificate. . . . . . . . . . . . . . . . . . . . . . . .14 7.4 Qualifications. . . . . . . . . . . . . . . . . . . . . . . . . . . .15 7.5 Opinion of Company Counsel. . . . . . . . . . . . . . . . . . . . . .15 7.6 NASD Confirmation . . . . . . . . . . . . . . . . . . . . . . . . . .15 7.7 Release . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15 7.8 Schedule of Exceptions. . . . . . . . . . . . . . . . . . . . . . . .15 8. Conditions of the Company's Obligations at Closing. . . . . . . . . . . . .15 8.1 Representations and Warranties. . . . . . . . . . . . . . . . . . . .15 8.2 Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15 8.3 Qualifications. . . . . . . . . . . . . . . . . . . . . . . . . . . .15 8.4 Note and Other Evidence of Principal Indebtedness . . . . . . . . . .16 8.5 NASD Confirmation . . . . . . . . . . . . . . . . . . . . . . . . . .16 9. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16 9.1 Survival of Warranties. . . . . . . . . . . . . . . . . . . . . . . .16 9.2 Transfer; Successors and Assigns. . . . . . . . . . . . . . . . . . .16 9.3 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . .16 9.4 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . .16 9.5 Titles and Subtitles. . . . . . . . . . . . . . . . . . . . . . . . .16 9.6 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16 8.7 Company Advisor / Payment of Fees . . . . . . . . . . . . . . . . . .17 9.8 Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . .17 -ii- TABLE OF CONTENTS (continued) Page ---- 9.9 Attorney's Fees . . . . . . . . . . . . . . . . . . . . . . . . . . .17 9.10 Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . .17 9.11 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . .18 9.12 Delays or Omissions. . . . . . . . . . . . . . . . . . . . . . . . .18 9.13 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . .18 9.14 Corporate Securities Law . . . . . . . . . . . . . . . . . . . . . .18 9.15 Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . . .18
-iii- CENTURA SOFTWARE CORPORATION NOTE CONVERSION AGREEMENT This Note Conversion Agreement (the "AGREEMENT") is made as of the 27th day of February 1998 by and between Centura Software Corporation, a California corporation (the "COMPANY"), and Newport Acquisition Company No. 2 LLC, a Delaware limited liability company (the "PURCHASER"). Recitals Whereas, the Company and Computer Associates International, Inc. a Delaware corporation (the "SELLER" or "CA"), entered into that certain Note Purchase Agreement dated March 31, 1995 (the "PRIOR AGREEMENT") and that certain Floating Rate Convertible Subordinated Note Due 1998 in the principal amount of $10,000,000 (the "PRINCIPAL INDEBTEDNESS") dated as of April 3, 1995 in the form attached hereto as EXHIBIT A (the "NOTE"); Whereas, the Company, the Purchaser and the Seller have entered into a Note Purchase and Sale Agreement (the "PURCHASE AGREEMENT") of even date herewith pursuant to which the Purchaser has agreed to purchase the Note and all accrued interest thereunder (the "INTEREST INDEBTEDNESS") and all of Seller's rights and obligations pursuant to the Prior Agreement; and the Seller has agreed to sell the Note and the Interest Indebtedness to the Purchaser and to assign to Purchaser all of its rights and obligations under the Note and the Prior Agreement and the Company has agreed, in consideration of CA's release of the Company with respect to the Note as set forth in a Warrant Purchase Agreement of even date herewith between Seller and the Company in the form attached hereto as EXHIBIT B ("WARRANT PURCHASE AGREEMENT"), to deliver and sell to the Seller concurrently at a price of $0.001 per share a warrant in the form attached hereto as EXHIBIT B (the "WARRANT") to purchase up to 500,000 shares of the Company's Common Stock at an exercise price of $1.906 per share; and Whereas, the Company and the Purchaser desire to convert the Principal Indebtedness and Interest Indebtedness under the Note to equity securities of the Company simultaneously with the Closing of the Purchase Agreement. Now, therefore, for good and valuable consideration, the parties hereby agree as follows: 1. CONVERSION OF PRINCIPAL AND INTEREST INDEBTEDNESS. 1.1 ISSUANCE OF COMMON STOCK. Subject to the terms and conditions of this Agreement, at the Closing, in consideration for the cancellation of all Principal Indebtedness and Interest Indebtedness under the Note and any other instrument evidencing such indebtedness, the Company shall issue and sell to the Purchaser and the Purchaser shall purchase a total of 11,415,094 shares of the Company's Common Stock. The shares of Common Stock issuable upon the conversion hereunder (the "CONVERSION STOCK") shall also be hereinafter referred to as the "STOCK" or the "SECURITIES." 1.2 DELIVERY INTO ESCROW. On the basis of the representations, warranties, terms and conditions contained herein, on the date hereof each party shall deliver to the financial entity or other entity mutually agreed to by the Parties (the "ESCROW AGENT"), pursuant to an agreement in the form attached hereto as EXHIBIT C (the "ESCROW AGREEMENT"), the following: (a) Seller shall deliver the original signature Note; (b) Purchaser shall deliver $6 million in cash or by wire transfer; (c) The Company shall deliver an affidavit executed by an officer of the Company setting forth the Interest Indebtedness on the Note calculated through February 27, 1998 and certified as correct by an officer of the Seller (the "INTEREST AFFIDAVIT"); and (d) Seller, Purchaser and the Company shall deliver each of the other items required to be delivered by each of them pursuant to the terms of the Escrow Agreement. 1.3 PURCHASE AND SALE IRREVOCABLE. The Company and Purchaser each acknowledge and agree that by its delivery of the respective consideration set forth above in Section 1.1 to the Escrow Agent, it shall have made an irrevocable commitment to close the purchase, sale and assignment transactions contemplated hereunder subject to the fulfillment of the terms and conditions of this Agreement, the Purchase Agreement, and the Escrow Agreement. 1.4 CLOSING; DELIVERY. (a) The issuance and sale of the Conversion Stock hereunder shall take place at the offices of Venture Law Group, 2800 Sand Hill Road, Menlo Park, California, at 2:00 p.m., on February __, 1998, or at such other time and place as the Company and the Purchaser mutually agree upon, orally or in writing (which time and place are designated as the "CLOSING"), provided that such Closing occurs simultaneously with the closing of the Purchase Agreement pursuant to the terms and conditions thereof (without waiver of any term or condition thereof). (b) At the Closing, in consideration for the conversion of the Principal and Interest Indebtedness by the Purchaser, the Company shall instruct the Escrow Agent to deliver to the Purchaser a stock certificate representing the Conversion Stock being issued. (c) At the Closing, in consideration for the issuance of the Conversion Stock by the Company, the Purchaser shall instruct the Escrow Agent to deliver to the Company for cancellation the Note and the Interest Affidavit as defined in Section 1.2.(a) of the Purchase Agreement, setting forth the Interest Indebtedness under the Note. 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby represents and warrants to the Purchaser that, except as set forth on a Schedule of Exceptions attached hereto as EXHIBIT D, which exceptions shall be deemed to be representations and warranties as if made hereunder: -2- 2.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of California and has all requisite corporate power and authority to carry on its business. 2.2 CAPITAL STOCK. The authorized capital of the Company consists, or will consist, immediately prior to the Closing, of 60,000,000 shares of Common Stock, $0.01 par value per share, of which 15,780,886 shares were issued and outstanding as of February 9, 1998, and 2,000,000 shares of Preferred Stock, $0.01 par value per share, none of which are issued or outstanding. All such shares have been duly authorized, and all such issued and outstanding shares have been validly issued, are fully paid and nonassessable, are not subject to any preemptive rights or rights of first refusal (other than rights of first refusal held by the Company and specifically described in the Schedule of Exceptions) under applicable law, the Articles of Incorporation or Bylaws of the Company, or any agreement to which the Company is a party or by which it is bound and are free of any liens or encumbrances other than any liens or encumbrances created by or imposed upon the holders thereof. The Company has also reserved (i) an aggregate of 2,000,000 shares of Common Stock issuable to employees and consultants pursuant to the Company's 1995 Stock Option Plan, of which 1,164,947 shares are issuable upon exercise of outstanding options under such plan, (ii) an aggregate of 2,657,399 shares of Common Stock issuable to employees and consultants pursuant to the Company's 1986 Stock Option Plan, of which 2,657,399 shares are issuable upon exercise of outstanding options under such plan, (iii) an aggregate of 400,000 shares of Common Stock issuable to employees pursuant to the Company's 1992 Employee Stock Purchase Plan, of which no shares are available for future issuance under such plan, (iv) 500,000 shares of Common Stock issuable to non-employee directors pursuant to Company's 1996 Directors' Stock Option Plan, of which 300,000 shares are issuable upon exercise of outstanding options under such plan, (v) non-plan options issued to the Company's Chief Executive Officer, Chief Financial Officer and Vice President of Marketing to purchase up to an aggregate of 1,500,000 shares of Common Stock, (vi) up to 450,000 shares of Common Stock issuable upon exercise of warrants granted or to be granted to certain third parties, including vendors, suppliers and financial and investment advisors of the Company, prior to inclusion of the Warrant for 500,000 shares of Common Stock to be issued to the Seller. The shares of Conversion Stock have been duly authorized and, when issued and paid for in accordance with this Agreement, will be validly issued, fully paid, and nonassessable, and not subject to any preemptive rights or rights of first refusal under applicable law, the Articles of Incorporation or Bylaws of the Company, or any agreement to which the Company is a party or by which the Company is bound, and are free of any taxes, claims, liens, charges or encumbrances other than taxes, claims, liens, charges or encumbrances created by or imposed upon the holders thereof; provided, however, that the Conversion Stock may be subject to restrictions on transfer as set forth in this Agreement. There are no agreements or arrangements under which the Company is obligated to register the sale of any of its securities under the Securities Act of 1933, as amended (the "1933 ACT"). There are no outstanding securities of the Company which contain any -3- redemption or similar provisions, and there are no contracts, commitments, understandings or arrangements by which the Company is or may become bound to redeem a security of the Company. There are no securities or instruments containing anti-dilution or similar provisions that will be triggered by the issuance of the Conversion Stock. There are no outstanding securities or instruments of the Company which contain any redemption or similar provisions, and there are on contracts, commitments, understandings or arrangements by which the Company is or may become bound to redeem a security of the Company. The Company does not have any stock appreciation rights or "phantom stock" plans or agreements or any similar plan or agreement. Other than as set forth in the Reports, the Company has no subsidiaries or equity interest in any other entity. The Company has furnished to the Purchaser true and correct copies of the Company's Articles of Incorporation, as amended and as in effect on the date hereof (the "ARTICLES OF INCORPORATION"), and the Company's Bylaws, as amended and as in effect on the date hereof (the "BYLAWS"), and the terms of all securities convertible into or exercisable for Common Stock and the material rights of the holders thereof in respect thereto. The execution, delivery and performance by the Company of the Transaction Agreements will not cause the conversion rights or exercise rights of any securities convertible into or exercisable for Common Stock to be accelerated. 2.3 AUTHORIZATION. The execution, delivery and performance by the Company of this Agreement and the Investor Rights Agreement attached hereto as EXHIBIT E (the "RIGHTS AGREEMENT" and together with the Agreement and the Purchase Agreement, the "TRANSACTION AGREEMENTS") are within the Company's corporate power and have been duly authorized by all requisite action by the Company. The Transaction Agreements have been duly executed and delivered by the Company and this Agreement constitutes, and the Rights Agreement when executed and delivered in accordance with this Agreement will constitute, the valid and binding obligation of the Company, enforceable in accordance with their respective terms, except as such enforceability may be limited by principles of public policy and subject to the laws of general application relating to bankruptcy, insolvency and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies. 2.4 INTENTIONALLY OMITTED. 2.5 COMPLIANCE WITH OTHER INSTRUMENTS. The execution, delivery and performance of the Transaction Agreements and the consummation of the transactions contemplated thereby will not result in any violation or default of any provisions of the Articles of Incorporation or Bylaws of the Company or of any instrument, judgment, order, writ, decree or contract to which the Company is a party or by which the Company is bound or, to the Company's knowledge, of any provision of federal or state statute, rule or regulation applicable to the Company, or be in conflict with or constitute, with or without the passage of time and giving of notice, either a default under any such provision, instrument, judgment, order, writ, decree or contract or an event which results in the creation of any lien, charge or encumbrance upon any assets of the Company. 2.6 SEC REPORTS. The Company has filed with the Securities and Exchange Commission (the "COMMISSION") via Edgar its Annual Report on Form 10-K for the year ended December 31, 1996 and its Quarterly Reports on Form 10-Q for the first three quarters of the year ended December 31, 1997 (the "REPORTS"), and such Reports are available to Purchaser through Edgar in electronic format. As of their respective filing dates, the Reports complied in all material respects with the requirements of the Securities Exchange Act of 1934, as amended, and none of the Reports contained any untrue statement of a material fact or omitted to state a -4- material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances in which they were made, not misleading, except to the extent corrected by a document subsequently filed with the Commission and provided to Purchaser prior to the date hereof. No other information provided by or on behalf of the Company to the Purchaser which is not included in the Reports, including, but not limited to, information referred to in Section 2.2 of this Agreement, contains any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements therein, in light of the circumstance under which they are or were made, not misleading. Neither the Company nor any of its officers, directors, employees or agents have provided the Purchaser with any material, nonpublic information. 2.7 COMPLIANCE WITH SMALLCAP CONTINUED LISTING REQUIREMENTS. After giving effect to the transactions contemplated hereunder and a private placement of the Company's equity securities scheduled to close concurrently with the Closing, on the Closing Date the Company will have (a) net tangible assets in excess of $2,000,000, (b) a public float of in excess of 500,000 shares, (c) a market value for the public float in excess of $1,000,000, (d) in excess of 300 shareholders, (e) at least two market makers for its registered securities and (f) corporate governance standards duly adopted by its Board of Directors which the Company reasonably believes satisfy published requirements for The Nasdaq SmallCap Market. After giving effect to the transactions contemplated hereunder and the private placement referenced above, the Company reasonably believes that (A) on the Closing Date the Company will be in compliance with all other requirements, other than the $1.00 per share bid price maintenance requirement, imposed by Nasdaq upon the Company with respect to the continued listing of the Common Stock for quotation on The Nasdaq SmallCap Market, and (B) the Common Stock of the Company will continue to be listed for quotation on The Nasdaq SmallCap Market. 2.8 ABSENCE OF CERTAIN CHANGES. Since September 30, 1997, there has been no material adverse change and no material adverse development in the business, properties, operations, financial condition, results of operations or prospects of the Company. The Company has not taken any steps, and does not currently expect to take any steps, to seek protection pursuant to any bankruptcy law nor does the Company have any knowledge or reason to believe that its creditors intend to initiate involuntary bankruptcy proceedings. Since September 30, 1997 the Company has not declared or paid any dividends, sold any assets outside of the ordinary course of business or had material capital expenditures. 2.9 ABSENCE OF LITIGATION. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the Company, threatened against or affecting the Company, its Common Stock or any of the Company's officers or directors in their capacities as such or that questions the validity of the Transaction Agreements or the right of the Company to enter into them, or to consummate the transactions contemplated thereby. 2.10 NO UNDISCLOSED EVENTS, LIABILITIES, DEVELOPMENTS OR CIRCUMSTANCES. No event, liability, development or circumstance has occurred or exists, or to the Company's knowledge is contemplated to occur, with respect to the Company or its business, properties, -5- prospects, operations or financial condition, that would be required to be disclosed by the Company under applicable securities laws on a registration statement filed with the SEC relating to an issuance and sale by the Company of its Common Stock and which has not been publicly announced. 2.11 NO GENERAL SOLICITATION. Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D under the 1933 Act) in connection with the offer or sale of the Conversion Stock. 2.12 EMPLOYEE RELATIONS. The Company is not involved in any union labor dispute nor, to the knowledge of the Company, is any such dispute threatened. None of the Company's employees is a member of a union, the Company is not a party to a collective bargaining agreement, and the Company believes that its relations with is employees are good. No executive officer (as defined in Rule 501(f) of the 1933 Act) has notified the Company that such officer intends to leave the Company or otherwise terminate such officer's employment with the Company. 2.13 INTELLECTUAL PROPERTY RIGHTS. The Company owns or possesses adequate rights or licenses to use all trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, inventions, licenses, approvals, governmental authorizations, trade secrets and rights necessary to conduct its business as now conducted. None of the Company's trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, inventions, licenses, approvals, government authorizations, trade secrets or other intellectual property rights have expired or terminated. The Company does not have any knowledge of any infringement by the Company of trademarks, trade name rights, patents, patent rights, copyrights, inventions, licenses, service names, service marks, service mark registrations, trade secret or other similar rights of others, or of any such development of similar or identical trade secrets or technical information by others, other than technology underlying competitive products in the market, and there is no claim, action or proceeding being made or brought against, or to the Company's knowledge, being threatened against the Company regarding trademarks, trade names, patents, patent rights, invention, copyright, license, service names, service marks, service mark registrations, trade secrets or other infringements; and the Company is unaware of any facts or circumstances which might give rise to any of the foregoing. The Company has taken reasonable security measures to protect the secrecy, confidentiality and value of all of its intellectual properties. 2.14 TITLE. The Company has good and marketable title to all real property and good and marketable title to all personal property owned by it which is material to the business of the Company free and clear of all liens, claims, charges, encumbrances and defects such as do not materially affect the value of such property and do not interfere with the use made and proposed to made of such property by the Company. Any real property and facilities held under lease by the Company is held by it under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings by the Company. -6- 2.15 INSURANCE. The Company is insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as management of the Company believes to be prudent and customary in the businesses in which the Company is engaged. The Company has not been refused any insurance coverage sought or applied for and the Company has no reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not materially and adversely affect the condition, financial or otherwise, or the earnings, business or operations of the Company. 2.16 REGULATORY PERMITS. The Company possesses, to its knowledge, all certificates, authorizations and permits issued by the appropriate federal, state or foreign regulatory authorities necessary to conduct its business, and the Company has not received any notice of proceedings relating to the revocation or modification of any such certificate, authorization or permit. 2.17 INTERNAL ACCOUNTING CONTROLS. The Company maintains a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management's general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management's general or specific authorization and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. 2.18 NO MATERIALLY ADVERSE CONTRACTS, ETC. The Company is not subject to any charter, corporate or other legal restriction, or any judgment, decree, order, rule or regulation which in the reasonable business judgment of the Company's officers, who were appointed as officers of the Company on December 5, 1997, has or could reasonably be expected in the future to have a material adverse effect on the Company. The Company is not a party to any contract, agreement or arrangement which in the reasonable business judgment of the Company's officers, who were appointed as officers of the Company on December 5, 1997, has or could reasonably be expected to have a material adverse effect on the Company. 2.19 TAX STATUS. The Company has made or filed all tax returns, reports and declarations required by any jurisdiction to which it is subject (unless and only to the extent that the Company has set aside on its books provisions reasonably adequate for the payment of all unpaid and unreported taxes) and has paid all taxes and other governmental assessments and charges that are material in amount, and has set aside on its books provisions reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim. 2.20 TRANSACTIONS WITH AFFILIATES. None of the officers, directors, or employees of the Company is presently a party to any transaction with the Company (other than -7- for services as employees, officers and directors), including any contract, agreement or arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any corporation, partnership, trust or other entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner. 2.21 CONSENT. Coast Business Credit is the sole holder of Senior Indebtedness under the Note. The Company has obtained the oral consent of such holders of Senior Indebtedness under the Note to the transactions contemplated hereunder and under the Transaction Agreements and will use best efforts to obtain the written consent of such holder prior to the Closing. 2.22 ENVIRONMENT LAWS. To its knowledge, the Company (i) is in compliance with any and all applicable foreign, federal, state and local laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants ("ENVIRONMENTAL LAWS"), (ii) has received all permits, licenses and other approvals required of it under applicable Environmental Laws to conduct its respective businesses and (iii) is in compliance with all terms and conditions of any such permit, license or approval where, in each of the three foregoing cases, the failure to so comply would have individually or in the aggregate, a material adverse effect on the Company. 3. REPRESENTATIONS AND WARRANTIES OF PURCHASER. The Purchaser hereby represents and warrants to the Company that: 3.1 AUTHORIZATION. The execution, delivery and performance by the Purchaser of the Transaction Agreements are within the Purchaser's limited liability company power and have been duly authorized by all requisite action by the Purchaser. The Transaction Agreements have been duly executed and delivered by the Purchaser and this Agreement constitutes, and the Rights Agreement when executed and delivered in accordance with this Agreement will constitute, the valid and binding obligation of the Purchaser, enforceable in accordance with their respective terms, except as such enforceability may be limited by principles of public policy and subject to the laws of general application relating to bankruptcy, insolvency and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies. 3.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. The Purchaser is acquiring the shares of Conversion Stock hereunder for investment for the Purchaser's own account, and not as a nominee or agent, and not with a view to the resale or distribution of any part thereof. Purchaser has no present intention of selling, granting any participation in, or otherwise distributing the Securities other than to members of the Purchaser as of the date hereof. 3.3 ACCREDITED INVESTOR. The Purchaser is an accredited investor as defined in Rule 501(a) of Regulation D promulgated under the 1933 Act. -8- 3.4 RESTRICTED SECURITIES. Purchaser understands that the Securities are characterized as "restricted securities" under the federal securities laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that under such laws and applicable regulations such Securities may be resold without registration under the 1933 Act, only in certain limited circumstances. In this connection, Purchaser represents that it is familiar with SEC Rule 144, as presently in effect, and understands the resale limitations imposed thereby and by the Act. 3.5 FURTHER LIMITATIONS ON DISPOSITION. Notwithstanding anything to the contrary contained in Section 3.5 of the Purchase Agreement, without in any way limiting the representations set forth in this Agreement, Purchaser further agrees not to make any disposition of all or any portion of the Securities unless and until: (a) There is then in effect a Registration Statement under the 1933 Act covering such proposed disposition and such disposition is made in accordance with such Registration Statement; or (b) (i) Purchaser shall have notified the Company of the proposed disposition and shall have furnished the Company with such information as is necessary to effect the proposed disposition, (ii) the transferee has agreed in writing for the benefit of the Company to be bound by this Section 3, and (iii) if reasonably requested by the Company, Purchaser shall have furnished the Company with an opinion of counsel, reasonably satisfactory to the Company, that such disposition will not require registration under the 1933 Act. 3.6 LEGENDS. Purchaser understands that the Securities, and any securities issued in respect thereof or exchange therefor, may bear one or all of the following legends, if applicable: (a) "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT." (b) Any legend required by the laws of the State of California, including any legend required by the California Department of Corporations. (c) Any legend required by the Blue Sky laws of any other state to the extent such laws are applicable to the shares represented by the certificate so legended. (d) Any legend required by the Company's Shareholder Rights Plan. The legends set forth in subparagraphs (a), (b) and (c) above shall be removed upon application to the Company after the one year anniversary date of this Agreement and the Company shall -9- promptly issue a certificate without such legends to the holder of Securities upon which it is stamped and shall remove all stop transfer orders and other transfer restrictions communicated to the Company's transfer agent, if (i) such Securities are registered for sale under the 1933 Act, (ii) in connection with a sale transaction, such holder provides the Company with an opinion of counsel, in a generally acceptable form, to the effect that a public sale, assignment or transfer of the Securities may be made without registration under the 1933 Act or (iii) such holder provides the Company with reasonable assurances that the Securities can be sold pursuant to Rule 144 and the Company's counsel has reasonably determined that the legends set forth in subparagraphs (a), (b) and (c) above may be removed under Rule 144; provided however, that in the event Purchaser is granted piggy-back registration rights in connection with an equity offering by the Company prior to the one year anniversary date of this Agreement, the legends set forth in subparagraphs (a), (b) and (c) above shall be removed upon application to the Company and the Company shall issue a certificate without such legends to the holder of Securities upon which it is stamped. 3.7 DISCLOSURE OF INFORMATION. Purchaser has had an opportunity to discuss the Company's business, management, financial affairs and the terms and conditions of the offering of the Securities with the Company's management and has had an opportunity to review the Company's Reports. Purchaser understands that such discussions, as well as the written information issued by the Company, were intended to describe the aspects of the Company's business which it believes to be material. 3.8 MEMBERSHIP OF THE PURCHASER. EXHIBIT F attached hereto contains a true and complete list of all of the members of the Purchaser. 4. REGISTRATION OF SECURITIES. 4.1 RIGHTS AGREEMENT. The Company and the Purchaser will enter into an Investor Rights Agreement in the form attached hereto as EXHIBIT E, setting forth the obligations and the rights of the parties, respectively, with respect to registration of the Securities. 4.2 PROHIBITION ON HEDGING. During the period commencing with the date that is two (2) weeks prior to the Closing and continuing through the date on which the Purchaser holds 5% or less of the Conversion Stock acquired hereunder, the Purchaser hereby agrees that it shall not directly or indirectly engage in short sales, derivative transactions or any similar hedging techniques or strategies involving any Common Stock of the Company. 5. COVENANTS OF THE COMPANY. The Company agrees that: 5.1 NOMINATION OF DIRECTORS. On or before the Closing date, effective upon the consummation of the transaction contemplated hereunder, the Company shall have (i) adopted an amendment to its Bylaws setting the number of directors on its Board of Directors at seven (7) and (ii) appointed two (2) new directors to its Board of Directors, each of whom shall have been nominated by the Purchaser at least three (3) business days prior to the Closing Date, provided that such individuals are reasonably acceptable to the Company. Provided that the Purchaser and/or one or more of the persons listed on EXHIBIT F continues to hold greater than 25% of the issued and outstanding stock of the Company as of the record date for the mailing of -10- proxy materials to shareholders in connection with the Company's annual meeting of shareholders, the Company shall recommend in such proxy materials that shareholders at each such meeting elect two (2) individuals to its Board of Directors who were nominated by the Purchaser (or the holders of a majority of the Conversion Stock if the Purchaser has been dissolved) and the Company shall at each such meeting cause its designated proxyholder to vote proxies received from shareholders in favor of such nominees, provided that such nominees are reasonably acceptable to the Company. Provided that the Purchaser and/or one or more of the persons listed on EXHIBIT F continues to hold greater than 15% but less than or equal to 25% of the issued and outstanding stock of the Company as of the record date for the mailing of proxy materials to shareholders in connection with the Company's annual meeting of shareholders, the Company shall recommend in such proxy materials that shareholders at each such meeting elect one (1) individual to its Board of Directors who was nominated by the Purchaser (or the holders of a majority of the Conversion Stock if the Purchaser has been dissolved) and the Company shall at each such meeting cause its designated proxyholder to vote proxies received from shareholders in favor of such nominee, provided that such nominee is reasonably acceptable to the Company. In the event the Company increases its Board size above seven (7) directors prior to the next annual meeting of shareholders, the Company shall not be required to nominate or recommend election of additional Purchaser candidates to the Company's Board of Directors other than as set forth above in this Section 5.1, provided that the number of directors who are officers, employees, or paid full-time consultants of the Company is not greater than two (2). The Compensation Committee of the Board of Directors shall be comprised of three (3) directors and shall include one (1) director who was nominated to the Board by the Purchaser. 5.2 BYLAWS AMENDMENTS. On or before the Closing date, effective upon the consummation of the transaction contemplated hereunder, the Company shall have adopted an amendment to its Bylaws providing that a two-thirds super majority vote of directors be required to approve any of the following actions: (i) consolidation or merger of the Company with or into any other corporation in which securities possessing more than fifty percent (50%) of the total combined voting power of the Company's outstanding securities are transferred to a person or persons different from the persons holding those securities immediately prior to such transaction (other than a consolidation or merger in which the surviving entity is the Company or one of its wholly-owned subsidiaries) or transfer or sale of all or substantially all of the assets of the Company; or (ii) an increase in the Company's secured indebtedness to an aggregate amount in excess of $15 million. The Company agrees that it will not amend the foregoing super majority bylaws amendment without obtaining the prior written consent of the Purchaser (or the holders of a majority of the Conversion Stock if the Purchaser has been dissolved) so long as the Purchaser and/or one or more of the persons listed on EXHIBIT F continues to hold at least 7.5% of the issued and outstanding capital stock of the Company. -11- 5.3 AMENDMENT TO PREFERRED SHARES RIGHTS AGREEMENT. On or before the Closing Date, the Company shall have taken all appropriate action to ensure that (a) the sale of the Conversion Stock to Purchaser hereunder is not deemed to be a Triggering Event as that term is defined in Section 1(y) of the Preferred Shares Rights Agreement dated August 3, 1994 between the Company and Chemical Trust Company of California (the "RIGHTS PLAN"), (b) neither the Purchaser nor any of its members, Affiliates, Associates, representatives or control persons shall be deemed an "Acquiring Person" under the Rights Plan and (c) the Purchaser nominees to the Board of Directors shall be deemed "Continuing Directors" under the Rights Plan. 5.4 FORM D AND BLUE SKY. The Company agrees to file a Form D with respect to the Conversion Stock as required under Regulation D and to provide a copy thereof to the Purchaser promptly after such filing. The Company shall, on or before the Closing Date, take such action as the Company shall reasonably determine is necessary to qualify the Conversion Stock for, or obtain exemption for the Conversion Stock for, sale to the Purchaser at the Closing pursuant to this Agreement under applicable securities or "Blue Sky" laws of the states of the United States, and shall provide evidence of any such action so taken to the Purchaser on or prior to the Closing Date. The Company shall make all filings and reports relating to the offer and sale of the Conversion Stock required under applicable securities or "Blue Sky" laws of applicable states of the United States following the Closing Date. 5.5 REPORTING STATUS. Until the date as of which the Holders (as that term is defined in the Rights Agreement) may sell all of the Conversion Shares without restriction pursuant to Rule 144(k) promulgated under 1933 Act (or successor thereto), the Company shall file all reports required to be filed with the SEC pursuant to the Securities Exchange Act of 1934, as amended (the "1934 ACT"), and until that date, the Company shall not terminate its status as an issuer required to file reports under the 1934 Act even if the 1934 Act, or the rules and regulations thereunder would otherwise permit such termination, unless the reporting requirements of Rule 144(k) have also been amended to permit the Holders to sell the Conversion Shares without restriction. 5.6 FINANCIAL INFORMATION. The Company shall file with the SEC via Edgar all registration statements and all reports required pursuant to the 1933 Act and the 1934 Act, including without limitation, its Annual Reports on Form 10-K, its Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any registration statements (including those on Form S-8) or amendments and such reports will be available to the Purchaser via Edgar. The Company shall deliver to the Purchaser copies of any notices and other information made available or given to the shareholders of the Company generally, contemporaneously with the making available or giving thereof to the shareholders. 5.7 LISTING. The Company shall use its best efforts to maintain the inclusion for quotation on The Nasdaq SmallCap Market of its Common Stock, and without limiting the generality of the foregoing, the Company shall use its best efforts to arrange for at least two market makers to register with the NASD or any other comparable exchange as such with respect to the Common Stock. The Company shall not knowingly take any action which would be -12- reasonably expected to result in the removal of the Common Stock from quotation on The Nasdaq SmallCap Market. At such time as the Company is able to satisfy the listing requirements on the Nasdaq National Market System ("NNM") and the Company's management reasonably believes that the Company will be able to continue to comply with the continued listing requirements of the NNM thereafter, the Company shall use its reasonable efforts to secure designation and quotation of its outstanding Common Stock on the NNM. The Company shall promptly report to its Board of Directors information or notices it receives regarding the continued eligibility of its Common Stock for quotation on any automated quotation system or securities exchange. 5.8 FILING OF FORM 8-K. Within five (5) business days following the Closing Date, the Company shall file a Form 8-K with the SEC describing the terms of the transactions contemplated by the Transaction Agreements and the Note Purchase Agreement in the form specified by the 1934 Act. 5.9 PRIVATE PLACEMENT. Concurrently with the Closing of the transactions contemplated hereunder, the Company will consummate a private placement of Common Stock of the Company, at not less than $1.06 per share (with up to 25% warrant coverage at an exercise price of at least $1.25 per share), resulting in gross proceeds to the Company of at least $1,000,000. 5.10 COAST CONSENT. The Company shall have obtained from Coast, as a condition to the Closing, a written consent by Coast to the Company's execution, delivery and performance of the Transaction Agreements and a waiver, effective upon the Closing, of any defaults by the Company under its debt facility with Coast occurring prior to the Closing Date. 6. COVENANTS OF THE PURCHASER. In the event that a shareholder vote is solicited by the Company to amend and restate its Articles of Incorporation, the Purchaser agrees to vote in favor of proposed amendments to effect any of the following measures: (a) a reverse stock split of the Company's capital stock in a ratio reasonably recommended by the Company's executive management; (b) reincorporation of the Company into Delaware; and (c) an increase in the total number of authorized shares of the Company's Common Stock, provided however that the Purchaser shall not be obligated to vote in favor of such an amendment unless the authorized number of the Company's Common Stock has been reduced to a number that is less than 60 million as the result of a reverse stock split pursuant to subsection 6(a) above. 7. CONDITIONS OF THE PURCHASER'S OBLIGATIONS AT THE CLOSING. The obligations of the Purchaser under this Agreement are subject to the fulfillment, on or before the Closing, of each of the following conditions, unless otherwise waived: -13- 7.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Company contained in Section 2 shall be true and correct on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the date of the Closing. 7.2 PERFORMANCE. The Company shall have performed and complied with all covenants, agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by it on or before the Closing. 7.3 COMPLIANCE CERTIFICATE. The President of the Company shall deliver to the Purchaser at the Closing a certificate ("OFFICER'S COMPLIANCE CERTIFICATE") certifying that (a) the conditions specified in Sections 5.1, 5.2, 5.3, 7.1 and 7.2 have been fulfilled and (b) all conditions of the Company's obligations under the Purchase Agreement and the Warrant Purchase Agreement have been fulfilled or waived. 7.4 QUALIFICATIONS. All authorizations, approvals or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful issuance and sale of the Securities pursuant to this Agreement shall be obtained and effective as of the Closing. 7.5 OPINION OF COMPANY COUNSEL. The Purchaser shall have received from Venture Law Group, counsel for the Company, an opinion, dated as of the Closing, in substantially the form of EXHIBIT G. 7.6 NASD CONFIRMATION. The Company shall have received confirmation from the National Association of Securities Dealers, Inc. (the "NASD") that approval by the Company's shareholders is not required prior to the consummation of the actions (including without limitation, the issuance of the Securities to Purchaser) contemplated hereunder. 7.7 RELEASE. CA shall have executed and delivered the Warrant Purchase Agreement. 7.8 SCHEDULE OF EXCEPTIONS. The Company shall have delivered the final Schedule of Exceptions, reasonably approved by Purchaser, in the form attached as EXHIBIT D. 8. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING. The obligations of the Company under this Agreement are subject to the fulfillment, on or before the Closing, of each of the following conditions, unless otherwise waived: 8.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Purchaser contained in Section 3 shall be true and correct in all material respects on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the Closing. -14- 8.2 PERFORMANCE. All covenants, agreements and conditions contained in this Agreement to be performed by the Purchaser on or prior to the Closing shall have been performed or complied with in all material respects. 8.3 QUALIFICATIONS. All authorizations, approvals or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful issuance and sale of the Securities pursuant to this Agreement shall be obtained and effective as of the Closing. 8.4 NOTE AND OTHER EVIDENCE OF PRINCIPAL INDEBTEDNESS. The Purchaser shall have delivered to the Company for cancellation the originally executed Note and any other related documents or instruments, including the Interest Affidavit, evidencing indebtedness under the Note. 8.5 NASD CONFIRMATION. The Company shall have received confirmation from the NASD that approval by the Company's shareholder is not required prior to the consummation of the actions (including without limitation, the issuance of the Securities to Purchaser) contemplated hereunder. 9. MISCELLANEOUS. 9.1 SURVIVAL OF WARRANTIES. Unless otherwise set forth in this Agreement, the warranties, representations and covenants of the Company and the Purchaser contained in or made pursuant to this Agreement shall survive the execution and delivery of this Agreement and the Closing for a period of two (2) years following the Closing. 9.2 TRANSFER; SUCCESSORS AND ASSIGNS. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties and successive holders of all or any portion of the Conversion Stock and their respective successors and assigns. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto, holders of Conversion Stock, or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 9.3 GOVERNING LAW. This Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of California, without giving effect to principles of conflicts of law. 9.4 COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument. 9.5 TITLES AND SUBTITLES. The titles and subtitles used in this Agreement are used for convenience of reference only and are not to be considered in construing or interpreting this Agreement. -15- 9.6 NOTICES. Any notice required or permitted by this Agreement shall be in writing and shall be deemed sufficient upon delivery, when delivered personally or by overnight courier or sent by telegram or fax (provided that electronic confirmation of transmission has been received), or forty-eight (48) hours after being deposited in the US mail, as certified or registered mail, with postage prepaid, addressed to the party to be notified at such party's address as set forth on the signature page hereto, or as subsequently modified by written notice, and (a) if to the Company, with a copy to Craig W. Johnson, Venture Law Group, 2800 Sand Hill Road, Menlo Park, CA 94025 or (b) if to the Purchaser, with a copy to William Caraccio, Pillsbury Madison & Sutro LLP, 2550 Hanover Street, Palo Alto, CA 94304. 9.7 COMPANY ADVISOR / PAYMENT OF FEES. Purchaser represents that it neither is nor will be obligated for any finder's fee or commissions to any third party in connection with this transaction. The Company represents that it has retained Rochon Capital Group, Ltd. ("ROCHON") as its advisor in connection with the transactions contemplated by this Agreement and the Note Purchase and Sale Agreement. Purchaser acknowledges that Rochon has acted solely as an advisor to the Company, and has in no way acted for or on behalf of Purchaser in connection herewith. The information provided to Purchaser by the Company (or by Purchaser) has not been subjected to independent verification by Rochon, and no representation or warranty is made by Rochon as to the accuracy or completeness of such information or the advisability of Purchaser entering into this Agreement and consummating the transactions contemplated hereby. Purchaser acknowledges that it has not relied on any statements made by Rochon in connection with its decision to enter into and perform this Agreement and the transactions contemplated hereby. The Company agrees to indemnify and to hold harmless Purchaser from any liability for any compensation payable to Rochon (and the costs and expenses of defending against such liability or asserted liability) in connection with the transactions contemplated hereby. Each Party agrees to hold Rochon harmless and the Company agrees to indemnify Rochon and its officers, directors, principals, employees and agents (and their respective heirs, successors and assigns) from and against any liability arising from this Agreement, including the consummation of or the failure to consummate any or all of the transactions contemplated hereby, except to the extent such liability results from the gross negligence or willful misconduct of Rochon. 9.8 FEES AND EXPENSES. The Company shall pay the reasonable fees and expenses of legal, accounting and financial advisors for the Purchaser incurred with respect to this Agreement and the transactions contemplated hereby, provided such fees and expenses do not exceed $45,000 in the aggregate, of which reimbursement for legal fees shall not exceed $30,000, reimbursement for fees incurred as a result of due diligence conducted by individuals or entitles not affiliated with prospective purchasers of the Company's capital stock shall not exceed $10,000 and reimbursement of travel expenses shall not exceed $5,000. 9.9 ATTORNEY'S FEES. If any action at law or in equity (including arbitration) is necessary to enforce or interpret the terms of any of the Agreements, the prevailing party shall be entitled to reasonable attorney's fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled. -16- 9.10 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended or waived only with the written consent of the Company and the holders of at least two thirds (2/3) of the Conversion Stock. Any amendment or waiver effected in accordance with this Section 9.10 shall be binding upon the Purchaser and each transferee of the Conversion Stock and the Company. 9.11 SEVERABILITY. If one or more provisions of this Agreement are held to be unenforceable under applicable law, the parties agree to renegotiate such provision in good faith. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (a) such provision shall be excluded from this Agreement, (b) the balance of the Agreement shall be interpreted as if such provision were so excluded and (c) the balance of the Agreement shall be enforceable in accordance with its terms. 9.12 DELAYS OR OMISSIONS. No delay or omission to exercise any right, power or remedy accruing to any party under this Agreement, upon any breach or default of any other party under this Agreement, shall impair any such right, power or remedy of such non-breaching or non-defaulting party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any party of any breach or default under this Agreement, or any waiver on the part of any party of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any party, shall be cumulative and not alternative. 9.13 ENTIRE AGREEMENT. This Agreement, and any transaction documents referred to herein constitute the entire agreement between the parties hereto pertaining to the subject matter hereof, and any and all other written or oral agreements or commitments relating to the subject matter hereof existing between the parties hereto (except for any confidentiality provisions or terms contained therein) are expressly superseded hereby and canceled. 9.14 CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF THE SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO THE QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON THE QUALIFICATION BEING OBTAINED UNLESS THE SALE IS SO EXEMPT. 9.15 CONFIDENTIALITY. Each party hereto agrees that, except with the prior written permission of the other parties, it shall at all times keep confidential and not divulge, furnish or make accessible to anyone, including without limitation CA, any confidential -17- information, knowledge or data concerning or relating to the business or financial affairs of the other parties to which such party has been or shall become privy by reason of the Transaction Agreements, discussions or negotiations relating to the terms of the Transaction Agreements, the performance of its obligations hereunder or the ownership of Securities purchased hereunder, except for such disclosure as is required by law. The parties acknowledge and agree that the Company will file reports with the Securities and Exchange Commission from time to time following the consummation of the transactions hereunder and that press releases may also be required or desirable, provided that such press releases will contain only such information as may be required for proper disclosure in the opinion of legal counsel to the Company. This Section 9.15 shall not prohibit the disclosure by Purchaser to its members and permitted assignees of the Conversion Stock of such information, knowledge or data, provided each recipient thereof agrees to be bound by the confidentiality covenants hereunder. [Signature Pages Follow] -18- The parties have executed this Note Conversion Agreement as of the date first written above. COMPANY: CENTURA SOFTWARE CORPORATION By: /s/ Scott R. Broomfield ----------------------------------------- Name: Scott R. Broomfield (print) Title: CEO Address: 975 Island Drive Redwood Shores, CA 94065 Telephone: (650) 596-3400 Fax: (650) 596-4986 PURCHASER: NEWPORT ACQUISITION COMPANY NO. 2 LLC By: Crossroads Capital Partners LLC, as Managing Member By: /s/ James A. Skelton ----------------------------------------- Name: James A. Skelton (print) Title: Principal Address: 1600 Dove Street Suite 300 Newport Beach, CA 92660 Telephone: (714) 261-1600 Fax: (714) 261-1655 SIGNATURE PAGE TO CONVERSION AGREEMENT EXHIBITS Exhibit A Note Exhibit B Form of Warrant Purchase Agreement and Warrant Exhibit C Form of Escrow Agreement Exhibit D Schedule of Exceptions to Representations and Warranties Exhibit E Form of Investor Rights Agreement Exhibit F Purchaser Members Exhibit G Form of Legal Opinion of Venture Law Group EX-10.32 9 EXHIBIT 10.32 WARRANT PURCHASE AGREEMENT FEBRUARY 27, 1998 TABLE OF CONTENTS
Page 1. Purchase and Sale of the Warrant. . . . . . . . . . . . . . . . . . . . . . 1 1.1 Deliver into Escrow . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 Closing; Delivery.. . . . . . . . . . . . . . . . . . . . . . . . . . 2 2. Representations and Warranties of the Company . . . . . . . . . . . . . . . 2 2.1 Organization, Good Standing and Qualification . . . . . . . . . . . . 2 2.2 Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.3 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.4 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.5 Compliance with Other Instruments . . . . . . . . . . . . . . . . . . 3 2.6 SEC Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Representations and Warranties of CA . . . . . . . . . . . . . . . . . . . . . 4 3.1 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 3.2 Purchase Entirely for Own Account . . . . . . . . . . . . . . . . . . 4 3.3 Accredited Investor . . . . . . . . . . . . . . . . . . . . . . . . . 4 3.4 Restricted Securities . . . . . . . . . . . . . . . . . . . . . . . . 4 3.5 Further Limitations on Disposition. . . . . . . . . . . . . . . . . . 5 3.6 Legends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 3.7 Disclosure of Information . . . . . . . . . . . . . . . . . . . . . . 5 4. Registration of Securities. . . . . . . . . . . . . . . . . . . . . . . . . 6 5. Resale Restrictions.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 6. Release of Claims.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 6.1. Release of Claims in Connection With the Note.. . . . . . . . . . . . . .10 6.2. Civil Code Section 1542.. . . . . . . . . . . . . . . . . . . . . . . . .10 7. Conditions of CA's Obligations at the Closing . . . . . . . . . . . . . . .10 7.1 Representations and Warranties. . . . . . . . . . . . . . . . . . . .10 7.2 Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 7.3 Compliance Certificates . . . . . . . . . . . . . . . . . . . . . . .11 7.4 Qualifications. . . . . . . . . . . . . . . . . . . . . . . . . . . .11 7.5 Escrow Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . .11 7.6 Delivery into Escrow. . . . . . . . . . . . . . . . . . . . . . . . .11 8. Conditions of the Company's Obligations at the Closing. . . . . . . . . . .11 8.1 Representations and Warranties. . . . . . . . . . . . . . . . . . . .11 -i- TABLE OF CONTENTS (continued) Page 8.2 Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 8.3 Qualifications. . . . . . . . . . . . . . . . . . . . . . . . . . . .11 8.4 Escrow Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . .12 8.5 Delivery into Escrow. . . . . . . . . . . . . . . . . . . . . . . . .12 8.6 Note Purchase Agreement . . . . . . . . . . . . . . . . . . . . . . .12 9. Miscellaneous.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12 9.1 Survival of Warranties. . . . . . . . . . . . . . . . . . . . . . . .12 9.2 Transfer; Successors and Assigns. . . . . . . . . . . . . . . . . . .12 9.3 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . .12 9.4 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . .12 9.5 Titles and Subtitles. . . . . . . . . . . . . . . . . . . . . . . . .12 9.6 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12 9.7 Company Advisor / Payment of Fees . . . . . . . . . . . . . . . . . .13 9.8 Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . .13 9.9 Attorney's Fees . . . . . . . . . . . . . . . . . . . . . . . . . . .13 9.10 Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . .13 9.11 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . .13 9.12 Delays or Omissions. . . . . . . . . . . . . . . . . . . . . . . . .14 9.13 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . .14 9.14 Corporate Securities Law . . . . . . . . . . . . . . . . . . . . . .14 9.15 Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . . .14
-ii- WARRANT PURCHASE AGREEMENT This Warrant Purchase Agreement (the "AGREEMENT") is made as of the 27th day of February 1998 by and between Computer Associates International, Inc., a Delaware corporation ("CA" or "HOLDER"), and Centura Software Corporation, a California corporation (the "COMPANY"). Hereinafter, CA and the Company may also be referred to collectively as the "Parties" and each may be referred to as a "Party." Recitals Whereas, the Company and CA entered into that certain Note Purchase Agreement dated March 31, 1995 (the "PRIOR AGREEMENT")and that certain Floating Rate Convertible Subordinated Note Due 1998 in the principal amount of $10,000,000 (the "PRINCIPAL INDEBTEDNESS") dated as of April 3, 1995 (the "NOTE"); Whereas, CA has entered into a Note Purchase and Sale Agreement to sell the Note; Whereas, the Company has agreed to issue and sell to CA and CA has agreed to purchase at a purchase price of $0.001 per share a warrant to purchase 500,000 shares of the Company's Common Stock (the "WARRANT") at an exercise price of $1.906 per share; and Whereas, as additional consideration for issuance of the Warrant by the Company CA has agreed to release the Company from any and all claims it may have against the Company as a result of: (i) the alleged breach by the Company of any representations, warranties, or covenants it made to CA pursuant to the Prior Agreement and (ii) any subsequent loss incurred by CA in connection with CA's sale of the Note pursuant to the Note Purchase Agreement. Now, therefore, for good and valuable consideration, the parties hereby agree as follows: 1. PURCHASE AND SALE OF THE WARRANT. 1.1 DELIVERY INTO ESCROW. On the basis of the representations, warranties, terms and conditions contained herein, on the date hereof each Party shall deliver to the financial entity or other entity mutually agreed to by the Parties (the "ESCROW AGENT"), pursuant to an agreement in the form attached hereto as Exhibit A (the "ESCROW AGREEMENT"), the following: (a) CA shall deliver $500 in cash or by check or by wire transfer for purchase of the Warrant; and (b) The Company shall deliver the fully executed Warrant in the form attached hereto as EXHIBIT B. 1.2 CLOSING; DELIVERY. (a) The purchase and sale of the Warrant pursuant to the terms of this Agreement shall take place at the offices of Venture Law Group, 2800 Sand Hill Road, Menlo Park, California, at 2:00 p.m., on February __, 1998, or at such other time and place as the Parties mutually agree upon, orally or in writing (which time and place are designated as the "Closing"). (b) At the Closing, in consideration for the release of claims contained herein and the payment of $500 by CA, the Company shall instruct the Escrow Agent to deliver to CA the Warrant, and in consideration for the Warrant, CA shall have delivered to the Company an executed copy of this Agreement, including the release of claims contained herein, and shall instruct the Escrow Agent to deliver to the Company $500. 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby represents and warrants to CA that, except as set forth on a Schedule of Exceptions attached hereto as Exhibit C, which exceptions shall be deemed to be representations and warranties as if made hereunder: 2.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of California and has all requisite corporate power and authority to carry on its business. 2.2 CAPITAL STOCK. The authorized capital of the Company consists, or will consist, immediately prior to the Closing, of 60,000,000 shares of Common Stock, $0.01 par value per share, of which 15,780,886 shares were issued and outstanding as of February 9, 1998, and 2,000,000 shares of Preferred Stock, $0.01 par value per share, none of which are issued or outstanding. All such shares have been duly authorized, and all such issued and outstanding shares have been validly issued, are fully paid and nonassessable, are not subject to any preemptive rights or rights of first refusal (other than rights of first refusal held by the Company) under applicable law, the Articles of Incorporation or Bylaws of the Company, or any agreement to which the Company is a party or by which it is bound and are free of any liens or encumbrances other than any liens or encumbrances created by or imposed upon the holders thereof. The Company has also reserved (i) an aggregate of 2,000,000 shares of Common Stock issuable to employees and consultants pursuant to the Company's 1995 Stock Option Plan, of which 1,164,947 shares are issuable upon exercise of outstanding options under such plan, (ii) an aggregate of 2,657,399 shares of Common Stock issuable to employees and consultants pursuant to the Company's 1986 Stock Option Plan, of which 2,657,399 shares are issuable upon exercise of outstanding options under such plan, (iii) an aggregate of 400,000 shares of Common Stock issuable to employees pursuant to the Company's 1992 Employee Stock Purchase Plan, of which no shares are available for future issuance under such plan, (iv) 500,000 shares of Common Stock issuable to non-employee directors pursuant to Company's 1996 Directors' Stock Option Plan, of which 300,000 shares are issuable upon exercise of outstanding options under such plan, (v) non-plan options issued to the Company's Chief Executive Officer, Chief Financial Officer and Vice President of Marketing to purchase up to an aggregate of 1,500,000 shares of Common Stock, (vi) up to 450,000 shares of Common Stock issuable upon exercise of warrants granted or to be granted to certain third parties, including vendors, suppliers and financial and investment -2- advisors of the Company, prior to inclusion of the shares of Common Stock issuable upon exercise of the Warrant being purchased and sold hereunder. The Warrant, when issued and paid for in accordance with this Agreement, and the shares of Common Stock issuable upon exercise thereof, when issued and paid for in accordance with the Warrant, will be validly issued, fully paid, and nonassessable, and not subject to any preemptive rights or rights of first refusal under applicable law, the Articles of Incorporation or Bylaws of the Company, or any agreement to which the Company is a party or by which the Company is bound, and are free of any liens or encumbrances other than liens or encumbrances created by or imposed upon the holders thereof; provided, however, that the Warrant (and the shares of Common Stock issuable upon exercise thereof) may be subject to restrictions on transfer as set forth in this Agreement, the Warrant, the Registration Statement on Form S-3 to be filed with the Securities and Exchange Commission pursuant to Section 4 hereunder, (the "RIGHTS AGREEMENT"), or the Articles of Incorporation or Bylaws of the Company. 2.3 AUTHORIZATION. The execution, delivery and performance by the Company of this Agreement, the Escrow Agreement, the Warrant and the Rights Agreement (collectively, the "TRANSACTION AGREEMENTS") are within the Company's corporate power and have been duly authorized by all requisite action by the Company. The Transaction Agreements have been duly executed and delivered by the Company and this Agreement constitutes, and the Escrow Agreement, the Warrant and Rights Agreement when executed and delivered in accordance with this Agreement, will constitute the valid and binding obligation of the Company, enforceable in accordance with their respective terms, except as such enforceability may be limited by principles of public policy and subject to the laws of general application relating to bankruptcy, insolvency and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies. 2.4 LITIGATION. There is no action, suit, proceeding or investigation pending or, to the Company's knowledge, currently threatened against the Company or any of its subsidiaries that is not disclosed in the Reports and that would have a material adverse effect on the Company or that questions the validity of the Transaction Agreements or the right of the Company to enter into them, or to consummate the transactions contemplated thereby. 2.5 COMPLIANCE WITH OTHER INSTRUMENTS. The execution, delivery and performance of the Transaction Agreements and the consummation of the transactions contemplated thereby will not result in any violation or default of any provisions of the Articles of Incorporation or Bylaws of the Company or of any instrument, judgment, order, writ, decree or contract to which the Company is a party or by which the Company is bound or, to the Company's knowledge, of any provision of federal or state statute, rule or regulation applicable to the Company, or be in conflict with or constitute, with or without the passage of time and giving of notice, either a default under any such provision, instrument, judgment, order, writ, decree or contract or an event which results in the creation of any lien, charge or encumbrance upon any assets of the Company. 2.6 SEC REPORTS. The Company has filed with the Securities and Exchange Commission (the "COMMISSION") via Edgar its Annual Report on Form 10-K for the year ended -3- December 31, 1996 and its Quarterly Reports on Form 10-Q for the first three quarters of the year ended December 31, 1997 (the "REPORTS"), and such Reports are available to CA through Edgar in electronic format. As of their respective filing dates, the Reports complied in all material respects with the requirements of the Securities Exchange Act of 1934, as amended, and none of the Reports contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances in which they were made, not misleading, except to the extent corrected by a document subsequently filed with the Commission and provided to CA prior to the date hereof. 3. REPRESENTATIONS AND WARRANTIES OF CA. CA hereby represents and warrants to the Company that: 3.1 AUTHORIZATION. The execution, delivery and performance by CA of the Transaction Agreements are within CA's corporate power and have been duly authorized by all requisite action by CA. The Transaction Agreements have been duly executed and delivered by CA and this Agreement constitutes, and the Escrow Agreement, the Warrant and the Rights Agreement when executed and delivered in accordance with this Agreement, will constitute the valid and binding obligation of the CA, enforceable in accordance with their respective terms, except as such enforceability may be limited by principles of public policy and subject to the laws of general application relating to bankruptcy, insolvency and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies. 3.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. CA is acquiring the Warrant (and the shares of Common Stock issuable upon exercise thereof (the "WARRANT STOCK", together with the Warrant, the "Securities")) hereunder for investment for CA's own account, and not as a nominee or agent, and not with a view to the resale or distribution of any part thereof. CA has no present intention of selling, granting any participation in, or otherwise distributing the foregoing. 3.3 ACCREDITED INVESTOR. CA is an accredited investor as defined in Rule 501(a) of Regulation D promulgated under the Securities Act. 3.4 RESTRICTED SECURITIES. CA understands that the Warrant and the Warrant Stock are characterized as "restricted securities" under the federal securities laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that under such laws and applicable regulations such Warrant and the Warrant Stock may be resold without registration under the Securities Act of 1933, as amended (the "ACT"), only in certain limited circumstances. In this connection, CA represents that it is familiar with SEC Rule 144, as presently in effect, and understands the resale limitations imposed thereby and by the Act. 3.5 FURTHER LIMITATIONS ON DISPOSITION. Without in any way limiting the representations set forth above, CA further agrees not to make any disposition of all or any portion of the Warrant and the Warrant Stock unless and until: -4- (a) There is then in effect a Registration Statement under the Act covering such proposed disposition and such disposition is made in accordance with such Registration Statement; or (b) (i) The transferee has agreed in writing for the benefit of the Company to be bound by this Section 3; (ii) CA shall have notified the Company of the proposed disposition and shall have furnished the Company with such information as is necessary to effect the proposed disposition, and (iii) if reasonably requested by the Company, CA shall have furnished the Company with an opinion of counsel, reasonably satisfactory to the Company, that such disposition will not require registration under the Act. 3.6 LEGENDs. CA understands that the Warrant and the Warrant Stock, and any securities issued in respect thereof or exchange therefor, may bear one or all of the following legends: (a) "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT." (b) Any legend required by the laws of the State of California, including any legend required by the California Department of Corporations. (c) Any legend required by the Blue Sky laws of any other state to the extent such laws are applicable to the shares represented by the certificate so legended. (d) Any legend referring to the Company's Shareholder Rights Plan. 3.7 DISCLOSURE OF INFORMATION. CA has had an opportunity to discuss the Company's business, management, financial affairs and the terms and conditions of the offering of the Warrant and the Warrant Stock with the Company's management and has had an opportunity to review the Company's Reports. CA understands that such discussions, as well as the written information issued by the Company, were intended to describe the aspects of the Company's business which it believes to be material. 4. REGISTRATION OF SECURITIES. (a) As soon as reasonably practicable after the Closing, but in no event later than 60 days after the Closing, the Company shall use its reasonable efforts to prepare and file a registration statement on Form S-3 (the "REGISTRATION STATEMENT") with the Commission under the Act to register the resale of the Common Stock issuable upon exercise of the Warrant ("REGISTRABLE SECURITIES") and thereafter shall use its best efforts to secure the effectiveness of such Registration Statement as soon as possible and to maintain its effectiveness thereafter. -5- (b) The Company shall pay all Registration Expenses (as defined below) in connection with any registration, qualification or compliance hereunder, and CA or any transferee of the Registrable Securities (each, a "HOLDER") shall pay all Selling Expenses (as defined below) and other expenses that are not Registration Expenses relating to the Registrable Securities resold by Holder. "Registration Expenses" shall mean all expenses, except for Selling Expenses, incurred by the Company in complying with the registration provisions herein described, including, without limitation, all registration, qualification and filing fees, printing expenses, fees and disbursements of counsel for the Company, blue sky fees and expenses and the expense of any special audits incident to or required by any such registration. "Selling Expenses" shall mean all selling commissions, brokerage or underwriting fees and stock transfer taxes applicable to the Registrable Securities and all fees and disbursements of counsel for Holder. (c) In the case of any registration effected by the Company pursuant to these registration provisions, and subject to the limitations on registration set forth in Section 4(d) below, the Company will use commercially reasonable efforts to: (i) keep such registration effective until the earlier of (A) one (1) year after the date of the Closing or (B) such date as the Company shall be satisfied that then-current Holders may sell all of their Registrable Securities then outstanding within a three (3) month period; (ii) prepare and file with the Commission such amendments and supplements to such Registration Statement and the prospectus used in connection with such Registration Statement as may be necessary to comply with the provisions of the Act with respect to the disposition of all securities covered by such Registration Statement; (iii) furnish such number of prospectuses and other documents incident thereto, including any amendment of or supplement to the prospectus, as a Holder from time to time may reasonably request; (iv) register and qualify the securities covered by such Registration Statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions; (v) cause all such Registrable Securities registered as described herein to be listed on each securities exchange and quoted on each quotation service on which similar securities issued by the Company are then listed or quoted; and (vi) otherwise use commercially reasonable efforts to comply with all applicable rules and regulations of the Commission. (d) The Company may, by written notice to Holder, delay the filing or effectiveness of, or suspend, the Registration Statement, and require that Holder immediately cease sales of shares pursuant to such Registration Statement in any period during which the Company is engaged in any activity or transaction or preparations or negotiations for any activity or transaction ("COMPANY ACTIVITY") that the Company desires to keep confidential for business reasons, if the Company determines in good faith that the public disclosure requirements imposed on the Company under the Act in connection with the Registration Statement would require disclosure of the Company Activity; provided, however, that (A) the Company shall use commercially reasonable efforts to minimize the length of any such period of delay or suspension, and (B) any such delay or suspension shall be applied in the same manner to any other resale registration statement then in effect. If the Company delays or suspends the -6- Registration Statement or requires Holder to cease sales of shares pursuant to this Section 4(d), the Company shall, as promptly as practicable following the termination of the circumstance which entitled the Company to do so, take such actions as may be necessary to file or reinstate the effectiveness of the Registration Statement and/or give written notice to Holder authorizing it to resume sales pursuant to such Registration Statement. If as a result thereof the prospectus included in the Registration Statement has been amended to comply with the requirements of the Act, the Company shall enclose such revised prospectus with the notice to Holders given pursuant to this Section 4(d), and Holder shall make no offers or sales of shares pursuant to the Registration Statement other than by means of such revised prospectus. (e) If Holder shall propose to sell any Registrable Securities pursuant to the Registration Statement, it shall notify the Company of any such sale within one business day after such sale and the provision of such notice to the Company shall conclusively be deemed to establish an agreement by Holder to comply with the registration provisions herein described. Such notice shall be deemed to constitute a representation that any information required to be included in the Registration Statement and previously supplied by Holder is accurate as of the date of such notice. When Holder is entitled to sell and gives notice of its intent to sell in compliance with the foregoing, the Company shall promptly, furnish to Holder a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the Holders of such shares, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading or incomplete in the light of the circumstances then existing. Holder agrees that the Company may impose a legend setting forth the provisions of this Section 4(e) on the Registrable Securities. (f) With a view to making available to the holders the benefits of Rule 144 promulgated under the Act and any other rule or regulation of the Commission that may at any time permit Holder to sell Registrable Securities to the public without registration or pursuant to a registration on Form S-3, the Company hereby covenants and agrees to: (i) make and keep public information available, as those terms are understood and defined in Rule 144, at all times after the closing; and (ii) file with the Commission in a timely manner all reports and other documents required of the Company under the Act and Exchange Act. (g) Indemnification. (i) To the extent permitted by law, the Company will indemnify and hold harmless Holder, any underwriter (as defined in the Act) for Holder, its officers, directors, shareholders or partners and each person, if any, who controls Holder or underwriter within the meaning of the Act or the Exchange Act, against any losses, claims, damages, or liabilities to which they may become subject under the Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a "VIOLATION"): (A) any untrue statement or alleged untrue statement of a material fact contained in such Registration Statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto or (B) the omission -7- or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading; and the Company will pay to each such Holder, underwriter or controlling person, as incurred, any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this Section 4(g)(i) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability, or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable in any such case for any such loss, claim, damage, liability, or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by any such Holder, underwriter or controlling person; further provided, however, that the foregoing indemnity with respect to any untrue statement in or omission from any preliminary prospectus shall not inure to the benefit of any Holder from whom the person asserting any such losses, claims, damages or liabilities purchased the Registrable Securities if a copy of the final prospectus or any amendment thereto had not been sent or given to such person at or prior to the written confirmation of the sale of such Registrable Securities to such person if required by the Act and the untrue statement or omission of a material fact contained in such preliminary prospectus was corrected in the final prospectus or amendment and such final prospectus or amendment was distributed to the Holder prior to such sale of Registrable Securities. (ii) To the extent permitted by law, each selling Holder will indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the Registration Statement, each person, if any, who controls the Company within the meaning of the Act, any underwriter, any other Holder selling securities in such Registration Statement and any controlling person of any such underwriter or other Holder, against any losses, claims, damages, or liabilities to which any of the foregoing persons may become subject, under the Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Holder expressly for use in connection with such registration; and each such Holder will pay, as incurred, any legal or other expenses reasonably incurred by any person intended to be indemnified pursuant to this subsection 4(g)(ii), in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this subsection 4(g)(ii) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld; provided, that, in no event shall any indemnity under this subsection 4(g)(ii) exceed the net proceeds from the offering received by such Holder, except in the case of willful fraud by such Holder. (iii) Promptly after receipt by an indemnified party under this Section 4(g) of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 4(g), deliver to the indemnifying party a written notice of the -8- commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party (together with all other indemnified parties which may be represented without conflict by one counsel) shall have the right to retain one separate counsel, with the reasonable fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 4(g). 5. RESALE RESTRICTIONS. Holder agrees that it will not sell any Registrable Securities issued hereunder until 90 calendar days after the Closing and the earlier to occur of; (i) effectiveness of the Registration Statement to be filed pursuant to Section 4 above; and (ii) the first anniversary of the issuance of the Warrant. Holder further agrees that, notwithstanding anything in this Agreement to the contrary, the maximum number of Registrable Securities which may be sold by Holder in open market transactions on any day (including sales pursuant to Rule 144 under the Act) shall not exceed twenty-five percent (25%) of the average daily trading volume of the Company's Common Stock as calculated over the immediately preceding twenty (20) consecutive trading days. Notwithstanding the foregoing, the Company may suspend resales by the Holder pursuant to a Registration Statement if an underwriter reasonably determines that such resales would adversely affect the Company's ability to raise additional capital in a secondary offering of the Company's equity securities and such underwriter issues a written opinion to the Company to that effect. Any such suspension of resales by the Holder pursuant to the foregoing sentence will not exceed 120 calendar days commencing on the date of the secondary offering. The volume and resale restrictions set forth in this Section 5 shall be set forth in any and all Registration Statements brought effective pursuant to Section 4 above, and the Company shall instruct its transfer agent, broker dealers and market makers to enforce the volume restrictions set forth herein. 6. RELEASE OF CLAIMS. 6.1 RELEASE OF CLAIMS IN CONNECTION WITH THE NOTE. In consideration for the obligations of the Company set forth in this Agreement, CA, on behalf of itself, and its respective officers, directors, employees, shareholders, attorneys, accountants, predecessor and successor corporations, affiliates, subsidiaries, representatives, transferees and assigns, hereby fully and forever releases the Company and its respective officers, directors, employees, shareholders, attorneys, accountants, predecessor and successor corporations, affiliates, subsidiaries, representatives, transferees and assigns from any claim, duty, obligation or cause of action relating to any matters of any kind, whether known or unknown, suspected or unsuspected, that it may possess arising from any omissions, acts or facts that have occurred up until and including the date of the Closing of this Agreement including, without limitation: -9- (a) any and all claims in connection with the Company's representations, warranties and covenants under the Note Purchase Agreement; (b) any and all claims relating to or arising from CA's purchase of the Note from the Company and subsequent sale of the Note at a loss; and (c) any and all claims for attorney's fees and costs. The Company and CA agree that the release set forth in this section shall be and remain in effect in all respects as a complete and general release as to the matters released. This release does not extend to any obligations incurred under this Agreement. 6.2. CIVIL CODE SECTION 1542. The parties represent that they are not aware of any claim by either of them other than the claims that are released by this Agreement. CA acknowledges that it is familiar with the provisions of California Civil Code Section 1542, which provides as follows: A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR. CA, being aware of such code section, agrees to waive any rights it may have thereunder, as well as under any similar provision under New York state law, or other applicable state law, statute or common law principles of similar effect. 7. CONDITIONS OF CA'S OBLIGATIONS AT THE CLOSING. The obligations of CA under this Agreement are subject to the fulfillment, on or before the Closing, of each of the following conditions, unless otherwise waived: 7.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Company contained in Section 2 shall be true and correct in all material respects on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the date of the Closing. 7.2 PERFORMANCE. The Company shall have performed and complied with all covenants, agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by it on or before the Closing. 7.3 COMPLIANCE CERTIFICATES. The President of the Company shall deliver at the Closing a certificate certifying that the conditions specified in Sections 7.1 and 7.2 have been fulfilled. 7.4 QUALIFICATIONS. All authorizations, approvals or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in -10- connection with the lawful issuance and sale of the Securities, pursuant to this Agreement shall be obtained and effective as of the Closing. 7.5 ESCROW AGREEMENT. The Company, CA and the Escrow Agent shall have executed and entered into the Escrow Agreement. 7.6 DELIVERY INTO ESCROW. Each Party shall have delivered to the Escrow Agent its respective consideration for the transactions contemplated hereunder in accordance with the provisions of Section 1.1 hereof. 8. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT THE CLOSING. The obligations of the Company under this Agreement are subject to the fulfillment, on or before the Closing, of each of the following conditions, unless otherwise waived: 8.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of CA contained in Section 3 shall be true and correct in all material respects on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the date of the Closing. 8.2 PERFORMANCE. CA shall have performed and complied with all covenants, agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by it on or before the Closing. 8.3 QUALIFICATIONS. All authorizations, approvals or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful issuance and sale of the Securities pursuant to this Agreement shall be obtained and effective as of the Closing. 8.4 ESCROW AGREEMENT. The Company, CA and the Escrow Agent shall have executed and entered into the Escrow Agreement. 8.5 DELIVERY INTO ESCROW. Each Party shall have delivered to the Escrow Agent its respective consideration for the transactions contemplated hereunder in accordance with the provisions of Section 1.1 hereof. 8.6 NOTE PURCHASE AGREEMENT. The Note Purchase Agreement by and between the Company, NAC and CA of even date herewith shall have closed immediately prior to or concurrently with the Closing hereunder. 9. MISCELLANEOUS. 9.1 SURVIVAL OF WARRANTIES. Unless otherwise set forth in this Agreement, the warranties, representations and covenants of the Company and CA contained in or made pursuant to this Agreement shall survive the execution and delivery of this Agreement and the Closing for a period of one (1) year following the Closing. -11- 9.2 TRANSFER; SUCCESSORS AND ASSIGNS. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the Parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the Parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 9.3 GOVERNING LAW. This Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of California, without giving effect to principles of conflicts of law. 9.4 COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument. 9.5 TITLES AND SUBTITLES. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. 9.6 NOTICES. Any notice required or permitted by this Agreement shall be in writing and shall be deemed sufficient upon delivery, when delivered personally or by overnight courier or sent by telegram or fax (provided that electronic confirmation of transmission has been received), or forty-eight (48) hours after being deposited in the U.S. mail, as certified or registered mail, with postage prepaid, addressed to the party to be notified at such party's address as set forth on the signature page hereto, or as subsequently modified by written notice, and if to the Company, with a copy to Craig W. Johnson, Venture Law Group, 2800 Sand Hill Road, Menlo Park, CA 94025. 9.7 COMPANY ADVISOR / PAYMENT OF FEES. CA represents that it neither is nor will be obligated for any finder's fee or commissions to any third party in connection with this transaction. The Company represents that it has retained Rochon Capital Group, Ltd. ("ROCHON") as its advisor in connection with the transactions contemplated by this Agreement and the Note Purchase and Sale Agreement. CA acknowledges that Rochon has acted solely as an advisor to the Company, and has in no way acted for or on behalf of CA in connection herewith. The information provided to CA by the Company (or by CA) has not been subjected to independent verification by Rochon, and no representation or warranty is made by Rochon as to the accuracy or completeness of such information or the advisability of CA entering into this Agreement and consummating the transactions contemplated hereby. CA acknowledges that it has not relied on any statements made by Rochon in connection with its decision to enter into and perform this Agreement and the transactions contemplated hereby. The Company agrees to indemnify and to hold harmless CA from any liability for any compensation payable to Rochon (and the costs and expenses of defending against such liability or asserted liability) in connection with the transactions contemplated hereby. The Company agrees to indemnify and hold harmless Rochon and its officers, directors, principals, employees and agents (and their respective heirs, -12- successors and assigns) from and against any liability arising from this Agreement, including the consummation of or the failure to consummate any or all of the transactions contemplated hereby, except to the extent such liability results from the gross negligence or willful misconduct of Rochon. 9.8 FEES AND EXPENSES. Each Party shall pay its own expenses incurred with respect to this Agreement and the transactions contemplated hereby, provided, however, that the Company shall pay the fees incurred with respect to services provided by the Escrow Agent. 9.9 ATTORNEY'S FEES. If any action at law or in equity (including arbitration) is necessary to enforce or interpret the terms of any of the Agreements, the prevailing party shall be entitled to reasonable attorney's fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled. 9.10 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended or waived only with the written consent of the Company and CA. Any amendment or waiver effected in accordance with this Section 9.10 shall be binding upon CA and each transferee of the Warrant (or the Common Stock issuable upon conversion thereof) and the Company. 9.11 SEVERABILITY. If one or more provisions of this Agreement are held to be unenforceable under applicable law, the Parties agree to renegotiate such provision in good faith. In the event that the Parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (a) such provision shall be excluded from this Agreement, (b) the balance of the Agreement shall be interpreted as if such provision were so excluded and (c) the balance of the Agreement shall be enforceable in accordance with its terms. 9.12 DELAYS OR OMISSIONS. No delay or omission to exercise any right, power or remedy accruing to any party under this Agreement, upon any breach or default of any other party under this Agreement, shall impair any such right, power or remedy of such non-breaching or non-defaulting party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any party of any breach or default under this Agreement, or any waiver on the part of any party of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any party, shall be cumulative and not alternative. 9.13 ENTIRE AGREEMENT. This Agreement, and any transaction documents referred to herein constitute the entire agreement between the parties hereto pertaining to the subject matter hereof, and any and all other written or oral agreements or commitments relating to the subject matter hereof existing between the parties hereto (except for any confidentiality provisions or terms contained therein) are expressly superseded hereby and canceled. -13- 9.14 CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF THE SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO THE QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON THE QUALIFICATION BEING OBTAINED UNLESS THE SALE IS SO EXEMPT. 9.15 CONFIDENTIALITY. Each Party hereto agrees that, except with the prior written permission of the other Parties, it shall at all times keep confidential and not divulge, furnish or make accessible to anyone any confidential information, knowledge or data concerning or relating to the business or financial affairs of the other Parties to which such Party has been or shall become privy by reason of the Transaction Agreements, discussions or negotiations relating to the Transaction Agreements, the performance of its obligations hereunder or the ownership of Securities purchased hereunder, except for such disclosure as is required by law. [Signature Pages Follow] -14- The parties have executed this Warrant Purchase Agreement as of the date first written above. COMPANY: CENTURA SOFTWARE CORPORATION By: /s/Scott Broomfiel ------------------------------------- Name: Scott Broomfield ----------------------------------- (print) Title: CEO ---------------------------------- Address: 975 Island Drive Redwood Shores, CA 94065 Telephone: (650) 596-3400 Fax: (650) 596-4986 WARRANT HOLDER: COMPUTER ASSOCIATES INTERNATIONAL, INC. By: /s/Ira Zar ------------------------------------- Name: Ira Zar ----------------------------------- (print) Title: SVP ----------------------------------- Address: One Computer Associates Plaza Islandia, NY 11788-7000 Telephone: (516) 342-5224 Fax: (516) 342-5329 EXHIBITS Exhibit A - Form of Escrow Agreement Exhibit B - Form of Common Stock Warrant Exhibit C - Schedule of Exceptions to Representations and Warranties
EX-10.33 10 EXHIBIT 10.33 INVESTOR RIGHTS AGREEMENT THIS INVESTOR RIGHTS AGREEMENT (this "Agreement") is made and entered into as of this 27th day of February, 1998 by and between NEWPORT ACQUISITION COMPANY NO. 2, LLC., a Delaware limited liability company ("Newport") and CENTURA SOFTWARE CORPORATION, a California corporation (the "Company"). RECITALS: A. THE HOLDER. Newport is a limited liability company duly organized and in good standing under the laws of the State of Delaware with its principal executive offices located in Newport Beach, California. B. THE COMPANY. The Company is an existing corporation, formed under the laws of the State of California, with its principal executive offices located in Redwood Shores, California. C. CORPORATE APPROVALS. Each of the parties to this Agreement has obtained all necessary corporate and member approvals for the execution and delivery of this Agreement. D. ARM'S-LENGTH RELATIONSHIP. The parties to this Agreement intend to conduct their relationships hereunder on an arm's-length basis. E. PRIVATE PLACEMENT EXCHANGE. The Company intends to complete the issuance to Newport of 11,415,094 shares of the Company's Common Stock, $.01 par value per share (the "Common Shares"), in exchange for all of Newport's right, title and interest in that certain Floating Rate Convertible Subordinated Note Due 1998 of the Company, including all principal indebtedness and accrued interest indebtedness thereunder (the "Note") pursuant to an exchange offering exempt from the registration requirements of the Securities Act of 1933, as amended (the "Private Placement"). Newport acquired the Note from Computer Associates International, Inc. ("CA") pursuant to that certain Note Purchase and Sale Agreement dated the date hereof by and among Newport, CA and the Company. F. INVESTOR RIGHTS. In conjunction with the Private Placement, the Holder and the Company desire to enter into this Agreement to provide certain registration and other investor rights as provided herein. NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, and for other good and valuable consideration had and received, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. DEFINITIONS. As used herein, the following terms shall have the following respective meanings: -1- "Affiliate" shall mean any Person that directly or indirectly controls, is controlled by, or is under common control with such Person. A Person shall be deemed to control another Person if such Person owns five percent (5%) or more of any equity interest in the "controlled" Person or possesses, directly or indirectly, the power to direct or cause the direction of the management or policies of the controlled Person, whether through ownership of stock or partnership or member interests, by contract, agreement or understanding (whether oral or written), or otherwise. "Common Shares" shall have the meaning set forth in Recital E of this Agreement. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. "Holders" shall mean Newport, each of the Persons listed on Schedule 1 attached hereto and made a part hereof, any Affiliate of Newport or of any of the Persons listed on Schedule 1 (other than the Company) and any transferee or assignee under Section 10 hereof, and any combination of one or more such Holders. "NASD" shall mean the National Association of Securities Dealers, Inc. "Other Holders" shall mean Persons (other than Holders) who are holders of record of equity securities of the Company who subsequent to the date hereof acquire more than five percent (5%) of the outstanding shares of Common Stock pursuant to a transaction with the Company and to whom the Company grants registration rights pursuant to a written agreement in connection with such transaction. "Person" shall mean any individual, corporation, association, partnership, group (as defined in section 13(d)(3) of the Exchange Act), limited liability company, joint venture, business trust or unincorporated organization, or a government or any agency or political subdivision thereof. "Registrable Shares" shall mean the Common Shares and any shares of capital stock issued or issuable with respect to the Common Shares as a result of any stock split, stock dividend, recapitalization, exchange or similar event or otherwise. As to any particular Registrable Share, such Registrable Share shall cease to be a Registrable Share when (w) it shall have been sold, transferred or otherwise disposed of or exchanged pursuant to a registration statement under the Securities Act; (x) it may be distributed to the public, together with all other Registrable Shares held by the Holder of such share, during any ninety (90) day period pursuant to and in compliance with all applicable requirements of Rule 144 (or any successor provision) under the Securities Act; (y) it shall have been sold or transferred in a private transaction to a Person other than a Designated Transferee (as defined in Section 10 below); or (z) it shall have been sold, transferred or otherwise disposed of in violation of this Agreement. "Registration Expenses" shall have the meaning set forth in Section 0 hereof. -2- "SEC" shall mean the Securities and Exchange Commission or any successor agency thereto. "Securities Act" shall mean the Securities Act of 1933, as amended. 2. INCIDENTAL REGISTRATIONS. (a) RIGHT TO INCLUDE REGISTRABLE SHARES. On or after June 1, 1998 (the "Rights Commencement Date"), each time the Company shall determine to file a registration statement under the Securities Act in connection with a proposed offer and sale for cash of any equity securities (other than an offering of debt securities which are convertible into equity securities) by the Company, the Company will give prompt written notice of its determination to each Holder and of such Holder's rights under this Section 0, at least twenty (20) days prior to the anticipated filing date of such registration statement. Upon the written request of each Holder made within fifteen (15) days after the receipt of any such notice from the Company (which request shall specify the Registrable Shares intended to be disposed of by such Holder), the Company will use its best efforts to effect the registration under the Securities Act of all Registrable Shares which the Company has been so requested to register by the Holders thereof, to the extent required to permit the disposition of the Registrable Shares so to be registered; PROVIDED, HOWEVER, that (i) if, at any time after giving written notice of its intention to register any securities and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine for any reason not to proceed with the proposed registration of the securities to be sold by it, the Company may, at its election, give written notice of such determination to each Holder of Registrable Shares and thereupon shall be relieved of its obligation to register any Registrable Shares in connection with such registration (but not from its obligation to pay the Registration Expenses in connection therewith), and (ii) if such registration involves an underwritten offering, all Holders of Registrable Shares requesting to be included in the Company's registration must sell their Registrable Shares to the underwriters on the same terms and conditions as apply to the Company, with such differences, including any with respect to indemnification and liability insurance, as may be customary or appropriate in combined primary and secondary offerings. If a registration requested pursuant to this Section 2(a) involves an underwritten public offering, any Holder of Registrable Shares requesting to be included in such registration may elect, in writing at least five (5) days prior to the effective date of the registration statement filed in connection with such registration, not to register such securities in connection with such registration. No registration effected under this Section 0 shall relieve the Company of its obligations to effect the registration under Section 0 hereof. (b) PRIORITY IN INCIDENTAL REGISTRATION. If a registration pursuant to this Section 0 involves an underwritten offering and the managing underwriter(s) in good faith advise(s) the Company in writing that, in its opinion, the number of securities which the Company, the Holders and any other Persons intend to include in such registration exceeds the largest number of securities which can be sold in such offering without having an adverse effect on such offering (including the price at which such securities can be sold), then the Company will include in such registration (i) first, the securities the Company proposes to sell for its own -3- account; (ii) second, to the extent that the number of securities which the Company proposes to sell is less than the number of securities which the Company has been advised can be sold in such offering without having the adverse effect referred to above, such number of Registrable Shares which the Holders have requested to be included in such registration pursuant to Section 2(a) hereof; PROVIDED, HOWEVER, that the aggregate value of the Registrable Securities to be included in such registration by the Holders may not be so reduced to less than twenty-five percent (25%) of the total value of all securities included in such registration; and (iii) third, to the extent that the number of securities which are to be included in such registration pursuant to clauses (i) and (ii) is, in the aggregate, less than the number of securities which the Company has been advised can be sold in such offering without having the adverse effect referred to above, such number of other securities requested to be included in the offering for the account of any Other Holders which, in the opinion of such managing underwriter(s), can be sold without having the adverse effect referred to above. The number of Registrable Shares included in such registration statement shall be allocated pro rata among the Holders based on the number of Registrable Shares held by each Holder. 3. HOLDBACK AGREEMENTS. (a) If any registration of Registrable Shares shall be in connection with a Qualified Public Offering (defined below), the Holders shall not effect any public sale or distribution (except in connection with such public offering), of any Registrable Securities (other than as part of such underwritten public offering) during the one hundred twenty (120) day period (or such lesser period as the managing underwriter(s) may permit) beginning on the effective date of such registration, if, and to the extent, the managing underwriter(s) of any such offering determine(s) such action is necessary or desirable to effect such offering. A "Qualified Public Offering" is defined herein as a firm commitment, underwritten public offering registered under the Securities Act (other than a registration relating solely to a transaction under Rule 145 under the Securities Act or to an employee benefit plan of the Company), at a price per share of at least $2.00 and with aggregate proceeds to the Company and/or any selling shareholders (before deduction for underwriters' discounts and expenses) of at least $7,500,000. (b) If any registration of Registrable Shares shall be in connection with a Qualified Public Offering, the Company shall not effect any public sale or distribution (except in connection with such public offering) of any of its equity securities or of any security convertible into or exchangeable or exercisable for any of its equity securities (in each case other than as part of such underwritten public offering) during the one hundred twenty (120) day period (or such lesser period as the managing underwriter(s) may permit) beginning on the effective date of such registration, and the Company shall use its best efforts to cause each member of the management of the Company who holds any equity security and each other holder of five percent (5%) or more of the outstanding shares of any equity security, or of any security convertible into or exchangeable or exercisable for any equity security, of the Company purchased from the Company (at any time other than in a public offering) to so agree. (c) In the event of any discretionary waiver or termination of the restrictions set forth in the agreements described in Section 3(b) above by the Company or the representatives -4- of the underwriters, the number of shares subject to such waiver shall be allocated among all persons subject to such agreements and to all Holders pro rata based on the number of securities held. 4. REGISTRATION. (a) MANDATORY REGISTRATION. The Company shall prepare and, no later than 305 days after the date of issuance of the Common Shares (the "Filing Deadline"), file with the SEC a registration statement on Form S-3 covering the resale of all of the Registrable Shares, or such lesser amount of Registrable Shares as the Holders shall in their discretion notify the Company to register. In the event that Form S-3 is unavailable for such a registration, the Company shall use such other form as is available for such a registration, subject to the further provisions of this Section 4(a). The Company shall use its best efforts to have the registration statement declared effective no later than 365 days after the date of issuance of the Common Shares and in any event shall have the registration declared effective no later than 380 days after the date of issuance of the Common Shares. In the event that Form S-3 is not available for the registration of Registrable Shares hereunder, the Company shall (i) register the sale of the Registrable Shares on another appropriate form and (ii) undertake to register the Registrable Shares on Form S-3 as soon as such form is available, provided that the Company shall maintain the effectiveness of the registration statement then in effect until such time as a registration statement on Form S-3 covering the Registrable Shares has been declared effective by the SEC. No securities other than Registrable Shares will be included in any registration statement filed pursuant to this Section 4(a) subject to Section 4(e) below. The Company shall keep a registration statement described in this Section 4(a) hereof effective pursuant to Rule 415 promulgated under the Securities Act at all times until the earlier of (i) the date as of which each of the Holders may sell all of the Registrable Shares held by such Holder without restriction pursuant to Rule 144(k) promulgated under the Securities Act or (ii) the date on which the Holders shall have sold all the Registrable Shares to the public (the"Registration Period"). The registration statement (including any amendments or supplements thereto and prospectuses contained therein) shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein, or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading. (b) BLACK-OUT PERIODS. If (i) in the good faith judgment of the Board of Directors of the Company, the disclosure which would be required in connection with the mandatory registration under Section 4(a) above would be seriously detrimental to the Company and the Board of Directors of the Company concludes by a duly adopted resolution that, as a result, it is essential at such time to defer the filing of such registration statement or to suspend the sale of securities thereunder, and (ii) the Company shall furnish to such Holders a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors of the Company it would be seriously detrimental to the Company for such registration statement to be filed or for securities to be sold thereunder in the near future and that it is, therefore, essential to defer the filing of such registration statement or to suspend the sale of securities thereunder, then the Company shall have the right to defer such filing or suspend the sale of securities thereunder for the period during which such disclosure would be seriously -5- detrimental (a "Black-out Period"); PROVIDED, HOWEVER, that (A) the Company shall not have the right to impose any Black-out Periods for ninety (90) days following the effectiveness of the registration statement filed pursuant to Section 4(a) above, (B) no Black-out Period shall extend longer than forty-five (45) consecutive calendar days, (C) no Black-out Period may be imposed within forty-five (45) days following the completion of a prior Black-out Period, and (D) the Company shall not impose Black-out Periods which, in the aggregate, exceed ninety (90) days in any twelve (12) month period. The Holders acknowledge and agree that the Company may impose a legend setting forth the provisions of this Section 4(b) on the Registrable Shares. (c) SUBSEQUENT REGISTRATIONS. In the event fewer than all of the Registrable Shares are covered by the registration effectuated pursuant to Section 4(a) above, then, commencing six (6) months following the effective date of such registration, upon the written request of the Holders of at least fifty percent (50%) of the Registrable Shares not so covered that the Company effect the registration of all or part of such Registrable Shares not so covered, and specifying the amount and the intended method of disposition thereof, the Company will promptly give notice of such requested registration to all other Holders of Registrable Shares not so covered and, as expeditiously as possible, use its best efforts to effect the registration under the Securities Act of: (i) the Registrable Shares which the Company has been so requested to register by such requesting Holders; and (ii) all other Registrable Shares which the Company has been requested to register by any other Holder thereof by written request received by the Company within thirty (30) days after the giving of such written notice by the Company; PROVIDED, HOWEVER, that the Company shall not be required to effect more than one (1) registration pursuant to this Section 4(c); PROVIDED, FURTHER, that the Company shall not be obligated to file a registration statement relating to a registration request under this Section 4(c), (x) if the registration request is delivered after delivery of a notice by the Company of an intended registration and prior to the effective date of the registration statement referred to in such notice, provided that the Company is actively employing in good faith all reasonable efforts to cause such registration statements to become effective, or (y) within a period of ninety (90) days after the effective date of any other registration statement of the Company pursuant to which the Holders included Registrable Shares. (d) REGISTRATION STATEMENT FORM. If any registration pursuant to this Section 0 shall be in connection with an underwritten public offering, and if the managing underwriter(s) shall advise the Company in writing that, in its opinion, the use of a form of registration statement other than on Form S-3 is of material importance to the success of such proposed offering, then such registration shall be effected on such other form. (e) PRIORITY IN REQUESTED REGISTRATIONS. If any registration pursuant to this Section 0 involves an underwritten offering and the managing underwriter(s) in good faith advise(s) the Company in writing that, in its opinion, the number of securities requested to be included in such registration (including securities of the Company which are not Registrable Shares) exceeds the largest number of securities which can be sold in such offering without having an adverse effect on such offering (including the price at which such securities can be sold), then the Company will include in such registration (i) first, one hundred percent (100%) of the Registrable Shares requested to be registered pursuant to Section 4(a) hereof (provided that if -6- the number of Registrable Shares requested to be registered pursuant to Section 4(a) hereof exceeds the number which the Company has been advised can be sold in such offering without having the adverse effect referred to above, the number of such Registrable Shares to be included in such registration by the Holders shall be allocated pro rata among such Holders on the basis of the relative number of Registrable Shares each such Holder has requested to be included in such registration); (ii) second, to the extent that the number of Registrable Shares requested to be registered pursuant to Section 4(a) hereof is less than the number of securities which the Company has been advised can be sold in such offering without having the adverse effect referred to above, such number of shares of equity securities the Company requests to be included in such registration, and (iii) third, to the extent that the number of Registrable Shares requested to be included in such registration pursuant to Section 4(a) hereof and the securities which the Company proposes to sell for its own account are, in the aggregate, less than the number of equity securities which the Company has been advised can be sold in such offering without having the adverse effect referred to above, such number of other securities proposed to be sold by any Other Holder which, in the opinion of such managing underwriter(s), can be sold without having the adverse effect referred to above (provided that if the number of such securities of such Other Holder requested to be registered exceeds the number which the Company has been advised can be sold in such offering without having the adverse effect referred to above, the number of such securities to be included in such registration pursuant to this Section 4(d) shall be allocated pro rata among all such Other Holders on the basis of the relative number of securities each such Other Holder has requested to be included in such registration). (f) ADDITIONAL RIGHTS. If the Company at any time grants to any other holders of equity securities of the Company any rights to request the Company to effect the registration of any such shares of equity securities on terms more favorable to such holders than the terms set forth in this Section 4 and in Section 5 hereof, the terms of this Section 4 and of Section 5 hereof shall be deemed amended or supplemented to the extent necessary to provide the Holders such more favorable rights and benefits. In no event shall the Company grant to any person any rights to request the Company to effect the registration of any shares of equity securities of the Company on terms which would have the effect of delaying the effectiveness of or reducing the number of shares covered by any registration statements effectuated pursuant to Section 2 and this Section 4. 5. REGISTRATION PROCEDURES. (a) Whenever a Holder has requested that any Registrable Shares be registered pursuant to Section 2(a) or 4(c) or at such time as the Company is obligated to file and maintain the effectiveness of a registration statement with the SEC pursuant to Section 4(a), the Company shall use its best efforts to effect the registration of the Registrable Shares in accordance with the intended method of disposition thereof and, pursuant thereto, the Company shall have the following obligations: (i) prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith as -7- may be necessary to keep such registration statement effective for the Registration Period and to comply with the provisions of the Securities Act, the Exchange Act, and the rules and regulations promulgated thereunder with respect to the disposition of all the securities covered by such registration statement during such period in accordance with the intended methods of disposition by the Holders thereof set forth in such registration statement; PROVIDED, HOWEVER, that (A) before filing a registration statement (including an initial filing) or prospectus, or any amendments or supplements thereto, the Company will furnish to one counsel (the "Holder Counsel") selected by the Holders of a majority of the Registrable Shares covered by such registration statement copies of all documents proposed to be filed at least seven days prior to their filing with the SEC, which documents will be subject to the review and comment of such counsel, and (B) the Company will notify each Holder of Registrable Shares covered by such registration statement of any stop order issued or threatened by the SEC, any other order suspending the use of any preliminary prospectus or of the suspension of the qualification of the registration statement for offering or sale in any jurisdiction, and take all reasonable actions required to prevent the entry of such stop order, other order or suspension or to remove it if entered; (ii) the Company shall furnish to the Holder Counsel, without charge, any correspondence from the SEC or the staff of the SEC to the Company or its representatives relating to any registration statement; (iii) furnish without charge to each Holder and each underwriter, if applicable, of Registrable Shares covered by such registration statement such number of copies of the registration statement and of each amendment and supplement thereto (in each case including all exhibits), such number of copies of the prospectus included in such registration statement (including each preliminary prospectus and summary prospectus), in conformity with the requirements of the Securities Act, and such other documents as each Holder of Registrable Shares covered by such registration statement may reasonably request in order to facilitate the disposition of the Registrable Shares by such Holder; (iv) use its best efforts to register or qualify such Registrable Shares covered by such registration statement under the state securities or blue sky laws of such jurisdictions as each Holder of Registrable Shares covered by such registration statement and, if applicable, each underwriter, may reasonably request, and do any and all other acts and things which may be reasonably necessary to consummate the disposition in such jurisdictions of the Registrable Shares owned by such Holder, except that the Company shall not for any purpose be required to qualify generally to do business as a foreign corporation in any jurisdiction where, but for the requirements of this clause (iv), it would not be obligated to be so qualified (the Company shall promptly notify Holder -8- Counsel and each Holder of the receipt by the Company of any notification with respect to the suspension of the registration or qualification of any of the Registrable Shares for sale under the securities or "blue sky" laws of any jurisdiction in the United States or its receipt of actual notice of the initiation or threatening of any proceeding for such purpose); (v) use its best efforts to cause such Registrable Shares covered by such registration statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the Holders thereof to consummate the disposition of such Registrable Shares; (vi) if at any time an event shall have occurred as the result of which any prospectus relating to any Registrable Shares as then in effect would include an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, immediately give written notice thereof to each Holder and the managing underwriter or underwriters, if any, of such Registrable Shares and prepare and furnish to each such Holder a reasonable number of copies of an amended or supplemental prospectus as may be necessary so that, as thereafter delivered to the purchasers of such Registrable Shares, such prospectus shall not include an untrue statement of material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; (vii) either (A) list any portion of such Registrable Shares not already listed on any securities exchange on which similar securities of the Company are then listed, and enter into customary agreements including a listing application and indemnification agreement in customary form, or (B) maintain the inclusion for quotation on The Nasdaq SmallCap Market for the Registrable Shares and, at such time as the Company is able to satisfy the listing requirements on the Nasdaq National Market System and the Company's management reasonably believes the Company will be able to continue to comply with such requirements, use its best efforts to secure designation and quotation of all the Registrable Shares on the Nasdaq National Market System, and, without limiting the generality of the foregoing, use its best efforts to arrange for at least two market makers to register with the NASD as such with respect to the Registrable Shares, and provide a transfer agent and registrar for such Registrable Shares covered by such registration statement not later than the effective date of such registration statement; (viii) enter into such customary agreements (including an underwriting agreement in customary form) and take such other actions as each Holder of Registrable Shares being sold or the underwriter or underwriters, if any, reasonably request in order to expedite or facilitate the disposition of such Registrable Shares, including customary indemnification and opinions; -9- (ix) use its best efforts to obtain a "cold comfort" letter or letters from the Company's independent public accountants in customary form and covering matters of the type customarily covered by "cold comfort" letters as the Holders of the Registrable Shares being sold or the underwriters retained by such Holders shall reasonably request, provided that this provision shall only apply with respect to an underwritten registration; (x) make available for inspection by representatives of any Holder, by any underwriter participating in any disposition to be effected pursuant to such registration statement and by any attorney, accountant or other agent retained by such Holders or any such underwriter, all financial and other records pertinent corporate documents and properties of the Company and its subsidiaries' officers, directors and employees to supply all information and respond to all inquiries reasonably requested by such Holders or any such representative, underwriter, attorney, accountant or agent in connection with such registration statement; (xi) promptly prior to the filing of any document which is to be incorporated by reference into the registration statement or the prospectus (after initial filing of the registration statement), if such document is not available to the public electronically via EDGAR, provide copies of such document to counsel to the Holders and to the managing underwriter(s), if any, and make the Company's representatives available for discussion of such document; (xii) otherwise use its best efforts to comply with all applicable rules and regulations of the SEC, and make available to its security holders, as soon as reasonably practicable after the effective date of the registration statement, an earning statement which shall satisfy the provisions of section 11(a) of the Securities Act and the rules and regulations promulgated thereunder; (xiii) not later than the effective date of the applicable registration statement, use its best efforts to provide a CUSIP number for any portion of such Registrable Shares not already included in a CUSIP number for similar securities of the Company, and provide the applicable transfer agents with printed certificates for the Registrable Shares which are in a form eligible for deposit with the Depository Trust Company; (xiv) notify counsel for the Holders of Registrable Shares included in such registration statement and the managing underwriter or underwriters, if any, immediately and confirm the notice in writing, (A) when the registration statement, or any post-effective amendment to the registration statement, shall have become effective, or any supplement or amendment to the prospectus shall have been filed, (B) of the receipt of any comments from the SEC and (C) of any request of the SEC to amend the registration statement or amend or supplement the prospectus or for additional information; -10- (xv) in the event the Company and the Holders who hold at least two-thirds of the Registrable Shares mutually agree to an underwritten offering for one or more offerings of Registrable Shares under Section 4(a) hereof, enter into and perform its obligations under an underwriting agreement, in usual and customary form, including, but not limited to, customary indemnification and contribution obligations, with the underwriters (without limiting the generality of the foregoing, if the underwriters for marketing or other reasons request the inclusion in the registration statement of information which is not required under the Securities Act to be included in a registration statement on the applicable form for such registration, the Company nonetheless will provide such information as may be reasonably requested for inclusion by the underwriters in such registration statement); (xvi) use its best efforts to prevent the issuance of any stop order or other suspension of effectiveness of a registration statement, or the suspension of the qualification of any of the Registrable Shares for sale in any jurisdiction and, if such an order or suspension is used, use its best efforts to obtain the withdrawal of such order or suspension at the earliest possible time; (xvii) cooperate with each of the Holders and, to the extent applicable, any managing underwriter or underwriters, to facilitate the timely preparation and delivery of certificates (not bearing any restrictive legend) representing the Registrable Shares offered and sold pursuant to a registration statement and enable such certificates to be in such denominations or amounts, as the case may be, as the managing underwriter or underwriters, if any, or, if there is no managing underwriter or underwriters, each of the Holders may reasonably request and registered in such names as the managing underwriter or underwriters, if any, or each of the Holders may request; (xviii) cooperate with each seller of Registrable Shares and each underwriter, if any, participating in the disposition of such Registrable Shares and their respective counsel in connection with any filings required to be made with the NASD; and (xix) take all other reasonable actions necessary or reasonably requested by an Holder to expedite and facilitate disposition by such Holder of Registrable Shares pursuant to a registration statement. (b) Each Holder of Registrable Shares hereby agrees that, upon receipt of any notice from the Company of the happening of any event of the type described in Section 5(a)(vi) hereof, such Holder shall forthwith discontinue disposition of such Registrable Shares covered by such registration statement or related prospectus until such Holder's receipt of the copies of the supplemental or amended prospectus contemplated by Section 5(a)(vi) hereof, and, if so directed by the Company, such Holder will deliver to the Company (at the Company's -11- expense) all copies, other than permanent file copies then in such Holder's possession, of the prospectus covering such Registrable Shares at the time of receipt of such notice. (c) Each Holder hereby agrees to provide the Company, upon receipt of its request, with such information about such Holder to enable the Company to comply with the requirements of the Securities Act and to execute such certificates as the Company may reasonably request in connection with such information and otherwise to satisfy any requirements of law. 6. UNDERWRITTEN REGISTRATIONS. Notwithstanding anything in this Agreement to the contrary, the Company in its sole discretion shall determine whether a registration on Form S-3 pursuant to Section 4 hereof shall be by means of an underwritten offering. In the case of any underwritten offerings pursuant to Section 2 and Section 4 hereof, the managing underwriter(s) that will administer the offering shall be selected by the Company; PROVIDED, HOWEVER, that such managing underwriter(s) shall be reasonably satisfactory to the Holders of a majority of the Registrable Shares to be registered. 7. EXPENSES. (a) Subject to Section 7(b), the Company shall pay all fees, costs and expenses of all registrations pursuant to Section 2 and Section 0 hereof, including all SEC and stock exchange or NASD registration and filing fees and expenses, reasonable fees and expenses of any "qualified independent underwriter" and its counsel as may be required by the rules of the NASD, fees and expenses of compliance with securities or blue sky laws (including reasonable fees and disbursements of counsel for the underwriters, if any, in connection with blue sky qualifications of the Registrable Shares), rating agency fees, printing expenses (including expenses of printing certificates for Registrable Shares and prospectuses), messenger, telephone and delivery expenses, the fees and expenses incurred in connection with the listing of the securities to be registered on each securities exchange or national or other market system on which similar securities issued by the Company are then listed, fees and disbursements of counsel for the Company and all independent certified public accountants (including the expenses of any annual audit, special audit and "cold comfort" letters required by or incident to such performance and compliance), the fees and disbursements of the underwriters customarily paid by issuers or sellers of securities (including expenses relating to "road shows" and other marketing activities), the reasonable fees and expenses of special experts required to be retained by the Company in connection with such registration, the reasonable fees and expenses of other Persons required to be retained by the Company and the reasonable fees and expenses, not to exceed $10,000 per registration statement, of one counsel for the Holders (collectively, "Registration Expenses"); (b) The Holders shall pay the following: (i) any underwriting or selling discounts or commissions or transfer taxes, if any, attributable to the sale of Registrable Shares by the Holders pursuant to this Agreement, and (ii) except as set forth in subsection 7(a) above, all fees, costs and expenses of counsel to the Holders pursuant to this Agreement in connection with any registration pursuant to this Agreement. -12- 8. INDEMNIFICATION. (a) INDEMNIFICATION BY THE COMPANY. In the event of any registration of any securities of the Company under the Securities Act pursuant to Section 2 or 4 hereof, the Company will, and it hereby does, indemnify and hold harmless, to the fullest extent permitted by law, each of the Holders of any Registrable Shares covered by such registration statement, each Affiliate of such Holder (other than the Company) and their respective partners, members, Affiliates, directors and officers, each other Person who participates as an underwriter in the offering or sale of such securities and each other Person, if any, who controls such Holder or any such underwriter within the meaning of the Securities Act (collectively, the "Indemnified Parties"), against any and all losses, claims, damages or liabilities, joint or several, and expenses (including any amounts paid in any settlement effected with the Company's consent, which consent shall not be unreasonably withheld or delayed) to which any Indemnified Party may become subject under the Securities Act, state securities or blue sky laws, common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof, whether or not such Indemnified Party is a party thereto) or expenses arise out of or are based upon any of the following (each, a "Violation") (i) any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which such securities were registered under the Securities Act, any preliminary, final or summary prospectus contained therein, or any amendment or supplement thereof, (ii) any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading or (iii) any violation by the Company of any federal, state or common law rule or regulation applicable to the Company and relating to action required of or inaction by the Company in connection with any such registration, and the Company will promptly reimburse such Indemnified Party for any legal or any other expenses reasonably incurred by it in connection with investigating or defending any such loss, claim, liability, action or proceeding; PROVIDED, HOWEVER, that the Company shall not be liable to any Indemnified Party in any such case to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement or amendment or supplement thereof or in any such preliminary, final or summary prospectus in reliance upon and in conformity with written information with respect to such Holder furnished to the Company by such Holder specifically for use in the preparation thereof. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such Holder or any Indemnified Party and shall survive the transfer of such securities by such Holder. (b) INDEMNIFICATION BY THE HOLDERS AND THE UNDERWRITERS. In the event of any registration of any securities of the Company under the Securities Act pursuant to Section 2 or 4 hereof, each Holder of Registerable Shares included in the Securities as to which such registration is being effected will, and it hereby does, indemnify and hold harmless, to the fullest extent permitted by law, the Company, each Affiliate of the Company, each of its directors, each of its officers who has signed the registration statement, each Person, if any, who controls the Company within the meaning of the Securities Act, any underwriter, any other -13- Holder selling securities under such registration statement and any controlling person of any such underwriter or other Holder (collectively, the "Company Indemnified Parties"), against any and all losses, claims, damages or liabilities, joint or several, and expenses (including amounts paid in any settlement effected with the Holder's prior written consent, which consent shall not be unreasonably withheld or delayed) to which any Company Indemnified Party may become subject under the Securities Act, state securities or blue sky laws, common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof, whether or not such Company Indemnified Party is a party thereto) or expenses arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs due to the Company's reliance upon and in conformity with written information furnished by such Holder to the Company under an instrument duly executed by such Holder and stated to be specifically for use in connection with such registration statement, preliminary, final or summary prospectus or amendment or supplement thereto; and each such Holder will promptly reimburse such Company Indemnified Party for any legal or any other expenses reasonably incurred by it in connection with investigation or defending any such loss, claim, liability, action or proceeding if it is judicially determined that there was such a Violation; PROVIDED, HOWEVER, that each such Holder shall be severally, and not jointly, liable under any such indemnification; PROVIDED, FURTHER, that no such Holder shall be liable in any event for any indemnity claims in excess of the amount of the net proceeds received by such Holder from the sale of its Registrable Shares. The Company may further require, in connection with any underwritten registration effectuated in accordance with Section 2 or 4 hereof, that the Company shall have received an undertaking reasonably satisfactory to it from the underwriter to indemnify and hold harmless (in the same manner and to the same extent as set forth in this Section 8(b)) the Company with respect to any statement or alleged statement in or omission or alleged omission from such registration statement, any preliminary, final or summary prospectus contained therein, or any amendment or supplement, if such statement or alleged statement or omission or alleged omission was made in reliance upon and in conformity with written information such underwriter furnished to the Company specifically for use in the preparation of such registration statement, preliminary, final or summary prospectus or amendment or supplement. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Company or any of the Holders, or any of their respective Affiliates (other than the Company), directors, officers or controlling Persons, and shall survive the transfer of such securities by such Holder. (c) NOTICES OF CLAIMS, ETC. Promptly after receipt by an indemnified party hereunder of written notice of the commencement of any action or proceeding with respect to which a claim for indemnification may be made pursuant to this Section 8, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party, give written notice to the latter of the commencement of such action; PROVIDED, HOWEVER, that the failure of the indemnified party to give notice as provided herein shall not relieve the indemnifying party of its obligations under this Section 8, except to the extent that the indemnifying party is actually materially prejudiced by such failure to give notice. In case any such action is brought against an indemnified party, the indemnifying party will be entitled to participate in and to assume the defense thereof, with counsel satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, -14- the indemnifying party will not be liable to such indemnified party for any legal or other expenses subsequently incurred by the latter in connection with the defense thereof other than reasonable costs of investigation; PROVIDED, HOWEVER, that the indemnified party shall have the right, at the sole cost and expense of the indemnifying party, to employ counsel to represent the indemnified party and its respective controlling persons, directors, officers, employees or agents who may be subject to liability arising out of any claim in respect of which indemnity may be sought by the indemnified party against such indemnifying party under this Section 8 if (i) the employment of such counsel shall have been authorized in writing by such indemnifying party in connection with the defense of such action, (ii) the indemnifying party shall not have promptly employed counsel reasonably satisfactory to the indemnified party to assume the defense of such action or counsel, or (iii) any indemnified party shall have reasonably concluded that there may be defenses available to such indemnified party or its respective controlling persons, directors, officers, employees or agents which are in conflict with or in addition to those available to an indemnifying party; PROVIDED, FURTHER, that the indemnifying party shall not be obligated to pay for more than the expenses of one firm of separate counsel for the indemnified party. No indemnifying party will consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect to such claim or litigation. (d) If the indemnification provided for in this Section 8 shall for any reason be unavailable to any indemnified party under Section 8(a) or 8(b) hereof or is insufficient to hold it harmless in respect of any loss, claim, damage or liability, or any action in respect of any loss, claim, damage or liability, or any action in respect thereof referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability, or action in respect thereof, (i) in such proportion as shall be appropriate to reflect the relative benefits received by the indemnified party and indemnifying party or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) but also the relative fault of the indemnified party and indemnifying party with respect to the statements or omissions which resulted in such loss, claim, damage or liability, or action in respect thereof, as well as any other relevant equitable considerations. Notwithstanding any other provision of this Section 8(d), no Holder of Registrable Shares shall be required to contribute an amount greater than the dollar amount of the net proceeds received by such Holder with respect to the sale of any such Registrable Shares. No person guilty of fraudulent misrepresentation (within the meaning of section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. (e) OTHER INDEMNIFICATION. Indemnification similar to that specified in the preceding subdivisions of this Section 8 (with appropriate modifications but subject to the same provisos set forth in Section 8(b) above) shall be given by the Company and each Holder of Registrable Shares with respect to any required registration or other qualification of securities under any federal or state law or regulation other than the Securities Act. -15- (f) NON-EXCLUSIVITY. The obligations of the parties under this Section 8 shall be in addition to any liability which any party may otherwise have to any other party. 9. RULE 144. With a view to making available to the Holders the benefits of Rule 144 promulgated under the Securities Act or any other similar rule or regulation of the SEC that may at any time permit the Holders to sell securities of the Company to the public without registration ("Rule 144"), the Company agrees to: (a) make and keep public information available, as those terms are understood and defined in Rule 144; (b) file with the SEC in a timely manner all reports and other documents required of the Company under the Exchange Act, so long as the Company remains subject to such requirements and the filing of such reports and other documents is required for the applicable provisions of Rule 144; and (c) furnish to each Holder so long as such Holder owns Registrable Shares, promptly upon request, (i) a written statement by the company that it has complied with the reporting requirements of Rule 144, the Securities Act and the Exchange Act, (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the company, and (iii) such other information as may be reasonably requested to permit the Holders to sell such securities pursuant to Rule 144 without registration. 10. ASSIGNABILITY. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and the Holders and their respective successors and permitted assigns. Except as provided herein, no party may assign any of its rights or delegate any of its duties under this Agreement without the express consent of the other parties hereto. In addition, and whether or not any express assignment shall have been made, the provisions of this Agreement which are for the benefit of the Holders shall also be for the benefit of and enforceable by any subsequent Holder, subject to the provisions contained herein. Any Holder may assign any of its rights or delegate any of its duties under this Agreement, in whole or in part, without any prior consent of the Company only to a Person (a "Designated Transferee") who is (a) an Affiliate, member or partner of a Holder, (b) a family member of or a trust for the benefit of an individual Holder, or (c) a transferee of at least 250,000 Registrable Shares (whether through purchase, share exchange, bequest or otherwise) and who agrees to be bound by the terms of this Agreement. Any purported assignment in violation of this Section 10 shall be void. 11. RIGHT OF FIRST REFUSAL. The Company hereby grants to each Holder the right of first refusal to purchase a pro rata share of New Securities (as defined in this Section 12) which the Company may, from time to time, propose to sell and issue. A Holder's pro rata share, for purposes of this right of first refusal, is the ratio of the number of shares of Common Stock owned by such Holder immediately prior to the issuance of New Securities, to the total number of shares of Common Stock outstanding immediately prior to the issuance of New Securities. Each Holder shall have a right of over-allotment such that if any Holder fails to exercise its -16- right hereunder to purchase its pro rata share of New Securities, the Company shall provide each Holder with prompt written notice of this event and the other Holders may purchase the non-purchasing Holder's portion on a pro rata basis within ten (10) days from the date of such notice. This right of first refusal shall be subject to the following provisions: (a) "New Securities" shall mean any capital stock (including Common Stock and/or Preferred Stock) of the Company whether now authorized or not, and rights, options or warrants to purchase such capital stock, and securities of any type whatsoever that are, or may become, convertible into capital stock; provided that the term "New Securities" does not include (i) securities issued upon conversion of the warrants issued to CA on the date hereof; (ii) securities issued to investors and securities issuable upon exercise of the warrants issued to such investors in a private placement of the Company's Common Stock in an aggregate offering amount of up to $2.5 million that will close as of the date hereof, (iii) securities issued pursuant to the acquisition of another business entity or business segment of any such entity by the Company by merger, purchase of substantially all the assets or other reorganization whereby the Company will own more than fifty percent (50%) of the voting power of such business entity or business segment of any such entity; (iv) any borrowings, direct or indirect, from financial institutions or other persons by the Company, whether or not presently authorized, including any type of loan or payment evidenced by any type of debt instrument, provided such borrowings do not have any equity features including warrants, options or other rights to purchase capital stock and are not convertible into capital stock of the Company; (v) securities issued to employees, consultants, officers or directors of the Company pursuant to any stock option, stock purchase or stock bonus plan, agreement or arrangement existing on the date hereof or hereafter approved by the unanimous vote of the Board of Directors or Compensation Committee; (vi) securities issued in connection with obtaining bona fide lease financing, whether issued to a lessor or guarantor; (vii) securities issued in a public offering of Common Stock of the Company pursuant to a firm-commitment underwritten registration under the Securities Act with an aggregate offering price to the public of at least $10,000,000 and in which no single purchaser or group of affiliated purchasers acquire in such offering greater than ten percent (10%) of the shares sold in the offering or three (3%) of then outstanding equity securities of the Company; and (viii) securities issued in connection with any stock split, stock dividend or recapitalization of the Company. (b) In the event the Company proposes to undertake an issuance of New Securities, it shall give each Holder written notice of its intention, describing the type of New Securities, and their price and the general terms upon which the Company proposes to issue the same. Each Holder shall have fifteen (15) days after any such notice is mailed or delivered to agree to purchase up to such Holder's pro rata share of such New Securities for the price and upon the terms specified in the notice by giving written notice to the Company and stating therein the quantity of New Securities to be purchased. (c) In the event the Holders fail to exercise fully the right of first refusal within such fifteen (15) day period and after the expiration of the ten-day (10) period for the exercise of the over-allotment provisions of this Section 12, the Company shall have sixty (60) days thereafter to sell or enter into an agreement (pursuant to which the sale of New Securities covered thereby -17- shall be closed, if at all, within ninety (90) days to sell the New Securities respecting which the Holders' right of first refusal option set forth in this Section 12 was not exercised, at a price and upon terms no more favorable to the purchasers thereof than specified in the Company's notice to Holders pursuant to Section 12(b). In the event the Company has not sold within such 90-day period or entered into an agreement to sell the New Securities in accordance with the foregoing within sixty (60) days from the date of such agreement, the Company shall not thereafter issue or sell any New Securities, without first again offering such securities to the Holders in the manner provided in Section 12(b) above. (d) The right of first refusal granted under this Agreement shall expire on the earlier to occur of (i) two (2) years from the date of this Agreement or (ii) the date the Holders as a group hold less than 15% of the issued and outstanding capital stock of the Company. 12. NOTICES. Any and all notices, designations, consents, offers, acceptances or any other communications shall be given in writing by either (a) personal delivery to and receipted for by the addressee or by (b) telecopy or registered or certified mail which shall be addressed, in the case of the Company, to: Centura Software Corporation, 975 Island Drive, Redwood Shores, California 94065, attention: Chief Financial Officer; in the case of Holders, to the address or addresses thereof appearing on the books of the Company or of the transfer agent and registrar for its Common Stock. All such notices and communications shall be deemed to have been duly given and effective: when delivered by hand, if personally delivered; two (2) business days after being deposited in the mail, postage prepaid, if mailed; and when receipt is acknowledged, if telecopied. 13. NO INCONSISTENT AGREEMENTS. The Company will not hereafter enter into any agreement with respect to its securities which is inconsistent with the rights granted to the Holders in this Agreement. 14. SPECIFIC PERFORMANCE. The Company acknowledges that the rights granted to the Holders in this Agreement are of a special, unique and extraordinary character, and that any breach of this Agreement by the Company could not be compensated for by damages. Accordingly, if the Company breaches its obligations under this Agreement, the Holders shall be entitled, in addition to any other remedies that they may have, to enforcement of this Agreement by a decree of specific performance requiring the Company to fulfill its obligations under this Agreement. 15. SEVERABILITY. If any provision of this Agreement or any portion thereof is finally determined by a court of competent jurisdiction to be unlawful or unenforceable, such provision or portion thereof shall in no way affect any other provision of this Agreement, the application of any such provision and any other circumstances, and any portion of such invalidated provision that is not invalidated by such a determination shall remain in full force and effect. 16. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which, together, shall constitute one and the same instrument. -18- 17. DEFAULTS. A default by any party to this Agreement in such party's compliance with any of the conditions or covenants hereof or performance of any of the obligations of such party hereunder shall not constitute a default by any other party. 18. AMENDMENTS, WAIVERS. This Agreement may not be amended, modified or supplemented and no waivers of or consents to or departures from the provisions hereof may be given unless consented to in writing by the Company and the holders of two-thirds of the Registrable Shares; PROVIDED, HOWEVER, that no such amendment, supplement, modification or waiver shall deprive any Holder of any rights under Section 2 or 4 hereof without the consent of such Holder. 19. CONSTRUCTION. The captions contained in this Agreement are for reference purposes only and shall not constitute a part of this Agreement. Unless the context requires otherwise, the use of the masculine shall include the feminine, and the use of the singular shall include the plural. The word "including" shall mean "including, but not limited to." The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent and no rules of strict construction will be applied against any party. 20. ATTORNEYS' FEES. In any action or proceeding brought to enforce any provision of this Agreement, or where any provision hereof is validly asserted as a defense, the successful party shall be entitled to recover reasonable attorneys' fees in addition to any other available remedy. 21. ADDITIONAL ACTIONS. Each party (including transferees and assigns thereof) shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as any other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby. 22. ENTIRE AGREEMENT. This Agreement, together with the Note Purchase Agreement and Exchange Agreement, contains the entire agreement among the parties hereto with respect to the transaction contemplated herein and understandings among the parties relating to the subject matter hereof. Any and all previous agreements and understandings between or among the parties hereto regarding the subject matter hereof are, whether written or oral, superseded by this Agreement. -19- 23. GOVERNING LAW. This Agreement is made pursuant to and shall be construed in accordance with the laws of the State of California without regard to that state's conflicts of laws principles. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective authorized officers as of the date first written above. NEWPORT ACQUISITION COMPANY NO. 2 LLC By Crossroads Capital Partners LLC, as managing Member By /s/ James A. Skelton Name James A. Skelton Title Principal CENTURA SOFTWARE CORPORATION By /s/ John Bowman Name John Bowman Title CFO -20- EX-10.34 11 EXHIBIT 10.34 THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933. - ------------------------------------------------------------------------------- Warrant No. CS98-21 Number of Shares: 283,019 Date of Issuance: February 27, 1998 (subject to adjustment) CENTURA SOFTWARE CORPORATION COMMON STOCK PURCHASE WARRANT ----------------------------- Centura Software Corporation (the "COMPANY"), for value received, hereby certifies that Rochon Capital Group, Ltd., or its registered assigns (the "REGISTERED HOLDER"), is entitled, subject to the terms set forth below, to purchase from the Company, at any time after the date hereof and on or before the Expiration Date (as defined in Section 5 below), up to 283,019 shares (as adjusted from time to time pursuant to the provisions of this Warrant) of Common Stock of the Company, at a purchase price of $2.12 per share. The shares purchasable upon exercise of this Warrant and the purchase price per share, as adjusted from time to time pursuant to the provisions of this Warrant, are sometimes hereinafter referred to as the "WARRANT STOCK" and the "PURCHASE PRICE," respectively. 1. EXERCISE. (a) MANNER OF EXERCISE. This Warrant may be exercised by the Registered Holder, in whole or in part, by surrendering this Warrant, with the purchase form appended hereto as EXHIBIT A duly executed by such Registered Holder or by such Registered Holder's duly authorized attorney, at the principal office of the Company, or at such other office or agency as the Company may designate, accompanied by payment in full of the Purchase Price payable in respect of the number of shares of Warrant Stock purchased upon such exercise. The Purchase Price may be paid by cash, check or wire transfer to the Registered Holder. (b) EFFECTIVE TIME OF EXERCISE. Each exercise of this Warrant shall be deemed to have been effected immediately prior to the close of business on the day on which this Warrant shall have been surrendered to the Company as provided in Section 1(a) above. At such time, the person or persons in whose name or names any certificates for Warrant Stock shall be issuable upon such exercise as provided in Section 1(d) below shall be deemed to have become the holder or holders of record of the Warrant Stock represented by such certificates. (c) NET ISSUE EXERCISE. (i) In lieu of exercising this Warrant in the manner provided above in Section 1(a), the Registered Holder may elect to receive shares equal to the value of this Warrant (or the portion thereof being canceled) by surrender of this Warrant at the principal office of the Company together with notice of such election in which event the Company shall issue to holder a number of shares of Common Stock computed using the following formula: X = Y (A - B) --------- A Where X = The number of shares of Common Stock to be issued to the Registered Holder. Y = The number of shares of Common Stock as to which the Warrant is being exercised A = The fair market value of one share of Common Stock (at the date of such calculation). B = The Purchase Price (as adjusted to the date of such calculation). (ii) For purposes of this Section 1(c), the fair market value of one share of Common Stock on the date of calculation shall mean: (1) if the Company's Common Stock is traded on a securities exchange, The Nasdaq Stock Market, or The Nasdaq SmallCap Market, the fair market value shall be deemed to be the closing price on the trading day immediately preceding the date of exercise of the Warrant; or (2) if the Company's Common Stock is actively traded over-the-counter, the fair market value shall be deemed to be the closing bid or sales price (whichever is applicable) on the trading day immediately preceding the date of exercise of the Warrant; or (3) if neither (1) nor (2) is applicable, the fair market value shall be at the highest price per share which the Company could obtain on the date of calculation from a willing buyer (not a current employee or director) for shares of Common Stock sold by the Company, from authorized but unissued shares, as determined in good faith by the Board of Directors, unless the Company is at such time subject to an acquisition as described in Section 5(b) below, in which case the fair market value per share of Common Stock shall be deemed to be the value of the consideration per share received by the holders of such stock pursuant to such acquisition. (d) DELIVERY TO HOLDER. As soon as practicable after the exercise of this Warrant in whole or in part, and in any event within three (3) days thereafter, the Company at its expense will cause to be issued in the name of, and delivered to, the Registered Holder, or as such Holder (upon payment by such Holder of any applicable transfer taxes) may direct: (i) a certificate or certificates for the number of shares of Warrant Stock to which such Registered Holder shall be entitled, and (ii) in case such exercise is in part only, a new warrant or warrants (dated the date hereof) of like tenor, calling in the aggregate on the face or faces thereof for the number of shares of Warrant Stock equal (without giving effect to any adjustment therein) to the number of such shares called for on the face of this Warrant minus the number of such shares purchased by the Registered Holder upon such exercise as provided in Section 1(a) above. 2. ADJUSTMENTS. (a) STOCK SPLITS AND DIVIDENDS. If outstanding shares of the Company's Common Stock shall be subdivided into a greater number of shares or a dividend in Common Stock shall be paid in respect of Common Stock, the Purchase Price in effect immediately prior to such subdivision or at the record date of such dividend shall simultaneously with the effectiveness of such subdivision or immediately after the record date of such dividend be proportionately reduced. If outstanding shares of Common Stock shall be combined into a smaller number of shares, the Purchase Price in effect immediately prior to such combination shall, simultaneously with the effectiveness of such combination, be proportionately increased. When any adjustment is required to be made in the Purchase Price, the number of shares of Warrant Stock purchasable upon the exercise of this Warrant shall be changed to the number determined by dividing (i) an amount equal to the number of shares issuable upon the exercise of this Warrant immediately prior to such adjustment, multiplied by the Purchase Price in effect immediately prior to such adjustment, by (ii) the Purchase Price in effect immediately after such adjustment. (b) RECLASSIFICATION, ETC. In case of any reclassification or change of the outstanding securities of the Company or of any reorganization of the Company (or any other corporation the stock or securities of which are at the time receivable upon the exercise of this Warrant) or any similar corporate reorganization or merger or conveyance on or after the date hereof, then and in each such case the holder of this Warrant, upon the exercise hereof at any time after the consummation of such reclassification, change, reorganization, merger or conveyance, shall be entitled to receive, in lieu of the stock or other securities and property receivable upon the exercise hereof prior to such consummation, the stock or other securities or property to which such holder would have been entitled upon such consummation if such holder had exercised this Warrant immediately prior thereto, all subject to further adjustment as provided in Section 2(a); and in each such case, the terms of this Section 2 shall be applicable to the shares of stock or other securities properly receiv-able upon the exercise of this Warrant after such consummation. (c) ADJUSTMENT CERTIFICATE. When any adjustment is required to be made in the Purchase Price, the Company shall promptly mail to the Registered Holder a certificate setting forth the Purchase Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment. Such certificate shall also set forth the kind and amount of stock or other securities or property into which this Warrant shall be exercisable following the occurrence of any of the events specified in Section 2(a) or 2(b) above. 3. TRANSFERS. (a) UNREGISTERED SECURITY. Each holder of this Warrant acknowledges that this Warrant and the Warrant Stock have not been registered under the Securities Act, and agrees not to sell, pledge, distribute, offer for sale, transfer or otherwise dispose of this Warrant or any Warrant Stock issued upon its exercise in the absence of (i) an effective registration statement under the Act as to this Warrant or such Warrant Stock and registration or qualification of this Warrant or such Warrant Stock under any applicable U.S. federal or state securities law then in effect or (ii) an opinion of counsel, satisfactory to the Company, that such registration and qualification are not required. Each certificate or other instrument for Warrant Stock issued upon the exercise of this Warrant shall bear a legend substantially to the foregoing effect until such time as the registration of the Warrant Stock is effective or until such time as the Warrant Stock has been held by the holder (after giving effect to permissible tacking under Rule 144) for at least two years, at and after which time no legend shall be required. (b) TRANSFERABILITY. Subject to the provisions of Section 3(a) hereof, this Warrant and all rights hereunder are transferable, in whole or in part, upon surrender of the Warrant with a properly executed assignment (in the form of EXHIBIT B hereto) at the principal office of the Company, PROVIDED, HOWEVER, that this Warrant may not be transferred in part unless the transferee and any subsequent tranferee acquires the right to purchase at least 25,000 shares (as adjusted pursuant to Section 2) of Warrant Stock hereunder. (c) WARRANT REGISTER. The Company will maintain a register containing the names and addresses of the Registered Holders of this Warrant. Until any transfer of this Warrant is made in the warrant register, the Company may treat the Registered Holder of this Warrant as the absolute owner hereof for all purposes; PROVIDED, HOWEVER, that if this Warrant is properly assigned in blank, the Company may (but shall not be required to) treat the bearer hereof as the absolute owner hereof for all purposes, notwithstanding any notice to the contrary. Any Registered Holder may change such Registered Holder's address as shown on the warrant register by written notice to the Company requesting such change. 4. NO IMPAIRMENT. The Company will not, by amendment of its charter or through reorganization, consolidation, merger, dissolution, sale of assets or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will (subject to Section 13 below) at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holder of this Warrant against impairment. 5. TERMINATION. This Warrant (and the right to purchase securities upon exercise hereof) shall terminate upon the earliest to occur of the following (the "EXPIRATION DATE"): (a) February 27, 2003, or (b) the effective date of the sale, conveyance, disposal, or encumbrance of all or substantially all of the Company's property or business or the Company's merger into or consolidation with any other corporation (other than a wholly-owned subsidiary corporation) or any other transaction or series of related transactions in which more than fifty percent (50%) of the voting power of the Company is disposed of, PROVIDED that this Section 5(b) shall not apply a merger effected exclusively for the purpose of changing the domicile of the Company. 6. NOTICES OF CERTAIN TRANSACTIONS. In case: (a) the Company shall take a record of the holders of its Common Stock (or other stock or securities at the time deliverable upon the exercise of this Warrant) for the purpose of entitling or enabling them to receive any dividend or other distribution, or to receive any right to subscribe for or purchase any shares of stock of any class or any other securities, or to receive any other right, to subscribe for or purchase any shares of stock of any class or any other securities, or to receive any other right, or (b) of any capital reorganization of the Company, any reclassification of the capital stock of the Company, any consolidation or merger of the Company, any consolidation or merger of the Company with or into another corporation (other than a consolidation or merger in which the Company is the surviving entity), or any transfer of all or substantially all of the assets of the Company, or (c) of the voluntary or involuntary dissolution, liquidation or winding-up of the Company, then, and in each such case, the Company will mail or cause to be mailed to the Registered Holder of this Warrant a notice specifying, as the case may be, (i) the date on which a record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, or (ii) the effective date on which such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up is to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock (or such other stock or securities at the time deliverable upon such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up) are to be determined. Such notice shall be mailed at least ten (10) days prior to the record date or effective date for the event specified in such notice. 7. RESERVATION OF STOCK. The Company will at all times reserve and keep available, solely for the issuance and delivery upon the exercise of this Warrant, such shares of Warrant Stock and other stock, securities and property, as from time to time shall be issuable upon the exercise of this Warrant. 8. EXCHANGE OF WARRANTS. Upon the surrender by the Registered Holder of any Warrant or Warrants, properly endorsed, to the Company at the principal office of the Company, the Company will, subject to the provisions of Section 3 hereof, issue and deliver to or upon the order of such Holder, at the Company's expense, a new Warrant or Warrants of like tenor, in the name of such Registered Holder or as such Registered Holder (upon payment by such Registered Holder of any applicable transfer taxes) may direct, calling in the aggregate on the face or faces thereof for the number of shares of Common Stock called for on the face or faces of the Warrant or Warrants so surrendered. 9. REPLACEMENT OF WARRANTS. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and (in the case of loss, theft or destruction) upon delivery of an indemnity agreement (with surety if reasonably required) in an amount reasonably satisfactory to the Company, or (in the case of mutilation) upon surrender and cancellation of this Warrant, the Company will issue, in lieu thereof, a new Warrant of like tenor. 10. NOTICES. Any notice required or permitted by this Warrant shall be in writing and shall be deemed sufficient upon receipt, when delivered personally or by courier, overnight delivery service or confirmed facsimile, or forty-eight (48) hours after being deposited in the regular mail as certified or registered mail (airmail if sent internationally) with postage prepaid, addressed (a) if to the Registered Holder, to the address of the Registered Holder most recently furnished in writing to the Company and (b) if to the Company, to the address set forth below or subsequently modified by written notice to the Registered Holder. 11. NO RIGHTS AS SHAREHOLDER. Until the exercise of this Warrant, the Registered Holder of this Warrant shall not have or exercise any rights by virtue hereof as a shareholder of the Company. 12. NO FRACTIONAL SHARES. No fractional shares of Common Stock will be issued in connection with any exercise hereunder. In lieu of any fractional shares which would otherwise be issuable, the Company shall pay cash equal to the product of such fraction multiplied by the fair market value of one share of Common Stock on the date of exercise, as determined in good faith by the Company's Board of Directors. 13. AMENDMENT OR WAIVER. Any term of this Warrant may be amended or waived only by an instrument in writing signed by the party against which enforcement of the amendment or waiver is sought. 14. HEADINGS. The headings in this Warrant are for purposes of reference only and shall not limit or otherwise affect the meaning of any provision of this Warrant. 15. GOVERNING LAW. This Warrant shall be governed, construed and interpreted in accordance with the laws of the State of California, without giving effect to principles of conflicts of law. 16. REGISTRATION OF SECURITIES. (a) As soon as possible after the original date of issuance of this Warrant, the Company shall use its best efforts to prepare and file a registration statement on Form S-3 (the "REGISTRATION STATEMENT") with the Commission under the Act to register the resale of the Common Stock issuable upon exercise of the Warrant ("REGISTRABLE SECURITIES") and thereafter shall use its best efforts to secure the effectiveness of such Registration Statement. (b) The Company shall pay all Registration Expenses (as defined below) in connection with any registration, qualification or compliance hereunder, and Purchaser or any transferee of the Registrable Securities (each, a "HOLDER") shall pay all Selling Expenses (as defined below) and other expenses that are not Registration Expenses relating to the Registrable Securities resold by Holder. "Registration Expenses" shall mean all expenses, except for Selling Expenses, incurred by the Company in complying with the registration provisions herein described, including, without limitation, all registration, qualification and filing fees, printing expenses, fees and disbursements of counsel for the Company and the Holder (in an amount for Holder's counsel not to exceed $5,000), blue sky fees and expenses and the expense of any special audits incident to or required by any such registration. "Selling Expenses" shall mean all selling commissions, brokerage or underwriting fees and stock transfer taxes applicable to the Registrable Securities and all fees and disbursements of counsel for Holder in excess of $5,000. (c) In the case of any registration effected by the Company pursuant to these registration provisions, and subject to the limitations on registration set forth in Section 16(d) below, the Company will use commercially reasonable efforts to: (i) keep such registration effective until two (2) years after the issuance date set forth on page 1 hereof; (ii) prepare and file with the Commission such amendments and supplements to such Registration Statement and the prospectus used in connection with such Registration Statement as may be necessary to comply with the provisions of the Act with respect to the disposition of all securities covered by such Registration Statement; (iii) furnish such number of prospectuses and other documents incident thereto, including any amendment of or supplement to the prospectus, as a Holder from time to time may reasonably request; (iv) register and qualify the securities covered by such Registration Statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions; (v) cause all such Registrable Securities registered as described herein to be listed on each securities exchange and quoted on each quotation service on which similar securities issued by the Company are then listed or quoted; and (vi) otherwise use commercially reasonable efforts to comply with all applicable rules and regulations of the Commission. (d) The Company may, by written notice to Holder, delay the filing or effectiveness of, or suspend, the Registration Statement, and require that Holder immediately cease sales of shares pursuant to such Registration Statement in any period during which the Company is engaged in any activity or transaction or preparations or negotiations for any activity or transaction ("COMPANY ACTIVITY") that the Company desires to keep confidential for business reasons, if the Company determines in good faith that the public disclosure requirements imposed on the Company under the Act in connection with the Registration Statement would require disclosure of the Company Activity; provided, however, that (A) the Company shall use commercially reasonable efforts to minimize the length of any such period of delay or suspension, (B) any such delay or suspension shall be applied in the same manner to any other resale registration statement then in effect, (C) no such suspension period shall extend longer than forty-five (45) consecutive calendar days, (D) no such suspension period may be imposed within forty-five (45) days following the completion of a prior suspension period, and (E) the Company shall not impose suspension periods which, in the aggregate, exceed ninety (90) days in any twelve (12) month period. If the Company delays or suspends the Registration Statement or requires Holder to cease sales of shares pursuant to this Section 4(d), the Company shall, as promptly as practicable following the termination of the circumstance which entitled the Company to do so, take such actions as may be necessary to file or reinstate the effectiveness of the Registration Statement and/or give written notice to Holder authorizing it to resume sales pursuant to such Registration Statement. If as a result thereof the prospectus included in the Registration Statement has been amended to comply with the requirements of the Act, the Company shall enclose such revised prospectus with the notice to Holders given pursuant to this Section 4(d), and Holder shall make no offers or sales of shares pursuant to the Registration Statement other than by means of such revised prospectus. If the Company delays or suspends the Registration Statement or requires Holder to cease sales of shares pursuant to this Section 4(d), the Company shall extend the period during which it maintains effectiveness of the Registration Statement by the number of days of any such period of delay or suspension. (e) Holder hereby agrees to comply with the registration provisions herein described. Holder will only sell Registrable Securities at such time that information required to be included in the Registration Statement and previously supplied by Holder is accurate. The Company shall furnish to Holder a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the Holders of such shares, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading or incomplete in the light of the circumstances then existing. Holder agrees that the Company may impose a legend setting forth the provisions of Section 16(e) on the Registrable Securities during the period of registration. (f) With a view to making available to the holders the benefits of Rule 144 promulgated under the Act and any other rule or regulation of the Commission that may at any time permit Holder to sell Registrable Securities to the public without registration or pursuant to a registration on Form S-3, the Company hereby covenants and agrees to: (i) make and keep public information available, as those terms are understood and defined in Rule 144, at all times after the issuance of this Warrant; and (ii) file with the Commission in a timely manner all reports and other documents required of the Company under the Act and Exchange Act. (g) Indemnification. (i) To the extent permitted by law, the Company will indemnify and hold harmless Holder, any underwriter (as defined in the Act) for Holder, its officers, directors, shareholders or partners and each person, if any, who controls Holder or underwriter within the meaning of the Act or the Exchange Act, against any losses, claims, damages, or liabilities to which they may become subject under the Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a "VIOLATION"): (A) any untrue statement or alleged untrue statement of a material fact contained in such Registration Statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto or (B) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading; and the Company will pay to each such Holder, underwriter or controlling person, as incurred, any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this Section 16(g)(i) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability, or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable in any such case for any such loss, claim, damage, liability, or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by any such Holder, underwriter or controlling person; further provided, however, that the foregoing indemnity with respect to any untrue statement in or omission from any preliminary prospectus shall not inure to the benefit of any Holder from whom the person asserting any such losses, claims, damages or liabilities purchased the Registrable Securities if a copy of the final prospectus or any amendment thereto had not been sent or given to such person at or prior to the written confirmation of the sale of such Registrable Securities to such person if required by the Act and the untrue statement or omission of a material fact contained in such preliminary prospectus was corrected in the final prospectus or amendment and such final prospectus or amendment was distributed to the Holder prior to such sale of Registrable Securities. (ii) To the extent permitted by law, each selling Holder will indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the Registration Statement, each person, if any, who controls the Company within the meaning of the Act, any underwriter, any other Holder selling securities in such Registration Statement and any controlling person of any such underwriter or other Holder, against any losses, claims, damages, or liabilities to which any of the foregoing persons may become subject, under the Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Holder expressly for use in connection with such registration; and each such Holder will pay, as incurred, any legal or other expenses reasonably incurred by any person intended to be indemnified pursuant to this subsection 16(g)(ii), in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this subsection 16 (g)(ii) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld; provided, that, in no event shall any indemnity under this subsection 16(g)(ii) exceed the net proceeds from the offering received by such Holder, except in the case of willful fraud by such Holder. (iii) Promptly after receipt by an indemnified party under this Section 16(g) of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 16(g), deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party (together with all other indemnified parties which may be represented without conflict by one counsel) shall have the right to retain one separate counsel, with the reasonable fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if and only if prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 16(g). 17. RESALE RESTRICTIONS. Holder agrees that it will not sell any Registrable Securities issued hereunder until the effectiveness of the Registration Statement to be filed pursuant to Section 16 above. Notwithstanding the foregoing, the Company may suspend resales by the Holder if an underwriter reasonably determines that such resales would adversely affect the Company's ability to raise additional capital in a public offering of the Company's equity securities and such underwriter issues a written opinion to the Company to that effect. Any such suspension of resales by the Holder pursuant to the foregoing sentence will not exceed 120 calendar days commencing on the date of the secondary offering. The volume and resale restrictions set forth in this Section 17 shall be set forth in any and all Registration Statements brought effective pursuant to Section 16 above, and the Company shall instruct its transfer agent, broker dealers and market makers to enforce the volume restrictions set forth herein. If the Company suspends resales by the Holder pursuant to this Section 17, the Company shall extend the period during which it maintains effectiveness of the Registration Statement by the number of days of any such period of suspension. [SIGNATURE PAGE FOLLOWS] Executed as of the date first set forth herein above. CENTURA SOFTWARE CORPORATION By /s/ John Bowman ------------------------- Title: CFO --------------------- Address: 975 Island Drive Redwood Shores, CA 94065 Fax Number:(650)-596-4376 EXHIBIT A --------- PURCHASE FORM ------------- To: Centura Software Corporation Dated: The undersigned, pursuant to the provisions set forth in the attached Warrant No. CS-[WarrantNo], hereby irrevocably elects to purchase _______ shares of the Common Stock covered by such Warrant and herewith makes payment of $_________, representing the full purchase price for such shares at the price per share provided for in such Warrant. The undersigned further acknowledges that it has reviewed the representations and warranties contained in Section 4 of the Purchase Agreement (as defined in the Warrant) and by its signature below hereby makes such representations and warranties to the Company. Defined terms contained in such representations and warranties shall have the meanings assigned to them in the Purchase Agreement, PROVIDED that the term "Seller" shall refer to the undersigned and the term "Securities" shall refer to the Warrant Stock. Signature: ----------------------------- Address: ----------------------------- EXHIBIT B --------- ASSIGNMENT FORM --------------- FOR VALUE RECEIVED, _________________________________________ hereby sells, assigns and transfers all of the rights of the undersigned under the attached Warrant with respect to the number of shares of Common Stock covered thereby set forth below, unto: NAME OF ASSIGNEE ADDRESS/FAX NUMBER NO. OF SHARES - ------------------------ ------------------------ ------------------------ Dated: Signature: ----------------------------- ----------------------------- ----------------------------- Witness: ------------------------------- THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933. - ------------------------------------------------------------------------------- Warrant No. CS98-22 Number of Shares: 71,698 Date of Issuance: February 27, 1998 (subject to adjustment) CENTURA SOFTWARE CORPORATION COMMON STOCK PURCHASE WARRANT ----------------------------- Centura Software Corporation (the "COMPANY"), for value received, hereby certifies that Rochon Capital Group, Ltd., or its registered assigns (the "REGISTERED HOLDER"), is entitled, subject to the terms set forth below, to purchase from the Company, at any time after the date hereof and on or before the Expiration Date (as defined in Section 5 below), up to 71,698 shares (as adjusted from time to time pursuant to the provisions of this Warrant) of Common Stock of the Company, at a purchase price of $2.12 per share. The shares purchasable upon exercise of this Warrant and the purchase price per share, as adjusted from time to time pursuant to the provisions of this Warrant, are sometimes hereinafter referred to as the "WARRANT STOCK" and the "PURCHASE PRICE," respectively. 1. EXERCISE. (a) MANNER OF EXERCISE. This Warrant may be exercised by the Registered Holder, in whole or in part, by surrendering this Warrant, with the purchase form appended hereto as EXHIBIT A duly executed by such Registered Holder or by such Registered Holder's duly authorized attorney, at the principal office of the Company, or at such other office or agency as the Company may designate, accompanied by payment in full of the Purchase Price payable in respect of the number of shares of Warrant Stock purchased upon such exercise. The Purchase Price may be paid by cash, check or wire transfer to the Registered Holder. (b) EFFECTIVE TIME OF EXERCISE. Each exercise of this Warrant shall be deemed to have been effected immediately prior to the close of business on the day on which this Warrant shall have been surrendered to the Company as provided in Section 1(a) above. At such time, the person or persons in whose name or names any certificates for Warrant Stock shall be issuable upon such exercise as provided in Section 1(d) below shall be deemed to have become the holder or holders of record of the Warrant Stock represented by such certificates. (c) NET ISSUE EXERCISE. (i) In lieu of exercising this Warrant in the manner provided above in Section 1(a), the Registered Holder may elect to receive shares equal to the value of this Warrant (or the portion thereof being canceled) by surrender of this Warrant at the principal office of the Company together with notice of such election in which event the Company shall issue to holder a number of shares of Common Stock computed using the following formula: X = Y (A - B) --------- A Where X = The number of shares of Common Stock to be issued to the Registered Holder. Y = The number of shares of Common Stock as to which the Warrant is being exercised A = The fair market value of one share of Common Stock (at the date of such calculation). B = The Purchase Price (as adjusted to the date of such calculation). (ii) For purposes of this Section 1(c), the fair market value of one share of Common Stock on the date of calculation shall mean: (1) if the Company's Common Stock is traded on a securities exchange, The Nasdaq Stock Market, or The Nasdaq SmallCap Market, the fair market value shall be deemed to be the closing price on the trading day immediately preceding the date of exercise of the Warrant; or (2) if the Company's Common Stock is actively traded over-the-counter, the fair market value shall be deemed to be the closing bid or sales price (whichever is applicable) on the trading day immediately preceding the date of exercise of the Warrant; or (3) if neither (1) nor (2) is applicable, the fair market value shall be at the highest price per share which the Company could obtain on the date of calculation from a willing buyer (not a current employee or director) for shares of Common Stock sold by the Company, from authorized but unissued shares, as determined in good faith by the Board of Directors, unless the Company is at such time subject to an acquisition as described in Section 5(b) below, in which case the fair market value per share of Common Stock shall be deemed to be the value of the consideration per share received by the holders of such stock pursuant to such acquisition. (d) DELIVERY TO HOLDER. As soon as practicable after the exercise of this Warrant in whole or in part, and in any event within three (3) days thereafter, the Company at its expense will cause to be issued in the name of, and delivered to, the Registered Holder, or as such Holder (upon payment by such Holder of any applicable transfer taxes) may direct: (i) a certificate or certificates for the number of shares of Warrant Stock to which such Registered Holder shall be entitled, and (ii) in case such exercise is in part only, a new warrant or warrants (dated the date hereof) of like tenor, calling in the aggregate on the face or faces thereof for the number of shares of Warrant Stock equal (without giving effect to any adjustment therein) to the number of such shares called for on the face of this Warrant minus the number of such shares purchased by the Registered Holder upon such exercise as provided in Section 1(a) above. 2. ADJUSTMENTS. (a) STOCK SPLITS AND DIVIDENDS. If outstanding shares of the Company's Common Stock shall be subdivided into a greater number of shares or a dividend in Common Stock shall be paid in respect of Common Stock, the Purchase Price in effect immediately prior to such subdivision or at the record date of such dividend shall simultaneously with the effectiveness of such subdivision or immediately after the record date of such dividend be proportionately reduced. If outstanding shares of Common Stock shall be combined into a smaller number of shares, the Purchase Price in effect immediately prior to such combination shall, simultaneously with the effectiveness of such combination, be proportionately increased. When any adjustment is required to be made in the Purchase Price, the number of shares of Warrant Stock purchasable upon the exercise of this Warrant shall be changed to the number determined by dividing (i) an amount equal to the number of shares issuable upon the exercise of this Warrant immediately prior to such adjustment, multiplied by the Purchase Price in effect immediately prior to such adjustment, by (ii) the Purchase Price in effect immediately after such adjustment. (b) RECLASSIFICATION, ETC. In case of any reclassification or change of the outstanding securities of the Company or of any reorganization of the Company (or any other corporation the stock or securities of which are at the time receivable upon the exercise of this Warrant) or any similar corporate reorganization or merger or conveyance on or after the date hereof, then and in each such case the holder of this Warrant, upon the exercise hereof at any time after the consummation of such reclassification, change, reorganization, merger or conveyance, shall be entitled to receive, in lieu of the stock or other securities and property receivable upon the exercise hereof prior to such consummation, the stock or other securities or property to which such holder would have been entitled upon such consummation if such holder had exercised this Warrant immediately prior thereto, all subject to further adjustment as provided in Section 2(a); and in each such case, the terms of this Section 2 shall be applicable to the shares of stock or other securities properly receiv- able upon the exercise of this Warrant after such consummation. (c) ADJUSTMENT CERTIFICATE. When any adjustment is required to be made in the Purchase Price, the Company shall promptly mail to the Registered Holder a certificate setting forth the Purchase Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment. Such certificate shall also set forth the kind and amount of stock or other securities or property into which this Warrant shall be exercisable following the occurrence of any of the events specified in Section 2(a) or 2(b) above. 3. TRANSFERS. (a) UNREGISTERED SECURITY. Each holder of this Warrant acknowledges that this Warrant and the Warrant Stock have not been registered under the Securities Act, and agrees not to sell, pledge, distribute, offer for sale, transfer or otherwise dispose of this Warrant or any Warrant Stock issued upon its exercise in the absence of (i) an effective registration statement under the Act as to this Warrant or such Warrant Stock and registration or qualification of this Warrant or such Warrant Stock under any applicable U.S. federal or state securities law then in effect or (ii) an opinion of counsel, satisfactory to the Company, that such registration and qualification are not required. Each certificate or other instrument for Warrant Stock issued upon the exercise of this Warrant shall bear a legend substantially to the foregoing effect until such time as the registration of the Warrant Stock is effective or until such time as the Warrant Stock has been held by the holder (after giving effect to permissible tacking under Rule 144) for at least two years, at and after which time no legend shall be required. (b) TRANSFERABILITY. Subject to the provisions of Section 3(a) hereof, this Warrant and all rights hereunder are transferable, in whole or in part, upon surrender of the Warrant with a properly executed assignment (in the form of EXHIBIT B hereto) at the principal office of the Company, PROVIDED, HOWEVER, that this Warrant may not be transferred in part unless the transferee and any subsequent tranferee acquires the right to purchase at least 25,000 shares (as adjusted pursuant to Section 2) of Warrant Stock hereunder. (c) WARRANT REGISTER. The Company will maintain a register containing the names and addresses of the Registered Holders of this Warrant. Until any transfer of this Warrant is made in the warrant register, the Company may treat the Registered Holder of this Warrant as the absolute owner hereof for all purposes; PROVIDED, HOWEVER, that if this Warrant is properly assigned in blank, the Company may (but shall not be required to) treat the bearer hereof as the absolute owner hereof for all purposes, notwithstanding any notice to the contrary. Any Registered Holder may change such Registered Holder's address as shown on the warrant register by written notice to the Company requesting such change. 4. NO IMPAIRMENT. The Company will not, by amendment of its charter or through reorganization, consolidation, merger, dissolution, sale of assets or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will (subject to Section 13 below) at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holder of this Warrant against impairment. 5. TERMINATION. This Warrant (and the right to purchase securities upon exercise hereof) shall terminate upon the earliest to occur of the following (the "EXPIRATION DATE"): (a) February 27, 2003, or (b) the effective date of the sale, conveyance, disposal, or encumbrance of all or substantially all of the Company's property or business or the Company's merger into or consolidation with any other corporation (other than a wholly-owned subsidiary corporation) or any other transaction or series of related transactions in which more than fifty percent (50%) of the voting power of the Company is disposed of, PROVIDED that this Section 5(b) shall not apply a merger effected exclusively for the purpose of changing the domicile of the Company. 6. NOTICES OF CERTAIN TRANSACTIONS. In case: (a) the Company shall take a record of the holders of its Common Stock (or other stock or securities at the time deliverable upon the exercise of this Warrant) for the purpose of entitling or enabling them to receive any dividend or other distribution, or to receive any right to subscribe for or purchase any shares of stock of any class or any other securities, or to receive any other right, to subscribe for or purchase any shares of stock of any class or any other securities, or to receive any other right, or (b) of any capital reorganization of the Company, any reclassification of the capital stock of the Company, any consolidation or merger of the Company, any consolidation or merger of the Company with or into another corporation (other than a consolidation or merger in which the Company is the surviving entity), or any transfer of all or substantially all of the assets of the Company, or (c) of the voluntary or involuntary dissolution, liquidation or winding-up of the Company, then, and in each such case, the Company will mail or cause to be mailed to the Registered Holder of this Warrant a notice specifying, as the case may be, (i) the date on which a record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, or (ii) the effective date on which such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up is to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock (or such other stock or securities at the time deliverable upon such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up) are to be determined. Such notice shall be mailed at least ten (10) days prior to the record date or effective date for the event specified in such notice. 7. RESERVATION OF STOCK. The Company will at all times reserve and keep available, solely for the issuance and delivery upon the exercise of this Warrant, such shares of Warrant Stock and other stock, securities and property, as from time to time shall be issuable upon the exercise of this Warrant. 8. EXCHANGE OF WARRANTS. Upon the surrender by the Registered Holder of any Warrant or Warrants, properly endorsed, to the Company at the principal office of the Company, the Company will, subject to the provisions of Section 3 hereof, issue and deliver to or upon the order of such Holder, at the Company's expense, a new Warrant or Warrants of like tenor, in the name of such Registered Holder or as such Registered Holder (upon payment by such Registered Holder of any applicable transfer taxes) may direct, calling in the aggregate on the face or faces thereof for the number of shares of Common Stock called for on the face or faces of the Warrant or Warrants so surrendered. 9. REPLACEMENT OF WARRANTS. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and (in the case of loss, theft or destruction) upon delivery of an indemnity agreement (with surety if reasonably required) in an amount reasonably satisfactory to the Company, or (in the case of mutilation) upon surrender and cancellation of this Warrant, the Company will issue, in lieu thereof, a new Warrant of like tenor. 10. NOTICES. Any notice required or permitted by this Warrant shall be in writing and shall be deemed sufficient upon receipt, when delivered personally or by courier, overnight delivery service or confirmed facsimile, or forty-eight (48) hours after being deposited in the regular mail as certified or registered mail (airmail if sent internationally) with postage prepaid, addressed (a) if to the Registered Holder, to the address of the Registered Holder most recently furnished in writing to the Company and (b) if to the Company, to the address set forth below or subsequently modified by written notice to the Registered Holder. 11. NO RIGHTS AS SHAREHOLDER. Until the exercise of this Warrant, the Registered Holder of this Warrant shall not have or exercise any rights by virtue hereof as a shareholder of the Company. 12. NO FRACTIONAL SHARES. No fractional shares of Common Stock will be issued in connection with any exercise hereunder. In lieu of any fractional shares which would otherwise be issuable, the Company shall pay cash equal to the product of such fraction multiplied by the fair market value of one share of Common Stock on the date of exercise, as determined in good faith by the Company's Board of Directors. 13. AMENDMENT OR WAIVER. Any term of this Warrant may be amended or waived only by an instrument in writing signed by the party against which enforcement of the amendment or waiver is sought. 14. HEADINGS. The headings in this Warrant are for purposes of reference only and shall not limit or otherwise affect the meaning of any provision of this Warrant. 15. GOVERNING LAW. This Warrant shall be governed, construed and interpreted in accordance with the laws of the State of California, without giving effect to principles of conflicts of law. 16. REGISTRATION OF SECURITIES. (a) As soon as possible after the original date of issuance of this Warrant, the Company shall use its best efforts to prepare and file a registration statement on Form S-3 (the "REGISTRATION STATEMENT") with the Commission under the Act to register the resale of the Common Stock issuable upon exercise of the Warrant ("REGISTRABLE SECURITIES") and thereafter shall use its best efforts to secure the effectiveness of such Registration Statement. (b) The Company shall pay all Registration Expenses (as defined below) in connection with any registration, qualification or compliance hereunder, and Purchaser or any transferee of the Registrable Securities (each, a "HOLDER") shall pay all Selling Expenses (as defined below) and other expenses that are not Registration Expenses relating to the Registrable Securities resold by Holder. "Registration Expenses" shall mean all expenses, except for Selling Expenses, incurred by the Company in complying with the registration provisions herein described, including, without limitation, all registration, qualification and filing fees, printing expenses, fees and disbursements of counsel for the Company and the Holder (in an amount for Holder's counsel not to exceed $5,000), blue sky fees and expenses and the expense of any special audits incident to or required by any such registration. "Selling Expenses" shall mean all selling commissions, brokerage or underwriting fees and stock transfer taxes applicable to the Registrable Securities and all fees and disbursements of counsel for Holder in excess of $5,000. (c) In the case of any registration effected by the Company pursuant to these registration provisions, and subject to the limitations on registration set forth in Section 16(d) below, the Company will use commercially reasonable efforts to: (i) keep such registration effective until two (2) years after the issuance date set forth on page 1 hereof; (ii) prepare and file with the Commission such amendments and supplements to such Registration Statement and the prospectus used in connection with such Registration Statement as may be necessary to comply with the provisions of the Act with respect to the disposition of all securities covered by such Registration Statement; (iii) furnish such number of prospectuses and other documents incident thereto, including any amendment of or supplement to the prospectus, as a Holder from time to time may reasonably request; (iv) register and qualify the securities covered by such Registration Statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions; (v) cause all such Registrable Securities registered as described herein to be listed on each securities exchange and quoted on each quotation service on which similar securities issued by the Company are then listed or quoted; and (vi) otherwise use commercially reasonable efforts to comply with all applicable rules and regulations of the Commission. (d) The Company may, by written notice to Holder, delay the filing or effectiveness of, or suspend, the Registration Statement, and require that Holder immediately cease sales of shares pursuant to such Registration Statement in any period during which the Company is engaged in any activity or transaction or preparations or negotiations for any activity or transaction ("COMPANY ACTIVITY") that the Company desires to keep confidential for business reasons, if the Company determines in good faith that the public disclosure requirements imposed on the Company under the Act in connection with the Registration Statement would require disclosure of the Company Activity; provided, however, that (A) the Company shall use commercially reasonable efforts to minimize the length of any such period of delay or suspension, (B) any such delay or suspension shall be applied in the same manner to any other resale registration statement then in effect, (C) no such suspension period shall extend longer than forty-five (45) consecutive calendar days, (D) no such suspension period may be imposed within forty-five (45) days following the completion of a prior suspension period, and (E) the Company shall not impose suspension periods which, in the aggregate, exceed ninety (90) days in any twelve (12) month period. If the Company delays or suspends the Registration Statement or requires Holder to cease sales of shares pursuant to this Section 4(d), the Company shall, as promptly as practicable following the termination of the circumstance which entitled the Company to do so, take such actions as may be necessary to file or reinstate the effectiveness of the Registration Statement and/or give written notice to Holder authorizing it to resume sales pursuant to such Registration Statement. If as a result thereof the prospectus included in the Registration Statement has been amended to comply with the requirements of the Act, the Company shall enclose such revised prospectus with the notice to Holders given pursuant to this Section 4(d), and Holder shall make no offers or sales of shares pursuant to the Registration Statement other than by means of such revised prospectus. If the Company delays or suspends the Registration Statement or requires Holder to cease sales of shares pursuant to this Section 4(d), the Company shall extend the period during which it maintains effectiveness of the Registration Statement by the number of days of any such period of delay or suspension. (e) Holder hereby agrees to comply with the registration provisions herein described. Holder will only sell Registrable Securities at such time that information required to be included in the Registration Statement and previously supplied by Holder is accurate. The Company shall furnish to Holder a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the Holders of such shares, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading or incomplete in the light of the circumstances then existing. Holder agrees that the Company may impose a legend setting forth the provisions of Section 16(e) on the Registrable Securities during the period of registration. (f) With a view to making available to the holders the benefits of Rule 144 promulgated under the Act and any other rule or regulation of the Commission that may at any time permit Holder to sell Registrable Securities to the public without registration or pursuant to a registration on Form S-3, the Company hereby covenants and agrees to: (i) make and keep public information available, as those terms are understood and defined in Rule 144, at all times after the issuance of this Warrant; and (ii) file with the Commission in a timely manner all reports and other documents required of the Company under the Act and Exchange Act. (g) INDEMNIFICATION. (i) To the extent permitted by law, the Company will indemnify and hold harmless Holder, any underwriter (as defined in the Act) for Holder, its officers, directors, shareholders or partners and each person, if any, who controls Holder or underwriter within the meaning of the Act or the Exchange Act, against any losses, claims, damages, or liabilities to which they may become subject under the Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a "Violation"): (A) any untrue statement or alleged untrue statement of a material fact contained in such Registration Statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto or (B) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading; and the Company will pay to each such Holder, underwriter or controlling person, as incurred, any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this Section 16(g)(i) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability, or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable in any such case for any such loss, claim, damage, liability, or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by any such Holder, underwriter or controlling person; further provided, however, that the foregoing indemnity with respect to any untrue statement in or omission from any preliminary prospectus shall not inure to the benefit of any Holder from whom the person asserting any such losses, claims, damages or liabilities purchased the Registrable Securities if a copy of the final prospectus or any amendment thereto had not been sent or given to such person at or prior to the written confirmation of the sale of such Registrable Securities to such person if required by the Act and the untrue statement or omission of a material fact contained in such preliminary prospectus was corrected in the final prospectus or amendment and such final prospectus or amendment was distributed to the Holder prior to such sale of Registrable Securities. (ii) To the extent permitted by law, each selling Holder will indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the Registration Statement, each person, if any, who controls the Company within the meaning of the Act, any underwriter, any other Holder selling securities in such Registration Statement and any controlling person of any such underwriter or other Holder, against any losses, claims, damages, or liabilities to which any of the foregoing persons may become subject, under the Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Holder expressly for use in connection with such registration; and each such Holder will pay, as incurred, any legal or other expenses reasonably incurred by any person intended to be indemnified pursuant to this subsection 16(g)(ii), in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this subsection 16 (g)(ii) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld; provided, that, in no event shall any indemnity under this subsection 16(g)(ii) exceed the net proceeds from the offering received by such Holder, except in the case of willful fraud by such Holder. (iii) Promptly after receipt by an indemnified party under this Section 16(g) of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 16(g), deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party (together with all other indemnified parties which may be represented without conflict by one counsel) shall have the right to retain one separate counsel, with the reasonable fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if and only if prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 16(g). 17. RESALE RESTRICTIONS. Holder agrees that it will not sell any Registrable Securities issued hereunder until the effectiveness of the Registration Statement to be filed pursuant to Section 16 above. Notwithstanding the foregoing, the Company may suspend resales by the Holder if an underwriter reasonably determines that such resales would adversely affect the Company's ability to raise additional capital in a public offering of the Company's equity securities and such underwriter issues a written opinion to the Company to that effect. Any such suspension of resales by the Holder pursuant to the foregoing sentence will not exceed 120 calendar days commencing on the date of the secondary offering. The volume and resale restrictions set forth in this Section 17 shall be set forth in any and all Registration Statements brought effective pursuant to Section 16 above, and the Company shall instruct its transfer agent, broker dealers and market makers to enforce the volume restrictions set forth herein. If the Company suspends resales by the Holder pursuant to this Section 17, the Company shall extend the period during which it maintains effectiveness of the Registration Statement by the number of days of any such period of suspension. [SIGNATURE PAGE FOLLOWS] Executed as of the date first set forth herein above. CENTURA SOFTWARE CORPORATION By /s/ John Bowman ------------------------- Title: CFO ------------------------- Address: 975 Island Drive Redwood Shores, CA 94065 Fax Number: (650)-596-4376 EXHIBIT A --------- PURCHASE FORM ------------- To: Centura Software Corporation Dated: The undersigned, pursuant to the provisions set forth in the attached Warrant No. CS-[WarrantNo], hereby irrevocably elects to purchase _______ shares of the Common Stock covered by such Warrant and herewith makes payment of $_________, representing the full purchase price for such shares at the price per share provided for in such Warrant. The undersigned further acknowledges that it has reviewed the representations and warranties contained in Section 4 of the Purchase Agreement (as defined in the Warrant) and by its signature below hereby makes such representations and warranties to the Company. Defined terms contained in such representations and warranties shall have the meanings assigned to them in the Purchase Agreement, PROVIDED that the term "Seller" shall refer to the undersigned and the term "Securities" shall refer to the Warrant Stock. Signature: ----------------------------- Address: ----------------------------- EXHIBIT B --------- ASSIGNMENT FORM --------------- FOR VALUE RECEIVED, _________________________________________ hereby sells, assigns and transfers all of the rights of the undersigned under the attached Warrant with respect to the number of shares of Common Stock covered thereby set forth below, unto: NAME OF ASSIGNEE ADDRESS/FAX NUMBER NO. OF SHARES - ------------------------ ------------------------ ------------------------ Dated: Signature: ----------------------------- ----------------------------- ----------------------------- Witness: ------------------------------- EX-10.35 12 EXHIBIT 10.35 CENTURA SOFTWARE CORPORATION ---------------------------- 1998 EMPLOYEE STOCK OPTION PLAN ------------------------------- 1. PURPOSES OF THE PLAN. The purposes of this 1998 Employee Stock Option Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to the Employees and Consultants of the Company and to promote the success of the Company's business. Options granted hereunder shall be Nonstatutory Stock Options. 2. DEFINITIONS. As used herein, the following definitions shall apply: (a) "ADMINISTRATOR" shall mean the Board or any of its Committees appointed pursuant to Section 4 of the Plan. (b) "BOARD" shall mean the Board of Directors of the Company. (c) "CODE" shall mean the Internal Revenue Code of 1986, as amended. (d) "COMMITTEE" shall mean the Committee appointed by the Board of Directors in accordance with paragraph (a) of Section 4 of the Plan, if one is appointed. The Committee members shall not be required to be Board members. (e) "COMMON STOCK" shall mean the Common Stock of the Company. (f) "COMPANY" shall mean Centura Software Corporation, a California corporation. (g) "CONSULTANT" shall mean any person who is engaged by the Company or any Parent or Subsidiary to render consulting services and is compensated for such consulting services, excluding any Officers, Named Executives and Directors. (h) "CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT" shall mean the absence of any interruption or termination of service as an Employee or Consultant. Continuous Status as an Employee or Consultant shall not be considered interrupted in the case of sick leave, military leave, or any other leave of absence approved by the Board; provided that such leave is for a period of not more than 90 days or reemployment upon the expiration of such leave is guaranteed by contract or statute. (i) "DIRECTOR" shall mean a member of the Board. (j) "EMPLOYEE" shall mean any person who is employed by the Company or any Parent or Subsidiary of the Company, excluding any Officers, Named Executives and Directors. Notwithstanding the foregoing, an Officer who was not previously employed by the Company and for whom an Option grant is an inducement essential to the Officer's entering into an employment relationship or contract with the Company, shall be treated as an Employee for purposes of the Option grant made to the Officer in connection with commencement of the Officer's employment with the Company. (k) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended. (l) "FAIR MARKET VALUE" shall mean, as of any date, the value of Common Stock determined as follows: (i) If the Common Stock is listed on any established stock exchange or a national market system including without limitation the National Market of the National Association of Securities Dealers, Inc. Automated Quotation ("Nasdaq") System, its Fair Market Value shall be the closing sales price for such stock as quoted on such exchange on system for the last market trading day PRIOR TO THE DATE OF DETERMINATION (if for a given day no sales were reported, the closing bid on that day shall be used), as such price is reported in THE WALL STREET JOURNAL or such other source as the Administrator deems reliable; (ii) If the Common Stock is quoted on the Nasdaq System (but not on the National Market thereof) or regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean between the bid and asked prices for the Common Stock or; (iii) In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Administrator. (m) "NAMED EXECUTIVE" shall mean any individual who, on the last day of the Company's fiscal year, is the chief executive officer of the Company (or is acting in such capacity) or among the four highest compensated officers of the Company (other than the chief executive officer). Such officer status shall be determined pursuant to the executive compensation disclosure rules under the Exchange Act. (n) "NONSTATUTORY STOCK OPTION" shall mean an Option not intended to qualify as an Incentive Stock Option, as designated in the applicable option agreement. "INCENTIVE STOCK OPTION" shall mean an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code, as designated in the applicable option agreement. (o) "OFFICER" shall mean a person who is appointed or elected by the Board of Directors as an officer of the Company, including but not limited to a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. (p) "OPTION" shall mean a stock option granted pursuant to the Plan. (q) "OPTIONED STOCK" shall mean the Common Stock subject to an Option. (r) "OPTIONEE" shall mean an Employee or Consultant who receives an Option. (s) "PARENT" shall mean a "parent corporation," whether now or hereafter existing, as defined in Section 424(e) of the Code. (t) "PLAN" shall mean this 1998 Employee Stock Option Plan. (u) "RULE 16b-3" shall mean Rule 16b-3 promulgated under the Exchange Act as the same may be amended from time to time, or any successor provision. (v) "SHARE" shall mean a share of the Common Stock, as adjusted in accordance with Section 11 of the Plan. (w) "SUBSIDIARY" shall mean a "subsidiary corporation," whether now or hereafter existing, as defined in Section 424(f) of the Code. 3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 11 of the Plan, the maximum aggregate number of shares which may be optioned and sold under the Plan is 1,415,000 shares of Common Stock. The Shares may be authorized, but unissued, or reacquired Common Stock. If an Option should expire or become unexercisable for any reason without having been exercised in full, the unpurchased Shares which were subject thereto shall, unless the Plan shall have been terminated, become available for future grant under the Plan. Notwithstanding any other provision of the Plan, shares issued under the Plan and later repurchased by the Company shall not become available for future grant or sale under the Plan. 4. ADMINISTRATION OF THE PLAN. (a) COMPOSITION OF ADMINISTRATOR. The Plan shall be administered by (A) the Board or (B) a Committee designated by the Board, which Committee shall be constituted in such a manner as to satisfy the legal requirements relating to the administration of nonstatutory stock option plans, if any, of applicable securities laws and the Code (collectively, the "Applicable Laws"). If a Committee has been appointed pursuant to this Section 4(a), such Committee shall continue to serve in its designated capacity until otherwise directed by the Board. From time to time the Board may increase the size of any Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies (however caused) and remove all members of a Committee and thereafter directly administer the Plan, all to the extent permitted by the Applicable Laws. (b) POWERS OF THE ADMINISTRATOR. Subject to the provisions of the Plan, and in the case of a Committee, the specific duties delegated by, or limitations of authority imposed by, the Board to or on such Committee, the Administrator shall have the authority, in its discretion: (i) to grant Options under the Plan; (ii) to determine, upon review of relevant information and in accordance with Section 2(l) of the Plan, the fair market value of the Common Stock; (iii) to determine the exercise price per share of Options to be granted, which exercise price shall be determined in accordance with Section 9(a) of the Plan; (iv) to determine the Employees or Consultants to whom, and the time or times at which, Options shall be granted and the number of shares to be represented by each Option; (v) to interpret the Plan; (vi) to approve forms of agreement for use under the Plan; (vii) to determine the terms and provisions of each Option granted (which need not be identical) and, with the consent of the holder thereof, modify or amend each Option; (viii) to accelerate or defer (with the consent of the Optionee) the exercise date of any Option; (ix) to authorize any person to execute on behalf of the Company any instrument required to effectuate the grant of an Option previously granted by the Administrator; and (x) to make all other determinations deemed necessary or advisable for the administration of the Plan. (c) EFFECT OF ADMINISTRATOR'S DECISION. All decisions, determinations and interpretations of the Administrator shall be final and binding on all Optionees and any other holders of any Options granted under the Plan. 5. ELIGIBILITY. (a) Options may be granted only to Employees and Consultants. An Employee or Consultant who has been granted an Option may, if Optionee is otherwise eligible, be granted an additional Option or Options. (b) Each Option shall be designated in the written option agreement as a Nonstatutory Stock Option. (c) The Plan shall not confer upon any Optionee any right with respect to continuation of employment or consulting relationship with the Company, nor shall it interfere in any way with Optionee's right or the Company's right to terminate Optionee's employment or consulting relationship at any time, with or without cause. 6. TERM OF PLAN. The Plan shall become effective upon its adoption by the Board of Directors. It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 14 of the Plan. 7. TERM OF OPTION. The term of each Nonstatutory Stock Option shall be ten (10) years from the date of grant thereof or such shorter term as may be provided in the Nonstatutory Stock Option Agreement. 8. EXERCISE PRICE AND CONSIDERATION. (a) The per Share exercise price for the Shares to be issued pursuant to exercise of an Option shall be such price as is determined by the Administrator, but shall be no less than 85% of the fair market value per Share on the date of grant. (b) The consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Administrator and may consist entirely of (1) cash, (2) check, (3) promissory note, (4) other Shares of Common Stock which (i) either have been owned by the Optionee for more than six (6) months on the date of surrender or were not acquired, directly or indirectly, from the Company, and (ii) have a fair market value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised, (5) delivery of a properly executed exercise notice together with irrevocable instructions to a broker to deliver promptly to the Company the amount of sale or loan proceeds required to pay the exercise price, or (6) any combination of such methods of payment. In making its determination as to the type of consideration to accept, the Administrator shall consider if acceptance of such consideration may be reasonably expected to benefit the Company. 9. EXERCISE OF OPTION. (a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any Option granted hereunder shall be exercisable at such times and under such conditions as determined by the Administrator, including performance criteria with respect to the Company and/or the Optionee, and as shall be permissible under the terms of the Plan. An Option may not be exercised for a fraction of a Share. An Option shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option by the person entitled to exercise the Option and full payment for the Shares with respect to which the Option is exercised has been received by the Company. Full payment may, as authorized by the Administrator, consist of any consideration and method of payment allowable under Section 9(b) of the Plan. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the stock certificate evidencing such Shares, no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such stock certificate promptly upon exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 11 of the Plan. Exercise of an Option in any manner shall result in a decrease in the number of Shares which thereafter may be available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. (b) TERMINATION OF STATUS AS AN EMPLOYEE OR CONSULTANT. In the event of termination of an Optionee's Continuous Status as an Employee or Consultant, such Optionee may, but only within thirty (30) days (or such other period of time, not exceeding six (6) months, as is determined by the Administrator) after the date of such termination (but in no event later than the date of expiration of the term of such Option as set forth in the Option Agreement), exercise Optionee's Option to the extent that Optionee was entitled to exercise it at the date of such termination. To the extent that Optionee was not entitled to exercise the Option at the date of such termination, or if Optionee does not exercise such Option (which Optionee was entitled to exercise) within the time specified herein, the Option shall terminate. (c) DISABILITY OF OPTIONEE. Notwithstanding the provisions of Section 10(b) above, in the event of termination of an Optionee's Continuous Status as an Employee or Consultant as a result of Optionee's total and permanent disability (as defined in Section 22(e)(3) of the Code), Optionee may, but only within twelve (12) months (but in no event later than the date of expiration of the term of such Option as set forth in the Option Agreement), from the date of such termination (but in no event later than the date of expiration of the term of such Option as set forth in the Option Agreement), exercise Optionee's Option to the extent Optionee was entitled to exercise it at the date of such termination. To the extent that Optionee was not entitled to exercise the Option at the date of termination, or if Optionee does not exercise such Option (which Optionee was entitled to exercise) within the time specified herein, the Option shall terminate. (d) DEATH OF OPTIONEE. In the event of termination of an Optionee's Continuance Status as an Employee or Consultant as a result of the death of an Optionee, the Option may be exercised, at any time within twelve (12) months following the date of death (but in no event later than the date of expiration of the term of such Option as set forth in the Option Agreement), by the Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent of the right to exercise the Option at the date of death. To the extent that Optionee was not entitled to exercise the Option at the date of death, or if Optionee does not exercise such Option to the extent so entitled within the time specified herein, the Option shall terminate. 10. NON-TRANSFERABILITY OF OPTIONS. The Option may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution; PROVIDED, that the Administrator may in its discretion grant transferable Nonstatutory Stock Options pursuant to option agreements specifying (i) the manner in which such Nonstatutory Stock Options are transferable and (ii) that any such transfer shall be subject to the Applicable Laws. The designation of a beneficiary by an Optionee will not constitute a transfer. An Option may be exercised, during the lifetime of the Optionee, only by the Optionee or a transferee permitted by this Section 11. 11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER. (a) ADJUSTMENTS. Subject to any required action by the shareholders of the Company, the number of shares of Common Stock covered by each outstanding Option, and the number of shares of Common Stock which have been authorized for issuance under the Plan but as to which no Options have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option, and the price per share of Common Stock covered by each such outstanding Option, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Administrator, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option. (b) CORPORATE TRANSACTIONS. In the event of the proposed dissolution or liquidation of the Company, the Option will terminate immediately prior to the consummation of such proposed action, unless otherwise provided by the Administrator. The Administrator may, in the exercise of its sole discretion in such instances, declare that any Option shall terminate as of a date fixed by the Administrator and give each Optionee the right to exercise Optionee's Option as to all or any part of the Optioned Stock, including Shares as to which the Option would not otherwise be exercisable. In the event of a proposed sale of all or substantially all of the assets of the Company, or the merger of the Company with or into another corporation, the Option shall be assumed or an equivalent option shall be substituted by such successor corporation or a parent or subsidiary of such successor corporation, unless such successor corporation does not agree to assume the Option or to substitute an equivalent option, in which case the Administrator shall, in lieu of such assumption or substitution, provide for the Optionee to have the right to exercise the Option as to all of the Optioned Stock, including Shares as to which the Option would not otherwise be exercisable. If the Administrator makes an Option fully exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the Administrator shall notify the Optionee that the Option shall be fully exercisable for a period of fifteen (15) days from the date of such notice, and the Option will terminate upon the expiration of such period. 12. TIME OF GRANTING OPTIONS. The date of grant of an Option shall, for all purposes, be the date on which the Administrator makes the determination granting such Option. Notice of the determination shall be given to each Employee or Consultant to whom an Option is so granted within a reasonable time after the date of such grant. 13. AMENDMENT AND TERMINATION OF THE PLAN. (a) AMENDMENT AND TERMINATION. The Board may amend or terminate the Plan from time to time in such respects as the Board may deem advisable (b) EFFECT OF AMENDMENT OR TERMINATION. Any such amendment or termination of the Plan shall not adversely affect Options already granted (except to the extent contemplated by such Options) and such Options shall remain in full force and effect, unless mutually agreed otherwise between the Optionee and the Board (or other body then administering the Plan), which agreement must be in writing and signed by the Optionee and the Company. 14. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued pursuant to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the Shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. As a condition to the exercise of an Option, the Company may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned relevant provisions of law. 15. RESERVATION OF SHARES. The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. 16. OPTION AGREEMENT. Options shall be evidenced by written option agreements in such form as the Administrator shall approve. 17. INFORMATION TO OPTIONEES. The Company shall provide to each Optionee upon request, during the period for which such Optionee has one or more Options outstanding, copies of all annual reports and other information which are provided to all shareholders of the Company. 18. WITHHOLDING TAXES. As a condition to the exercise of Options granted hereunder, the Optionee shall make such arrangements as the Administrator may require for the satisfaction of any federal, state, local or foreign withholding tax obligations that may arise in connection with the exercise, receipt or vesting of such Option. The Company shall not be required to issue any Shares under the Plan until such obligations are satisfied. 19. STOCK WITHHOLDING TO SATISFY WITHHOLDING TAX OBLIGATIONS. At the discretion of the Administrator, Optionees may satisfy withholding obligations as provided in this paragraph. When an Optionee incurs tax liability in connection with an Option which tax liability is subject to tax withholding under applicable tax laws, and the Optionee is obligated to pay the Company an amount required to be withheld under applicable tax laws, the Optionee may satisfy the withholding tax obligation by one or some combination of the following methods: (a) by cash payment, or (b) out of Optionee's current compensation, or (c) if permitted by the Administrator, in its discretion, by surrendering to the Company Shares that (i) in the case of Shares previously acquired from the Company, have been owned by the Optionee for more than six months on the date of surrender, and (ii) have a fair market value on the date of surrender equal to or less than Optionee's marginal tax rate times the ordinary income recognized, or (d) by electing to have the Company withhold from the Shares to be issued upon exercise of the Option that number of Shares having a fair market value equal to the amount required to be withheld. For this purpose, the fair market value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined (the "Tax Date"). All elections by an Optionee to have Shares withheld to satisfy tax withholding obligations shall be made in writing in a form acceptable to the Administrator and shall be subject to the following restrictions: (a) the election must be made on or prior to the applicable Tax Date; (b) once made, the election shall be irrevocable as to the particular Shares of the Option as to which the election is made; and (c) all elections shall be subject to the consent or disapproval of the Administrator. In the event the election to have Shares withheld is made by an Optionee and the Tax Date is deferred under Section 83 of the Code because no election is filed under Section 83(b) of the Code, the Optionee shall receive the full number of Shares with respect to which the Option is exercised but such Optionee shall be unconditionally obligated to tender back to the Company the proper number of Shares on the Tax Date. CENTURA SOFTWARE CORPORATION ---------------------------- 1998 EMPLOYEE STOCK OPTION PLAN ------------------------------- NOTICE OF NONSTATUTORY STOCK OPTION GRANT ----------------------------------------- Optionee's Name and Address: [Optionee] - --------------------------------------- - --------------------------------------- You have been granted an option to purchase Common Stock of Centura Software Corporation (the "Company"), as follows: Board Approval Date: [BoardApprovalDate] Date of Grant (Later of Board Approval Date or Commencement of Employment/Consulting): [GrantDate] Exercise Price Per Share: [PricePerShare] Total Number of Shares Granted: [TotalShares] Total Price of Shares Granted: [TotalPrice] Term/Expiration Date: [ExpirationDate] Vesting Commencement Date: [VestingStartDate] Vesting Schedule: Termination Period: Option may be exercised for a period of 30 days after termination of employment or consulting relationship except as set out in Sections 7 and 8 of the Stock Option Agreement (but in no event later than the Expiration Date). By your signature and the signature of the Company's representative below, you and the Company agree that this option is granted under and governed by the terms and conditions of the Centura Software Corporation 1998 Employee Stock Option Plan and the Stock Option Agreement, all of which are attached and made a part of this document. OPTIONEE: CENTURA SOFTWARE CORPORATION By: - ------------------------------------- ----------------------------------- Signature Title: - ------------------------------------- -------------------------------- Print Name CENTURA SOFTWARE CORPORATION ---------------------------- 1998 EMPLOYEE STOCK OPTION PLAN ------------------------------- NONSTATUTORY STOCK OPTION AGREEMENT ----------------------------------------- 1. GRANT OF OPTION. Centura Software Corporation, a California corporation (the "COMPANY"), hereby grants to the Optionee named in the Notice of Stock Option Grant attached to this Agreement ("OPTIONEE"), an option (the "OPTION") to purchase the total number of shares of Common Stock (the "SHARES") set forth in the Notice of Stock Option Grant, at the exercise price per share set forth in the Notice of Stock Option Grant (the "EXERCISE PRICE") subject to the terms, definitions and provisions of the 1998 Employee Stock Option Plan (the "PLAN") adopted by the Company, which is incorporated in this Agreement by reference. In the event of a conflict between the terms of the Plan and the terms of this Agreement, the terms of the Plan shall govern. Unless otherwise defined in this Agreement, the terms used in this Agreement shall have the meanings defined in the Plan. This Option is intended to be a Nonstatutory Stock Option. 2. EXERCISE OF OPTION. This Option shall be exercisable during its term in accordance with the Vesting Schedule set out in the Notice of Stock Option Grant and with the provisions of Sections 9 and 10 of the Plan as follows: (a) RIGHT TO EXERCISE. (i) This Option may not be exercised for a fraction of a share. (ii) In the event of Optionee's death, disability or other termination of employment, the exercisability of the Option is governed by Sections 6, 7 and 8 below, subject to the limitations contained in paragraph (iii). (iii) In no event may this Option be exercised after the date of expiration of the term of this Option as set forth in the Notice of Stock Option Grant. (b) METHOD OF EXERCISE. (i) This Option shall be exercisable by delivering to the Company a written notice of exercise (in the form attached as EXHIBIT A) which shall state the election to exercise the Option, the number of Shares in respect of which the Option is being exercised, and such other representations and agreements as to the holder's investment intent with respect to such Shares of Common Stock as may be required by the Company pursuant to the provisions of the Plan. Such written notice shall be signed by Optionee and shall be delivered in person or by certified mail to the Secretary of the Company. The written notice shall be accompanied by payment of the Exercise Price. This Option shall be deemed to be exercised upon receipt by the Company of such written notice accompanied by the Exercise Price. (ii) As a condition to the exercise of this Option, Optionee agrees to make adequate provision for federal, state or other tax withholding obligations, if any, which arise upon the exercise of the Option or disposition of Shares, whether by withholding, direct payment to the Company, or otherwise. (iii) No Shares will be issued pursuant to the exercise of an Option unless such issuance and such exercise shall comply with all relevant provisions of law and the requirements of any stock exchange upon which the Shares may then be listed. Assuming such compliance, for income tax purposes the Shares shall be considered transferred to Optionee on the date on which the Option is exercised with respect to such Shares. 3. OPTIONEE'S REPRESENTATIONS. In the event the Shares purchasable pursuant to the exercise of this Option have not been registered under the Securities Act of 1933, as amended (the "SECURITIES ACT"), at the time this Option is exercised, Optionee shall, if required by the Company, concurrently with the exercise of all or any portion of this Option, deliver to the Company an investment representation statement in customary form, a copy of which is available for Optionee's review from the Company upon request. 4. METHOD OF PAYMENT. Payment of the Exercise Price shall be by any of the following, or a combination of the following, at the election of Optionee: (a) cash; (b) check; (c) surrender of other Shares of Common Stock of the Company that (i) either have been owned by Optionee for more than six (6) months on the date of surrender or were not acquired, directly or indirectly, from the Company, and (ii) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised; (d) authorization from the Company to retain from the total number of Shares as to which the Option is exercised that number of Shares having a Fair Market value on the date of exercise equal to the exercise price for the total number of Shares as to which the Option is exercised; or (e) if there is a public market for the Shares and they are registered under the Securities Act, delivery of a properly executed exercise notice together with irrevocable instructions to a broker to deliver promptly to the Company the amount of sale or loan proceeds required to pay the exercise price. 5. RESTRICTIONS ON EXERCISE. This Option may not be exercised if the issuance of such Shares upon such exercise or the method of payment of consideration for such shares would constitute a violation of any applicable federal or state securities or other law or regulation, including any rule under Part 207 of Title 12 of the Code of Federal Regulations ("REGULATION G") as promulgated by the Federal Reserve Board. As a condition to the exercise of this Option, the Company may require Optionee to make any representation and warranty to the Company as may be required by any applicable law or regulation. 6. TERMINATION OF RELATIONSHIP. In the event of termination of Optionee's Continuous Status as an Employee or Consultant, Optionee may, to the extent otherwise so entitled at the date of such termination (the "TERMINATION DATE"), exercise this Option during the Termination Period set out in the Notice of Stock Option Grant. To the extent that Optionee was not entitled to exercise this Option at the date of such termination, or if Optionee does not exercise this Option within the time specified in the Notice of Stock Option Grant, the Option shall terminate. 7. DISABILITY OF OPTIONEE. Notwithstanding the provisions of Section 6 above, in the event of termination of Optionee's Continuous Status as an Employee or Consultant as a result of total and permanent disability (as defined in Section 22(e)(3) of the Code), Optionee may, but only within six (6) months from the date of termination of employment (but in no event later than the date of expiration of the term of this Option as set forth in Section 10 below), exercise the Option to the extent otherwise so entitled at the date of such termination. To the extent that Optionee was not entitled to exercise the Option at the date of termination, or if Optionee does not exercise such Option (to the extent otherwise so entitled) within the time specified in this Agreement, the Option shall terminate. 8. DEATH OF OPTIONEE. In the event of the death of Optionee: (a) during the term of this Option and while an Employee of the Company and having been in Continuous Status as an Employee or Consultant since the date of grant of the Option, the Option may be exercised, at any time within six (6) months following the date of death (but in no event later than the date of expiration of the term of this Option as set forth in Section 10 below), by Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent of the right to exercise that would have accrued had Optionee continued living and remained in Continuous Status as an Employee or Consultant three (3) months after the date of death, subject to the limitation contained in Section 2(i)(d) above in the case of an Incentive Stock Option; or (b) within thirty (30) days after the termination of Optionee's Continuous Status as an Employee or Consultant, the Option may be exercised, at any time within six (6) months following the date of death (but in no event later than the date of expiration of the term of this Option as set forth in Section 10 below), by Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent of the right to exercise that had accrued at the date of termination. 9. NON-TRANSFERABILITY OF OPTION. This Option may not be transferred in any manner otherwise than by will or by the laws of descent or distribution. The designation of a beneficiary does not constitute a transfer. An Option may be exercised during the lifetime of Optionee only by Optionee or a transferee permitted by this section. The terms of this Option shall be binding upon the executors, administrators, heirs, successors and assigns of Optionee. 10. TERM OF OPTION. This Option may be exercised only within the term set out in the Notice of Stock Option Grant, and may be exercised during such term only in accordance with the Plan and the terms of this Option. 11. NO ADDITIONAL EMPLOYMENT RIGHTS. Optionee understands and agrees that the vesting of Shares pursuant to the Vesting Schedule is earned only by continuing as an Employee or Consultant at the will of the Company (not through the act of being hired, being granted this Option or acquiring Shares under this Agreement). Optionee further acknowledges and agrees that nothing in this Agreement, nor in the Plan which is incorporated in this Agreement by reference, shall confer upon Optionee any right with respect to continuation as an Employee or Consultant with the Company, nor shall it interfere in any way with his or her right or the Company's right to terminate his or her employment or consulting relationship at any time, with or without cause. 12. TAX CONSEQUENCES. Optionee acknowledges that he or she has read the brief summary set forth below of certain federal tax consequences of exercise of this Option and disposition of the Shares under the law in effect as of the date of grant. OPTIONEE UNDERSTANDS THAT THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT HIS OR HER OWN TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES. (a) EXERCISE OF NONSTATUTORY STOCK OPTION. Optionee may incur regular federal income tax liability upon the exercise of the Option. Optionee will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the fair market value of the Shares on the date of exercise over the Exercise Price. In addition, if Optionee is an employee of the Company, the Company will be required to withhold from Optionee's compensation or collect from Optionee and pay to the applicable taxing authorities an amount equal to a percentage of this compensation income at the time of exercise. (b) DISPOSITION OF SHARES. Gain realized on the disposition of Shares will be treated as long-term or short-term capital gain depending on whether or not the disposition occurs more than one year after the exercise date. 13. SIGNATURE. This Stock Option Agreement shall be deemed executed by the Company and Optionee upon execution by such parties of the Notice of Stock Option Grant attached to this Stock Option Agreement. [REMAINDER OF PAGE LEFT INTENTIONALLY BLANK] EXHIBIT A --------- NOTICE OF EXERCISE ------------------ To: Centura Software Corporation Attn: Stock Option Administrator Subject: NOTICE OF INTENTION TO EXERCISE NONSTATUTORY STOCK OPTION --------------------------------------------------------- This is official notice that the undersigned ("OPTIONEE") intends to exercise Optionee's option to purchase __________ shares of Centura Software Corporation Common Stock, under and pursuant to the Company's 1998 Employee Stock Option Plan and the Stock Option Agreement dated ___________, as follows: Grant Number: ------------------------------------- Date of Purchase: --------------------------------- Number of Shares: --------------------------------- Purchase Price: ----------------------------------- Method of Payment of Purchase Price: -------------------------------- Social Security No.: ---------------------------------- The shares should be issued as follows: Name: --------------------------------------------- Address: ------------------------------------------ ------------------------------------------ ------------------------------------------ Signed: ------------------------------------------- Date: --------------------------------------------- EX-23.1 13 EXHIBIT 23.1 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 33-83850 and No. 33-61294) of Centura Software Corporation of our report dated February 10, 1998, except as to Note 13, which is dated February 27, 1998, appearing on page 39 of this Annual Report on Form 10-K. We also consent to the reference to us under the heading "Selected Financial Data" of this Annual Report on Form 10-K insofar as it relates to each of the five years in the period ended December 31, 1997. However, it should be noted that Price Waterhouse LLP has not prepared or certified such "Selected Financial Data." /s/ Price Waterhouse LLP Price Waterhouse LLP San Jose, California March 30, 1998 EX-27.1 14 EXHIBIT 27.1
5 1,000 YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 3,974 0 16,191 4,447 259 19,066 20,490 16,979 28,200 37,298 0 0 0 70,636 (80,590) 28,200 40,714 57,946 4,779 12,218 44,498 0 1,039 (587) 62 (649) 0 0 0 (649) (.04) (.04)
EX-27.2 15 EXHIBIT 27.2
5 1,000 3-MOS 3-MOS 3-MOS DEC-31-1997 DEC-31-1997 DEC-31-1997 JAN-01-1997 APR-01-1997 JUL-01-1997 MAR-31-1997 JUN-30-1997 SEP-30-1997 4,263 4,812 3,825 1,565 565 0 12,304 11,848 11,756 2,780 2,931 2,888 81 0 0 18,841 18,681 16,982 19,055 20,863 21,078 15,681 16,121 16,604 29,131 29,859 27,602 29,062 40,858 37,988 0 0 0 0 0 0 0 0 0 69,671 69,896 70,298 (81,950) (81,751) (81,540) 29,131 29,859 27,602 9,514 11,790 9,371 13,600 16,104 13,698 1,366 1,301 906 3,485 3,573 2,774 11,280 12,139 10,733 0 0 0 214 210 293 (2,055) 301 120 10 25 10 (2,065) 276 110 0 0 0 0 0 0 0 0 0 (2,065) 276 110 (.14) .02 .01 (.14) .02 .01
EX-27.3 16 EXHIBIT 27.3
5 1,000 YEAR YEAR 3-MOS 3-MOS 3-MOS DEC-31-1995 DEC-31-1996 DEC-31-1996 DEC-31-1996 DEC-31-1996 JAN-01-1995 JAN-01-1996 JAN-01-1996 APR-10-1996 JUL-01-1996 DEC-31-1995 DEC-31-1996 MAR-31-1996 JUN-30-1996 SEP-30-1996 9,865 6,669 10,326 10,572 8,104 9,557 2,065 5,545 3,366 3,366 15,649 16,400 14,355 14,110 12,323 3,475 2,826 3,464 3,474 3,054 218 216 104 0 53 34,813 25,824 31,081 28,208 23,988 18,260 18,789 18,620 18,702 18,896 12,379 15,167 13,189 13,938 14,633 48,104 36,705 44,532 40,221 35,058 60,417 41,440 56,259 51,334 45,847 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 57,577 63,047 57,781 57,882 58,025 (81,634) (79,970) (81,295) (80,940) (80,865) 48,104 36,705 44,532 40,221 35,058 49,408 45,452 10,931 11,657 10,414 65,714 63,233 15,393 15,646 14,610 8,878 5,060 1,246 1,253 1,047 19,640 14,578 3,441 3,515 3,370 89,067 46,171 11,295 11,766 10,990 0 0 0 0 0 701 831 187 0 211 (43,006) 2,505 483 454 180 1,073 478 162 31 83 (44,079) 2,027 321 423 97 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 (44,079) 2,027 321 423 97 (3.62) .15 .03 .03 .01 (3.62) .15 .03 .03 .01
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