-----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, LRqA5XvdavkDyJy88hwCV4tYt4+LYYSgyvwo3lcc0FplbHjZ5xChXc5KFjKM/SrD RAT6pXNpqFy2D5QMy30EBQ== 0000950109-96-004727.txt : 19960731 0000950109-96-004727.hdr.sgml : 19960731 ACCESSION NUMBER: 0000950109-96-004727 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 10 FILED AS OF DATE: 19960730 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: VISIGENIC SOFTWARE INC CENTRAL INDEX KEY: 0000917062 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 943173927 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: S-1/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-06285 FILM NUMBER: 96600632 BUSINESS ADDRESS: STREET 1: 951 MARINERS ISLAND BLVD STREET 2: SUITE 460 CITY: SAN MATEO STATE: CA ZIP: 94404 BUSINESS PHONE: 4152861900 MAIL ADDRESS: STREET 1: 951 MARINERS ISLAND BLVD STREET 2: SUITE 460 CITY: SAN MATEO STATE: CA ZIP: 94404 S-1/A 1 AMENDMENT #2 TO FORM S-1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 29, 1996 REGISTRATION NO. 333-06285 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------- AMENDMENT NO. 2 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 -------------- VISIGENIC SOFTWARE, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 7372 94-3173927 (STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.) INCORPORATION OR CLASSIFICATION CODE ORGANIZATION) NUMBER) 951 MARINER'S ISLAND BLVD. SUITE 120 SAN MATEO, CA 94404 (415) 286-1900 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) -------------- ROGER J. SIPPL CHIEF EXECUTIVE OFFICER VISIGENIC SOFTWARE, INC. 951 MARINER'S ISLAND BLVD. SUITE 120 SAN MATEO, CA 94404 (415) 286-1900 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) COPIES TO: THOMAS W. FURLONG, ESQ. MARK C. STEVENS, ESQ. DAVID A. HUBB, ESQ. JEFFREY R. VETTER, ESQ. GILBERT GALLARDO, ESQ. MICHAEL J. MCADAM, ESQ. GRAY CARY WARE & FREIDENRICH FENWICK & WEST LLP A PROFESSIONAL CORPORATION TWO PALO ALTO SQUARE 400 HAMILTON AVENUE PALO ALTO, CA 94306 PALO ALTO, CA 94301-1825 (415) 494-0600 (415) 328-6561 -------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended (the "Securities Act") check the following box. [_] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [_] -------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- VISIGENIC SOFTWARE, INC. CROSS-REFERENCE SHEET PURSUANT TO ITEM 501(B) OF REGULATION S-K SHOWING LOCATION IN PROSPECTUS OF INFORMATION REQUIRED BY ITEMS OF FORM S-1.
ITEM NUMBER AND HEADING IN FORM S-1 REGISTRATION STATEMENT LOCATION IN PROSPECTUS ------------------------------- ---------------------- 1. Forepart of this Registration Statement and Outside Front Cover Page of Prospectus....... Facing Page of this Registration Statement and Outside Front Cover Page 2. Inside Front and Outside Back Cover Pages of Prospectus...... Inside Front and Outside Back Cover Pages 3. Summary Information, Risk Factors and Ratio of Earnings to Fixed Charges............... Prospectus Summary; Risk Factors 4. Use of Proceeds................ Prospectus Summary; Use of Proceeds 5. Determination of Offering Price.......................... Outside Front Cover Page; Underwriting 6. Dilution....................... Dilution 7. Selling Security Holders....... Principal and Selling Stockholders 8. Plan of Distribution........... Outside Front Cover Page; Underwriting 9. Description of Securities to be Registered..................... Prospectus Summary; Capitalization; Description of Capital Stock 10. Interests of Named Experts and Counsel........................ Legal Matters 11. Information with Respect to the Registrant..................... Outside Front and Inside Front Cover Pages; Prospectus Summary; Risk Factors; Dividend Policy; Capitalization; Selected Consolidated Financial Data; Management's Discussion and Analysis of Financial Condition and Results of Operations; Business; Management; Certain Transactions; Principal and Selling Stockholders; Description of Capital Stock; Shares Eligible for Future Sale; Financial Statements 12. Disclosure of Commission Position on Indemnification for Securities Act Liabilities..... Not Applicable
FILED PURSUANT TO RULE 424(a) REGISTRATION NO. 333-06285 ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A + +REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE + +SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY + +OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT + +BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR + +THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE + +SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE + +UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF + +ANY SUCH STATE. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION, DATED JULY 22, 1996 PROSPECTUS 2,100,000 SHARES LOGO OF VISIGENIC SOFTWARE, INC. COMMON STOCK Of the 2,100,000 shares of Common Stock offered hereby, 1,700,000 shares are being sold by the Company and 400,000 shares are being sold by the Selling Stockholders. The Company will not receive any of the proceeds from the sale of the shares by the Selling Stockholders. See "Principal and Selling Stockholders." Prior to this offering, there has been no public market for the Common Stock of the Company. It is currently estimated that the initial public offering price will be between $9.00 and $11.00 per share. See "Underwriting" for a discussion of the factors to be considered in determining the initial public offering price. The Company has applied to have the Common Stock approved for quotation on the Nasdaq National Market under the symbol VSGN. ----------- THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS" ON PAGE 5. ----------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO PROCEEDS TO SELLING PUBLIC DISCOUNT (1) COMPANY (2) STOCKHOLDERS - -------------------------------------------------------------------------------- Per Share.............. $ $ $ $ - -------------------------------------------------------------------------------- Total (3).............. $ $ $ $
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (1) See "Underwriting" for indemnification arrangements with the several Underwriters. (2) Before deducting expenses payable by the Company estimated at $750,000. (3) The Company and the Selling Stockholders have granted the Underwriters a 30-day option to purchase up to 315,000 additional shares of Common Stock solely to cover over-allotments, if any. If all such shares are purchased, the total Price to Public, Underwriting Discount, Proceeds to Company and Proceeds to Selling Stockholders will be $ , $ , $ and $ , respectively. See "Underwriting." ----------- The shares of Common Stock are offered by the several Underwriters subject to prior sale, receipt and acceptance by them and subject to the right of the Underwriters to reject any order in whole or in part and certain other conditions. It is expected that certificates for such shares will be available for delivery on or about , 1996, at the office of the agent of Hambrecht & Quist LLC in New York, New York. HAMBRECHT & QUIST ROBERTSON, STEPHENS & COMPANY , 1996 [Examples of applications which embed Visigenic's database connectivity and distributed object connectivity products appear in color here] Visigenic, the Visigenic logo, VisiBroker, VisiODBC and VisiChannel are trademarks of the Company. This Prospectus also includes trademarks of companies other than the Company. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET THE OVER-THE- COUNTER MARKET, OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. 2 Digitalized artwork illustrating how the Visigenic database connectivity and distributed object connectivity products simplify the development, deployment and management of reliable and flexible distributed applications while enabling enterprise users, customers, suppliers and other business partners to easily access enterprise data. SUMMARY The following summary is qualified in its entirety by the more detailed information and financial statements appearing elsewhere in this Prospectus. See "Risk Factors" for a discussion of certain factors to be considered by prospective investors. THE COMPANY Visigenic Software, Inc. ("Visigenic" or the "Company") is a leading provider of software tools for database and distributed object connectivity for the Internet, Intranet and enterprise computing environments. The Company's standards-based products facilitate the development, deployment and management of distributed applications by providing database-independent access to leading databases and the communications infrastructure for distributed object-oriented applications. In today's complex computing environment, enterprises require flexible access to data and applications, regardless of whether the data and applications are located at the central office, a remote office or across the Internet. Enterprise computing environments are increasingly using multiple database management systems ("DBMSs"), operating systems, networks and hardware platforms and relying on object-oriented technologies to develop and deploy distributed applications for these heterogeneous environments. The rapid growth of the Internet and Intranets, both of which are heterogeneous distributed computing environments, is accelerating the need for tools to develop, deploy and manage distributed applications. The Visigenic solution provides key components of the software infrastructure that enables developers and information technology ("IT") professionals to develop, deploy and manage distributed applications. The Company believes business applications increasingly will be comprised of objects, Java applets and databases that are distributed on networks and dynamically assembled into highly customized distributed solutions. The Company's products enable the enterprise to adapt its application architecture to meet changing business and computing requirements by simplifying the development and deployment of distributed database and object-oriented applications. Visigenic's products support existing and emerging industry standards, making the Company's solutions open, flexible and interoperable across multiple operating environments. The Company believes that its products are especially well suited for large distributed computing environments such as the Internet and Intranets. The Company's strategy is to become the premier provider of software tools which enable developers and IT professionals to develop, deploy and manage distributed applications for Internet, Intranet and enterprise computing environments. Visigenic supports and contributes to the enhancement of open industry standards through active participation in several standards setting organizations. The Company intends to continue to develop strategic relationships with leading technology companies to promote the widespread acceptance and distribution of Visigenic products. Visigenic has established strategic relationships with Cisco, Hitachi, Microsoft, Netscape and Platinum technology. Additionally, the Company intends to leverage its products and expertise to exploit the emergence of the Internet and Intranets. The Company markets and sells its software through its direct sales and telesales forces, independent software vendors ("ISVs"), value added resellers ("VARs"), international distributors and on-line Internet sales in North America, Europe and Asia. The Company's customers include ASCII Corporation, Cisco, Compuware, Borland, Healtheon, Hewlett-Packard, Hitachi, Merrill Lynch, MCI Telecommunications, Microsoft, Netscape, Oracle, Platinum technology and Software AG. In May 1996, the Company acquired PostModern Computing Technologies, Inc. ("PostModern"), a supplier of distributed object connectivity software. PostModern had revenue of $1.0 million and net income of 3 $58,849 in the year ended March 31, 1996, and had total assets of $473,771 at March 31, 1996. In the acquisition, which was structured as a merger, the Company issued 3,099,821 shares of its Common Stock and paid a total of $2.3 million in exchange for all PostModern shares. The Company also assumed PostModern's outstanding stock options and made cash payments, subject to one- year vesting, totaling $1.5 million, to certain PostModern employees. A portion of the proceeds from the Company's issuance of its Series C Preferred Stock and convertible notes to three investors in May 1996 was used to finance the cash portion of the acquisition. The Company was incorporated in February 1993. The Company's principal executive offices are located at 951 Mariner's Island Boulevard, Suite 120, San Mateo, California, 94404. Its telephone number is (415) 286-1900. Its email address is info@visigenic.com and its World Wide Web site is located at http://www.visigenic.com. Information contained on the Company's Web site shall not be deemed to be a part of this Prospectus. 4 THE OFFERING Common Stock offered by the Company.................... 1,700,000 shares Common Stock offered by the Selling Stockholders....... 400,000 shares Common Stock to be outstanding after the offering...... 12,169,971 shares (1) Use of proceeds........................................ General corporate purposes, including working capital and possible repayment of revolving and bridge credit facilities Proposed Nasdaq National Market symbol................. VSGN
SUMMARY CONSOLIDATED FINANCIAL INFORMATION (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED MARCH 31, QUARTER ENDED JUNE 30, --------------------------------------- ------------------------------ 1996 1996 --------------------- ---------------------- PRO FORMA PRO FORMA 1994 1995 ACTUAL COMBINED (2) 1995 ACTUAL COMBINED (2) ------- ------- ------- ------------ ------ -------- ------------ CONSOLIDATED STATEMENT OF OPERATIONS DATA: Revenue................. -- $ 1,115 $ 5,575 $ 6,577 $ 911 $ 2,961 $ 3,093 Gross profit............ -- 820 4,564 5,303 722 2,528 2,584 Loss from operations.... (2,496) (4,723) (4,464) (6,422) (978) (13,665) (13,901) Net loss................ $(2,454) $(4,629) $(4,379) $(6,337) $ (977) $(13,659) $(13,895) Pro forma net loss per share (3).............. -- -- $ (.39) $ (.57) $ (.09) $ (1.21) $ (1.23) Pro forma weighted average common and common equivalent shares (3)............. -- -- 11,120 11,120 10,602 11,289 11,289
JUNE 30, 1996 -------------------------------- PRO ACTUAL FORMA (4) AS ADJUSTED (5) ------ --------- --------------- CONSOLIDATED BALANCE SHEET DATA: Cash and cash equivalents..................... $1,890 $1,890 $16,426 Working capital............................... 2,331 2,331 17,391 Total assets.................................. 9,962 9,962 24,498 Convertible notes payable to stockholders..... 2,000 -- -- Stockholders' equity.......................... 3,111 5,111 20,171
- ------------- (1) Excludes 1,449,285 shares of Common Stock issuable upon exercise of options outstanding as of June 30, 1996 with a weighted average exercise price of $1.76 per share. See "Capitalization" and "Management--Stock Plans." (2) The pro forma combined statement of operations data gives effect to the May 1996 acquisition of PostModern Computing Technologies Inc. as if it had occurred on April 1, 1995. The acquisition was accounted for as a purchase and resulted in the write-off of approximately $12.0 million of in process product development in the quarter ended June 30, 1996. The pro forma combined statement of operations data for the year ended March 31, 1996 does not give effect to this write-off. See Note 9 of Notes to Consolidated Financial Statements of Visigenic and Pro Forma Condensed Combined Financial Statements. (3) See Note 2 of Notes to Consolidated Financial Statements of Visigenic for an explanation of the method used to determine the number of shares used to compute per share amounts. (4) Gives pro forma effect to the conversion upon the closing of this offering of all outstanding shares of Preferred Stock and convertible notes into shares of Common Stock. (5) Adjusted to reflect the sale of 1,700,000 shares of Common Stock offered by the Company hereby at an assumed public offering price of $10.00 per share and the application of the estimated net proceeds therefrom. See "Use of Proceeds" and "Capitalization." --------------- Except as otherwise noted herein, information in this Prospectus assumes (i) no exercise of the Underwriters' over-allotment option, (ii) the amendment and restatement of the Company's Certificate of Incorporation prior to the effective date of this offering effecting a 1 for 2 reverse stock split, (iii) the conversion of outstanding convertible notes into an aggregate of approximately 200,000 shares of Common Stock upon the consummation of this offering, and (iv) the conversion of all outstanding shares of Preferred Stock of the Company into an aggregate of 4,119,069 shares of Common Stock upon the consummation of this offering. See "Capitalization," "Description of Capital Stock" and "Underwriting." 5 RISK FACTORS The following risk factors should be considered carefully in addition to the other information contained in this Prospectus before purchasing the Common Stock offered hereby. This Prospectus contains 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 the risk factors set forth below and elsewhere in this Prospectus. Limited Operating History; History of Losses; Recent Acquisition of Distributed Object Connectivity Business. The Company was incorporated in 1993 and commenced shipment of its initial products in November 1994. In May 1996, the Company acquired PostModern Computing Technologies Inc. ("PostModern"), a developer of distributed object connectivity software. PostModern was founded in 1991, commenced shipment of its initial products in 1992 and had very limited product sales prior to the acquisition. Accordingly, the Company has only a limited operating history, particularly with respect to its newly acquired distributed object connectivity business, upon which an evaluation of the Company and its future operating results can be based. Since inception, the Company has incurred significant losses and negative cash flow. At June 30, 1996, the Company had cumulative operating losses of $25.1 million, with net losses of $2.5 million, $4.6 million, $4.4 million and $13.7 milion for fiscal 1994, fiscal 1995, fiscal 1996 and the quarter ended June 30, 1996, respectively. A substantial portion of the accumulated deficit is due to the significant commitment of resources to the Company's product development and sales and marketing activities and the write-off of approximately $12.0 million of in process product development in the quarter ended June 30, 1996 in connection with the acquisition of PostModern. The Company expects to continue to devote substantial resources in these areas and as a result will need to generate significant revenue in order to achieve profitability. The Company currently anticipates that it will operate at a loss through at least the middle of 1997. The Company has experienced substantial growth in revenue in fiscal 1996. The Company expects that prior growth rates of the Company's software product revenue will not be sustainable in the future. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." The Company, which prior to the acquisition of PostModern did not provide distributed object connectivity software, expects that its revenue growth commencing in the current fiscal year will be dependent, in part, on sales of distributed object connectivity products. The Company's ability to develop a distributed object connectivity software business will depend upon several factors, including, but not limited to, its ability to integrate the operations and personnel of PostModern into the Company, the ability of the Company's sales personnel and distribution channels to sell distributed object connectivity software and the commercial acceptance of the Company's distributed object connectivity software. Because the market for distributed object technology is new and emerging and customers' expertise about this technology is limited, the Company believes that customer support is critical to achieving sales of the Company's distributed object connectivity products. The Company currently has few dedicated support engineers capable of providing the required level of customer support with respect to its distributed object technology business. If the Company is unsuccessful at attracting additional support and engineering personnel, this is likely to have a material adverse effect on the Company's distributed object connectivity business. There can be no assurance, particularly in light of the recent acquisition of PostModern by the Company and the limited operating history of PostModern itself, that the Company's distributed object connectivity software business will be successful. Any failure by the Company to develop a successful distributed object connectivity software business would have a material adverse effect on the Company's business, results of operations and financial condition. The process of integrating PostModern into the Company may result in unforeseen operating difficulties and expenditures and may absorb significant management attention that would otherwise be available for ongoing development of the Company's business. Moreover, there can be no assurance that the anticipated benefits of this acquisition will be realized. Potential Fluctuations in Operating Results. The Company's revenue and results of operations have varied on a quarterly basis in the past and are expected to vary significantly in the future. Accordingly, the Company 6 believes that period to period comparisons of its results of operations are not necessarily meaningful and should not be relied upon as indications of future performance. The Company's revenue and results of operations are difficult to forecast and could be adversely affected by many factors, including, among others, the size, timing and terms of individual license transactions; the relatively long sales and implementation cycles for the Company's products; the delay or deferral of customer implementations; changes in the Company's operating expenses; the ability of the Company to develop and market new products and control costs; market acceptance of new products; timing of introduction or enhancement of products by the Company or its competitors; the level of product and price competition; the ability of the Company to expand its direct sales and telesales forces, its indirect distribution channels and its customer support capabilities; activities of and acquisitions by competitors; changes in connectivity software, database technology and industry standards; changes in the mix of products and services sold; changes in the mix of channels through which products and services are sold; levels of international sales; personnel changes and difficulties in attracting and retaining qualified sales, marketing and technical personnel; changes in customers' budgeting cycles; foreign currency exchange rates; quality control of products sold; and general economic conditions. In particular, the ability of the Company to achieve revenue growth in the future will depend on its success in adding a substantial number of sales and sales support personnel in fiscal 1997. Competition for such personnel is intense and there can be no assurance the Company will be able to attract and retain these personnel. Licensing of the Company's software products historically has accounted for the substantial majority of the Company's revenue, and the Company anticipates that this trend will continue for the foreseeable future. The Company's software products revenue is difficult to forecast for a number of reasons. The Company typically does not have a material backlog of unfilled orders, and revenue in any quarter is substantially dependent on contracts received in that quarter. A significant portion of the Company's revenue in prior periods has been derived from relatively large sales to a limited number of customers, and the Company currently anticipates that future quarters will continue to reflect this trend. In fiscal 1996, approximately 78% of the Company's revenue was derived from ten customers and revenue from one customer, Platinum technology, Inc., accounted for approximately 25% of the Company's total revenue. For the quarter ended June 30, 1996, approximately 75% of the Company's revenue was derived from ten customers, and revenue from one customer, Cisco Systems, Inc., accounted for approximately 34% of the Company's total revenue. Sales cycles for the Company's products typically range from six to twelve months, and the terms and conditions of individual license transactions, including prices and discounts, are often highly negotiated based on volumes and commitments and vary considerably from customer to customer. In addition, the Company has generally recognized a substantial portion of its revenue in the last month of each quarter, with this revenue concentrated in the last weeks of the quarter. Accordingly, the cancellation or deferral of even a small number of purchases of the Company's products has in the past and could in the future have a material adverse effect on the Company's business, results of operations and financial condition in any particular quarter. Cancellations or deferrals of orders may be caused by any of a number of factors, including delays in new or enhanced product shipments. To the extent that significant sales occur earlier than expected, operating results for subsequent quarters may be adversely affected. A significant portion of the Company's revenue has been and is expected in the future to continue to be based upon sales to third party vendors, who will incorporate the Company's products in their own products. This revenue depends upon the success of third parties, and as a result is difficult for the Company to predict and may be subject to extreme fluctuation. The Company's expense levels are based, in part, on its expectations as to future revenue and to a large extent are fixed in the short term. The Company may be unable to adjust spending in a timely manner to compensate for any unexpected revenue shortfall. Accordingly, any significant shortfall of revenue in relation to the Company's expectations would have an almost immediate adverse effect on the Company's business, financial condition and results of operations. Further, the Company intends to continue to expand its development teams and its sales and marketing force. The timing of such expansion and the rate at which new development and sales and marketing personnel become productive could cause material fluctuations in quarterly results of operations. 7 As a result of the foregoing or other factors, it is likely that in some future period the Company's results of operations will fail to meet the expectations of public market analysts or investors, and the price of the Company's Common Stock would likely be materially adversely affected. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Product Concentration. Prior to the acquisition of PostModern in May 1996, the Company derived all of its revenue from the licensing of its database connectivity software products, particularly its Open Database Connectivity ("ODBC") product line, and fees from related services. These products and services are expected to continue to account for a substantial majority of the Company's revenue for the foreseeable future. As a result, a reduction in demand or increase in competition for these products, or a decline in sales of such products, would have a material adverse effect on the Company's business, results of operations and financial condition. See "Business--Products." Dependence on Emerging Markets and Evolving Standards; Acceptance of the Company's Products. The Company's future financial performance will depend on the growth in demand for standards-based database connectivity and distributed object connectivity software products. These markets are new and emerging, are rapidly evolving, are characterized by an increasing number of market entrants and will be subject to frequent and continuing changes in customers' preferences and technology. As is typical in new and evolving markets, demand and market acceptance for products are subject to a high level of uncertainty. To date, substantially all of the Company's revenue is derived from the licensing of database connectivity products and fees for related services. These products are based on the ODBC standard, which was developed to enable applications to access data from all ODBC-compliant data sources. While the ODBC standard is supported by most of the major database and software vendors, it is a recent standard that has not yet gained widespread acceptance and that currently co-exists with proprietary database connectivity solutions from many of these same database and software vendors. With the acquisition of PostModern in May 1996, the Company began to offer standards-based distributed object connectivity products. The Company's current distributed object connectivity products are based on several standards, including the Common Object Request Broker Architecture ("CORBA") and the Internet Inter-ORB Protocol ("IIOP"). These standards are intended to facilitate the management and communication of applications created in object- oriented programming languages such as C++ and Java. These standards are new, have not yet gained widespread acceptance and compete with proprietary solutions such as Microsoft's ActiveX and Distributed Component Object Model ("DCOM"). The distributed object connectivity software market is relatively young and there are few proven products. Further, some of the Company's distributed object connectivity products are designed specifically for use in applications for the Internet and Intranets. Because critical issues concerning the Internet and Intranets -- including security, reliability, cost, ease of use and access and quality of service -- remain unresolved, the growth of applications targeted at the Internet and Intranets is uncertain and difficult to predict. Because the markets for the Company's products are new and evolving, it is difficult to assess or predict with any assurance the size or growth rate, if any, of these markets. There can be no assurance that the markets for the Company's products will develop, or that the Company's products will be adopted. If these markets fail to develop, develop more slowly than expected or attract new competitors, or if the Company's products do not achieve market acceptance, the Company's business, results of operations and financial condition could be materially adversely affected. Because the Company's strategy is to develop standards-based products and these standards are relatively new, not widely accepted and compete with other emerging standards, to the extent that these standards are not commercially successful, this will have a material adverse affect on the Company's business, results of operations and financial condition. Competing or alternative technologies are being or are likely in the future to be promoted by current and potential competitors of the Company, some of which have well-established relationships with the current and potential customers of the Company and have extensive knowledge of the markets served by the Company, better name recognition and more extensive development, sales and marketing resources than the Company. 8 While the Company has licensed its products to numerous customers, most of these customers are currently developing applications that incorporate the Company's products, and only a very limited number of them have deployed or shipped such applications. To the extent these customers are unable to or otherwise do not deploy or ship applications that incorporate the Company's products, or if these applications are not successful, this will have a material adverse effect on the Company's business, results of operations and financial condition. See "--Intense Competition" and "Business--Industry Background." Reliance on VARs and ISVs. A significant element of the Company's strategy is to embed its technology in products offered by the Company's VAR and ISV customers, such as Cisco, Healtheon, Hewlett-Packard, Microsoft, Netscape, Oracle and Platinum technology. A relatively small number of VAR and ISV customers have accounted for a significant percentage of the Company's revenue. In fiscal 1996, ten VAR and ISV customers accounted for approximately 78% of the Company's revenue, while in the first quarter of fiscal 1997, ten VAR and ISV customers accounted for approximately 75% of the Company's revenue. The Company intends to seek similar distribution arrangements with other VARs and ISVs to embed the Company's technology in their products and expects that these arrangements will account for a significant portion of the Company's revenue in future periods. To date, the terms and conditions, including prices and discounts, of the Company's agreements with its VAR and ISV customers have been highly negotiated and vary significantly between customers, however, all of these agreements are non-exclusive and do not require the VAR or ISV to make minimum purchases. Many of the markets for the VAR and ISV products in which the Company's technology are being embedded are new and evolving and, therefore, subject to the same risks faced by the Company in the markets for its own products. If the Company is unsuccessful in securing license agreements with additional VARs and ISVs on commercially reasonable terms or at all, or if the Company's VAR and ISV customers are unsuccessful in selling their products, this would have a material adverse effect on the Company's business, results of operations and financial condition. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Dependence on the Internet and Intranets. The Company believes that sales of its connectivity products, particularly its distributed object connectivity products, will depend in large part upon the adoption by businesses and end- users of the Internet and Intranets for commerce and communications. The Internet and Intranets are new and evolving, and there can be no assurance of their widespread adoption. Critical issues concerning the Internet and Intranets, including security, reliability, cost, ease of use and access and quality of service, remain unresolved at this time, inhibiting adoption by many enterprises and end-users. If the Internet and Intranets are not widely used by businesses and end-users, this will have a material adverse effect on the Company's business, results of operations and financial condition. Dependence on Java; Risks Associated with Encryption Technology. Certain of the Company's products are based on Java, an object-oriented programming language developed by JavaSoft, a subsidiary of Sun Microsystems. Java was developed primarily for Internet and Intranet applications. Java was only recently introduced and does not yet have sufficient history to establish its reliability, thereby inhibiting adoption of Java. To date, there have been only a very limited number of commercially significant Java-based products, and it is too early to determine whether Java will become a significant technology. Alternatives to Java have been announced by several companies, including Microsoft. To the extent that Java is not adopted or is adopted more slowly than anticipated, this could have a material adverse effect on the Company's business, results of operations and financial condition. The Company plans to use encryption technology in certain of its future products to provide the security required for the exchange of confidential information. Encryption technologies have been breached in the past. There can be no assurance that there will not be a compromise or breach of the security technology used by the Company. If any such compromise or breach were to occur, it could have a material adverse effect on the Company's business, results of operations and financial condition. Need to Develop New Software Products and Enhancements. The markets for the Company's products are characterized by rapid technological developments, evolving industry standards, swift changes in customer 9 requirements, computer operating environments and software applications, and frequent new product introductions and enhancements. As a result, the Company's success depends substantially upon its ability to anticipate changes and continue to enhance its existing products, develop and introduce in a timely manner new products incorporating technological advances, comply with emerging industry standards and meet increasing customer expectations. The Company's products may be rendered obsolete if the Company fails to anticipate or react to change. To the extent one or more of the Company's competitors introduce products that better address customer needs, the Company's business, results of operations and financial condition could be materially adversely affected. There can be no assurance that the Company will be successful in developing and marketing new products or enhancements to its existing products on a timely basis or at all or that any new or enhanced products will adequately address the changing needs of the marketplace. The Company has in the past incurred product development expenses and sales and marketing expenses in connection with product development activities that did not result in commercially introduced products. Some of the Company's products are based on technology from third parties and the Company therefore has limited control over whether and when these technologies are enhanced. For instance, the VisiODBC Software Developers Kit ("SDK") products are based upon ODBC software licensed from Microsoft. The failure or delay in enhancements of technology from third parties used in the Company's products could have a material adverse effect on the Company's ability to develop and enhance its own products. Also, negative reviews of the Company's new products or product versions in industry publications could have a material adverse effect on the Company's sales. The Company has in the past experienced delays in the development of new products and product versions. 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, the Company's business, results of operations and financial condition would be materially and adversely affected. The Company has in the past engaged and expects that it will continue in the future to engage in joint development projects with third parties. Currently, the Company is engaged in joint development with Hitachi of distributed object connectivity software targeted at transaction processing applications. Joint development creates several risks for the Company, including loss of control over the development of aspects of the jointly developed product and over the timing of product availability. There can be no assurance that joint development activities will result in products, or that any products developed will be commercially successful. Dependence on Key Personnel; Need to Increase Technical, Sales and Marketing and Managerial Personnel. The Company's future performance depends to a significant extent upon the continued service of its key technical, sales and marketing and senior management personnel. The loss of the services of any of these individuals would have a material adverse effect on the Company. All employees are employed at-will, and the Company has no fixed term employment agreements with any of its employees. The Company's future success also depends on its continuing ability to attract, train and retain highly qualified technical, sales and marketing and managerial personnel. In particular, the Company currently has a very limited technical staff devoted to its distributed object connectivity business. An increase in the technical staff will be required to rapidly develop the database connectivity and distributed object connectivity products currently being planned, while an increase in the sales and marketing staff will be required to expand both the Company's direct and indirect sales activities and achieve revenue growth. The Company intends to hire a significant number of additional technical and sales and marketing personnel in fiscal 1997 and beyond. Competition for such personnel is intense, and there can be no assurance that the Company can attract, assimilate or retain such personnel. Because of the complexity of database connectivity and distributed object connectivity software products, the Company has in the past experienced and expects to continue in the future to experience a time lag between the date technical and sales personnel are hired and the date such persons become fully productive. If the Company is unable to hire and train such personnel on a timely basis in the future, the Company's business, results of operations and financial condition could be materially adversely affected. Management of Growth; Need to Increase Financial Personnel and Implement Policies. The Company's business has grown rapidly in recent periods, with revenue increasing from $1.1 million in fiscal 1995 to $5.6 million in fiscal 1996. In addition, the Company acquired PostModern in May 1996 as part of its strategy of 10 adding distributed object connectivity products to its product line. The growth of the Company's business, the expansion of the Company's customer base and the recent acquisition and integration of PostModern have placed a significant strain on the Company's management, operations and financial systems, policies and procedures. The Company's recent expansion has also resulted in substantial growth in the number of its employees, the scope of its operating and financial systems and the geographic area of its operations, resulting in increased responsibility for management personnel. The Company's future results of operations will depend in part on the ability of its officers and other key employees to continue to implement its operational, customer support and financial control systems and to expand, train and manage its employee base. The Company hired a new Chief Financial Officer and a new controller in July 1996. The Company's current financial systems, policies and procedures are limited. The Company is in the process of developing a more comprehensive set of written financial policies and procedures to supplement its limited current policies and procedures and still must hire additional accounting staff experienced in the software industry. There can be no assurance that the Company will be able to manage any future expansion of its business, if any, successfully, or that its management, personnel, procedures and systems will be adequate to support the Company's operations. Any such inabilities or inadequacies to do so would have a material adverse effect on the Company's business, results of operations and financial condition. Potential Acquisitions. If appropriate opportunities present themselves, the Company intends to acquire businesses, products or technology that the Company believes are strategic, although the Company currently has no understandings, commitments or agreements with respect to any material acquisition and no material acquisition is currently being pursued. There can be no assurance that the Company will be able to successfully identify, negotiate or finance such acquisitions, or to integrate such acquisitions with its current business. The process of integrating an acquired business, product or technology into the Company may result in unforeseen operating difficulties and expenditures and may absorb significant management attention that would otherwise be available for ongoing development of the Company's business. Moreover, there can be no assurance that the anticipated benefits of any acquisition will be realized. Acquisitions could result in potentially dilutive issuances of equity securities, the incurrence of debt and contingent liabilities and amortization expenses related to goodwill and other intangible assets, which could materially adversely affect the Company's business, results of operations and financial condition. Any such future growth and any acquisitions of other technologies, products or companies may require the Company to obtain additional equity or debt financing, which may not be available or may be dilutive. Intense Competition. The Company's products are targeted at the emerging markets for standards-based database connectivity software and standards-based distributed object connectivity software. The markets for the Company's products are intensely competitive, subject to rapid change and significantly affected by new product introductions and other market activities of industry participants. The Company believes that the principal competitive factors in these markets are product quality, performance and price, vendor and product reputation, product architecture and quality of support. In the standards-based database connectivity market, the Company competes principally against Intersolv. The Company's database connectivity products also indirectly compete against proprietary database connectivity solutions from database vendors. In the standards-based distributed object connectivity market, the Company competes principally against two private companies, Iona and Expersoft. The Company's distributed object connectivity products also compete against existing or proposed distributed object connectivity solutions from hardware vendors such as DEC, Hewlett-Packard, IBM and Sun. In addition, because there are relatively low barriers to entry in the software market and because the Company's products are based on publicly available standards, the Company expects to experience additional competition in the future from other established and emerging companies if the market for database connectivity and distributed object connectivity software continues to develop and expand. In particular, relational database vendors including Informix, Microsoft, Oracle and Sybase may offer standards-based database connectivity software to their customers, eliminating or reducing demand for the Company's products. Similarly, operating system vendors such as DEC, Hewlett-Packard, IBM, Microsoft and Sun may offer standards-based distributed object connectivity products bundled with their 11 operating systems. For instance, Microsoft has announced plans to introduce DCOM, which would eliminate the need for CORBA-compliant ORBs, such as those offered by the Company, for Microsoft operating systems. Many of these current and potential competitors have well-established relationships with the current and potential customers of the Company, have extensive knowledge of the markets serviced by the Company, better name recognition and more extensive development, sales and marketing resources and are capable of offering single vendor solutions. As a result, these current and potential competitors may be able to respond more quickly to new or emerging technologies and changes in customer requirements, or to devote greater resources to the development, promotion and sale of their products, than the Company. It is also possible that new competitors or alliances among competitors may emerge and rapidly acquire significant market share. The Company also expects that competition will increase as a result of software industry consolidations. The Company expects that it will face increasing pricing pressures from its current competitors and new market entrants. Increased price competition may result in price reductions, reduced gross margins and loss of market share, any of which could materially adversely affect the Company's business, financial condition or results of operations. There can be no assurance that the Company will be able to compete successfully against current and future competitors or that competitive pressures will not materially and adversely affect its business, results of operations and financial condition. See "Business--Competition." Risk of Product Defects. Software products as complex as those offered by the Company frequently contain undetected errors or failures that may be detected at any point in the product's life cycle. The Company has in the past discovered software errors in certain of its new products and enhancements and has experienced delays in shipment of products during the period required to correct these errors. There can be no assurance that, despite testing by the Company and potential customers, errors will not occur, resulting in loss of or delay in market acceptance and sales, diversion of development resources, injury to the Company's reputation or increased service and warranty costs, any of which could have a material adverse effect on the Company's business, results of operations and financial condition. This risk is amplified for the Company because a significant portion of its future sales are expected to be derived from arrangements under which third parties embed the Company's products in their own products. Any significant errors in the Company's products, or in the products of VARs or ISVs which embed the Company's products, might discourage such third parties or other customers from utilizing the Company's products, which would have a material adverse effect on the Company's business, results of operations and financial condition. Although the Company generally attempts to limit by contract its exposure to incidental and consequential damages, and to cap the Company's liabilities to its proceeds under a contract, if a court failed to enforce the liability limiting provisions of the Company's contracts for any reason, or if liabilities arose which were not effectively limited, the Company's business, results of operations and financial condition could be materially and adversely affected. See "Business--Product Development." Dependence on Company and Third Party Proprietary Technology. The Company's success is dependent in part upon its proprietary technology. While the Company relies on a combination of copyright and trademark laws, trade secrets, confidentiality procedures and contractual provisions to protect its proprietary rights, the Company believes that factors such as the technical and creative skills of its personnel, new product developments, frequent product enhancements, name recognition and reliable products and product support are more essential to establishing and maintaining a technology leadership position, particularly because the Company is supplying standards- based products. The Company seeks to protect its software, published data, documentation and other written materials under trade secret and copyright laws, which afford only limited protection. The Company has granted limited access to its source code to third parties under confidentiality obligations. Despite the Company's efforts to protect its proprietary rights, unauthorized parties may attempt to copy aspects of the Company's products or to obtain and use information that the Company regards as proprietary. Policing unauthorized use of the Company's products is difficult, and while the Company is unable to determine the extent to which piracy of its software products exists, software piracy can be expected to be a 12 persistent problem. In addition, the laws of some foreign countries do not protect the Company's proprietary rights to as great an extent as do the laws of the United States. There can be no assurance that the Company's means of protecting its proprietary rights will be adequate or that the Company's competitors will not independently develop similar technology. The Company distributes its products electronically through the Internet. Distributing the Company's products through the Internet makes the Company's software more susceptible than other software to unauthorized copying and use. The Company has historically allowed and currently intends to continue to allow, customers to electronically download its client and server software. If as a result of changing legal interpretations of liability for unauthorized use of the Company's software or otherwise, users were to become less sensitive to avoiding copyright infringement, the Company's business, results of operations and financial condition could be materially adversely affected. The Company is not aware that any of its products infringes the proprietary rights of third parties. There can be no assurance, however, that third parties will not claim infringement by the Company with respect to current or future products. The Company expects that software developers will increasingly be subject to infringement claims as the number of products and competitors in the Company's industry segment grows and the functionality of products in different industry segments overlaps. Any such claims, with or without merit, could be time-consuming, result in costly litigation, cause product shipment delays or require the Company to enter into royalty or licensing agreements. Such royalty or licensing agreements, if required, may not be available on terms acceptable to the Company or at all, which could have a material adverse effect upon the Company's business, results of operations and financial condition. In addition, the Company relies on certain software that it licenses from third parties, including software that is integrated with internally developed software and used in the Company's products to perform key functions. The Company licenses from Microsoft the base technology for the VisiODBC SDK products and licenses from RSA Data Security, Inc. ("RSA") security technology it plans to use in several of its future products. Microsoft has the right to terminate its license with the Company at any time after delivery to the Company of the Microsoft SDK for ODBC 3.0, which is expected to occur in the second half of 1996. While certain licenses from Microsoft are granted to the Company on an exclusive basis, Microsoft has the right to convert such licenses to non-exclusive licenses. The Company's license with RSA may only be terminated for breach. The Company has entered into a joint technology agreement with JavaSoft, a subsidiary of Sun Microsystems, that grants the Company the right to sublicense JavaSoft's Java database connectivity ("JDBC") test suites and ODBC bridge. There can be no assurances that such firms will remain in business, that they will continue to support their technology or that their technology will otherwise continue to be available to the Company on commercially reasonable terms. The loss of or inability to maintain any of these software licenses could result in delays or cancellations in product shipments until equivalent software can be identified and licensed or developed and integrated with the Company's products. Any such delay or cancellation could materially adversely affect the Company's business, results of operations and financial condition. See "Business--Intellectual Property and Other Proprietary Rights." International Sales. The Company's export sales accounted for approximately 10% and 4% of the Company's total revenue in fiscal 1996 and the first quarter of fiscal 1997, respectively. The Company had no material export sales in fiscal 1994 or 1995. The Company expects to increase its emphasis on export sales. Revenue derived from export sales may account for a growing percentage of the Company's revenue in future periods, although there can be no assurance that the Company will achieve significant penetration in any international market. The Company has only one international sales office, which is located in Paris, France. The Company believes that its continued growth will require expansion of its international operations and export sales. To successfully expand export sales, the Company must establish additional foreign sales offices, hire additional personnel and recruit additional international resellers. To the extent the Company is unable to do so in a timely manner, the Company's growth in export sales, if any, will be limited, and the Company's business, results of operations and financial condition could be materially adversely affected. The Company has granted exclusive distribution rights in Japan for the Japanese versions of its ODBC products to ASCII Corporation, a Japanese software distributor. The Company may not terminate these exclusive rights unless ASCII fails to meet 13 certain minimum annual sales objectives commencing in fiscal year 1998 or otherwise breaches the agreement. There can be no assurance that ASCII will be successful selling the Company's products. There are a number of risks inherent in the Company's international business activities, including unexpected changes in regulatory requirements, tariffs and other trade barriers, costs and risks of localizing and internationalizing products for foreign countries, longer accounts receivable payment cycles, potentially adverse tax consequences, repatriation of earnings and the burdens of complying with a wide variety of foreign laws. None of the Company's products is currently a "double byte" product, which is required to localize these products in certain non-English character set markets such as Asia. The Company believes that it will be required to develop double byte versions of its products and engage in other internationalization and localization activities. There can be no assurance the Company will successfully complete these activities in a timely manner. All of the Company's sales are currently denominated in U.S. dollars and, therefore, increases in the value of the U.S. dollar relative to foreign currencies could make the Company's products less competitive in foreign markets. In addition, revenue of the Company earned in various countries where the Company does business may be subject to taxation by more than one jurisdiction, thereby adversely affecting the Company's earnings. There can be no assurance that such factors will not have an adverse effect on the revenue from the Company's future international sales and, consequently, the Company's financial condition or results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business--Sales and Marketing." Concentration of Share Ownership and Voting Power; Anti-Takeover Provisions. Upon completion of this offering (assuming no exercise of the Underwriters' over-allotment option), officers, directors and affiliates of the Company will beneficially own approximately 54.1% of the Company's outstanding Common Stock. As a result, these stockholders as a group will be able to control the management and affairs of the Company and all matters requiring stockholder approval, including election of directors, any merger, consolidation or sale of all or substantially all of the Company's assets and any other significant corporate transactions. The concentration of ownership could have the effect of delaying or preventing a change in control of the Company, reducing the likelihood of any acquisition of the Company at a premium price. See "Principal and Selling Stockholders." Upon the closing of this offering, the Company's Board of Directors ("Board of Directors" or "Board") has the authority to issue up to 2,000,000 shares of Preferred Stock and to determine the price, rights, preferences and privileges of those shares without any further vote or action by the stockholders. The rights of the holders of Common Stock will be subject to, and may be adversely affected by, the rights of the holders of any Preferred Stock that may be issued in the future. The issuance of shares of Preferred Stock, while potentially providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of making it more difficult for a third party to acquire a majority of the outstanding voting stock of the Company. The Company has no present intention to issue shares of Preferred Stock. In addition, certain provisions of the Company's Restated Certificate of Incorporation may have the effect of delaying or preventing a change of control of the Company, which could adversely affect the market price of the Company's Common Stock. These provisions provide, among other things, that the Board of Directors is divided into three classes to serve for staggered three-year terms, that a director may be removed from the Board of Directors only for cause and only upon the vote of at least 66 2/3% of the voting power of all outstanding shares of the Company's capital stock, that stockholders may not take action by written consent, that the ability of stockholders to call special meetings of stockholders and to raise matters at meetings of stockholders is restricted and that certain amendments of the Company's Restated Certificate of Incorporation, and all amendments by the stockholders of the Company's Amended and Restated Bylaws, require the approval of holders of at least 66 2/3% of the voting power of all outstanding shares. In addition, the Company is subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law, which will prohibit the Company from engaging in a "business combination" with an "interested stockholder" for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. The application of Section 203 also could have the effect of delaying or preventing a change of control of the Company. See "Description of Capital Stock." 14 Broad Management Discretion over Use of Proceeds. The primary purposes of this offering are to increase the Company's equity capital, to create a public market for the Company's Common Stock and to facilitate future access by the Company to public capital markets. A significant portion of the anticipated net proceeds to the Company from this offering have not been designated for specific uses. Accordingly, management of the Company will have broad discretion with respect to the use of these funds. See "Use of Proceeds." No Prior Market; Possible Volatility. Prior to this offering there has been no public market for the Common Stock of the Company. The initial public offering price will be determined by negotiations among the Company, the Selling Stockholders and the Representatives of the Underwriters. See "Underwriting" for a discussion of the factors to be considered in determining the initial public offering price. There can be no assurance that an active public market will develop or be sustained after this offering or that the market price of the Common Stock will not decline below the initial public offering price. Future announcements concerning the Company or its competitors, quarterly variations in operating results, announcements of technological innovations, the introduction of new products or changes in product pricing policies by the Company or its competitors, proprietary rights or other litigation, changes in earnings estimates by market analysts or other factors could cause the market price of the Common Stock to fluctuate substantially. In addition, stock prices for many technology companies fluctuate widely for reasons which may be unrelated to operating results. These fluctuations, as well as general economic, market and political conditions such as recessions or military conflicts, may materially and adversely affect the market price of the Company's Common Stock. See "-- Potential Fluctuations in Operating Results." Shares Eligible for Future Sale; Registration Rights. Sale of substantial amounts of Common Stock in the public market following this offering could have an adverse effect on the price of the Common Stock. Immediately upon the effectiveness of this offering, 2,100,000 shares will be freely tradeable. Commencing 180 days following the date of this offering, 8,048,789 additional shares will become freely tradeable upon the expiration of agreements not to sell such shares, subject to compliance with Rule 144. Hambrecht & Quist LLC may, in its sole discretion and at any time without notice, release all or any portion of the securities subject to such agreements. The remaining 2,021,182 shares held by existing stockholders become eligible for sale at various times over a period of less than two years, subject to the limitations of Rule 144. Immediately after this offering, the Company intends to register approximately 3,150,000 shares of the Company's Common Stock reserved for issuance under its stock option and purchase plans. See "Shares Eligible for Future Sale." As of the effective date of the Registration Statement, the holders of 6,789,050 shares of the Company's Common Stock will be entitled to certain piggyback registration rights with respect to such shares. If the Company were required to include in a Company initiated registration shares held by such holders pursuant to the exercise of their piggyback registration rights, such sale might have an adverse effect on the Company's ability to raise needed capital. See "Description of Capital Stock." Immediate and Substantial Dilution to New Investors. The initial public offering price is substantially higher than the book value per outstanding share of Common Stock. Investors purchasing Common Stock in this offering will, therefore, incur immediate dilution of $8.34 in net tangible book value per share of Common Stock from the initial public offering price and may incur additional dilution upon the exercise of outstanding stock options. See "Dilution." 15 USE OF PROCEEDS The net proceeds to the Company from the sale of the 1,700,000 shares of Common Stock offered by the Company hereby are estimated to be approximately $15,060,000 (approximately $17,431,500 if the Underwriters' over-allotment option is exercised in full), assuming the shares offered hereby are sold at a public offering price of $10.00 per share. The principal purposes of the offering are to obtain additional working capital, establish a public market for the Company's Common Stock and facilitate future access to public markets. The Company will not receive any proceeds from the sale of Common Stock by the Selling Stockholders. The Company expects the net proceeds to be used for general corporate purposes, including working capital and possible repayment of borrowings under the Company's revolving and bridge credit facilities. As of June 30, 1996 the Company had outstanding borrowings of $524,000 under its $3.0 million revolving credit facility and no borrowings outstanding under its $2.0 million bridge credit facility. The Company's revolving line of credit and its bridge credit facilities bear interest at the bank's prime lending rate plus 1.0%. The Company's revolving credit facility expires on July 15, 1997, while amounts borrowed under the bridge facility would be due on the earlier of 120 days following the loan advance or November 28, 1996. The Company has borrowed under its credit facilities to provide working capital. A portion of the net proceeds may also be used to acquire or invest in complementary businesses or products or to obtain the right to use complementary technologies. While from time to time the Company evaluates potential acquisitions of such businesses, products or technologies, and anticipates continuing to make such evaluations, there are no present understandings, commitments or agreements with respect to any acquisition of other businesses, products or technologies. Pending such uses, the proceeds will be invested in interest-bearing securities. DIVIDEND POLICY The Company has never paid or declared any cash dividends. It is the present policy of the Company to retain earnings to finance the growth and development of the business and, therefore, the Company does not anticipate paying cash dividends on its Common Stock in the foreseeable future. In addition, the Company's bank credit facilities contain covenants that prohibit the Company from paying dividends without prior bank consent. 16 CAPITALIZATION The following table sets forth (i) the actual capitalization of the Company at June 30, 1996, (ii) the pro forma capitalization to reflect conversion upon the closing of this offering of all outstanding shares of Preferred Stock and convertible notes into shares of Common Stock, and (iii) the pro forma capitalization as adjusted to reflect the sale of 1,700,000 shares of Common Stock offered by the Company hereby (assuming an initial public offering price of $10.00) and the application of the estimated net proceeds therefrom.
JUNE 30, 1996 ------------------------------------ ACTUAL PRO FORMA AS ADJUSTED -------- -------------- ----------- (IN THOUSANDS) Short-term debt (1)...................... $ 524 $ 524 $ -- ======== ======== ======== Long-term debt (2)....................... $ 2,000 $ -- $ -- -------- -------- -------- Stockholders' equity (3): Preferred stock, $0.001 par value, 10,000,000 shares authorized, 4,119,069 shares issued and outstanding actual; none issued and outstanding pro forma and as adjusted......................... 4 -- -- Common stock, $0.001 par value, 30,000,000 shares authorized, 6,150,902 shares issued and outstanding actual; 30,000,000 shares authorized, 10,469,971 shares issued and outstanding pro forma; 50,000,000 shares authorized, 12,169,971 shares issued and outstanding as adjusted............................. 6 10 12 Additional paid in capital............... 28,222 30,222 45,280 Accumulated deficit...................... (25,121) (25,121) (25,121) -------- -------- -------- Stockholders' equity .................. 3,111 5,111 20,171 -------- -------- -------- Total capitalization................. $ 5,111 $ 5,111 $ 20,171 ======== ======== ========
- -------- (1) See Note 3 of Notes to Consolidated Financial Statements of Visigenic. (2) See Note 9 of Notes to Consolidated Financial Statements of Visigenic. (3) Excludes shares of Common Stock reserved for future issuance pursuant to the Company's stock plans. As of June 30, 1996, options to purchase 1,449,285 shares at a weighted average exercise price of $1.76 per share were outstanding. See Note 6 of Notes to Consolidated Financial Statements of Visigenic. 17 DILUTION The net tangible book value of the Company as of June 30, 1996 was $5.1 million or $.49 per share of Common Stock. Net tangible book value per share represents the amount of total tangible assets of the Company reduced by the amount of its total liabilities and divided by the total number of shares of Common Stock outstanding (reflecting the conversion of all outstanding Preferred Stock and convertible notes into shares of Common Stock upon the closing of the offering made hereby). Without taking into account any other change in such net tangible book value after June 30, 1996, other than to give effect to the sale by the Company of 1,700,000 shares offered hereby at an assumed initial public offering price of $10.00 per share and receipt of the estimated net proceeds therefrom, the pro forma net tangible book value of the Company as of June 30, 1996 would have been approximately $20.2 million, or $1.66 per share. This represents an immediate increase in such net tangible book value of $1.17 per share to existing stockholders and an immediate dilution of $8.34 per share to new investors. The following table illustrates this per share dilution: Assumed initial public offering price per share................ $10.00 Net tangible book value per share as of June 30, 1996 before the offering................................................ $ .49 Increase per share attributable to new investors............. 1.17 ----- Pro forma net tangible book value per share after the offering...................................................... 1.66 ------ Dilution per share to new investors............................ $ 8.34 ======
The following table summarizes, on a pro forma basis as of June 30, 1996, the differences between the existing stockholders and the new investors with respect to the number of shares of Common Stock purchased from the Company, the total consideration paid to the Company and the average price per share paid:
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE ------------------ ------------------- PRICE PER NUMBER PERCENT AMOUNT PERCENT SHARE ---------- ------- ----------- ------- ---------- Existing stockholders(1)... 10,469,971 86.0% $30,232,000 64.0% $ 2.89 New investors(1)........... 1,700,000 14.0 17,000,000 36.0 $10.00 ---------- ----- ----------- ----- Total.................... 12,169,971 100.0% $47,232,000 100.0% ========== ===== =========== =====
- -------- (1) Sales by Selling Stockholders in this offering will reduce the number of shares held by existing stockholders to 10,069,971 or approximately 82.7% of the total number of shares of Common Stock outstanding after this offering (10,009,971 or 80.6% if the Underwriters' over-allotment option is exercised in full), and will increase the number of shares held by new investors to 2,100,000 or approximately 17.3% of the total number of shares of Common Stock outstanding after the offering (2,415,000 or 19.4% if the Underwriters' over-allotment option is exercised in full). See "Principal and Selling Stockholders." The above computations assume no exercise of options after June 30, 1996. As of June 30, 1996, there were outstanding options to purchase 1,449,285 shares of Common Stock at a weighted average exercise price of $1.76 per share. To the extent outstanding options are exercised, there will be further dilution to new investors. See Note 6 of Notes to Financial Statements of Visigenic. 18 SELECTED CONSOLIDATED FINANCIAL DATA The following selected consolidated financial data at March 31, 1995 and 1996 and for the years ended March 31, 1994, 1995, and 1996 have been derived from the audited financial statements of the Company included elsewhere in this Prospectus. The consolidated balance sheet data at March 31, 1994 are derived from audited financial statements not included herein. The following selected financial data at June 30, 1996 and for the quarters ended June 30, 1995 and 1996 have been derived from unaudited financial statements of the Company included elsewhere in this Prospectus and which include all adjustments (consisting only of normal recurring adjustments) that the Company considers necessary for a fair presentation of its financial position and results of operations for these periods. The following selected pro forma combined statement of operations data for the year ended March 31, 1996 and the quarter ended June 30, 1996 has been derived from the unaudited pro forma condensed combined financial statements of the Company and PostModern included elsewhere in this Prospectus. The results of operations for the quarter ended June 30, 1996 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 1997 or any other period. The data set forth below is qualified by reference to, and should be read in conjunction with the financial statements and notes thereto and the discussion thereof included elsewhere in this Prospectus.
YEAR ENDED MARCH 31, QUARTER ENDED JUNE 30, -------------------------------------- ----------------------------- 1996 1996 -------------------- --------------------- PRO FORMA PRO FORMA 1994(1) 1995 ACTUAL COMBINED(2) 1995 ACTUAL COMBINED(2) ------- ------- ------- ----------- ------ -------- ----------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) CONSOLIDATED STATEMENT OF OPERATIONS DATA: Revenue: Software products..... $ -- $ 892 $ 4,479 $ 4,783 $ 544 $ 2,505 $ 2,529 Service and other..... -- 223 1,096 1,794 367 456 564 ------- ------- ------- ------- ------ -------- -------- --- Total revenue....... -- 1,115 5,575 6,577 911 2,961 3,093 ------- ------- ------- ------- ------ -------- -------- --- Cost of revenue: Software products..... -- 36 284 328 43 138 149 Service and other..... -- 259 727 946 146 295 360 ------- ------- ------- ------- ------ -------- -------- --- Total cost of revenue............ -- 295 1,011 1,274 189 433 509 ------- ------- ------- ------- ------ -------- -------- --- Gross profit............ -- 820 4,564 5,303 722 2,528 2,584 ------- ------- ------- ------- ------ -------- -------- --- Operating expenses: Product development... 1,393 3,160 4,348 5,888 729 1,657 1,721 Sales and marketing... 503 1,511 3,215 3,638 636 2,006 2,074 General and administrative....... 600 872 1,465 1,677 335 473 547 Purchased in process product development.. -- -- -- -- -- 12,014 12,014 Amortization of excess of purchase price over net assets acquired............. -- -- -- 522 -- 43 129 ------- ------- ------- ------- ------ -------- -------- --- Total operating expenses........... 2,496 5,543 9,028 11,725 1,700 16,193 16,485 ------- ------- ------- ------- ------ -------- -------- --- Loss from operations......... (2,496) (4,723) (4,464) (6,422) (978) (13,665) (13,901) Interest and other income, net............ 42 94 85 85 1 6 6 ------- ------- ------- ------- ------ -------- -------- --- Net loss................ $(2,454) $(4,629) $(4,379) $(6,337) $ (977) $(13,659) $(13,895) ======= ======= ======= ======= ====== ======== ======== === Pro forma net loss per share (3).............. $ (.39) $ (.57) $ (.09) $ (1.21) $ (1.23) ======= ======= ====== ======== ======== === Pro forma weighted average common and common equivalent shares (3)............. 11,120 11,120 10,602 11,289 11,289 ======= ======= ====== ======== ======== === MARCH 31, --------------------------- JUNE 30, 1994 1995 1996 1996 ------- ----------- ------ -------- (IN THOUSANDS) CONSOLIDATED BALANCE SHEET DATA: Cash and cash equivalents............... $ 2,901 $ 553 $2,399 $ 1,890 Working capital......................... 2,722 488 816 2,331 Total assets............................ 3,346 1,829 4,820 9,962 Convertible notes payable to stockholders........................... -- -- -- 2,000 Stockholders' equity.................... 3,132 1,117 2,220 3,111
- ------- (1) The statement of operations data for the year ended March 31, 1994 is presented for the period from inception (February 12, 1993) to March 31, 1994. See Note 1 of Notes to Consolidated Financial Statements of Visigenic. (2) The pro forma combined statement of operations data gives effect to the May 1996 acquisition of PostModern as if it had occurred on April 1, 1995. The acquisition was accounted for as a purchase and resulted in the write- off of approximately $12.0 million of in process product development in the quarter ended June 30, 1996. The pro forma combined statement of operations data for the year ended March 31, 1996 does not give effect to this write-off. See Note 9 of Notes to Consolidated Financial Statements of Visigenic and Pro Forma Condensed Combined Financial Statements. (3) See Note 2 of Notes to Consolidated Financial Statements of Visigenic for an explanation of the method used to determine the number of shares used to compute per share amounts. 19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Prospectus contains forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements as a result of the risks described below and elsewhere in this Prospectus. OVERVIEW The Company commenced operations in February 1993 and was engaged principally in product and market research and product development until the launch of its initial products in November 1994. The Company shipped version 1.0 of the VisiODBC Software Development Kit ("SDK") and the VisiODBC Drivers and DriverSets in November 1994, version 1.0 of its VisiChannel product in March 1996 and version 2.0 of its VisiODBC product line in June 1996. The Company first recognized material revenue in the fourth quarter of fiscal 1995. The Company's revenue is derived from license fees from licensing its products, royalties from VARs, ISVs and distributors, and fees for services related to its products, including software maintenance, development contracts, consulting and training. License fees for the Company's products vary according to the specific products licensed. Terms and conditions of individual license transactions, including prices and discounts, are often highly negotiated based on volumes and commitments and vary considerably from customer to customer. Certain of the Company's license arrangements with VARs and ISVs provide for sublicense fees payable to the Company based on a percent of the VAR's or ISV's net revenue. Certain of the Company's license arrangements with VARs and ISVs provide for fixed fees for the right to make and distribute an unlimited number of copies of the Company's product for a specified period of time. Service revenue is primarily attributable to lower margin maintenance and other revenue, including training revenue and engineering development fees. Most of the Company's license revenue to date is attributable to non-recurring license fees for its database connectivity products, particularly its VisiODBC product line, and fees from related services. The Company currently expects that license revenue from its database connectivity products will account for a substantial majority of its revenue for the remainder of fiscal 1997 and for the foreseeable future. Factors adversely affecting the pricing of or demand for its products could have a material adverse effect on the Company's business, results of operations and financial condition. The Company generally recognizes revenue from license and pre-paid royalty fees upon delivery of software products if there are no significant post- delivery obligations, if collection is probable and if the license agreement requires payment within 90 days. If significant post-delivery obligations exist or if a product is subject to customer acceptance, revenue is deferred until no significant obligations remain or acceptance has occurred. Royalty revenue (other than from pre-paid royalties) is recognized when it is reported by VARs, ISVs and distributors. Maintenance revenue from ongoing customer support and product upgrades is recognized ratably over the term of the applicable maintenance period, which is typically 12 months. Consulting and training revenue is generally recognized as services are performed over the term of the agreement. If maintenance revenue is included in a license agreement, such amount is unbundled from the license fee at its fair market value. Revenue from engineering development work is generally recognized on a percentage of completion basis. If a transaction includes both license and service elements, license fee revenue is recognized upon shipment of the software, provided services do not include significant customization or modification of the base product and payment terms are not subject to acceptance criteria. In cases where license fee payments are contingent upon the acceptance of services, revenues from both the license and service elements are deferred until the acceptance criteria are met. See Note 2 of Notes to Consolidated Financial Statements of Visigenic. The Company licenses its products to VARs and ISVs, who include the Company's products in their own products, and to end users, who deploy the Company's products in their own computing environments. A substantial portion of the Company's license revenue to date is attributable to licenses to VARs and ISVs. A relatively small number of VAR and ISV customers have accounted for a significant percentage of the 20 Company's license revenue. For fiscal 1996, licenses to the Company's ten largest customers accounted for approximately 78% of the Company's total revenue and licenses to one customer, Platinum technology, Inc., accounted for approximately 25% of the Company's total revenue. For the first quarter of fiscal 1997, licenses to the Company's ten largest customers accounted for approximately 75% of the Company's total revenue and licenses to one customer, Cisco, accounted for approximately 34% of the Company's total revenue. The Company expects that licenses to a limited number of VAR and ISV customers will continue to account for a large percentage of revenue for the foreseeable future. The sales cycles associated with the license of the Company's products is often lengthy (typically ranging from six to twelve months) and is subject to a number of significant delays over which the Company has little or no control. In some cases, the license of the Company's software products is an enterprise-wide decision by prospective end user customers or a product strategy decision by VARs and ISVs. Generally, the Company must provide a significant amount of information to prospective customers regarding the use and benefits of the Company's products as part of its sales efforts. In addition, the implementation of some of the Company's products involves a significant commitment of resources by prospective customers and may require substantial reengineering of customers' computing environments. The cost to the customer of the Company's product is typically only a portion of the related hardware, software, development, training and integration costs of implementing a large scale system. Given these factors and the expected continued dependence on a limited number of customers for a substantial part of license revenue, the loss of a major customer or any reduction or delay in sales to or implementations by such customers could have a material adverse effect on the Company's business, results of operations, and financial condition. The Company markets its products in North America through its direct sales and telesales organizations and through VARs and ISVs. Throughout the rest of the world, the Company markets its products through distributors, VARs and ISVs. International revenue accounted for approximately 10% of total revenue in fiscal 1996 and approximately 4% of total revenue for the first quarter of fiscal 1997. In February 1996, the Company opened a European sales office in France. The Company intends to increase its international sales force and focus on establishing additional international distributor, VAR and ISV relationships. The Company expects that international revenue will account for an increasing portion of total revenue in the future. As a result, failure to manage international sales appropriately could have a material adverse effect on the Company's business, results of operations and financial condition. See "Risk Factors--International Sales." With the exception of the third quarter of fiscal 1996, the Company's revenue has increased in each of the last six quarters. The Company's limited operating history, however, makes the prediction of future operating results difficult. The Company expects that prior growth rates of the Company's software products revenue will not be sustainable in the future. The Company's future operating results will depend on many factors, including the size, timing and terms and conditions of individual license transactions; the relatively long sales and implementation cycles for the Company's products; the delay or deferral of customer implementations; changes in the Company's operating expenses; the ability of the Company to develop and market new products and control costs; market acceptance of new products; timing of introduction or enhancement of products by the Company or its competitors; the level of product and price competition; the ability of the Company to expand its direct sales and telesales force, its indirect distribution channels and its customer support capabilities; activities of and acquisitions by competitors; changes in connectivity software, database technology and industry standards; changes in the mix of products and services sold; changes in the mix of channels through which products and services are sold; levels of international sales; personnel changes and difficulties in attracting and retaining qualified sales, marketing and technical personnel; changes in customers' budgeting cycles; foreign currency exchange rates; quality control of products sold; and general economic conditions. The Company has not been profitable to date and the Company currently anticipates that it will operate at a loss through at least the middle of 1997. There can be no assurance that any of the Company's business or strategies will be successful or that the Company will be able to achieve or sustain profitability on a quarterly or annual basis. The Company's sales generally reflect a relatively high amount of revenue per order. The loss or delay of individual orders, therefore, can have a significant impact on the revenue and quarterly results of the Company. 21 Because the Company's operating expenses are relatively fixed, a delay in the recognition of revenue from a limited number of license transactions could cause significant variations in operating results from quarter to quarter and could result in significant losses. To the extent such expenses precede, or are not subsequently followed by, increased revenue, the Company's operating results would be materially adversely affected. As a result of these and other factors, revenue for any quarter is subject to significant variation, and the Company believes that period-to-period comparisons of its results of operations are not necessarily meaningful and should not be relied upon as indications of future performance. It is likely that in some future quarter the Company's operating results will be below the expectations of market analysts and investors. In such event, the price of the Company's Common Stock would likely be materially adversely affected. The Company acquired PostModern effective May 31, 1996. The transaction was accounted for as a purchase. Except for certain combined condensed financial statements included elsewhere in this Prospectus and for the presentation of certain pro forma revenue amounts herein, PostModern's financial results prior to the effective date of the acquisition are not included in the Company's financial results presented herein. The operating results of the PostModern business are included in the Company's results of operations for the last month of the first quarter of fiscal 1997. The Company's ability to successfully integrate PostModern will depend upon several factors, including but not limited to, successful integration of the products and operations of PostModern into the Company. See "Risk Factors -- Limited Operating History; History of Losses; Recent Acquisition of Distributed Object Connectivity Business." 22 RESULTS OF OPERATIONS The Company first recognized material revenue in the fourth quarter of fiscal 1995 after the Company shipped version 1.0 of its VisiODBC product line. As a result, the Company believes that period-to-period comparisons of annual operating results are less meaningful than an analysis of recent quarterly results. The following tables set forth statements of operations for each of the six quarters ended June 30, 1996, including such amounts expressed as a percentage of total revenue. This quarterly information is unaudited, but has been prepared on the same basis as the annual consolidated financial statements and, in the opinion of the Company's management, reflects all adjustments (consisting only of normal recurring adjustments) necessary for a fair representation of the information for the periods presented. Such statements of operations should be read in conjunction with the Company's audited consolidated financial statements and notes thereto included elsewhere herein. Operating results for any quarter are not necessarily indicative of results for any future period.
QUARTER ENDED ------------------------------------------------------------- MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, 1995 1995 1995 1995 1996 1996 -------- -------- --------- -------- -------- -------- (IN THOUSANDS) Revenue: Software products...... $ 500 $ 544 $ 1,033 $ 840 $2,062 $ 2,505 Service and other...... 155 367 268 253 208 456 ------- ------ ------- ------- ------ -------- Total revenue........ 655 911 1,301 1,093 2,270 2,961 ------- ------ ------- ------- ------ -------- Cost of revenue: Software products...... 34 43 62 107 72 138 Service and other...... 105 146 180 200 201 295 ------- ------ ------- ------- ------ -------- Total cost of revenue............. 139 189 242 307 273 433 ------- ------ ------- ------- ------ -------- Gross profit............ 516 722 1,059 786 1,997 2,528 ------- ------ ------- ------- ------ -------- Operating expenses: Product development.... 660 729 972 1,429 1,218 1,657 Sales and marketing.... 543 636 770 732 1,077 2,006 General and administrative........ 324 335 336 371 423 473 Purchased in process product development... -- -- -- -- -- 12,014 Amortization of excess of purchase price over net assets acquired.............. -- -- -- -- -- 43 ------- ------ ------- ------- ------ -------- Total operating expenses............ 1,527 1,700 2,078 2,532 2,718 16,193 ------- ------ ------- ------- ------ -------- Loss from operations.......... (1,011) (978) (1,019) (1,746) (721) (13,665) Interest and other income, net............ 4 1 28 48 8 6 ------- ------ ------- ------- ------ -------- Net loss................ $(1,007) $ (977) $ (991) $(1,698) $ (713) $(13,659) ======= ====== ======= ======= ====== ======== AS A PERCENTAGE OF TOTAL REVENUE ------------------------------------------------------------- Revenue: Software products...... 76.3% 59.7% 79.4% 76.9% 90.8% 84.6% Service and other...... 23.7 40.3 20.6 23.1 9.2 15.4 ------- ------ ------- ------- ------ -------- Total revenue........ 100.0 100.0 100.0 100.0 100.0 100.0 ------- ------ ------- ------- ------ -------- Cost of revenue: Software products...... 5.2 4.7 4.8 9.8 3.2 4.6 Service and other...... 16.0 16.0 13.8 18.3 8.8 10.0 ------- ------ ------- ------- ------ -------- Total cost of revenue............. 21.2 20.7 18.6 28.1 12.0 14.6 ------- ------ ------- ------- ------ -------- Gross profit............ 78.8 79.3 81.4 71.9 88.0 85.4 ------- ------ ------- ------- ------ -------- Operating expenses: Product development.... 100.8 80.1 74.7 130.7 53.7 56.0 Sales and marketing.... 82.9 69.8 59.2 67.0 47.4 67.7 General and administrative........ 49.4 36.8 25.8 33.9 18.6 16.0 Purchased in process product development... -- -- -- -- -- 405.7 Amortization of excess of purchase price over net assets acquired.............. -- -- -- -- -- 1.5 ------- ------ ------- ------- ------ -------- Total operating expenses............ 233.1 186.7 159.7 231.6 119.7 546.9 ------- ------ ------- ------- ------ -------- Loss from operations.......... (154.3) (107.4) (78.3) (159.7) (31.7) (461.5) Interest and other income, net............ 0.6 0.2 2.1 4.3 0.3 0.2 ------- ------ ------- ------- ------ -------- Net loss................ (153.7)% (107.2)% (76.2)% (155.4)% (31.4)% (461.3)% ======= ====== ======= ======= ====== ========
23 REVENUE Software Products. Software products revenue increased by 402% from $892,000 in fiscal 1995 to $4.5 million in fiscal 1996 and increased by 360% from $544,000 in the first quarter of fiscal 1996 to $2.5 million in the first quarter of fiscal 1997. The Company had no software products revenue in fiscal 1994. The revenue increases from fiscal 1995 to fiscal 1996 and from the first quarter of fiscal 1996 to the first quarter of fiscal 1997 were primarily due to an increased volume of licensing of the Company's database connectivity products, resulting from an increase in the number of products offered and the expansion of the Company's direct sales and telesales organizations. The decline in software products revenue in the third quarter of fiscal 1996 resulted primarily from the delay in completion of a large sale which closed in the fourth quarter. Service and Other. Service and other revenue, including maintenance revenue, development fees and consulting and training revenue, increased by 391% from $223,000 in fiscal 1995 to $1.1 million in fiscal 1996 and increased by 24% from $367,000 in the first quarter of fiscal 1996 to $456,000 in the first quarter of fiscal 1997. The Company had no service and other revenue in fiscal 1994. The revenue increases from fiscal 1995 to fiscal 1996 and from the first quarter of fiscal 1996 to the first quarter of fiscal 1997 were due to the greater licensing of products to customers under agreements with a maintenance component and growth in training, consulting and development activities. COST OF REVENUE Software Products. Cost of software products revenue includes product packaging, documentation, production and shipping. Cost of software products revenue increased from $36,000 in fiscal 1995 to $284,000 in fiscal 1996 and increased from $43,000 in the first quarter of fiscal 1996 to $138,000 in the first quarter of fiscal 1997. The increases resulted from increased volume of licensing of the Company's products. The Company had no costs of software products revenue in fiscal 1994. Service and Other. Cost of service and other revenue consists primarily of personnel and personnel related overhead allocation, facility and systems costs incurred in providing consulting, training, customer support and engineering development services. Cost of service and other revenue increased from $259,000 in fiscal 1995 to $727,000 in fiscal 1996 and increased from $146,000 in the first quarter of fiscal 1996 to $295,000 in the first quarter of fiscal 1997. This increase reflects the effect of fixed costs resulting from the Company's investment during fiscal 1996 and the first quarter of fiscal 1997 in a larger customer support organization in anticipation of entering into an increasing number of licenses with maintenance components. The Company had no costs of service and other revenue in fiscal 1994. The Company intends to continue investing resources in its customer support organization. The Company currently expects that costs of service and other revenue will increase in absolute dollar amount from the level for fiscal 1996. OPERATING EXPENSES Product Development. Product development expenses include expenses associated with the development of new products, enhancements of existing products and quality assurance activities, and consist primarily of employee salaries, personnel-related overhead allocation, benefits, consulting costs, the cost of technology licensed from other software companies and the cost of software development tools. Product development expenses increased by 38% from $3.2 million in fiscal 1995 to $4.3 million in fiscal 1996 and by 127% from $1.4 million in fiscal 1994 to $3.2 million in fiscal 1995. Product development expenses increased by 127% from $729,000 in the first quarter of fiscal 1996 to $1.7 million in the first quarter of fiscal 1997. The increases in the dollar amount of product development expenses were primarily attributable to costs of additional personnel and full-time contractors in the Company's product development operations and, to a lesser extent, the licensing of existing technology from third parties which has been or will be incorporated into the Company's products. The increase of product development expenses in the third quarter of fiscal 1996 was the result of increased consulting fees and licensing of third party technology which was expensed because it was used exclusively in the development process. Of the product development costs, approximately $1.3 million in fiscal 1994 and $1.2 million in fiscal 1995 consisted of expenses for the development of a product the Company later chose not to 24 introduce commercially. There can be no assurance that the Company will not devote significant resources in the future to develop and market other products that the Company may choose not to introduce commercially. The Company anticipates that it will continue to devote substantial resources to product development, including acquiring or licensing technology from others, in order to introduce new products, enhance existing products or accelerate its time to market. The Company plans to hire a substantial number of product development personnel in fiscal 1997. The Company currently expects that product development expenses will increase in absolute dollar amount from the level for fiscal 1996. In accordance with Statement of Financial Accounting Standards No. 86, the Company has charged all software development costs to product development expense as incurred because expenditures which were eligible for capitalization in prior periods were insignificant. Sales and Marketing. Sales and marketing expenses consist primarily of salaries, commissions and bonuses earned by sales and marketing personnel, personnel related overhead allocation, field office rent and related expenses, travel and entertainment, and advertising and promotional expenses. Sales and marketing expenses increased by 113% from $1.5 million in fiscal 1995 to $3.2 million in fiscal 1996 and by 200% from $503,000 in fiscal 1994 to $1.5 million in fiscal 1995. Sales and marketing expenses increased by 215% from $636,000 in the first quarter of fiscal 1996 to $2.0 million in the first quarter of fiscal 1997. The increases in sales and marketing expenditures reflect primarily the hiring of additional sales and marketing personnel, costs associated with expanded advertising and promotional activities, increased sales commissions and increased costs associated with field sales offices. Of sales and marketing costs, approximately $500,000 in fiscal 1994 and $900,000 in fiscal 1995 consisted of expenses relating to a product the Company later chose not to introduce commercially, none of which expenses is of a recurring nature. The Company plans to hire a substantial number of sales and sales support personnel in fiscal 1997. The Company expects that sales and marketing expenses will continue to increase in absolute dollar amount as the Company continues to expand its sales and marketing efforts domestically and internationally, establishes additional sales offices and increases advertising and promotional activities. The Company currently expects that sales and marketing expenses will increase in absolute dollar amount from the level for fiscal 1996. General and Administrative. General and administrative expenses consist primarily of salaries and occupancy costs for administrative, executive and finance personnel and personnel related overhead allocation. These expenses increased by 68% from $872,000 in fiscal 1995 to $1.5 million in fiscal 1996 and by 45% from $600,000 in fiscal 1994 to $872,000 in fiscal 1995. General and administrative expenses increased by 41% from $335,000 in the first quarter of fiscal 1996 to $473,000 in the first quarter of fiscal 1997. The increases in the absolute dollar amounts of general and administrative expenses were primarily due to increased staffing and associated expenses necessary to manage and support the Company's increased scale of operations. The Company believes that the absolute dollar amount of its general and administrative expenses will continue to increase as a result of the anticipated expansion of the Company's administrative staff to support growing operations and expenses associated with being a public company. INTEREST AND OTHER INCOME, NET Interest and other income, net, is comprised primarily of interest income earned on the Company's cash and cash equivalents. Interest and other income, net, decreased by 10% from $94,000 in fiscal 1995 to $85,000 in fiscal 1996 and increased by 124% from $42,000 in fiscal 1994 to $94,000 in fiscal 1995. Interest and other income, net, increased from $1,000 in the first quarter of fiscal 1996 to $6,000 in the first quarter of fiscal 1997. The variations reflect changing cash balances. PROVISION FOR INCOME TAXES As of March 31, 1996, the Company had federal and state net operating loss carryforwards of approximately $9.8 million and $2.0 million, respectively, which expire at various dates through 2011. In addition, as of March 31, 1996, the Company had general business credit carryforwards of approximately $372,000, which expire at various dates through 2011. Utilization of the net operating loss carryforwards and business credits may 25 be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended, and similar state provisions. See Note 8 of Notes to Consolidated Financial Statements of Visigenic. LIQUIDITY AND CAPITAL RESOURCES Since inception, the Company has financed its operations and met its capital expenditure requirements primarily from proceeds from the private sales of Preferred and Common Stock. Through June 30, 1996, the Company had raised $17.8 million from the sale of Preferred and Common Stock. At June 30, 1996, the Company's principal sources of liquidity included cash and cash equivalents of $1.9 million and a $1.0 million revolving line of credit agreement which expires on August 15, 1996. Advances under the agreement, which bear interest at the bank's prime lending rate plus 1.25%, are limited to 80% of eligible accounts receivable and are secured by substantially all of the assets and contractual rights of the Company. After the end of fiscal 1996, the Company borrowed $524,000 under the line of credit, which bore interest at a rate of 9.5%, as of June 30, 1996. The line of credit agreement also contains certain financial restrictions and covenants. The Company is in compliance with these financial restrictions and covenants. See Note 3 of Notes to Consolidated Financial Statements of Visigenic. On July 16, 1996 the Company executed an amended loan and security agreement which increased the revolving line of credit to $3.0 million and extended its term to July 15, 1997. The amended agreement also provides for a $2.0 million bridge loan for a term ending the earlier of 120 days following the loan advance or November 28, 1996. As consideration for the bridge loan the Company will issue a five year warrant to purchase up to 6,666 shares of the Company's Common Stock. Borrowings outstanding under the amended agreement will bear interest at the bank's prime lending rate plus 1.0%. On May 24, 1996, the Company sold 444,444 shares of its Series C Preferred Stock at a price of $9.00 per share to three investors, for aggregate proceeds of $4.0 million. The Company has the right to require these investors to purchase up to an additional $4.0 million in convertible notes at any time prior to October 31, 1996. If the Company has not completed an initial public offering of its Common Stock by August 30, 1996, in order to require the purchase of these convertible notes after September 30, 1996, the Company must achieve revenue of at least $3.6 million for the quarter ended September 30, 1996. Between May 28 and June 7, 1996, the Company issued $2.0 million principal amount of these convertible notes, bearing interest at the rate of 8.25% per annum. The principal amount of the notes and all accrued interest are due three years after the issuance date. However, upon the closing of the Company's initial public offering, the principal amount of each note and all accrued interest will automatically convert into shares of the Company's Common Stock at the lesser of $13.00 per share or the offering price per share to the public. Upon the closing of the Company's initial public offering, the Series C Preferred Stock will automatically convert into shares of the Company's Common Stock. The Company used a portion of the proceeds from the sale of the Series C Preferred Stock and the convertible notes to pay amounts payable in connection with the closing of the acquisition of PostModern. See "--PostModern Acquisition" and Note 9 of Notes to Consolidated Financial Statements of Visigenic. The Company's operating activities used cash of $2.2 million in fiscal 1994, $4.6 million in fiscal 1995, $2.6 million in fiscal 1996 and $4.6 million in the first quarter of fiscal 1997. The increased use of cash in fiscal 1995 as compared with fiscal 1994 was primarily attributable to increased operating costs and increased accounts receivable reduced by an increase in accounts payable, accrued liabilities and deferred revenue. The decline in net cash used in operations in fiscal 1996 as compared with fiscal 1995 was primarily due to an increase in accounts payable, accrued liabilities and deferred revenue. The increased use of cash in the first quarter of fiscal 1997 was primarily due to an increase in accounts receivable. The Company used $477,000, $378,000, $1.1 million and $2.6 million of net cash during fiscal 1994, fiscal 1995, fiscal 1996 and the first quarter of fiscal 1997, respectively, for investing activities, due primarily to purchases of property and equipment. Financing activities provided $5.6 million, $2.6 million, $5.5 million and $6.7 million of net cash during fiscal 1994, fiscal 1995, fiscal 1996 and the first quarter of fiscal 1997, respectively, due to the issuance of Preferred and Common Stock and convertible notes and debt financing. 26 Deferred revenue consists primarily of the unrecognized portion of revenue under maintenance and support contracts (which revenue is deferred and recognized ratably over the term of such contracts) and advance payment of software development fees and software license fees. The Company expects deferred revenue of $560,000 from maintenance and support contracts and $400,000 from software development and software license fees to be realized in the next twelve months. Capital expenditures were primarily for computers, furniture and equipment. The Company expects that its capital expenditures will increase as the Company's employee base grows, and has budgeted $1.4 million for such capital expenditures for fiscal 1997. As of June 30, 1996, the Company did not have any material commitments for capital expenditures. The Company believes that the proceeds from the sale of the Common Stock offered hereby, together with its existing sources of liquidity and cash generated from operations, will satisfy the Company's projected working capital and other cash requirements for at least the next twelve months. Although operating activities may provide cash in certain periods, to the extent the Company experiences growth in the future, the Company anticipates that its operating and investing activities will use cash. Any such future growth and any acquisitions of other technologies, products or companies may require the Company to obtain additional equity or debt financing, which may not be available or may be dilutive. POSTMODERN ACQUISITION In May 1996, the Company completed the acquisition of PostModern, a supplier of distributed object connectivity software. In the acquisition, which was structured as a merger, the Company issued 3,099,821 shares of its Common Stock and paid a total of $2.3 million in exchange for all of PostModern's outstanding shares. The Company also assumed PostModern's outstanding stock options and reserved 361,785 shares of the Company's Common Stock for issuance upon exercise of such options. The Company also incurred acquisition-related costs of approximately $450,000, resulting in a total purchase price of approximately $13.1 million. In addition, the Company made cash payments, subject to one-year vesting and totaling $1.5 million, to certain PostModern employees. The acquisition of PostModern was accounted for as a purchase in the quarter ended June 30, 1996. The Company recorded a write-off in the quarter ended June 30, 1996 of approximately $12.0 million of in process product development that had not reached technological feasibility and, in management's opinion, had no probable alternative future use. The remaining purchase price of approximately $1.1 million will be amortized over two years. The following pro forma revenue information gives effect to the May 1996 acquisition of PostModern as if it had occurred on April 1, 1995. This information is unaudited and is based on the respective historical financial statements of the Company and PostModern. The Company's acquisition of PostModern was accounted for as a purchase under accounting rules which require presentation of combined operating results subsequent to the acquisition date. The following pro forma data are presented for comparison purposes only. This data should be read in conjunction with the pro forma condensed combined financial statements and historical financial statements contained herein. This revenue data has been prepared on the same basis as the annual consolidated financial statements and, in the opinion of the Company's management, reflects all adjustments necessary for a fair presentation of the information for the periods presented.
PRO FORMA COMBINED QUARTER ENDED ---------------------------------------------- JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, 1995 1995 1995 1996 1996 -------- --------- -------- --------- -------- (IN THOUSANDS) Pro Forma Revenue: Software products........... $ 580 $1,179 $ 868 $2,156 $2,529 Service and other........... 422 605 394 373 564 ------ ------ ------ ------ ------ Total revenue............. $1,002 $1,784 $1,262 $2,529 $3,093 ====== ====== ====== ====== ======
The majority of PostModern's revenue consisted of service and other revenue, attributable to development, training and consulting fees. 27 BUSINESS OVERVIEW Visigenic Software, Inc. is a leading provider of software tools for database and distributed object connectivity for the Internet, Intranet and enterprise computing environments. The Company's standards-based products facilitate the development, deployment and management of distributed applications by providing database-independent access to leading databases and the communications infrastructure for distributed object-oriented applications. The Company markets and sells its software through its direct sales and telesales forces, independent software vendors ("ISVs"), value added resellers ("VARs"), international distributors and on-line Internet sales in North America, Europe, and Asia. The Company's customers include ASCII Corporation, Cisco, CompuWare, Borland, Healtheon, Hewlett Packard, Hitachi Ltd., Merrill Lynch, MCI Telecommunications, Microsoft, Netscape, Oracle, Platinum technology and Software AG. INDUSTRY BACKGROUND In an increasingly complex computing environment, today's enterprises require flexible access to data and applications, regardless of whether the data and applications are located at the central office, a remote office or across the Internet. This requirement is being driven by the following market trends: . The increasing use of multiple database management systems ("DBMSs"), requiring DBMS-independent client/server database connectivity solutions. . The increasing use of object-oriented technologies to provide distributed application solutions. . The increasing use of Internet and Intranet technologies within mainstream commercial markets, which is increasing the demand for applications capable of operating in distributed computing environments. Database Connectivity Client/server computing has given organizations the flexibility to develop and deploy applications on a wide variety of computer platforms and DBMSs. The computing infrastructure of the typical enterprise now consists of a heterogeneous mix of operating systems, databases, networks and hardware. One industry survey of Fortune 500 companies found that these companies use an average of six different DBMSs. For example, an enterprise may support the Windows 3.1, Windows NT, UNIX and MVS operating system platforms running Microsoft SQL Server, Oracle and IBM DB2 DBMSs. To manage this heterogeneous, cross-platform database environment, a common method of accessing, managing and analyzing data from multiple databases was needed. The Open Database Connectivity ("ODBC") standard was created to address this problem. ODBC, originally developed by Microsoft, is an industry standard that is based on a specification defined by the SQL Access Group, a consortium of database, software and hardware vendors. ODBC provides a common data access application programming interface ("API") for developers building DBMS- independent applications. With ODBC, a single application can access multiple databases on multiple platforms, avoiding the need for developers to write versions of each application for each DBMS vendor's proprietary data access API. The ODBC API is supported by most major software vendors in their programming languages, application development tools and report writing tools, including Microsoft Visual Basic and Visual C++, Sybase PowerBuilder and the Oracle 2000 family, and Seagate Crystal Reports. Although ODBC provides heterogeneous database connectivity, organizations seeking the benefits afforded by ODBC have encountered two limitations as they move to a more distributed computing environment. First, ODBC development tools and ODBC drivers originally were only available for Windows platforms. This limited the ability of enterprises to realize the multi-platform potential of ODBC and to deploy ODBC solutions in multi-platform computing environments such as Intranets and the Internet. Second, initial implementations of ODBC are client-centric and are suitable for departmental or limited enterprise deployments. These client-centric implementations require that an ODBC driver and database-specific network libraries for each DBMS to be accessed reside on each client system. For larger deployments, which may involve hundreds, or even thousands, 28 of ODBC-enabled client systems accessing multiple DBMSs, maintaining and managing this client/server infrastructure is expensive and difficult because each client system must be updated for each new version of the DBMS and the ODBC driver. The Company believes that organizations need a simplified, server-centric ODBC database access architecture for larger deployments, including Intranet and Internet computing environments. Distributed Object Connectivity In today's rapidly evolving computing environments, enterprises require improved data access as well as improved software application architectures. Computing environments are becoming more distributed, with numerous client and server machines networked together within a single enterprise as well as across the Internet. The traditional method of building applications as monolithic programs is not suited for this distributed environment. Instead, applications must be more modular in nature, where the application is built as a set of modules that can be distributed over a number of client and server systems. Enterprises can improve computing performance by distributing application logic over these computing networks so that the appropriate application logic resides on the most appropriate system. For example, logic for the graphical user interface could reside on a client machine while the business logic is located on one or more servers where the business application resides and the logic that manipulates the data in the DBMS is located on one or more servers where the data resides. Object-oriented programming languages like C++ and Java have enabled software developers to develop and deploy distributed applications more easily. These languages are based on the concept of objects, which are reusable software components that contain both data and the related procedures that act upon them. Objects are modular in nature and can be arranged or reused in many different combinations to form new applications. This modular, self-contained characteristic makes objects ideal for distributed computing environments because applications can now be created by linking a series of objects that may be distributed over a number of different systems. Significant challenges in distributed application development and deployment include communications and interoperability between objects that are distributed over a network. The Common Object Request Broker Architecture ("CORBA") specification, developed by the Object Management Group, a consortium of software and hardware vendors and corporate end users, was created to address these challenges. The CORBA specification defines an Object Request Broker ("ORB") that manages and monitors the interactions of distributed objects on a network. To enable interoperability among applications using ORBs, CORBA also specifies the Internet Inter-ORB Protocol ("IIOP"), which defines a standard distributed messaging protocol for communication between objects. CORBA-compliant objects are portable across programming languages, development environments, computer platforms and networks, which is an increasingly important attribute of applications in the heterogeneous computing environments of the Internet, Intranets and enterprises. Before the CORBA specification, many enterprises had not undertaken the development and deployment of distributed applications because of the lack of software development tools that provide a distributed object communication infrastructure. This meant that building enterprise-wide distributed applications entailed writing a new, proprietary communication infrastructure--a task that was difficult and time-consuming for many enterprises. The introduction of CORBA-compliant ORBs has freed enterprises from having to write their own communication infrastructure and allows enterprises to focus their development efforts on business logic. The Company believes that enterprises now need commercially available ORBs from third party vendors that provide this communications infrastructure. The Internet and Intranets Increase the Need for Distributed Applications The Internet has quickly emerged as an important aspect of business computing. Internet-based business applications have expanded beyond electronic mail to a broad range of business applications and services, including electronic publishing, direct-to-customer transactions, product marketing, advertising and customer support. The widespread use of the Internet by enterprises has also resulted in the emergence of Intranets, internal information systems based upon the Internet infrastructure. Intranets use Internet protocols and applications to share information and services both within the enterprise and across the Internet. Intranets allow the enterprise to 29 distribute data and applications across geographically dispersed facilities as well as enable customers, suppliers and other business partners to easily access enterprise data and applications. The Internet and Intranets are large heterogeneous distributed computing environments, consisting of vast numbers of networked client and server systems and distributed databases. The rapid growth of the Internet and Intranets is accelerating the importance of distributed applications that can access data wherever the data resides. The Company believes business applications increasingly will be comprised of objects, Java applets and databases that are distributed on networks and dynamically assembled into highly customized solutions. As a result, development and deployment tools for database access and distributed object connectivity solutions are increasingly key components of the software infrastructure required for Internet, Intranet and enterprise computing environments. VISIGENIC SOLUTION Visigenic provides key components of the software infrastructure that enable developers and IT professionals to develop, deploy and manage distributed applications. The Company provides software tools for database and distributed object connectivity for Internet, Intranet and enterprise computing environments. The Company's cross-platform database connectivity products, based on the ODBC API, are open, flexible and cost effective for developing, deploying and maintaining DBMS-independent applications. The Company's distributed object connectivity products, consisting of CORBA-compliant ORBs, provide a communication infrastructure and enable the development and deployment of reliable, flexible and cost-effective distributed applications. The Company's solution provides the following benefits: Application Architecture Flexibility. Visigenic's products are designed to enable developers and IT professionals to build applications for a variety of enterprise architectures. The Company's database connectivity products provide application developers with the flexibility to implement the ODBC database connection on the client, on the server or across the Internet. The Company's distributed object connectivity products allow developers to build applications that can be distributed over multiple client and server machines and can interoperate with other CORBA-compliant applications. This flexibility allows the enterprise to adapt its application architecture to meet changing business or computing requirements. Simplification of Application Development. Visigenic's products simplify application development by reducing the time and expertise required to develop applications. The Company's database connectivity products allow developers to access multiple DBMSs by writing to a single API rather than multiple proprietary APIs. The Company's distributed object connectivity products provide the developer with the communications infrastructure required for distributed object applications, allowing the developer to focus on developing business objects and facilitating the reuse of these objects in multiple applications. Simplification of Distributed Application Deployment. Visigenic's products simplify the deployment of distributed applications. The VisiChannel product is based on Visigenic's server-centric ODBC architecture that shifts the database connectivity software components from clients to servers, thereby simplifying deployment and centralizing administration. The VisiBroker for C++ and VisiBroker for Java agent-based architecture reduces the deployment and administration effort for distributed applications by automatically launching objects, tracking their state and adapting to their changing resource requirements. Support of Open Industry Standards. Visigenic's products for database and distributed object connectivity support existing and emerging industry standards, enabling developers and IT professionals to build solutions that are open, flexible and interoperable across multiple operating environments. Visigenic's products support key industry standards including database connectivity standards such as ODBC and X/Open SQL Access and distributed object standards such as CORBA 2.0 and IIOP. The Company is currently developing products that support Java Database Connectivity ("JDBC") and other de facto industry standards such as RSA data encryption technology. 30 Technology Independence. Visigenic's products enable the development of solutions for the heterogeneous computing environments confronting the enterprise by supporting multiple operating systems, DBMSs, development languages and hardware platforms. Manageability. Visigenic's products provide monitoring tools that control the computing environment while reducing the time and resources spent on managing distributed applications. The VisiChannel product provides a monitor that supplies information regarding client/server database connections and provides administrators with the ability to adjust system configuration parameters. The Company's VisiBroker products provide monitoring capabilities for distributed object usage and location. These monitoring tools provide administrators with the information needed to manage and administer distributed application environments. VISIGENIC STRATEGY The Company's strategy is to become the premier provider of software tools which enable developers and IT professionals to develop, deploy and manage distributed applications for Internet, Intranet and enterprise computing environments. The Company's strategy incorporates the following key elements: Support and Enhance Open Industry Standards. The Company's products are based on existing and emerging industry standards for heterogeneous database connectivity and distributed object connectivity. The Company actively participates in standards-setting organizations including X/OPEN and the Object Management Group. The Company intends to contribute to the expansion of existing standards and the development of future standards created by these and other standards-setting organizations. For example, the Company was instrumental in accelerating ODBC's acceptance as a standard for heterogeneous database access by exclusively licensing certain ODBC enabling technology from Microsoft and providing the VisiODBC SDK on Macintosh, OS/2 and many UNIX platforms. In addition, the Company has developed the first commercial implementation of IIOP, defined as part of the CORBA 2.0 specification, in its ORB products. The Company intends to promote acceptance of IIOP as the de facto standard for distributed object messaging for the Internet and Intranets. Leverage Strategic Partners. The Company intends to continue to establish close relationships with leading technology companies through technology licensing, joint development, strategic investments, and distribution and marketing arrangements to promote the widespread acceptance and distribution of Visigenic products. Key partnerships include the following: . Cisco is a strategic investor in the Company and has entered into a license agreement to incorporate the Company's database connectivity products in Cisco's network management product line. . Hitachi has entered into a joint-development agreement with the Company for the development of a transaction-enabled ORB based on the VisiBroker for C++ and VisiBroker for Java products. . JavaSoft, a division of Sun Microsystems, has entered into an agreement for JDBC technology that grants the Company the right to sub-license JavaSoft's JDBC test suites and its JDBC-to-ODBC bridge. . Microsoft has entered into a series of agreements to incorporate certain of the Company's VisiODBC products with certain Microsoft products and to exclusively license to the Company the Microsoft ODBC SDK and test suites for non-Microsoft operating systems. Such licenses may be converted into non-exclusive licenses at Microsoft's option. . Netscape is a strategic investor in the Company and has entered into a license agreement to incorporate VisiBroker technology in future versions of Netscape products. . Oracle has entered into a license agreement with the Company to incorporate the Company's VisiODBC products with a number of Oracle's Transparent Gateway products. . Platinum technology is a strategic investor in the Company and has entered into an agreement to incorporate the Company's VisiODBC, VisiChannel and VisiBroker products with certain Platinum products. 31 Provide a Broad Suite of Products and Services. The Company offers a suite of software tools for database and distributed object connectivity, as well as support, consulting and training services. The Company intends to develop new products, enhance its current products and integrate its database connectivity software products with its distributed object connectivity products to address the requirements of the emerging Internet and Intranet distributed markets. Maintain Technology Leadership. The Company is committed to maintaining its technological leadership through internal product development efforts and, if appropriate opportunities present themselves, through acquisitions of technologies, products and companies to address the specific requirements of distributed applications in the areas of database connectivity, distributed object connectivity and the monitoring of distributed environments. The Company has invested and will continue to invest in technology so that it can react and adapt to changing technological trends and market needs. Exploit and Develop Internet/Intranets Market Opportunities. The Company believes that the emergence of the Internet and Intranets will significantly increase the market for database and distributed object connectivity software. Visigenic intends to leverage its products and expertise in heterogeneous database connectivity and distributed object connectivity to exploit the market opportunity for distributed applications for the Internet and Intranets. Expand Brand Name Awareness. Visigenic believes that the brand name awareness of the Company and its products will be an important element of its success. Visigenic is targeting its marketing efforts to establish and expand the recognition of the Company and its products through advertising, promotional activities, selected sales channels and strategic partners. The Company believes that establishing and expanding market awareness is particularly important given the emerging nature of the market in which it competes. Expand Distribution Channels Worldwide. To achieve broad distribution of its database and distributed object connectivity software, the Company believes it must continue to build multiple distribution channels worldwide. The Company is expanding its direct sales and telesales forces as well as broadening its indirect channels of distribution, including VARs, ISVs, systems integrators ("SIs"), Internet sales and international distributors. The Company's international distribution strategy is to penetrate key international markets by seeking additional VARs, ISVs and regional distributors and by further developing its existing relationships with these customers. 32 PRODUCTS The Company provides software tools for database connectivity and distributed object connectivity for Internet, Intranet and enterprise computing environments. The Company's products provide key components of the software infrastructure that enable developers and IT professionals to develop, deploy and manage distributed applications. The following table identifies the Company's current products:
MOST ORIGINAL RECENT PRODUCT RELEASE RELEASE SUPPORTED US SUGGESTED NAMES DATE DATE PLATFORMS LIST PRICE (1) DATABASE CONNECTIVITY - -------------------------------------------------------------------------------- VisiODBC Drivers 11/94 6/96 Windows 3.1 $95-$150/Driver and DriverSet Windows 95 $295-$595/DriverSet Windows NT UNIX Macintosh OS/2 - -------------------------------------------------------------------------------- VisiODBC SDK 11/94 6/96 UNIX $995/user Macintosh OS/2 - -------------------------------------------------------------------------------- VisiChannel 3/96 3/96 Windows 3.1 $500-$700/user Windows 95 Windows NT - -------------------------------------------------------------------------------- DISTRIBUTED OBJECT CONNECTIVITY - -------------------------------------------------------------------------------- VisiBroker for Java 4/96 4/96 Windows 95 $3,000-$5,000/ Windows NT developer UNIX $150-$250/runtime - -------------------------------------------------------------------------------- VisiBroker for C++ 9/94 9/95 Windows 95 $3,000-$5,000/ Windows NT developer UNIX $150-$250/runtime
(1) Actual price depends upon platform selected and quantity purchased, among other factors. The terms and conditions, including prices and discounts from list prices, of individual license transactions are often highly negotiated based on volumes and commitments and vary considerably from customer to customer. Database Connectivity Products The Visigenic software tools for database connectivity are based on the ODBC standard and enable data access independent of both the DBMS and platform. The ODBC products include the VisiODBC Drivers and DriverSets (formerly Visigenic ODBC Drivers and Driver Sets), VisiODBC Software Development Kits (formerly Visigenic ODBC Software Development Kits) and VisiChannel (formerly Visigenic OpenChannel). 33 [DIGITIZED ARTWORK OF VISIODBC DRIVERS APPEARS HERE] VisiODBC Drivers and DriverSets. The VisiODBC Drivers and DriverSets (formerly Visigenic ODBC Drivers and DriverSets) provide cross-platform access to multiple SQL relational DBMSs--including CA-Ingres, IBM DB2, Informix, Microsoft SQL Server, Oracle and Sybase SQL Server (DBLib and CTLib)--from any ODBC-enabled application. The VisiODBC Driver and DriverSets are made up of two ODBC components: the Driver Manager and a set of database drivers. The Driver Manager loads the ODBC drivers that an ODBC-enabled application requests. The VisiODBC drivers provide the communication link between the ODBC-enabled application and a specific DBMS; the drivers process ODBC function calls from the application, translate them to DBMS-specific calls and return the results of those calls to the application. For example, to access an Oracle DBMS, an ODBC-enabled application, such as Microsoft Excel, would send SQL calls through the VisiODBC Oracle driver. Likewise, to access an Informix DBMS, Microsoft Excel would send the same SQL calls through a VisiODBC Informix driver. The Company sells VisiODBC drivers separately or as the VisiODBC DriverSet, which consists of the full set of VisiODBC drivers available for each platform. VisiODBC Drivers are available for Windows 3.1, Windows NT, Windows 95, ATT GIS, HP-UX, IBM AIX, SGI Irix, SCO, Solaris, Sun OS, Macintosh and Power Macintosh and OS/2. The Company initially released VisiODBC Drivers and DriverSets in November 1994. VisiODBC SDKs. VisiODBC SDKs (formerly Visigenic ODBC SDKs) allow developers to develop vendor-independent database applications and ODBC drivers. Using the VisiODBC SDKs, developers write database-independent C and C++ applications that communicate simultaneously with multiple databases from different vendors. Each VisiODBC SDK comes with the Driver Manager, header files, programmer's reference and graphical utilities. Visigenic has ported the Microsoft ODBC 2.X SDK to ATT GIS, HP-UX, IBM AIX, SGI Irix, SCO, Solaris, Sun OS, Macintosh, Power Macintosh and OS/2. Visigenic currently has the exclusive right to license and port the Microsoft ODBC SDK versions 2.X and 3.0 for Windows to all non-Microsoft platforms. The Company released its first VisiODBC SDK in November 1994. VisiChannel. VisiChannel (formerly Visigenic OpenChannel) provides an architecture that simplifies database connectivity in large distributed application environments such as the Internet, Intranets and enterprise computing environments. The Company initially released VisiChannel in March 1996. 34 [DIGITIZED ARTWORK OF VISICHANNEL APPEARS HERE] VisiChannel's server-centric architecture shifts the administrative burden and processing load for ODBC-enabled applications by relocating ODBC drivers and network libraries away from each user's individual machine to a central server, allowing easier administration and control. A "thin" database- independent client driver connects to any database through the VisiChannel Server, where server-side ODBC drivers manage the actual database connections. Since database connections are centralized, VisiChannel can reduce the time and resources spent on deploying and managing database applications. VisiChannel consists of the VisiChannel Client, Server and Manager. The VisiChannel Client replaces the ODBC drivers and database vendor's proprietary libraries on the client. The VisiChannel Server can be used to access any ODBC data source, either through a VisiODBC Driver or other third party ODBC drivers. The VisiChannel Server has been designed to support large numbers of concurrent users through the use of a multi-threaded architecture, which provides for efficient resource utilization, enhanced throughput and shared resource integrity. The VisiChannel Manager is a monitoring tool that allows IT professionals to monitor all VisiChannel connections and adjust system configuration parameters from a single location. VisiChannel can be deployed for use with existing ODBC applications without any changes to the client application. VisiChannel is optimized for large-scale ODBC traffic and runs over standard TCP/IP transports, enabling it to be used for database connectivity across the Internet. The Company is developing a version of VisiChannel that will support the JDBC API for Java applets and applications. The VisiChannel Server is available for Windows NT, and VisiChannel Clients are available for Windows 3.1, Windows NT and Windows 95. The Company expects to begin shipping VisiChannel Servers and Clients for UNIX in the second half of 1996. Distributed Object Connectivity Products Visigenic develops and markets two Object Request Broker ("ORB") products: VisiBroker for C++ and VisiBroker for Java (formerly Orbeline and BlackWidow). Visigenic's ORBs, which are based on the Common Object Request Broker Architecture ("CORBA") specification, provide an object-oriented solution for the development and deployment of distributed applications. 35 [DIGITIZED ARTWORK OF VISIBROKER FOR JAVA APPEARS HERE] VisiBroker for C++. VisiBroker for C++ (formerly ORBeline) provides a communication framework that enables the development, deployment and management of complex, distributed C++ applications. VisiBroker for C++ consists of two main components: a development component and a runtime component. The development component includes a code generator that converts object interfaces specified in CORBA's Interface Definition Language ("IDL") into C++. The developer adds application logic and the runtime code to the generated code to create a distributed application. The generated code is used by the objects' application logic to interact with the VisiBroker runtime component which manages the communication among the distributed objects. VisiBroker for C++ operates on SunOS, Solaris, Digital UNIX, HP-UX, IBM AIX, Windows NT and Windows 95 platforms. VisiBroker for C++ was first released in September 1994 and the Company is currently shipping version 2.0. VisiBroker for Java. VisiBroker for Java (formerly BlackWidow) is the industry's first client and server Java ORB. VisiBroker for Java enables distributed computing on the Internet and Intranets. Like VisiBroker for C++, VisiBroker for Java consists of a development component and a runtime component. The VisiBroker for Java development component converts IDL interfaces into client-side and server-side Java code. The VisiBroker for Java runtime is written entirely in Java and can run in any Java-enabled Web browser, such as Netscape Navigator 2.0. The VisiBroker for Java environment allows Internet, Intranet and enterprise deployment. On the Internet, a user can load a client-side VisiBroker for Java applet into any Java-enabled browser, execute the applet and establish IIOP connectivity with CORBA objects, whether the objects are written in Java or in another language such as C++ or Smalltalk. The VisiBroker for Java development environment is available on Windows NT, Windows 95 and Solaris. Distributed applications developed with VisiBroker for Java can be deployed on any platform supporting the Java environment. VisiBroker was first released in April 1996. 36 VisiBroker Architecture. VisiBroker for C++ and VisiBroker for Java share a common architecture. Both products use IIOP as their internal communications protocol and do not rely on conversion of a proprietary protocol into IIOP in order to interoperate with other ORB implementations. IIOP is an emerging standard for distributed object messaging and is designed for applications distributed across the Internet and Intranets. Each of the Company's VisiBroker products is multi-threaded, facilitating scalability and enhancing throughput. Applications developed using the Company's VisiBroker products can support multiple concurrent threads to service both incoming and outgoing object requests simultaneously, permitting objects within an application to process a request without affecting the responsiveness of other objects within the application. The Company's VisiBroker products have an agent-based architecture and include one or more agents that communicate and monitor the location of the ORB objects on the network. This agent-based architecture is designed to adapt itself to changes in the objects and the network, such as a heavy system load or the failure of objects. The architecture minimizes the need for configuration files, making it easier to deploy and administer applications, and enables automatic fail-over capabilities, significantly reducing interruptions in any service provided as part of or implemented using the ORB. CUSTOMERS The Company's customers include the following: FINANCIAL SERVICES NETWORK MANAGEMENT/SYSTEMS MANAGEMENT Global Trade Technologies Bytex--A Division of Storage Merrill Lynch Technology Wells Fargo Bank Cisco Compuware TELECOMMUNICATIONS Embarcadero Technologies Hewlett-Packard Bell Northern Research Network General British Telecom-North America Platinum technology DSC Communications Software Professionals MCI Telecommunications INDEPENDENT SOFTWARE VENDORS AND VALUE ADDED RESELLERS AimTech Corporation Oracle Applix Premenos AT&T Global Information Solutions Research Systems Borland Software AG Healtheon Starware Hitachi UniSQL Information Builders Vmark Informix Software Wall Data Investment Intelligence Systems Corporation Wang Microsoft XVT Software Netscape In fiscal 1996, one customer, Platinum technology, accounted for approximately 25% of revenue and in the first quarter of fiscal 1997, one customer, Cisco, accounted for approximately 34% of revenue. No other customer accounted for more than 10% of revenue in either period. A relatively small number of VAR and ISV customers have accounted for a significant percentage of the Company's revenue, and the Company expects that sales to VAR and ISV customers will continue to represent a significant portion of the Company's revenue in future periods. In fiscal 1996, approximately 78% of the Company's revenue was derived from ten customers. In the first quarter of fiscal 1997, approximately 75% of the Company's revenue was derived from ten customers. 37 The Company's products can be used in many applications, including the following examples: Oracle Corporation. Oracle Corporation, a leading supplier of information management software, wanted to provide their customers with access to competitors' DBMSs. Their customers are increasingly operating in heterogeneous environments and require a solution that allows them to develop applications that access multiple DBMSs. Oracle integrated VisiODBC technology in their Transparent Gateway, allowing them to support a single, standard DBMS-independent API versus supporting multiple proprietary APIs of their competitors. For the first time, Oracle provided their customers with direct gateway access, providing distributed database capabilities, from the Oracle7 database to Sybase, Informix, and CA-Ingres. Healtheon. Healtheon, an Internet-based on-line healthcare and benefit information and service company, needed a distributed object connectivity solution for its applications. Healtheon is using VisiBroker for C++ as an integral part of its technology infrastructure for its applications. Platinum technology. Platinum technology, a provider of application development, business intelligence, database administration, data warehousing, and systems software solutions, was seeking a consistent database access solution for their Platinum Open Enterprise Management System ("POEMS") products. Platinum was supporting several proprietary database access methods. Platinum integrated VisiODBC technology and VisiChannel into the POEMS architecture, providing Platinum with a single database access architecture to support and providing their customers with database connectivity across multiple databases, operating systems and hardware platforms. SALES AND MARKETING The Company's sales and marketing objective is to achieve broad market penetration by targeting multiple channels of distribution, including direct sales and telesales, ISVs, VARs, SIs, international distributors and on-line Internet sales. The Company is actively seeking to increase its base of VARs, ISVs, SIs and international distributors. Direct Sales/Telesales. The Company's direct sales and telesales forces focus on medium to large-sized VARs, ISVs and corporate IT opportunities. To date, the direct sales and telesales forces have been primarily targeting strategic VARs and ISVs to leverage their sales and marketing expertise as well as their position in the market. The Company has direct sales offices or personnel in San Mateo, California; Atlanta, Georgia; Boston, Massachusetts; Dallas, Texas; Reston, Virginia and Paris, France. The Company's telesales organization, based in San Mateo, California, works jointly with the direct sales force to receive customer orders as well as proactively identify, contact and qualify customer leads. Independent Software Vendors. The Company has relationships with a number of ISVs to leverage their sales and marketing channels through joint marketing programs and product bundling agreements. Value Added Resellers and System Integrators. VARs and SIs customize, configure and install the Company's software products and bundle these products with their software solutions and services. International Distributors. The Company believes that it is important to develop a strong international presence and intends to do business in markets outside of North America principally through distributors. International sales accounted for 10% and 4% of revenue in fiscal 1996 and the first quarter of fiscal 1997, respectively. The Company is working with its distributors to develop end user, ISV, VAR and SI relationships in their respective territories. As of June 30, 1996, the Company had 12 international distributors, mostly in Europe and Asia. 38 Internet Sales. Certain of the Company's products can be evaluated and purchased electronically over the Internet. The Company believes that the Internet can be an effective way to market its products to potential customers. The Company's marketing efforts are directed at building brand name awareness while also highlighting the value of the Company's database connectivity and distributed object connectivity products. The Company's marketing efforts include market research, product planning, creating collateral materials, managing press coverage and other public relations, identifying potential customers, advertising, attending tradeshows, speaking at industry conferences, direct mail campaigns and establishing and maintaining close relationships with recognized industry analysts. The Company also maintains a home page on the Internet that is a source of sales leads. As of June 30, 1996, the Company's sales organization included 29 employees and its marketing organization included 8 employees. The Company intends to hire a significant number of additional sales and marketing personnel in fiscal 1997 and beyond. An increase in the sales and marketing staff will be required to expand both the Company's direct and indirect sales activities and achieve revenue growth. Competition for such personnel is intense, and there can be no assurance that the Company can attract, assimilate or retain such personnel. Because of the complexity of database connectivity and distributed object connectivity software products, the Company has in the past and expects to continue in the future to experience a time lag between the date sales personnel are hired and the date such persons become fully productive. If the Company is unable to hire and train such personnel on a timely basis in the future, the Company's business, financial condition and results of operations could be materially adversely affected. See "Risk Factors--Reliance on VARs and ISVs" and "--International Sales." CUSTOMER SERVICE AND SUPPORT The Company believes that a high level of customer service and support is critical to the Company's success. The services provided by the Company include technical support, maintenance, training and consulting. These services are designed to increase customer satisfaction and provide feedback to the Company as to customers' demands and requirements. Technical Support and Maintenance. The Company offers customer support through telephone, electronic mail and fax. Visigenic provides new software releases, maintenance releases and enhancements under annual support agreements with customers. Maintenance and customer support license fees are not included in software license fees but are purchased separately for an annual fee. Training and Consulting. The Company offers its customers education and training programs, as well as customized consulting services. Fees for training and consulting services are generally charged on a per diem basis, separately from the Company's software products. PRODUCT DEVELOPMENT The Company believes its future success will depend in large part on its ability to expand the Visigenic product family by enhancing existing products, integrating database connectivity technology with distributed object connectivity technology and developing new products to meet a broad range of customer needs. The Company's product development organization is responsible for new product and technology development, product testing and user interface development. This organization is working to expand the availability of the Company's products on the leading hardware platforms, operating systems, DBMSs, programming languages and networking and communication protocols. Since inception, the Company has made substantial investments in product development and related activities. The Company's products have been developed primarily by the Company's internal development staff and, in some instances, with the assistance of external consultants. Certain technologies have been acquired and 39 integrated into Company's products through licensing arrangements. The Company expects that most of its new products will be developed internally. However, the Company will evaluate on an ongoing basis externally developed technologies and products for integration into its product lines. The Company expects that development activities with respect to its database connectivity products will include development of VisiODBC SDKs, VisiODBC drivers and test suites compliant with the ODBC 3.0 specification as well as additional features for its VisiChannel products, including high performance scalability, message and queuing capabilities, a server-procedure architecture and Simple Network Management Protocol ("SNMP") agents and other management and monitoring tools. The Company intends to support the JDBC API through a JDBC-to-ODBC product that will allow Java programmers using the JDBC API to access heterogeneous data sources through the Company's VisiODBC Drivers or VisiChannel products. Visigenic also expects to ship a VisiChannel Client implementation in Java in the second half of fiscal 1997. The Company expects to enhance its VisiBroker for C++ and VisiBroker for Java products and expand its distributed object connectivity product line. The Company is developing an object-oriented transaction processing system based on the Object Transaction Service ("OTS") specified by the OMG that enables mission-critical On-line Transaction Process ("OLTP") applications. This product is being jointly developed with Hitachi and is a combination of the Company's VisiBroker for C++ product, the OTS interface implementations and OpenTP1, Hitachi's advanced transaction processing engine. The Company currently expects to release the product in the second half of fiscal 1997. The Company also plans to leverage its CORBA expertise to develop products that enable Microsoft's Active/X objects to interact with CORBA objects. The Company also intends to leverage its database connectivity expertise to provide integrated database connectivity capabilities for its VisiBroker product line. The Company's VisiBroker products would then provide a more complete distributed object solution, addressing both the distributed object and data connectivity requirements of its customer base. As of June 30, 1996, there were 51 employees on the Company's research and development staff. The Company's product development expenditures in fiscal 1995, fiscal 1996 and the first quarter of fiscal 1997 were $3.2 million, $4.3 million and $1.7 million, respectively. The Company expects that it will continue to commit substantial resources to product development in the future. The markets for the Company's products are characterized by rapid technological developments, evolving industry standards, swift changes in customer requirements, computer operating environments and software applications, and frequent new product introductions and enhancements. As a result, the Company's success depends substantially upon its ability to anticipate changes and continue to enhance its existing products, develop and introduce in a timely manner new products incorporating technological advances, comply with emerging industry standards and meet increasing customer expectations. 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, the Company's business, operating results and financial condition would be materially and adversely affected. See "Risk Factors--Need to Develop New Software Products and Enhancements" and "--Dependence on Java; Risks Associated with Encryption Technology." COMPETITION The Company's products are targeted at the emerging markets for standards- based database connectivity software and standards-based distributed object connectivity software. The markets for the Company's products are intensely competitive, subject to rapid change and significantly affected by new product introductions and other market activities of industry participants. The Company believes that the principal competitive factors in these markets are product quality, performance and price, vendor and product reputation, product architecture and quality of support. 40 In the standards-based database connectivity market, the Company competes principally against Intersolv. The Company's database connectivity products also indirectly compete against proprietary database connectivity solutions from database vendors. In the standards-based distributed object connectivity market, the Company competes principally against two private companies, Iona and Expersoft. The Company's distributed object connectivity products also compete against existing or proposed distributed object connectivity solutions from hardware vendors such as DEC, Hewlett-Packard, IBM and Sun. In addition, because there are relatively low barriers to entry in the software market and because the Company's products are based on publicly available standards, the Company expects to experience additional competition in the future from other established and emerging companies if the market for database connectivity and distributed object connectivity software continues to develop and expand. In particular, relational database vendors including Informix, Microsoft, Oracle and Sybase may offer standards-based database connectivity software to their customers, eliminating or reducing demand for the Company's products. Similarly, operating system vendors such as DEC, Hewlett-Packard, IBM, Microsoft and Sun may offer standards-based distributed object connectivity products bundled with their operating systems. For instance, Microsoft has announced plans to introduce DCOM, which would eliminate the need for CORBA- compliant ORBs, such as those offered by the Company, for Microsoft operating systems. Many of these current and potential competitors have well-established relationships with the current and potential customers of the Company, have extensive knowledge of the markets serviced by the Company, better name recognition and more extensive development, sales and marketing resources and are capable of offering single vendor solutions. As a result, these current and potential competitors may be able to respond more quickly to new or emerging technologies and changes in customer requirements, or to devote greater resources to the development, promotion and sale of their products, than the Company. It is also possible that new competitors or alliances among competitors may emerge and rapidly acquire significant market share. The Company also expects that competition will increase as a result of software industry consolidations. The Company expects that it will face increasing pricing pressures from its current competitors and new market entrants. Increased price competition may result in price reductions, reduced gross margins and loss of market share, any of which could materially adversely affect the Company's business, financial condition or results of operations. There can be no assurance that the Company will be able to compete successfully against current and future competitors or that competitive pressures will not materially and adversely affect its business, financial condition or results of operations. See "Risk Factors--Intense Competition." INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS The Company's success is dependent in part upon its proprietary technology. While the Company relies on a combination of copyright and trademark laws, trade secrets, confidentiality procedures and contractual provisions to protect its proprietary rights, the Company believes that factors such as the technical and creative skills of its personnel, new product developments, frequent product enhancements, name recognition and reliable products and product support are more essential to establishing and maintaining a technology leadership position, particularly because the Company is supplying standards-based products. The Company seeks to protect its software, published data, documentation and other written materials under trade secret and copyright laws, which afford only limited protection. The Company has granted limited access to its source code to third parties under confidentiality obligations. Despite the Company's efforts to protect its proprietary rights, unauthorized parties may attempt to copy aspects of the Company's products or to obtain and use information that the Company regards as proprietary. Policing unauthorized use of the Company's products is difficult, and while the Company is unable to determine the extent to which piracy of its software products exists, software piracy can be expected to be a persistent problem. In addition, the laws of some foreign countries do not protect the Company's proprietary rights to as great an extent as do the laws of the United States. There can be no assurance that the Company's means of protecting its proprietary rights will be adequate or that the Company's competitors will not independently develop similar technology. The Company distributes its products electronically through the Internet. Distributing the Company's products through the Internet makes the Company's software more 41 susceptible to unauthorized copying and use. The Company has historically allowed and currently intends to continue to allow customers to electronically download its client and server software. If as a result of changing legal interpretations of liability for unauthorized use of the Company's software or otherwise, users were to become less sensitive to avoiding copyright infringement, the Company's business, results of operations and financial condition could be materially adversely affected. The Company is not aware that any of its products infringes the proprietary rights of third parties. There can be no assurance, however, that third parties will not claim infringement by the Company with respect to current or future products. The Company expects that software developers will increasingly be subject to infringement claims as the number of products and competitors in the Company's industry segment grows and the functionality of products in different industry segments overlaps. Any such claims, with or without merit, could be time-consuming, result in costly litigation, cause product shipment delays or require the Company to enter into royalty or licensing agreements. Such royalty or licensing agreements, if required, may not be available on terms acceptable to the Company or at all, which could have a material adverse effect upon the Company's business, results of operations and financial condition. In addition, the Company relies on certain software that it licenses from third parties, including software that is integrated with internally developed software and used in the Company's products to perform key functions. The Company licenses from Microsoft the base technology for the VisiODBC SDK products and licenses from RSA security technology it plans to use in several of its future products. Microsoft has the right to terminate its license with the Company any time after delivery to the Company of the Microsoft SDK for ODBC 3.0, which is expected to occur in the second half of 1996. The Company's license with RSA may only be terminated for breach. The Company has entered into a joint technology agreement with JavaSoft, a subsidiary of Sun MicroSystems, that grants the Company the right to sub-license JavaSoft's JDBC test suites and ODBC bridge. There can be no assurances that such firms will remain in business, that they will continue to support their technology or that their technology will otherwise continue to be available to the Company on commercially reasonable terms. The loss of or inability to maintain any of these software licenses could result in delays or cancellations in product shipments until equivalent software can be identified and licensed or developed and integrated with the Company's products. Any such delay or cancellation could materially adversely affect the Company's business, results of operations and financial condition. See "Risk Factors--Dependence on Company and Third Party Proprietary Technology." EMPLOYEES As of June 30, 1996, the Company employed 109 full time personnel, including 51 in product development, 7 in technical support, 37 in sales and marketing and 14 in finance and administration. See "Risk Factors--Dependence on Key Personnel; Need to Increase Technical, Sales and Marketing and Managerial Personnel." FACILITIES The Company's principal executive offices and research and development facilities are located in San Mateo, California and consist of approximately 25,000 square feet under leases that will expire between July 2000 and January 2001. The Company also leases approximately 5,000 square feet of additional office space, previously used for research and development activities by PostModern, in Mountain View, California pursuant to a lease that terminates July 31, 1996. The Company has sales offices in Atlanta, Boston, Dallas and the Washington D.C. area and in Paris, France. The Company anticipates that it will require additional space in the near term and that such space will be available on reasonable terms. 42 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The directors and executive officers of the Company as of the date of this Prospectus are as follows:
NAME AGE POSITION ---- --- -------- Roger J. Sippl (1)...... 41 Chairman of the Board of Directors and Chief Executive Officer Mark D. Hanson.......... 35 President and Chief Operating Officer Jens Christensen, 33 Vice President, Chief Technical Officer and Director Ph.D................... Kevin C. Eichler........ 36 Vice President, Finance, Chief Financial Officer, Treasurer and Secretary Therese H. Langlais..... 37 Vice President, Marketing David T. Shewmake, 44 Vice President, Technical Services Ph.D................... Richard L. Gerould...... 43 Vice President, Corporate Development and General Counsel Robert Perreault........ 39 Vice President, Research and Development Gill Cogan (2).......... 44 Director Cristina M. Morgan...... 43 Director Michael Moritz.......... 41 Director E. E. van Bronkhorst 72 Director (2).................... J. Sidney Webb (1)...... 76 Director Eric Young (1).......... 40 Director
- -------- (1) Member of the Compensation Committee (2) Member of the Audit Committee Roger J. Sippl is the founder of the Company and has served as a Director and the Chief Executive Officer since February 1993. Mr. Sippl is a co-founder of The Vantive Corporation, a customer interaction applications software company ("Vantive") and has served as a director of Vantive since December 1990. Prior to his relationship with Vantive, Mr. Sippl founded Informix Software, a database software company ("Informix"), in 1980 and served as that company's Chairman of the Board until December 1992. Mark D. Hanson has served as President and Chief Operating Officer of the Company since January 1995. Mr. Hanson served as Vice President of Worldwide Sales from June 1994 when he joined the Company until his appointment as President and Chief Operating Officer. From July 1992 to March 1994, Mr. Hanson was Vice President of Channel Sales of Sybase, a database software company, and Vice President, International Sales of Gain Technology ("Gain"), a software company, before the acquisition of Gain by Sybase. From January 1991 to June 1992, Mr. Hanson served as Vice President, Worldwide Sales and Support for Macromedia, a supplier of PC multimedia software and services. Prior to that time, Mr. Hanson was employed as Vice President at Informix from 1984 to January 1991, most recently as Vice President, Americas Sales. Jens Christensen has served as Vice President, Chief Technical Officer and a Director of the Company since May 1996. From October 1991 to May 1996, Mr. Christensen served as President and Chief Executive Officer of PostModern Computing Technologies Inc., a software company he founded in 1991. From October 1990 to September 1991, Mr. Christensen was employed as a software engineer for Teknekron, a software company. Kevin C. Eichler has served as Vice President, Finance, Chief Financial Officer, Treasurer and Secretary of the Company since July 1996. From July 1995 to July 1996, Mr. Eichler served as Executive Vice President, 43 Finance, and Chief Financial Officer for National Insurance Group, a financial services and related technology solution provider. From January 1991 to June 1995, Mr. Eichler served as Executive Vice President, Finance and Chief Financial Officer for Mortgage Quality Management, Inc., a national provider of quality control services and technologies to residential mortgage lenders. From January 1990 to January 1991, Mr. Eichler served as Tax Manager, Corporate Finance for NeXT Software, Inc., a software company. From May 1988 to January 1990, Mr. Eichler served as Domestic Tax Manager for Microsoft Corporation, a software company. Therese H. Langlais has served as Vice President, Marketing of the Company since November 1993. Ms. Langlais served as Director of Marketing from April 1993, when she joined the Company until her appointment as Vice President, Marketing. Prior to this, Ms. Langlais was employed for nine years at Informix, where she held various positions, the most recent being Director of Strategic Projects. David T. Shewmake has served as Vice President, Technical Services of the Company since September, 1993. In April 1983, Dr. Shewmake co-founded Interactive Development Environments, a computer-aided-software engineering tools company, where he served as Vice President until September 1993. Richard L. Gerould has served as Vice President, Corporate Development and General Counsel of the Company since December 1993. From April 1993 to November 1993, Mr. Gerould worked as an independent attorney primarily for Cadence Design Systems, Inc., a software company. In November 1990, Mr. Gerould founded Configurex, Inc., a software tools company, where he served as President until March 1993. From 1984 to 1990, Mr. Gerould was employed at Micro Focus, a COBOL software tools company, most recently as Vice President of Corporate Services and previously as Vice President, Marketing Operations. Robert Perreault has served as Vice President, Research and Development of the Company since September 1995. From May 1994 to September 1995, Mr. Perreault served as Vice President of Client/Server Technology at Compuware Corporation, a software company. From September 1993 to May 1994, he served as Vice President of Database and Connectivity Products at Uniface Corporation, a software company which merged with Compuware Corporation in May 1994. In 1993, Mr. Perreault co-founded and served as President of Data Accessibility Solutions, Inc., a consulting company which merged with the Company in May 1996. Mr. Perreault co-founded and served as Vice President of U.S. Operations for RIAL, Inc., a consulting company, from September 1991 to August 1993. Gill Cogan has served as a Director of the Company since January 1994. Since October 1991, Mr. Cogan has been a partner at Weiss, Peck & Greer Venture Partners. Mr. Cogan serves as a director for Electronics for Imaging, Inc., Harmonic Lightwaves, Inc., Integrated Packaging Assembly Corp., Microlinear Corporation, Number Nine Visual Technology, and P-Com Inc. Cristina M. Morgan has served as a Director of the Company since March 1993. Ms. Morgan is a Managing Director of Hambrecht & Quist LLC, an investment banking firm, where she has been employed since October 1982. Hambrecht & Quist LLC is a managing underwriter of the offering made hereby. Michael Moritz has served as a Director of the Company since March 1993. Mr. Moritz has been a partner at Sequoia Capital, a venture capital company, since 1986. Mr. Moritz serves as a director for Yahoo!, Flextronics International and Global Village Communications. E. E. van Bronkhorst has served as a Director of the Company since March 1993. Since 1984, Mr. van Bronkhorst has been an independent financial consultant to various technology companies. From 1962 until 1984, Mr. van Bronkhorst served as Senior Vice President, Chief Financial Officer and Treasurer at Hewlett-Packard Company. Mr. van Bronkhorst serves as a director of California Water Service Co., Nellcor Puritan Bennett Inc. and Mid- Peninsula Bank. J. Sidney Webb has served as a Director of the Company since March 1993. Since May 1984, Mr. Webb has served as director and Chairman of the Board of The Titan Corporation, a consulting company. Mr. Webb 44 also serves as a director of Amdahl Corporation, EIP Microwave, Inc. and Plantronics, Inc. Mr. Webb previously was Vice Chairman and a director of TRW. Eric Young has served as a Director of the Company since July 1995. Mr. Young is a general partner of Canaan Capital Partners, a venture capital company, where he has been employed since October 1987. Mr. Young also serves as a director for Spectrian Corporation and Integrated Packaging Assembly Corporation. The Company's Bylaws currently authorize eight directors, which number may be changed from time-to-time by the Board of Directors. All directors hold office until the next annual meeting of stockholders or until their successors are duly elected and qualified. The Amended and Restated Bylaws which will become effective upon consummation of this offering will provide that, beginning with the first annual meeting of stockholders following this offering, the Board of Directors will be divided into three classes, with each class serving staggered three-year terms. There are no family relationships among the directors or executive officers of the Company. In April 1996, the Board of Directors established an Audit Committee and a Compensation Committee. The Audit Committee oversees actions taken by the Company's independent auditors, recommends the engagement of auditors and reviews the Company's internal audits. The Compensation Committee approves the compensation of executives of the Company and makes recommendations to the Board of Directors with respect to standards for setting compensation levels. The Compensation Committee also administers the Company's employee stock option and stock purchase plans. See "--Stock Plans." EXECUTIVE COMPENSATION The following summary compensation table sets forth the compensation paid by the Company during the fiscal year ended March 31, 1996 to the Company's Chief Executive Officer and the four other most highly compensated executive officers (collectively, the "Named Executive Officers") whose salary and bonus for services rendered in all capacities to the Company exceeded $100,000 during such fiscal year. SUMMARY COMPENSATION TABLE FOR FISCAL 1996
LONG TERM COMPENSATION ----------------- ANNUAL COMPENSATION AWARDS ------------ ----------------- NO. OF SECURITIES NAME AND UNDERLYING PRINCIPAL POSITION SALARY (1) OPTIONS ------------------ ------------ ----------------- Roger J. Sippl ................................. $ 90,001 -- Chairman of the Board and Chief Executive Officer Mark D. Hanson.................................. $140,000 62,500 President and Chief Operating Officer Therese H. Langlais............................. $106,667 27,500 Vice President, Marketing David T. Shewmake............................... $115,000 10,000 Vice President, Technical Services Richard L. Gerould.............................. $115,000 15,000 Vice President, Corporate Development and General Counsel
- -------- (1) Amounts shown are on a full year basis and include cash and noncash compensation earned and received by executive officers. 45 The following table provides information concerning grants of options to purchase the Company's Common Stock made during the fiscal year ended March 31, 1996 to each of the Named Executive Officers: OPTION GRANTS IN FISCAL 1996
POTENTIAL REALIZABLE VALUE AT % OF TOTAL ASSUMED ANNUAL RATES NUMBER OF OPTIONS OF STOCK SECURITIES GRANTED TO PRICE APPRECIATION FOR UNDERLYING EMPLOYEES EXERCISE OPTION TERM (4) OPTIONS IN FISCAL PRICE PER EXPIRATION ---------------------- NAME GRANTED (1) 1996 (2) SHARE (3) DATE 5% 10% ---- ----------- ---------- --------- ---------- ---------- ----------- Roger J. Sippl.......... -- -- -- -- -- -- Mark D. Hanson.......... 25,000 3.0% $0.40 04/18/05 $ 6,289 $ 15,937 12,500 1.5 $0.40 07/27/05 3,144 7,969 12,500 1.5 $0.40 10/25/05 3,144 7,969 12,500 1.5 $0.40 03/31/06 3,144 7,969 Therese H. Langlais..... 7,500 0.9 $0.40 04/18/05 1,887 4,781 10,000 1.2 $0.40 07/27/05 2,516 6,375 10,000 1.2 $0.40 03/15/06 2,516 6,375 David T. Shewmake....... 2,500 0.3 $0.40 04/18/05 629 1,594 7,500 0.9 $0.40 03/15/06 1,887 4,781 Richard L. Gerould...... 5,000 0.6 $0.40 04/18/05 1,258 3,187 10,000 1.2 $0.40 03/15/06 2,516 6,375
- -------- (1) Options granted in fiscal 1996 are immediately exercisable and generally vest over five years, with 10% of the option shares becoming fully vested six months from the initial vesting date and 1/60th of the option shares vesting each successive month, with full vesting occurring on the fifth anniversary of the initial vesting date. The Company has a repurchase right for shares not vested. Under the terms of the Company's 1995 Stock Option Plan (the "Option Plan"), the Board or a committee of the Board retains discretion, subject to Option Plan limits, to modify the terms of outstanding options and to reprice outstanding options. The options have a term of ten years, subject to earlier termination in certain situations related to termination of employment. See "--Stock Plans" for a description of the material terms of the options. (2) Based on a total of 832,500 options granted to all employees and consultants during fiscal 1996. (3) All options were granted at an exercise price equal to the fair market value of the Company's Common Stock as determined by the Board of Directors of the Company on the date of grant. The Company's Common Stock was not publicly traded at the time of the option grants to the officers. (4) Potential realizable values are calculated based on the exercise price of $0.40 per share and are net of exercise price, but before taxes associated with exercise. Amounts represent hypothetical gains that could be achieved for the respective options if exercised at the end of the option term. The assumed 5% and 10% annual rates of stock price appreciation from the date of grant to the end of the option term are provided in accordance with rules of the Securities and Exchange Commission and do not represent the Company's estimate or projection of the future Common Stock price. Actual gains, if any, on stock option exercises are dependent on the future performance of the Common Stock, overall market conditions and the option holders' continued employment through the vesting period. This table does not take into account any actual appreciation in the price of the Common Stock from the date of grant to the present. Assuming the fair market value of the Common Stock at the date of grant is the initial public offering price of $10.00, the potential realizable value of these options (a) at a 5% assumed annual rate of stock price appreciation from the date of this offering would be $397,224, $198,612, $198,612 and $198,612 for Mr. Hanson's options, $119,167, $158,889 and $158,889 for Ms. Langlais' options, $39,722 and $119,167 for Mr. Shewmake's options, and $79,445 and $158,889 for Mr. Gerould's options and (b) at a 10% assumed annual rate of stock price appreciation from the date of this offering would be $638,436, $319,218, $319,218 and $319,218 for Mr. Hanson's options, $191,531, $255,374 and $255,374 for Ms. Langlais' options, $63,844 and $191,531 for Mr. Shewmake's options, and $127,687 and $255,374 for Mr. Gerould's options. 46 AGGREGATE OPTION EXERCISES AND FISCAL 1996 YEAR-END VALUES The following table provides the specified information concerning unexercised options held as of March 31, 1996 by each of the Named Executive Officers: AGGREGATE OPTION EXERCISES AND FISCAL YEAR-END VALUES
VALUE OF UNEXERCISED NUMBER OF SECURITIES IN-THE-MONEY UNDERLYING UNEXERCISED OPTIONS AT 3/31/96 OPTIONS AT 3/31/96 (1) (2) ------------------------ ------------------------ NAME VESTED UNVESTED VESTED UNVESTED - ---- ---------- ------------ ---------- ----------- Roger J. Sippl................ -- -- -- -- Mark D. Hanson................ 7,500 55,000 -- -- Therese H. Langlais........... 4,750 22,750 -- -- David T. Shewmake............. 583 9,417 -- -- Richard L. Gerould............ 1,167 13,833 -- --
- -------- (1) These options are immediately exercisable in full at the date of grant, but shares purchased on exercise of unvested options are subject to a repurchase right in favor of the Company which lapses ratably over five years and entitles the Company to repurchase unvested shares at their original issuance price. (2) Calculated on the basis of the fair market value of the underlying securities as of March 31, 1996 of $0.40 per share, as determined by the Company's Board of Directors, minus the aggregate exercise price. No options to purchase the Company's Common Stock were exercised during the fiscal year ended March 31, 1996 by the Named Executive Officers. No compensation intended to serve as incentive for performance to occur over a period longer than one fiscal year was paid pursuant to a long-term incentive plan during the last fiscal year to any Named Executive Officer. The Company does not have any defined benefit or actuarial plan under which benefits are determined primarily by final compensation (or average final compensation) and years of service with any of the Named Executive Officers. STOCK PLANS 1995 Stock Option Plan. The 1995 Stock Option Plan of the Company (the "Option Plan") provides for the grant of stock options to employees (including officers), directors and consultants of the Company and its subsidiaries. Options may be incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") or nonstatutory stock options, although incentive stock options may be granted only to employees. All options granted under the Option Plan must be granted by April 18, 2005. The Option Plan is administered by the Board of Directors or a committee thereof. Subject to the provisions of the Option Plan, the Board or committee has the authority to select the persons to whom options are granted and determine the terms of each option, including (i) the number of shares of Common Stock covered by the option, (ii) when the option becomes exercisable, (iii) the option exercise price, which, in the case of incentive stock options, must be at least 100% of the fair market value of a share of Common Stock as of the date of grant, and, in the case of nonstatutory stock options must be at least 85% of the fair market value of a share of Common Stock as of the date of grant, and (iv) the duration of the option (which, in the case of incentive stock options, may not exceed ten years). Generally, options granted under the Option Plan are immediately exercisable but remain subject to repurchase by the Company until vested under a schedule established by the Board or committee. The Company's repurchase right will terminate upon certain changes in control of the Company unless the outstanding options are assumed or replaced by the acquiring corporation or if, following certain changes in control of the Company, the option holder is terminated without cause or resigns following "constructive termination" as defined in the Option Plan. All incentive stock options are nontransferable other than by will or the laws of descent and distribution. With the Company's consent, nonstatutory stock options may be transferred to an optionee's immediate family, a trust for his or her benefit or a partnership in which only the optionee and immediate family members are partners. 47 Of the 2,500,000 shares of Common Stock reserved for issuance under the Option Plan as of June 30, 1996, a total of 225,501 shares had been issued upon the exercise of options, of which 134,716 remain subject to repurchase, options for the purchase of a total of 1,087,500 shares at a weighted average exercise price of $2.24 per share were outstanding and 1,186,999 shares were available for future option grants. 1996 Outside Directors Stock Option Plan. In June 1996, the Board of Directors, subject to stockholder approval, adopted the 1996 Outside Directors Stock Option Plan (the "Directors Plan") and reserved a total of 200,000 shares of Common Stock for issuance thereunder. Stockholder approval of the Directors Plan will be sought prior to the closing of the offering. The Directors Plan provides for the grant of nonstatutory stock options to nonemployee directors of the Company. The Directors Plan is designed to work automatically without administration; however, to the extent administration is necessary, it will be performed by the Board of Directors. The Directors Plan provides that each future nonemployee director of the Company will be granted an option to purchase 15,000 shares of Common Stock on the date on which the optionee first becomes a nonemployee director of the Company and each current nonemployee director will be granted an option to purchase 15,000 shares of Common Stock on the date following the first annual meeting of the stockholders of the Company after this offering (the "Initial Grant"). Thereafter, on each anniversary of a nonemployee director's Initial Grant, the director will be granted an additional option to purchase 5,000 shares of Common Stock (an "Annual Grant"). Subject to an optionee's continuous service with the Company, 1/8th of an Initial Grant will become exercisable six months after the date of grant and 1/48th of the Initial Grant will become exercisable monthly thereafter. Each Annual Grant will become exercisable in twelve monthly installments beginning in the 37th month after the date of grant, subject to the optionee's continuous service. The exercise price per share of all options granted under the Directors Plan will equal the fair market value of a share of Common Stock on the date of grant. Options granted under the Directors Plan will have a term of ten years. In the event of certain changes in control of the Company, options outstanding under the Directors Plan will become immediately exercisable and vested in full. With the Company's consent, the options may be transferred to an optionee's immediate family, a trust for their benefit or a partnership in which only the optionee and immediate family members are partners. 1996 Employee Stock Purchase Plan. In June 1996, the Board of Directors, subject to stockholder approval, adopted the 1996 Employee Stock Purchase Plan (the "Purchase Plan") and reserved a total of 450,000 shares of Common Stock for issuance thereunder, none of which have been issued as of the effective date of this offering. The Purchase Plan, which is intended to qualify under Section 423 of the Code, is administered by the Board of Directors or by a committee thereof. Employees (including officers and employee directors) of the Company or any subsidiary designated by the Board for participation in the Purchase Plan are eligible to participate in the Purchase Plan if they are customarily employed for more than 20 hours per week and more than five months per year, and do not own 5% or more of the Company's Common Stock. The Purchase Plan will be implemented by sequential six-month offerings, the first of which will commence on the effective date of this offering. The initial offering period will terminate on January 31, 1997. Thereafter, offering periods will begin on February 1 and August 1 of each year. The Board may change the dates or duration of one or more offerings, but no offering may exceed 27 months. The Purchase Plan permits eligible employees to purchase Common Stock through payroll deductions at a price no less than 85% of the lower of the fair market value of the Company's Common Stock on the first day or the last day of each six-month offering period. Participants generally may not purchase more than 1,500 shares in a six-month offering period or stock having a value (measured at the beginning of the offering) greater than $25,000 in any calendar year. In the event of certain changes in control of the Company, the Board may accelerate the purchase of shares under the Purchase Plan unless the acquiring corporation assumes or replaces the purchase rights outstanding under the Purchase Plan. Executive Performance Incentive Plan. Under the Company's Executive Performance Incentive Plan (the "Incentive Plan"), the Compensation Committee of the Board of Directors (the "Committee") may award performance units to designated executives that will vest and become payable if one or more preestablished performance goals are attained during a specified performance period and the participant remains an employee. Performance goals may be either absolute or relative (in comparison to a standard determined by the Committee) 48 measures of revenue, operating income, net income, earnings per share, or departmental expenses. Performance units are dollar-denominated in an amount specified by the Committee at the time of initial award and become payable at a time determined by the Committee following its certification of the attainment of the performance goals. Participants may elect to receive payment of vested performance units either in cash or in shares of the Company's Common Stock having a fair market value on the date of payment equal to the dollar value of the vested performance units. Immediately prior to certain changes in control of the Company, Incentive Plan participants will be paid the value of their performance units for the current performance period that would have vested had the performance goals been attained at the target level, prorated, however, for the portion of the performance period elapsed prior to the change in control. COMPENSATION OF DIRECTORS Directors of the Company do not receive cash for services provided as a director. Directors are reimbursed for all travel and related expenses incurred in connection with attending board and committee meetings. Upon adoption of the Directors Plan, directors who are not employees of the Company will receive yearly grants of options to purchase Common Stock. The Directors Plan will become effective upon consummation of this offering. See "--Stock Plans--1996 Outside Directors Stock Option Plan." COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION DECISIONS The Compensation Committee was formed in April 1996, and is composed of Roger J. Sippl, J. Sidney Webb and Eric Young. No interlocking relationship exists between any member of the Company's Compensation Committee and any member of any other company's board of directors or compensation committee. During the fiscal year completed March 31, 1996, the Board of Directors of the Company, of which Roger J. Sippl, Chief Executive Officer of the Company, was and is a member, fulfilled all functions of the Compensation Committee with regard to compensation of executive officers of the Company. LIMITATION OF LIABILITY AND INDEMNIFICATION Pursuant to the provisions of the Delaware General Corporation Law, the Company has adopted provisions in its Certificate of Incorporation, as amended, which provide that directors of the Company shall not be personally liable for monetary damages to the Company or its stockholders for a breach of fiduciary duty as a director, except for liability as a result of: (i) a breach of the director's duty of loyalty to the Company or its stockholders; (ii) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (iii) an act related to the unlawful stock repurchase or payment of a dividend under Section 174 of Delaware General Corporation Law; and (iv) transactions from which the director derived an improper personal benefit. Such limitation of liability does not affect the availability of equitable remedies such as injunctive relief or rescission. The Company's Certificate of Incorporation, as amended, also authorizes the Company to indemnify its officers, directors and other agents, by bylaws, agreements or otherwise, to the full extent permitted under Delaware law. The Company intends to enter into separate indemnification agreements with its directors and officers which may, in some cases, be broader than the specific indemnification provisions contained in the Delaware General Corporation Law. The indemnification agreements may require the Company, among other things, to indemnify such officers and directors against certain liabilities that may arise by reason of their status or service as directors or officers (other than liabilities arising from willful misconduct of a culpable nature), to advance their expenses incurred as a result of any proceeding against them as to which they could be indemnified, and to obtain directors' and officers' insurance if available on reasonable terms. The Company believes that the provisions and agreements are necessary to attract and retain qualified directors and officers. The Company's Amended and Restated Bylaws provide that the Company shall indemnify its directors and officers and may indemnify its employees to the fullest extent permitted by law. The Company believes that indemnification under its Amended and Restated Bylaws covers at least negligence and gross negligence on the part of the indemnified party. 49 Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provisions, or otherwise, the Company has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. At present, there is no pending litigation or proceeding involving a director, officer, employee or agent of the Company where indemnification will be required or permitted. The Company is not aware of any threatened litigation or proceeding which may result in a claim for such indemnification. 50 CERTAIN TRANSACTIONS Since February 12, 1993 (the date of the Company's inception), there has not been, nor is there currently proposed, any transaction or series of similar transactions to which the Company was or is to be a party in which the amount involved exceeds $60,000 and in which any director, executive officer or holder of more than 5% of any class of voting securities of the Company or members of such person's immediate family had or will have a direct or indirect material interest other than the transactions described below. On March 3, 1993, the Company issued for cash 2,000,000 shares of Common Stock at a price of $0.08 per share to Roger J. Sippl, the Company's founder, Chairman of the Board and Chief Executive Officer. On March 31, 1993, the Company sold 803,000 shares of Series A Preferred Stock at a price of $2.40 per share. The following executive officers, directors, beneficial holders of more than 5% of a class of the Company's capital stock and immediate family members of such persons purchased Series A Preferred Stock:
SHARES OF SERIES A PURCHASER(1) PREFERRED STOCK ------------ --------------- Cristina M. Morgan (2)....................................... 10,000 J. Sidney Webb (2)........................................... 20,000 Mark D. Hanson (3)........................................... 5,000 Therese H. Langlais (3)...................................... 15,000 Elizabeth G. Salmon (4)...................................... 197,500 Entities affiliated with Sequoia Capital (4)(5).............. 250,000
- -------- (1) See notes to table of beneficial ownership in "Principal and Selling Stockholders" for information relating to the beneficial ownership of such shares. (2) Director of the Company. (3) Executive officer of the Company. (4) A beneficial holder of more than 5% of a class of the Company's capital stock. (5) Represents 227,500 shares held by Sequoia Capital VI, 12,500 shares held by Sequoia Technology Partners VI and 10,000 shares held by Sequoia XXIII. Upon the consummation of this offering, all outstanding shares of Series A Preferred Stock will convert into shares of Common Stock on a one-for-one basis. In June 1993, the Company issued 12,500 shares of Common Stock at a price of $0.20 per share to each of Cristina M. Morgan, J. Sidney Webb, and E. E. van Bronkhorst, outside directors of the Company. 51 Between December 17, 1993 and January 14, 1994, the Company sold an aggregate of 871,625 shares of Series B Preferred Stock at a price of $4.00 per share. Between April 29, 1994 and August 2, 1994, the Company sold an aggregate of 625,000 shares of Series B Preferred Stock at a price of $4.00 per share. Between May 26, 1995 and August 3, 1995, the Company sold an aggregate of 1,375,000 shares of Series B Preferred Stock at a price of $4.00 per share. The following executive officers, directors, beneficial holders of more than 5% of a class of the Company's capital stock and immediate family members of such persons purchased Series B Preferred Stock:
SHARES OF SERIES B PURCHASER (1) PREFERRED STOCK ------------- --------------- Roger J. Sippl (2)(3)(4)................................... 261,250 J. Sidney Webb (2)......................................... 37,500 Cristina M. Morgan (2)..................................... 2,500 Mark D. Hanson (3)......................................... 2,500 Therese H. Langlais (3).................................... 3,750 Richard L. Gerould (3)..................................... 12,625 Elizabeth G. Salmon (4).................................... 216,500 Entities Affiliated with Sequoia Capital (4)(5)............ 490,500 Entities Affiliated with Weiss, Peck & Greer Venture Partners (4)(6)........................................... 592,500 Entities Affiliated with Canaan Capital Partners (4)(7).... 550,000
- -------- (1) See notes to table of beneficial ownership in "Principal and Selling Stockholders" for information relating to the beneficial ownership of such shares. (2) Director of the Company. (3) Executive officer of the Company. (4) A beneficial holder of more than 5% of a class of the Company's capital stock. (5) Represents 446,355 shares held by Sequoia Capital VI, 24,525 shares held by Sequoia Technology Partners VI, 8,820 shares held by Sequoia XXIII and 10,800 shares held by Sequoia XXIV. (6) Represents 49,888 shares held by Weiss, Peck & Greer Venture Associates II (Overseas), Ltd., 227,638 shares held by Weiss, Peck & Greer Venture Associates II, L.P. and 314,973 shares held by WPG Enterprise Fund. (7) Represents 446,500 shares held by Canaan Capital Offshore Limited Partnership C.V., 53,500 shares held by Canaan Capital Limited Partnership and 50,000 shares held by Quai Limited. Upon the consummation of this offering, all outstanding shares of Series B Preferred Stock will convert into shares of Common Stock on a one-for-one basis. On May 24, 1996, the Company sold an aggregate of 444,444 shares of Series C Preferred Stock at a price of $9.00 per share, and shortly thereafter issued convertible notes in the aggregate principal amount of $2.0 million. Cisco purchased 222,222 of these shares, and a note in the principal amount of $1.0 million. Upon the consummation of this offering, all outstanding shares of Series C Preferred Stock will convert into shares of Common Stock on a one- for-one basis, and the amount borrowed by the Company pursuant to the convertible notes will convert into shares of the Company's Common Stock at a conversion price equal to the lesser of (i) $13.00 per share or (ii) the offering price per share to the public in the offering. In connection with the merger of PostModern with and into the Company in May 1996, the Company issued an aggregate of 3,099,821 shares of its Common Stock to the former shareholders of PostModern, including 844,486 shares to Jens Christensen, 851,235 shares to Neguine Navab, 844,486 shares to Prasad Mokkapati and 426,507 shares to Suresh Challa, and options to purchase an aggregate of 361,785 shares of its Common Stock at exercise prices ranging from $0.24 to $0.60 to the former holders of options to purchase Common Stock of 52 PostModern, including options to purchase 67,494 shares of the Company's Common Stock issued to Neguine Navab. Also in connection with the merger, the Company paid, subject to vesting, an aggregate of $1,500,000 to certain former employees of PostModern, including $400,000 to each of Messrs. Christensen and Mokkapati and $400,000 to Ms. Navab, and $2,307,152 to certain former shareholders of PostModern, including $750,655 to each of Messrs. Christensen and Mokkapati, $183,000 to Mr. Challa, and $696,659 to Ms. Navab. Upon the closing of the merger, Hambrecht & Quist LLC, of which Cristina M. Morgan, a Director of the Company, is a Managing Director, received shares of PostModern common stock for financial advisory services rendered to PostModern in connection with the Company's acquisition of PostModern, which shares were immediately converted into 84,374 shares of the Company's Common Stock. The consideration issued by the Company in the merger was determined through negotiations between the managements of the Company and PostModern. In connection with the merger of Data Accessibility Solutions, Inc. ("Data Accessibility") with and into the Company in May 1996, the Company issued an aggregate of 12,500 shares of its Common Stock to the former shareholders of Data Accessibility, including 6,250 shares to Robert Perreault, the Company's Vice President, Research and Development. Mr. Sippl, the Company's founder and the Chief Executive Officer and Chairman of the Board of Directors of the Company, formed Java Development Corp. ("JDC") in February 1996, in order to pursue technology research and development projects of interest to him. Mr. Sippl is the sole owner, director and officer of JDC. In June 1996, the Company acquired certain technology and other assets being developed by JDC that the Company expects it may use in a future product or products. The Company paid Mr. Sippl $40,000 to acquire these assets. JDC's cost of development of the technology, consisting chiefly of salaries of JDC employees and fees paid to consultants, exceeded the price paid by the Company. In connection with the asset sale, five employees of JDC became employees of Visigenic. The Company has entered into non-compete agreements with certain employees who joined the Company in connection with the PostModern merger. The Company intends to enter into indemnification agreements with each of its directors and executive officers. Such indemnification agreements will require the Company to indemnify such individuals to the fullest extent permitted by Delaware law. 53 PRINCIPAL AND SELLING STOCKHOLDERS The following table sets forth certain information regarding the beneficial ownership of the Company's Common Stock as of June 30, 1996, and as adjusted to reflect the sale of the shares offered hereby, assuming no exercise of the Underwriters' over-allotment option, (i) by each person who is known by the Company to own beneficially more than 5% of the Company's Common Stock, (ii) by each of the Named Executive Officers and by each of the Company's directors, (iii) by all current executive officers and directors as a group, and (iv) by each Selling Stockholder. Except pursuant to applicable community property laws or as indicated in the footnotes to this table, each stockholder identified in the table possesses sole voting and investment power with respect to all shares of Common Stock shown as beneficially owned by such stockholder.
SHARES BENEFICIALLY SHARES BENEFICIALLY OWNED BEFORE THE OWNED AFTER THE OFFERING (1) OFFERING (1) ----------------------- SHARES BEING ----------------------- BENEFICIAL OWNER NUMBER PERCENT OFFERED NUMBER PERCENT - ---------------- ------------ ---------- ------------ ------------ ---------- EXECUTIVE OFFICERS AND DIRECTORS Roger J. Sippl (2)...... 2,468,750 23.6% -- 2,468,750 20.3% Mark D. Hanson (3)...... 275,000 2.6 -- 275,000 2.3 Jens Christensen (4).... 1,695,720 16.1 87,376 1,528,720 12.5 Therese H. Langlais (5).................... 96,250 * -- 96,250 * David T. Shewmake (6)... 45,000 * -- 45,000 * Richard L. Gerould (7).. 90,125 * -- 90,125 * Michael Moritz (8)...... 740,500 7.1 -- 740,500 6.1 Cristina M. Morgan (9).. 109,374 1.0 -- 109,374 * Gill Cogan (10)......... 592,500 5.7 -- 592,500 4.9 E. E. van Bronkhorst (11)................... 12,500 * -- 12,500 * J. Sidney Webb (11)..... 70,000 * -- 70,000 * Eric Young (12)......... 550,000 5.3 -- 550,000 4.5 All executive officers and directors as a group (14 persons) (13)...... 6,856,969 64.2 167,000 6,689,969 54.1 5% STOCKHOLDERS Elizabeth G. Salmon (14)................... 2,468,750 23.6 -- 2,468,750 20.3 Neguine Navab (15)...... 1,695,720 16.1 79,624 1,528,720 12.5 Prasad Mokkapati (16)... 844,485 8.1 75,000 769,485 6.3 Funds affiliated with Sequoia Capital (17)... 740,500 7.1 -- 740,500 6.1 3000 Sand Hill Road Menlo Park, California 94025 Funds affiliated with Weiss, Peck & Greer 592,500 5.7 -- 592,500 4.9 Venture Partners (18).................. 555 California Street San Francisco, California 94104 Funds affiliated with Canaan Capital Partners 550,000 5.3 -- 550,000 4.5 (19).................. 2884 Sand Hill Road Menlo Park, California 94025
54
SHARES BENEFICIALLY SHARES BENEFICIALLY OWNED BEFORE THE OWNED AFTER THE OFFERING (1) OFFERING (1) ----------------------SHARES BEING ---------------------- BENEFICIAL OWNER NUMBER PERCENT OFFERED NUMBER PERCENT - ---------------- ----------- ---------------------- ----------- ---------- OTHER SELLING STOCKHOLDERS Justin Broughton........ 6,000 * 6,000 -- * Suresh Challa (20)...... 426,507 4.1 80,000 346,507 2.8 John D. Fleischhauer.... 1,000 * 1,000 -- * Richard J. Foley........ 15,000 * 1,500 13,500 * Tommy Hawkins........... 67,500 * 17,500 50,000 * Mark Hayes (21)......... 30,500 * 1,000 29,500 * Miles Kurland........... 2,000 * 500 1,500 * Lion Investments 100,000 * 50,000 50,000 * Limited................ Clifford S. Robbins..... 1,875 * 500 1,375 *
- -------- * Represents less than 1%. (1) The amounts reported in this table include shares of Common Stock issuable upon the automatic conversion of outstanding Preferred Stock, which conversion will occur upon consummation of this offering. Based on 10,469,971 shares of Common Stock outstanding prior to the offering. A person is deemed to be the beneficial owner of securities that can be acquired by such person within 60 days upon the exercise of options. Calculations of percentages of beneficial ownership assume the exercise by only the respective named stockholder of all options for the purchase of Common Stock held by such stockholder which are exercisable within 60 days of June 30, 1996. Unless otherwise indicated, the address of each of the named individuals is: c/o Visigenic Software, Inc., 951 Mariner's Island Boulevard, Suite 120, San Mateo, California 94404. (2) Includes 393,750 shares held by Elizabeth G. Salmon, Mr. Sippl's spouse, as separate property and 20,000 shares held by Nelson D. Salmon and Elizabeth G. Salmon, Trustees of the Nelson D. Salmon Trust dated October 14, 1994. Mr. Sippl disclaims beneficial ownership of all such shares. See footnote 14. (3) Includes 111,014 shares subject to a right of repurchase in favor of the Company which lapses over time. Also includes 30,000 shares issuable upon exercise of options. (4) Includes 783,740 shares held by Neguine Navab, Mr. Christensen's spouse, and 67,494 shares issuable upon exercise of options held by Ms. Navab. Mr. Christensen acquired his shares in the Company in connection with the Company's acquisition of PostModern. See footnote 15 below. See "Certain Transactions." (5) Includes 3,750 shares held by Ms. Langlais, as Co-Trustee of the Halloran 1990 Living Trust dated March 12, 1990. Also includes 18,214 shares subject to a right of repurchase in favor of the Company which lapses over time. (6) Includes 15,419 shares subject to a right of repurchase in favor of the Company which lapses over time. Also includes 10,000 shares issuable upon exercise of options. (7) Includes 30,559 shares subject to a right of repurchase in favor of the Company which lapses over time. (8) Represents all shares held by entities affiliated with Sequoia Capital. See footnote 17 below. Mr. Moritz, as a general partner of Sequoia Capital, may be deemed to beneficially own shares, but Mr. Moritz disclaims beneficial ownership of all such shares except to the extent of his proportional interest therein. (9) Includes 4,576 shares subject to a right of repurchase in favor of the Company which lapses over time. Also includes 84,374 shares issued to Hambrecht & Quist LLC ("H&Q") for financial advisory services rendered to PostModern in connection with the Company's acquisition of PostModern. Ms. Morgan is a Managing Director of H&Q. Ms. Morgan disclaims beneficial ownership of all such shares except to the extent of her proportional interest therein. (10) Represents all shares held by entities affiliated with Weiss, Peck & Greer Venture Partners. See footnote 18 below. Mr. Cogan, as a general partner of Weiss, Peck & Greer Venture Partners, may be deemed to beneficially own shares, but Mr. Cogan disclaims beneficial ownership of all such shares except to the extent of his proportional interest therein. (11) Includes 4,576 shares subject to a right of repurchase in favor of the Company which lapses over time. 55 (12) Represents all shares held by entities affiliated with Canaan Capital Partners. See footnote 19 below. Mr. Young, as a general partner of Canaan Capital Partners, may be deemed to beneficially own shares, but Mr. Young disclaims beneficial ownership of all such shares except to the extent of his proportional interest therein. (13) See footnotes 2 through 12, footnote 15, and footnotes 17 through 19. Includes 16,250 shares held by Robert Perreault. Also includes 202,067 shares subject to a right of repurchase in favor of the Company which lapses over time, and 202,494 shares issuable upon exercise of options. Of the 167,000 shares to be sold by the executive officers and directors of the Company, Mr. Christensen intends to sell 87,376 shares and Ms. Navab intends to sell 79,624 shares. (14) Includes 2,055,000 shares held by Roger J. Sippl, Ms. Salmon's spouse, and 20,000 shares held by Nelson D. Salmon and Elizabeth G. Salmon, Trustees of the Nelson D. Salmon Trust dated October 14, 1994. See footnote 2 above. (15) Includes 67,494 shares issuable upon exercise of options. Also includes 844,486 shares held by Mr. Christensen, Ms. Navab's spouse. Ms. Navab is Director of Object Technologies for the Company. Ms. Navab acquired her shares and options in the Company in connection with the Company's acquisition of PostModern. See "Certain Transactions." (16) Mr. Mokkapati is Senior Architect for Distributed Objects for the Company. Mr. Mokkapati acquired his shares in connection with the Company's acquisition of PostModern. See "Certain Transactions." (17) Represents 673,855 shares held by Sequoia Capital VI, 37,025 shares held by Sequoia Technology Partners VI, 18,820 shares held by Sequoia XXIII and 10,800 shares held by Sequoia XXIV. Michael Moritz, a Director of the Company, is a general partner of Sequoia Capital. See footnote 8 above. (18) Represents 49,888 shares held by Weiss, Peck & Greer Venture Associates II (Overseas), Ltd., 227,638 shares held by Weiss, Peck & Greer Venture Associates II, L.P. and 314,973 shares held by WPG Enterprise Fund. Gill Cogan, a Director of the Company, is a general partner of Weiss, Peck & Greer Venture Partners. See footnote 10 above. (19) Represents 446,500 shares held by Canaan Capital Offshore Limited Partnership C.V., 53,500 shares held by Canaan Capital Limited Partnership and 50,000 shares held by Quai Limited. Eric Young, a Director of the Company, is a general partner of Canaan Capital Partners. See footnote 12 above. (20) Includes 25,590 shares issuable upon exercise of options. Mr. Challa is Director of Business Development for the Company. Mr. Challa acquired his shares and options in the Company in connection with the Company's acquisition of PostModern. See "Certain Transactions." (21) Includes 7,838 shares subject to a right of repurchase in favor of the Company. Also includes 8,500 shares issuable upon exercise of options. 56 DESCRIPTION OF CAPITAL STOCK Upon consummation of this offering, the authorized capital stock of the Company will consist of 50,000,000 shares of Common Stock and 2,000,000 shares of Preferred Stock, par value $0.001 per share. Each outstanding share of Preferred Stock will be automatically converted into one share of Common Stock upon the closing of the offering being made hereby. Upon such conversion, such Preferred Stock will be canceled, retired and eliminated from the shares that the Company is authorized to issue. The following summary of certain provisions of the Common Stock and the preferred stock of the Company does not purport to be complete and is subject to, and qualified in its entirety by, the Certificate of Incorporation and By-Laws of the Company that are included as exhibits to the Registration Statement of which this Prospectus forms a part and by the provisions of applicable law. COMMON STOCK As of June 30, 1996, there were approximately 10,469,971 shares of Common Stock outstanding held of record by 160 stockholders, as adjusted to reflect the conversion of the outstanding shares of Preferred Stock and convertible promissory notes upon the closing of the offering. The holders of Common Stock are entitled to one vote for each share held of record on all matters submitted to a vote of the holders of Common Stock. Subject to preferences applicable to any outstanding preferred stock, holders of Common Stock are entitled to receive ratably such dividends as may be declared by the Board of Directors out of funds legally available therefor. In the event of a liquidation, dissolution or winding up of the Company, the holders of Common Stock are entitled to share ratably in all assets remaining after payment of liabilities and the liquidation preference of any preferred stock. Holders of Common Stock have no preemptive or subscription rights, and there are no redemption or conversion rights with respect to such shares. All outstanding shares of Common Stock are fully paid and non-assessable, and the shares of Common Stock to be issued upon completion of the offering will be fully paid and non-assessable. PREFERRED STOCK The Board of Directors has the authority, without action by the stockholders, to designate and issue preferred stock in one or more series and to designate the dividend rate, voting rights and other rights, preferences and restrictions of each series any or all of which may be greater than the rights of the Common Stock. It is not possible to state the actual effect of the issuance of any shares of preferred stock upon the rights of holders of the Common Stock until the Board of Directors determines the specific rights of the holders of such preferred stock. However, the effects might include, among other things, restricting dividends on the Common Stock, diluting the voting power of the Common Stock, impairing the liquidation rights of the Common Stock and delaying or preventing a change in control of the Company without further action by the stockholders. The Company has no present plans to issue any shares of preferred stock. REGISTRATION RIGHTS Following the sale of the shares of Common Stock offered hereby, the holders of approximately 6,789,050 shares: issuable upon conversion of the outstanding shares of Preferred Stock and outstanding convertible notes; held by the founder and certain early employees of the Company; and held by former PostModern shareholders, and their transferees, will have certain rights to register those shares under the Securities Act of 1933, as amended. These rights are provided under the terms of an agreement among the Company and the holders of such shares. If the Company registers any of its Common Stock either for its own account or for the account of other security holders, the holders of such shares are entitled to include their shares of Common Stock in the registration, subject to the ability of the underwriters to limit the number of shares included in the offering. All fees, costs and expenses of such registrations (other than underwriting discounts and commissions) will be borne by the Company. 57 DELAWARE LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS The Company is subject to Section 203 of the Delaware General Corporation Law ("Section 203"), which, subject to certain exceptions, prohibits a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three (3) years following the date that such stockholder became an interested stockholder, unless: (i) prior to such date, the board of directors of the corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned (x) by persons who are directors and also officers and (y) by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) on or subsequent to such date, the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock that is not owned by the interested stockholder. Section 203 defines business combination to include: (i) any merger or consolidation involving the corporation and the interested stockholder; (ii) any sale, transfer, pledge or other disposition of 10% or more of the assets of the corporation involving the interested stockholder; (iii) subject to certain exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder; (iv) any transaction involving the corporation that has the effect of increasing the proportionate share of the stock of any class or series of the corporation beneficially owned by the interested stockholder; or (v) the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation. In general, Section 203 defines an interested stockholder as any entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation and any entity or person affiliated with or controlling or controlled by such entity or person. The Company's Restated Certificate of Incorporation, which will become effective upon consummation of this offering, will require that any action required or permitted to be taken by stockholders of the Company must be effected at a duly called annual or special meeting of the stockholders and may not be effected by a consent in writing. In addition, special meetings of the stockholders of the Company may be called only by the Board of Directors or certain officers of the Company. The Restated Certificate of Incorporation which will become effective upon consummation of this offering will provide that, beginning with the first annual meeting of stockholders following this offering, the Board of Directors will be divided into three classes, with each class serving staggered three-year terms, that a director may be removed from the Board of Directors only for cause and only upon the vote of at least 66 2/3% of the voting power of all outstanding stock, and that certain amendments of the Company's Restated Certificate of Incorporation, and all amendments by the stockholders of the Company's Amended and Restated Bylaws, require the approval of holders of at least 66 2/3% of the voting power of all outstanding shares. These provisions may have the effect of deferring hostile takeovers or delaying changes in control or management of the Company. TRANSFER AGENT AND REGISTRAR The Transfer Agent and Registrar for the Common Stock is The First National Bank of Boston. 58 SHARES ELIGIBLE FOR FUTURE SALE Prior to this offering, there has been no public market for the Common Stock. Future sales of substantial amounts of Common Stock in the public market could adversely affect the market price of the Common Stock. Upon completion of this offering, the Company will have outstanding an aggregate of 12,169,971 shares of Common Stock, assuming (i) the issuance of 2,100,000 shares of Common Stock offered hereby, (ii) no exercise of the Underwriters' over-allotment option and (iii) no exercise of options to purchase Common Stock after June 30, 1996. Of these shares, the 2,100,000 shares sold in the offering will be freely tradeable without restriction or further registration under the Securities Act of 1933, as amended (the "Securities Act"), except for any shares purchased by "affiliates" of the Company as that term is defined in Rule 144 under the Securities Act (whose sales would be subject to certain limitations and restrictions described below). The remaining 10,069,971 shares of Common Stock held by existing stockholders were issued and sold by the Company in reliance on exemptions from the registration requirements of the Securities Act. All such outstanding shares will be subject to the "lock-up" agreements described below on the date of this Prospectus. Upon expiration of lock-up agreements 180 days after the date of this Prospectus, 8,048,789 shares will become eligible for sale, subject in most cases to the limitations of Rule 144. The remaining 2,021,182 shares held by existing stockholders will become eligible for sale at various times over a period of less than two years and could be sold earlier if the holders exercise registration rights. In addition, holders of stock options could exercise these options and sell certain of the shares issued upon exercise as described below. As of June 30, 1996, there were a total of 1,087,500 shares of Common Stock subject to outstanding options under the Option Plan, all of which were exercisable. However, these shares are subject to lock-up agreements. All options held by officers and directors of the Company are subject to a 180 day lock-up agreement described below, and all other options are subject to a 180 day lock-up agreement with the Company. In general, under Rule 144 as currently in effect, a person (or persons whose shares are aggregated) who has beneficially owned shares for at least two years (including the holding period of any prior owner except an affiliate) is entitled to sell in "broker's transactions" or to market makers, within any three-month period commencing 90 days after the date of this prospectus, a number of shares that does not exceed the greater of (i) one percent of the number of shares of Common Stock then outstanding (approximately 121,700 shares immediately after this offering) or (ii) generally, the average weekly trading volume in the Common Stock during the four calendar weeks preceding the required filing of a Form 144 with respect to such sale. Sales under Rule 144 are generally subject to the availability of current public information about the Company. Under Rule 144(k), a person who is deemed not to have been an affiliate of the Company at any time during the 90 days preceding a sale, and who has beneficially owned the shares proposed to be sold for a least three years, is entitled to sell such shares without having to comply with the manner of sale, public information, volume limitation or notice filing provisions of Rule 144. Under Rule 701 under the Securities Act, persons who purchase shares upon exercise of options granted prior to the effective date of this offering are entitled to sell such shares 90 days after the effective date of this offering in reliance on Rule 144, without having to comply with the holding period and notice filing requirements of Rule 144 and, in the case of non-affiliates, without having to comply with the public information, volume limitation or notice filing provisions of Rule 144. The Company intends to file registration statements under the Securities Act 180 days after the effective date of the offering to register shares of Common Stock reserved for issuance under the Option Plan and the Directors Plan, thus permitting the resale of such shares by non-affiliates and by affiliates, subject to Rule 144 volume limitations applicable thereto, in the public market without restriction under the Securities Act. Such registration statements will become effective immediately upon filing. As of June 30, 1996, the holders of approximately 6,789,050 shares are entitled to certain registration rights with respect to such shares. If such registration rights are exercised, the shares can be sold without any holding period or sales volume limitation. If such holders, by exercising their registration rights, cause a large number of 59 shares to be registered and sold in the public market, such sales could have an adverse effect on the market price for the Company's Common Stock. If the Company were required to include in a Company initiated registration the shares held by such holders pursuant to the exercise of their registration rights, such sales might have an adverse effect on the Company's ability to raise needed capital. See "Description of Capital Stock--Registration Rights." All existing stockholders of the Company have agreed that they will not, subject to certain limited exceptions, directly or indirectly, offer, sell or otherwise dispose of any shares of Common Stock or any securities convertible into or exchangeable or exercisable for any such shares for a period of 180 days after the effective date of the offering without the prior written consent of the Company, and in most cases, Hambrecht & Quist LLC. 60 UNDERWRITING Subject to the terms and conditions of the Underwriting Agreement, the Underwriters named below, through their representatives, Hambrecht & Quist LLC and Robertson, Stephens & Company LLC (collectively, the "Representatives"), have severally agreed to purchase from the Company and the Selling Stockholders the following respective numbers of shares of Common Stock:
NUMBER OF NAME SHARES ---- --------- Hambrecht & Quist LLC.............................................. Robertson, Stephens & Company LLC.................................. --------- Total.......................................................... 2,100,000 =========
The Underwriting Agreement provides that the obligations of the Underwriters are subject to certain conditions precedent, including the absence of any material adverse change in the Company's business and the receipt of certain certificates, opinions and letters from the Company and its counsel and independent auditors. The nature of the Underwriters' obligation is such that they are committed to purchase all shares of Common Stock offered hereby if any of such shares are purchased. The Underwriters propose to offer the shares of Common Stock directly to the public at the initial public offering price set forth on the cover page of this Prospectus and to certain dealers at such price less a concession not in excess of $ per share. The Underwriters may allow and such dealers may reallow a concession not in excess of $ per share to certain other dealers. After the initial public offering of the shares, the offering price and other selling terms may be changed by the Representatives. The Company and the Selling Stockholders have granted to the Underwriters an option, exercisable no later than 30 days after the date of this Prospectus, to purchase up to 255,000 and 60,000, respectively, additional shares of Common Stock at the initial public offering price, less the underwriting discount, set forth on the cover page of this Prospectus. To the extent that the Underwriters exercise this option, each of the Underwriters will have a firm commitment to purchase approximately the same percentage thereof which the number of shares of Common Stock to be purchased by it shown in the above table bears to the total number of shares of Common Stock offered hereby. The Company and the Selling Stockholders will be obligated, pursuant to the option, to sell shares to the Underwriters to the extent the option is exercised. The Underwriters may exercise such option only to cover-allotments made in connection with the sale of shares of Common Stock offered hereby. The offering of the shares is made for delivery when, as and if accepted by the Underwriters and subject to prior sale and to withdrawal, cancellation or modification of the offering without notice. The Underwriters reserve the right to reject an order for the purchase of shares in whole or in part. The Company and the Selling Stockholders have agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act, and to contribute to payments the Underwriters may be required to make in respect thereof. The Selling Stockholders and the other stockholders of the Company, including the executive officers and directors, who will own in the aggregate 10,069,971 shares of Common Stock after this offering, have agreed that they will not, without the prior written consent of Hambrecht & Quist LLC, offer, sell or otherwise dispose of any shares of Common Stock, options or warrants to acquire shares of Common Stock or securities exercisable 61 for or convertible into shares of Common Stock owned by them during the 180- day period following the effective date of the Registration Statement for this offering. The Company has agreed that it will not, without the prior written consent of Hambrecht & Quist LLC, offer, sell or otherwise dispose of any shares of Common Stock, options or warrants to acquire shares of Common Stock or securities exchangeable for or convertible into shares of Common Stock during the 180-day period following the effective date of the Registration Statement for this offering, except that the Company may grant additional options under its stock plans and issue securities under, or pursuant to the exercise of options granted under, its stock plans. See "Shares Eligible for Future Sale." The Representatives currently anticipate that up to 105,000 shares of Common stock may be sold at the initial public offering price to directors (or their affiliated entities) and employees of the Company who have expressed an interest in purchasing such shares of Common Stock in the offering. The number of shares available for sale to the general public will be reduced to the extent such persons purchase such shares. Any such shares not so purchased will be offered by the Representatives to the general public on the same basis as other shares offered hereby. The Representatives have informed the Company that the Underwriters do not intend to confirm sales of Common Stock offered hereby to any accounts over which they have discretionary authority. Prior to this offering, there has been no public market for the Common Stock. The initial public offering price of the Common Stock was determined by negotiation among the Company, the representatives of the Selling Stockholders and the Representatives. Among the factors considered in determining the initial public offering price were prevailing market and economic conditions revenues and earnings of the Company, market valuations of other companies engaged in activities similar to the Company, estimates of the business potential and prospects of the Company, the present state of the Company's business operations, the Company's management and other factors deemed relevant. LEGAL MATTERS The validity of the securities offered hereby and general corporate legal matters will be passed upon for the Company by Gray Cary Ware & Freidenrich, A Professional Corporation ("GCWF"), Palo Alto, California. As of June 30, 1996, certain members and investment partnerships of GCWF beneficially owned an aggregate of 37,000 shares of the Company's Common Stock. Certain legal matters in connection with this offering will be passed upon for the Underwriters by Fenwick & West LLP. Fenwick & West LLP owns an aggregate of 18,979 shares of the Company's Common Stock. EXPERTS The consolidated financial statements of Visigenic Software, Inc. and PostModern Computing Technologies Inc. included in this Prospectus and elsewhere in the Registration Statement to the extent and for the periods indicated in their reports have been audited by Arthur Andersen LLP, independent public accountants, and are included herein in reliance upon the authority of said firm as experts in giving said reports. ADDITIONAL INFORMATION The Company has filed with the Securities and Exchange Commission (the "Commission"), Washington, D.C. 20549, a Registration Statement on Form S-1 under the Securities Act, with respect to the Common Stock offered hereby. This Prospectus which constitutes a part of the Registration Statement does not contain all of the information set forth in the Registration Statement and the exhibits and schedules thereto. For further information with respect to the Company and such Common Stock, reference is made to the Registration Statement and the exhibits and schedules thereto. Statements contained in this Prospectus as to 62 the contents of any contract or any other document referred to are not necessarily complete. In each instance, reference is made to the copy of such contract or document filed as an exhibit to the Registration Statement, and each such statement is qualified in all respects by such reference. Copies of the Registration Statement, including exhibits and schedules thereto, may be inspected without charge at the Commission's principal office in Washington, D.C., or obtained at prescribed rates from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices located at 7 World Trade Center, Suite 1300, New York, New York 10048 and at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. The Commission maintains a World Wide Web site that contains reports, proxy and information statements and other information filed electronically with the Commission. The address of the site is http://www.sec.gov. 63 VISIGENIC SOFTWARE, INC. INDEX TO FINANCIAL STATEMENTS
PAGE ---- VISIGENIC SOFTWARE, INC.: Report of Independent Public Accountants............................... F-2 Consolidated Balance Sheets............................................ F-3 Consolidated Statements of Operations.................................. F-4 Consolidated Statements of Stockholders' Equity........................ F-5 Consolidated Statements of Cash Flows.................................. F-6 Notes to Consolidated Financial Statements............................. F-7 POSTMODERN COMPUTING TECHNOLOGIES INC.: Report of Independent Public Accountants............................... F-15 Balance Sheets......................................................... F-16 Statements of Operations............................................... F-17 Statements of Shareholders' Equity..................................... F-18 Statements of Cash Flows............................................... F-19 Notes to Financial Statements.......................................... F-20 VISIGENIC SOFTWARE, INC. AND POSTMODERN COMPUTING TECHNOLOGIES INC.-- PRO FORMA: Pro Forma Condensed Combined Financial Statements...................... P-1
F-1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Visigenic Software, Inc.: We have audited the accompanying consolidated balance sheets of Visigenic Software, Inc. (a Delaware corporation) and subsidiary as of March 31, 1995 and 1996 and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended March 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Visigenic Software, Inc. and subsidiary as of March 31, 1995 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 1996 in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP San Jose, California June 17, 1996 F-2 VISIGENIC SOFTWARE, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
JUNE 30, 1996 PRO FORMA MARCH 31, LIABILITIES AND ----------------- JUNE 30, STOCKHOLDERS' 1995 1996 1996 EQUITY (NOTE 5) ------- -------- -------- --------------- ASSETS (UNAUDITED) CURRENT ASSETS: Cash and cash equivalents....... $ 553 $ 2,399 $ 1,890 Accounts receivable, net of al- lowance for doubtful accounts of $0, $60 and $97............. 472 760 3,263 Prepaid compensation............ -- -- 1,478 Other current assets............ 175 257 551 ------- -------- -------- Total current assets.......... 1,200 3,416 7,182 ------- -------- -------- PROPERTY AND EQUIPMENT, net....... 607 1,349 1,731 OTHER ASSETS, net: Excess of purchase price over net assets acquired............ -- -- 1,000 Other........................... 22 55 49 ------- -------- -------- $ 1,829 $ 4,820 $ 9,962 ======= ======== ======== LIABILITIES AND STOCKHOLDERS' EQ- UITY CURRENT LIABILITIES: Line of credit.................. $ -- $ -- $ 524 $ 524 Accounts payable................ 201 811 1,374 1,374 Accrued liabilities- Payroll and related benefits... 86 347 408 408 Other.......................... 122 301 928 928 Deferred revenue................ 303 1,141 1,617 1,617 ------- -------- -------- -------- Total current liabilities..... 712 2,600 4,851 4,851 ------- -------- -------- -------- CONVERTIBLE NOTES PAYABLE TO STOCKHOLDERS..................... -- -- 2,000 -- ------- -------- -------- -------- COMMITMENTS (Note 4) STOCKHOLDERS' EQUITY: Convertible preferred stock, $.001 par value, aggregate liquidation preference of $17,414 Authorized--10,000,000 shares Outstanding--Series A, 803,000 shares in 1995, 1996 and June 30, 1996; Series B, 1,496,625 shares in 1995 and 2,871,625 shares in 1996 and June 30, 1996; Series C, 444,444 shares at June 30, 1996; no shares outstanding pro forma........................ 3 4 4 -- Common stock, $.001 par value, Authorized--20,000,000 shares at March 31, 1996; 30,000,000 at June 30, 1996 Outstanding--2,782,877 shares in 1995, 2,835,905 shares in 1996 and 6,150,902 shares at June 30, 1996; 10,469,971 shares outstanding pro forma........................ 3 3 6 10 Additional paid-in capital...... 8,194 13,675 28,222 30,222 Accumulated deficit............. (7,083) (11,462) (25,121) (25,121) ------- -------- -------- -------- Total stockholders' equity.... 1,117 2,220 3,111 5,111 ------- -------- -------- -------- $ 1,829 $ 4,820 $ 9,962 $ 9,962 ======= ======== ======== ========
The accompanying notes are an integral part of these balance sheets. F-3 VISIGENIC SOFTWARE, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
QUARTER ENDED YEAR ENDED MARCH 31, JUNE 30, ------------------------- ---------------- 1994 1995 1996 1995 1996 ------- ------- ------- ------ -------- (UNAUDITED) REVENUE: Software products............... $ -- $ 892 $ 4,479 $ 544 $ 2,505 Service and other............... -- 223 1,096 367 456 ------- ------- ------- ------ -------- Total revenue................. -- 1,115 5,575 911 2,961 ------- ------- ------- ------ -------- COST OF REVENUE: Software products............... -- 36 284 43 138 Service and other............... -- 259 727 146 295 ------- ------- ------- ------ -------- Total cost of revenue......... -- 295 1,011 189 433 ------- ------- ------- ------ -------- GROSS PROFIT...................... -- 820 4,564 722 2,528 ------- ------- ------- ------ -------- OPERATING EXPENSES: Product development............. 1,393 3,160 4,348 729 1,657 Sales and marketing............. 503 1,511 3,215 636 2,006 General and administrative...... 600 872 1,465 335 473 Purchased in process product de- velopment...................... -- -- -- -- 12,014 Amortization of excess of pur- chase price over net assets ac- quired......................... -- -- -- -- 43 ------- ------- ------- ------ -------- Total operating expenses...... 2,496 5,543 9,028 1,700 16,193 ------- ------- ------- ------ -------- Loss from operations.......... (2,496) (4,723) (4,464) (978) (13,665) INTEREST AND OTHER INCOME, net.... 42 94 85 1 6 ------- ------- ------- ------ -------- NET LOSS.......................... $(2,454) $(4,629) $(4,379) $ (977) $(13,659) ======= ======= ======= ====== ======== PRO FORMA NET LOSS PER SHARE...... $ (.39) $ (.09) $ (1.21) ======= ====== ======== PRO FORMA WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES..... 11,120 10,602 11,289 ======= ====== ========
The accompanying notes are an integral part of these financial statements. F-4 VISIGENIC SOFTWARE, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DOLLARS IN THOUSANDS)
CONVERTIBLE PREFERRED STOCK COMMON STOCK ADDITIONAL TOTAL ---------------- ----------------- PAID-IN ACCUMULATED STOCKHOLDERS' SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT EQUITY --------- ------ --------- ------ ---------- ----------- ------------- Issuance of common stock to founder in February 1993......... -- $ -- 2,000,000 $ 2 $ 158 $ -- $ 160 Issuance of common stock................. -- -- 427,019 -- 81 -- 81 Issuance of Series A convertible preferred stock................. 803,000 1 -- -- 1,898 -- 1,899 Issuance of Series B convertible preferred stock................. 871,625 1 -- -- 3,445 -- 3,446 Net loss............... -- -- -- -- -- (2,454) (2,454) --------- ----- --------- ---- ------- -------- ------- BALANCE, MARCH 31, 1994................... 1,674,625 2 2,427,019 2 5,582 (2,454) 3,132 Issuance of common stock................. -- -- 459,575 1 183 -- 184 Repurchase of common stock................. -- -- (103,717) -- (35) -- (35) Issuance of Series B convertible preferred stock................. 625,000 1 -- -- 2,464 -- 2,465 Net loss............... -- -- -- -- -- (4,629) (4,629) --------- ----- --------- ---- ------- -------- ------- BALANCE, MARCH 31, 1995................... 2,299,625 3 2,782,877 3 8,194 (7,083) 1,117 Issuance of Series B convertible preferred stock................. 1,375,000 1 -- -- 5,459 -- 5,460 Exercise of stock options............... -- -- 54,068 -- 22 -- 22 Repurchase of common stock, net of issuances............. -- -- (1,040) -- -- -- -- Net loss............... -- -- -- -- -- (4,379) (4,379) --------- ----- --------- ---- ------- -------- ------- BALANCE, MARCH 31, 1996................... 3,674,625 4 2,835,905 3 13,675 (11,462) 2,220 Issuance of Series C convertible preferred stock................. 444,444 -- -- -- 4,000 -- 4,000 Issuance of common stock in connection with the acquisition of PostModern Computing Technologies Inc................... -- -- 3,099,821 3 10,382 -- 10,385 Exercise of stock options (unaudited)... -- -- 171,433 -- 69 -- 69 Issuance of common stock (unaudited)..... -- -- 43,743 -- 96 -- 96 Net loss (unaudited)... -- -- -- -- -- (13,659) (13,659) --------- ----- --------- ---- ------- -------- ------- BALANCE, JUNE 30, 1996 (unaudited)............ 4,119,069 $ 4 6,150,902 $ 6 $28,222 $(25,121) $ 3,111 ========= ===== ========= ==== ======= ======== =======
The accompanying notes are an integral part of these financial statements. F-5 VISIGENIC SOFTWARE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
QUARTER ENDED YEARS ENDED MARCH 31, JUNE 30, ------------------------- ----------------- 1994 1995 1996 1995 1996 ------- ------- ------- ------- -------- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss....................... $(2,454) $(4,629) $(4,379) $ (977) $(13,659) Adjustments to reconcile net loss to net cash used in operating activities-- Depreciation and amortization................. 67 158 310 52 164 Purchased in process product development.................. -- -- -- -- 12,014 Provision for allowance for doubtful accounts............ -- -- 60 15 12 Changes in net assets and liabilities, net of acquisition of PostModern-- Increase in accounts receivable.................. -- (472) (348) (941) (2,375) Increase in prepaid expenses and other current assets.... (35) (139) (82) (93) (1,685) Increase in accounts payable..................... 148 53 610 75 472 Increase in accrued liabilities................. 66 142 440 21 183 Increase in deferred revenue..................... -- 303 838 488 293 ------- ------- ------- ------- -------- Net cash used in operating activities................. (2,208) (4,584) (2,551) (1,360) (4,581) ------- ------- ------- ------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Payment for purchase of PostModern, net of cash acquired...................... -- -- -- -- (2,182) Purchases of property and equipment..................... (457) (373) (1,052) (148) (435) Organization costs and other assets........................ (20) (5) (33) (17) -- ------- ------- ------- ------- -------- Net cash used in investing activities................. (477) (378) (1,085) (165) (2,617) ------- ------- ------- ------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings on bank line of credit........................ -- -- -- -- 524 Proceeds from issuance of convertible notes............. -- -- -- -- 2,000 Net proceeds from issuance of preferred stock............... 5,345 2,465 5,460 2,992 4,000 Net proceeds from issuance of common stock.................. 241 149 22 -- 165 ------- ------- ------- ------- -------- Net cash provided by financing activities....... 5,586 2,614 5,482 2,992 6,689 ------- ------- ------- ------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ 2,901 (2,348) 1,846 1,467 (509) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD............. -- 2,901 553 553 2,399 ------- ------- ------- ------- -------- CASH AND CASH EQUIVALENTS, END OF PERIOD.......................... $ 2,901 $ 553 $ 2,399 $ 2,020 $ 1,890 ======= ======= ======= ======= ========
The accompanying notes are an integral part of these financial statements. F-6 VISIGENIC SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1996 (INFORMATION RELATING TO THE QUARTERS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED) 1. ORGANIZATION AND OPERATIONS OF THE COMPANY: Visigenic Software, Inc. (the "Company") was incorporated on February 12, 1993. The Company operates in a single industry segment and is involved in the design, development and marketing of database connectivity software products. Through March 31, 1995 the Company's principal efforts were focused on raising capital, developing its products and applications, establishing marketing and sales channels and recruiting key personnel. During fiscal 1996, the Company emerged from the development stage, however, the Company continues to be subject to the risks associated with companies in a comparable stage of development including, but not limited to, dependence on key personnel; limited operating history and a history of losses; and the need to develop new software products and product enhancements. Although the Company was incorporated on February 12, 1993, its activities during the first two months involved limited cash expenditures and consisted only of recruiting of key personnel and raising capital. Accordingly, the accompanying consolidated statements of operations, stockholders' equity and cash flows for the year ended March 31, 1994 are presented for the period from inception (February 12, 1993) to March 31, 1994. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Principles of Consolidation and Functional Currency The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary after elimination of intercompany transactions and balances. The functional currency of the Company's foreign subsidiary is the U.S. dollar. Foreign exchange gains and losses resulting from the remeasurement of the financial statements for the subsidiary, which are not material, are included in other income in the accompanying consolidated statements of operations. Use of Estimates in Preparation of Financial Statements 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 the reported results of operations during the reporting period. Actual results could differ from those estimates. Cash Equivalents and Short-Term Investments The Company considers all highly liquid investments with an original maturity of three months or less from the date of purchase to be cash equivalents. The Company's short-term investments are accounted for pursuant to the provisions of Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities." As of March 31, 1995 and 1996, the Company's cash and cash equivalents were deposited in checking and money market accounts, U.S. Government Treasury Bills and certificates of deposits. Software Development Costs In accordance with SFAS No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed," the Company capitalizes eligible computer software development costs upon the establishment of technological feasibility, which it has defined as completion of a working model. For the years ended March 31, 1994, 1995 and 1996, the amount of costs eligible for capitalization, after consideration of factors such as realizable value, were not material and, accordingly, all software development costs have been charged to product development expense in the accompanying consolidated statements of operations. F-7 VISIGENIC SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Property and Equipment Property and equipment are stated at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the assets (or over the lease term if it is shorter for leasehold improvements), which range from three to five years. Property and equipment consists of the following (in thousands):
MARCH 31, -------------- JUNE 30, 1995 1996 1996 ----- ------- -------- Computer equipment................................ $ 453 $ 1,126 $ 1,394 Furniture and fixtures............................ 125 320 373 Purchased software................................ 239 401 572 Leasehold improvements............................ 12 34 39 ----- ------- ------- 829 1,881 2,378 Less--Accumulated depreciation and amortization... (222) (532) (647) ----- ------- ------- Property and equipment, net..................... $ 607 $ 1,349 $ 1,731 ===== ======= =======
Revenue Recognition and Deferred Revenue The Company's revenue is derived from fixed license fees from licensing its products, royalties from VARs, ISVs and distributors, and fees for services related to its products, including software maintenance, development contracts and consulting and training. Certain of the Company's license arrangements with VARs and ISVs provide for sublicense fees payable to the Company based on a percentage of the VAR's or ISV's net revenue. Other license arrangements provide for fixed license fees for the right to make and distribute an unlimited number of copies of the Company's product for a specified period of time. Ongoing sublicense fee revenue, other than from guaranteed sublicense fees, is recognized when it is reported by the VAR, ISV or distributor. Service revenue is primarily attributable to lower margin maintenance and other revenue, including training revenue and engineering development fees. The Company generally recognizes revenue from fixed license and guaranteed sublicense fees upon delivery of software products if there are no significant post-delivery obligations, if collection is probable and if the license agreement requires payment within 90 days. If significant post-delivery obligations exist or if a product is subject to customer acceptance, revenue is deferred until no significant obligations remain or acceptance has occurred. Maintenance revenue from ongoing customer support and product upgrades is recognized ratably over the term of the applicable maintenance period, which is typically 12 months. If maintenance is included in a license agreement, such amounts are unbundled from the license fee at its fair market value. Consulting and training revenue is generally recognized as services are performed over the term of the agreement. Revenue from engineering development work is generally recognized on a percentage of completion basis. If a transaction includes both license and service elements, license fee revenue is recognized upon shipment of the software, provided services do not include significant customization or modification of the base product and payment terms are not subject to acceptance criteria. In cases where license fee payments are contingent upon the acceptance of services, revenues from both the license and service elements are deferred until the acceptance criteria are met. Deferred revenue consists primarily of the unrecognized portion of revenue under maintenance and support contracts (which revenue is deferred and recognized ratably over the term of such contract) and advance payment of software development fees and license fees. F-8 VISIGENIC SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Significant Customers and Related Parties A relatively small number of customers have accounted for a significant percentage of the Company's total revenue. The following four customers accounted for more than 10% of total revenue:
YEAR ENDED MARCH 31, ------------- QUARTER ENDED 1995 1996 JUNE 30,1996 ----- ----- ------------- Customer A..................................... 55% * * Customer B..................................... 20% * * Customer C..................................... * 25% * Customer D..................................... * * 34%
- -------- *less than 10% Customers C and D are related parties as they were purchasers of Series C convertible preferred stock in May 1996 and are also holders of the convertible notes payable to stockholders (see Note 9). Accounts receivable from these related parties as of June 30, 1996 totalled approximately $1.4 million. Export Sales The Company markets its products in North America and in foreign countries (primarily Europe and Japan) through its sales personnel, VARs, ISVs and distributors. For fiscal 1996, export sales, which consist of domestic sales to customers in foreign countries, were 10% of total revenue. For fiscal 1995 and for the quarter ended June 30, 1996 export sales were less than 10% of total revenue. Concentration of Credit Risk Financial instruments which potentially subject the Company to a concentration of credit risk consist principally of accounts receivable. As of March 31, 1996, approximately 75% of accounts receivable were concentrated with ten customers. The Company generally does not require collateral on accounts receivable as the majority of the Company's customers are large, well established companies. The Company provides reserves for credit losses, which to date have been insignificant. New Accounting Standard In October 1995, the Financial Accounting Standards Board issued SFAS No. 123, "Accounting for Stock-Based Compensation," which will be effective for the Company's 1997 fiscal year. SFAS No. 123 allows companies which have stock-based compensation arrangements with employees to adopt a new fair-value basis of accounting for stock options and other equity instruments or to continue to apply the existing accounting rules under Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees," but with additional financial statement disclosure. The Company expects to continue to account for stock-based compensation arrangements under APB Opinion No. 25 and, therefore, does not expect SFAS No. 123 to have a material impact on its financial position, results of operations and cash flows. Pro Forma Net Loss per Share Pro forma net loss per share is computed using the pro forma weighted average number of common and common equivalent shares outstanding during the period. Common equivalent shares consist of convertible preferred stock (using the if converted method) and stock options (using the treasury stock method). Common stock options are excluded from the computation if their effect is antidilutive. Convertible preferred stock outstanding during the period is included (using the if converted method) in the computation of common equivalent shares even though the effect is antidilutive. Also, pursuant to the Securities and Exchange Commission Staff Accounting Bulletins and staff policy, such computations include all common and common equivalent shares issued within the 12 months preceding the filing date of this registration statement as if they were outstanding for all periods presented. Historical net loss per share amounts have not been presented since such amounts are not deemed meaningful due to the significant change in the Company's capital structure that will occur in connection with the proposed offering. F-9 VISIGENIC SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Unaudited Interim Financial Data The unaudited interim financial statements as of June 30, 1996 and for the quarters ended June 30, 1995 and 1996 have been prepared on the same basis as the audited financial statements and, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the financial information set forth therein, in accordance with generally accepted accounting principles. The data disclosed in the notes to the consolidated financial statements for these periods are unaudited. The results of operations for the quarter ended June 30, 1996 are not necessarily indicative of the results to be expected for any future period. 3. LINE OF CREDIT: The Company has a $1.0 million revolving line of credit agreement (the "Agreement") with a bank, which expires on August 15, 1996. Advances under the Agreement bear interest at the bank's prime lending rate plus 1.25% (9.5% at March 31, 1996), are limited to 80% of eligible accounts receivable and are secured by substantially all of the assets and contractual rights of the Company. The Agreement also contains certain financial restrictions and covenants which require, among others, that the Company maintain a minimum monthly tangible net worth, and a minimum monthly ratio of debt to equity. In addition, the Agreement prohibits the Company from paying dividends without prior bank consent. As of March 31 and June 30, 1996, the Company was in compliance with the financial covenants. There were no borrowings outstanding under the Agreement as of March 31, 1996. As of June 30, 1996, the Company had borrowed $524,000 under the Agreement. 4. COMMITMENTS: The Company leases its facilities under operating lease agreements expiring through January 2001. Rent expense for all operating leases totaled approximately $131,000, $192,000 and $304,000 for the years ended March 31, 1994, 1995 and 1996, respectively. Minimum future lease payments under all noncancellable operating leases as of March 31, 1996 were as follows (in thousands):
YEAR ENDING MARCH 31, - ----------- 1997................................................................... $ 434 1998................................................................... 559 1999................................................................... 571 2000................................................................... 582 2001................................................................... 277 ------ $2,423 ======
5. CONVERTIBLE PREFERRED STOCK: In June 1996, the Company's Board of Directors approved a one-for-two reverse split of its common and preferred stock. All common and preferred share and per share amounts in the accompanying consolidated financial statements have been adjusted retroactively to give effect to this reverse stock split. In conjunction with the proposed initial public offering of the Company's common stock, all outstanding shares of convertible preferred stock will automatically convert into common stock upon closing of the offering. The pro forma effects of this conversion, including the Series C preferred stock and convertible notes payable to stockholders issued in May and June 1996 (see Note 9), have been reflected in the accompanying consolidated balance sheet as of June 30, 1996. The Company's certificate of incorporation, as amended in May 1996, authorizes the issuance of up to 10,000,000 shares of convertible preferred stock, of which the Company has designated 1,606,000 shares as F-10 VISIGENIC SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Series A preferred stock, 6,000,000 shares as Series B preferred stock and 1,000,000 shares as Series C preferred stock. The rights and preferences of the Series A, B and C preferred stock are as follows: Dividends The holders of Series A, B and C preferred stock are entitled to receive dividends when and as declared by the Board of Directors. No cash dividends can be paid on common stock or preferred stock unless, at the same time, a dividend is paid with respect to all outstanding shares of preferred stock in an amount for each such share equal to the aggregate amount of such dividends payable on that number of shares of common stock into which each such share of preferred stock could then be converted. Liquidation Preference In the event of any liquidation, dissolution or winding up of the Company, holders of Series A, B and C preferred stock are entitled to receive, in preference to holders of common stock, the amount of $2.40, $4.00 and $9.00 per share, respectively. Such amounts will be adjusted for any stock split, combination, distribution or dividend. After payment of the above amounts, holders of common stock are entitled to receive the amount of $2.40 per share, adjusted for any stock split, combination, distribution or dividend. After payment of the above amounts, holders of Series A preferred stock and common stock are entitled to receive the amount of $1.60 per share for each share of such stock, adjusted for any stock split, combination, distribution or dividend. Any remaining assets would then be distributed ratably among stockholders in proportion to their aggregate preferential amounts. Voting Rights The holders of preferred stock are entitled to the number of votes equal to the number of shares of common stock into which such preferred stock is convertible. Conversion Each share of preferred stock is convertible into one share of common stock, at the option of the holder thereof, at any time after the date of issuance. The conversion rate is subject to adjustment for dilution, including, but not limited to, stock splits, stock dividends and stock combinations. In addition, each share of Series A, B and C preferred stock will automatically convert into common stock at the then conversion rate upon the written consent of holders of a majority of all outstanding Series A, B and C preferred stock or upon the closing of an underwritten public offering of the Company's common stock at an aggregate offering price of not less than $10,000,000 and at an offering price per share of at least $4.00 per share, of at least $6.67 per share and of at least $12.00 per share, for Series A, B and C preferred stock, respectively. Holders of Series C preferred stock have agreed to reduce the automatic conversion price of the Series C preferred stock if necessary to cause such stock to convert automatically into shares of common stock upon the completion of the Company's initial public offering. 6. COMMON STOCK: In June 1996, the Company's Board of Directors approved a one-for-two reverse split of its common and preferred stock. All common and preferred share and per share amounts in the accompanying consolidated financial statements have been adjusted retroactively to give effect to this reverse stock split. Prior to July 1993, the Company issued 232,575 shares of common stock to certain employees and directors of the Company that are subject to certain repurchase rights. These rights of repurchase lapse over a five-year period. As of March 31, 1996, 64,228 shares of common stock are subject to repurchase by the Company at prices ranging from $.08 to $.20 per share. F-11 VISIGENIC SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Stock Purchase Plans In April 1993 and August 1994, the Company adopted Stock Purchase Plans (the "Plans") and authorized the issuance of 952,500 shares thereunder to employees and consultants. Stock purchased under these Plans generally vests ratably over a five-year period. Unvested shares may be repurchased by the Company at the original issuance price in the event of termination. As of March 31, 1996, 526,287 shares were issued and outstanding under these Plans at prices ranging from $.20 to $.40 per share, which was the fair market value of the common stock, as determined by the Board of Directors, on the date of grant, of which 289,522 were subject to repurchase. As of March 31, 1996, no further shares were available for issuance under the Plans. Stock Option Plan In fiscal 1996, the Company established the 1995 Stock Option Plan (the "1995 Plan") and reserved 2,000,000 shares of common stock for issuance. Under the 1995 Plan, the Board of Directors may grant incentive and nonqualified stock options to employees, consultants and directors of the Company. The exercise price per share for an incentive stock option cannot be less than the fair market value, as determined by the Board of Directors, on the date of grant. The exercise price per share for nonqualified stock options cannot be less than 85% of the fair market value, as determined by the Board of Directors, on the date of grant. Options generally expire ten years after the date of grant and vest over a period of five years. Option activity under the 1995 Plan was as follows:
OPTIONS OUTSTANDING --------------------- OPTIONS PRICE PER AVAILABLE SHARES SHARE --------- --------- ---------- Authorized................................ 2,000,000 -- -- Granted................................... (820,250) 820,250 $ .40 Exercised................................. -- (54,068) $ .40 Canceled.................................. 12,932 (12,932) $ .40 --------- --------- ---------- Balance at March 31, 1996.................. 1,192,682 753,250 $ .40 Authorized................................ 500,000 -- -- Granted................................... (520,250) 520,250 $.40-$6.00 Exercised................................. -- (171,433) $ .40 Canceled.................................. 14,567 (14,567) $ .40 --------- --------- ---------- Balance at June 30, 1996................... 1,186,999 1,087,500 $.40-$6.00 ========= ========= ==========
At June 30, 1996, options outstanding for the purchase of 59,634 shares were vested under the 1995 Plan at an exercise price of $.40 per share. Common Stock Reserved for Future Issuance As of June 30, 1996, the Company has reserved the following shares of common stock for future issuance: Conversion of Series A preferred stock............................. 803,000 Conversion of Series B preferred stock............................. 2,871,625 Conversion of Series C preferred stock............................. 444,444 Conversion of convertible notes payable to stockholders............ 200,000 Stock Option Plan and options assumed from PostModern.............. 2,636,284 1996 Stock Plans................................................... 650,000 --------- 7,605,353 =========
F-12 VISIGENIC SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 7. EMPLOYEE BENEFIT PLAN: In June 1995, the Company adopted the Visigenic Software, Inc. 401(k) Plan (the "401(k) Plan"), as allowed under Section 401(k) of the Internal Revenue Code, which provides for tax deferred salary deductions for eligible employees of the Company. Employees who are 21 years of age or older are eligible to participate immediately upon the date of hire and may make voluntary contributions of their compensation to the 401(k) Plan. The 401(k) Plan does not provide for Company contributions and the Company is the administrator. 8. INCOME TAXES: The Company accounts for income taxes pursuant to SFAS No. 109, "Accounting for Income Taxes." SFAS No. 109 requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns based upon enacted tax laws and rates applicable to the periods in which taxes become payable. A valuation allowance has been recorded for the entire deferred tax asset as a result of uncertainties regarding realization of the asset including the limited operating history of the Company, the lack of profitability to date and the uncertainty over future operating profitability. Components of the net deferred tax asset are as follows (in thousands):
MARCH 31, -------------- 1995 1996 ------ ------ Net operating loss carryforwards............................. $1,894 $3,398 Cumulative book to tax differences........................... 750 994 General business credit carryforwards........................ 311 372 ------ ------ 2,955 4,764 Valuation allowance.......................................... (2,955) (4,764) ------ ------ Net deferred tax asset................................... $ -- $ -- ====== ======
As of March 31, 1996, the Company had Federal and state net operating loss carryforwards of approximately $9.8 million and $2.0 million, respectively, which expire at various dates through 2011. In addition, as of March 31, 1996, the Company had general business credit carryforwards of approximately $372,000 which expire at various dates through 2011. Under current tax law, net operating loss and credit carryforwards available in any given year may be limited upon the occurrence of certain events, including significant changes in ownership interests. 9. SUBSEQUENT EVENTS: Acquisition of PostModern Computing Technologies Inc. In May 1996, the Company completed the acquisition of PostModern, a developer of distributed object connectivity software. In the acquisition, which was structured as a merger, the Company issued 3,099,821 shares of its common stock, valued at $3.00 per share based on an independent appraisal of the Company's common stock, and paid a total of $2.3 million in exchange for all of PostModern's outstanding shares. The Company also incurred acquisition- related costs of approximately $450,000, resulting in a total purchase price of approximately $13.1 million. In addition, the Company made cash payments, subject to one-year vesting and totaling $1.5 million, to certain PostModern employees. The acquisition of PostModern was accounted for as a purchase in the quarter ended June 30, 1996. F-13 VISIGENIC SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) In connection with the purchase price allocation, the Company received an appraisal of the intangible assets which indicated that approximately $12.0 million of the acquired intangible assets consisted of in process product development. Because there can be no assurance that the Company will be able to successfully complete the development and integration of the PostModern products or that the acquired technology has any alternative future use, the acquired in process product development was charged to expense by Visigenic in its quarter ended June 30, 1996. As a result of the purchase price allocation, the excess of the purchase price over net assets acquired is $1.1 million, which is being amortized on a straight-line basis over a period of two years. Management believes that the unamortized balance is recoverable through future operating results. In connection with the acquisition, the Company also assumed PostModern's outstanding stock options and reserved 361,785 shares of the Company's common stock for issuance upon exercise of such options at an exercise price of $0.24 to $0.60 per share under similar vesting terms. Issuance of Series C Convertible Preferred Stock and Convertible Notes On May 24, 1996, the Company sold 444,444 shares of its Series C preferred stock at a price of $9.00 per share to three investors, for aggregate proceeds of $4.0 million. The Company has the right to require these investors to purchase up to an additional $4.0 million in convertible notes at any time prior to October 31, 1996. If the Company has not completed an initial public offering of its Common Stock by August 30, 1996, in order to require the purchase of these convertible notes after September 30, 1996, the Company must achieve revenue of at least $3.6 million for the quarter ended September 30, 1996. Between May 28 and June 7, 1996, the Company issued convertible notes, bearing interest at the rate of 8.25% per annum, for $2.0 million of the available $4.0 million. The principal amount of the notes and all accrued interest are due and payable 3 years after the issuance date. However, upon the closing of the Company's initial public offering, the principal amount of each note and all accrued interest will automatically convert into shares of the Company's common stock at the lesser of $13.00 per share or the offering price per share to the public, and the Series C preferred stock will automatically convert into shares of the Company's common stock. The Company used a portion of the proceeds from the sale of the Series C preferred stock and the convertible notes to pay amounts payable in connection with the acquisition of PostModern. 1996 Employee Stock Purchase Plan The Company's 1996 Employee Stock Purchase Plan (the "Purchase Plan") was adopted by the Company's Board of Directors in June 1996, subject to approval by the stockholders. A total of 450,000 shares of common stock has been reserved for issuance under the Purchase Plan. The Purchase Plan permits eligible employees to purchase common stock at 85% of the lower of the fair market value of the Company's common stock on the first day or the last day of each six-month offering period. 1996 Outside Directors Stock Option Plan The Company's 1996 Outside Directors Stock Option Plan (the "Directors Plan") was adopted by the Company's Board of Directors in June 1996, subject to approval by the stockholders. A total of 200,000 shares of common stock has been reserved for issuance under the Directors Plan. The Directors Plan provides for the initial grant of nonstatutory stock options to purchase 15,000 shares of common stock on the earlier of the first annual meeting following the initial public offering of the Company's common stock or the date on which the optionee first becomes a nonemployee director of the Company, and an additional option to purchase 5,000 shares of common stock on the next anniversary to existing and future nonemployee directors of the Company. The exercise price per share of all options granted under the Directors Plan will equal the fair market value of a share of the Company's common stock on the date of grant of the option. F-14 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To PostModern Computing Technologies Inc.: We have audited the accompanying balance sheets of PostModern Computing Technologies Inc. (a California corporation) as of March 31, 1995 and 1996 and the related statements of operations, shareholders' equity and cash flows for each of the three years in the period ended March 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of PostModern Computing Technologies Inc. as of March 31, 1995 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended March 31, 1996 in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP San Jose, California May 31, 1996 F-15 POSTMODERN COMPUTING TECHNOLOGIES INC. BALANCE SHEETS
MARCH 31, ------------------ 1995 1996 -------- -------- ASSETS CURRENT ASSETS: Cash..................................................... $ 38,342 $ 56,860 Accounts receivable...................................... 138,383 303,604 Prepaid expenses......................................... 6,200 33,714 -------- -------- Total current assets................................... 182,925 394,178 -------- -------- PROPERTY AND EQUIPMENT: Computer equipment....................................... 53,719 85,596 Furniture and fixtures................................... 5,295 27,626 -------- -------- 59,014 113,222 Less--Accumulated depreciation........................... (29,479) (47,680) -------- -------- Net property and equipment............................. 29,535 65,542 -------- -------- OTHER ASSETS............................................... 6,457 14,051 -------- -------- $218,917 $473,771 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Note payable to shareholders............................. $ 22,500 $ -- Accounts payable......................................... 13,035 109,488 Accrued payroll and related benefits..................... 95,541 55,312 Deferred revenue......................................... 19,321 189,252 -------- -------- Total current liabilities.............................. 150,397 354,052 -------- -------- COMMITMENTS (Note 3) SHAREHOLDERS' EQUITY: Convertible preferred stock, no par value -- -- Authorized--5,000,000 shares Outstanding--none Common stock, no par value Authorized--20,000,000 shares Outstanding--6,600,000 and 6,920,000 shares in 1995 and 1996, respectively..................................... 18,775 50,775 Note receivable from shareholder......................... -- (32,000) Retained earnings........................................ 49,745 100,944 -------- -------- Total shareholders' equity............................. 68,520 119,719 -------- -------- $218,917 $473,771 ======== ========
The accompanying notes are an integral part of these balance sheets. F-16 POSTMODERN COMPUTING TECHNOLOGIES INC. STATEMENTS OF OPERATIONS
YEAR ENDED MARCH 31, ----------------------------- 1994 1995 1996 -------- --------- --------- REVENUE: Software products.............................. $324,874 $ 253,056 $ 304,161 Consulting, maintenance and other.............. 319,349 250,758 697,702 -------- --------- --------- Total revenue................................ 644,223 503,814 1,001,863 -------- --------- --------- COST OF REVENUE: Software products.............................. 9,459 31,746 43,340 Consulting, maintenance and other.............. 74,613 140,622 219,228 -------- --------- --------- Total cost of revenue........................ 84,072 172,368 262,568 -------- --------- --------- GROSS PROFIT..................................... 560,151 331,446 739,295 -------- --------- --------- OPERATING EXPENSES: Research and development....................... 116,840 150,428 223,297 Sales and marketing............................ 87,681 183,264 240,383 General and administrative..................... 83,104 176,672 211,766 -------- --------- --------- Total operating expenses..................... 287,625 510,364 675,446 -------- --------- --------- Income (loss) before provision for income taxes....................................... 272,526 (178,918) 63,849 PROVISION FOR INCOME TAXES....................... -- -- 5,000 -------- --------- --------- NET INCOME (LOSS)................................ $272,526 $(178,918) $ 58,849 ======== ========= =========
The accompanying notes are an integral part of these financial statements. F-17 POSTMODERN COMPUTING TECHNOLOGIES INC. STATEMENTS OF SHAREHOLDERS' EQUITY
COMMON STOCK ------------------- NOTES RETAINED SHARES AMOUNT RECEIVABLE EARNINGS TOTAL ---------- ------- ---------- -------- -------- BALANCE, MARCH 31, 1993.... 10,000,000 $35,775 $ -- $ (3,863) $ 31,912 Declaration and payment of dividend............. -- -- -- (40,000) (40,000) Net income............... -- -- -- 272,526 272,526 ---------- ------- -------- -------- -------- BALANCE, MARCH 31, 1994.... 10,000,000 35,775 -- 228,663 264,438 Issuance of common stock ........................ 500,000 25,000 -- -- 25,000 Repurchase of common stock .................. (3,900,000) (42,000) -- -- (42,000) Net loss................. -- -- -- (178,918) (178,918) ---------- ------- -------- -------- -------- BALANCE, MARCH 31, 1995.... 6,600,000 18,775 -- 49,745 68,520 Declaration and payment of dividend............. -- -- -- (7,650) (7,650) Issuance of common stock ........................ 320,000 32,000 (32,000) -- -- Net income............... -- -- -- 58,849 58,849 ---------- ------- -------- -------- -------- BALANCE, MARCH 31, 1996.... 6,920,000 $50,775 $(32,000) $100,944 $119,719 ========== ======= ======== ======== ========
The accompanying notes are an integral part of these financial statements. F-18 POSTMODERN COMPUTING TECHNOLOGIES INC. STATEMENTS OF CASH FLOWS
YEAR ENDED MARCH 31, ----------------------------- 1994 1995 1996 -------- --------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss)............................. $272,526 $(178,918) $ 58,849 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities-- Depreciation and amortization................ 7,680 11,572 18,201 Changes in net assets and liabilities-- Decrease (increase) in accounts receivable.. (139,206) 37,532 (165,221) Increase in prepaid expenses................ -- (6,200) (27,514) Increase (decrease) in accounts payable..... 7,053 (2,715) 96,453 Increase (decrease) in accrued liabilities.. (6,000) 87,041 (40,229) Increase in deferred revenue................ 8,344 10,977 169,931 -------- --------- -------- Net cash provided by (used in) operating activities................................ 150,397 (40,711) 110,470 -------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment........... (13,850) (20,995) (54,208) Other assets.................................. (2,567) (2,703) (7,594) -------- --------- -------- Net cash used in investing activities...... (16,417) (23,698) (61,802) -------- --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock........ -- 25,000 -- Repurchase of common stock.................... -- (42,000) -- Payment of cash dividends to shareholders..... (40,000) -- (7,650) Borrowings from (repayments to) shareholders.. -- 22,500 (22,500) -------- --------- -------- Net cash provided by (used in) financing activities................................ (40,000) 5,500 (30,150) -------- --------- -------- NET INCREASE (DECREASE) IN CASH................. 93,980 (58,909) 18,518 CASH, BEGINNING OF PERIOD....................... 3,271 97,251 38,342 -------- --------- -------- CASH, END OF PERIOD............................. $ 97,251 $ 38,342 $ 56,860 ======== ========= ========
The accompanying notes are an integral part of these financial statements. F-19 POSTMODERN COMPUTING TECHNOLOGIES INC. NOTES TO FINANCIAL STATEMENTS MARCH 31, 1996 1. THE COMPANY: PostModern Computing Technologies Inc. (the "Company") was incorporated in October 1991 in California. The Company, which is closely held, operates in a single industry segment and is involved in the design, marketing and support of distributed object connectivity software. In May 1996, the Company was acquired by Visigenic Software, Inc. ("Visigenic"), a Delaware corporation, according to the terms of an agreement which provides that the Company be merged with and into Visigenic (the "Acquisition"). In connection with the Acquisition, Visigenic issued 3,099,821 shares of its common stock and paid cash consideration of approximately $2.3 million in exchange for all of the outstanding shares of common stock of the Company and assumed all issued and outstanding options to purchase common stock of the Company. In addition, at the closing of the Acquisition, Visigenic made cash payments to certain employees of the Company totaling $1.5 million, subject to one-year vesting. The Acquisition was structured as a tax- free exchange according to Section 368(a)(II)(E) of the Internal Revenue Code. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Revenue Recognition The Company generates revenue from licensing the rights to use its software products, sales of post-contract support, development contracts, consulting services and training services performed for customers who license its products. Revenue from software license agreements is recognized upon shipment of the software if there are no significant post-delivery obligations and collection is probable. If an acceptance period is required, revenue is recognized upon the earlier of customer acceptance or the expiration of the acceptance period. Revenue from post-contract support services is recognized ratably over the term of the support period. Consulting revenue is primarily related to development and customization services performed on a time and material basis under separate service and consulting arrangements. Revenue from development contracts and training services is recognized as the services are performed over the term of the agreement. In cases where license fee payments are contingent upon the acceptance of services, revenue from both the license and the service elements is deferred until the acceptance criteria are met. Significant Customers For fiscal 1994, 1995 and 1996, the combined revenue from five customers accounted collectively for 96%, 88% and 83% of total revenue, respectively. The following customers accounted for more than 10% of total revenue:
YEAR ENDED MARCH 31, ---------------- 1994 1995 1996 ---- ---- ---- Customer A....................................................... 74% * * Customer B....................................................... * 44% 29% Customer C....................................................... * 18% * Customer D....................................................... * 11% 10% Customer E....................................................... * * 25% Customer F....................................................... * * 12%
- -------- *less than 10% F-20 POSTMODERN COMPUTING TECHNOLOGIES INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) Export Revenue Export revenue for fiscal 1996, which consisted of sales to a customer in Japan, was 12% of total revenue. Export revenue was less than 10% of total revenue for fiscal 1994 and 1995. Concentration of Credit Risk Financial instruments which potentially subject the Company to a concentration of credit risk consist principally of accounts receivable. As of March 31, 1996, approximately 72% of accounts receivable were concentrated with five customers. The Company believes that its credit and collection procedures are adequate to monitor and evaluate risk among its customer base. For fiscal 1994, 1995 and 1996 credit losses have been insignificant. Software Development Costs The Company capitalizes eligible software development costs upon the establishment of technological feasibility, which the Company has defined as completion of a working model. For fiscal 1994, 1995 and 1996, costs which were eligible for capitalization, after consideration of factors such as realizable value, were insignificant and, thus, the Company has charged all software development costs to research and development expense in the accompanying statements of operations. Property and Equipment Property and equipment are stated at cost. Depreciation is computed using the double declining balance method over the estimated useful lives of the assets of five to seven years. Use of Estimates in Preparation of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reporting amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported results of operations during the reporting period. Actual results could differ from those estimates. 3. COMMITMENTS: The Company leases its office space under a non-cancelable operating lease which expires on March 31, 1998. Rent expense for all operating leases was approximately $23,000, $38,000 and $38,000 for fiscal 1994, 1995 and 1996, respectively. Future minimum lease payments under all non-cancelable operating leases are as follows:
YEAR ENDING MARCH 31, ----------- 1997............................................................. $126,000 1998............................................................. 129,000 -------- $255,000 ========
4. LINE OF CREDIT: In December 1995, the Company entered into a line of credit agreement (the "Agreement") with a bank which allows for borrowings of up to $125,000 and expires in December 1996. Advances under the Agreement, which are secured by substantially all of the Company's assets and contractual rights of the Company, bear interest at the bank's prime lending rate plus 1.0% (9.25% at March 31, 1996). As of March 31, 1996, there were no borrowings outstanding under the Agreement. F-21 POSTMODERN COMPUTING TECHNOLOGIES INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 5. STOCK OPTION PLAN: In November 1995, the Company established the 1995 Stock Option Plan (the "Plan") and reserved 1,980,000 shares of common stock for issuance thereunder. Under the Plan, the Board of Directors may grant incentive stock options to employees and directors at the fair market value of the shares, as determined by the Board of Directors, on the date of grant. The exercise price per share for nonqualified stock options cannot be less than 85% of fair market value of the shares, as determined by the Board of Directors, on the date of grant. Options generally expire ten years after the date of grant and vest over a period of four years. Activity under the Plan is summarized as follows:
OPTIONS AVAILABLE OPTIONS PRICE FOR ISSUANCE OUTSTANDING PER SHARE ------------ ----------- ------------ Authorized for issuance............... 1,980,000 -- -- Granted............................... (1,644,500) 1,644,500 $0.10--$0.25 ---------- --------- ------------ Balance, March 31, 1996............... 335,500 1,644,500 $0.10--$0.25 ========== ========= ============
As of March 31, 1996, options to purchase 826,250 shares of common stock at prices ranging from $0.10 to $0.25 were fully vested and exercisable. In connection with the Acquisition, Visigenic assumed all outstanding options of the Company. 6. INCOME TAXES: Through December 31, 1995, the Company was an S corporation. Effective January 1, 1996, the Company changed to C corporation status. Federal and state income tax regulations require that the income or loss of an S corporation be included in the tax returns of the individual shareholders. Accordingly, no provision for taxes is made in the accompanying financial statements for fiscal 1994, 1995 and for the period from April 1, 1995 to December 31, 1995. The Company accounts for income taxes pursuant to SFAS No. 109, "Accounting for Income Taxes." SFAS No. 109 provides for an asset and liability approach to accounting for income taxes under which deferred income taxes are provided based upon enacted tax laws and rates applicable to the periods in which taxes become payable. The provision for income taxes for the year ended March 31, 1996 was as follows: Current provision: Federal............................................................ $5,000 State.............................................................. 1,000 ------ 6,000 ------ Deferred benefit: Federal............................................................ (1,000) State.............................................................. -- ------ (1,000) ------ Total provision for income taxes..................................... $5,000 ======
As of March 31, 1996, the components of the net deferred income tax asset of approximately $1,000 consisted of differences in book versus tax depreciation and nondeductible reserves and accruals. F-22 VISIGENIC SOFTWARE, INC. AND POSTMODERN COMPUTING TECHNOLOGIES INC. ---------------- PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (UNAUDITED) In May 1996, Visigenic Software, Inc. (the "Company" or "Visigenic") completed the acquisition of PostModern Computing Technologies Inc., a California corporation ("PostModern"). PostModern is a developer of distributed object software. The acquisition of PostModern has been accounted for as a purchase. The accompanying pro forma condensed combined statement of operations for the fiscal year ended March 31, 1996 and the quarter ended June 30, 1996 assumes that the acquisition took place as of the beginning of fiscal 1996, and combines Visigenic's and PostModern's statements of operations for each Company's respective fiscal year ended March 31, 1996 and quarters ended June 30, 1996. The historical financial statements of PostModern for the quarter ended June 30, 1996 only include two months of operations as it was merged into Visigenic effective May 31, 1996. The pro forma condensed combined statement of operations for the fiscal year ended March 31, 1996 does not include the effect of any nonrecurring charges directly attributable to the acquisition. The purchase price allocation reflected in the accompanying pro forma condensed combined financial statements has been prepared on an estimated basis. The effects resulting from any differences in the final allocation of the purchase price are not expected to have a material effect on the Company's financial statements. The accompanying pro forma condensed combined financial statements should be read in conjunction with the historical financial statements and related notes thereto for both Visigenic and PostModern, which are included in this Prospectus. P-1 VISIGENIC SOFTWARE, INC. AND POSTMODERN COMPUTING TECHNOLOGIES INC. ---------------- PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED MARCH 31, 1996 ------------------------------------------- HISTORICAL HISTORICAL PRO FORMA PRO FORMA VISIGENIC POSTMODERN ADJUSTMENTS COMBINED ---------- ---------- ----------- --------- REVENUE: Software products.............. $ 4,479 $ 304 $ -- $ 4,783 Service and other.............. 1,096 698 -- 1,794 ------- ------ ------- Total revenue................ 5,575 1,002 6,577 ------- ------ ------- COST OF REVENUE: Software products.............. 284 44 -- 328 Service and other.............. 727 219 -- 946 ------- ------ ------- Total cost of revenue........ 1,011 263 1,274 ------- ------ ------- GROSS PROFIT..................... 4,564 739 5,303 ------- ------ ------- OPERATING EXPENSES: Product development............ 4,348 223 1,317(a) 5,888 Sales and marketing............ 3,215 240 183(a) 3,638 General and administrative..... 1,465 212 -- 1,677 Amortization of excess of purchase price over net assets acquired...................... -- -- 522(a) 522 ------- ------ ------- Total operating expenses..... 9,028 675 11,725 ------- ------ ------- Operating income (loss)...... (4,464) 64 -- (6,422) INTEREST AND OTHER INCOME, net... 85 -- -- 85 ------- ------ ------- INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES................ (4,379) 64 -- (6,337) PROVISION FOR INCOME TAXES....... -- 5 5(b) -- ------- ------ ------- NET INCOME (LOSS)................ $(4,379) $ 59 $(6,337) ======= ====== ======= NET LOSS PER SHARE............... $ (.39) $ (.57) ======= ======= PRO FORMA WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES.... 11,120 11,120(c) ======= =======
The accompanying notes are an integral part of this statement. P-2 VISIGENIC SOFTWARE, INC. AND POSTMODERN COMPUTING TECHNOLOGIES INC. ---------------- PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
QUARTER ENDED JUNE 30, 1996 ------------------------------------------- HISTORICAL HISTORICAL PRO FORMA PRO FORMA VISIGENIC POSTMODERN ADJUSTMENTS COMBINED ---------- ---------- ----------- --------- REVENUE: Software products.............. $ 2,505 $ 24 $ -- $ 2,529 Service and other.............. 456 108 -- 564 -------- ----- -------- Total revenue................ 2,961 132 3,093 -------- ----- -------- COST OF REVENUE: Software products.............. 138 11 -- 149 Service and other.............. 295 65 -- 360 -------- ----- -------- Total cost of revenue........ 433 76 509 -------- ----- -------- GROSS PROFIT..................... 2,528 56 2,584 -------- ----- -------- OPERATING EXPENSES: Product development............ 1,657 64 -- 1,721 Sales and marketing............ 2,006 68 -- 2,074 General and administrative..... 473 74 -- 547 Purchased in process product development................... 12,014 -- -- 12,014 Amortization of excess of purchase price over net assets acquired...................... 43 -- 86(a) 129 -------- ----- -------- Total operating expenses..... 16,193 206 16,485 -------- ----- -------- Operating income (loss)...... (13,665) (150) -- (13,901) INTEREST AND OTHER INCOME, net... 6 -- -- 6 -------- ----- -------- INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES................ (13,659) (150) -- (13,895) PROVISION FOR INCOME TAXES....... -- -- -- -- -------- ----- -------- NET INCOME (LOSS)................ $(13,659) $(150) $(13,895) ======== ===== ======== NET LOSS PER SHARE............... $ (1.21) $ (1.23) ======== ======== PRO FORMA WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES.... 11,289 11,289(c) ======== ========
The accompanying notes are an integral part of this statement. P-3 VISIGENIC SOFTWARE, INC. AND POSTMODERN COMPUTING TECHNOLOGIES INC. ---------------- NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1. PRO FORMA ADJUSTMENTS Certain pro forma adjustments have been made to the accompanying pro forma condensed combined statements of operations as described below: (a) Reflects the amortization of the excess of the purchase price over net assets acquired of approximately $1.1 million, which will be amortized on a straight line basis over its estimated life of two years, and $1.5 million of cash payments made to certain PostModern employees subject to one-year vesting. (b) Reflects the elimination of the PostModern tax provision for fiscal 1996 due to the pro forma 1996 net loss. (c) Pro forma weighted average common and common equivalent shares do not include common stock equivalents as inclusion of these shares would be anti-dilutive. The stand alone Visigenic and the pro forma combined weighted average common and common equivalent shares are identical as the Visigenic shares issued to PostModern shareholders are included in the stand alone Visigenic weighted average share calculation pursuant to the Securities and Exchange Commission Staff Accounting Bulletin No. 83. NOTE 2. PURCHASE PRICE ALLOCATION In connection with the acquisition, the Company exchanged 3,099,821 shares of its common stock, valued at $3.00 per share based on an independent appraisal of the Company's stock, and paid cash consideration of approximately $2.3 million in exchange for all of the outstanding shares of common stock of PostModern. The Company also incurred acquisition related costs of approximately $450,000 resulting in a total purchase price of approximately $13.1 million. In addition to the forgoing, at the closing of the acquisition, the Company made cash payments to certain PostModern employees totaling $1.5 million. In the event that such employees leave the Company within the 12 months following the date of acquisition, the employees must refund back to the Company a pro rata portion of the payment for the months they are no longer employees. In connection with the purchase price allocation, the Company received an appraisal of the intangible assets which indicated that approximately $12.0 million of the acquired intangible assets consisted of in process product development. Because there can be no assurance that the Company will be able to successfully complete the development and integration of the PostModern products or that the acquired technology has any alternative future use, the acquired in process product development was charged to expense by Visigenic in its quarter ended June 30, 1996 and is reflected in the accompanying pro forma statement of operations for the quarter ended June 30, 1996. As a result of the purchase price allocation, the excess of the purchase price over net assets acquired is $1.1 million, which is being amortized on a straight-line basis over a period of two years. Management believes that the unamortized balance is recoverable through future operating results. P-4 Digitalized artwork illustrating how the Visigenic database connectivity and distributed object connectivity products simplify the development, deployment and management of distributed applications in today's complex environment. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN- FORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING STOCK- HOLDER OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM IT IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. ----------- TABLE OF CONTENTS
PAGE ---- Prospectus Summary....................................................... 3 Risk Factors............................................................. 6 Use of Proceeds.......................................................... 16 Dividend Policy.......................................................... 16 Capitalization........................................................... 17 Dilution................................................................. 18 Selected Consolidated Financial Data..................................... 19 Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................... 20 Business................................................................. 28 Management............................................................... 43 Certain Transactions..................................................... 51 Principal and Selling Stockholders....................................... 54 Description of Capital Stock............................................. 57 Shares Eligible for Future Sale.......................................... 59 Underwriting............................................................. 61 Legal Matters............................................................ 62 Experts.................................................................. 62 Additional Information................................................... 62 Index to Financial Statements............................................ F-1
----------- UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EF- FECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 2,100,000 SHARES [LOGO OF OF VISIGENIC SOFTWARE, INC. APPEARS HERE] COMMON STOCK --------------- PROSPECTUS --------------- HAMBRECHT & QUIST ROBERTSON, STEPHENS & COMPANY , 1996 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets forth all expenses, other than the underwriting discounts and commissions, payable by the Company in connection with the sale of the Common Stock being registered. Pursuant to the Registration Rights Agreement dated March 31, 1993, as supplemented on May 10, 1996, the Company is paying all of the expenses incurred on behalf of the Selling Stockholders (other than underwriting discounts and commissions). All amounts shown are estimates except for the registration fee and the NASD filing fee.
AMOUNT TO BE PAID --------- Registration fee...................................................... $ 9,160 NASD filing fee....................................................... 3,157 Nasdaq National Market fee............................................ * Blue sky qualification fees and expenses.............................. 10,000 Printing and engraving expenses....................................... * Legal fees and expenses............................................... * Accounting fees and expenses.......................................... * Transfer agent and registrar fees..................................... * Fee for Custodian for Selling Stockholders............................ * Miscellaneous......................................................... * -------- Total............................................................. $750,000 ========
-------- * To be supplied by amendment. ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS. Section 145 of the Delaware General Corporation Law permits indemnification of officers, directors, and other corporate agents under certain circumstances and subject to certain limitations. The Company's Certificate of Incorporation, as amended, and Bylaws provide that the Company shall indemnify its directors, officers, employees and agents to the full extent permitted by Delaware General Corporation Law, including in circumstances in which indemnification is otherwise discretionary under Delaware law. In addition, the Company intends to enter into separate indemnification agreements with its directors, officers and certain employees which would require the Company, among other things, to indemnify them against certain liabilities which may arise by reason of their status or service (other than liabilities arising from willful misconduct of a culpable nature) and to maintain directors' and officers' liability insurance, if available on reasonable terms. These indemnification provisions and the indemnification agreement to be entered into between the Company and its officers and directors may be sufficiently broad to permit indemnification of the Company's officers and directors for liabilities (including reimbursement of expenses incurred) arising under the Securities Act. The Underwriting Agreement filed as Exhibit 1.1 to this Registration Statement provides for indemnification by the Underwriters of the Company and its officers and directors for certain liabilities arising under the Securities Act, or otherwise. II-1 ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. Since February 12, 1993, the date of its incorporation, the Company has sold and issued the following unregistered securities (as adjusted where appropriate for the proposed reverse stock split whereby each two outstanding shares of Common Stock will be converted into one share of Common Stock): (a) On March 3, 1993, the Company issued 2,000,000 shares of its Common Stock to Roger Sippl at $0.08 per share, for an aggregate purchase price of $160,000. (b) On March 31, 1993, the Company issued 803,000 shares of its Series A Preferred Stock to 55 stockholders at $2.40 per share, for an aggregate of $1,927,200. (c) In June 1993, the Company issued 37,500 shares of its Common Stock to 3 stockholders at $0.20 per share, for an aggregate purchase of $7,500. (d) From December 1993 through January 1994, the Company issued 871,625 shares of its Series B Preferred Stock to 40 stockholders at $4.00 per share, for an aggregate of $3,486,500. (e) From April 1994 through August 1994, the Company issued 625,000 shares of its Series B Preferred Stock to 29 stockholders at $4.00 per share, for an aggregate of $2,500,000. (f) From May 1995 through August 1995, the Company issued 1,375,000 shares of its Series B Preferred Stock to 29 stockholders at $4.00 per share, for an aggregate of $5,500,000. (g) In April 1996, the Company entered into an Agreement and Plan of Reorganization with PostModern Computing Technologies Inc. ("PostModern") pursuant to which the Company issued 3,099,821 shares of its Common Stock, and options to purchase 361,785 shares of its Common Stock to the seven former shareholders and optionholders of PostModern. (h) In May 1996, the Company entered into an Agreement and Plan of Reorganization with Data Accessibility Solutions, Inc. ("DASI") pursuant to which the Company issued 12,500 shares of its Common Stock to the two former shareholders of DASI. (i) In May 1996, the Company issued 444,444 shares of its Series C Preferred Stock to 3 stockholders at $9.00 per share, for an aggregate of $3,999,996. (j) In May and June 1996, the Company issued convertible notes to 3 stockholders in the aggregate principal amount of $2.0 million. (k) Between February 12, 1993 and June 30, 1996, the Company sold an aggregate of 971,462 shares of its Common Stock to 60 stockholders for an aggregate of $604,594 and issued options to purchase an aggregate of 1,341,000 shares of Common Stock with an exercise price equal to the fair market value on the date of grant as determined by the Board of Directors to 117 optionholders. There were no underwriters employed in connection with any of the transactions set forth in Item 15. For additional information concerning these equity investment transactions, reference is made to the information contained under the caption "Certain Transactions" in the form of Prospectus included herein. The issuances described in Items 15(a) through 15(f) and Items 15(i), 15(j) and 15(k) were deemed to be exempt from registration under the Securities Act in reliance on Section 4(2) of the Securities Act as transactions by an issuer not involving a public offering. In addition, certain issuances described in Items 15(g) and Item 15(h) were deemed to be exempt from registration under the Securities Act in reliance on Section 3(a)(10) of the Securities Act. Certain issuances described in Item 15(k) were deemed exempt from registration under the Securities Act in reliance on Section 4(2) or Rule 701 promulgated thereunder as transactions pursuant to compensatory benefit plans and contracts relating to compensation. The recipients of securities in each such transaction represented their intention to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the share certificates and other instruments issued in such transactions. All recipients either received adequate information about the Company or had access, through employment or other relationships, to such information. II-2 ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) Exhibits.
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT ------- ----------------------- 1.1+ Form of Underwriting Agreement. 2.1+ Agreement and Plan of Reorganization between the Company and PostModern Computing Technologies Inc., dated April 28, 1996. 3.1A Certificate of Incorporation, as amended. 3.1B Form of Restated Certificate of Incorporation to be filed after the effectiveness of the offering. 3.2A+ Amended and Restated Bylaws. 3.2B Proposed form of Bylaws to be adopted before the effective date of this Registration Statement. 4.1 Specimen Common Stock Certificate of the Company. 4.2+ Registration Rights Agreement between the Company and certain investors dated March 31, 1993. 4.3+ Supplemental Registration Rights Agreement between the Company and certain investors dated May 10, 1996. 5.1+ Opinion of Gray Cary Ware & Freidenrich, A Professional Corporation. 10.1 Form of Indemnification Agreement for directors and officers. 10.2+ 1995 Stock Option Plan and forms of agreements thereunder. 10.3 1996 Employee Stock Purchase Plan. 10.4 1996 Outside Directors Stock Option Plan. 10.5+ Non-Compete and Non-Solicitation Agreement between the Company and Jens Christensen dated April 28, 1996. 10.6+ Non-Compete and Non-Solicitation Agreement between the Company and Neguine Navab dated April 28, 1996. 10.7+ Non-Compete and Non-Solicitation Agreement between the Company and Prasad Mokkapatti dated April 28, 1996. 10.8+ Convertible Note and Series C Preferred Stock Purchase Agreement by and among the Company, Cisco Systems, Inc., Netscape Communications Corporation and Platinum technology dated May 24, 1996. 10.9+ Form of Convertible Promissory Note. 10.10* Source Code License Agreement, as amended, between the Company and Microsoft Corporation ("Microsoft") dated June 20, 1995. 10.11* Source Code License Agreement between the Company and Microsoft Corporation dated February 10, 1995. 10.12 Lease Agreement, as amended, between the Company and San Mateo Office Limited, dated March 7, 1993. 11.1+ Statement regarding computation of per share loss. 23.1 Consent of Independent Auditors (see page II-7). 23.2+ Consent of Counsel (included in Exhibit 5.1). 24.1+ Power of Attorney (see page II-5 of Registration Statement No. 333- 06285 filed on June 19, 1996). 27.0+ Financial Data Schedule (available in EDGAR format only).
-------- * To be filed by amendment. + Previously filed. (b) Financial Statement Schedules. All schedules have been omitted because the information required to be set forth therein is not applicable or is shown in the financial statements or notes thereto. II-3 ITEM 17. UNDERTAKINGS The undersigned Registrant hereby undertakes to provide to the Underwriters at the closing specified in the Underwriting Agreement certificates in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser. Insofar as indemnification by the Registrant for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions referenced in Item 14 of this Registration Statement or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer, or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered hereunder, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of Prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective; and (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of Prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at the time shall be deemed to be the initial bona fide offering thereof. II-4 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT HAS DULY CAUSED THIS AMENDMENT NO. 2 TO ITS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF SAN MATEO, COUNTY OF SAN MATEO, STATE OF CALIFORNIA, ON THE 29TH DAY OF JULY 1996. VISIGENIC SOFTWARE, INC. /s/ Mark D. Hanson By: _________________________________ MARK D. HANSON PRESIDENT AND CHIEF OPERATING OFFICER PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED: SIGNATURE TITLE DATE /s/ Roger J. Sippl* Chief Executive - ------------------------------------- Officer and July 29, 1996 ROGER J. SIPPL Director (Principal Executive Officer) /s/ Kevin C. Eichler Vice President-- - ------------------------------------- Finance (Principal July 29, 1996 KEVIN C. EICHLER Financial and Accounting Officer) /s/ Gill Cogan* Director - ------------------------------------- July 29, 1996 GILL COGAN /s/ Cristina Morgan* Director - ------------------------------------- July 29, 1996 CRISTINA MORGAN II-5 SIGNATURE TITLE DATE /s/ Michael Moritz* Director - ------------------------------------- July 29, 1996 MICHAEL MORITZ /s/ E. E. van Bronkhorst* Director - ------------------------------------- July 29, 1996 E. E. VAN BRONKHORST /s/ J. Sidney Webb* Director - ------------------------------------- July 29, 1996 J. SIDNEY WEBB /s/ Eric Young* Director - ------------------------------------- July 29, 1996 ERIC YOUNG /s/ Jens Christensen* Director - ------------------------------------- July 29, 1996 JENS CHRISTENSEN *By: /s/ Mark D. Hanson ---------------------------------- MARK D. HANSON (ATTORNEY-IN-FACT) II-6 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS As independent public accountants, we hereby consent to the use of our reports and to all references to our Firm included in or made a part of this registration statement. ARTHUR ANDERSEN LLP San Jose, California July 29, 1996 II-7 EXHIBIT INDEX
SEQUENTIALLY EXHIBIT NUMBERED NUMBER PAGE ------- ------------ 1.1+ Form of Underwriting Agreement. 2.1+ Agreement and Plan of Reorganization between the Company and PostModern Computing Technologies Inc., dated April 28, 1996. 3.1A Certificate of Incorporation, as amended. 3.1B Form of Restated Certificate of Incorporation to be filed after the effectiveness of the offering. 3.2A+ Amended and Restated Bylaws. 3.2B Proposed form of Bylaws to be adopted before the effective date of this Registration Statement. 4.1 Specimen Common Stock Certificate of the Company. 4.2+ Registration Rights Agreement between the Company and certain investors dated March 31, 1993. 4.3+ Supplemental Registration Rights Agreement between the Company and certain investors dated May 10, 1996. 5.1+ Opinion of Gray Cary Ware & Freidenrich, A Professional Corporation. 10.1 Form of Indemnification Agreement for directors and officers. 10.2+ 1995 Stock Option Plan and forms of agreements thereunder. 10.3 1996 Employee Stock Purchase Plan. 10.4 1996 Outside Directors Stock Option Plan. 10.5+ Non-Compete and Non-Solicitation Agreement between the Company and Jens Christensen dated April 28, 1996. 10.6+ Non-Compete and Non-Solicitation Agreement between the Company and Neguine Navab dated April 28, 1996. 10.7+ Non-Compete and Non-Solicitation Agreement between the Company and Prasad Mokkapatti dated April 28, 1996. 10.8+ Convertible Note and Series C Preferred Stock Purchase Agreement by and among the Company, Cisco Systems, Inc., Netscape Communications Corporation and Platinum technology dated May 24, 1996. 10.9+ Form of Convertible Promissory Note. 10.10* Source Code License Agreement, as amended, between the Company and Microsoft Corporation ("Microsoft") dated June 20, 1995. 10.11* Source Code License Agreement between the Company and Microsoft dated February 10, 1995. 10.12 Lease Agreement, as amended, between the Company and San Mateo Office Limited, dated March 7, 1993. 11.1+ Statement regarding computation of per share loss. 23.1 Consent of Independent Auditors (see page II-7). 23.2+ Consent of Counsel (included in Exhibit 5.1). 24.1+ Power of Attorney (see page II-5 of Registration Statement No. 333-06285 filed on June 19, 1996). 27.0 Financial Data Schedule (available in EDGAR format only).
-------- * To be filed by amendment. + Previously filed. EX-3.1A 2 CERTIFICATE OF INCORPORATION EXHIBIT 3.1A RESTATED CERTIFICATE OF INCORPORATION OF VERY VISUAL SOFTWARE, INC. ----------------------- (Originally incorporated under the same name on February 12, 1993) ----------------------- FIRST: The name of the Corporation is Very Visual Software, Inc. ----- (hereinafter sometimes referred to as the "Corporation"). SECOND: The address of the registered office of the Corporation in ------ the State of Delaware is 15 East North Street, in the City of Dover, County of Kent. The name of the registered agent of the Corporation at that address is Incorporating Services, Ltd. THIRD: The purpose of the Corporation is to engage in any lawful act ----- or activity for which a corporation may be organized under the General Corporation Law of Delaware. FOURTH: The Corporation is authorized to issue a total of fourteen ------ million (14,000,000) shares of stock in two classes designated respectively "Preferred Stock" and "Common Stock." The total number of shares of Preferred Stock the Corporation shall have authority to issue is four million (4,000,000), par value one-tenth of one cent ($.001) per share, and the total number of shares of Common Stock the Corporation shall have authority to issue is ten million (10,000,000), par value one-tenth of one cent ($.001) per share. The Corporation's Board of Directors (the "Board") is authorized, subject to any limitations prescribed by law, to provide for the issuance of the shares of Preferred Stock in series, and by filing a certificate pursuant to the applicable law of the state of Delaware, to establish from time to time the number of shares to be included in each such series, and to fix the designation, powers, preferences, and rights of the shares of each such series and any qualifications, limitations or restrictions thereof. The number of authorized shares of any class of capital stock of the Corporation may be increased or 1 decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the outstanding Common Stock of the Corporation, without the approval of the holders of the Preferred Stock, or of any series thereof, unless the approval of any such holders is required pursuant to the certificate or certificates establishing any series of Preferred Stock. FIFTH: A director of this Corporation shall not be personally liable ----- to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. If the Delaware General Corporation Law is hereafter amended to authorize corporate action further eliminating or limiting the personal liability of a director, then the liability of a director of the Corporation, without any further corporate action on the part of the Corporation, shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended. Any repeal or modification of the foregoing provisions of this Article SIXTH by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification. SIXTH: The authorized number of directors initially shall be one (1) ----- and, thereafter, shall be fixed from time to time exclusively by the Board pursuant to a resolution adopted by a majority of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any such resolution is presented to the Board for adoption). The holders of Common Stock will be entitled to elect, voting together as a single group with the holders of any series of Preferred Stock that is entitled to vote with the Common Stock in such election, a majority of the directors (other than any directors who are separately elected by any series of Preferred Stock) (the "Majority Directors"), and holders of Common Stock will be entitled to elect, voting together as a single group with the holders of any series of Preferred Stock that is entitled to vote with the Common Stock in such election, the remaining directors (other than any directors who are separately elected by any series of Preferred Stock) (the "Minority Directors"). In any election of Majority Directors or Minority Directors by the stockholders of the Corporation, each holder of shares of Common Stock shall have one vote per share, and each holder of shares of any series of Preferred Stock that has the right to vote in such election shall be entitled to such number of votes as is set forth in the certificate establishing the powers, preferences and rights of such series. Vacancies and newly-created directorships resulting from any increase in the authorized number of directors shall only be filled by the vote of a 2 majority of directors elected by holders of shares of the class, classes or series of stock of the Corporation entitled to elect directors to such vacant or newly-created directorship. SEVENTH: The Board is expressly empowered to adopt, amend or repeal ------- Bylaws of the Corporation. Any adoption, amendment or repeal of Bylaws of the Corporation by the Board shall require the approval of a majority of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any resolution providing for any such adoption, amendment or repeal is presented to the Board). The stockholders shall also have power to adopt, amend or repeal the Bylaws of the Corporation. EIGHTH: Elections of directors need not be by written ballot. ------ NINTH: This Corporation reserves the right to amend, alter, change or ----- repeal any provision contained in this Restated Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. TENTH: Whenever a compromise or arrangement is proposed between ----- this Corporation and its creditors or any class of them and/or between this Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this Corporation under the provisions of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation under the provisions of Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this Corporation as consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this Corporation, as the case may be, and also on this Corporation. 3 IN WITNESS WHEREOF, this Restated Certificate of Incorporation, which restates, integrates and amends the provisions of the Certificate of Incorporation of the Corporation and which has been duly adopted in accordance with Sections 242 and 245 of the Delaware General Corporation Law, written notice having been given as provided in Section 228 of the Delaware General Corporation Law, has been executed and attested by the undersigned, Roger J. Sippl and Glenn C. Myers, as President and Secretary, respectively, of Very Visual Software, Inc., this ____th day of March, 1993. VERY VISUAL SOFTWARE, INC. By:________________________________ President Attest: By: __________________________________ Secretary 4 - -------------------------------------------------------------------------------- CERTIFICATE OF DESIGNATION Pursuant to Section 151 of the General Corporation Law of the State of Delaware - -------------------------------------------------------------------------------- SERIES A PREFERRED STOCK Very Visual Software, Inc., a Delaware corporation (the "Corporation"), hereby certifies that the following resolution has been duly adopted by the Board of Directors of the Corporation: RESOLVED, that pursuant to the authority expressly granted to and vested in the Board of Directors of the Corporation (the "Board") by the provisions of the Restated Certificate of Incorporation of the Corporation (the "Certificate of Incorporation"), there hereby is created, out of the 4,000,000 shares of Preferred Stock, par value $0.001 per share, of the Corporation authorized in Article FOURTH of the Certificate of Incorporation (the "Preferred Stock"), a series of the Preferred Stock of the Corporation consisting of 1,606,000 shares, which series shall have the following powers, designations, preferences and relative, participating, optional and other rights, and the following qualifications, limitations and restrictions: 1. Designation and Amount. ---------------------- This series of Preferred Stock shall be designated the Series A Preferred Stock (the "Series A Preferred Stock"), and the authorized number of shares constituting such series shall be 1,606,000. The par value of the Series A Preferred Stock shall be $0.001 per share. 2. Dividend Rights of Series A Preferred Stock. Subject to the ------------------------------------------- dividend provisions fixed by the Board for any series of Preferred Stock designated by the Board in the future, the holders of Series A Preferred Stock shall be entitled to receive dividends, out of any assets at the time legally available therefor, when and as declared by the Board. No cash dividends shall be paid on any Common Stock unless at the same time a dividend is paid with respect to all outstanding shares of Series A Preferred Stock in an amount for each such share of Series A Preferred Stock equal to the aggregate amount of such dividends payable on that number of shares of Common Stock into which each such share of Series A Preferred Stock could then be converted. 1 2 3. Preference on Liquidation. ------------------------- Subject to the liquidation preferences of any series of Preferred Stock other than the Series A Preferred Stock, including, without limitation, any liquidation preference prior to any liquidation preference set forth in this Section 2, in the event of any liquidation, dissolution or winding up of the Corporation, distributions to holders of Series A Preferred Stock and holders of Common Stock shall be made in the following manner: (a) The holders of Series A Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of the Corporation to the holders of the Common Stock by reason of their ownership of such stock, the amount of $1.20 per share for each share of Series A Preferred Stock then held by them, adjusted for any stock split, stock combination, stock distribution or stock dividend with respect to such shares. If the assets and funds available for distribution among the holders of Series A Preferred Stock and among the holders of any series of Preferred Stock ranking on a parity with the Series A Preferred Stock with respect to this subsection (a) of Section 2 as to the distribution of assets and funds upon such dissolution, liquidation or winding up shall be insufficient to permit the payment to such holders of their full liquidation payments, then the entire assets and funds of the Corporation legally available for such distribution shall be distributed ratably among such holders in proportion to their aggregate preferential amounts. (b) After payment in full to the holders of Series A Preferred Stock of all amounts exclusively payable on or with respect to said shares pursuant to subsection (a) of this Section 3, the holders of the Common Stock shall be entitled to receive, prior and in preference to any further distribution of any of the assets of the Corporation to its stockholders, the amount of $1.20 per share for each share of Common Stock then held by them, adjusted for any stock split, stock combination, stock distribution or stock dividend with respect to such shares. If the assets and funds available for distribution among the holders of the Common Stock and among the holders of any series of Preferred Stock ranking on a parity with the Common Stock with respect to this subsection (b) of Section 2 as to the distribution of assets upon such dissolution, liquidation or winding up shall be insufficient to permit the payment to such holders of their full liquidation payments, then the entire remaining assets and funds of the Corporation legally available for such distribution shall be distributed ratably among such holders in proportion to their aggregate preferential amounts. (c) After payment in full to the holders of Common Stock of all amounts exclusively payable on or with 3 respect to said shares pursuant to subsection (b) of this Section 3, the remaining assets of the Corporation, if any, shall be distributed ratably among the holders of Series A Preferred Stock, among the holders of Common Stock and among the holders of any series of Preferred Stock ranking on a parity with the Series A Preferred Stock and Common Stock with respect to this subsection (c) of Section 2 as to the distribution of assets upon dissolution, liquidation or winding up, on an "as converted" basis. For purposes of determining distributions under this Section 3(c), the term "as converted" shall mean that Series A Preferred Stock and any Liquidation Parity Stock shall be deemed to have been converted into Common Stock at the Conversion Price in effect for Series A Preferred Stock and the conversion price in effect for any Liquidation Parity Stock, respectively, on the record date for such distribution. 4. Redemption. ---------- (a) At any time and from time to time after March 31, 1994, the Corporation may, at the option of the Board, and out of assets at the time legally available therefor, redeem all or part (selected pro rata from among all of the shares of Series A Preferred Stock) of the outstanding shares of Series A Preferred Stock at the redemption price set forth in Section 4(b) below, provided that the Corporation shall give written notice by mail, postage prepaid, to the holders of the Series A Preferred Stock to be redeemed at least twenty (20) days prior to the date specified for redemption (a "Redemption Date"). The notice shall further call upon such holders to surrender to the Corporation on or before the Redemption Date at the place designated in the notice such holder's certificate or certificates representing the shares to be redeemed and shall state that, in lieu of redemption, a holder may, prior to the Redemption Date, convert its Series A Preferred Stock into Common Stock in accordance with Section 6 below. On or after the Redemption Date, each holder of shares of Series A Preferred Stock called for redemption shall surrender the certificate evidencing such shares to the Corporation, except that such number of shares shall be reduced by the number of shares which have been converted into Common Stock between the date of notice and the Redemption Date, at the place designated in such notice and shall thereupon be entitled to receive payment of the Redemption Price. (b) The Series A Preferred Stock may be redeemed at a cash price equal to $1.20 per share, adjusted for any stock split, stock combination, stock distribution or stock dividend with respect to such shares. (c) From and after the Redemption Date, unless there shall have been a default in payment of the Redemption Price, all rights of the holders with respect to such redeemed shares of Series A Preferred Stock (except the right to receive the 4 Redemption Price without interest upon surrender of their certificate) shall cease and such shares shall not thereafter be transferred on the books of this Corporation or be deemed to be outstanding for any purpose whatsoever. (d) If the funds of the Corporation legally available for redemption of shares of Series A Preferred Stock on the Redemption Date are insufficient to redeem the total number of shares of Series A Preferred Stock to be redeemed, the Corporation shall use those funds which are legally available to redeem the maximum possible number of such shares ratably among the holders of such shares to be redeemed. The shares of Series A Preferred Stock not redeemed shall remain outstanding and entitled to all the rights and preferences provided herein. 5. Voting. ------ Except as otherwise required by law, and except as otherwise provided in the last sentence of Article FOURTH of the Certificate of Incorporation and in Article SIXTH of the Certificate of Incorporation, the shares of Series A Preferred Stock shall be voted together with the Common Stock at any annual or special meeting of the stockholders of the Corporation, or may act by written consent in the same manner as the Common Stock, and shall have the voting rights and powers equal to the voting rights of the Common Stock, upon the following basis: each holder of shares of Series A Preferred Stock shall be entitled to such number of votes for the shares of Series A Preferred Stock held by him on the record date for such meeting or action to be taken by written consent, as shall be equal to the nearest whole number of shares of the Common Stock into which such holder's shares of Series A Preferred Stock are convertible immediately after the close of business on the record date for such meeting or action to be taken by written consent, as the case may be. Holders of Series A Preferred Stock will be entitled to vote on such basis with holders of Common Stock in the election of the Minority Directors pursuant to Article SIXTH of the Certificate of Incorporation. 6. Conversion Rights. The holders of Series A Preferred Stock shall ----------------- have conversion rights as follows: (a) Each share of Series A Preferred Stock shall be convertible, at the option of the holder thereof, at any time at the principal office of the Corporation or any transfer agent for such shares, into fully paid and nonassessable shares of Common Stock of the Corporation. The number of shares of Common Stock into which each share of Series A Preferred Stock may be converted shall be determined by dividing $1.20 by the Conversion Price determined as hereinafter provided in effect at the time of the conversion. The Conversion Price per share at which shares of Common Stock shall be initially issuable upon conversion of 5 any shares of Series A Preferred Stock shall be $1.20, subject to adjustment as provided herein. (b) Each share of Series A Preferred Stock shall be converted into Common Stock automatically in the manner provided herein upon the earlier to occur of (i) the time holders of a majority of the outstanding shares of all series of Preferred Stock which are subject to conversion upon the written consent of holders of a majority of all outstanding shares of Preferred Stock consent in writing to the conversion of all such outstanding Preferred Stock, or (ii) immediately prior to the closing of the sale of securities of the Corporation pursuant to a firm commitment underwritten public offering registered with the Securities and Exchange Commission, other than on Form S-4, or Form S-18, or any successor form thereto, with a public offering price of not less than $2.00 per share (adjusted to reflect subsequent stock dividends, stock splits, recapitalization and the like) and with aggregate gross proceeds of not less than $5,000,000. (c) The holder of any shares of Series A Preferred Stock may exercise the conversion right specified in Section 6(a) by surrendering to the Corporation or any transfer agent of the Corporation the certificate or certificates for the shares to be converted, accompanied by written notice specifying the number of shares to be converted. Upon the occurrence of any event specified in Section 6(b), the outstanding shares of Series A Preferred Stock shall be converted automatically without any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the Corporation or its transfer agent; provided that the Corporation shall not be obligated to issue to any holder certificates evidencing the shares of Common Stock issuable upon such conversion unless certificates evidencing such shares of Series A Preferred Stock are delivered either to the Corporation or any transfer agent of the Corporation. Conversion shall be deemed to have been effected on the date when delivery of notice of an election to convert and of certificates for shares being converted is made or on the date of the occurrence of any event specified in Section 6(b), as the case may be, and such date is referred to herein as the "Conversion Date." As promptly as practicable thereafter (and after surrender of the certificate or certificates representing shares of Series A Preferred Stock to the Corporation or any transfer agent of the Corporation in the case of conversions pursuant to Section 6(b)) the Corporation shall issue and deliver to such holder a certificate or certificates for the number of full shares of Common Stock to which such holder is entitled. No fractional shares of Common Stock shall be issued by the Corporation and all such fractional shares shall be disregarded. In lieu thereof, the Corporation shall pay in cash the fair market value of any such fractional share as determined by the Board. The person in whose name the 6 certificate or certificates for Common Stock are to be issued shall be deemed to have become a holder of record of such Common Stock on the applicable Conversion Date. Upon conversion of only a portion of the number of shares covered by a certificate representing shares of Series A Preferred Stock surrendered for conversion (in the case of conversion pursuant to Section 6(a)), the Corporation shall issue and deliver to or upon the written order of the holder of the certificate so surrendered for conversion, at the expense of the Corporation, a new certificate covering the number of shares of Series A Preferred Stock representing the unconverted portion of the certificate so surrendered. (d) In case the Corporation shall at any time (i) subdivide the outstanding Common Stock, or (ii) issue a stock dividend on its outstanding Common Stock, the number of shares of Common Stock issuable upon conversion of Series A Preferred Stock immediately prior to such subdivision or the issuance of such stock dividend shall be proportionately increased by the same ratio as the subdivision or dividend (with appropriate adjustments in the Conversion Price of Series A Preferred Stock). In case the Corporation shall at any time combine its outstanding Common Stock, the number of shares of Common Stock issuable upon conversion of Series A Preferred Stock immediately prior to such combination shall be proportionately decreased by the same ratio as the combination (with appropriate adjustments in the Conversion Price of Series A Preferred Stock). All such adjustments described herein shall be effective at the close of business on the date of such subdivision, stock dividend or combination, as the case may be. (e) In case of any merger (other than a merger in which the Corporation is not the continuing or surviving entity) or any reclassification of the Common Stock of the Corporation, each share of the Series A Preferred Stock shall thereafter be convertible into that number of shares of stock or other securities or property to which a holder of the number of shares of Common Stock issuable upon conversion of a share of Series A Preferred Stock immediately prior to such merger or reclassification would have been entitled upon such merger or reclassification. In any such case, appropriate adjustment (as determined by the Board) shall be made in the application of the provisions herein set forth with respect to the rights and interests thereafter of the holders of Series A Preferred Stock, such that the provisions set forth herein shall thereafter be applicable, as nearly as reasonably may be, in relation to any share of stock or other property thereafter issuable upon conversion. (f) The Corporation shall at all times reserve and keep available, out of its authorized but unissued Common Stock, solely for the purpose of effecting the conversion of 7 Series A Preferred Stock, the full number of shares of Common Stock deliverable upon the conversion of all Series A Preferred Stock from time to time outstanding. The Corporation shall from time to time (subject to obtaining necessary director and stockholder authorizations), in accordance with the laws of the State of Delaware, increase the authorized amount of its Common Stock if at any time the authorized number of shares of Common Stock remaining unissued shall not be sufficient to permit the conversion of all of the shares of Series A Preferred Stock at the time outstanding. (g) Upon any conversion of Series A Preferred Stock pursuant to this Section 6, the shares of Series A Preferred Stock which are converted shall not be reissued. Upon conversion of all of the then outstanding Series A Preferred Stock pursuant to this Section 6 and upon the taking of any action required by law, all matters set forth in this Certificate of Designation shall be eliminated from the Certificate of Incorporation, shares of Series A Preferred Stock shall not be deemed outstanding for any purpose whatsoever and all such shares shall revert to the status of authorized and unissued shares of Preferred Stock. (h) Upon the occurrence of each adjustment or readjustment of the Conversion Price for Series A Preferred Stock pursuant to this Section 6, the Corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of Series A Preferred Stock a certificate setting forth such adjustment or readjustment showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon the reasonable written request at any time of any holder of Series A Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustments and readjustments, and (ii) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of Series A Preferred Stock. (i) Any notices required by the provisions of this Section 6 to be given to the holders of shares of Series A Preferred Stock shall be deemed given if deposited in the United States mail, first class, postage prepaid and addressed to each holder of record at its address appearing on the books of the Corporation. IN WITNESS WHEREOF, the Corporation has caused this Certificate of Designation to be signed by its President, and attested by its Secretary, this ______ day of March, 1993. VERY VISUAL SOFTWARE, INC. 8 By:_____________________________________ President Attest: By: __________________________________ Corporate Secretary 9 ----------------------------------- CERTIFICATE OF AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION OF VERY VISUAL SOFTWARE, INC. ----------------------------------- Very Visual Software, Inc., a Delaware corporation (the "Corporation"), hereby certifies: 1. That the Corporation's Board of Directors has duly adopted the following resolutions: RESOLVED, that Article First of the Restated Certificate of Incorporation is hereby amended to read in full as follows: FIRST: The name of the Corporation is Visigenic Software, Inc. ----- (hereinafter sometimes referred to as the "Corporation"). RESOLVED, that Section 3 of the Certificate of Designation of Series A Preferred Stock filed on March 31, 1993 in the office of the Secretary of State of the State of Delaware is hereby amended to read in full as follows: Subject to the liquidation preferences of any series of Preferred Stock other than the Series A Preferred Stock, including, without limitation, any liquidation preference that provides for payments to any series of Preferred Stock or the Common Stock prior to or on a parity with any payment to holders of the Series A Preferred Stock provided for below (including any preferences that provide for additional parity or non-parity payments to the holders of the Series A Preferred Stock), in the event of any liquidation, dissolution or winding up of the Corporation, distributions to holders of Series A Preferred Stock and holders of Common Stock shall be made in the following manner: (a) The holders of Series A Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of the Corporation to the holders of the Common Stock by reason of their ownership of such stock, the amount of $1.20 per share for each share of Series A Preferred Stock then held by them, adjusted for any stock split, stock combination, stock distribution or stock dividend with respect to such CERTIFICATE OF AMENDMENT 1 OF RESTATED CERTIFICATE OF INCORPORATION shares. If the assets and funds available for distribution among the holders of Series A Preferred Stock and among the holders of any series of Preferred Stock ranking on a parity with the Series A Preferred Stock with respect to this subsection (a) of Section 3 as to the distribution of assets and funds upon such dissolution, liquidation or winding up shall be insufficient to permit the payment to such holders of their full liquidation payments, then the entire assets and funds of the Corporation legally available for such distribution shall be distributed ratably among such holders in proportion to their aggregate preferential amounts. (b) After payment in full to the holders of Series A Preferred Stock of all amounts exclusively payable on or with respect to said shares pursuant to subsection (a) of this Section 3, the holders of the Common Stock shall be entitled to receive, prior and in preference to any further distribution of any of the assets of the Corporation to its stockholders, the amount of $1.20 per share for each share of Common Stock then held by them, adjusted for any stock split, stock combination, stock distribution or stock dividend with respect to such shares. If the assets and funds available for distribution among the holders of the Common Stock and among the holders of any series of Preferred Stock ranking on a parity with the Common Stock with respect to this subsection (b) of Section 3 as to the distribution of assets upon such dissolution, liquidation or winding up shall be insufficient to permit the payment to such holders of their full liquidation payments, then the entire remaining assets and funds of the Corporation legally available for such distribution shall be distributed ratably among such holders in proportion to their aggregate preferential amounts. (c) After payment in full to the holders of Common Stock of all amounts exclusively payable on or with respect to said shares pursuant to subsection (b) of this Section 3, the remaining assets of the Corporation, if any, shall be distributed ratably among the holders of Series A Preferred Stock, among the holders of Common Stock and among the holders of any series of Preferred Stock ranking on a parity with the Series A Preferred Stock and Common Stock with respect to this subsection (c) of Section 3 as to the distribution of assets upon dissolution, liquidation or winding up, on an "as converted" basis. As used in this Certificate, the term "as converted" shall mean that Series A Preferred Stock and all other series of Preferred Stock entitled to payment under this Section 3(c) shall be deemed to have been converted into Common Stock at the Conversion Price in effect for Series A Preferred Stock and the conversion prices in effect for all such other series of Preferred Stock, respectively, on the record date for such distribution. CERTIFICATE OF AMENDMENT 2 OF RESTATED CERTIFICATE OF INCORPORATION RESOLVED FURTHER, that Section 5 of the Certificate of Designation of Series A Preferred Stock filed on March 31, 1993 in the office of the Secretary of State of the State of Delaware is hereby amended to add the following paragraph at the end of such section: The Corporation shall not, without the consent of the holders of a majority of the outstanding shares of Series A Preferred Stock and any other series of Preferred Stock granted similar voting rights, voting together as a single class on an as converted basis, merge or consolidate with or into any other corporation or entity in any merger or consolidation in which the Common Stock is converted into cash or other consideration unless each share of Series A Preferred Stock and each share of such other series of Preferred Stock is converted into cash or other consideration equal to the greater of (1) the aggregate amount of such cash or other consideration payable on such shares in connection with a liquidation, dissolution or winding up of the Corporation (excluding any amount payable on a parity with the Common Stock on an as converted basis) or (2) the amount that would be payable on such shares on a liquidation, dissolution or winding up of the Corporation immediately prior to such merger or consolidation. 2. That the proposed amendment has been duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware and that notice of the taking of such action by written consent has been given as provided in Section 228 of the General Corporation Law of the State of Delaware. The Corporation has caused this Certificate of Amendment of Restated Certificate of Incorporation to be signed by Glenn C. Myers, its Vice President, and attested by George H. Hohnsbeen II, its Assistant Secretary, this ______ day of December 1993. VERY VISUAL SOFTWARE, INC. By:__________________________________ Vice President of Finance Attest: By: ____________________________________________ Corporate Assistant Secretary CERTIFICATE OF AMENDMENT 3 OF RESTATED CERTIFICATE OF INCORPORATION ---------------------------------------------- CERTIFICATE OF DESIGNATION OF VISIGENIC SOFTWARE, INC. Pursuant to Section 151 of the General Corporation Law of the State of Delaware ---------------------------------------------- SERIES B PREFERRED STOCK Visigenic Software, Inc., a Delaware corporation (the "Corporation"), formerly known as Very Visual Software, Inc., hereby certifies that the following resolution has been duly adopted by the Board of Directors of the Corporation: RESOLVED, that pursuant to the authority expressly granted to and vested in the Board of Directors of the Corporation (the "Board") by the provisions of the Restated Certificate of Incorporation of the Corporation (the "Certificate of Incorporation"), there hereby is created, out of the 4,000,000 shares of Preferred Stock, par value $0.001 per share, of the Corporation authorized in Article FOURTH of the Certificate of Incorporation (the "Preferred Stock"), a series of the Preferred Stock of the Corporation consisting of 1,750,000 shares, which series shall have the following powers, designations, preferences and relative, participating, optional and other rights, and the following qualifications, limitations and restrictions: 1. Designation and Amount. ---------------------- This series of Preferred Stock shall be designated the Series B Preferred Stock (the "Series B Preferred Stock"), and the authorized number of shares constituting such series shall be 1,750,000. The par value of the Series B Preferred Stock shall be $0.001 per share. 2. Dividend Rights of Series A Preferred Stock. Subject to the ------------------------------------------- dividend provisions fixed by the Board for any series of Preferred Stock designated by the Board in the future, the holders of Series B Preferred Stock shall be entitled to receive dividends, out of any assets at the time legally available therefor, when and as declared by the Board. No cash dividends shall be paid on any Common Stock or Series A Preferred Stock of the Corporation (the "Series A Preferred Stock") unless at the same time a dividend is paid with respect to all outstanding shares of Series B Preferred Stock in an amount for each such share of Series B Preferred Stock equal to the aggregate amount of such dividends payable on that number of shares of Common Stock into which each such share of Series B Preferred Stock could then be converted. 1 CERTIFICATE OF DESIGNATION 3. Preference on Liquidation. ------------------------- Subject to the liquidation preferences of any series of Preferred Stock other than the Series B Preferred Stock, including, without limitation, any liquidation preference that provides for payments to any series of Preferred Stock or the Common Stock prior to or on a parity with any payment to holders of the Series B Preferred Stock provided for below (including any preferences that provide for additional parity or non-parity payments to the holders of the Series B Preferred Stock), in the event of any liquidation, dissolution or winding up of the Corporation, distributions to holders of Series B Preferred Stock, holders of Series A Preferred Stock and holders of Common Stock shall be made in the following manner: (a) The holders of Series B Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of the Corporation to the holders of the Common Stock by reason of their ownership of such stock, the amount of $2.00 per share for each share of Series B Preferred Stock then held by them, adjusted for any stock split, stock combination, stock distribution or stock dividend with respect to such shares. The Series B Preferred Stock shall rank on a parity with the Series A Preferred Stock with respect to subsection (a) of Section 3 of the Certificate of Designation of Series A Preferred Stock filed March 31, 1993, as amended (the "Series A Certificate"), as to the distribution of assets and funds upon dissolution, liquidation or winding up of the Corporation, with the effect stated in said subsection (a). (b) After payment in full to (i) the holders of Series B Preferred Stock of all amounts exclusively payable on or with respect to said shares pursuant to subsection (a) of this Section 3, (ii) the holders of Series A Preferred Stock of all amounts exclusively payable on or with respect to said shares pursuant to subsection (a) of Section 3 of the Series A Certificate, and (iii) the holders of Common Stock of all amounts exclusively payable on or with respect to said shares pursuant to subsection (b) of Section 3 of the Series A Certificate, the holders of the Series A Preferred Stock and the holders of the Common Stock shall be entitled to receive, prior and in preference to any further distribution of any of the assets of the Corporation to its stockholders, the amount of $0.80 per share for each share of such stock then held by them, adjusted for any stock split, stock combination, stock distribution or stock dividend with respect to such shares. If the assets and funds available for distribution among the holders of the Common Stock and among the holders of any series of Preferred Stock ranking on a parity with the Common Stock with respect to this subsection (b) of Section 3 as to the distribution of assets upon such dissolution, liquidation or winding up shall be insufficient to permit the payment to such holders of their full liquidation payments, then the entire remaining assets and funds of the Corporation legally available for such distribution shall be distributed ratably among such holders in proportion to their aggregate preferential amounts. (c) The Series B Preferred Stock shall rank on a parity with the Series A Preferred Stock and the Common Stock with respect to subsection (c) of Section 3 of the Series A Certificate, as to the distribution of remaining assets upon 2 CERTIFICATE OF DESIGNATION dissolution, liquidation or winding up of the Corporation, with the effect stated in said subsection (c). 4. Redemption. ---------- (a) At any time and from time to time after December 17, 1994, the Corporation may, at the option of the Board, and out of assets at the time legally available therefor, redeem all or part (selected pro rata from among all of the shares of Series B Preferred Stock) of the outstanding shares of Series B Preferred Stock at the redemption price set forth in Section 4(b) below, provided that the Corporation shall give written notice by mail, postage prepaid, to the holders of the Series B Preferred Stock to be redeemed at least twenty (20) days prior to the date specified for redemption (a "Redemption Date"). The notice shall further call upon such holders to surrender to the Corporation on or before the Redemption Date at the place designated in the notice such holder's certificate or certificates representing the shares to be redeemed and shall state that, in lieu of redemption, a holder may, prior to the Redemption Date, convert its Series B Preferred Stock into Common Stock in accordance with Section 6 below. On or after the Redemption Date, each holder of shares of Series B Preferred Stock called for redemption shall surrender the certificate evidencing such shares to the Corporation, except that such number of shares shall be reduced by the number of shares which have been converted into Common Stock between the date of notice and the Redemption Date, at the place designated in such notice and shall thereupon be entitled to receive payment of the Redemption Price. (b) The Series B Preferred Stock may be redeemed at a cash price equal to $2.00 per share, adjusted for any stock split, stock combination, stock distribution or stock dividend with respect to such shares. (c) From and after the Redemption Date, unless there shall have been a default in payment of the Redemption Price, all rights of the holders with respect to such redeemed shares of Series B Preferred Stock (except the right to receive the Redemption Price without interest upon surrender of their certificate) shall cease and such shares shall not thereafter be transferred on the books of this Corporation or be deemed to be outstanding for any purpose whatsoever. (d) If the funds of the Corporation legally available for redemption of shares of Series B Preferred Stock on the Redemption Date are insufficient to redeem the total number of shares of Series B Preferred Stock to be redeemed, the Corporation shall use those funds which are legally available to redeem the maximum possible number of such shares ratably among the holders of such shares to be redeemed. The shares of Series B Preferred Stock not redeemed shall remain outstanding and entitled to all the rights and preferences provided herein. 5. Voting. ------ (a) Except as otherwise required by law, and except as otherwise provided in the last sentence of Article FOURTH of the Certificate of Incorporation and in Article 3 CERTIFICATE OF DESIGNATION SIXTH of the Certificate of Incorporation, the shares of Series B Preferred Stock shall be voted together with the Common Stock at any annual or special meeting of the stockholders of the Corporation, or may act by written consent in the same manner as the Common Stock, and shall have the voting rights and powers equal to the voting rights of the Common Stock, upon the following basis: each holder of shares of Series B Preferred Stock shall be entitled to such number of votes for the shares of Series B Preferred Stock held by him on the record date for such meeting or action to be taken by written consent, as shall be equal to the nearest whole number of shares of the Common Stock into which such holder's shares of Series B Preferred Stock are convertible immediately after the close of business on the record date for such meeting or action to be taken by written consent, as the case may be. Holders of Series B Preferred Stock will be entitled to vote on such basis with holders of Common Stock in the election of the Minority Directors pursuant to Article SIXTH of the Certificate of Incorporation. (b) The Corporation shall not, without the consent of the holders of a majority of the outstanding shares of Series B Preferred Stock and any other series of Preferred Stock granted similar voting rights, voting together as a single class on an as converted basis, merge or consolidate with or into any other corporation or entity in any merger or consolidation in which the Common Stock is converted into cash or other consideration unless each share of Series B Preferred Stock and each share of such other series of Preferred Stock is converted into cash or other consideration equal to the greater of (1) the aggregate amount of such cash or other consideration payable on such shares in connection with a liquidation, dissolution or winding up of the Corporation (excluding any amount payable on a parity with the Common Stock on an as converted basis) or (2) the amount that would be payable on such shares on a liquidation, dissolution or winding up of the Corporation immediately prior to such merger or consolidation. 6. Conversion Rights. The holders of Series B Preferred Stock shall ----------------- have conversion rights as follows: (a) Each share of Series B Preferred Stock shall be convertible, at the option of the holder thereof, at any time at the principal office of the Corporation or any transfer agent for such shares, into fully paid and nonassessable shares of Common Stock of the Corporation. The number of shares of Common Stock into which each share of Series B Preferred Stock may be converted shall be determined by dividing $2.00 by the Conversion Price determined as hereinafter provided in effect at the time of the conversion. The Conversion Price per share at which shares of Common Stock shall be initially issuable upon conversion of any shares of Series B Preferred Stock shall be $2.00, subject to adjustment as provided herein. (b) Each share of Series B Preferred Stock shall be converted into Common Stock automatically in the manner provided herein upon the earlier to occur of (i) the time holders of a majority of the outstanding shares of all series of Preferred Stock which are subject to conversion upon the written consent of holders of a majority of all outstanding shares of Preferred Stock consent in writing to the conversion of all such outstanding Preferred Stock, or (ii) immediately prior to the closing of the sale 4 CERTIFICATE OF DESIGNATION of securities of the Corporation pursuant to a firm commitment underwritten public offering registered with the Securities and Exchange Commission, other than on Form S-4, or Form S-18, or any successor form thereto, with a public offering price of not less than $3.33 per share (adjusted to reflect subsequent stock dividends, stock splits, recapitalization and the like) and with aggregate gross proceeds of not less than $5,000,000. (c) The holder of any shares of Series B Preferred Stock may exercise the conversion right specified in Section 6(a) by surrendering to the Corporation or any transfer agent of the Corporation the certificate or certificates for the shares to be converted, accompanied by written notice specifying the number of shares to be converted. Upon the occurrence of any event specified in Section 6(b), the outstanding shares of Series B Preferred Stock shall be converted automatically without any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the Corporation or its transfer agent; provided that the Corporation shall not be obligated to issue to any holder certificates evidencing the shares of Common Stock issuable upon such conversion unless certificates evidencing such shares of Series B Preferred Stock are delivered either to the Corporation or any transfer agent of the Corporation. Conversion shall be deemed to have been effected on the date when delivery of notice of an election to convert and of certificates for shares being converted is made or on the date of the occurrence of any event specified in Section 6(b), as the case may be, and such date is referred to herein as the "Conversion Date." As promptly as practicable thereafter (and after surrender of the certificate or certificates representing shares of Series B Preferred Stock to the Corporation or any transfer agent of the Corporation in the case of conversions pursuant to Section 6(b)) the Corporation shall issue and deliver to such holder a certificate or certificates for the number of full shares of Common Stock to which such holder is entitled. No fractional shares of Common Stock shall be issued by the Corporation and all such fractional shares shall be disregarded. In lieu thereof, the Corporation shall pay in cash the fair market value of any such fractional share as determined by the Board. The person in whose name the certificate or certificates for Common Stock are to be issued shall be deemed to have become a holder of record of such Common Stock on the applicable Conversion Date. Upon conversion of only a portion of the number of shares covered by a certificate representing shares of Series B Preferred Stock surrendered for conversion (in the case of conversion pursuant to Section 6(a)), the Corporation shall issue and deliver to or upon the written order of the holder of the certificate so surrendered for conversion, at the expense of the Corporation, a new certificate covering the number of shares of Series B Preferred Stock representing the unconverted portion of the certificate so surrendered. (d) In case the Corporation shall at any time (i) subdivide the outstanding Common Stock, or (ii) issue a stock dividend on its outstanding Common Stock, the number of shares of Common Stock issuable upon conversion of Series B Preferred Stock immediately prior to such subdivision or the issuance of such stock dividend shall be proportionately increased by the same ratio as the subdivision or dividend (with appropriate adjustments in the Conversion Price of Series B Preferred Stock). In case the Corporation shall at any time combine its outstanding Common 5 CERTIFICATE OF DESIGNATION Stock, the number of shares of Common Stock issuable upon conversion of Series B Preferred Stock immediately prior to such combination shall be proportionately decreased by the same ratio as the combination (with appropriate adjustments in the Conversion Price of Series B Preferred Stock). All such adjustments described herein shall be effective at the close of business on the date of such subdivision, stock dividend or combination, as the case may be. (e) In case of any merger (other than a merger in which the Corporation is not the continuing or surviving entity) or any reclassification of the Common Stock of the Corporation, each share of the Series B Preferred Stock shall thereafter be convertible into that number of shares of stock or other securities or property to which a holder of the number of shares of Common Stock issuable upon conversion of a share of Series B Preferred Stock immediately prior to such merger or reclassification would have been entitled upon such merger or reclassification. In any such case, appropriate adjustment (as determined by the Board) shall be made in the application of the provisions herein set forth with respect to the rights and interests thereafter of the holders of Series B Preferred Stock, such that the provisions set forth herein shall thereafter be applicable, as nearly as reasonably may be, in relation to any share of stock or other property thereafter issuable upon conversion. (f) The Corporation shall at all times reserve and keep available, out of its authorized but unissued Common Stock, solely for the purpose of effecting the conversion of Series B Preferred Stock, the full number of shares of Common Stock deliverable upon the conversion of all Series B Preferred Stock from time to time outstanding. The Corporation shall from time to time (subject to obtaining necessary director and stockholder authorizations), in accordance with the laws of the State of Delaware, increase the authorized amount of its Common Stock if at any time the authorized number of shares of Common Stock remaining unissued shall not be sufficient to permit the conversion of all of the shares of Series B Preferred Stock at the time outstanding. (g) Upon any conversion of Series B Preferred Stock pursuant to this Section 6, the shares of Series B Preferred Stock which are converted shall not be reissued. Upon conversion of all of the then outstanding Series B Preferred Stock pursuant to this Section 6 and upon the taking of any action required by law, all matters set forth in this Certificate of Designation shall be eliminated from the Certificate of Incorporation, shares of Series B Preferred Stock shall not be deemed outstanding for any purpose whatsoever and all such shares shall revert to the status of authorized and unissued shares of Preferred Stock. (h) Upon the occurrence of each adjustment or readjustment of the Conversion Price for Series B Preferred Stock pursuant to this Section 6, the Corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of Series B Preferred Stock a certificate setting forth such adjustment or readjustment showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon the reasonable written request at any time of any holder of Series B 6 CERTIFICATE OF DESIGNATION Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustments and readjustments, and (ii) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of Series B Preferred Stock. (i) Any notices required by the provisions of this Section 6 to be given to the holders of shares of Series B Preferred Stock shall be deemed given if deposited in the United States mail, first class, postage prepaid and addressed to each holder of record at its address appearing on the books of the Corporation. IN WITNESS WHEREOF, the Corporation has caused this Certificate of Designation to be signed by its Vice President, and attested by its Assistant Secretary, this ______ day of December, 1993. VISIGENIC SOFTWARE, INC. By:__________________________________ Glenn C. Myers, Vice President of Finance Attest: By: __________________________________ George H. Hohnsbeen II Corporate Assistant Secretary 7 CERTIFICATE OF DESIGNATION - -------------------------------------------------------------------------------- CERTIFICATE OF AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION OF VISIGENIC SOFTWARE, INC. - -------------------------------------------------------------------------------- Visigenic Software, Inc., a Delaware corporation (the "Corporation"), hereby certifies: 1. That the Corporation's Board of Directors has duly adopted the following resolutions: RESOLVED, that the first paragraph of Article FOURTH of the Restated ------ Certificate of Incorporation is hereby amended to read in full as follows: FOURTH: The Corporation is authorized to issue a total of fifteen ------ million (15,000,000) shares of stock in two classes designated respectively "Preferred Stock" and "Common Stock." The total number of shares of Preferred Stock the Corporation shall have authority to issue is five million (5,000,000), par value one-tenth of one cent ($.001) per share, and the total number of shares of Common Stock the Corporation shall have authority to issue is ten million (10,000,000), par value one-tenth of one cent ($.001) per share. 2. That the proposed amendment has been duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware and that notice of the taking of such action by written consent has been given as provided in Section 228 of the General Corporation Law of the State of Delaware. The Corporation has caused this Certificate of Amendment of Restated Certificate of Incorporation to be signed by Roger J. Sippl, its President, and attested by Glenn C. Myers, its Secretary, this ______ day of April 1994. VISIGENIC SOFTWARE, INC. By:________________________________ President Attest: By: _____________________________________________ Corporate Secretary CERTIFICATE OF AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION --------------------------------------------- CERTIFICATE OF INCREASE OF SERIES B PREFERRED STOCK --------------------------------------------- Visigenic Software, Inc., a Delaware corporation (the "Corporation"), hereby certifies: 1. That the Restated Certificate of Incorporation of the Corporation was filed in the office of the Secretary of State of Delaware on March 30, 1993, and a Certificate of Designation of the Corporation's Series B Preferred Stock, $0.001 par value per share (the "Series B Preferred Stock"), which designated 1,750,000 shares of the Corporation's class of Preferred Stock, $0.001 par value per share, as Series B Preferred Stock, was filed in said office of the Secretary of State on December 17, 1993. 2. That the Board of Directors of the Corporation duly adopted a resolution authorizing and directing an increase in the authorized number of shares of Series B Preferred Stock from 1,750,000 shares to 3,000,000 shares, in accordance with the provisions of Section 151 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, the Corporation has caused this Certificate of Increase to be signed by Roger J. Sippl, its President, and attested by Glenn C. Myers, its Secretary, this ______ day of April 1994. VISIGENIC SOFTWARE, INC. By:__________________________________ President Attest: By: __________________________________ Corporate Secretary CERTIFICATE OF INCREASE 1 OF SERIES B PREFERRED STOCK ----------------------------- CERTIFICATE OF INCREASE OF SERIES B PREFERRED STOCK ----------------------------- Visigenic Software, Inc., a Delaware corporation (the "Corporation"), hereby certifies: 1. That the Restated Certificate of Incorporation of the Corporation was filed in the office of the Secretary of State of Delaware on March 30, 1993 (the "Restated Certificate"); a Certificate of Designation of the Corporation's Series B Preferred Stock, $0.001 par value per share (the "Series B Preferred Stock"), which designated 1,750,000 shares of the Corporation's class of Preferred Stock, $0.001 par value per share, as Series B Preferred Stock, was filed in said office of the Secretary of State on December 17, 1993; a Certificate of Amendment of the Restated Certificate, which increased the authorized numbers of shares of Preferred Stock of the Corporation to 5,000,000 was filed in said office of the Secretary of State on April 28, 1994; and a Certificate of Increase of Series B Preferred Stock, which increased the authorized number of shares of Series B Preferred Stock to 3,000,000 shares was filed in said office of the Secretary of State on April 28, 1994. 2. That the Board of Directors of the Corporation duly adopted a resolution authorizing and directing an increase in the authorized number of shares of Series B Preferred Stock from 3,000,000 shares to 6,000,000 shares, in accordance with the provisions of Section 151 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, the Corporation has caused this Certificate of Increase to be signed by George H. Hohnsbeen II, its Assistant Secretary, this ______ day of May 1995. VISIGENIC SOFTWARE, INC. By: --------------------------------------- Assistant Secretary CERTIFICATE OF INCREASE 1 OF SERIES B PREFERRED STOCK ------------------------ CERTIFICATE OF AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION OF VISIGENIC SOFTWARE, INC. ------------------------ Visigenic Software, Inc., a Delaware corporation (the "Corporation"), hereby certifies: 1. That the Corporation's Board of Directors has duly adopted the following resolutions: RESOLVED, that the first paragraph of Article FOURTH of the Restated ------ Certificate of Incorporation is hereby amended to read in full as follows: FOURTH: The Corporation is authorized to issue a total of twenty-four ------ million (24,000,000) shares of stock in two classes designated respectively "Preferred Stock" and "Common Stock." The total number of shares of Preferred Stock the Corporation shall have authority to issue is eight million (8,000,000), par value one-tenth of one cent ($.001) per share, and the total number of shares of Common Stock the Corporation shall have authority to issue is sixteen million (16,000,000), par value one-tenth of one cent ($.001) per share. RESOLVED FURTHER, that the Restated Certificate of Incorporation is hereby amended to delete section 4. (entitled "Redemption") from the Certificate of Designation of Series A Preferred Stock filed in the office of the Secretary of State of the State of Delaware on March 31, 1993, and to delete section 4. (entitled "Redemption") from the Certificate of Designation of Series B Preferred Stock filed in the office of the Secretary of State of the State of Delaware on December 17, 1993. 2. That the proposed amendment has been duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware and that notice of the taking of such action by written consent has been given as provided in Section 228 of the General Corporation Law of the State of Delaware. The Corporation has caused this Certificate of Amendment of Restated Certificate of Incorporation to be signed by Mark Hanson, its President, this day of May 1995. - ------ VISIGENIC SOFTWARE, INC. By: ------------------------------ President -------------------------- CERTIFICATE OF AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION OF VISIGENIC SOFTWARE, INC. -------------------------- Visigenic Software, Inc., a Delaware corporation (the "Corporation"), hereby certifies: 1. That the Corporation's Board of Directors has duly adopted the following resolutions: RESOLVED, that the first paragraph of Article FOURTH of the Restated ------ Certificate of Incorporation is hereby amended to read in full as follows: FOURTH: The Corporation is authorized to issue a total of forty ------ million (40,000,000) shares of stock in two classes designated respectively "Preferred Stock" and "Common Stock." The total number of shares of Preferred Stock the Corporation shall have authority to issue is ten million (10,000,000), par value one-tenth of one cent ($.001) per share, and the total number of shares of Common Stock the Corporation shall have authority to issue is thirty million (30,000,000), par value one-tenth of one cent ($.001) per share. RESOLVED, that Article SIXTH of the Restated Certificate of Incorporation ----- is hereby amended to read in full as follows: SIXTH: The authorized number of directors initially shall be one (1) ----- and, thereafter, shall be fixed from time to time exclusively by the Board pursuant to a resolution adopted by a majority of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any such resolution is presented to the Board for adoption). The holders of Common Stock will be entitled to elect, voting together as a single group with the holders of any series of Preferred Stock that is entitled to vote with the Common Stock in such election, all directors (other than any directors who are separately elected by any series of Preferred Stock ("Preferred Directors")). In any election of directors other than Preferred Directors by the stockholders of the Corporation, each holder of shares of Common Stock shall have one vote per share, and each holder of shares of any series of Preferred Stock that has the right to vote in such election shall be entitled to such number of votes as is set forth in the certificate establishing the powers, preferences and rights of such series. Vacancies and newly-created directorships resulting from any increase in the authorized number of directors shall only be filled by the vote of a majority of directors elected by holders of shares of the class, classes or series of stock of the Corporation entitled to elect directors to such vacant or newly-created directorship. CERTIFICATE OF AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION 1 2. That the proposed amendment has been duly adopted in accordance with the provisions of Section 242 of the General Corporation law of the State of Delaware and that notice of the taking of such action by written consent has been given as provided in Section 228 of the General Corporation Law of the State of Delaware. The Corporation has caused this Certificate of Amendment of Restated Certificate of Incorporation to be signed by George H. Hohnsbeen II, its Assistant Secretary, this day of May 1996. ------ VISIGENIC SOFTWARE, INC. By: ________________________________ Assistant Secretary CERTIFICATE OF AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION 2 -------------------------------------------------------- CERTIFICATE OF DESIGNATION OF VISIGENIC SOFTWARE, INC. Pursuant to Section 151 of the General Corporation Law of the State of Delaware -------------------------------------------------------- SERIES C PREFERRED STOCK Visigenic Software, Inc., a Delaware corporation (the "Corporation"), hereby certifies that the following resolution has been duly adopted by the Board of Directors of the Corporation: RESOLVED, that pursuant to the authority expressly granted to and vested in the Board of Directors of the Corporation (the "Board") by the provisions of the Restated Certificate of Incorporation of the Corporation, as amended (the "Certificate of Incorporation"), there hereby is created, out of the 10,000,000 shares of Preferred Stock, par value $0.001 per share, of the Corporation authorized in Article FOURTH of the Certificate of Incorporation (the "Preferred Stock"), a series of the Preferred Stock of the Corporation consisting of 1,000,000 shares, which series shall have the following powers, designations, preferences and relative, participating, optional and other rights, and the following qualifications, limitations and restrictions: 1. Designation and Amount. ---------------------- This series of Preferred Stock shall be designated the Series C Preferred Stock (the "Series C Preferred Stock"), and the authorized number of shares constituting such series shall be 1,000,000. The par value of the Series C Preferred Stock shall be $0.001 per share. 2. Dividend Rights of Series C Preferred Stock. ------------------------------------------- Subject to the dividend provisions fixed by the Board for any series of Preferred Stock designated by the Board in the future, the holders of Series C Preferred Stock shall be entitled to receive dividends, out of any assets at the time legally available therefor, when and as declared by the Board. No cash dividends shall be paid on any Common Stock, Series A Preferred Stock (the "Series A Preferred Stock") or Series B Preferred Stock of the Corporation (the "Series B Preferred Stock") unless at the same time a dividend is paid with respect to all outstanding shares of Series C Preferred Stock in an amount for each such share of Series C Preferred Stock equal to the aggregate amount of such dividends payable on that number of shares of Common Stock into which each such share of Series C Preferred Stock could then be converted. 1 3. Preference on Liquidation. ------------------------- Subject to the liquidation preferences of any series of Preferred Stock other than the Series C Preferred Stock, including, without limitation, any liquidation preference that provides for payments to any series of Preferred Stock or the Common Stock prior to or on a parity with any payment to holders of the Series C Preferred Stock provided for below (including any preferences that provide for additional parity or non-parity payments to the holders of the Series C Preferred Stock), in the event of any liquidation, dissolution or winding up of the Corporation, distributions to holders of Series C Preferred Stock, holders of Series B Preferred Stock, holders of Series A Preferred Stock and holders of Common Stock shall be made in the following manner: (a) The holders of Series C Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of the Corporation to the holders of the Common Stock by reason of their ownership of such stock, the amount of $4.50 per share for each share of Series C Preferred Stock then held by them, adjusted for any stock split, stock combination, stock distribution or stock dividend with respect to such shares. The Series C Preferred Stock shall rank on a parity with the Series A Preferred Stock with respect to subsection (a) of Section 3 of the Certificate of Designation of Series A Preferred Stock filed March 31, 1993, as amended (the "Series A Certificate"), as to the distribution of assets and funds upon dissolution, liquidation or winding up of the Corporation, with the effect stated in said subsection (a). (b) After payment in full to (i) the holders of Series C Preferred Stock of all amounts exclusively payable on or with respect to said shares pursuant to subsection (a) of this Section 3, (ii) the holders of Series B Preferred Stock of all amounts exclusively payable on or with respect to said shares pursuant to subsection (a) of Section 3 of the Certificate of Designation of Series B Preferred Stock filed December 17, 1993, as amended (the "Series B Certificate"), (iii) the holders of Series A Preferred Stock of all amounts exclusively payable on or with respect to said shares pursuant to subsection (a) of Section 3 of the Series A Certificate, (iv) the holders of Common Stock of all amounts exclusively payable on or with respect to said shares pursuant to subsection (b) of Section 3 of the Series A Certificate, and (v) the holders of Series A Preferred Stock and the holders of Common Stock of all amounts exclusively payable on or with respect to said shares pursuant to subsection (b) of Section 3 of the Series B Certificate, the Series C Preferred Stock shall rank on a parity with the Series A Preferred Stock and the Common Stock with respect to subsection (c) of Section 3 of the Series A Certificate, as to the distribution of remaining assets upon dissolution, liquidation or winding up of the Corporation, with the effect stated in said subsection (c). 4. Voting. ------ (a) Except as otherwise required by law, and except as otherwise provided in the last sentence of Article FOURTH of the Certificate of Incorporation, the shares of Series C Preferred Stock shall be voted together with the Common Stock at any annual or special meeting of the stockholders of the Corporation, or may act by written 2 consent in the same manner as the Common Stock, and shall have the voting rights and powers equal to the voting rights of the Common Stock, upon the following basis: each holder of shares of Series C Preferred Stock shall be entitled to such number of votes for the shares of Series C Preferred Stock held by him on the record date for such meeting or action to be taken by written consent, as shall be equal to the nearest whole number of shares of the Common Stock into which such holder's shares of Series C Preferred Stock are convertible immediately after the close of business on the record date for such meeting or action to be taken by written consent, as the case may be. Holders of Series C Preferred Stock will be entitled to vote on such basis with holders of Common Stock in the election of all directors other than Preferred Directors pursuant to Article SIXTH of the Certificate of Incorporation. (b) The Corporation shall not, without the consent of the holders of a majority of the outstanding shares of Series C Preferred Stock and any other series of Preferred Stock granted similar voting rights, voting together as a single class on an as converted basis, merge or consolidate with or into any other corporation or entity in any merger or consolidation in which the Common Stock is converted into cash or other consideration unless each share of Series C Preferred Stock and each share of such other series of Preferred Stock is converted into cash or other consideration equal to the greater of (1) the aggregate amount of such cash or other consideration payable on such shares in connection with a liquidation, dissolution or winding up of the Corporation (excluding any amount payable on a parity with the Common Stock on an as converted basis) or (2) the amount that would be payable on such shares on a liquidation, dissolution or winding up of the Corporation immediately prior to such merger or consolidation. 5. Conversion Rights. The holders of Series C Preferred Stock ----------------- shall have conversion rights as follows: (a) Each share of Series C Preferred Stock shall be convertible, at the option of the holder thereof, at any time at the principal office of the Corporation or any transfer agent for such shares, into fully paid and nonassessable shares of Common Stock of the Corporation. The number of shares of Common Stock into which each share of Series C Preferred Stock may be converted shall be determined by dividing $4.50 by the Conversion Price determined as hereinafter provided in effect at the time of the conversion. The Conversion Price per share at which shares of Common Stock shall be initially issuable upon conversion of any shares of Series C Preferred Stock shall be $4.50, subject to adjustment as provided herein. (b) Each share of Series C Preferred Stock shall be converted into Common Stock automatically in the manner provided herein upon the earlier to occur of (i) the time holders of a majority of the outstanding shares of all series of Preferred Stock which are subject to conversion upon the written consent of holders of a majority of all outstanding shares of Preferred Stock consent in writing to the conversion of all such outstanding Preferred Stock, or (ii) immediately prior to the closing of the sale of securities of the Corporation pursuant to a firm commitment underwritten public offering registered with the Securities and Exchange Commission, other than on Form S- 3 S-4, or Form S-18, or any successor form thereto, with a public offering price of not less than $6.00 per share (adjusted to reflect subsequent stock dividends, stock splits, recapitalization and the like) and with aggregate gross proceeds of not less than $5,000,000. (c) The holder of any shares of Series C Preferred Stock may exercise the conversion right specified in Section 5(a) by surrendering to the Corporation or any transfer agent of the Corporation the certificate or certificates for the shares to be converted, accompanied by written notice specifying the number of shares to be converted. Upon the occurrence of any event specified in Section 5(b), the outstanding shares of Series C Preferred Stock shall be converted automatically without any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the Corporation or its transfer agent; provided that the Corporation shall not be obligated to issue to any holder certificates evidencing the shares of Common Stock issuable upon such conversion unless certificates evidencing such shares of Series C Preferred Stock are delivered either to the Corporation or any transfer agent of the Corporation. Conversion shall be deemed to have been effected on the date when delivery of notice of an election to convert and of certificates for shares being converted is made or on the date of the occurrence of any event specified in Section 5(b), as the case may be, and such date is referred to herein as the "Conversion Date." As promptly as practicable thereafter (and after surrender of the certificate or certificates representing shares of Series C Preferred Stock to the Corporation or any transfer agent of the Corporation in the case of conversions pursuant to Section 5(b)) the Corporation shall issue and deliver to such holder a certificate or certificates for the number of full shares of Common Stock to which such holder is entitled. No fractional shares of Common Stock shall be issued by the Corporation and all such fractional shares shall be disregarded. In lieu thereof, the Corporation shall pay in cash the fair market value of any such fractional share as determined by the Board. The person in whose name the certificate or certificates for Common Stock are to be issued shall be deemed to have become a holder of record of such Common Stock on the applicable Conversion Date. Upon conversion of only a portion of the number of shares covered by a certificate representing shares of Series C Preferred Stock surrendered for conversion (in the case of conversion pursuant to Section 5(a)), the Corporation shall issue and deliver to or upon the written order of the holder of the certificate so surrendered for conversion, at the expense of the Corporation, a new certificate covering the number of shares of Series C Preferred Stock representing the unconverted portion of the certificate so surrendered. (d) In case the Corporation shall at any time (i) subdivide the outstanding Common Stock, or (ii) issue a stock dividend on its outstanding Common Stock, the number of shares of Common Stock issuable upon conversion of Series C Preferred Stock immediately prior to such subdivision or the issuance of such stock dividend shall be proportionately increased by the same ratio as the subdivision or dividend (with appropriate adjustments in the Conversion Price of Series C Preferred Stock). In case the Corporation shall at any time combine its outstanding Common Stock, the number of shares of Common Stock issuable upon conversion of Series C Preferred Stock immediately prior to such combination shall be proportionately 4 decreased by the same ratio as the combination (with appropriate adjustments in the Conversion Price of Series C Preferred Stock). All such adjustments described herein shall be effective at the close of business on the date of such subdivision, stock dividend or combination, as the case may be. (e) In case of any merger (other than a merger in which the Corporation is not the continuing or surviving entity) or any reclassification of the Common Stock of the Corporation, each share of the Series C Preferred Stock shall thereafter be convertible into that number of shares of stock or other securities or property to which a holder of the number of shares of Common Stock issuable upon conversion of a share of Series C Preferred Stock immediately prior to such merger or reclassification would have been entitled upon such merger or reclassification. In any such case, appropriate adjustment (as determined by the Board) shall be made in the application of the provisions herein set forth with respect to the rights and interests thereafter of the holders of Series C Preferred Stock, such that the provisions set forth herein shall thereafter be applicable, as nearly as reasonably may be, in relation to any share of stock or other property thereafter issuable upon conversion. (f) The Corporation shall at all times reserve and keep available, out of its authorized but unissued Common Stock, solely for the purpose of effecting the conversion of Series C Preferred Stock, the full number of shares of Common Stock deliverable upon the conversion of all Series C Preferred Stock from time to time outstanding. The Corporation shall from time to time (subject to obtaining necessary director and stockholder authorizations), in accordance with the laws of the State of Delaware, increase the authorized amount of its Common Stock if at any time the authorized number of shares of Common Stock remaining unissued shall not be sufficient to permit the conversion of all of the shares of Series C Preferred Stock at the time outstanding. (g) Upon any conversion of Series C Preferred Stock pursuant to this Section 5, the shares of Series C Preferred Stock which are converted shall not be reissued. Upon conversion of all of the then outstanding Series C Preferred Stock pursuant to this Section 6 and upon the taking of any action required by law, all matters set forth in this Certificate of Designation shall be eliminated from the Certificate of Incorporation, shares of Series C Preferred Stock shall not be deemed outstanding for any purpose whatsoever and all such shares shall revert to the status of authorized and unissued shares of Preferred Stock. (h) Upon the occurrence of each adjustment or readjustment of the Conversion Price for Series C Preferred Stock pursuant to this Section 5, the Corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of Series C Preferred Stock a certificate setting forth such adjustment or readjustment showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon the reasonable written request at any time of any holder of Series C Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustments and readjustments, and (ii) the number of shares of Common 5 Stock and the amount, if any, of other property which at the time would be received upon the conversion of Series C Preferred Stock. (i) Any notices required by the provisions of this Section 5 to be given to the holders of shares of Series C Preferred Stock shall be deemed given if deposited in the United States mail, first class, postage prepaid and addressed to each holder of record at its address appearing on the books of the Corporation. IN WITNESS WHEREOF, the Corporation has caused this Certificate of Designation to be signed by George H. Hohnsbeen II, its Assistant Secretary, this ______ day of May, 1996. VISIGENIC SOFTWARE, INC. By: -------------------------------------- Assistant Secretary 6 CERTIFICATE OF MERGER OF POST MODERN COMPUTING TECHNOLOGIES INC. (a California corporation) INTO VISIGENIC SOFTWARE, INC. (a Delaware corporation) The undersigned corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, does hereby certify: First: That the name and state of incorporation of each of the constituent corporations of the merger is as follows:
Name State of Incorporation ---- ---------------------- Post Modern Computing Technologies Inc. California Visigenic Software, Inc. Delaware
Second: That an Agreement and Plan of Reorganization dated as of April 28, 1996 between Visigenic Software, Inc. and Post Modern Computing Technologies Inc. has been approved, adopted, certified, executed and acknowledged by each of the constituent corporations in accordance with the requirements of Section 251 of the General Corporation Law of the State of Delaware and Section 1201 of the California General Corporate Law. Third: That the name of the surviving corporation of the merger is Visigenic Software, Inc. (the "Surviving Corporation"). Fourth: That the Certificate of Incorporation of Visigenic Software, Inc. shall, as of the effective time of the merger, be the Certificate of Incorporation of the Surviving Corporation. Fifth: That the executed Agreement and Plan of Reorganization is on file at the principal place of business of the Surviving Corporation. The address of said principal place of business is 951 Mariner's Island Boulevard, San Mateo, California 94404. Sixth: That a copy of the Agreement and Plan of Reorganization will be furnished by the Surviving Corporation upon request and without charge to any stockholder of any constituent corporation. Seventh: The aggregate number of shares of stock which Post Modern Computing Technologies Inc. has authority to issue is 25,000,000 shares, of which 20,000,000 shares, all of which are without par value, are designated Common Stock, and 5,000,000 shares, all of which 1 are without par value, are designated Preferred Stock. IN WITNESS WHEREOF, the undersigned has caused this Certificate to be executed by its duly authorized officer this ________ day of ___________, 1996. VISIGENIC SOFTWARE, INC. (a Delaware corporation) By: ---------------------------------------- Mark Hanson 2 CERTIFICATE OF MERGER OF DATA ACCESSIBILITY SOLUTIONS, INC. (a California corporation) INTO VISIGENIC SOFTWARE, INC. (a Delaware corporation) The undersigned corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, does hereby certify: First: That the name and state of incorporation of each of the constituent corporations of the merger is as follows: Name State of Incorporation ---- ---------------------- Data Accessibility Solutions, Inc. California Visigenic Software, Inc. Delaware Second: That an Agreement and Plan of Reorganization dated as of May 14, 1996, between Visigenic Software, Inc. and Data Accessibility Solutions, Inc. has been approved, adopted, certified, executed and acknowledged by each of the constituent corporations in accordance with the requirements of Section 251 of the General Corporation Law of the State of Delaware and Section 1201 of the California General Corporate Law. Third: That the name of the surviving corporation of the merger is Visigenic Software, Inc. (the "Surviving Corporation"). Fourth: That the Certificate of Incorporation of Visigenic Software, Inc. shall, as of the effective time of the merger, be the Certificate of Incorporation of the Surviving Corporation. Fifth: That the executed Agreement and Plan of Reorganization is on file at the principal place of business of the Surviving Corporation. The address of said principal place of business is 951 Mariner's Island Boulevard, San Mateo, California 94404. Sixth: That a copy of the Agreement and Plan of Reorganization will be furnished by the Surviving Corporation upon request and without charge to any stockholder of any constituent corporation. Seventh: The total number of shares of stock which Data Accessibility Solutions, Inc. has authority to issue is 1,000,000 shares, all of which are designated Common Stock, and all of 1 which are without par value. IN WITNESS WHEREOF, the undersigned has caused this Certificate to be executed by its duly authorized officer this ________ day of ___________, 1996. VISIGENIC SOFTWARE, INC. (a Delaware corporation) By: --------------------------------------------- Mark Hanson 2 EX-3.1B 3 RESTATED CERTIFICATE OF INCORPORATION EXHIBIT 3.1B RESTATED CERTIFICATE OF INCORPORATION OF VISIGENIC SOFTWARE, INC. Pursuant to Sections 228, 242 and 245 of the General Corporation Law of the State of Delaware, Mark D. Hanson, President and Chief Operating Officer of Visigenic Software, Inc., a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), does hereby certify: The date of filing of the Corporation's original Certificate of Incorporation was February 12, 1993. This Restated Certificate of Incorporation was duly proposed by the directors and adopted by the stockholders in the manner and by the vote prescribed by Sections 211, 212 and 242 of the Delaware General Corporation Law. The Certificate of Incorporation of the Corporation is amended and restated to read in its entirety as follows: FIRST: The name of the Corporation is Visigenic Software, Inc. ----- (hereinafter sometimes referred to as the "Corporation"). SECOND: The address of the registered office of the Corporation in the ------ State of Delaware is Incorporating Services, Ltd., 15 East North Street, in the City of Dover, County of Kent. The name of the registered agent at that address is Incorporating Services, Ltd. THIRD: The purpose of the Corporation is to engage in any lawful act or ----- activity for which a corporation may be organized under the General Corporation Law of Delaware. FOURTH: ------ A. The Corporation is authorized to issue two classes of stock to be designated, respectively, "Common Stock" and "Preferred Stock." The total number of shares which the Corporation is authorized to issue is fifty-two Million (52,000,000) shares. Fifty Million (50,000,000) shares shall be Common Stock, $0.001 par value per share, and two Million (2,000,000) shares shall be Preferred Stock, $0.001 par value per share. B. The Board of Directors is authorized, subject to any limitations prescribed by law, to provide for the issuance of shares of Preferred Stock in series, and by filing a certificate pursuant to the applicable law of the State of Delaware (such certificate being hereinafter referred to as a "Preferred Stock Designation"), to establish from time to time the number of shares to be included 1 in each such series, and to fix the designation, powers, preferences, and rights of each such series and any qualifications, limitations or restrictions thereof. The number of authorized shares of Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the Common Stock, without a vote of the holders of the Preferred Stock, or of any series thereof, unless a vote of any such holders is required pursuant to the terms of any Preferred Stock Designation. FIFTH: The following provisions are inserted for the management of the ----- business and the conduct of the affairs of the Corporation, and for further definition, limitation and regulation of the powers of the Corporation and of its directors and stockholders: A. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. In addition to the powers and authority expressly conferred upon them by statute or by this Restated Certificate of Incorporation or the Bylaws of the Corporation, the directors are hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation. B. The directors of the Corporation need not be elected by written ballot unless the Bylaws so provide. C. Any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of stockholders of the Corporation and may not be effected by any consent in writing by such stockholders. D. Special meetings of stockholders of the Corporation may be called only by either the Board of Directors pursuant to a resolution adopted by a majority of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any such resolution is presented to the Board for adoption), the Chief Executive Officer or the President. SIXTH: ----- A. Subject to the rights of the holders of any series of Preferred Stock to elect additional directors under specified circumstances, the number of directors shall initially be set at eight (8) and, thereafter, shall be fixed from time to time exclusively by the Board of Directors pursuant to a resolution adopted by a majority 2 of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any such resolution is presented to the Board for adoption). The directors, other than those who may be elected by the holders of Preferred Stock under specified circumstances, shall be divided into three classes with the term of office of the first class (Class I) to expire at the annual meeting of the stockholders held in 1997; the term of office of the second class (Class II) to expire at the annual meeting of stockholders held in 1998; the term of office of the third class (Class III) to expire at the annual meeting of stockholders held in 1999; and thereafter for each such term to expire at each third succeeding annual meeting of stockholders after such election. All directors shall hold office until the expiration of the term for which elected, and until their respective successors are elected, except in the case of the death, resignation, or removal of any director. B. Subject to the rights of the holders of any series of Preferred Stock then outstanding, newly created directorships resulting from any increase in the authorized number of directors or any vacancies in the Board of Directors resulting from death, resignation or other cause may be filled only by a majority vote of the directors then in office, though less than a quorum, and directors so chosen shall hold office for a term expiring at the next annual meeting of stockholders at which the term of office of the class to which they have been elected expires, and until their respective successors are elected, except in the case of the death, resignation, or removal of any director. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. C. Subject to the rights of the holders of any series of Preferred Stock then outstanding, any directors, or the entire Board of Directors, may be removed from office at any time, but only for cause and only by the affirmative vote of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the then outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class. SEVENTH: The Board of Directors is expressly empowered to adopt, amend or ------- repeal Bylaws of the Corporation. Any adoption, amendment or repeal of Bylaws of the Corporation by the Board of Directors shall require the approval of a majority of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any resolution 3 providing for adoption, amendment or repeal is presented to the Board). The stockholders shall also have power to adopt, amend or repeal the Bylaws of the Corporation. Any adoption, amendment or repeal of Bylaws of the Corporation by the stockholders shall require, in addition to any vote of the holders of any class or series of stock of the Corporation required by law or by this Restated Certificate of Incorporation, the affirmative vote of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the then outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class. EIGHTH: A director of the Corporation shall not be personally liable to ------ the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involved intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. If the Delaware General Corporation Law is hereafter amended to authorize the further elimination or limitation of the liability of a director, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended. Any repeal or modification of the foregoing provisions of this Article EIGHTH by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification. NINTH: The Corporation reserves the right to amend or repeal any ----- provision contained in this Restated Certificate of Incorporation in the manner prescribed by the laws of the State of Delaware and all rights conferred upon stockholders are granted subject to this reservation; provided, however, that, notwithstanding any -------- ------- other provision of this Restated Certificate of Incorporation or any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any vote of the holders of any class or series of the stock of this Corporation required by law or by this Restated Certificate of Incorporation, the affirmative vote of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the then outstanding shares of the capital stock of the Corporation entitled to vote generally in the 4 election of directors, voting together as a single class, shall be required to amend or repeal this Article NINTH, Article FIFTH, Article SIXTH, Article SEVENTH or Article EIGHTH. IN WITNESS WHEREOF, the Corporation has caused this Restated Certificate of Incorporation to be signed by a duly authorized officer on this ______ day of August 1996. ---------------------------------------- Mark D. Hanson, President and Chief Operating Officer EX-3.2B 4 BYLAWS OF VISIGENIC SOFTWARE Exhibit 3.2B BY-LAWS OF VISIGENIC SOFTWARE, INC. I N D E X Section Page ARTICLE I STOCKHOLDERS Section 1.1 Annual Meeting............................................ 1 Section 1.2 Special Meetings.......................................... 1 Section 1.3 Notice of Meetings........................................ 1 Section 1.4 Quorum.................................................... 1 Section 1.5 Conduct of the Stockholders' Meeting...................... 2 Section 1.6 Conduct of Business....................................... 2 Section 1.7 Notice of Stockholder Business............................ 3 Section 1.8 Proxies and Voting........................................ 3 Section 1.9 Stock List................................................ 4
ARTICLE II BOARD OF DIRECTORS Section 2.1 Number and Term of Office................................. 4 Section 2.2 Vacancies and Newly Created Directorships................. 4 Section 2.3 Removal................................................... 5 Section 2.4 Regular Meetings.......................................... 5 Section 2.5 Special Meetings.......................................... 5 Section 2.6 Quorum.................................................... 5 Section 2.7 Participation in Meetings by Conference Telephone......... 5 Section 2.8 Conduct of Business....................................... 5 Section 2.9 Powers.................................................... 6 Section 2.10 Compensation of Directors................................. 6 Section 2.11 Nomination of Director Candidates......................... 6 ARTICLE III COMMITTEES Section 3.1 Committees of the Board of Directors...................... 7 Section 3.2 Conduct of Business....................................... 8 ARTICLE IV OFFICERS Section 4.1. Generally................................................. 8 Section 4.2 Chairman of the Board..................................... 8 Section 4.3 President................................................. 8 Section 4.4 Vice President............................................ 9 Section 4.5 Chief Financial Officer................................... 9 Section 4.6 Secretary................................................. 9 Section 4.7 Delegation of Authority................................... 9 Section 4.8 Removal................................................... 9 Section 4.9. Action with Respect to Securities of Other Corporations... 10
i ARTICLE V STOCK Section 5.1 Certificates of Stock..................................... 10 Section 5.2 Transfers of Stock........................................ 10 Section 5.3 Record Date............................................... 10 Section 5.4 Lost, Stolen or Destroyed Certificates.................... 10 Section 5.5 Regulations............................................... 10 ARTICLE VI NOTICES Section 6.1 Notices................................................... 11 Section 6.2 Waivers................................................... 11 ARTICLE VII MISCELLANEOUS Section 7.1 Facsimile Signatures...................................... 11 Section 7.2 Corporate Seal............................................ 11 Section 7.3 Reliance Upon Books, Reports and Records.................. 11 Section 7.4 Fiscal Year............................................... 11 Section 7.5 Time Periods.............................................. 12 ARTICLE VIII INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 8.1 Right to Indemnification.................................. 12 Section 8.2 Right of Claimant to Bring Suit........................... 13 Section 8.3 Indemnification of Employees and Agents................... 13 Section 8.4 Non-Exclusivity of Rights................................. 13 Section 8.5 Indemnification Contracts................................. 13 Section 8.6 Insurance................................................. 14 Section 8.7 Effect of Amendment....................................... 14 ARTICLE IX AMENDMENTS Section 9.1 Amendment of Bylaws......................................... 14
ii VISIGENIC SOFTWARE, INC. A DELAWARE CORPORATION BY-LAWS ARTICLE I --------- STOCKHOLDERS ------------ Section 1.1 Annual Meeting. An annual meeting of the stockholders, for ----------- -------------- the election of directors to succeed those whose terms expire and for the transaction of such other business as may properly come before the meeting, shall be held at such place, on such date, and at such time as the Board of Directors shall each year fix, which date shall be within thirteen months subsequent to the later of the date of incorporation or the last annual meeting of stockholders. Section 1.2 Special Meetings. Special meetings of the stockholders, for ----------- ---------------- any purpose or purposes prescribed in the notice of the meeting, may be called only (i) by the Board of Directors pursuant to a resolution adopted by a majority of the total number of authorized directors (whether or not there exists any vacancies in previously authorized directorships at the time any such resolution is presented to the Board of Directors for adoption), (ii) the Chairman of the Board or (iii) the President and shall be held at such place, on such date, and at such time as they shall fix. Business transacted at special meetings shall be confined to the purpose or purposes stated in the notice. Section 1.3 Notice of Meetings. Written notice of the place, date, and ----------- ------------------ time of all meetings of the stockholders shall be given, not less than ten (10) nor more than sixty (60) days before the date on which the meeting is to be held, to each stockholder entitled to vote at such meeting, except as otherwise provided herein or required by law (meaning, here and hereinafter, as required from time to time by the Delaware General Corporation Law or the Certificate of Incorporation of the Corporation). When a meeting is adjourned to another place, date or time, written notice need not be given of the adjourned meeting if the place, date and time thereof are announced at the meeting at which the adjournment is taken; provided, however, that if the date of any adjourned meeting is more than thirty (30) days after the date for which the meeting was originally noticed, or if a new record date is fixed for the adjourned meeting, written notice of the place, date, and time of the adjourned meeting shall be given in conformity herewith. At any adjourned meeting, any business may be transacted which might have been transacted at the original meeting. Section 1.4 Quorum. At any meeting of the stockholders, the holders of a ----------- ------ majority of all of the shares of the stock entitled to vote at the meeting, present in 1 person or by proxy, shall constitute a quorum for all purposes, unless or except to the extent that the presence of a larger number may be required by law. If a quorum shall fail to attend any meeting, the chairman of the meeting or the holders of a majority of the shares of stock entitled to vote who are present, in person or by proxy, may adjourn the meeting to another place, date, or time. If a notice of any adjourned special meeting of stockholders is sent to all stockholders entitled to vote thereat, stating that it will be held with those present constituting a quorum, then except as otherwise required by law, those present at such adjourned meeting shall constitute a quorum, and all matters shall be determined by a majority of the votes cast at such meeting. Section 1.5 Conduct of the Stockholders' Meeting. At every meeting of the ----------- ------------------------------------ stockholders, the Chairman, if there is such an officer, or if not, the President of the Corporation, or in his absence the Vice President designated by the President, or in the absence of such designation any Vice President, or in the absence of the President or any Vice President, a chairman chosen by the majority of the voting shares represented in person or by proxy, shall act as Chairman. The Secretary of the Corporation or a person designated by the Chairman shall act as Secretary of the meeting. Unless otherwise approved by the Chairman, attendance at the stockholders' meeting is restricted to stockholders of record, persons authorized in accordance with Section 8 of these Bylaws to act by proxy, and officers of the Corporation. Section 1.6 Conduct of Business. The Chairman shall call the meeting to ----------- ------------------- order, establish the agenda, and conduct the business of the meeting in accordance therewith or, at the Chairman's discretion, it may be conducted otherwise in accordance with the wishes of the stockholders in attendance. The date and time of the opening and closing of the polls for each matter upon which the stockholders will vote at the meeting shall be announced at the meeting. The Chairman shall also conduct the meeting in an orderly manner, rule on the precedence of and procedure on, motions and other procedural matters, and exercise discretion with respect to such procedural matters with fairness and good faith toward all those entitled to take part. The Chairman may impose reasonable limits on the amount of time taken up at the meeting on discussion in general or on remarks by any one stockholder. Should any person in attendance become unruly or obstruct the meeting proceedings, the Chairman shall have the power to have such person removed from participation. Notwithstanding anything in the Bylaws to the contrary, no business shall be conducted at a meeting except in accordance with the procedures set forth in this Section 1.6 and Section 1.7, below. The Chairman of a meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting and in accordance with the provisions of this Section 1.6 and Section 1.7, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. 2 Section 1.7 Notice of Stockholder Business. At an annual or special ----------- ------------------------------ meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before a meeting, business must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (b) properly brought before the meeting by or at the direction of the Board of Directors, (c) properly brought before an annual meeting by a stockholder, or (d) properly brought before a special meeting by a stockholder, but if, and only if, the notice of a special meeting provides for business to be brought before the meeting by stockholders. For business to be properly brought before a meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder proposal to be presented at an annual meeting shall be received at the Corporation's principal executive offices not less than 120 calendar days in advance of the date that the Corporation's (or the Corporation's predecessor's) proxy statement was released to stockholders in connection with the previous year's annual meeting of stockholders, except that if no annual meeting was held in the previous year or the date of the annual meeting has been changed by more than 30 calendar days from the date contemplated at the time of the previous year's proxy statement, or in the event of a special meeting, notice by the stockholder to be timely must be received not later than the close of business on the tenth day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual or special meeting (a) a brief description of the business desired to be brought before the annual or special meeting and the reasons for conducting such business at the special meeting, (b) the name and address, as they appear on the Corporation's books, of the stockholder proposing such business, (c) the class and number of shares of the Corporation which are beneficially owned by the stockholder, and (d) any material interest of the stockholder in such business. Section 1.8 Proxies and Voting. At any meeting of the stockholders, every ----------- ------------------ stockholder entitled to vote may vote in person or by proxy authorized by an instrument in writing or by a transmission permitted by law filed in accordance with the procedure established for the meeting. No stockholder may authorize more than one proxy for his shares. Each stockholder shall have one vote for every share of stock entitled to vote which is registered in his or her name on the record date for the meeting, except as otherwise provided herein or required by law. All voting, including on the election of directors but excepting where otherwise required by law, may be by a voice vote; provided, however, that upon demand therefor by a stockholder entitled to vote or his or her proxy, a stock vote shall be taken. Every stock vote shall be taken by ballots, each of which shall state the name of the stockholder or proxy voting and such other information as may be required under the procedure established for the meeting. Every vote taken by ballots shall be counted by an inspector or inspectors appointed by the chairman of the meeting. 3 All elections shall be determined by a plurality of the votes cast, and except as otherwise required by law or the Certificate of Incorporation or the Bylaws of this Corporation, all other matters shall be determined by a majority of the votes cast. Section 1.9 Stock List. A complete list of stockholders entitled to vote ----------- ---------- at any meeting of stockholders, arranged in alphabetical order for each class of stock and showing the address of each such stockholder and the number of shares registered in his or her name, shall be open to the examination of any such stockholder, for any purpose germane to the meeting, during ordinary business hours for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or if not so specified, at the place where the meeting is to be held. The stock list shall also be kept at the place of the meeting during the whole time thereof and shall be open to the examination of any such stockholder who is present. This list shall presumptively determine the identity of the stockholders entitled to vote at the meeting and the number of shares held by each of them. ARTICLE II ---------- BOARD OF DIRECTORS ------------------ Section 2.1 Number and Term of Office. The number of directors shall ----------- ------------------------- initially be eight (8) and, thereafter, shall be fixed from time to time exclusively by the Board of Directors pursuant to a resolution adopted by a majority of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any such resolution is presented to the Board for adoption). Upon the closing of the first sale of the Corporation's common stock pursuant to a firmly underwritten registered public offering (the "IPO"), the directors shall be divided into three classes, with the term of office of the first class, which class shall initially consist of three directors, to expire at the first annual meeting of stockholders held after the IPO; the term of office of the second class, which class shall initially consist of three directors, to expire at the second annual meeting of stockholders held after the IPO; the term of office of the third class, which class shall initially consist of two directors, to expire at the third annual meeting of stockholders held after the IPO; and thereafter for each such term to expire at each third succeeding annual meeting of stockholders after such election. All directors shall hold office until the expiration of the term for which elected and until their respective successors are elected, except in the case of the death, resignation or removal of any director. Section 2.2 Vacancies and Newly Created Directorships. Subject to the ----------- ----------------------------------------- rights of the holders of any series of Preferred Stock then outstanding, newly created directorships resulting from any increase in the authorized number of directors or any vacancies in the Board of Directors resulting from death, resignation, retirement, disqualification or other cause (other than removal from office by a vote of the stockholders) may be filled only by a majority vote of the directors then in office, though less than a quorum, and directors so chosen shall hold office for a term expiring at the next annual meeting of 4 stockholders at which the term of office of the class to which they have been elected expires. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. Section 2.3 Removal. Subject to the rights of holders of any series of ----------- ------- Preferred Stock then outstanding, any directors, or the entire Board of Directors, may be removed from office at any time, with or without cause, but only by the affirmative vote of the holders of at least 66-2/3% of the voting power of all of the then outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class. Vacancies in the Board of Directors resulting from such removal may be filled by a majority of the directors then in office, though less than a quorum. Directors so chosen shall hold office until the next annual meeting of stockholders. Section 2.4 Regular Meetings. Regular meetings of the Board of Directors ----------- ---------------- shall be held at such place or places, on such date or dates, and at such time or times as shall have been established by the Board of Directors and publicized among all directors. A notice of each regular meeting shall not be required. Section 2.5 Special Meetings. Special meetings of the Board of Directors ----------- ---------------- may be called by one-third of the directors then in office (rounded up to the nearest whole number), by the Chairman of the Board, or by the chief executive officer and shall be held at such place, on such date, and at such time as they or he or she shall fix. Notice of the place, date, and time of each such special meeting shall be given to each director by whom it is not waived by mailing written notice not fewer than five (5) days before the meeting, by sending notice one (1) day before the meeting by an overnight courier service or two (2) days before the meeting by overseas courier service, or by telephoning, telecopying, telegraphing or personally delivering the same not fewer than twenty-four (24) hours before the meeting. Unless otherwise indicated in the notice thereof, any and all business may be transacted at a special meeting. Section 2.6 Quorum. At any meeting of the Board of Directors, a majority ----------- ------ of the total number of authorized directors shall constitute a quorum for all purposes. If a quorum shall fail to attend any meeting, a majority of those present may adjourn the meeting to another place, date, or time, without further notice or waiver thereof. Section 2.7 Participation in Meetings by Conference Telephone. Members of ----------- ------------------------------------------------- the Board of Directors, or of any committee thereof, may participate in a meeting of such Board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other and such participation shall constitute presence in person at such meeting. Section 2.8 Conduct of Business. At any meeting of the Board of ----------- ------------------- Directors, business shall be transacted in such order and manner as the Board may from time to time determine, and all matters shall be determined by the vote of a majority of the directors present, except as otherwise provided herein or required by law. Action may be taken by the Board of Directors without a meeting if all members thereof consent 5 thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors. Section 2.9 Powers. The Board of Directors may, except as otherwise ----------- ------ required by law, exercise all such powers and do all such acts and things as may be exercised or done by the Corporation, including, without limiting the generality of the foregoing, the unqualified power: (1) To declare dividends from time to time in accordance with law; (2) To purchase or otherwise acquire any property, rights or privileges on such terms as it shall determine; (3) To authorize the creation, making and issuance, in such form as it may determine, of written obligations of every kind, negotiable or non- negotiable, secured or unsecured, and to do all things necessary in connection therewith; (4) To remove any officer of the Corporation with or without cause, and from time to time to devolve the powers and duties of any officer upon any other person for the time being; (5) To confer upon any officer of the Corporation the power to appoint, remove and suspend subordinate officers, employees and agents; (6) To adopt from time to time such stock, option, stock purchase, bonus or other compensation plans for directors, officers, employees and agents of the Corporation and its subsidiaries as it may determine; (7) To adopt from time to time such insurance, retirement, and other benefit plans for directors, officers, employees and agents of the Corporation and its subsidiaries as it may determine; and (8) To adopt from time to time regulations, not inconsistent with these bylaws, for the management of the Corporation's business and affairs. Section 2.10 Compensation of Directors. Directors, as such, may receive, ------------ ------------------------- pursuant to resolution of the Board of Directors, fixed fees and other compensation for their services as directors, including, without limitation, their services as members of committees of the Board of Directors. Section 2.11 Nomination of Director Candidates. Subject to the rights of ------------ --------------------------------- holders of any class or series of Preferred Stock then outstanding, nominations for the election of Directors may be made by the Board of Directors or a proxy committee appointed by the Board of Directors or by any stockholder entitled to vote in the election of Directors generally. However, any stockholder entitled to vote in the election of Directors generally may nominate one or more persons for election as Directors at a meeting only if timely notice of such stockholder's intent to make such nomination or nominations has been given in writing to the Secretary of the Corporation. To be timely, a stockholder nomination for a director to be elected at an annual meeting shall be received at the Corporation's principal executive offices not less than 120 calendar days in advance of the date that the Corporation's (or the Corporation's Predecessor's) Proxy statement was released to stockholders in connection with the previous year's annual meeting of stockholders, except that if no annual meeting was held in the previous year or the date of the annual meeting has been changed by more than 30 calendar days from the date 6 contemplated at the time of the previous year's proxy statement, or in the event of a nomination for director to be elected at a special meeting, notice by the stockholders to be timely must be received not later than the close of business on the tenth day following the day on which such notice of the date of the special meeting was mailed or such public disclosure was made. Each such notice shall set forth: (a) the name and address of the stockholder who intends to make the nomination and of the person or persons to be nominated; (b) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote for the election of Directors on the date of such notice and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (c) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder; (d) such other information regarding each nominee proposed by such stockholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission, had the nominee been nominated, or intended to be nominated, by the Board of Directors; and (e) the consent of each nominee to serve as a director of the Corporation if so elected. In the event that a person is validly designated as a nominee in accordance with this Section 2.11 and shall thereafter become unable or unwilling to stand for election to the Board of Directors, the Board of Directors or the stockholder who proposed such nominee, as the case may be, may designate a substitute nominee upon delivery, not fewer than five days prior to the date of the meeting for the election of such nominee, of a written notice to the Secretary setting forth such information regarding such substitute nominee as would have been required to be delivered to the Secretary pursuant to this Section 2.11 had such substitute nominee been initially proposed as a nominee. Such notice shall include a signed consent to serve as a director of the Corporation, if elected, of each such substitute nominee. If the chairman of the meeting for the election of Directors determines that a nomination of any candidate for election as a Director at such meeting was not made in accordance with the applicable provisions of this Section 2.11, such nomination shall be void. ARTICLE III ----------- COMMITTEES ---------- Section 3.1 Committees of the Board of Directors. The Board of Directors, ----------- ------------------------------------ by a vote of a majority of the whole Board, may from time to time designate committees of the Board, with such lawfully delegable powers and duties as it thereby confers, to serve at the pleasure of the Board and shall, for those committees and any others provided for herein, elect a director or directors to serve as the member or members, designating, if it desires, other directors as alternate members who may replace any absent or disqualified member at any meeting of the committee. Any committee so designated may exercise the power and authority of the Board of Directors to declare a dividend, to authorize the issuance of stock or to adopt a certificate of ownership and merger pursuant to 7 Section 253 of the Delaware General Corporation Law if the resolution which designates the committee or a supplemental resolution of the Board of Directors shall so provide. In the absence or disqualification of any member of any committee and any alternate member in his place, the member or members of the committee present at the meeting and not disqualified from voting, whether or not he or she or they constitute a quorum, may by unanimous vote appoint another member of the Board of Directors to act at the meeting in the place of the absent or disqualified member. Section 3.2 Conduct of Business. Each committee may determine the ----------- ------------------- procedural rules for meeting and conducting its business and shall act in accordance therewith, except as otherwise provided herein or required by law. Adequate provision shall be made for notice to members of all meetings; one-half of the authorized members shall constitute a quorum unless the committee shall consist of one or two members, in which event all members of the committee shall constitute a quorum; and all matters shall be determined by a majority vote of the members present. Action may be taken by any committee without a meeting if all members thereof consent thereto in writing, and the writing or writings are filed with the minutes of the proceedings of such committee. ARTICLE IV ---------- OFFICERS -------- Section 4.1 Generally. The officers of the Corporation shall consist of 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, and such other officers as may from time to time be appointed by the Board of Directors. Officers shall be elected by the Board of Directors, which shall consider that subject at its first meeting after every annual meeting of stockholders. Each officer shall hold office at the pleasure of the Board, until his successor is elected and qualified or until his earlier resignation or removal. Any number of offices may be held by the same person. Section 4.2 Chairman of the Board. The Chairman of the Board, if there ----------- --------------------- shall be such an officer, shall, if present, preside at all meetings of the Board of Directors, and exercise and perform such other powers and duties as may be from time to time assigned to him by the Board of Directors or as provided by these Bylaws. Section 4.3 President and Chief Executive Officer. 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 general manager and 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 other officers, employees and agents of the Corporation. He shall preside at all meetings of the stockholders. He shall be ex-officio a member of all the standing committees, including the executive committee, if any, and 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 by these 8 Bylaws. He shall have power to sign all stock certificates, contracts and other instruments of the Corporation which are authorized by the Board of Directors. Section 4.4 Vice President. 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, the Vice President designated by the Board of Directors, shall perform 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, if any, shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board of Directors or these Bylaws. Section 4.5 Chief Financial Officer. The Chief Financial Officer shall ----------- ----------------------- keep and maintain or cause to be kept and maintained, adequate and correct financial books and records of account of the Corporation in written form or any other form capable of being converted into written form. The Chief Financial Officer shall deposit all monies and other valuables in the name and to the credit of the Corporation with such depositaries as may be designated by the Board of Directors. He shall disburse all 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 by these Bylaws. Section 4.6 Secretary. The Secretary shall keep, or cause to be kept, a ----------- --------- book of minutes in written form of the proceedings of the Board of Directors, committees of the Board, and stockholders. Such minutes shall include all waivers of notice, consents to the holding of meetings, or approvals of the minutes of meetings executed pursuant to these Bylaws or the General Delaware Corporation Law. The Secretary shall keep, or cause to be kept at the principal executive office or at the office of the Corporation's transfer agent or registrar, a record of its stockholders, giving the names and addresses of all stockholders and the number and class of shares held by each. The Secretary shall give or cause to be given, notice of all meetings of the stockholders and of the Board of Directors required by these Bylaws or by law to be given, and shall keep the seal of the Corporation in safe custody, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or these Bylaws. Section 4.7 Delegation of Authority. The Board of Directors may from time ----------- ----------------------- to time delegate the powers or duties of any officer to any other officers or agents, notwithstanding any provision hereof. Section 4.8 Removal. Any officer of the Corporation may be removed at any ----------- ------- time, with or without cause, by the Board of Directors. 9 Section 4.9 Action With Respect to Securities of Other Corporations. ----------- ------------------------------------------------------- Unless otherwise directed by the Board of Directors, the President or any officer of the Corporation authorized by the President shall have power to vote and otherwise act on behalf of the Corporation, in person or by proxy, at any meeting of stockholders of or with respect to any action of stockholders of any other corporation in which this Corporation may hold securities and otherwise to exercise any and all rights and powers which this Corporation may possess by reason of its ownership of securities in such other corporation. ARTICLE V --------- STOCK ----- Section 5.1 Certificates of Stock. Each stockholder shall be entitled to ----------- --------------------- a certificate signed by, or in the name of the Corporation by, the President or a Vice President, and by the Secretary or an Assistant Secretary, or the Treasurer or an Assistant Treasurer, certifying the number of shares owned by him or her. Any of or all the signatures on the certificate may be facsimile. Section 5.2 Transfers of Stock. Transfers of stock shall be made only ----------- ------------------ upon the transfer books of the Corporation kept at an office of the Corporation or by transfer agents designated to transfer shares of the stock of the Corporation. Except where a certificate is issued in accordance with Section 4 of Article V of these bylaws, an outstanding certificate for the number of shares involved shall be surrendered for cancellation before a new certificate is issued therefor. Section 5.3 Record Date. The Board of Directors may fix a record date, ----------- ----------- which shall not be more than sixty (60) nor fewer than ten (10) days before the date of any meeting of stockholders, nor more than sixty (60) days prior to the time for the other action hereinafter described, as of which there shall be determined the stockholders who are entitled: to notice of or to vote at any meeting of stockholders or any adjournment thereof; to receive payment of any dividend or other distribution or allotment of any rights; or to exercise any rights with respect to any change, conversion or exchange of stock or with respect to any other lawful action. Section 5.4 Lost, Stolen or Destroyed Certificates. In the event of the ----------- -------------------------------------- loss, theft or destruction of any certificate of stock, another may be issued in its place pursuant to such regulations as the Board of Directors may establish concerning proof of such loss, theft or destruction and concerning the giving of a satisfactory bond or bonds of indemnity. Section 5.5 Regulations. The issue, transfer, conversion and registration ----------- ----------- of certificates of stock shall be governed by such other regulations as the Board of Directors may establish. 10 ARTICLE VI ---------- NOTICES ------- Section 6.1 Notices. Except as otherwise specifically provided herein or ----------- ------- required by law, all notices required to be given to any stockholder, director, officer, employee or agent shall be in writing and may in every instance be effectively given by hand delivery to the recipient thereof, by depositing such notice in the mails, postage paid, or by sending such notice by prepaid telegram, mailgram, telecopy or commercial courier service. Any such notice shall be addressed to such stockholder, director, officer, employee or agent at his or her last known address as the same appears on the books of the Corporation. The time when such notice shall be deemed to be given shall be the time such notice is received by such stockholder, director, officer, employee or agent, or by any person accepting such notice on behalf of such person, if hand delivered, or the time such notice is dispatched, if delivered through the mails or by telegram, telecopy, courier or mailgram. Section 6.2 Waivers. A written waiver of any notice, signed by a ----------- ------- stockholder, director, officer, employee or agent, whether before or after the time of the event for which notice is to be given, shall be deemed equivalent to the notice required to be given to such stockholder, director, officer, employee or agent. Neither the business nor the purpose of any meeting need be specified in such a waiver. ARTICLE VII ----------- MISCELLANEOUS ------------- Section 7.1 Facsimile Signatures. In addition to the provisions for use ----------- -------------------- of facsimile signatures elsewhere specifically authorized in these bylaws, facsimile signatures of any officer or officers of the Corporation may be used whenever and as authorized by the Board of Directors or a committee thereof. Section 7.2 Corporate Seal. The Board of Directors may provide a suitable ----------- -------------- seal, containing the name of the Corporation, which seal shall be in the charge of the Secretary. If and when so directed by the Board of Directors or a committee thereof, duplicates of the seal may be kept and used by the Treasurer or by an Assistant Secretary or Assistant Treasurer. Section 7.3 Reliance Upon Books, Reports and Records. Each director, each ----------- ---------------------------------------- member of any committee designated by the Board of Directors, and each officer of the Corporation shall, in the performance of his duties, be fully protected in relying in good faith upon the books of account or other records of the Corporation, including reports made to the Corporation by any of its officers, by an independent certified public accountant, or by an appraiser. Section 7.4 Fiscal Year. The fiscal year of the Corporation shall be as ----------- ----------- fixed by the Board of Directors. 11 Section 7.5 Time Periods. In applying any provision of these bylaws which ----------- ------------ require that an act be done or not done a specified number of days prior to an event or that an act be done during a period of a specified number of days prior to an event, calendar days shall be used, the day of the doing of the act shall be excluded, and the day of the event shall be included. ARTICLE VIII ------------ INDEMNIFICATION OF DIRECTORS AND OFFICERS ----------------------------------------- Section 8.1 Right to Indemnification. Each person who was or is made a ----------- ------------------------ party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative ("proceeding"), by reason of the fact that he or she or a person of whom he or she is the legal representative, is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent in any other capacity while serving as a director, officer, employee or agent shall be indemnified and held harmless by the Corporation to the fullest extent authorized by Delaware Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said Law permitted the Corporation to provide prior to such amendment) against all expenses, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties, amounts paid or to be paid in settlement and amounts expended in seeking indemnification granted to such person under applicable law, this bylaw or any agreement with the Corporation) reasonably incurred or suffered by such person in connection therewith and such indemnification shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of his or her heirs, executors and administrators; provided, however, that, except as provided in Section 8.2 of -------- ------- this Article VIII, the Corporation shall indemnify any such person seeking indemnity in connection with an action, suit or proceeding (or part thereof) initiated by such person only if (a) such indemnification is expressly required to be made by law, (b) the action, suit or proceeding (or part thereof) was authorized by the Board of Directors of the Corporation, (c) such indemnification is provided by the Corporation, in its sole discretion, pursuant to the powers vested in the Corporation under the Delaware General Corporation Law, or (d) the action, suit or proceeding (or part thereof) is brought to establish or enforce a right to indemnification under an indemnity agreement or any other statute or law or otherwise as required under Section 145 of the Delaware General Corporation Law. Such right shall be a contract right and shall include the right to be paid by the Corporation expenses incurred in defending any such proceeding in advance of its final disposition; provided, -------- however, that, unless the Delaware General Corporation Law then so prohibits, - ------- the payment of such expenses incurred by a director or officer of the Corporation in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service to an 12 employee benefit plan) in advance of the final disposition of such proceeding, shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it should be determined ultimately that such director or officer is not entitled to be indemnified under this Section or otherwise. Section 8.2 Right of Claimant to Bring Suit. If a claim under Section 1 ----------- ------------------------------- of this Article VIII is not paid in full by the Corporation within ninety (90) days after a written claim has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and, if such suit is not frivolous or brought in bad faith, the claimant shall be entitled to be paid also the expense of prosecuting such claim. The burden of proving such claim shall be on the claimant. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any, has been tendered to this Corporation) that the claimant has not met the standards of conduct which make it permissible under the Delaware General Corporation Law for the Corporation to indemnify the claimant for the amount claimed. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that claimant has not met the applicable standard of conduct. Section 8.3 Indemnification of Employees and Agents. The Corporation may, ----------- --------------------------------------- to the extent authorized from time to time by the Board of Directors, grant rights to indemnification, and to the advancement of related expenses, to any employee or agent of the Corporation to the fullest extent of the provisions of this Article with respect to the indemnification of and advancement of expenses to directors and officers of the Corporation. Section 8.4 Non-Exclusivity of Rights. The rights conferred on any person ----------- ------------------------- in Sections 1 and 2 shall not be exclusive of any other right which such persons may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, bylaw, agreement, vote of stockholders or disinterested directors or otherwise. Section 8.5 Indemnification Contracts. The Board of Directors is ----------- ------------------------- authorized to enter into a contract with any director, officer, employee or agent of the Corporation, or any person serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including employee benefit plans, providing for indemnification rights equivalent to or, if the Board of Directors so determines, greater than, those provided for in this Article VIII. 13 Section 8.6 Insurance. The Corporation may maintain insurance, at its ----------- --------- expense, to protect itself and any such director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any such expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law. Section 8.7 Effect of Amendment. Any amendment, repeal or modification of ----------- ------------------- any provision of this Article VIII by the stockholders or the directors of the Corporation shall not adversely affect any right or protection of a director or officer of the Corporation existing at the time of such amendment, repeal or modification. ARTICLE IX ---------- AMENDMENTS ---------- Section 9.1 Amendment of Bylaws. The Board of Directors is expressly ----------- ------------------- empowered to adopt, amend or repeal Bylaws of the Corporation. Any adoption, amendment or repeal of Bylaws of the Corporation by the Board of Directors shall require the approval of a majority of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any resolution providing for adoption, amendment or repeal is presented to the Board). The stockholders shall also have power to adopt, amend or repeal the Bylaws of the Corporation. Any adoption, amendment or repeal of By-Laws of the Corporation by the stockholders shall require, in addition to any vote of the holders of any class or series of stock of the Corporation required by law or by the Certificate of Incorporation, the affirmative vote of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the then outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class. 14 EX-4.1 5 SPECIMEN OF COMMON STOCK CERTIFICATE EXHIBIT 4.1 [DECORATED CIRCULAR [DECORATED CIRCULAR DESIGN APPEARS HERE] DESIGN APPEARS HERE] ------------- -------------- Number Shares VSI ------------- VISIGENIC SOFTWARE, INC --------------- COMMON STOCK COMMON STOCK THIS CERTIFICATE IS TRANSFERABLE IN BOSTON, MA OR NEW YORK, NY INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE THIS CERTIFIES THAT SEE REVERSE FOR CERTAIN DEFINITIONS AND A STATEMENT AS TO THE RIGHTS, PREFERENCES, PRIVILEGES AND RESTRICTIONS ON SHARES IS THE OWNER OF FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK $.001 PAR VALUE PER SHARE, OF VISIGENIC SOFTWARE, INC. transferable on the books of the Corporation by the holder hereof in person or by duly authorized attorney upon surrender of this Certificate properly endorsed. This Certificate is not valid until countersigned and registered by the Transfer Agent and Registrar. WITNESS the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers. Dated: /s/ [SIGNATURE APPEARS [SEAL OF VISIGENIC SOFTWARE /s/[SIGNATURE APPEARS HERE] APPEARS HERE] HERE] CHIEF FINANCIAL OFFICER PRESIDENT AND CHIEF OPERATING OFFICER COUNTERSIGNED AND REGISTERED: THE FIRST NATIONAL BANK OF BOSTON TRANSFER AGENT AND REGISTRANT BY: /s/ [SIGNATURE APPEARS HERE] AUTHORIZED SIGNATURE A statement of the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights as established, from time to time, by the Certificate of Incorporation of the Corporation and by any certificate of determination, the number of shares constituting each class and series, and the designations thereof, may be obtained by the holder hereof upon request and without charge at the principal office of the Corporation. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian TEN ENT - as tenants by the ------- ------- entireties (Cust) (Minor) JT TEN - as joint tenants under Uniform Gifts to with right of Minors Act survivorship and -------------- not as tenants in (State) common UNIF TRF MINOR ACT - Custodian ------------- (Cust) (until age) ----------- --------------------- (Minor) under Uniform Transfers to Minors Act ------------------ (State) Additional abbreviations may also be used though not in the above list FOR VALUE RECEIVED, hereby sell, assign and ------------------------- transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE [_____________________________________] - ------------------------------------------------------------------------------- (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE) - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Shares - ------------------------------------------------------------------------ of the common stock represented by the within Certificate, and do hereby irrevocably constitute and appoint Attorney - ----------------------------------------------------------------------- to transfer the said stock on the books of the within named Corporation with full power of substitution in the premises. Dated -------------------------------- X -------------------------------------------------- X -------------------------------------------------- THE SIGNATURE(S)TO THIS ASSIGNMENT MUST NOTICE: CORRESPOND WITH THE NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. Signature(s) Guaranteed By --------------------------------- THE SIGNATURE(S) SHOULD BE GUARANTEED BY ANY ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAMS, PURSUANT TO S.E.C. RULE.17AG-15. EX-10.1 6 FORM OF INDEMNIFICATION AGMT EXHIBIT 10.1 INDEMNITY AGREEMENT This Indemnity Agreement, dated as of ____________________________, 1996 is made by and between Visigenic Software, Inc., a Delaware corporation (the "Company"), and _____________________________________________ (the "Indemnitee"). RECITALS -------- A. The Company is aware that competent and experienced persons are reluctant to serve as directors, officers or agents of corporations unless they are protected by comprehensive liability insurance or indemnification, due to exposure to litigation costs and risks resulting from their service to such corporations, and due to the fact that the exposure frequently bears no reasonable relationship to the compensation of such directors, officers and other agents. B. The statutes and judicial decisions regarding the duties of directors and officers are often difficult to apply, ambiguous, or conflicting, and therefore fail to provide such directors, officers and agents with adequate, reliable knowledge of legal risks to which they are exposed or information regarding the proper course of action to take. C. Plaintiffs often seek damages in such large amounts and the costs of litigation may be so enormous (whether or not the case is meritorious), that the defense and/or settlement of such litigation is often beyond the personal resources of directors, officers and other agents. D. The Company believes that it is unfair for its directors, officers and agents and the directors, officers and agents of its subsidiaries to assume the risk of huge judgments and other expenses which may occur in cases in which the director, officer or agent received no personal profit and in cases where the director, officer or agent was not culpable. E. The Company recognizes that the issues in controversy in litigation against a director, officer or agent of a corporation such as the Company or its subsidiaries are often related to the knowledge, motives and intent of such director, officer or agent, that he is usually the only witness with knowledge of the essential facts and exculpating circumstances regarding such matters, and that the long period of time which usually elapses before the trial or other disposition of such litigation often extends beyond the time that the director, officer or agent can reasonably recall such matters; and may extend beyond the normal time for retirement for such director, officer or agent with the result that he, after retirement or in the event of his death, his spouse, heirs, executors or administrators, may be faced with limited ability and undue hardship in maintaining an adequate defense, which may discourage such a director, officer or agent from serving in that position. F. Based upon their experience as business managers, the Board of Directors of the Company (the "Board") has concluded that, to retain and attract talented and experienced individuals to serve as directors, officers and agents of the Company and its subsidiaries and to encourage such individuals to take the business risks necessary for the success of the Company and its subsidiaries, it is necessary for the Company to contractually indemnify its directors, officers and agents and the directors, officers and agents of its subsidiaries, and to assume for itself maximum liability for expenses and damages in connection with claims against such directors, officers and agents in connection with their service to the Company and its subsidiaries, and has further concluded that the failure to provide such contractual indemnification could result in great harm to the Company and its subsidiaries and the Company's stockholders. G. Section 145 of the General Corporation Law of Delaware, under which the Company is organized ("Section 145"), empowers the Company to indemnify its directors, officers, employees and agents by agreement and to indemnify persons who serve, at the request of the Company, as the directors, officers, employees or agents of other corporations or enterprises, and expressly provides that the indemnification provided by Section 145 is not exclusive. H. The Company desires and has requested the Indemnitee to serve or continue to serve as a director, officer or agent of the Company and/or one or more subsidiaries of the Company free from undue concern for claims for damages arising out of or related to such services to the Company and/or one or more subsidiaries of the Company. I. Indemnitee is willing to serve, or to continue to serve, the Company and/or one or more subsidiaries of the Company, provided that he is furnished the indemnity provided for herein. AGREEMENT --------- NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby agree as follows: 1. Definitions. ----------- (a) Agent. For the purposes of this Agreement, "agent" of the Company ----- means any person who is or was a director, officer, employee or other agent of the Company or a subsidiary of the Company; or is or was serving at the request of, for the convenience of, or to represent the interests of the Company or a subsidiary of the Company as a director, officer, employee or agent of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise; or was a director, officer, employee or agent of another enterprise at the request of, for the convenience of, or to represent the interests of such predecessor corporation. (b) Expenses. For purposes of this Agreement, "expenses" include all -------- direct and indirect costs of any type or nature whatsoever (including, without limitation, all attorneys' fees and related disbursements, other out-of-pocket costs actually and reasonably incurred by the Indemnitee in connection with either the investigation, defense or appeal of a proceeding or establishing or enforcing a right to indemnification under this Agreement or Section 145 or otherwise); provided, however, that "expenses" shall not include any judgments, fines, ERISA excise taxes or penalties, or amounts paid in settlement of a proceeding. (c) Proceeding. For the purposes of this Agreement, "proceeding" ---------- means any threatened, pending, or completed action, suit or other proceeding, whether civil, criminal, administrative, or investigative. (d) Subsidiary. For purposes of this Agreement, "subsidiary" means ---------- any corporation of which more than 50% of the outstanding voting securities is owned directly or indirectly by the Company, by the Company and one or more other subsidiaries, or by one or more other subsidiaries. 2. Agreement to Serve. The Indemnitee agrees to serve and/or continue to ------------------ serve as agent of the Company, at its will (or under separate agreement, if such agreement exists), in the capacity Indemnitee currently serves as an agent of the Company, so long as he is duly appointed or elected and qualified in accordance with the applicable provisions of the Bylaws of the Company or 2 any subsidiary of the Company or until such time as he tenders his resignation in writing; provided, however, that nothing contained in this Agreement is intended to create any right to continued employment by Indemnitee. 3. Liability Insurance. ------------------- (a) Maintenance of D&O Insurance. The Company hereby covenants and ---------------------------- agrees that, so long as the Indemnitee shall continue to serve as an agent of the Company and thereafter so long as the Indemnitee shall be subject to any possible proceeding by reason of the fact that the Indemnitee was an agent of the Company, the Company, subject to Section 3(c), shall promptly obtain and maintain in full force and effect directors' and officers' liability insurance ("D&O Insurance") in reasonable amounts from established and reputable insurers. (b) Rights and Benefits. In all policies of D&O Insurance, the ------------------- Indemnitee shall be named as an insured in such a manner as to provide the Indemnitee the same rights and benefits as are accorded to the most favorably insured of the Company's directors, if the Indemnitee is a director; or of the Company's officers, if the Indemnitee is not a director of the Company but is an officer; or of the Company's key employees, if the Indemnitee is not a director or officer but is a key employee. (c) Limitation on Required Maintenance of D&O Insurance. --------------------------------------------------- Notwithstanding the foregoing, the Company shall have no obligation to obtain or maintain D&O Insurance if the Company determines in good faith that such insurance is not reasonably available, the premium costs for such insurance are disproportionate to the amount of coverage provided, the coverage provided by such insurance is limited by exclusions so as to provide an insufficient benefit, or the Indemnitee is covered by similar insurance maintained by a subsidiary of the Company. 4. Mandatory Indemnification. Subject to Section 9 below, the Company ------------------------- shall indemnify the Indemnitee as follows: (a) Successful Defense. To the extent the Indemnitee has been ------------------ successful on the merits or otherwise in defense of any proceeding (including, without limitation, an action by or in the right of the Company) to which the Indemnitee was a party by reason of the fact that he is or was an Agent of the Company at any time, against all expenses of any type whatsoever actually and reasonably incurred by him in connection with the investigation, defense or appeal of such proceeding. (b) Third Party Actions. If the Indemnitee is a person who was or is ------------------- a party or is threatened to be made a party to any proceeding (other than an action by or in the right of the Company) by reason of the fact that he is or was an agent of the Company, or by reason of anything done or not done by him in any such capacity, the Company shall indemnify the Indemnitee against any and all expenses and liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes and penalties, and amounts paid in settlement) actually and reasonably incurred by him in connection with the investigation, defense, settlement or appeal of such proceeding, provided the Indemnitee acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company and its stockholders, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. (c) Derivative Actions. If the Indemnitee is a person who was or is a ------------------ party or is threatened to be made a party to any proceeding by reason of the fact that he is or was an agent of the Company, or by reason of anything done or not done by him in any such capacity, the Company shall indemnify the Indemnitee against any amounts paid in settlement of any such proceeding and all 3 expenses actually and reasonably incurred by him in connection with the investigation, defense, settlement, or appeal of such proceeding, provided the Indemnitee acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company and its stockholders. The Company shall indemnify the Indemnitee against judgments, fines, and ERISA excise taxes and penalties to the same extent and subject to the same conditions as described in the immediately preceding sentence. Notwithstanding the foregoing, no indemnification under this subsection 4(c) shall be made in respect to any claim, issue or matter as to which such person shall have been finally adjudged to be liable to the Company by a court of competent jurisdiction unless and only to the extent that the court in which such proceeding was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such amounts which the court shall deem proper. (d) Actions where Indemnitee is Deceased. If the Indemnitee is a ------------------------------------ person who was or is a party or is threatened to be made a party to any proceeding by reason of the fact that he is or was an agent of the Company, or by reason of anything done or not done by him in any such capacity, and if prior to, during the pendency of after completion of such proceeding Indemnitee becomes deceased, the Company shall indemnify the Indemnitee's heirs, executors and administrators against any and all expenses and liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes and penalties, and amounts paid in settlement) actually and reasonably incurred to the extent Indemnitee would have been entitled to indemnification pursuant to Sections 4(a), 4(b), or 4(c) above were Indemnitee still alive. (e) Notwithstanding the foregoing, the Company shall not be obligated to indemnify the Indemnitee for expenses or liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes and penalties, and amounts paid in settlement) for which payment is actually made to Indemnitee under a valid and collectible insurance policy of D&O Insurance, or under a valid and enforceable indemnity clause, by-law or agreement. 5. Partial Indemnification. If the Indemnitee is entitled under any ----------------------- provision of this Agreement to indemnification by the Company for some or a portion of any expenses or liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes and penalties, and amounts paid in settlement) incurred by him in the investigation, defense, settlement or appeal of a proceeding, but not entitled, however, to indemnification for all of the total amount hereof, the Company shall nevertheless indemnify the Indemnitee for such total amount except as to the portion hereof to which the Indemnitee is not entitled. 6. Mandatory Advancement of Expenses. Subject to Section 8(a) below, the --------------------------------- Company shall advance all expenses incurred by the Indemnitee in connection with the investigation, defense, settlement or appeal of any proceeding to which the Indemnitee is a party or is threatened to be made a party by reason of the fact that the Indemnitee is or was an agent of the Company. Indemnitee hereby undertakes to repay such amounts advanced only if, and to the extent that, it shall be determined ultimately that the Indemnitee is not entitled to be indemnified by the Company as authorized hereby. The advances to be made hereunder shall be paid by the Company to the Indemnitee within twenty (20) days following delivery of a written request therefor by the Indemnitee to the Company. 4 7. Notice and Other Indemnification Procedures. ------------------------------------------- (a) Promptly after receipt by the Indemnitee of notice of the commencement of or the threat of commencement of any proceeding, the Indemnitee shall, if the Indemnitee believes that indemnification with respect thereto may be sought from the Company under this Agreement, notify the Company of the commencement or threat of commencement thereof. (b) If, at the time of the receipt of a notice of the commencement of a proceeding pursuant to Section 7(a) hereof, the Company has D&O Insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies. (c) In the event the Company shall be obligated to pay the expenses of any proceeding against the Indemnitee, the Company, if appropriate, shall be entitled to assume the defense of such proceeding, with counsel approved by the Indemnitee, upon the delivery to the Indemnitee of written notice of its election so to do. After delivery of such notice, approval of such counsel by the Indemnitee and the retention of such counsel by the Company, the Company will not be liable to the Indemnitee under this Agreement for any fees of counsel subsequently incurred by the Indemnitee with respect to the same proceeding, provided that (i) the Indemnitee shall have the right to employ his counsel in any such proceeding at the Indemnitee's expense; and (ii) if (A) the employment of counsel by the Indemnitee has been previously authorized by the Company, (B) the Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and the Indemnitee in the conduct of any such defense, or (C) the Company shall not, in fact, have employed counsel to assume the defense of such proceeding, then the fees and expenses of Indemnitee's counsel shall be at the expense of the Company. 8. Exceptions. Any other provision herein to the contrary ---------- notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement: (a) Claims Initiated by Indemnitee. To indemnify or advance expenses ------------------------------ to the Indemnitee with respect to proceedings or claims initiated or brought voluntarily by the Indemnitee and not by way of defense, unless (i) such indemnification is expressly required to be made by law, (ii) the proceeding was authorized by the Board, (iii) such indemnification is provided by the Company, in its sole discretion, pursuant to the powers vested in the Company under the General Corporation Law of Delaware or (iv) the proceeding is brought to establish or enforce a right to indemnification under this Agreement or any other statute or law or otherwise as required under Section 145. (b) Lack of Good Faith. To indemnify the Indemnitee for any expenses ------------------ incurred by the Indemnitee with respect to any proceeding instituted by the Indemnitee to enforce or interpret this Agreement, if a court of competent jurisdiction determines that the proceeding was not brought by the Indemnitee in good faith or was frivolous; or (c) Unauthorized Settlements. To indemnify the Indemnitee under this ------------------------ Agreement for any amounts paid in settlement of a proceeding unless the Company consents to such settlement, which consent shall not be unreasonably withheld. 5 9. Non-exclusivity. The provisions for indemnification and advancement -------------- of-expenses set forth in this Agreement shall not be deemed exclusive of any other rights which the Indemnitee may have under any provision of law, the Company's Certificate of Incorporation or Bylaws, the vote of the Company's stockholders or disinterested directors, other agreements, or otherwise, both as to action in his official capacity and to action in another capacity while occupying his position as an agent of the Company, and the Indemnitee's rights hereunder shall continue after the Indemnitee has ceased acting as an agent of the Company and shall inure to the benefit of the heirs, executors and administrators of the Indemnitee. 10. Enforcement. Any right to indemnification or advances granted by ----------- this Agreement to Indemnitee shall be enforceable by or on behalf of Indemnitee in any court of competent jurisdiction if (i) the claim for indemnification or advances is denied, in whole or in part, or (ii) no disposition of such claim is made within ninety (90) days of request therefor. Indemnitee, in such enforcement action, if successful in whole or in part, shall be entitled to be paid also the expense of prosecuting his claim. It shall be a defense to any action for which a claim for indemnification is made under this Agreement (other than an action brought to enforce a claim for expenses pursuant to Section 6 hereof, provided that the required undertaking has been tendered to the Company) that Indemnitee is not entitled to indemnification because of the limitations set forth in Sections 4 and 8 hereof. Neither the failure of the Corporation (including its Board of Directors or its stockholders) to have made a determination prior to the commencement of such enforcement action that indemnification of Indemnitee is proper in the circumstances, nor an actual determination by the Company (including its Board of Directors or its stockholders) that such indemnification is improper, shall be a defense to the action or create a presumption that Indemnitee is not entitled to indemnification under this Agreement or otherwise. 11. Subrogation. In the event of payment under this Agreement, the ----------- Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Company effectively to bring suit to enforce such rights. 12. Survival of Rights. ------------------ (a) All agreements and obligations of the Company contained herein shall continue during the period Indemnitee is an agent of the Company and shall continue thereafter so long as Indemnitee shall be subject to any possible claim or threatened, pending or completed action, suit or proceeding, whether civil, criminal, arbitrational, administrative or investigative, by reason of the fact that Indemnitee was serving in the capacity referred to herein. (b) The Company shall require any successor to the Company (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. 13. Interpretation of Agreement. It is understood that the parties hereto --------------------------- intend this Agreement to be interpreted and enforced so as to provide indemnification to the Indemnitee to the fullest extent permitted by law including those circumstances in which indemnification would otherwise be discretionary. 6 14. Severability. If any provision or provisions of this Agreement shall ------------ be held to be invalid, illegal or unenforceable for any reason whatsoever, (i) the validity, legality and enforceability of the remaining provisions of the Agreement (including without limitation, all portions of any paragraphs of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby, and (ii) to the fullest extent possible, the provisions of this Agreement (including, without limitation, all portions of any paragraph of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable and to give effect to Section 13 hereof. 15. Modification and Waiver. No supplement, modification or amendment of ----------------------- this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver. 16. Notice. All notices, requests, demands and other communications under ------ this Agreement shall be in writing and shall be deemed duly given (i) if delivered by hand and receipted for by the party addressee or (ii) if mailed by certified or registered mail with postage prepaid, on the third business day after the mailing date. Addresses for notice to either party are as shown on the signature page of this Agreement, or as subsequently modified by written notice. 17. Governing Law. This Agreement shall be governed exclusively by and ------------- construed according to the laws of the State of Delaware as applied to contracts between Delaware residents entered into and to be performed entirely within Delaware. The parties hereto have entered into this Indemnity Agreement effective as of the date first above written. VISIGENIC SOFTWARE, INC. By ----------------------------------- Title ----------------------------------- Address: 951 Mariner's Island Blvd., Suite 460 San Mateo, California 94404 INDEMNITEE: ----------------------------------------- [Indemnitee's Printed Name] Address: ----------------------------------------- ----------------------------------------- 7 EX-10.3 7 1996 EMPLOYEE STOCK PURCHASE PLAN EXHIBIT 10.3 VISIGENIC SOFTWARE, INC. 1996 EMPLOYEE STOCK PURCHASE PLAN 1. ESTABLISHMENT, PURPOSE AND TERM OF PLAN. --------------------------------------- 1.1 ESTABLISHMENT. The Visigenic Software, Inc. 1996 Employee Stock Purchase Plan (the "PLAN") is established effective as of the effective date of the initial registration by the Company of its Stock under Section 12 of the Exchange Act (the "EFFECTIVE DATE"). 1.2 PURPOSE. The purpose of the Plan is to provide Eligible Employees of the Participating Company Group with an opportunity to acquire a proprietary interest in the Company through the purchase of Stock. The Company intends that the Plan shall qualify as an "employee stock purchase plan" under Section 423 of the Code (including any amendments or replacements of such section), and the Plan shall be so construed. 1.3 TERM OF PLAN. The Plan shall continue in effect until the earlier of its termination by the Board or the date on which all of the shares of Stock available for issuance under the Plan have been issued. 2. DEFINITIONS AND CONSTRUCTION. ---------------------------- 2.1 DEFINITIONS. Any term not expressly defined in the Plan but defined for purposes of Section 423 of the Code shall have the same definition herein. Whenever used herein, the following terms shall have their respective meanings set forth below: (a) "BOARD" means the Board of Directors of the Company. If one or more Committees have been appointed by the Board to administer the Plan, "Board" also means such Committee(s). (b) "CODE" means the Internal Revenue Code of 1986, as amended, and any applicable regulations promulgated thereunder. (c) "COMMITTEE" means a committee of the Board duly appointed to administer the Plan and having such powers as shall be specified by the Board. Unless the powers of the Committee have been specifically limited, the Committee shall have all of the powers of the Board granted herein, including, without limitation, the power to amend or terminate the Plan at any time, subject to the terms of the Plan and any applicable limitations imposed by law. (d) "COMPANY" means Visigenic Software, Inc., a Delaware corporation, or any successor corporation thereto. 1 (e) "COMPENSATION" means, with respect to an Offering Period under the Plan, a Participant's base salary, bonuses, and commissions paid in cash during such Offering Period before deduction for any contributions to any plan maintained by a Participating Company and described in Section 401(k) or Section 125 of the Code. Compensation shall not include other incentive payments, reimbursements of expenses, allowances, long-term disability, workers' compensation or any amount deemed received without the actual transfer of cash or any amounts directly or indirectly paid pursuant to the Plan or any other stock purchase or stock option plan. (f) "ELIGIBLE EMPLOYEE" means an Employee who meets the requirements set forth in Section 5 for eligibility to participate in the Plan. (g) "EMPLOYEE" means any person treated as an employee (including an officer or a director who is also treated as an employee) in the records of a Participating Company and for purposes of Section 423 of the Code; provided, however, that neither service as a director nor payment of a director's fee shall be sufficient to constitute employment for purposes of the Plan. (h) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. (i) "FAIR MARKET VALUE" means, as of any date, if there is then a public market for the Stock, the closing price of a share of Stock (or the mean of the closing bid and asked prices of a share of Stock if the Stock is so reported instead) as reported on the National Association of Securities Dealers Automated Quotation ("NASDAQ") System, the NASDAQ National Market System or such other national or regional securities exchange or market system constituting the primary market for the Stock. If the relevant date does not fall on a day on which the Stock is trading on NASDAQ, the NASDAQ National Market System or other national or regional securities exchange or market system, the date on which the Fair Market Value shall be established shall be the last day on which the Stock was so traded prior to the relevant date, or such other appropriate day as shall be determined by the Board, in its sole discretion. If there is then no public market for the Stock, the Fair Market Value on any relevant date shall be as determined by the Board without regard to any restriction other than a restriction which, by its terms, will never lapse. Notwithstanding the foregoing, the Fair Market Value per share of Stock on the Effective Date shall be deemed to be the public offering price set forth in the final prospectus filed with the Securities and Exchange Commission in connection with the initial public offering of the Stock. (j) "OFFERING" means an offering of Stock as provided in Section 6. (k) "OFFERING DATE" means, for any Offering Period, the first day of such Offering Period. 2 (l) "OFFERING PERIOD" means a period determined in accordance with Section 6.1. (m) "PARENT CORPORATION" means any present or future "parent corporation" of the Company, as defined in Section 424(e) of the Code. (n) "PARTICIPANT" means an Eligible Employee participating in the Plan. (o) "PARTICIPATING COMPANY" means the Company or any Parent Corporation or Subsidiary Corporation designated by the Board for inclusion in the Plan. The Board shall have the sole and absolute discretion to determine from time to time which Parent Corporations or Subsidiary Corporations shall be Participating Companies. (p) "PARTICIPATING COMPANY GROUP" means, at any point in time, the Company and all other corporations collectively which are then Participating Companies. (q) "PURCHASE DATE" means, for any Offering Period (or Purchase Period if so determined by the Board in accordance with Section 6.2), the last day of such period. (r) "PURCHASE PERIOD" means a period, if any, determined in accordance with Section 6.2. (s) "PURCHASE PRICE" means the price at which a share of Stock may be purchased pursuant to the Plan, as determined in accordance with Section 9. (t) "PURCHASE RIGHT" means an option pursuant to the Plan to purchase shares of Stock as provided in Section 8 which may or may not be exercised during an Offering Period. Such option arises from the right of a Participant to withdraw any accumulated payroll deductions of the Participant not previously applied to the purchase of Stock under the Plan and to terminate participation in the Plan or any Offering therein at any time during an Offering Period. (u) "STOCK" means the common stock of the Company, as adjusted from time to time in accordance with Section 4.2. (v) "SUBSIDIARY CORPORATION" means any present or future "subsidiary corporation" of the Company, as defined in Section 424(f) of the Code. 2.2 CONSTRUCTION. Captions and titles contained herein are for convenience only and shall not affect the meaning or interpretation of any provision of the Plan. Except when otherwise indicated by the context, the singular shall include the plural, the plural shall include the singular, and use of the term "or" shall include the conjunctive as well as the disjunctive. 3 3. ADMINISTRATION. The Plan shall be administered by the Board, including -------------- any duly appointed Committee of the Board. All questions of interpretation of the Plan or of any Purchase Right shall be determined by the Board and shall be final and binding upon all persons having an interest in the Plan or the Purchase Right. Subject to the provisions of the Plan, the Board shall determine all of the relevant terms and conditions of Purchase Rights granted pursuant to the Plan; provided, however, that all Participants granted Purchase Rights pursuant to the Plan shall have the same rights and privileges within the meaning of Section 423(b)(5) of the Code. All expenses incurred in connection with the administration of the Plan shall be paid by the Company. 4. SHARES SUBJECT TO PLAN. ---------------------- 4.1 MAXIMUM NUMBER OF SHARES ISSUABLE. Subject to adjustment as provided in Section 4.2, the maximum aggregate number of shares of Stock that may be issued under the Plan shall be four hundred fifty thousand (450,000) and shall consist of authorized but unissued or reacquired shares of the Stock, or any combination thereof. If an outstanding Purchase Right for any reason expires or is terminated or canceled, the shares of Stock allocable to the unexercised portion of such Purchase Right shall again be available for issuance under the Plan. 4.2 ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of any stock dividend, stock split, reverse stock split, recapitalization, combination, reclassification or similar change in the capital structure of the Company, or in the event of any merger (including a merger effected for the purpose of changing the Company's domicile), sale of assets or other reorganization in which the Company is a party, appropriate adjustments shall be made in the number and class of shares subject to the Plan, the Per Offering Share Limit set forth in Section 8.1 and each Purchase Right and in the Purchase Price. 5. ELIGIBILITY. ----------- 5.1 EMPLOYEES ELIGIBLE TO PARTICIPATE. Any Employee of a Participating Company is eligible to participate in the Plan except the following: (a) Employees who are customarily employed by the Participating Company Group for twenty (20) hours or less per week; (b) Employees who are customarily employed by the Participating Company Group for not more than five (5) months in any calendar year; and (c) Employees who own or hold options to purchase or who, as a result of participation in the Plan, would own or hold options to purchase, stock of the Company or of any Parent Corporation or Subsidiary Corporation possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of such corporation within the meaning of Section 423(b)(3) of the Code. 4 5.2 LEASED EMPLOYEES EXCLUDED. Notwithstanding anything herein to the contrary, any individual performing services for a Participating Company solely through a leasing agency or employment agency shall not be deemed an "Employee" of such Participating Company. 6. OFFERINGS. --------- 6.1 OFFERING PERIODS. Except as otherwise set forth below, the Plan shall be implemented by sequential Offerings of approximately six (6) months duration (an "OFFERING PERIOD"); provided, however that the first Offering Period shall commence on the Effective Date and end on January 31, 1997 (the "INITIAL OFFERING PERIOD"). Subsequent Offerings shall commence on the first days of February and August of each year and end on the last days of the next July and January, respectively, occurring thereafter. Notwithstanding the foregoing, the Board may establish a different term for one or more Offerings or different commencing or ending dates for such Offerings; provided, however, that no Offering may exceed a term of twenty-seven (27) months. An Employee who becomes an Eligible Employee after an Offering Period has commenced shall not be eligible to participate in such Offering but may participate in any subsequent Offering provided such Employee is still an Eligible Employee as of the commencement of any such subsequent Offering. Eligible Employees may not participate in more than one Offering at a time. In the event the first or last day of an Offering Period is not a business day, the Company shall specify the business day that will be deemed the first or last day, as the case may be, of the Offering Period. 6.2 PURCHASE PERIODS. If the Board so determines, in its discretion, each Offering Period may consist of two (2) or more consecutive purchase periods having such duration as the Board shall specify (individually, a "PURCHASE PERIOD"), and the last day of each such Purchase Period shall be a Purchase Date. In the event the first or last day of a Purchase Period is not a business day, the Company shall specify the business day that will be deemed the first or last day, as the case may be, of the Purchase Period. 6.3 GOVERNMENTAL APPROVAL; STOCKHOLDER APPROVAL. Notwithstanding any other provision of the Plan to the contrary, any Purchase Right granted pursuant to the Plan shall be subject to (a) obtaining all necessary governmental approvals or qualifications of the sale or issuance of the Purchase Rights or the shares of Stock and (b) obtaining stockholder approval of the Plan. 7. PARTICIPATION IN THE PLAN. ------------------------- 7.1 INITIAL PARTICIPATION. An Eligible Employee shall become a Participant on the first Offering Date after satisfying the eligibility requirements of Section 5 and delivering to the Company's payroll office or other office designated by the Company not later than the close of business for such office on the last business day before such Offering Date (the "SUBSCRIPTION DATE") a subscription agreement indicating the Employee's election to participate in the Plan and authorizing payroll 5 deductions. An Eligible Employee who does not deliver a subscription agreement to the Company's payroll or other designated office on or before the Subscription Date shall not participate in the Plan for that Offering Period or for any subsequent Offering Period unless such Employee subsequently enrolls in the Plan by filing a subscription agreement with the Company by the Subscription Date for such subsequent Offering Period. The Company may, from time to time, change the Subscription Date as deemed advisable by the Company in its sole discretion for proper administration of the Plan. 7.2 CONTINUED PARTICIPATION. A Participant shall automatically participate in the Offering Period commencing immediately after the final Purchase Date of each Offering Period in which the Participant participates until such time as the Participant (a) ceases to be an Eligible Employee, (b) withdraws from the Plan pursuant to Section 13.2 or (c) terminates employment as provided in Section 14. If a Participant automatically may participate in a subsequent Offering Period pursuant to this Section 7.2, then the Participant is not required to file any additional subscription agreement for the subsequent Offering Period in order to continue participation in the Plan. However, a Participant may file a subscription agreement for a subsequent Offering Period if the Participant desires to change any of the Participant's elections contained in the Participant's then effective subscription agreement. 8. RIGHT TO PURCHASE SHARES. ------------------------ 8.1 PURCHASE RIGHT. Except as set forth below, during an Offering Period each Participant in the Offering Period shall have a Purchase Right consisting of the right to purchase that number of whole shares of Stock determined by dividing Twelve Thousand Five Hundred Dollars ($12,500) by the Fair Market Value of a share of Stock on the Offering Date of the Offering Period; provided, however, that such number shall not exceed one thousand five hundred (1,500) shares (the "PER OFFERING SHARE LIMIT"). Shares of Stock may only be purchased through a Participant's payroll deductions pursuant to Section 10. 8.2 PRO RATA ADJUSTMENT OF PURCHASE RIGHT. Notwithstanding the foregoing, if the Board establishes an Offering Period of less than five and one-half (5 1/2) months or more than six and one-half (6 1/2) months in duration (a) the dollar amount in Section 8.1 shall be determined by multiplying $2,083.33 by the number of months in the Offering Period and rounding to the nearest whole dollar, and (b) the Per Offering Share Limit shall be determined by multiplying 250 shares by the number of months in the Offering Period and rounding to the nearest whole share. For purposes of the preceding sentence, fractional months shall be rounded to the nearest whole month. 9. PURCHASE PRICE. The Purchase Price at which each share of Stock may be -------------- acquired in a given Offering Period pursuant to the exercise of all or any portion of a Purchase Right shall be set by the Board; provided, however, that the Purchase Price shall not be less than eighty-five percent (85%) of the lesser of (a) the Fair Market Value of a share of Stock on the Offering Date of the Offering Period, or (b) the Fair 6 Market Value of a share of Stock on the Purchase Date. Unless otherwise provided by the Board prior to the commencement of an Offering Period, the Purchase Price for that Offering Period shall be eighty-five percent (85%) of the lesser of (a) the Fair Market Value of a share of Stock on the Offering Date of the Offering Period, or (b) the Fair Market Value of a share of Stock on the Purchase Date. 10. ACCUMULATION OF PURCHASE PRICE THROUGH PAYROLL DEDUCTION. Shares of -------------------------------------------------------- Stock which are acquired pursuant to the exercise of all or any portion of a Purchase Right for an Offering Period may be paid for only by means of payroll deductions from the Participant's Compensation accumulated during the Offering Period. Except as set forth below, the amount of Compensation to be deducted from a Participant's Compensation on each payday during an Offering Period shall be determined by the Participant's subscription agreement. 10.1 COMMENCEMENT OF PAYROLL DEDUCTIONS. Payroll deductions shall commence on the first payday following the Offering Date and shall continue to the end of the Offering Period unless sooner altered or terminated as provided in the Plan. 10.2 LIMITATIONS ON PAYROLL DEDUCTIONS. The amount deducted from a Participant's Compensation on any payday during an Offering Period pursuant to the Participant's subscription agreement shall be in one percent (1%) increments not exceeding ten percent (10%) of the Participant's Compensation on such payday. Notwithstanding the foregoing, the Board may change the limits on payroll deductions effective as of a future Offering Date, as determined by the Board. Amounts deducted from Compensation shall be reduced by any amounts contributed by the Participant and applied to the purchase of Company stock pursuant to any other employee stock purchase plan qualifying under Section 423 of the Code. 10.3 ELECTION TO DECREASE OR STOP PAYROLL DEDUCTIONS. During an Offering Period, a Participant may elect to decrease the amount deducted or stop deductions from his or her Compensation by filing an amended subscription agreement with the Company on or before the "Change Notice Date." The "CHANGE NOTICE DATE" shall initially be the seventh (7th) day prior to the end of the first pay period for which such election is to be effective; however, the Company may change the Change Notice Date from time to time. A Participant may not elect to increase the amount deducted from the Participant's Compensation during an Offering Period. 10.4 PARTICIPANT ACCOUNTS. Individual Plan accounts shall be maintained for each Participant. All payroll deductions from a Participant's Compensation shall be credited to such account and shall be deposited with the general funds of the Company. All payroll deductions received or held by the Company may be used by the Company for any corporate purpose. 10.5 NO INTEREST PAID. Interest shall not be paid on sums deducted from a Participant's Compensation pursuant to the Plan. 7 10.6 COMPANY ESTABLISHED PROCEDURES. The Company may, from time to time, establish or change (a) a minimum required payroll deduction amount for participation in an Offering, (a) limitations on the frequency or number of changes in the rate of payroll deduction during an Offering, (c) an exchange ratio applicable to amounts withheld in a currency other than U.S. dollars, (d) payroll deduction in excess of or less than the amount designated by a Participant in order to adjust for delays or mistakes in the Company's processing of subscription agreements, (e) the date(s) and manner by which the Fair Market Value of a share of Stock is determined for purposes of administration of the Plan, or (vi) such other limitations or procedures as deemed advisable by the Company in the Company's sole discretion which are consistent with the Plan and in accordance with the requirements of Section 423 of the Code. 11. PURCHASE OF SHARES. ------------------ 11.1 EXERCISE OF PURCHASE RIGHT. On each Purchase Date of an Offering Period, each Participant who has not withdrawn from the Offering or whose participation in the Offering has not terminated on or before such Purchase Date shall automatically acquire pursuant to the exercise of the Participant's Purchase Right the number of whole shares of Stock determined by dividing the total amount of the Participant's accumulated payroll deductions for the Offering Period not previously applied toward the purchase of Stock by the Purchase Price; provided, however, in no event shall the number of shares purchased by the Participant during an Offering Period exceed the number of shares subject to the Participant's Purchase Right. No shares of Stock shall be purchased on a Purchase Date on behalf of a Participant whose participation in the Offering or the Plan has terminated on or before such Purchase Date. 11.2 RETURN OF CASH BALANCE. Any cash balance remaining in the Participant's Plan account shall be refunded to the Participant as soon as practicable after the Purchase Date. However, if the cash to be returned to a Participant pursuant to the preceding sentence is an amount less than the amount necessary to purchase a whole share of Stock, the Company may establish procedures whereby such cash is maintained in the Participant's Plan account and applied toward the purchase of shares of Stock in the subsequent Offering Period (or Purchase Period, as the case may be). 11.3 TAX WITHHOLDING. At the time a Participant's Purchase Right is exercised, in whole or in part, or at the time a Participant disposes of some or all of the shares of Stock he or she acquires under the Plan, the Participant shall make adequate provision for the foreign, federal, state and local tax withholding obligations of the Participating Company Group, if any, which arise upon exercise of the Purchase Right or upon such disposition of shares, respectively. The Participating Company Group may, but shall not be obligated to, withhold from the Participant's compensation the amount necessary to meet such withholding obligations. 8 11.4 EXPIRATION OF PURCHASE RIGHT. Any portion of a Participant's Purchase Right remaining unexercised after the end of the Offering Period to which the Purchase Right relates shall expire immediately upon the end of the Offering Period. 11.5 REPORTS TO PARTICIPANTS. Each Participant who has exercised all or part of his or her Purchase Right shall receive, as soon as practicable after the Purchase Date, a report of such Participant's Plan account setting forth the total payroll deductions accumulated, the number of shares of Stock purchased, the Purchase Price for such shares, the date of purchase and the remaining cash balance to be refunded or retained in the Participant's Plan account pursuant to Section 11.2, if any. In addition, each Participant shall be provided information concerning the Company equivalent to that information generally made available to the Company's common stockholders. 12. LIMITATIONS ON PURCHASE OF SHARES; RIGHTS AS A STOCKHOLDER. ---------------------------------------------------------- 12.1 FAIR MARKET VALUE LIMITATION. Notwithstanding any other provision of the Plan, no Participant shall be entitled to purchase shares of Stock under the Plan (or any other employee stock purchase plan intended to meet the requirements of Section 423 of the Code sponsored by the Company or a Parent Corporation or Subsidiary Corporation) at a rate which exceeds $25,000 (or such other limit as may be imposed by the Code) in Fair Market Value for each calendar year in which the Participant participates in the Plan (or any other employee stock purchase plan described in this sentence). For purposes of the preceding sentence, the Fair Market Value of shares purchased during a given Offering Period shall be determined as of the Offering Date for such Offering Period. The limitation described in this Section 12.1 shall be applied in conformance with applicable regulations under Section 423 of the Code. 12.2 PRO RATA ALLOCATION. In the event the number of shares of Stock which might be purchased by all Participants in the Plan exceeds the number of shares of Stock available in the Plan as provided in Section 4.1, the Company shall make a pro rata allocation of the remaining shares in as uniform a manner as shall be practicable and as the Company shall determine to be equitable. 12.3 RIGHTS AS A STOCKHOLDER AND EMPLOYEE. A Participant shall have no rights as a stockholder by virtue of the Participant's participation in the Plan until the date of the issuance of a stock certificate for the shares of Stock being purchased pursuant to the exercise of the Participant's Purchase Right. No adjustment shall be made for cash dividends or distributions or other rights for which the record date is prior to the date such stock certificate is issued. Nothing herein shall confer upon a Participant any right to continue in the employ of the Participating Company Group or interfere in any way with any right of the Participating Company Group to terminate the Participant's employment at any time. 9 13. WITHDRAWAL. ---------- 13.1 WITHDRAWAL FROM AN OFFERING. A Participant may withdraw from an Offering by signing and delivering to the Company's payroll or other designated office a written notice of withdrawal on a form provided by the Company for such purpose. Such withdrawal may be elected at any time prior to the end of an Offering Period; provided, however, if a Participant withdraws after a Purchase Date, the withdrawal shall not affect shares of Stock acquired by the Participant on such Purchase Date. Unless otherwise indicated, withdrawal from an Offering shall not result in a withdrawal from the Plan or any succeeding Offering therein. A Participant is prohibited from again participating in an Offering at any time following withdrawal from such Offering. The Company may impose, from time to time, a requirement that the notice of withdrawal be on file with the Company's payroll office or other designated office for a reasonable period prior to the effectiveness of the Participant's withdrawal from an Offering. 13.2 WITHDRAWAL FROM THE PLAN. A Participant may withdraw from the Plan by signing and delivering to the Company's payroll office or other designated office a written notice of withdrawal on a form provided by the Company for such purpose. Withdrawals made after a Purchase Date shall not affect shares of Stock acquired by the Participant on such Purchase Date. In the event a Participant voluntarily elects to withdraw from the Plan, the Participant may not resume participation in the Plan during the same Offering Period, but may participate in any subsequent Offering under the Plan by again satisfying the requirements of Sections 5 and 7.1. The Company may impose, from time to time, a requirement that the notice of withdrawal be on file with the Company's payroll office or other designated office for a reasonable period prior to the effectiveness of the Participant's withdrawal from the Plan. 13.3 RETURN OF PAYROLL DEDUCTIONS. Upon a Participant's withdrawal from an Offering or the Plan pursuant to Sections 13.1 or 13.2, respectively, the Participant's accumulated payroll deductions which have not been applied toward the purchase of shares of Stock shall be returned as soon as practicable after the withdrawal, without the payment of any interest, to the Participant, and the Participant's interest in the Offering or the Plan, as applicable, shall terminate. Such accumulated payroll deductions may not be applied to any other Offering under the Plan. 13.4 WAIVER OF WITHDRAWAL RIGHT. The Company may, from time to time, establish a procedure pursuant to which a Participant may elect, at least six (6) months prior to a Purchase Date, to have all payroll deductions accumulated in his or her Plan account as of such Purchase Date applied to purchase shares of Stock under the Plan, and (a) to waive his or her right to withdraw from the Offering or the Plan and (b) to waive his or her right to increase, decrease, or cease payroll deductions under the Plan from his or her Compensation during the period ending on such Purchase Date. Such election shall be made in writing on a form provided by the Company for such purpose and must be delivered to the Company not later than the 10 close of business on the day preceding the date which is six (6) months before the Purchase Date for which such election is to first be effective. 14. TERMINATION OF EMPLOYMENT OR ELIGIBILITY. Termination of a ---------------------------------------- Participant's employment with the Participating Company Group for any reason, including retirement, disability or death or the failure of a Participant to remain an Eligible Employee, shall terminate the Participant's participation in the Plan immediately. In such event, the payroll deductions credited to the Participant's Plan account since the last Purchase Date shall, as soon as practicable, be returned to the Participant or, in the case of the Participant's death, to the Participant's legal representative, and all of the Participant's rights under the Plan shall terminate. Interest shall not be paid on sums returned to a Participant pursuant to this Section 14. A Participant whose participation has been so terminated may again become eligible to participate in the Plan by again satisfying the requirements of Sections 5 and 7.1. 15. TRANSFER OF CONTROL. ------------------- 15.1 DEFINITIONS. (a) An "OWNERSHIP CHANGE EVENT" shall be deemed to have occurred if any of the following occurs with respect to the Company: (i) the direct or indirect sale or exchange in a single or series of related transactions by the stockholders of the Company of more than fifty percent (50%) of the voting stock of the Company; (ii) a merger or consolidation in which the Company a party; (iii) the sale, exchange, or transfer of all or substantially all of the assets of the Company; or (iv) a liquidation or dissolution of the Company. (b) A "TRANSFER OF CONTROL" shall mean an Ownership Change Event or a series of related Ownership Change Events (collectively, the "TRANSACTION") wherein the stockholders of the Company immediately before the Transaction do not retain immediately after the Transaction, in substantially the same proportions as their ownership of shares of the Company's voting stock immediately before the Transaction, direct or indirect beneficial ownership of more than fifty percent (50%) of the total combined voting power of the outstanding voting stock of the Company or the corporation or corporations to which the assets of the Company were transferred (the "TRANSFEREE CORPORATION(S)"), as the case may be. For purposes of the preceding sentence, indirect beneficial ownership shall include, without limitation, an interest resulting from ownership of the voting stock of one or more corporations which, as a result of the Transaction, own the Company or the Transferee Corporation(s), as the case may be, either directly or through one or more subsidiary corporations. The Board shall have the right to determine whether multiple sales or exchanges of the voting stock of the Company or multiple Ownership Change Events are related, and its determination shall be final, binding and conclusive. 15.2 EFFECT OF TRANSFER OF CONTROL ON PURCHASE RIGHTS. In the event of a Transfer of Control, the surviving, continuing, successor, or purchasing corporation 11 or parent corporation thereof, as the case may be (the "ACQUIRING CORPORATION"), may assume the Company's rights and obligations under the Plan or substitute substantially equivalent Purchase Rights for stock of the Acquiring Corporation. If the Acquiring Corporation elects not to assume or substitute for the outstanding Purchase Rights, the Board may, in its sole discretion and notwithstanding any other provision herein to the contrary, adjust the Purchase Date of the then current Purchase Period to a date on or before the date of the Transfer of Control, but shall not adjust the number of shares of Stock subject to any Purchase Right. All Purchase Rights which are neither assumed or substituted for by the Acquiring Corporation in connection with the Transfer of Control nor exercised as of the date of the Transfer of Control shall terminate and cease to be outstanding effective as of the date of the Transfer of Control. Notwithstanding the foregoing, if the corporation the stock of which is subject to the outstanding Purchase Rights immediately prior to an Ownership Change Event described in Section 15.1(a)(i) constituting a Transfer of Control is the surviving or continuing corporation and immediately after such Ownership Change Event less than fifty percent (50%) of the total combined voting power of its voting stock is held by another corporation or by other corporations that are members of an affiliated group within the meaning of section 1504(a) of the Code without regard to the provisions of section 1504(b) of the Code, the outstanding Purchase Rights shall not terminate unless the Board otherwise provides in its sole discretion. 16. NONTRANSFERABILITY OF PURCHASE RIGHTS. A Purchase Right may not be ------------------------------------- transferred in any manner otherwise than by will or the laws of descent and distribution and shall be exercisable during the lifetime of the Participant only by the Participant. The Company, in its absolute discretion, may impose such restrictions on the transferability of the shares purchasable upon the exercise of a Purchase Right as it deems appropriate and any such restriction shall be set forth in the respective subscription agreement and may be referred to on the certificates evidencing such shares. 17. RESTRICTION ON ISSUANCE OF SHARES. The issuance of shares under the --------------------------------- Plan shall be subject to compliance with all applicable requirements of foreign, federal or state law with respect to such securities. A Purchase Right may not be exercised if the issuance of shares upon such exercise would constitute a violation of any applicable foreign, federal or state securities laws or other law or regulations. In addition, no Purchase Right may be exercised unless (a) a registration statement under the Securities Act of 1933, as amended, shall at the time of exercise of the Purchase Right be in effect with respect to the shares issuable upon exercise of the Purchase Right, or (b) in the opinion of legal counsel to the Company, the shares issuable upon exercise of the Purchase Right may be issued in accordance with the terms of an applicable exemption from the registration requirements of said Act. The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if any, deemed by the Company's legal counsel to be necessary to the lawful issuance and sale of any shares under the Plan 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. As a condition to the exercise of a 12 Purchase Right, the Company may require the Participant to satisfy any qualifications that may be necessary or appropriate, to evidence compliance with any applicable law or regulation, and to make any representation or warranty with respect thereto as may be requested by the Company. 18. LEGENDS. The Company may at any time place legends or other ------- identifying symbols referencing any applicable foreign, federal or state securities law restrictions or any provision convenient in the administration of the Plan on some or all of the certificates representing shares of Stock issued under the Plan. The Participant shall, at the request of the Company, promptly present to the Company any and all certificates representing shares acquired pursuant to a Purchase Right in the possession of the Participant in order to carry out the provisions of this Section. Unless otherwise specified by the Company, legends placed on such certificates may include but shall not be limited to the following: "THE SHARES EVIDENCED BY THIS CERTIFICATE WERE ISSUED BY THE CORPORATION TO THE REGISTERED HOLDER UPON THE PURCHASE OF SHARES UNDER AN EMPLOYEE STOCK PURCHASE PLAN AS DEFINED IN SECTION 423 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED. THE TRANSFER AGENT FOR THE SHARES EVIDENCED HEREBY SHALL NOTIFY THE CORPORATION IMMEDIATELY OF ANY TRANSFER OF THE SHARES BY THE REGISTERED HOLDER HEREOF MADE ON OR BEFORE ______________, 19__. THE REGISTERED HOLDER SHALL HOLD ALL SHARES PURCHASED UNDER THE PLAN IN THE REGISTERED HOLDER'S NAME (AND NOT IN THE NAME OF ANY NOMINEE) PRIOR TO THIS DATE." 19. NOTIFICATION OF SALE OF SHARES. The Company may require the ------------------------------ Participant to give the Company prompt notice of any disposition of shares acquired by exercise of a Purchase Right within two years from the date of granting such Purchase Right or one year from the date of exercise of such Purchase Right. The Company may require that until such time as a Participant disposes of shares acquired upon exercise of a Purchase Right, the Participant shall hold all such shares in the Participant's name (and not in the name of any nominee) until the lapse of the time periods with respect to such Purchase Right referred to in the preceding sentence. The Company may direct that the certificates evidencing shares acquired by exercise of a Purchase Right refer to such requirement to give prompt notice of disposition. 20. AMENDMENT OR TERMINATION OF THE PLAN. The Board may at any time amend ------------------------------------ or terminate the Plan, except that (a) such termination shall not affect Purchase Rights previously granted under the Plan, except as permitted under the Plan, and (b) no amendment may adversely affect a Purchase Right previously granted under the Plan (except to the extent permitted by the Plan or as may be necessary to qualify the Plan as an employee stock purchase plan pursuant to Section 423 of the Code or to obtain qualification or registration of the shares of Stock under applicable foreign, federal or state securities laws). In addition, an amendment to the Plan must be approved by the stockholders of the Company 13 within twelve (12) months of the adoption of such amendment if such amendment would authorize the sale of more shares than are authorized for issuance under the Plan or would change the definition of the corporations that may be designated by the Board as Participating Companies. IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies that the foregoing Visigenic Software, Inc. 1996 Employee Stock Purchase Plan was duly adopted by the Board of Directors of the Company on June 17, 1996. _______________________________________ Secretary 14 PLAN HISTORY June 17, 1996 Board adopts Plan, with an initial reserve of 450,000 shares. ________, 1996 Stockholders approve Plan, with an initial reserve of 450,000 shares. 15 VISIGENIC SOFTWARE, INC. 1996 EMPLOYEE STOCK PURCHASE PLAN SUBSCRIPTION AGREEMENT [_] Original Application for participation commencing with the Offering Period beginning _________________________, 199__. [_] Change in Percentage of Payroll Deductions effective with the pay period ending _________________________, 199__. I hereby elect to participate in the 1996 Employee Stock Purchase Plan (the "PLAN") of Visigenic Software, Inc. (the "COMPANY") and subscribe to purchase from the Company shares of the Company's common stock as determined in accordance with the terms of the Plan. I hereby authorize payroll deductions in the amount of ______________ percent (in 1% increments not to exceed 10%) of my "COMPENSATION" (as defined in the Plan) from each paycheck throughout the "OFFERING PERIOD" (as defined in the Plan) in accordance with the terms of the Plan. I understand that these payroll deductions will be accumulated for the purchase of shares of common stock of the Company at the applicable purchase price determined in accordance with the Plan. I further understand that, except as otherwise set forth in the Plan, I will automatically purchase shares on each Purchase Date under the Plan unless I withdraw from the Plan or from the Offering by giving written notice on a form provided by the Company or unless my employment terminates. I further understand that I will automatically participate in each subsequent Offering which commences immediately after the last day of an Offering in which I am participating under the Plan until such time as I file with the Company a notice of withdrawal from the Plan on a form provided by the Company or my employment terminates. Shares I purchase under the Plan should be issued in the name set forth below. (I understand that shares may be issued either in my name alone or together with my spouse as community property or in joint tenancy.) NAME: ___________________________________________________________ ADDRESS: ________________________________________________________ ________________________________________________________ MY SOCIAL SECURITY NUMBER: ______________________________________ I hereby authorize withholding from my compensation in order to satisfy the foreign, federal, state and local tax withholding obligations, if any, which may arise upon my purchase of shares under the Plan and/or upon my disposition of shares I acquired under the Plan. I hereby agree that until I dispose of the shares, unless otherwise permitted by the Company, I will hold all shares I acquire under the Plan in the name entered above (and not in the name of any nominee) for at least two (2) years from the first day of the Offering Period in which, and at least one (1) year from the Purchase Date on which, I acquired such shares. I further agree that I will promptly notify the Chief Financial Officer of the Company in writing of any transfer of such shares prior to the end of the periods referred to in the preceding sentence. I am familiar with the provisions of the Plan and hereby agree to participate in the Plan subject to all of the provisions thereof. I understand that the Board of Directors of the Company reserves the right to amend or terminate the Plan and my right to purchase stock under the Plan. I understand that the effectiveness of this subscription agreement is dependent upon my eligibility to participate in the Plan. Date: ________________________ Signature:________________________________ Name Printed:_____________________________ VISIGENIC SOFTWARE, INC. 1996 EMPLOYEE STOCK PURCHASE PLAN NOTICE OF WITHDRAWAL I hereby elect to withdraw from the offering of the common stock of Visigenic Software, Inc. under the 1996 Employee Stock Purchase Plan (the "PLAN") which began on _________________________, 199__ and in which I am currently participating (the "CURRENT OFFERING"). A. Current Offering. I elect to terminate my participation in the Current ---------------- Offering immediately. I hereby request that all payroll deductions credited to my account under the Plan (if any) not previously used to purchase shares under the Plan shall not be used to purchase shares on the --- last day of the Current Offering. Instead, I request that all such amounts be paid to me as soon as practicable. I understand that this election immediately terminates my interest in the Current Offering. B. Future Offerings. As to my participation in future offerings of common ---------------- stock under the Plan, I elect as follows (check one): [_] 1. I elect to participate in future offerings under the Plan. I understand that by making this election I will participate in the next offering under the Plan commencing subsequent to the Current Offering, and in each subsequent offering commencing immediately after the last day of an offering in which I participate, until such time as I elect to withdraw from the Plan or from any such subsequent offering or I become ineligible to participate in the Plan. [_] 2. I elect not to participate in future offerings under the Plan. --- I understand that by making this election I terminate my interest in the Plan and that no further payroll deductions will be made unless I elect in accordance with the Plan to become a participant in another offering under the Plan. I understand that if no election is made as to participation in future offerings under the Plan, I will be deemed to have elected to participate in future offerings. Date: _________________ Signature: __________________________________ Name Printed: _______________________________ EX-10.4 8 1996 OUTSIDE DIRECTORS STOCK PLAN EXHIBIT 10.4 VISIGENIC SOFTWARE, INC. 1996 OUTSIDE DIRECTORS STOCK OPTION PLAN 1. ESTABLISHMENT, PURPOSE AND TERM OF PLAN. --------------------------------------- 1.1 ESTABLISHMENT. The Visigenic Software, Inc. 1996 Outside Directors Stock Option Plan (the "PLAN") is hereby established effective as of the effective date of the initial registration by the Company of its Stock under Section 12 of the Exchange Act (the "EFFECTIVE DATE"). 1.2 PURPOSE. The purpose of the Plan is to advance the interests of the Participating Company Group and its stockholders by providing an incentive to attract and retain highly qualified persons to serve as Outside Directors of the Company and by creating additional incentive for Outside Directors to promote the growth and profitability of the Participating Company Group. 1.3 TERM OF PLAN. The Plan shall continue in effect until the earlier of its termination by the Board or the date on which all of the shares of Stock available for issuance under the Plan have been issued and all restrictions on such shares under the terms of the Plan and the agreements evidencing Options granted under the Plan have lapsed. 2. DEFINITIONS AND CONSTRUCTION. ---------------------------- 2.1 DEFINITIONS. Whenever used herein, the following terms shall have their respective meanings set forth below: (a) "BOARD" means the Board of Directors of the Company. If one or more Committees have been appointed by the Board to administer the Plan, "Board" also means such Committee(s). (b) "CODE" means the Internal Revenue Code of 1986, as amended, and any applicable regulations promulgated thereunder. (c) "COMMITTEE" means a committee of the Board duly appointed to administer the Plan and having such powers as shall be specified by the Board. Unless the powers of the Committee have been specifically limited, the Committee shall have all of the powers of the Board granted herein, including, without limitation, the power to amend or terminate the Plan at any time, subject to the terms of the Plan and any applicable limitations imposed by law. (d) "COMPANY" means Visigenic Software, Inc., a Delaware corporation, or any successor corporation thereto. 1 (e) "CONSULTANT" means any person, including an advisor, engaged by a Participating Company to render services other than as an Employee or a Director. (f) "DIRECTOR" means a member of the Board or the board of directors of any other Participating Company. (g) "EMPLOYEE" means any person treated as an employee (including an officer or a Director who is also treated as an employee) in the records of a Participating Company; provided, however, that neither service as a Director nor payment of a director's fee shall be sufficient to constitute employment for purposes of the Plan. (h) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. (i) "FAIR MARKET VALUE" means, as of any date, if there is then a public market for the Stock, the closing price of the Stock (or the mean of the closing bid and asked prices of the Stock if the Stock is so reported instead) as reported on the National Association of Securities Dealers Automated Quotation ("NASDAQ") System, the NASDAQ National Market System or such other national or regional securities exchange or market system constituting the primary market for the Stock. If the relevant date does not fall on a day on which the Stock is trading on NASDAQ, the NASDAQ National Market System or other national or regional securities exchange or market system, the date on which the Fair Market Value shall be established shall be the last day on which the Stock was so traded prior to the relevant date. If there is then no public market for the Stock, the Fair Market Value on any relevant date shall be as determined by the Board without regard to any restriction other than a restriction which, by its terms, will never lapse. (j) "OPTION" means a right to purchase Stock (subject to adjustment as provided in Section 4.2) pursuant to the terms and conditions of the Plan. (k) "OPTIONEE" means a person who has been granted one or more Options. (l) "OPTION AGREEMENT" means a written agreement between the Company and an Optionee setting forth the terms, conditions and restrictions of the Option granted to the Optionee. (m) "OUTSIDE DIRECTOR" means a Director of the Company who is not an Employee. (n) "PARENT CORPORATION" means any present or future "parent corporation" of the Company, as defined in Section 424(e) of the Code. 2 (o) "PARTICIPATING COMPANY" means the Company or any Parent Corporation or Subsidiary Corporation. (p) "PARTICIPATING COMPANY GROUP" means, at any point in time, all corporations collectively which are then Participating Companies. (q) "RULE 16B-3" means Rule 16b-3 as promulgated under the Exchange Act, as amended from time to time, or any successor rule or regulation. (r) "SERVICE" means the Optionee's service with the Participating Company Group, whether in the capacity of an Employee, a Director or a Consultant. The Optionee's Service shall not be deemed to have terminated merely because of a change in the capacity in which the Optionee renders Service to the Participating Company Group or a change in the Participating Company for which the Optionee renders such Service, provided that there is no interruption or termination of the Optionee's Service. The Optionee's Service shall be deemed to have terminated either upon an actual termination of Service or upon the corporation for which the Optionee performs Service ceasing to be a Participating Company. Subject to the foregoing, the Company, in its sole discretion, shall determine whether the Optionee's Service has terminated and the effective date of such termination. (s) "STOCK" means the common stock of the Company, as adjusted from time to time in accordance with Section 4.2. (t) "SUBSIDIARY CORPORATION" means any present or future "subsidiary corporation" of the Company, as defined in Section 424(f) of the Code. 2.2 CONSTRUCTION. Captions and titles contained herein are for convenience only and shall not affect the meaning or interpretation of any provision of the Plan. Except when otherwise indicated by the context, the singular shall include the plural, the plural shall include the singular, and use of the term "or" shall include the conjunctive as well as the disjunctive. 3. ADMINISTRATION. -------------- 3.1 ADMINISTRATION BY THE BOARD. The Plan shall be administered by the Board, including any duly appointed Committee of the Board. All questions of interpretation of the Plan or of any Option shall be determined by the Board, and such determinations shall be final and binding upon all persons having an interest in the Plan or such Option. Any officer of a Participating Company shall have the authority to act on behalf of the Company with respect to any matter, right, obligation, determination or election which is the responsibility of or which is allocated to the Company herein, provided the officer has apparent authority with respect to such matter, right, obligation, determination or election. 3 3.2 LIMITATIONS ON AUTHORITY OF THE BOARD. Notwithstanding any other provision herein to the contrary, the Board shall have no authority, discretion, or power to select the Outside Directors who will receive Options, to set the exercise price of the Options, to determine the number of shares of Stock to be subject to an Option or the time at which an Option shall be granted, to establish the duration of an Option, or to alter any other terms or conditions specified in the Plan, except in the sense of administering the Plan subject to the provisions of the Plan. 4. SHARES SUBJECT TO PLAN. ---------------------- 4.1 MAXIMUM NUMBER OF SHARES ISSUABLE. Subject to adjustment as provided in Section 4.2, the maximum aggregate number of shares of Stock that may be issued under the Plan shall be two hundred thousand (200,000) and shall consist of authorized but unissued shares or reacquired shares of Stock or any combination thereof. If an outstanding Option for any reason expires or is terminated or canceled or shares of Stock acquired, subject to repurchase, upon the exercise of an Option are repurchased by the Company, the shares of Stock allocable to the unexercised portion of such Option, or such repurchased shares of Stock, shall again be available for issuance under the Plan. 4.2 ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of any stock dividend, stock split, reverse stock split, recapitalization, combination, reclassification or similar change in the capital structure of the Company, appropriate adjustments shall be made in the number and class of shares subject to the Plan, to the "Initial Option" and "Annual Option" (as defined in Section 6.1), and to any outstanding Options, and in the exercise price of any outstanding Options. If a majority of the shares which are of the same class as the shares that are subject to outstanding Options are exchanged for, converted into, or otherwise become (whether or not pursuant to a Transfer of Control as defined in Section 8.1) shares of another corporation (the "NEW SHARES"), the Board may unilaterally amend the outstanding Options to provide that such Options are exercisable for New Shares. In the event of any such amendment, the number of shares subject to, and the exercise price of, the outstanding Options shall be adjusted in a fair and equitable manner as determined by the Board, in its sole discretion. Notwithstanding the foregoing, any fractional share resulting from an adjustment pursuant to this Section 4.2 shall be rounded down to the nearest whole number, and in no event may the exercise price of any Option be decreased to an amount less than the par value, if any, of the stock subject to the Option. 5. ELIGIBILITY AND TYPE OF OPTIONS. ------------------------------- 5.1 PERSONS ELIGIBLE FOR OPTIONS. An Option shall be granted only to a person who, at the time of grant, is an Outside Director. 4 5.2 OPTIONS AUTHORIZED. Options shall be nonstatutory stock options; that is, options which are not treated as incentive stock options within the meaning of Section 422(b) of the Code. 6. TERMS AND CONDITIONS OF OPTIONS. Options shall be evidenced by Option ------------------------------- Agreements specifying the number of shares of Stock covered thereby, in such form as the Board shall from time to time establish. Option Agreements may incorporate all or any of the terms of the Plan by reference and shall comply with and be subject to the following terms and conditions: 6.1 AUTOMATIC GRANT OF OPTIONS. Subject to execution by an Outside Director of the appropriate Option Agreement, Options shall be granted automatically and without further action of the Board, as follows: (a) INITIAL OPTION. Each Outside Director shall be granted an initial Option as follows (an "INITIAL OPTION"): (i) Each Outside Director who was an Outside Director on the Effective Date shall be granted an Option to purchase fifteen thousand (15,000) shares of Stock on the day following the first annual meeting of the Company's stockholders after the Effective Date. (ii) Each person who is first elected or appointed as an Outside Director after the Effective Date shall be granted an Option to purchase fifteen thousand (15,000) shares of Stock on the date of such initial election or appointment. (b) ANNUAL OPTION. Each Outside Director shall be granted an Option to purchase five thousand (5,000) shares of Stock (the "ANNUAL OPTION") on each anniversary of the date of grant of his or her Initial Option. (c) RIGHT TO DECLINE OPTION. Notwithstanding the foregoing, any person may elect not to receive an Option by delivering written notice of such election to the Board no later than the day prior to the date such Option would otherwise be granted. A person so declining an Option shall receive no payment or other consideration in lieu of such declined Option. A person who has declined an Option may revoke such election by delivering written notice of such revocation to the Board no later than the day prior to the date such Option would be granted pursuant to Section 6.1(a) or (b), as the case may be. 6.2 EXERCISE PRICE. The exercise price per share of Stock subject to an Option shall be the Fair Market Value of a share of Stock on the date the Option is granted. 6.3 EXERCISE PERIOD. Each Option shall terminate and cease to be exercisable on the date ten (10) years after the date of grant of the Option unless earlier terminated pursuant to the terms of the Plan or the Option Agreement. 5 6.4 RIGHT TO EXERCISE OPTIONS. (a) INITIAL OPTION. Except as otherwise provided in the Plan or in the Option Agreement, an Initial Option shall (i) first become exercisable on the date which is six (6) months after the date on which the Initial Option was granted (the "INITIAL OPTION VESTING DATE"); and (ii) be exercisable on and after the Initial Option Vesting Date and prior to the termination thereof in an amount equal to the number of shares of Stock initially subject to the Initial Option multiplied by the Vested Ratio as set forth below, less the number of shares previously acquired upon exercise thereof. The Vested Ratio described in the preceding sentence shall be determined as follows: Vested Ratio ------------ Prior to Initial Option Vesting Date 0 On Initial Option Vesting Date, 1/8 provided the Optionee's Service is continuous from the date of grant of the Initial Option until the Initial Option Vesting Date Plus ---- For each full month of 1/48 of the Optionee's continuous Service from the Initial Option Vesting Date until the Vested Ratio equals 1/1, an additional (b) ANNUAL OPTION. Except as otherwise provided in the Plan or in the Option Agreement, an Annual Option shall (i) first become exercisable on the date which is thirty-seven (37) months after the date on which the Annual Option was granted (the "ANNUAL OPTION VESTING DATE"); and (ii) be exercisable on and after the Annual Option Vesting Date and prior to the termination thereof in an amount equal to the number of shares of Stock initially subject to the Annual Option multiplied by the Vested Ratio as set forth below, less the number of shares previously acquired upon exercise thereof. The Vested Ratio described in the preceding sentence shall be determined as follows: 6 Vested Ratio ------------ Prior to Annual Option Vesting Date 0 On Annual Option Vesting Date, 1/12 provided the Optionee's Service is continuous from the date of grant of the Annual Option until the Annual Option Vesting Date Plus ---- For each full month of 1/12 of the Optionee's continuous Service from the Annual Option Vesting Date until the Vested Ratio equals 1/1, an additional 6.5 PAYMENT OF EXERCISE PRICE. (a) FORMS OF CONSIDERATION AUTHORIZED. Except as otherwise provided below, payment of the exercise price for the number of shares of Stock being purchased pursuant to any Option shall be made (i) in cash, by check, or cash equivalent, (ii) by tender to the Company of shares of Stock owned by the Optionee having a Fair Market Value not less than the exercise price, (iii) by the assignment of the proceeds of a sale or loan with respect to some or all of the shares being acquired upon the exercise of the Option (including, without limitation, through an exercise complying with the provisions of Regulation T as promulgated from time to time by the Board of Governors of the Federal Reserve System) (a "CASHLESS EXERCISE"), or (iv) by any combination thereof. (b) TENDER OF STOCK. Notwithstanding the foregoing, an Option may not be exercised by tender to the Company of shares of Stock to the extent such tender of Stock would constitute a violation of the provisions of any law, regulation or agreement restricting the redemption of the Company's stock. Unless otherwise provided by the Board, an Option may not be exercised by tender to the Company of shares of Stock unless such shares either have been owned by the Optionee for more than six (6) months or were not acquired, directly or indirectly, from the Company. (c) CASHLESS EXERCISE. The Company reserves, at any and all times, the right, in the Company's sole and absolute discretion, to establish, decline to approve or terminate any program or procedures for the exercise of Options by means of a Cashless Exercise. 7 6.6 TAX WITHHOLDING. The Company shall have the right, but not the obligation, to deduct from the shares of Stock issuable upon the exercise of an Option, or to accept from the Optionee the tender of, a number of whole shares of Stock having a Fair Market Value equal to all or any part of the federal, state, local and foreign taxes, if any, required by law to be withheld by the Participating Company Group with respect to such Option or the shares acquired upon exercise thereof. Alternatively or in addition, in its sole discretion, the Company shall have the right to require the Optionee to make adequate provision for any such tax withholding obligations of the Participating Company Group arising in connection with the Option or the shares acquired upon exercise thereof. The Company shall have no obligation to deliver shares of Stock until the Participating Company Group's tax withholding obligations have been satisfied. 7. STANDARD FORM OF OPTION AGREEMENT. --------------------------------- 7.1 INITIAL OPTION. Unless otherwise provided for by the Board at the time an Initial Option is granted, each Initial Option shall comply with and be subject to the terms and conditions set forth in the form of Nonstatutory Stock Option Agreement for Outside Directors (Initial Option) adopted by the Board concurrently with its adoption of the Plan and as amended from time to time. 7.2 ANNUAL OPTION. Unless otherwise provided for by the Board at the time an Annual Option is granted, each Annual Option shall comply with and be subject to the terms and conditions set forth in the form of Nonstatutory Stock Option Agreement for Outside Directors (Annual Option) adopted by the Board concurrently with its adoption of the Plan and as amended from time to time. 7.3 AUTHORITY TO VARY TERMS. Subject to the limitations set forth in Section 3.2, the Board shall have the authority from time to time to vary the terms of any of the standard forms of Option Agreement described in this Section 7 either in connection with the grant or amendment of an individual Option or in connection with the authorization of a new standard form or forms; provided, however, that the terms and conditions of any such new, revised or amended standard form or forms of Option Agreement shall be in accordance with the terms of the Plan. Such authority shall include, but not by way of limitation, the authority to grant Options which are immediately exercisable subject to the Company's right to repurchase any unvested shares of Stock acquired by the Optionee upon the exercise of an Option in the event such Optionee's Service is terminated for any reason. In no event, however, shall the Board be permitted to vary the terms of any standard form of Option Agreement if such change would cause the Plan to cease to qualify as a formula plan pursuant to Rule 16b-3 at any such time as any class of equity security of the Company is registered pursuant to Section 12 of the Exchange Act. 8 8. TRANSFER OF CONTROL. ------------------- 8.1 DEFINITIONS. (a) An "OWNERSHIP CHANGE EVENT" shall be deemed to have occurred if any of the following occurs with respect to the Company: (i) the direct or indirect sale or exchange in a single or series of related transactions by the stockholders of the Company of more than fifty percent (50%) of the voting stock of the Company; (ii) a merger or consolidation in which the Company is a party; (iii) the sale, exchange, or transfer of all or substantially all of the assets of the Company; or (iv) a liquidation or dissolution of the Company. (b) A "TRANSFER OF CONTROL" shall mean an Ownership Change Event or a series of related Ownership Change Events (collectively, the "TRANSACTION") wherein the stockholders of the Company immediately before the Transaction do not retain immediately after the Transaction, in substantially the same proportions as their ownership of shares of the Company's voting stock immediately before the Transaction, direct or indirect beneficial ownership of more than fifty percent (50%) of the total combined voting power of the outstanding voting stock of the Company or the corporation or corporations to which the assets of the Company were transferred (the "TRANSFEREE CORPORATION(S)"), as the case may be. For purposes of the preceding sentence, indirect beneficial ownership shall include, without limitation, an interest resulting from ownership of the voting stock of one or more corporations which, as a result of the Transaction, own the Company or the Transferee Corporation(s), as the case may be, either directly or through one or more subsidiary corporations. The Board shall have the right to determine whether multiple sales or exchanges of the voting stock of the Company or multiple Ownership Change Events are related, and its determination shall be final, binding and conclusive. 8.2 EFFECT OF TRANSFER OF CONTROL ON OPTIONS. In the event of a Transfer of Control, any unexercisable or unvested portion of the outstanding Options shall be immediately exercisable and vested in full as of the date ten (10) days prior to the date of the Transfer of Control. Any exercise or vesting of any Option that was permissible solely by reason of this Section 8.2 shall be conditioned upon the consummation of the Transfer of Control. In addition, the surviving, continuing, successor, or purchasing corporation or parent corporation thereof, as the case may be (the "ACQUIRING CORPORATION"), may either assume the Company's rights and obligations under outstanding Options or substitute for outstanding Options substantially equivalent options for the Acquiring Corporation's 9 stock. Any Options which are neither assumed or substituted for by the Acquiring Corporation in connection with the Transfer of Control nor exercised as of the date of the Transfer of Control shall terminate and cease to be outstanding effective as of the date of the Transfer of Control. Notwithstanding the foregoing, shares acquired upon exercise of an Option prior to the Transfer of Control and any consideration received pursuant to the Transfer of Control with respect to such shares shall continue to be subject to all applicable provisions of the Option Agreement evidencing such Option except as otherwise provided in such Option Agreement. Furthermore, notwithstanding the foregoing, if the corporation the stock of which is subject to the outstanding Options immediately prior to an Ownership Change Event described in Section 8.1(a)(i) constituting a Transfer of Control is the surviving or continuing corporation and immediately after such Ownership Change Event less than fifty percent (50%) of the total combined voting power of its voting stock is held by another corporation or by other corporations that are members of an affiliated group within the meaning of Section 1504(a) of the Code without regard to the provisions of Section 1504(b) of the Code, the outstanding Options shall not terminate. 9. TRANSFERABILITY OF OPTIONS. Except as provided below, an Option may -------------------------- be exercised during the lifetime of the Optionee only by the Optionee or the Optionee's guardian or legal representative and may not be assigned or transferred in any manner except by will or by the laws of descent and distribution. Notwithstanding the foregoing and with the consent of the Company, to the extent that the restrictions of the preceding sentence are not required for compliance with the conditions of Rule 16b-3 or any other applicable law or regulation, an Optionee may, without receipt of any consideration, transfer the Option to, and the Option may be exercised by, only the following: (a) the Optionee's immediate family, (b) a trust for the benefit of the Optionee or the Optionee's immediate family, or (c) a partnership in which only the Optionee's immediate family and the Optionee are partners (collectively, the "PERMITTED TRANSFEREES"). For purposes of this Section 5, "immediate family" shall mean the Optionee's children, grandchildren or spouse. As a condition to such transfer, each Permitted Transferee to whom the Option or any interest therein is transferred shall agree in writing (in a form satisfactory to the Company) to be bound by all of the terms and conditions of the Option. 10. INDEMNIFICATION. In addition to such other rights of indemnification --------------- as they may have as members of the Board or officers or employees of the Participating Company Group, members of the Board and any officers or employees of the Participating Company Group to whom authority to act for the Board is delegated shall be indemnified by the Company against all reasonable expenses, including attorneys' fees, actually and necessarily incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal therein, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan, or any right granted hereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Company) or paid by them in satisfaction of a judgment in any such action, suit or proceeding, 10 except in relation to matters as to which it shall be adjudged in such action, suit or proceeding that such person is liable for gross negligence, bad faith or intentional misconduct in duties; provided, however, that within sixty (60) days after the institution of such action, suit or proceeding, such person shall offer to the Company, in writing, the opportunity at its own expense to handle and defend the same. 11. TERMINATION OR AMENDMENT OF PLAN. The Board may terminate or amend -------------------------------- the Plan at any time. However, subject to changes in the law or other legal requirements that would permit otherwise, without the approval of the Company's stockholders, there shall be (a) no increase in the total number of shares of Stock that may be issued under the Plan (except by operation of the provisions of Section 4.2), and (b) no expansion in the class of persons eligible to receive Options. Furthermore, to the extent required by Rule 16b-3, provisions of the Plan addressing eligibility to participate in the Plan and the amount, price and timing of Options shall not be amended more than once every six (6) months, other than to comport with changes in the Code, the Employee Retirement Income Security Act of 1974, as amended, or the rules thereunder. In any event, no termination or amendment of the Plan may adversely affect any then outstanding Option, or any unexercised portion thereof, without the consent of the Optionee, unless such termination or amendment is necessary to comply with any applicable law or government regulation. IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies that the foregoing Visigenic Software, Inc. 1996 Outside Directors Stock Option Plan was duly adopted by the Board on June _______, 1996. ----------------------------------- Secretary 11 PLAN HISTORY ------------ June _____, 1996 Board adopts Plan, with an initial reserve of 200,000 shares. ________, 1996 Stockholders approve Plan, with an initial reserve of 200,000 shares. 12 STANDARD FORM OF VISIGENIC SOFTWARE, INC. NONSTATUTORY STOCK OPTION AGREEMENT FOR OUTSIDE DIRECTORS (INITIAL OPTION) STANDARD FORM OF VISIGENIC SOFTWARE, INC. NONSTATUTORY STOCK OPTION AGREEMENT FOR OUTSIDE DIRECTORS (ANNUAL OPTION) EX-10.12 9 LEASE AGREEMENT EXHIBIT 10.12 TERMINATION OF LEASE AGREEMENT This agreement is made on June 6, 1996, between Landmark Investments, Limited, ("Landlord), and Post Modern Computing ("Tenant", who agree as follows: 1. Existing Lease. Landlord and Tenant entered into a written Lease -------------- Agreement dated January 18, 1996 in which Landlord leased to Tenant, and Tenant leased from Landlord, premises located in the City of Mountain View, California, commonly known as 1975 Landings Drive. 2. Termination. The parties agree to terminate the Lease Agreement so ----------- that Landlord may lease said premises to SmartPatents, Inc., and Tenant may be released and discharged from further performance of the Lease Agreement's provisions all under the terms contained herein. 3. Effective Date. The effective date of the Lease Agreement's -------------- termination shall be July 31, 1996. 4. Conditions To Termination. This termination is conditioned on all of ------------------------- the following: i) Landlord has received a signed Lease Agreement from SmartPatents, Inc., for 1975 Landings Drive, Mountain View, California on or before June 24, 1996, and ii) That Landlord has received a check on or before June 24, 1996 in the amount of $11,565.85 from SmartPatents, Inc., for the remaining unamortized commissions, and iii) Tenant vacates the Premises no later than 5:00 pm, Saturday July 30, 1996 and leaves same in a clean and undamaged 5. Release of Liability. Conditioned on all provisions of this -------------------- modification being satisfied in a timely manner, Landlord and Tenant shall be fully and unconditionally released and discharged from their respective obligations arising from or connected with the provisions of the Lease Agreement dated January 18, 1996. LANDLORD: LANDMARK INVESTMENTS, LIMITED Thrust IV, Inc., General Partner By: ---------------------------- Date: ----------------- TENANT: VISIGENIC SOFTWARE INC. SUCCESSOR TO POST MODERN COMPUTING By: --------------------------- Date: -------------- --------------------------- Tax ID# ------------ (Print Name) (Title) SUBLEASE AGREEMENT ------------------ This Sublease Agreement (the "Sublease"), dated as of January 1, 1996, is entered into by and between Visigenic Software, Inc., a Delaware Corporation, ("Sublessor") and AT Systems, a California Corporation (the "Sublessee"). WITNESSETH ---------- WHEREAS, by Lease dated March 7, 1993 as amended December 20, 1995 (the "Base Lease"), Sublessor leases from San Mateo Offices Limited, a California Limited Partnership, (the "Landlord") certain premises at 951 Mariner's Island Blvd. (the "Base Lease Premises") (to the extent that the Base Lease Premises are part of a larger structure, shall be referred to herein as the "Building"); and WHEREAS, Sublessor is willing to Sublease to Sublessee and Sublessee is willing to Sublease from Sublessor, a portion of the Base Lease Premises (as may be applicable), as more fully described herein, on the terms and conditions set forth herein. NOW, THEREFORE, Sublessor and Sublessee agree as follows: 1. Premises. Sublessor hereby Subleases to Sublessee and Sublessee hereby -------- Subleases and takes from Sublessor approximately 3,928 rentable square feet of space in the Base Lease Premises, such Base Lease Premises being known as suite 430, with such subleased space located substantially as shown on Exhibit "A" attached hereto and made a part hereof(the "Demised Premises"). 2. Term. The term of this Sublease shall commerce on February 1, 1996, and ---- shall expire on January 31, 1997, unless terminated sooner pursuant to the provisions hereof. 3. Base Lease Incorporated. ----------------------- A. Except as set forth herein, this subletting shall be on the same terms and conditions as are contained in the Base Lease, as set forth on Exhibit "B" attached hereto. Further, Sublessee acknowledges and agrees that this Sublease shall be in all respects subject and subordinate to the Base Lease. Nothing contained in this Sublease shall be deemed to confer upon Sublessee any rights which are in conflict with the Base Lease. Sublessee shall not do or permit to be done any act or thing which would contravene the terms of the Base Lease, and the Base Lease shall govern in the event of a conflict with this Sublease. In the event that the Base Lease is cancelled or terminated for any reason, the term of this Sublease shall automatically terminate simultaneously therewith. B. Sublessor represents that the Base Lease is in full force and effect, without default to the knowledge of Sublessor on the part of either party thereto. Sublessor shall perform all obligations of the tenant under the Master Lease not made the responsibility of Sublessee by this Sublease. Sublessor shall use its best efforts to 1 enforce the obligations of Landlord under the Base Lease for the benefit of Sublessee, including the obligation to provide utilities and services to the Demised Premises. 4. Use. During the term hereof, Sublessee shall use and occupy the --- Demised Premises for general office use and related services, and for no other purpose. 5. Rent. ---- A. Rent. As rental for the Demised Premises, Sublessee shall pay ---- Landlord a base rental of Eight Thousand Six Hundred Forty Two Dollars ($8,642.00) per month from commencement through January 31, 1997, without set-off or deduction, due and payable in advance on the first day of each month during the term hereof. In the event this Sublease commences or terminates on other than the last day of any particular month, all rentals hereunder shall be prorated. B. Additional Rent: Increased in Operating Costs and Taxes. ------------------------------------------------------- (1) Definitions. For purposes of this Sublease the following ----------- terms shall be defined as follows: (a) "Base Operating Costs and Taxes" means the Gross Operating Costs and Taxes incurred for the calendar year 1995 (excluding, therefrom, however, any gross operating costs of a nature that would not be ordinarily and regularly incurred in each and every calendar year); (b) "Operating Costs" means the total Gross Operating Costs for any calendar year divided by the number of rentable square feet of office space in the Building. Operating Costs for any year during which average occupancy of the Building is less than one hundred percent (100%) shall be calculated based upon the Gross Operating Costs that would have been incurred if the Building were so occupied during the entire calendar year. Sublessee's Share of Operating Costs shall not be reduced as a result of Sublessee's performing for itself any of the services that Landlord provides for the Property or the tenants of the Property. (c) "Taxes" means the total Gross Taxes for any calendar year divided by the number of rentable square feet in the building. Taxes for any year during which average occupancy of the Building is less than one hundred percent (100%) shall be calculated based upon the Gross Taxes that would have been incurred if the Building were so occupied during the entire calendar year. (d) "Sublessee's Share" means an amount equal to the number of rentable square feet of office space in the Premises multiplied by any increases in Operating Costs and Taxes over Base Operating Costs and Taxes. 2 (2) Additional Rent. If Operating Costs and Taxes for any calendar year --------------- during the term of this Sublease exceed Base Operating Costs and Taxes, Sublessee shall pay Landlord as "Additional Rent", Sublessee's Share of such increase in Operating Costs and Taxes (whether such increase, in the case of Taxes, is caused by changes in valuation, rate or other factors or circumstances). C. Security Deposit. Upon full execution of this Sublease, Sublessee will ----------------- pay to Sublessor the sum of Eight Thousand Six Hundred Forty-Two ($8,642.00), as security for the full and faithful performance of every provision of this Sublease to be performed by Sublessee. If Sublessee defaults with respect to any provisions of this Sublease, including but not limited to the provisions relating to the payment of rent, repair or damage to the premises caused by Sublessee and/or cleaning the Premises upon termination of this Sublease, Sublessor may use, apply or retain all or any part of this security deposit for the payment of any rent, or any other sum in default, the repair of such damage to the premises, to the cost of such cleaning or for the payment of any other amount which Sublessor may spend or become obligated to spend by reason of Sublessee's default or to compensate Sublessor for any other loss or damage which Sublessor may suffer by reason of Sublessee's default to the full extent permitted by law. If any portion of said deposit is so used or applied, Sublessee shall within ten (10) days after written demand therefor, deposit cash with Sublessor in the amount sufficient to restore the security deposit to its original amount and Sublessee's failure to do so shall be a material breach of this Sublease. Sublessor shall not be required to keep this security deposit separate from its general funds, and Sublessee shall not be entitled to interest on such deposit. The security deposit, or so much thereof as has not been properly applied to cure any default by Sublessee hereunder, shall be returned to Sublessee at the expiration of the Sublease. 6. Suite Improvements. Sublessor will deliver and Sublessee accepts the ------------------- premises in it's existing condition. 3 7. Right of Entry. Sublessor shall have the right to enter the -------------- Demised Premises for any reasonable purpose during business (hours) and upon reasonable notice (except in the event of an emergency), including to gain access to and egress from those portions of the Base Lease Premises or the Building not leased to Sublessee hereunder and to perform such functions as may be necessary or convenient for the maintenance and operation thereof and including to show the space to other prospective Sublessees. Prior to the exercising its right of entry, Sublessor shall provide reasonable advance notice to Sublessee of such intended entry, and shall comply while in the Demised Premises with all reasonable safety and security measures instituted by Sublessee. 8. Compliance with Law. Sublessee shall comply with all applicable ------------------- statutes, ordinances, rules, regulations, orders and directives of any governmental authority applicable to the Demised Premises or to Sublessee's use or occupancy thereof and shall perform, at its own expenses, all obligations imposed thereby. 9. Release and Indemnity. --------------------- A. Release. Sublessee hereby agrees that Sublessor shall not be ------- liable for any loss or any damage to any property (including the property of Sublessee, its officers, directors, employees, agents, customers, concessionaires, vendors, contractors or invitees) or the death or injury of any persons (including Sublessee, its officers; directors, employees, agents, customers, concessionaires, vendors, contractors or invitees) occasioned by theft, fire, acts of God, public enemy, injunction, governmental body or authority, by other Sublessees of the Base Lease Premises or the Building or any other matter beyond the control of Sublessor, or for any injury or damage or inconvenience which may arise through repair or alteration of any part of the Demised Premises or the Base Lease Premises or the Building, or failure to make repairs, or for any cause whatsoever, except the negligence or willful misconduct of Sublessor, or its officers, directors, employees, or agents or a breach of the obligations of Sublessor hereunder. B. Indemnity. Sublessee hereby releases and will defend indemnify --------- and hold harmless Sublessor and the Landlord, their respective officers, directors, employees, agents, concessionaires, vendors and contractors (the "Indemnified Parties") from and against any and all liability, claims, penalties, fines, causes of action, suits, liens, losses, loss of use, damages, costs and expenses of any kind (including legal fees and litigation costs) which may be suffered by, accrued against, charged to or recoverable from the Indemnified Parties by reason of (i) any occurrence in, upon, or at the Demised Premises, including, occurrences caused, in whole or in part, by the negligence or misconduct of Sublessee, its officers, directors, employees, agents, customers, concessionaires, vendors, contractors or invitees; or (ii) any occupancy, use, or misuse of the Demised Premises, or the areas, surrounding the Demised Premises, or the service areas, parking areas, pedestrian areas, pedestrian walks or driveways in or around the Demised Premises, by Sublessee, its officers, directors, employees, agents, customers, concessionaires, vendors, contractors or invitees; or (iii) any occurrence elsewhere in the Base Lease Premises or the Building occasioned in whole or in part by the act or omission of Sublessee; or (iv) any occurrence occasioned by the violation of any law, regulation or ordinance by Sublessee or its employees, 4 officers, directors, employees, agents, customers, concessionaires, vendors, contractors or invitees. The foregoing indemnification shall not apply to any such claim or liability resulting solely from the negligence or willful misconduct of Sublessor, or its respective officers, directors, employees or agents. 10. Insurance --------- A. Coverage. During the term of this Sublease, Sublessee, at its -------- own cost and expense, shall maintain with insurers reasonably acceptable to Sublessor, the following coverage: (i) Comprehensive General Liability Insurance coverages in an amount not less than $1,000,000 for bodily injury and property damage combined single limit per occurrence, and (ii) all risk property insurance covering loss of or damage to property of the Sublessee in an amount at least equal to the replacement value of such property. Sublessee shall also maintain Workers' Compensation coverage as may be required by law and Employer's Liability coverage with a combined single limit of not less than $1,000,000 to cover employees. B. Form and Certificates. The liability policies shall: (i) --------------------- name Sublessor and the Landlord as additional insureds to the extent of Sublessee's indemnity obligation hereunder; (ii) specifically insure the liability assumed by Sublessee hereunder; (iii) be primary without right of contribution from any insurance carried by Sublessor or the Landlord hereunder; and (iv) provide for thirty (30) days written notice to Sublessor and the Landlord prior to cancellation or material change. Certificates evidencing the above coverages and special endorsements shall be provided to Sublessor and the Landlord on or before the date Sublessee takes possession of the Demised Premises. C. Waiver of Subrogation. Sublessee, Sublessor and Landlord on --------------------- behalf of themselves and their respective insurers, each hereby waives any claim or right of recovery from each other, their officers, directors, employees, agents, concessionaires and contractors, for loss of or damage to its property or the property of others under its control, to the extent that such loss or damage is covered by valid insurance policies or is of the type which would be covered by "all risk" extended casualty coverage. Each party shall provide notice of this waiver of subrogation to its insurers. 11. Defaults. The occurrence of any of the following shall constitute a -------- default by Sublessee under this Sublease: (i) Sublessee fails to pay any sum as required hereunder and such failure continues for ten (10) days following receipt of notice; (ii) Sublessee (i) fails to pay its bills to Sublessor or Landlord when due without just cause; or (ii) takes any steps leading to its cessation as a going concern or ceases or suspends operations for reasons other than a strike; or (iii) becomes insolvent or makes transfers in fraud of creditors or makes an assignment for the benefit of creditors; or (iv) files a petition for protection under any state or federal bankruptcy act or a trustee or receiver is appointed for all or substantially all of Sublessee's assets. 5 12. Remedies Upon Default. Upon the occurrence of an event of default ---------------------- hereunder, Sublessor may take any one or more of the following actions: (i) Maintain this Sublease in full force and effect and recover any and all rent and other monetary charges as they become due, without terminating Sublessee's right to possession, regardless of whether Sublessee shall have abandoned the Demised Premises. If Sublessor elects not to terminate this Sublease, Sublessor shall have the right to attempt to relet the Premises on behalf of Sublessee upon such conditions and for such a term and to do all acts necessary to maintain or preserve the Demised Premises as Sublessor deems reasonable and necessary, including the removal of all persons and property from the Demised premises, without being deemed to have elected to terminate this Sublease. Any property so removed may be disposed of or stored in a public warehouse or elsewhere, at Sublessor's election, at the cost of and for the account of Sublessee. Notwithstanding that Sublessor's fails to elect to terminate this Sublease initially, Sublessor at any time thereafter may elect to terminate this Sublease as a result of such previous and then existing default of Sublessee; (ii) Terminate this Sublease by written notice to Sublessee, in which event this Sublease shall be ended as to Sublessee and all persons holding under Sublessee, and all of Sublessee's rights shall be forfeited and lapsed, as fully as if this Sublease had expired by lapse of time. In such event, Sublessee shall be required to vacate the Demised Premises immediately and surrender same to Sublessor. If Sublessee fails to surrender the Demised Premises immediately to Sublessor, Sublessor, without prejudice to any other remedy, may enter upon and take possession of the Demised Premises and expel or remove Sublessee and any part thereof, without being liable for prosecution or any other claim of damages. In the event of termination in accordance with this provision, the rental or any other sums payable by Sublessee pursuant to this Sublease that have accrued hereunder but are unpaid shall be immediately due and payable by Sublessee to Sublessor. In addition, Sublessee agrees to pay to Sublessor upon demand the amount of all loss and damages which Sublessor may suffer by reason of such termination, whether through inability to relet the premises on satisfactory terms or otherwise, including reasonable court costs and attorney's fees, in recovering possession of the Demised Premises or enforcing Sublessor rights under this Sublease; (ii) all costs and charges for care of the Demised Premises while vacant; (iii) all costs of restoring the Demised Premises to a good condition; and (iv) all reasonable costs associated with Sublessor's efforts to relet the Demised premises. In the event Sublessor relets the Demised Premises for any portion of the remaining term of this Sublease, Sublessee's rental payment obligation hereunder shall then be limited to the difference between the rental payment Sublessor receives under such relet, if any, and the rental amount Sublessee would have paid to Sublessor had this Sublease not been terminated. The failure of Sublessor to relet the Demised Premises or any part or parts thereof shall not release or effect Sublessee's liability for damages hereunder; 6 (iii) Cure the default on the behalf of the Sublessee, in which event the Sublessee shall, upon demand by Sublessor, pay all sums expended by Sublessor in accomplishing such cure; (iv) Exercise any right available to Sublessor in law or in equity. 13. Cumulative rights. Sublessor's rights and remedies hereunder shall ----------------- be cumulative and shall not be exclusive of one another, and Sublessor shall have the right to pursue any one or more of them. Sublessor's acceptance of any rent or other payments due hereunder or Sublessor's failure to take any action on account of a default if such default persists or is repeated, shall not be deemed a waiver of any default. Sublessor's consent to any act by Sublessee requiring Sublessor's consent or approval shall not be deemed to waive or render unnecessary Sublessor's consent or approval to any subsequent or similar acts by Sublessee. 14. Surrender of Premises/Holding Over. At the expiration or earlier ---------------------------------- termination of this Sublease, Sublessee shall surrender the Demised Premises to Sublessor in good condition, broom clean, reasonable wear and tear excepted. In the event that Sublessee remains in possession after the expiration of or termination of this Sublease without a written agreement, or without Sublessee being engaged in active negotiations with Sublessor in good faith to renew or extend the term, the tenancy shall be deemed to be a month-to-month tenancy at a monthly equal to one and one-half (1-1/2) times the sum of the Base Rent and Additional Rent(s) payable during the last month of the Term. In the event Sublessee is actively negotiating with Sublessor to renew or extend the term, the month-to-month tenancy shall be at a rent equal to Sublessee's prorata share of the Base Rent and Additional Rent(s) then payable by Sublessor to Landlord; such tenancy shall be subject to all terms and conditions of this Sublease. 15. Assignment and Sublease. Sublessee shall not assign this Sublease or ----------------------- any right hereunder or sublet the Demised Premises during the term of this Sublease, without the prior written consent of Sublessor. In the event of an assignment or sublease, Sublessor shall be entitled to receive fifty percent (50%) of the excess of the rent and other sums payable by the Subtenant over the amount of Rent payable hereunder for the Subleased Space. Sublessor's acceptance of rent from any person other than Sublessee shall not be deemed to be a waiver of this provision. Consent to one assignment or subletting shall not be deemed to be consent to any subsequent assignment or subletting. 16. Accord and Satisfaction. No payment or receipt by Sublessor of a ----------------------- lesser amount than the rent or other charges herein stipulated shall be deemed to be other than on account of the rent or such charges. Further, no endorsement or statement on any check or any letter accompanying any check shall be deemed to be an accord and satisfaction. Sublessor may accept such check or payment without prejudice to Sublessor's right to recover the balance of such rent or other charges or pursue any other remedy provided in this Sublease. 17. Entire Agreement. This Sublease constitutes the complete agreement of ---------------- the parties with respect to the subject matter hereof and supersedes all previous agreements, representations and understandings concerning the same, whether written 7 or oral. The provisions of the Sublease may be modified, amended or waived only by a written instrument, executed by Sublessor and Sublessee. 18. Approval by Landlord. This Sublease is conditional upon written --------------------- consent being obtained from the Landlord. In the event the Landlord does not give its consent, either the undersigned parties may, at its option, rescind its signature and this Sublease shall thereafter be of no force or effect. 19. Brokers. Sublessee warrants and represents to Sublessor and ------- Landlord that in the negotiating or making of this Lease neither Sublessee nor anyone acting on its behalf has dealt with any real estate broker or finder who might be entitled to a fee or commission for this Lease. Sublessee agrees to indemnify and hold Sublessor and Landlord harmless from any claim or claims, including costs, expenses and attorney's fee incurred by Sublessor asserted by any broker or finder for a fee or commission based upon any dealings with or statements made by Sublessee or its Representatives. 20. Notices. Any notice required or sent hereunder shall be in -------- writing and shall be sent as follows: When to Sublessor: When to Sublessee: Visigenic Software, Inc. A T Systems 951 Mariner's Island Blvd., Suite 460 951 Mariner's Island Blvd., Suite 430 San Mateo, CA 94404 San Mateo, CA 94404 Overnight Delivery Address: Overnight Delivery Address: - --------------------------- --------------------------- Same as above. Same as above. Either party from time to time, may change its address by written notice to the other party. Notices hereunder shall be deemed effective when delivered by hand delivery or overnight courier, or three days after deposit in the United States mail, first class, postage prepaid. 21. Binding Effect. Subject to prohibitions against assignment, this -------------- Sublease shall be binding upon the parties, their personal representatives, successors and assigns. 22. Approvals. Whenever in this Sublease, the written approval of either ---------- Sublessor or Sublessee is required, the parties hereto agree that such approval shall not be unreasonably withheld. WITNESS the signatures of the parties as of the date first written above. Sublessee: Sublessor: - ---------- ---------- A T Systems, a California Corporation, Visigenic Software, Inc. By: By: ----------------------------------- -------------------------- Name: Name: --------------------------------- ------------------------ Title: Title: -------------------------------- ----------------------- Title: -------------- Agreed to by Landlord this ______ the Day of__________, 1996 By: ------------------------------------ Name: --------------------------------- Title: -------------------------------- 9 BLDG 1 4TH FLOOR PLAN SAN MATEO BAY CENTER SPIEKER PARTNERS (415)570-5990 10 San Mateo Bay Center Mariners Island San Mateo, California LEASE VERY VISUAL SOFTWARE, INC. A Delaware Corporation. BASIC LEASE INFORMATION OFFICE LEASE Lease Date: March 7, 1993 Landlord: SAN MATEO OFFICE LIMITED A California Limited Partnership Address of Landlord 951 Mariner's Island Boulevard, Suite #200 San Mateo, CA 94404 Tenant: VERY VISUAL A Delaware Corporation Address of Tenant: 951 Mariner's Island Boulevard, Suite #460 San Mateo, CA 94404 Contact: Mr. Roger Sippl Telephone: Chief Executive Officer Premises: Approximately 2,177 sq. ft. of rentable area on the third floor and 6,871 sq. ft. of rentable area on the fourth floor of San Mateo Bay Center, 951 Mariner's Island Boulevard, San Mateo. Scheduled Term Commencement Date: April 1, 1993 - Suite #370 Scheduled Length of Term: 24 Months Scheduled Term Expiration Date: March 31, 1995 Security Deposit: $3,701 ($1.70 x 2,177 sqft) To be increased to $11,681 upon occupancy of Suite #460 Tenant's Proportionate Share: Suite #370 1.84% Suite #460 5.81% Permitted Use: General Office Occupancy Density: 4/1,000 sqft The foregoing Basic Lease Information is incorporated into and made a part of this Lease. Each reference in this Lease to any of the Basic Lease Information shall mean the respective information above set forth and shall be construed to incorporate all of the terms provided under the particular Lease paragraph pertaining to such information. In the event of any conflict between the Basic Lease Information and the Lease, the latter shall control. LANDLORD: TENANT: SAN MATEO OFFICE LIMITED VERY VISUAL SOFTWARE INC. A California Limited Partnership A Delaware Corporation By ----------------------------- By --------------------------- Dennis E Singleton Roger Sippl Its General Partner Its Chief Executive Officer Date: Date: - -------------------------------- ------------------------------ -1- LEASE TABLE OF CONTENTS Page ---- 1. Premises................................................................. 3 2. Occupancy................................................................ 3 3. Terms And Possession..................................................... 3 4. Rent..................................................................... 3 5. Restrictions On Use...................................................... 3 6. Compliance With Laws..................................................... 3 7. Alterations.............................................................. 3 8. Repairs.................................................................. 3 9. Liens.................................................................... 4 10. Assignments And Subletting............................................... 4 11. Insurance And Indemnification............................................ 4 12. Waiver Of Subrogation.................................................... 5 13. Service And Utilities.................................................... 5 14. Estoppel Certificate..................................................... 5 15. Security Deposit......................................................... 6 16. Substitution............................................................. 6 17. Holding Over............................................................. 6 18. Subordination............................................................ 6 19. Rules And Regulations.................................................... 6 20. Re-Entry By Landlord..................................................... 6 21. Default By Tenant........................................................ 6 22. Damage By Fire, Etc...................................................... 7 23. Eminent Domain........................................................... 8 24. Sale By Landlord And Tenant's Remedies................................... 8 25. Right Of Landlord To Perform............................................. 8 26. Surrender Of Premises.................................................... 8 27. Waiver................................................................... 8 28. Notices.................................................................. 8 29. Rental Adjustments....................................................... 9 30. Taxes Payable By Tenant................................................. 10 31. Successors And Assigns.................................................. 10 32. Attorneys' Fees......................................................... 10 33. Light And Air........................................................... 10 34. Public Transportation Information....................................... 10 35. Miscellaneous........................................................... 10 36. Lease Effective Date.................................................... 10 Signatures................................................................... 10 EXHIBIT "A"............................................... Rules and Regulations EXHIBIT "B" & B-1........................................... Outline of Premises EXHIBIT "C" & C-1......................................... Improvement Agreement EXHIBIT "D".......................................... Form of Tenant Certificate 2 LEASE THIS LEASE is made as of this 7th day of March, 1993, --- ----- between SAN MATEO OFFICE LIMITED, A CALIF. LIMITED ------------------------------------------ PARTNERSHIP (called "Landlord") and VERY VISUAL SOFTWARE -------------------------------------------------------- INC., A DELAWARE CORPORATION (hereinafter called ---------------------------- "Tenant"). PREMISES 1. Landlord leases to Tenant and Tenant leases from Landlord those premises (hereinafter called "Premises") outlined in red on Exhibit B attached hereto and made a part hereof, specified in the Basic Lease Information attached hereto (the "Building"). OCCUPANCY 2. Tenant shall use the Premises for the Permitted Use and for no other use or purpose without the prior written consent of Landlord. No increase in occupant density of the Leased Premises shall be made which shall add to the burden of such use of the Building as determined by Landlord without the prior written consent of Landlord. TERM AND 3. (a) The parties project that the term shall POSSESSION commence on the Scheduled Term Commencement Date and, except as otherwise provided herein or in any exhibit or addendum hereto, shall continue in full force until the Term Expiration Date. If the Premises are not delivered by Landlord by the Scheduled Term Commencement Date for any reason, Landlord shall not be liable to Tenant for any loss or damage resulting from such delay. The Term Commencement Date shall be the first day of the calendar month next following the earlier of (i) the day when the Premises are substantially complete, or (ii) the date on which Tenant takes possession of, or commences the operation of its business in some or all of the Premises. See Addendum #11, attached hereto and made a part hereof. RENT 4. Tenant shall pay to Landlord throughout the Term Rent as specified in *See Addendum #1 attached hereto and made a part hereof, payable in equal monthly installments in advance on the first day of each calendar month during every year of the Term in lawful money of the United States, without deduction or offset whatsoever, to Landlord at the address specified in the Basic Lease Information or to such other firm or to such other place as Landlord may from time to time designate in writing by notice given as herein provided. Rent for the first month of the Term shall be paid by Tenant upon execution of this Lease. If the obligation for payment of Rent commences on other than the first day of a month as provided in paragraph 3(a), then Rent provided for such partial month shall be prorated and the prorated installment shall be paid on the first day of the calendar month next succeeding the Term Commencement Date. If the Term terminates on other than the last day of a calendar month, then the Rent provided for such partial month shall be prorated and the prorated installment shall be paid on the first day of the calendar month next preceding the date of termination. RESTRICTIONS 5. Tenant shall not do or permit anything to be done ON USE in or about the Premises which will in anyway obstruct or interfere with the rights of other tenants or occupants of the Building or injure or annoy them, nor use or allow the Premises to be used for any improper, immoral, unlawful or objectionable purpose, nor shall Tenant cause or maintain or permit any nuisance in, on or about the Premises. Tenant shall not commit or suffer the commission of any waste in, on or about the Premises. COMPLIANCE 6. Tenant shall not use the Premises or permit anything WITH LAWS to be done in or about the Premises which will in any way conflict with any law, statute, ordinance or governmental rule or regulation now in force or which may hereafter be enacted or promulgated. Tenant shall not do or permit anything to be done on or about the Premises or bring or keep anything therein which will in any way increase the rate of any insurance upon the Building or any of its contents or cause a cancellation of said insurance or otherwise affect said insurance in any manner, and Tenant shall at its sole cost and expense promptly comply with all laws, statutes, ordinances and governmental rules, regulations or requirements now in force or which may hereafter be in force and with the requirements of any board of fire underwriters or other similar body now or hereafter constituted relating to or affecting the condition, use or occupancy of the Premises, excluding structural changes not related to or affected by alterations or improvements made by or for Tenant or Tenant's acts. The judgment of any court of competent jurisdiction or the admission of Tenant in any actions against Tenant, whether Landlord be a party thereto or not, that Tenant has so violated any such law, statute, ordinance, rule, regulation or requirement, shall be conclusive of such violation as between Landlord and Tenant. ALTERATIONS 7. Tenant shall not make or suffer to be made any alterations, additions or improvements in, on or to the Premises or any part thereof without the prior written consent of Landlord; and any such alterations, additions or improvements in, on or to said Premises, except for Tenant's movable furniture and equipment, shall immediately become Landlord's property and, at the end of the Term, shall remain on the Premises without compensation to Tenant. In the event Landlord consents to the making of any such alteration, addition or improvement by Tenant, the same shall be made by Tenant, at Tenant's sole cost and expense, in accordance with plans and specifications approved by Landlord, and any contractor or person selected by Tenant to make the same must first be approved in writing by Landlord. Notwithstanding the foregoing, at Landlord's option, all or any portion of the alteration, addition or improvement, work shall be performed by Landlord for Tenant's account and Tenant shall pay Landlord's estimate of the cost thereof (including a reasonable charge for Landlord's overhead and profit) prior to commencement of the work Overhead and profit allowances shall total fifteen percent (15%). Upon the expiration or sooner termination of the Term, Tenant shall upon demand by Landlord, at Tenant's sole cost and expense, with all due diligence remove all those alterations, additions or improvements made by or for the account of Tenant, designated by Landlord to be removed, and Tenant shall with all due diligence, at its sole cost and expense, repair and restore the Premises to their original condition. At Landlord's election and notwithstanding the foregoing, however, Tenant shall pay to Landlord the cost of removing any such alterations, additions or improvements and restoring the Premises to their original condition such cost to include a reasonable charge for Landlord's overhead and profit as provided above, and such amount may be deducted from the Security Deposit or any other sums or amounts held by Landlord under this Lease. REPAIRS 8. By taking posession of the Premises, Tenant accepts the Premises as being in the condition in which Landlord is obligated to deliver them and otherwise in good order condition and repair. At all -1- times during the Term Tenant shall, at Tenant's sole cost and expense, keep the Premises and every part thereof in good order, condition and repair, excepting damage thereto by fire, earthquake, act of God or the elements. Tenant waives all right it may have under Section 1942 of the Civil Code of the State of California and any similar law, statute or ordinance now or hereafter in effect (to the full extent that such waiver may lawfully be given) authorizing or purporting to authorize Tenant to make repairs to or for the account of Landlord. Tenant shall upon the expiration or sooner termination of the Term hereof, unless Landlord demands otherwise pursuant to LIENS paragraph 7 hereof, surrender to Landlord the Premises and all repairs, changes, alterations. additions and improvements thereto in the same condition as when received or when first installed, damage by fire, earthquake, act of God, ordinary wear and tear or the elements excepted. Landlord has no obligation to alter, remodel, improve, repair, decorate or paint the Premises or any part thereof, except as specified in the Office Lease Improvement Agreement and no representations respecting the condition of the Premises or the Building have been made by Landlord to Tenant, except as specifically set forth herein or in Exhibit C and C-1. 9. Tenant shall keep the Premises free from liens arising out of or related to work performed, materials or supplies furnished or obligations incurred by Tenant or in connection with work made, suffered or done by Tenant in Premises or Building. In the event that Tenant shall not, within ten (10) days following the imposition of any such lien, cause the same to be released of record by payment ASSIGNMENT AND or posting of a proper bond, Landlord shall have, in SUBLETTING addition to all remedies provided herein and by law, the right but no obligation, to cause the same to be released by such means as it shall deem proper, including payment of the claim giving rise to such lien. Landlord shall have the right at all times to post and keep posted on the Premises any notices permitted or required by law, or which Landlord shall deem proper, for the protection of Landlord, the Premises, the Building and any other party having an interest therein, from mechanics' and materialmen's liens, and Tenant shall give Landlord not less than ten (10) business days prior written notice of the commencement of any work in the Building or Premises which could lawfully give rise to a claim for mechanics' or materialmen's lien. 10. Tenant shall not sell, assign, encumber or otherwise transfer this Lease or any interest therein (by operation of law or otherwise), sublet the Premises or any part thereof or suffer any other person to occupy or use the Premises or any portion thereof, nor shall Tenant permit any lien to be placed on Tenant's interest under this Lease by operation of law except in accordance with the provisions of this paragraph 10. For purposes hereof, sales, transfers or assignments of or of (ii) the general partnership interests sufficient to control management decisions if Tenant is a partnership or of (iii) the majority or controlling underlying beneficial interest, if Tenant is any other form of business entity, shall constitute an assignment subject to the terms of this paragraph 10. (a) In the event that Tenant should desire to sublet the Premises or any part thereof, Tenant shall provide Landlord with written notice of such desire at least thirty (30) in advance of the date on which Tenant desires to make such sublease. Landlord shall then have a period of thirty (30) days following receipt of such notice within which to notify Tenant in writng that Landlord elects either (i) to terminate this lease as to the space so affected as of the date so specified by Tenant, in which event Tenant shall be relieved of all further obligations hereunder as to such space from and after that date, or (ii) to permit Tenant to sublet such space, subject, however, to the prior written approval of the proposed sublessee by Landlord which said consent shall not be unreasonably withheld. If Landlord should fail to notify Tenant in writing of its election within said thirty (30) day period, Landlord shall be deemed to have waived option (i) above, but written approval of the proposed sublessee shall not constitute a termination of this Lease. In exercising its right of consent to a sublessee it shall be reasonable for Landlord to withhold consent to any sublessee who (aa) does not agree to assume the obligations of the Lease with respect to the space to be so sublet, (bb) does not agree to utilize the space so sublet for the Permitted Use, (cc) is of unsound financial condition as determined by Landlord, or (dd) will, in Landlord's opinion increase the occupant density in the Leased Premises. If Tenant proposes to sublease less than all of the Premises, election by Landlord of termination of this Lease with respect to the remainder of the space, the Rent and Tenant's Proportionate Share of Operating Expenses and taxes shall be adjusted on a pro rata basis to reflect the reduction in Net Rentable Area of the Premises as retained by Tenant. This Lease as so amended shall continue thereafter in full force and effect and reference herein to the Premises shall mean that portion thereof as to which the Lease has not been terminated. (b) Tenant shall not enter into any other transaction subject to this paragraph 10 without Landlord's prior written consent which said consent shall not be unreasonably withheld. It shall be reasonable for Landlord to withhold consent to any proposed transaction described in this paragraph 10 on any of the grounds specified in paragraph 10(a) with respect to sublessees or any other reasonable grounds. (c) Any rent or other consideration realized by Tenant under any such sublease or assignment to which Landlord has consented hereunder, in excess of the Rent payable hereunder, after amortization of the reasonable cost of the improvements over the remainder of the Term for which Tenant has paid and reasonable subletting and assignments costs, shall be divided and paid fifty percent (50%) to Tenant. (d) Any subletting hereunder by Tenant shall not result in Tenant being released or discharged from any liability under this lease. Any purported assignment, subletting or other transaction to which paragraph 10 applies, which occurs contrary to the provisions hereof, shall be void. Landlord's consent to any assignment, subletting or other transaction to which this paragraph 10 applies shall not release Tenant from any of Tenant's obligations hereunder or constitute a consent with respect to any subsequent transaction to which this paragraph applies. INSURANCE AND 11. (a) Landlord shall not be liable to Tenant and Tenant INDEMNIFICATION hereby waives all claims against Landlord for any injury or damage to any person or property in or about the Premises by or from any cause whatsoever, (other than Landlord's gross negligence or willful misconduct) and, without limiting the generality of the foregoing, whether caused by water leakage of any character from the roof, walls, basement or other portion of the Premises or the Building, or caused by gas, fire, oil or electricity in, on or about the Premises or the Building. (b) Tenant shall hold Landlord harmless from and defend Landlord against any and all claims or liability for any injury or damage to any person or property whatsoever: (i) occurring in, on or about the -2- Premises or any part thereof, or (ii) occurring in, on or about any facilities (including, without prejudice to the generality of the term "facilities", elevators, stairways, lobbies, health clubs, passageways or hallways), the use of which Tenant may have in conjunction with other tenants of the Building, when such injury or damage shall be caused in part or in whole by the act, neglect, fault of or omission of any duty with respect to the same by Tenant, its agents, servants, employees or invitees. Tenant shall further indemnify and save harmless Landlord against and from any and all claims by or on behalf of any person, firm or corporation arising from the conduct or management of any work or thing whatsoever done by Tenant in or about or from transactions of Tenant concerning the Premises, and will further indemnify and save Landlord harmless against and from any and all claims arising from any breach or default on the part of Tenant in the performance of any covenant or agreement on the part of Tenant to be performed pursuant to the terms of this Lease or arising from any act or negligence of Tenant, or any of its agents, contractors, servants, employees or licensees, and from and against all costs, counsel fees, expenses and liabilities incurred in connection with any such claim or action or proceeding brought thereon. In case any action or proceeding is brought against Landlord by reason of any claims or liability within the limits of the foregoing indemnity, Tenant shall defend such action or proceeding at Tenant's sole expense by counsel reasonably satisfactory to Landlord. (c) Landlord shall hold tenant harmless from and defend Tenant against any and all claims or liability for any injury or damage to any person or property occurring in or about any facilities (including without prejudice to the generality of the term "facilities", elevators, stairways, passageways or hallways) the use of which Tenant may have in conjunction with other tenants of the building, when such injury or damage shall be caused in whole or in part by the act, neglect, fault of or omission of any duty with respect to the same by Landlord, its agents, servants, employees or invitees. Landlord shall further indemnify and save harmless Tenant against and from any and all claims by or on behalf of any person, firm or corporation arising from the conduct or management of any work or thing whatsoever done by Landlord in or about, or from transactions of Landlord concerning, the Premises where such work is not being done for the account of Tenant; and Landlord will further indemnify and save Tenant harmless against and from any and all claims arising from any breach or default on the part of Landlord in the performance of any covenant or agreement on the part of Landlord to be performed pursuant to the terms of this Lease or arising from any act or negligence of Landlord, or any of its agents contractors, servants, employees or licensees, and from and against all costs, counsel fees, expenses and liabilities incurred in connection with any such claim or action or proceeding brought thereon,. In case any action or proceeding is brought against Tenant by reason of any claims or liability within the limits of the foregoing indemnity, Landlord shall defend such action or proceeding at Landlord's sole expense by counsel reasonable satisfactory to Tenant. (d) The provisions of paragraph 11(b) and 11(c) shall survive the expiration or termination of this Lease with respect to any claims or liability occurring prior to such expiration or termination. (e) Tenant shall purchase at its own expense and keep in force during the Term of this Lease a policy or policies of workers' compensation and comprehensive liability insurance, including personal injury and property damage, in the amount of Five Hundred Thousand Dollars ($500,000.00) for property damage and Two Million Dollars ($2,000,000.00) per occurrence for personal injuries or deaths of persons occurring in or about the Premises. The foregoing limits shall be increased in proportion to increases during the Term in the United States Department of Labor, Bureau of Labor Statistics, Cost of Living Index, All Urban Consumers (1967=100) for the region in which the Leased Premises are located. Said policies shall: (i) name Landlord and any party holding an interest to which this Lease may be subordinated under paragraph 18 hereof, as additional insureds and insure Landlord's contingent liability under this Lease; (ii) be issued by an insurance company acceptable to Landlord and licensed to do business in the State of California; and (iii) provide that said insurance shall not be cancelled unless ten (10) days prior written notice shall have been given to Landlord. Said policy or policies or certificates thereof shall be delivered to Landlord by Tenant upon commencement of the term of this Lease and upon each renewal of said insurance. WAIVER OF SUBROGATION 12. To the extent permitted by law and without affecting the coverage provided by insurance required to be maintained hereunder, Landlord and Tenant each waive any right to recover against the other (i) damages for injury to or death of persons, (ii) damages to property, (iii) damage to the Premises or any part thereof, (iv) damage to the Building or any part thereof, or (v) claims arising by reason of the foregoing, but only to the extent that any of the foregoing damages and/or claims referred to above are covered (and only to the extent of such coverage) by insurance actually carried by either Landlord or Tenant. This provision is intended to waive fully, and for the benefit of each party, any rights and/or claims which might give rise to a right of subrogation on any insurance carrier. The coverage obtained by each party pursuant to this Lease shall include, but without limitation, a waiver of subrogation by the carrier which conforms to the provisions of this paragraph. SERVICES AND UTILITIES 13. (a) Landlord shall maintain the public and common areas of the Building, including lobbies, stairs, elevators, corridors and restrooms, the windows in the Building, the mechanical, plumbing and electrical equipment serving the Building, and the structure itself, in reasonably good order and condition except for damage occasioned by the act of Tenant, which damage shall be repaired by Landlord at Tenant's expense. (b) Provided Tenant shall not be in default hereunder, and subject to the provisions elsewhere herein contained and to the rules and regulations of the Building, Landlord shall furnish to the Premises during ordinary business hours of generally recognized business days, to be determined by Landlord (but exclusive, in any event, of Saturdays, Sundays and legal holidays), water and electricity suitable for the Permitted Uses of the Premises, heat and air conditioning required in Landlord's judgment for the comfortable use and occupation of the Premises for the Permitted Uses, janitorial services during the times and in the manner that such services are, in Landlord's judgment, customarily furnished in comparable office buildings in the immediate market area, and elevator service which shall mean service either by nonattended automatic elevators or elevators with attendants or both, at the option of Landlord. Landlord shall have no obligation to provide additional or after-hours heating or air conditioning, but if Landlord elects to provide such services at Tenant's request, Tenant shall pay to Landlord a reasonable charge for such services as determined by Landlord. Tenant agrees to keep and cause to be kept closed all window covering when necessary because of the sun's position, and Tenant also agrees at all times to cooperate fully with Landlord and to abide by all the regulations and requirements which Landlord may prescribe for the proper functioning and protection of heating, - 3 - ventilating and air conditioning systems. Wherever heat- generating machines, excess lighting or equipment are used in the Premises which affect the temperature otherwise maintained by the air conditioning system, Landlord reserves the right to install supplementary air conditioning units in the Premises, and the cost thereof including the cost of installation and the cost of operation and maintenance thereof, shall be paid by Tenant to Landlord upon demand by Landlord. See Addendum #6 attached hereto and made a part hereof. (c) Tenant shall not without the written consent of Landlord use any apparatus or device in the Premises, including without limitation, electronics data processing machines, punch card machines, and machines using excess lighting or using current in excess of that which is determined by Landlord as reasonable and normal for the Permitted Use or which will in any way increase the amount of electricity or water usually furnished or supplied for the Permitted Uses of the Premises; nor connect with electric current except through existing electrical outlets in the Premises or water pipes, any apparatus or device for the purposes of using electrical current or water. If Tenant shall require water or electric current or any other resource in excess of that usually furnished or supplied for the Permitted Use of the Premises, Tenant shall first procure the consent of Landlord which Landlord may refuse, to the use thereof, and Landlord may cause a special meter to be installed in the Premises so as to measure the amount of water, electrical current or other resource consumed for any such other use. Tenant shall pay directly to Landlord as an addition to and separate from payment of Basic Operating Cost the cost of all such energy, utility service and meters (and of installation, maintenance and repair thereof). Landlord may add to the metered charge a recovery of additional expense incurred in keeping account of the water, electric current or other resource so consumed. Landlord shall not be liable for any damages directly or indirectly resulting from, nor shall the Rent herein reserved be abated by reason of (i) the installation, use or interruption of use of any equipment in connection with the furnishing of any of the foregoing utilities and services, (ii) failure to furnish or delay in furnishing any such utilities or services when such failure or delay is caused by acts of God or the elements, labor disturbances of any character, any other accident or other conditions beyond the reasonable control of Landlord, or by the making of repairs or improvements to the Premises or to the Building, or (iii) the limitation, curtailment, rationing or restriction on use of water, electricity, gas or any other form of energy or any other service or utility whatsoever serving the Premises or the Building. Landlord shall be entitled to cooperate voluntarily and in a reasonable manner with the efforts of national, state or local governmental agencies or utility suppliers in reducing energy or other resource consumption. The obligation to make services available hereunder shall be subject to the limitations of any such voluntary, reasonable program. (d) Any sums payable under this paragraph 13 shall constitute Additional Rent hereunder. ESTOPPEL 14. Within ten (10) days following any written request CERTIFICATE which Landlord may make from time to time, Tenant shall execute and deliver to Landlord a certificate substantially in the form attached hereto as Exhibit D and made a part hereof, indicating thereon any exceptions thereto which may exist at that time. Failure by Tenant to execute and deliver such certificate shall constitute an acceptance of the Premises and acknowledgment by Tenant that the statements included in Exhibit D are true and correct without exception. Landlord and tenant intend that any statements included in Exhibit D are true and correct without exception. Landlord and Tenant intend that any statement delivered pursuant to this paragraph may be relied upon by any mortgagee, beneficiary, purchaser or prospective purchaser of the Building or any interest therein. Landlord shall have the right to substitute for the attached exhibit D a certificate in form required by Landlord's mortgagee or provider of financing. SECURITY DEPOSIT 15. Concurrently with execution hereof, Tenant has paid to Landlord the Security Deposit in the amount stated on the Basic Lease Information sheet as security for the full and faithful performance of Tenant's obligations under this Lease. Upon expiration of the Term or earlier termination hereof, the Security Deposit shall be returned to Tenant, reduced by such amounts as may be required by Landlord to remedy defaults on the part of Tenant in the payment of Rent, to repair damages to the Premises caused by Tenant and to clean the Premises. Landlord shall hold the Security Deposit for the foregoing purposes in accordance with the provisions of all applicable law. SUBSTITUTION 16. At any time after execution of this Lease, Landlord may substitute for the Premises other premises in the Building (the "New Premises") upon not less than ninety (90) days prior written notice, in which event the new Premises shall be deemed to be the Premises for all purposes hereunder, provided, however, that: (a) The Net Rentable Area in the Premises is less than five thousand (5,000) square feet; (b) The New Premises shall be similar in area and in appropriateness for Tenant's purposes; (c) Any such substitution is effected for the purpose of accommodating a tenant who will occupy all or a substantial portion of the Net Rentable Area of the floor on which the Premises are located; and (d) If Tenant is occupying the Premises at the time of such substitution, Landlord shall pay the expense of moving Tenant, its property and equipment to the New Premises and shall, at its sole cost, improve the New Premises with improvements substantially similar to those Landlord has committed to provide or has provided in the HOLDING OVER Premises. 17. If Tenant shall retain possession of the Premises or any part thereof without Landlord's consent following the expiration of the Term or sooner termination of this Lease for any reason, then Tenant shall pay to Landlord for each day of such retention double the amount of the daily rental for the last period prior to the date of such expiration or termination. Tenant shall also indemnify and hold Landlord harmless from any loss or liability resulting from delay by Tenant in surrendering the Premises, including, without limitation, any claims made by any succeeding tenant founded on such delay. Alternatively, if Landlord gives notice to Tenant of Landlord's election thereof, such holding over shall constitute renewal of this Lease for a period from month to month whichever shall be specified in such notice. Acceptance of Rent by Landlord following expiration or termination shall not constitute a renewal of this Lease, and nothing contained in this paragraph shall waive Landlord's right of reentry or any other right. Unless Landlord exercises the option hereby given to it, Tenant shall be only a Tenant at sufferance, whether or not Landlord accepts any Rent from Tenant while Tenant is SUBORDINATION holding over without Landlord's written consent. 18. Without the necessity of any additional document being executed by Tenant for the purpose of effecting a subordination, this Lease shall be subject and subordinate at all times to: (a) all ground leases or underlying leases which may now exist or hereafter be executed affecting the Building or the land upon which the Building is situated or both, and (b) the lien of any mortgage or deed of trust which may now exist or hereafter be executed in any amount for which said Building, land, ground leases or underlying leases, or Landlord's interest or estate in any of said items, is specified as security. Notwithstanding the foregoing, Landlord shall have the right to subordinate or cause to be subordinated any such ground leases or underlying leases or any such liens to this Lease. In the event that any ground lease or underlying lease terminates for any reason or any mortgage or deed of trust is foreclosed or a conveyance in lieu of foreclosure is made for any reason, Tenant shall, notwithstanding any subordination, attorn to and become the Tenant of the successor in interest to Landlord at the option of such successor in interest. Tenant shall execute and deliver, upon demand by Landlord and in the form requested by Landlord, any additional documents evidencing the priority or subordination of this Lease with respect to any such ground leases or underlying leases or the lien of any such mortgage or deed of trust. Tenant hereby irrevocably appoints Landlord as attorney-in- fact of Tenant to execute, deliver and record any such documents in the name and on behalf of Tenant. At the request of Landlord, Tenant shall provide to Landlord its current financial statement or other information disclosing financial worth which Landlord shall use solely for purposes of this Lease and in connection with the ownership, management and disposition of the property subject hereto. RULES AND 19. Tenant shall faithfully observe and comply with the rules REGULATIONS and regulations printed on or annexed to this Lease and all reasonable modifications thereof and additions thereto from time to time put into effect by Landlord. Landlord shall not be responsible to Tenant for the non-compliance by any other tenant or occupant of the Building with any of the rules and regulations. RE-ENTRY BY 20. Landlord reserves and shall with reasonable advance notice LANDLORD except in emergencies have the right to reenter the premises to inspect the same, to supply janitor service and any other service to be provided by Landlord to Tenant hereunder, to show the Premises to prospective purchasers, mortgagees or tenants, to post notices of nonresponsibility and to alter, improve or repair the Premises and any portion of the Building, without abatement of Rent, and may for that purpose erect, use and maintain scaffolding, pipes, conduits and other necessary structures in and through the Premises where reasonably required by the character of the work to be performed: provided that entrance to the Premises shall not be blocked thereby, and further provided that the business of Tenant shall not be interfered with unreasonably. Tenant waives any claim for damages for any injury or inconveniences to or interference with Tenant's business, any loss of occupancy or quiet enjoyment of the Premises, and any other loss occasioned thereby, Landlord shall at all times have and retain a key with which to unlock all of the doors in, upon and about the premises, excluding Tenant's vaults and safes or special security areas (designated in advance), and Landlord shall have the right to use any and all means which Landlord may deem necessary or proper to open said doors in an emergency, in order to obtain entry to any portion of the Premises, and any entry to the Premises or portions thereof obtained by Landlord by any of said means, or otherwise, shall not be construed to be a forcible or unlawful entry into, or a detainer of, the Premises, or an eviction, actual or constructive, of Tenant from the Premises or any portions thereof. Landlord shall also have the right at any time, without the same constituting an actual or constructive eviction and without incurring any liability to Tenant thereof, to change the arrangement and/or location of entrances or passageways, doors and doorways, and corridors, elevators, stairs, toilets or other public parts of the Building and to change the name, number or designation by which the Building is commonly known. DEFAULT BY TENANT 21.(a) Events of Default: The occurrence of any of the following shall constitute an event of default on the part of Tenant: (1) Abandonment. Abandonment of the Premises for a continuous period in excess of five (5) business days. Tenant waives any right to notice Tenant may have under Section 1951.3 of the Civil Code of the State of California, the terms of this subsection (a) being deemed such notice to Tenant as required by said Section 1951.3: (2) Nonpayment of Rent. Failure to pay any installment of Rent due and payable hereunder (or failure to pay any other amount required to be paid hereunder, all such obligations to be construed as the equivalent of obligations for payment of Rent) upon the date when said payment is due, such failure continuing without cure by payment of the delinquent Rent and late charges for a period of five (5) business days after written notice and demand; provided, however, that except as expressly otherwise provided herein, Landlord shall not be required to provide such notice more than twice during the Term, the third such non-payment constituting default for all purposes hereof without requirement of notice. For purposes of subparagraph 21(e), such failure shall constitute a default without requirement of notice. (3) Other Obligations. Failure to perform any obligations, agreement or covenant under this Lease other than those matters specified in subparagraphs (1) and (2) of this subparagraph (a), such failure continuing for fifteen (15) business days after written notice of such failure (or such longer period as Landlord determines to be necessary to remedy such default, provided that Tenant shall continuously and diligently pursue such remedy at all time until such default is cured); (4) General Assignment. A general assignment by Tenant for the Benefit of creditors: (5) Bankruptcy. The filing of any voluntary petition in bankruptcy by Tenant, or the filing of an involuntary petition by Tenant's creditors, which involuntary petition remains undischarged for a period of thirty (30) days. In the event that under applicable law the trustee in bankruptcy or Tenant has the right to affirm this Lease and continue to perform the obligations of Tenant hereunder, such trustee or Tenant shall, in such time period as may be permitted by the bankruptcy court having jurisdiction, cure all defaults of Tenant hereunder outstanding as of the date of the affirmance of this Lease and provide to Landlord such adequate assurances as may be necessary to ensure Landlord of the continued performance of Tenant's obligations under this Lease; (6) Receivership. The employment of a receiver to take possession of substantially all of the Tenant's assets or the Premises, if such receivership remains indissolved for a period of ten (10) business days after creation thereof; (7) Attachment. The attachment, execution or other judicial seizure of all or substantially all of Tenant's assets or the Premises, if such attachment or other seizure remains undismissed or undischarged for a period of ten (10) business days after the levy thereof; (8) Insolvency. The admission by Tenant in writing of its inability to pay its debts as they become due, the filing by Tenant of a petition seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation, the filing by Tenant of an answer admitting or failing timely to contest a material allegation of a petition filed against Tenant in any such proceeding or, if within thirty (30) days after the commencement of any proceeding against Tenant seeking any reorganization or arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation, such proceeding shall not have been dismissed. (b) Remedies Upon Default. (1) Rent. All failures to pay any monetary obligation to be paid by Tenant under this lease shall be construed as obligations for payment of rent. (2) Termination. In the event of the occurrence of any event of default, Landlord shall have the right, with or without notice or demand, immediately to terminate this lease, and at any time thereafter recover possession of the Premises or any part thereof and expel and remove therefrom Tenant and any other person occupying the same, by any lawful means, and again repossess and enjoy the Premises without prejudice to any of the remedies that Landlord may have under this lease. or at law or equity by reason of Tenant's default or of such termination. (3) Continuation After Default. Even though Tenant has breached this Lease and/or abandoned the Premises, this Lease shall continue in effect for so long as Landlord does not terminate Tenant's right to possession under paragraph 21 (b)(2) hereof, and Landlord may enforce all its right and remedies under this lease, including (but without limitation) the right to recover Rent as it becomes due; and Landlord, without terminating this Lease, may exercise all of the rights and remedies of a landlord under Section 1951.4 of the Civil Code of the State of California or any successor code section. Acts of maintenance, preservation or efforts to lease the Premises or the appointment of receiver upon application of Landlord to protect Landlord's interests under this Lease shall not constitute an election to terminate Tenant's right to possession. (c) Damages Upon Termination. Should Landlord terminate this Lease pursuant to the provisions of paragraph 21 (b)(2) hereof, Landlord shall have all the rights and remedies of a landlord provided by Section 1951.2 of the Civil Code of the State of California, or successor code section. Upon such termination, in addition to any other rights and remedies to which Landlord may be entitled under applicable law, Landlord shall be entitled to recover from Tenant: (i) the worth at the time of award of the unpaid Rent and other amounts which had been earned at the time of termination; (ii) the worth at the time of award of the amount by which the unpaid Rent which would have been earned after termination until the time of award exceeds the amount of such Rent loss that the Tenant proves could have been reasonably avoided; (iii) the worth at the time of award of the amount by which the unpaid Rent for the balance of the Term after the time of award exceeds the amount of such Rent loss that the Tenant proves could be reasonably avoided; and (iv) any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant's failure to perform its obligations under this Lease or which, in the ordinary course of things, would be likely to result therefrom. The "worth at the time of award" of the amounts referred to in (i) and (ii) shall be computed with interest at the lesser of eighteen percent (18%) per annum or the maximum rate allowed by law. The "worth at the time of award" of the amount referred to in (iii) shall be computed by reference to competent appraisal evidence or the formula prescribed by using the lowest discount rate permitted under applicable law. (d) Computation Of Rent For Purposes Of Default. For purposes of computing unpaid Rent which would have accrued and become payable under this Lease pursuant to the provisions of paragraph 21(c) unpaid Rent shall consist of the sum of (1) the total Basic Rent for the balance of the Term then remaining (with the amount of Basic Rent to be determined by reference to fair rental value being the subject of proof by competent evidence), plus (2) a computation of the excess of Gross Rent (the term "Gross Rent" meaning the sum of (i) rental adjustments payable pursuant to paragraph 29 and (ii) Basic Rent) over Basic Rent for the balance of the Term then remaining ("Excess Gross Rental"), the assumed excess Gross Rental for the calendar year of the default and each future calendar year in the Term to be equal to the Excess Gross Rental for the calendar year prior to the year in which default occurs compounded at a per annum rate equal to the mean average rate of inflation for the preceding five (5) calendar years as determined by the United States Department of Labor, Bureau of Labor Statistics Consumer Price Index (All Urban Consumers) for the Metropolitan Area or Region of which San Francisco, California is a part. (e) Late Charge. In addition to its other remedies, Landlord shall have the right without notice or demand to add to the amount of any payment required to be made by Tenant hereunder, and which is not paid on or before the date the same is due, an amount equal to five percent (5%) of the delinquency for each month or portion thereof that the delinquency remains outstanding to compensate Landlord for the loss of the use of the amount not paid and the administrative costs caused by the delinquency, the parties agreeing that Landlord's damage by virtue of such delinquencies would be difficult to compute and the amount stated herein represents a reasonable estimate thereof. (f) Remedies Cumulative. All right, privileges and elections or remedies of the parties are cumulative and not alternative to the extent permitted by law and except as otherwise provided herein. -6- DAMAGED BY 22. If the Premises or the Building are damaged by fire or FIRE, ETC. other casualty, Landlord shall forthwith repair the same, provided such repairs can be made within one See Addendum hundred eighty (180) days from the date of such damage #7 attached under the laws and regulations of the federal, state and hereto and made local governmental authorities having jurisdiction a part hereof. thereof. In such event, this Lease shall remain in full force and effect except that Tenant shall be entitled to a proportionate reduction of Rent while such repairs to be made hereunder by Landlord are being made. Said proportionate reduction shall be based upon the extent to which the making of such repairs to be made hereunder by Landlord shall interfere with the business carried on by Tenant in the Premises. Within twenty (20) days from the date of such damage, Landlord shall notify Tenant whether or not such repairs can be made within one hundred eighty (180) days from the date of such damage and Landlord's determination thereof shall be binding on Tenant. If such repairs cannot be made within one hundred eighty (180) days from the date of such damage, Landlord shall have the option within thirty (30) days of the date of such damage either to: (a) notify Tenant of Landlord's intention to repair such damage and diligently prosecute such repairs, in which event this Lease shall continue in full force and effect and the Rent shall be reduced as provided herein; or (b) notify Tenant of Landlord's election to terminate this Lease as of a date specified in such notice, which date shall be not less than thirty (30) nor more than sixty (60) days after notice is given. In the event such notice to terminate is given by Landlord this Lease shall terminate on the date specified in such notice. In case of termination by either event, the Rent shall be reduced by a proportionate amount based upon the extent to which said damage interfered with the business carried on by Tenant in the Premises, and Tenant shall pay such reduced Rent Up to the date of termination. Landlord agrees to refund to Tenant any Rent previously paid for any period of time subsequent to such date of termination. The repairs be made hereunder by Landlord shall not include, and Landlord shall not be required to repair, any damage by fire or other cause to the property of Tenant or any repairs or replacements of any paneling, decorations, railings, floor coverings or any alterations, additions fixtures or improvements installed on the premises by or at the expense of Tenant. The provisions of Section 1942, subdivision 2, and Section 1933, subdivision 4, of the Civil Code of California are superseded by the foregoing. EMINENT DOMAIN 23. If any part of the Premises shall be taken or appropriated under the power of eminent domain or conveyed in lieu thereof, either party shall have the right to terminate this Lease at its option. If any part of the Building shall be taken or appropriated under power of eminent domain or conveyed in lieu thereof, Landlord may terminate this Lease at its option. In either of such events, Landlord shall receive (and Tenant shall assign to Landlord upon demand from Landlord) any income, rent, award or any interest therein which may be paid in connection with the exercise of such power of eminent domain, and Tenant shall have no claim against Landlord for any part of the sums paid by virtue of such proceedings, whether or not attributable to the value of the unexpired Term. If a part of the Premises shall be so taken or appropriated or conveyed and neither party hereto shall elect to terminate this Lease and the Premises have been damaged as a consequence of such partial taking or appropriation or conveyance, Landlord shall restore the Premises continuing under this Lease at Landlord's cost and expense; provided, however, that Landlord shall not be required to repair or restore any injury or damage to the property of Tenant or to make any repairs or restoration of any alterations, additions, fixtures or improvements installed on the Premises by or at the expense of Tenant. Thereafter, the Rent for the remainder of the Term shall be proportionately reduced, such reduction to be based upon the extent to which the partial taking or appropriation or conveyance shall interfere with the business carried on by Tenant in the Premises. Notwithstanding anything to the contrary contained in this paragraph, if the temporary use or occupancy of any part of the Premises shall be taken or appropriated under power of eminent domain during the Term, this Lease shall be and remain unaffected by such taking or appropriation and Tenant shall continue to pay in full all Rent payable hereunder by Tenant during the Term; in the event of any such temporary appropriation or taking, Tenant shall be entitled to receive that portion of any award which represents compensation for the use of or occupancy of the Premises during the Term, and Landlord shall be entitled to receive that portion of any award which represents the cost of restoration of the Premises and the use and occupancy of the Premises after the end of the Term. SALE BY LANDLORD AND 24. In the event of a sale or conveyance by Landlord of the TENANT'S Building, the same shall operate to release Landlord from any REMEDIES future liability upon any of the convenants or conditions, express or implied, herein contained in favor of Tenant, and in such event Tenant agrees to look solely to the responsibility of the successor in interest of Landlord in and to this Lease. This Lease shall not be affected by any such sale and Tenant agrees to attorn to the purchaser or assignee. Tenant shall look solely to Landlord's interest in the Building for recovery of any judgment from Landlord. Landlord, or if Landlord is a partnership, its partners whether general or limited, or if Landlord is a corporation, its directors, officers or shareholders, shall never be personally liable for any such judgment. RIGHT OF LANDLORD TO 25. All convenants and agreements to be performed by PERFORM Tenant under any of the terms of this Lease shall be performed by Tenant at Tenant's sole cost and expense and without any abatement of Rent. If Tenant shall fail to pay any sum of money, other than Rent, required to be paid by it hereunder or shall fail to perform any other act on its part to be performed hereunder, and such failure shall continue for ten (10) days after notice thereof by Landlord, Landlord may, but shall not be obligated to do so, and without waiving or releasing Tenant from any obligations of the Tenant, make any such payment or perform any such act on the Tenant's part to be made or performed. All sums so paid by Landlord and all necessary incidental costs together with interest thereon at the rate of eighteen percent (18%) per annum or the maximum rate permitted by law, whichever is less per annum from the date of such payment by the Landlord shall be payable as Additional Rent to Landlord on demand, and Tenant covenants to pay such sums, and Landlord shall have, in addition to any other right or remedy of Landlord, the same right and remedies in the event of the nonpayment thereof by Tenant as SURRENDER OF in the case of default by Tenant in the payment of the Rent. PREMISES 26. (a) Tenant shall, at least ninety (90) days before the last day of the Term, give to Landlord a written notice of intention to surrender the Premises on that date, but nothing contained herein shall be construed as an extension of the Term or as consent of Landlord to any holding over by Tenant. (b) At the end of the term or any renewal thereof or other sooner termination of this Lease, Tenant shall peaceably deliver up to Landlord possession of the Premises, together with all improvements, fixtures or ordinary wear additions thereto by whomsoever made, in the same condition as received, or first installed, damage by fire, earthquake, act of God, ordinary wear and tear or the elements alone excepted. Tenant may, upon the termination of this Lease, remove all movable furniture and equipment belonging to Tenant, at Tenant's sole cost, title to which shall be in Tenant until such termination, repairing any damage caused by such removal. Property not so removed shall be deemed abandoned by the Tenant, and title to the same shall thereupon pass to Landlord. (c) The voluntary or other surrender of this Lease by Tenant, or a mutual cancellation thereof, shall not work a merger and shall, at the option of Landlord, terminate all or any WAIVER existing subleases or subtenancies or may, at the option of Landlord, operate as an assignment to it of any or all such subleases or subtenancies. 27. If either Landlord or Tenant waives the performance of any term, covenant or condition contained in this Lease, such waiver shall not be deemed to be a waiver of any subsequent breach of the same or any other term, covenant or condition contained herein. The acceptance of Rent by Landlord shall not constitute a waiver of any preceding breach by Tenant of any term, covenant or condition of this Lease, regardless of Landlord's knowledge of such preceding breach at the time Landlord accepted such Rent. Failure by Landlord to enforce any of the terms, convenants or conditions of this Lease for any length of time shall not be deemed to waive or to decrease the right of Landlord to insist thereafter upon strict performance by Tenant. Waiver by Landlord of any term, covenant or condition contained in this lease may only be made by a written document signed by Landlord. NOTICES 28. All notices and demands which may or are required to be given by either party to the other hereunder shall be in writing. All notices and demand by Landlord to Tenant shall be sent by United States certified or registered mail, postage prepaid, addressed to Tenant at the Premises, or to such other place as Tenant may from time to time designate in a notice to Landlord. All notices and demands by Tenant to Landlord shall be sent by United States certified or registered mail, postage prepaid, addressed to Landlord at the address specified in the Basic Lease Information, or to such other firm or to such other place as Landlord may from time to time designate in a notice to Tenant. RENTAL 29. In addition to Basic Rent provided to be paid hereunder, Tenant ADJUSTMENT shall pay as Rent Tenant's Proportionate Share of Basic Operating Cost in the manner set forth below. See (a) Definition: For purposes hereof, the terms used in this Addendum #1 paragraph 29 shall have the following meanings: attached (b) "Basic Operating Cost" shall mean all expenses and costs of hereto every kind and nature which Landlord shall pay or become obligated and made a to pay because of or in connection with the ownership and operation part hereof of the Building and supporting facilities of the Building, and such additional facilities now and in subsequent years as may be determined by Landlord to be necessary to the Building, including, but not limited to the following: (i) Wages, salaries and related expenses and benefits of all on- site and off-site employees engaged directly in the operation, management, maintenance, engineering and security of the Building, and the costs of an office in the Building: provided, however, that Basic Operating Cost shall not include leasing commissions paid to any real estate broker, salesperson of agent. (ii) Supplies, materials and rental of equipment used in the operation, management and maintenance of the Building. (iii) Utilities, including water and power, heating, lighting, air conditioning and ventilating of the Building. (iv) All maintenance, janitorial and service agreements for the Building and the equipment therein, including, without limitation, alarm services, window cleaning and elevator maintenance. (v) A management cost recovery determined by Landlord equal to three percent (3%) of Gross Rent derived from the Building. (vi) Legal expenses and the cost of audits by certified public accountant; provided, however, that legal expenses chargeable as Basic Operating Cost shall not include the cost of negotiating leases, collecting rents, evicting tenants nor shall it include costs incurred in legal proceedings with or against any tenant or to enforce the provisions of any lease. (vii) All insurance premiums and costs, including but not limited to, the premiums and cost of fire, casualty and liability coverage and rental abatement and earthquake insurance (if Landlord elects to provide such coverage) applicable to the Building and Landlord's personal property used in connection therewith. (viii) Repair, replacements and general maintenance (excluding repairs and general maintenance paid by proceeds of insurance or by Tenant or other third parties, and alterations attributable solely to tenants of the Building other than Tenant). (ix) All maintenance costs relating to public and service areas of the Building, including (but without limitation) sidewalks, landscaping, service areas, mechanical rooms and building exteriors. (x) All taxes, service payments in lieu of taxes, annual or periodic license or use fees, fees, real estate taxes, impositions or charges imposed upon or levied in connection with use of the Building to raise funds for public transit, housing or other environmental, sociological or fiscal effects of the Building or land use, assessments whether general or special, ordinary and extraordinary, unforseen as well as foreseen, of any kind which are assessed, levied, charged, confirmed or imposed by any public authority upon the Building, the land upon which it is located, Building operations or Rent payable under this Lease (or any portion or component thereof), excepting only inheritance of estate taxes imposed upon or assessed against the interest of any person in the Building or any part thereof of interest therein, and taxes computed upon the basis of the net income of the owners of the Building or any part thereof or interest therein. (xi) Amortization (together with reasonable financing charges) of capital improvement made to the Building subsequent to the Term Commencement Date which will improve the operating efficiency of the Building or which may be required to comply with the laws, ordinances, rules or regulations promulgated, adopted or enforced after completion of the initial construction of the Building and improvements of the Premises pursuant to Exhibit C and C-!. Notwithstanding anything to the contrary herein contained, Basic Operating Cost shall not include (aa) the initial construction cost of the Building; (bb) depreciation on the initial construction of the Building; (cc) the cost of providing Tenant improvements to tenant or any other tenant: (dd) debt service (including, but without limitation, interest, principal and any impound payments) required to be made on any mortgage or deed of trust recorded with respect to the Building and/or the real property on which the Building is located other than debt service and financing charges imposed pursuant to paragraph 29(a)(1)(xi) above; and (ee) the cost of special services, goods or materials provided to any tenant. In the event that the building is not fully occupied during any fiscal year of the Term as determined by Landlord, an adjustment shall be made in computing the Basic Operating Cost for such year so that Basic Operating Cost shall be computed as though the Building had been one hundred percent (100%) occupied; provided, however, that in no event shall Landlord be entitled to collect in excess of one hundred percent (100%) of the total Basic Operating Cost from all of the tenants in the Building including Tenant. All costs and expenses shall be determined in accordance with generally accepted accounting principles which shall be consistently applied (with accruals appropriate to Landlord's business). Basic Operating Cost shall not include specific costs incurred for the account of, separately billed to and paid by specific tenants. -9- (2) "Estimated Basic Operating Cost" for any particular year shall mean Landlord's estimate of the Basic Operating Cost for such calendar year made prior to commencement of such calendar year as hereinafter provided. Landlord shall have the right from time to time to revise its fiscal year and interim accounting periods so long as the periods as so revised are reconciled with prior periods in accordance with generally accepted accounting principles applied in a consistent manner. (3) "Basic Operating Cost Adjustment" shall mean the difference between Basic Operating Cost and Estimated Basic Operating Cost for any calendar year determined as hereinafter provided. (B) Payment Of Estimated Operating Cost. During December of each calendar year during the Term, or as soon thereafter as practicable, Landlord shall give Tenant written notice of the Estimated Basic Operating Cost for the ensuing calendar year. The Estimated Basic Operating Cost for the calendar year in which the Scheduled Term Commencement Date falls is set forth in the Basic Lease information sheet. Tenant shall pay Tenant's Proportionate Share of the Estimated Basic Operating Costs with Installments of Basic Rent required to be paid pursuant to paragraph 3 above for the calendar year to which the estimate applies in monthly installments on the first day of each calendar month during such year, in advance. Such payment shall be construed to be Rent for all purposes hereof. If at any time during the course of a calendar year, Landlord determines that Basic Operating Cost will apparently vary from the then Estimated Basic Operating Cost by more than five percent (5%), Landlord may, by written notice to Tenant, revise the Estimated Basic Operating Cost for the balance of such calendar year and Tenant shall pay Tenant Proportionate Share of the Estimated Basic Operating Cost as so revised for the balance of the then current calendar year on the first day of each calendar month thereafter, such revised installment amounts to be Rent for all purposes hereof. (C) Computation Of Basic Operating Cost Adjustment. Within one hundred twenty (120) days after the end of each fiscal year as determined by Landlord or as soon thereafter as practicable, Landlord shall deliver to Tenant a statement of Basic Operating Cost for the fiscal year just ended, accompanied by a computation of Basic Operating Cost Adjustment. If such statement shows that Tenant's payment based upon Estimated Basic Operating Cost is less than Tenant's Proportionate Share of Basic Operating Cost, then Tenant shall pay the difference within twenty (20) days after receipt of such statement, such payment to constitute additional rent hereunder. If such statement shows that Tenant's payments of Estimated Basic Operating Cost exceed Tenant's Proportionate Share of Basic Operating Costs, then (provide that Tenant is not in default under this Lease), Tenant shall receive a credit for the amount of such payment against Tenant's obligation for payment of Tenant's Proportionate Share of Estimated Basic Operating Cost next becoming due hereunder. If this Lease has been terminated or the Term hereof has expired prior to the date of such statement, then the Basic Operating Cost Adjustment shall be paid by the appropriate party within twenty (20) days after the date of delivery of the statement. (D) Net Lease. This shall be a net lease and Base Rent shall be paid to Landlord absolutely net of all costs and expenses. The provisions for payment of Basic Operating Cost by means of periodic payments of Tenant's Proportionate Share of Estimated Basic Operating Cost and the Basic Operating Cost Adjustment are intended to pass on to Tenant and reimburse Landlord for all cost and expenses of the nature described in paragraph 29(a)(1) above incurred in connection with ownership and operation of the Building and such additional facilities now and in subsequent years as may be determined by Landlord to be necessary to the Building. (e) Tenant Audit. Tenant shall have the right, at Tenant's expense and upon not less than forty-eight (48) hours prior written notice to Landlord to review at reasonable times Landlord's books and records for any calendar year a portion of which falls within the Term for purposes of verifying Landlord's calculation of Basic Operating cost and Basic Operating Cost Adjustment. In the event that Tenant shall dispute the amount set forth in any statement provided by Landlord under paragraph 2g(c) above, Tenant shall have the right not later than twenty (20) days following the receipt of such statement, and upon condition that Tenant shall first deposit with Landlord the full amount in dispute, to cause Landlord's books and records with respect to such calendar year to be audited by certified public accountants selected by Tenant subject to Landlord's reasonable right of approval. The Basic Operating Cost Adjustment shall be appropriately adjusted on the basis of such audit. If such audit discloses a liability for a refund or credit by Landlord to Tenant in excess of ten Percent (10%) of Tenant's Proportionate Share of the Basic Operating cost Adjustment previously reported, the cost of such audit shall be borne by Landlord. Otherwise the cost of such audit shall be paid by Tenant. If Tenant shall not request an audit in accordance with the provisions of this paragraph 29(e) within twenty (20) days of receipt of Landlord's statement provided pursuant to paragraph 29(d), such statement shall be final and binding for all purposes hereof. TAXES 30. (a) Tenant shall pay before delinquency any and all taxes PAYABLE BY levied or assessed and which become payable by Landlord TENANT (or Tenant) during the Term of this Lease, whether or not now customary or within the contemplation of the parties hereto, which are based upon, measured by or otherwise calculated with respect to: (a) the value of Tenant's equipment, furniture, fixtures or other personal property located in the Premises; (b) the value of any leasehold improvements, alterations, or additions made in or to the Premises, regardless of whether title to such improvements, alterations or additions shall be in Tenant or Landlord; or (c) this transaction or any document to which Tenant is a party creating or transferring an interest or an estate in the Premises. (b) In the event that it shall not be lawful for Tenant so to reimburse Landlord, the Rent shall be revised to net Landlord the same net rent after imposition of any such tax upon Landlord as would have been payable to Landlord prior to the imposition of any such tax. All taxes payable by Tenant under this Paragraph 30 shall be additional rental. --10-- SUCCESSORS 31. Subject to the provisions of paragraph 10 hereof, the AND ASSIGNS terms, covenants and conditions contained herein shall be binding upon and inure to the benefit of the heirs, successors, executors, administrators and assigns of the parties hereto. ATTORNEYS' 32. In the event that any action or proceeding is brought to FEES enforce any term, covenant or condition of this lease on the part of Landlord or Tenant, the prevailing party in such litigation shall be entitled to reasonable attorneys' fees to be fixed by the court in such action or proceeding. LIGHT AND AIR 33. No diminution of light, air or view by any structure which may hereafter be erected (whether or not by Landlord) shall entitle Tenant to any reduction of Rent, result in any liability of Landlord to Tenant, or in any other way affect this Lease or Tenant's obligations hereunder. PUBLIC TRANS- 34. Tenant shall establish and maintain during the Term PORTATION hereof a program to encourage maximum use of public INFORMATION transportation by personnel of Tenant employed on the Premises, including without limitation the distribution to such employees of written materials explaining the convenience and availability of public transportation facilities adjacent to the Building, staggering working hours of employees, and encouraging use of such facilities, all at Tenant's sole reasonable cost and expense. MISCELLANEOUS 35.(a) The term "Premises" shall be deemed to include (except where such meaning would be clearly repugnant to the context) the office space demised and improvements now or at any time hereinafter comprising or built in the space hereby demised. (b) The paragraph headings herein are for convenience of reference and shall in no way define, increase, limit or describe the scope or intent of any provision of this lease. (c) The term "Landlord" in these presents shall include the Landlord, its successors and assigns. In any case where this Lease is signed by more than one person, the obligation hereinunder shall be joint and several. (d) The term "Tenant" or any pronoun used in place thereof shall indicate and include the masculine or feminine, the singular or plural number, individuals, firms or corporations, and their and each of their respective successors, executors, administrators and permitted assigns, according to the context hereof. (e) Time is of the essence of this Lease and all of its provisions. (f) This Lease shall in all respects be governed by the laws of the State of California. (g) This Lease, together with its exhibits, contains all the agreements of the parties hereto and supersedes any previous negotiations. (h) There have been no representations made by the Landlord or understandings made between the parties other than those set forth in the Lease and its exhibits. (i) This Lease may not be modified except by a written instrument by the parties hereto. (j) If for any reason whatsoever any of the provisions hereof shall be enforceable or ineffective, all of the other provisions shall be and remain in full force and effect. LEASE EFFECTIVE (k) See Addenda #1-11 attached hereto and made a part hereof. DATE 36. Submission of this instrument for examination or signature by Tenant does not constitute a reservation or option for lease, and it is not effective as a lease or otherwise until execution and delivery by both Landlord and Tenant. IN WITNESS WHEREOF. the parties hereto have executed this Lease the day and year first above written. "LANDLORD" SAN MATEO OFFICE LIMITED A California Limited Partnership Date By --------------------- -------------------------- Dennis E. Singleton Its General Partner "TENANT" VERY VISUAL SOFTWARE A DELAWARE CORPORATION Date By --------------------- -------------------------- Roger Sippl Its Chief Executive Office Rules and Regulations Exhibit A. 1. Sidewalks, halls, passages, exits, entrances, elevators, escalators and stairways shall not be obstructed by Tenants or used by them for any purposes other than for ingress to and egress from their respective premises. The halls, passages,exits entrances, elevators and stairways are not for the use of the general public and Landlord shall in all cases retain the right to control and prevent access thereto by all persons whose presence, in the judgement of Landlord, shall be prejudicial to the safety, character, reputation and interests of the Building and its Tenants, provided that nothing herein contained shall be construed to prevent such access to persons with whom any Tenant normally deals in the ordinary course of such Tenant's business unless such persons are engaged in illegal activities. No Tenant, and no employees or invitees of any Tenant, shall go upon the roof of the Building, except as authorized by Landlord. 2. No sign, placard, picture, name, advertisement or notice, visible from the exterior of leased premises shall be inscribed, painted, affixed, installed or otherwise displayed by any Tenant either on its premises or any part of the Building without the prior written consent of Landlord, and Landlord shall have the right to remove any such sign, placard, picture, name, advertisement or notice without notice to and at the expense of the Tenant. If Landlord shall have given such consent to any Tenant at any time, whether before or after the execution of the lease, such consent shall in no way operate as a waiver or release of any of the provisions hereof or of such lease, and shall be deemed to relate only to the particular sign, placard, picture, name, advertisement or notice so consented to by Landlord and shall not be construed as dispensing with the necessity of obtaining the specific written consent of Landlord with respect to any other such sign, placard, picture, name, advertisement or notice. All approved signs or lettering on doors and walls shall be printed, painted, affixed or inscribed at the expense of the Tenant by a person approved by Landlord. 3. The bulletin board or directory of the Building will be provided exclusively for the display of the name and location of Tenants only and Landlord reserves the right to exclude any other names therefrom. 4. No curtains draperies, blinds, shutters, screens or other coverings awnings, hangings or decorations shall be attached to, hung or placed in, or used in connection with, any window or door on any premises without prior written consent of Landlord. In any event with the prior written consent of Landlord, all such items shall be installed inboard of Landlords window covering and shall in no way be visible from exterior of the Building. No articles shall be placed or kept on the window sills so as to be visible from the exterior of the Building. No articles shall be placed against glass partition s or doors which might appear unsightly from outside Tenants Premises. 5. Landlord reserves the right to exclude from the Building between the hours of 6 pm and 6 am and at all hours on Saturdays, Sundays, and holidays all persons who are not Tenants or their accompanied guests in the Building. Each Tenant shall be responsible for all persons for whom it allows to enter the building and shall be liable to Landlord for all acts of such persons. Landlord shall in no case be liable for damages for error with regard to the admission to or exclusion from the Building of any person. During the continuances of any invasion, mob. riot, public excitement or other circumstance rendering such action advisable in Landlord's opinion, Landlord reserves the right to prevent access to the Building by closing the doors, or otherwise, for the safety of Tenants and protection of the Building and property in the Building. 6. No Tenant shall employ any person or persons other than the janitor of Landlord for the purpose of cleaning premises unless otherwise agreed to by Landlord in writing. Except with the written consent of Landlord no person or persons other than those approved by Landlord shall be permitted to enter the Building for the purpose of cleaning the same. No Tenant shall cause any unnecessary labor by reason of such Tenant's carelessness or indifference in the preservation of good order and cleanliness of the premises. Landlord shall in no way be responsible to any tenant for loss of property on the premises, however occurring, or for any damage done to the effects of any Tenant by the janitor or any other employee or any other person. 7. No Tenant shall obtain for use upon its premises ice, drinking water, food, beverage, towel or other similar services except through facilities provided by Landlord (and maintained by Tenant) and under regulations fixed by Landlord, or accept barbering or bootblacking services in its premises except from persons authorized by Landlord. 8. Each Tenant shall see that all doors of its premises are closed and securely locked and must observe strict care and caution that all water faucets or water apparatus are entirely shut off before the Tenant or its employees leave such premises, and that all utilities shall likewise be carefully shut off, so as to prevent waste or damage, and for any default or carelessness the Tenant shall make good all injuries sustained by other Tenants or occupants of the Building or Landlord. On multiple-tenancy floors, all Tenants shall keep the door or doors to the Building corridors closed at all times except for ingress or egress. 9. As more specifically provided in the Tenant's Lease of the Prenuses, Tenant shall not waste electricity, water or air- conditioning and agrees to cooperate fully with Landlord to assure the most effective operation of the Building's heating and air- conditioning, and shall refrain from attempting to adjust any controls other than room thermostats installed for Tenant's use. 10. No Tenant shall after any lock or access device or install a new additional lock or access device or any bolt on any door of its premises without the prior written consent of Landlord. If Landlord shall give its consent, the Tenant shall in each case furnish Landlord with a key for any such lock. 11. No Tenant shall make or have made additional copies of any keys or access devices provided by Landlord. Each Tenant, upon the termination of the Tenancy, shall deliver to Landlord all the keys or EXHIBIT "A" Page 1 access devices for the Building, offices, rooms and toilet rooms which shall have been furnished the Tenant or which the Tenant shall have had made. In the event of the loss of any keys or access devices so furnished by Landlord, Tenant shall pay Landlord therefor. 12. The toilet rooms, toilets, urinal, wash bowls and other apparatus shall not be used for any purpose other than that for which they were constructed and no foreign substance of any kind whatsoever shall be thrown therein, and the expense of any breakage, stoppage or damage resulting from the violation of this rule shall be borne by the Tenant who, or whose employees or invitees, shall have caused it. 13. No Tenant shall use or keep in its premises of the Building any kerosene, gasoline or inflammable or combustible fluid or material other than limited quantities necessary for the operation or maintenance of office or office equipment. no Tenant shall use any method or heating or air-conditioning other than that supplied by Landlord. 14. No Tenant shall use, keep or permit to be used or kept in its premises any foul or noxious gas or substance or permit or suffer such premises to be occupies or used in a manner offensive or objectionable to landlord or other occupants of the Building by reason of noise, odors and/or vibrations or interfere in any way with other Tenants of those having business therein, nor shall any animals or birds be brought or kept in or about any premises of the Building. 15. No cooking shall be done or permitted by any Tenant on it premises (except that use by the Tenant of Underwriters' laboratory approved equipment for the preparation of coffee, tea, hot chocolate and similar beverages for Tenants and their employees shall be permitted, provided that such equipment and use is in accordance with all applicable federal, state and city laws, codes, ordinances, rules and regulations), nor shall premises be used for lodging. microwave accepted. 16. Except with the prior written consent of Landlord, no Tenant shall sell, or permit the sale, at retail, of newspapers, magazines, periodicals, theatre tickets or any other goods or merchandise in or on any premises, nor shall Tenant carry on, or permit or allow any employee or other person to carry on , the Business of stenography, typewriting or any similar business in or from any premises for the service or accommodation of occupants of any other portion of the Building, nor shall the premises of any Tenant be used for the storage of merchandise or for manufacturing of any kind, or the business of a public barber shop, beauty parlor, nor shall the premises of any Tenant be used for any improper, immoral or objectionable purpose, or any business or activity other than that specifically provided for in such Tennant's lease. 17. If Tenant requires telegraphic, telephonic, burglar alarm or similar services, it shall first obtain and comply with, Landlord's instructions in their installation. 18. Landlord will direct electricians as to where and how telephone, telegraph and electrical wires are to be introduced or installed. No boring ar cutting for wires will be allowed without the prior written consent of Landlord. The location of burglar alarms, telephones, call boxes and other office equipment affixed to all premises shall be subject to the written approval of Landlord. 19. No Tenant shall install any radio or television antenna, loudspeaker or any other device on the exterior walls or the roof of the Building. Tenant shall not interfere with radio or television broadcasting or reception from or in the Building or elsewhere. 20. No Tenant shall lay linoleum, tile, carpet or an other floor covering so that the same shall be affixed to the floor of its premises in any manner except as approved in writing by Landlord. The expense of repairing any damage resulting from a violation of this rule or the removal of any floor covering shall be borne by the Tenant by whom, or by whose contractors, employees or invitees, the damage shall have been caused. 21. No furniture, freight, equipment, materials, supplies, packages, merchandise or other property will be received in the Building or carried up or down the elevators except between such hours and in such elevators as shall be designated by Landlord. Landlord shall have the right to prescribe the weight, size and position of all safes, furniture or other heavy equipment brought into the Building. Safes or other heavy objects shall, if considered necessary by Landlord, stand on wood strips of such thickness as determined by Landlord to be necessary to properly distribute the weight thereof. Landlord will not be responsible for loss of or damage to any such safe, equipment or properly from any cause, and all damage done to the Building by moving or maintaining any such safe, equipment or other property shall be repaired at the expense of Tenant. Business machines and mechanical equipment belonging to Tenant which cause noise or vibration that may be transmitted to the structure of the Building or to an space therein to such a degree as to be objectionable to Landlord or to an tenants in the building shall be placed and maintained by Tenant, at Tennant's expense, on vibration eliminators or other devices sufficient to eliminate noise or vibration. The persons employed to move such equipment in or out of the Building must be acceptable to Landlord. 22. No Tenant shall place a load upon any floor of the premises which exceeds the load per square foot which such floor was designed to carry and which is allowed by law. No Tenant shall mark, or drive nails, screw or drill into, the partitions, woodwork or plaster or in any way deface such premises or any part thereof. 23. No Tenant shall install, maintain or operate upon the Premises any vending machine without the written consent of Landlord. 24. There shall not be used in any space, or in the public areas of the Building, either by any Tenant or others, any hand trucks except those equipped with rubber tires and side guards or such other material-handling equipment as Landlord may approve. No other vehicles of any kind shall be brought by any Tenant into or kept in or about the premises. EXHIBIT "A" 18. Landlord will direct 25. Each Tenant shall store all its trash and garbage within the interior of its premises. No material shall be placed in the trash boxes or receptacles if such material is of such nature that it may not be disposed of in the ordinary and customary manner of removing and disposing of trash and garbage in the city without violation of any law or ordinance governing such disposal. All trash, garbage and refuse disposal shall be made only through entryways and elevators provided for such purposes and at such times as Landlord shall designate. 26. Canvassing, soliciting, distribution of handbills or any other written material, and peddling in the Building are prohibited and each Tenant shall cooperate to prevent the same. No Tenant shall make room-to-room solicitation of business from other tenants in the building. 27. Landlord shall have the right, exercisable without liability to any Tenant, to change the name and address of the Building. 28. Landlord reserves the right to exclude or expel from the Building any person who, in Landlord's judgment is intoxicated or under the influence of liquor or drugs or who is in violation of any of the rules and regulations of the Building. 29. Without the prior written consent of Landlord, Tenant shall not use the name of the Building in connection with or in promoting or advertising the business of Tenant except as Tenant's address. 30. Tenant shall comply with all safety, fire protection and evacuation procedures and regulations established by Landlord or any governmental agency. 31. Tenant assumes any and all responsibility for protecting its Premises from theft, robbery and pilferage, which includes keeping doors locked and other means of entry to the Premises closed. 32. The requirements of Tenants will be attended to only upon application at the office of the Building by an authorized individual. Employees of Landlord shall not perform any work or do anything outside of their regular duties unless under special instructions from Landlord, and no employees will admit any person Tenant or otherwise) to any office without specific instructions from Landlord. 33. Landlord may waive any one or more of these Rules and Regulations for the benefit of any particular Tenant or Tenants, but no such waiver by Landlord shall be construed as a waiver of such Rules and Regulations in favor of any other Tenant or Tenants, nor prevent Landlord from thereafter enforcing any such Rules and Regulations against any or all Tenants of the Building. 34. Landlord reserves the right to make such other and reasonable rules and regulations as in its judgement may from time to time be needed for safety and security, for care and cleanliness of the Building and for the preservation of good order therein. Tenant agrees to abide by all such Rules and Regulations hereinabove stated and any additional rules and regulations which are adopted. 35. Landlord reserves the right to designate the use of the parking spaces on the premises. 36. Tenant shall use carpet protector under all desk chairs. 37. Tenant agrees to keep balcony doors closed at all times, except during ingress and egress. 38. Tenant Or Tenant's guests shall park between designated parking lines only, and shall not occupy two parking spaces with one car. Vehicles in violation of the above shall be subject to tow-away, at vehicle owner's expense. 39. Vehicles parked on premises overnight without prior written consent of the Landlord shall be deemed abandoned and shall be subject to tow-away at vehicle owner's expense. 40. Tenant shall be responsible for the observance of all of the foregoing Rules and Regulations by Tenant's employees, agents, clients, customers, invitees and guests. 41. The Rules and Regulations are in addition to, and shall not be construed to in any way modify, alter or amend, in whole or in part the terms, covenants, agreements and conditions of any Lease of Premises in the Building. The word "Building" as used herein means the building of which the premises are part. EXHIBIT "A" Page 3 BLDG. 1 4TH FLOOR PLAN SAN MATEO BAY CENTER SPIEKER PARTNERS (415) 570-5990 EXHIBIT B-1 Suite 370 2,177 Sq. Ft. San Mateo BayCenter 951 Mariner's Island Boulevard San Mateo, CA Tenant to accept the premises in "as is" condition EXHIBIT C - Interior Improvements FOURTH FLOOR SOUTH BLDG. SUITE 460 6871 RSF SAN MATEO BAY CENTER 901/951 MARINER'S ISLAND BLVD. SAN MATEO, CALIFORNIA SPIEKER PARTNERS Tenant to accept the premises in "as is" condition except Landlord shall, at Landlord's sole cost and expense, provide the following interior improvements: 1. Repaint all walls, color to be selected by tenant. 2. Landlord shall replace the existing carpet with building standard carpet, color to be selected by tenant. 3. 3 - 3' sidelights (location to be selected by tenant). 4. 3'x5' window on wall separating Reception/Training Rooms. 5. Mini-blinds to be installed on new 3'x5' window. Form of Tenant Certificate - -------------- EXHIBIT D - -------------- ------------------------------ ------------------------------ ------------------------------ ------------------------------ RE: Gentlemen: The undersigned, as Tenant under that certain lease (the "Lease") dated ________________ 19__, made with __________________________ as Landlord (the "Landlord"), does hereby certify: 1. That the copy of the Lease attached hereto as Exhibit A is a true and complete copy of the Lease, and there are no amendments, modifications or extensions of or to the Lease and the Lease is now in full force and effect. 2. That its leased premises at the above location have been completed in accordance with the terms of the Lease, that it has accepted possession of said premises, and that it now occupies the same. 3. That it began paying rent on __________________, 19__, and that, save only as may be required by the terms of the Lease, no rental has been paid in advance, nor has the undersigned deposited any sums with the Landlord as security. 4. That there exist no defenses or offsets to enforcement of the Lease by the Landlord and, so far as is known to the undersigned, the Landlord is not, as of the date hereof, in default in the performance of the Lease, nor has the Landlord committed any breach thereof, nor has any event occurred which, with the passage of time or the giving of notice, or both, would constitute a default or breach by the Landlord. The undersigned acknowledges that you are relying on the above representation of the undersigned in (advancing funds to purchase the existing first mortgage Joan covering the building in which the leased premises are located)(in purchasing the building in which the leased premises are located) and does hereby warrant and affirm to and for your benefit, and that of your successors and assigns, that each of the foregoing representations is true, correct and complete as of the date hereof. Dated: ------------------------------------------------- By Its: ---------------------------------------------------- EXHIBIT "D" ADDENDA TO LEASE 951 Mariner's Island Boulevard San Mateo, California LEASE DATE: March 7, 1993 LANDLORD: SAN MATEO OFFICE LIMITED a California Limited Partnership TENANT: VERY VISUAL SOFTWARE, INC. A California Company ADDENDUM #1 RENT Rent for the Premises shall be as follows: Months 1-2.5 (4/1/93 - 6/14/93) Suite #370 (2,177 sqft) Base Rent $ 2,373 Estimated Basic Operating Costs 1,328 ----- (Calendar Year 1993) $ 3,701 per month Months 2.5-3 (6/15/93 - 6/30/93) Suite #460 (6,871 sqft) Base Rent $ 7,489 Estimated Basic Operating Costs 4,191 ----- (Calendar Year 1993) $ 11,680 per month Months 3-24 (7/1/93 - 3/31/95) Suite #460 (6,871 sqft) Base Rent $ 7,489 Estimated Basic Operating Costs 4,191 ----- (Calendar Year 1993) $ 11,680 per month ADDENDUM #2 TENANT IMPROVEMENTS Landlord shall deliver Suite #370 in "AS IS" condition as built per attached Exhibit C. Landlord shall provide to Suite #460 Tenant Improvements as described in Exhibit C-1. ADDENDUM #3 OPTION TO RE-RELEASE Providing Tenant is not, and has not been, in default of any terms and conditions of this Lease, Tenant shall have one three (3) year option to release the Premises in as is condition at the then current market rate for San Mateo BayCenter. In no event will the monthly rental be less than the rental for the last month of the previous term. Tenant shall give landlord written notice of its intent to exercise its option at least one hundred twenty (120) days prior to the expiration of the current lease term. Within fifteen (15) days after Landlord receives notice of such intent, Landlord will provide Tenant with the current market rental, as determined by Landlord as well as terms and conditions for the extended term. Tenant shall have thirty (30) days from notification by Landlord of option rent and terms and conditions to accept Landlord's current market rent, terms and conditions and thereby exercises its option to re-lease. If Tenant does not accept Landlord's rental figure and terms and conditions within the thirty (30) day period, this option shall be null and void and Landlord shall have no further obligation to Tenant and Landlord may enter into a lease for the Premises with a third party. ADDENDA TO LEASE VERY VISUAL SOFTWARE, INC. Page -2- Notwithstanding anything to the contrary set forth in this Lease, the Option to Re-Lease shall apply only to the Primary tenant and not to any assignee or subtenant of Very Visual Software, Inc. ADDENDUM #4 PRIOR RIGHT OF REFUSAL - ---------------------------------- Provided Tenant is not, and has not been, in default of any terms and conditions of this Lease, tenant shall have a Prior Right of Refusal during the term of the lease, to lease up to an additional 4,800 square feet of contiguous space on the fourth floor of the building. Landlord shall, before leasing the same to any party other than Tenant, first offers to lease the same to Tenant. Such offer shall specify the rental rate, lease term, amount of tenant improvement allowance, and other terms on which Tenant is entitled to lease the space, which terms shall be at the sole discretion of Landlord. Tenant shall exercise its rights to lease the space, if at all, within ten (10) business days after the receipt from Landlord of the Offer Terms, by written notice, thereof to Landlord. If Tenant exercises its Prior Right to Lease in the manner described, Tenant shall immediately deliver to Landlord payment for the first month's rent for the adjacent space. If Tenant does not so exercise such right to lease within said ten (10) day period, Landlord shall be entitled thereafter to lease said Option Space to any third party Landlord desires, provided that if Landlord has not received a letter of intent or entered into Lease negotiations on the Option Space with any third party within ninety (90) days after expiration of said ten (10) day period, Landlord shall once again offer to lease said space to Tenant pursuant to the provisions of this paragraph. Should Landlord enter into Lease negotiation with a third party, Landlord agrees that the effective rental rate offered to the third party is within 85% of that offered to said Tenant (VVSI) at the rent set forth in the original Offer Terms. ADDENDUM #5 COMPLIANCE WITH LAWS - -------------------------------- Landlord warrants, to the best of its knowledge, that the Building does conform or that Landlord will cause it to conform to applicable requirements of law or duly constituted authority or of any Board of Fire Underwriters, rating bureau of similar organization, or the requirements of the carriers of Landlord's insurance on or relating to the Building. The Tenant shall comply with all applicable statutes, ordinances, rules and regulations of federal, state, and municipal governments and all applicable rules and regulations of the Board of Fire Underwriters as such statutes, ordinances, rules and regulations pertain to Tenant's use of the demised Premises. ADDENDUM #6 SERVICES AND UTILITIES - ---------------------------------- Tenant shall be charged a fee of $30.00 per hour for after-hours HVAC use. Normal building hours are Monday through Friday from 8:00 a.m. to 6:00 p.m. Landlord reserves the right to adjust the hourly charge to reflect any increase or decrease set by the local utility company. ADDENDUM #7 DAMAGE BY FIRE. ETC. - -------------------------------- Notwithstanding the provisions of Paragraph 22, Tenant shall have the right to terminate this Lease if such repairs cannot be made within one hundred eighty (180) days from the date of such damage if such damage occurs within the last six (6) months of the lease term. ADDENDUM #8 PARKING - ------------------- Tenant shall have the non-exclusive use of no more than 4 on-site parking spaces per every 1,000 square feet of leased office space. ADDENDA TO LEASE VERY VISUAL SOFTWARE, INC. Page -3- ADDENDUM #9 SIGNAGE - ------------------- Tenant shall be entitled to building standard signage located at the following locations: entrance to the suite, elevator floor directory and main lobby directory. ADDENDUM #10 BASIC OPERATING COSTS - ---------------------------------- Notwithstanding the provisions of Paragraph 29 of the Lease Agreement, Tenant's Proportionate Share of Basic Operating Costs which are within Landlord's Control shall not increase by more than ten percent (10%) over the previous year's cost. Basic Operating costs which are not within Landlord's control include, but are not limited to, utilities, taxes and insurance. ADDENDUM #11 TERM AND POSSESSION - -------------------------------- Notwithstanding the provisions of Paragraph 3(a) of the Lease Agreement, Landlord will use its best efforts to deliver to Tenant 6,871 rentable square feet located on the 4th floor of 951 Mariner's Island Boulevard known as Suite #460 on or before June 15, 1993. Should Landlord be unable to deliver said space, 6,871 rentable square feet, on or before July 15, 1993, Landlord agrees to offer to Tenant one day free base rent and operating expenses for each day Tenant must occupy 2,177 square feet of rentable space on the third floor thereafter. If Landlord is unable to deliver said space, 6,871 rentable square feet, on or before September 30, 1993, Tenant shall have the right to terminate this Lease. LANDLORD: SPIEKER-SINGLETON #68, LTD. PARTNERSHIP A California Limited Partnership By: --------------------------------- Dennis E. Singleton Its: General Partner Date: --------------------------------- TENANT: VERY VISUAL SOFTWARE, INC. A Delaware Corporation By: --------------------------------- Roger Sippl Its: Chief Executive Officer By: --------------------------------- LEASE AMENDMENT ORIGINAL LEASE DATE: March 7, 1993 LEASE AMENDMENT DATE: May 25, 1993 LANDLORD: SAN MATEO OFFICE LIMITED A California Limited Partnership TENANT: VERY VISUAL SOFTWARE, INC. A California Corporation Landlord and Tenant, by executing this Lease Amendment as provided do hereby amend the Original Lease referred to above as follows: 1. RENTAL Rent for the Premises shall be as follows: Months 1 - 2.5 (4/1/93 - 6/17/93) Suite #370 *2,177 sqft) Base Rent $ 2,373 Operating Costs 1,328 ------- (1993 estimate) $ 3,701 per month Months 2.5 - 3 (6/18/93 - 6/30-93) Suite #460 (6,871 sqft) Base Rent $ 7,489 Operating Costs 4,191 ------- (1993 estimate) $11,680 per month Months 3 - 24 (7/1/93 - 3/31/95) Suite #460 (6,871 sqft) Base Rent $ 7,489 Operating Costs 4,191 ------- (1993 estimate) $11,680 per month 2. All other terms and conditions of the original Lease Agreement shall apply to this Lease Amendment. Agreed to this 25th day of May, 1993. ---- ---- VERY VISUAL SOFTWARE, INC. Lease Amendment 5/25/93 Page -2- LANDLORD: SAN MATEO OFFICE LIMITED A California Limited Partnership By: ---------------------------------- Dennis E. Singleton Its: General Partner Date: ---------------------------------- TENANT: VERY VISUAL SOFTWARE, INC. A Delaware Corporation By: ---------------------------------- Roger Sippl Its: Chief Executive Officer Date: --------------------------------- LEASE AMENDMENT #2 ------------------ ORIGINAL LEASE DATE: March 7, 1993 LEASE AMENDMENT DATE: October 6, 1994 LANDLORD: SAN MATEO OFFICE LIMITED A California Limited Partnership TENANT: VISIGENIC SOFTWARE, INC. A Delaware Corporation Landlord and Tenant, by executing this Lease Amendment as provided do hereby amend the Original Lease referred to above as follows: 1. TERM ---- 11/01/94 - 04/30/96 2. Premises -------- Approximately 981 square feet of leasable space on the fourth floor of San Mateo BayCenter, Phase I shall be incorporated into the original Lease Agreement. Total square footage shall increase from 6,871 to 7,852 square feet leasable. 3. Rental ------ 11/01/94 - 03/31/95 Base Rent $ 8,559.00 Op. Exp.(est.'94) $ 4,790.00 ---------- Total Rent $13,349.00 04/01/95 - 04/30/97 Base Rent $ 8,951.00 Op. Exp. (est '94) $ 4,790.00 ---------- Total Rent $13,741.00
4. Proportionate Share ------------------- Tenants proportionate share shall increase from 5.81% to 6.64%. 5. Security Deposit ---------------- Security Deposit shall increase from $11,681.00 to $13,349.00. All other terms and conditions of the original Lease Agreement shall apply to this Lease Amendment #2 Agreed to this________________day of__________________, 1994. LANDLORD: SAN MATEO OFFICE LIMITED A California Limited Partnership By: --------------------------------- Peter H. Schnugg Its: Agent for Owner Date: --------------------------------- TENANT: VERY VISUAL SOFTWARE, INC. A Delaware Corporation By: --------------------------------- Glenn Myers Its: Vice President of Finance Date: --------------------------------- LEASE AMENDMENT #3 ------------------ ORIGINAL LEASE DATE: March 7, 1993 LEASE AMENDMENT DATE: November 3, 1994 LANDLORD: SAN MATEO OFFICE LIMITED A California Limited Partnership TENANT VISIGENIC SOFTWARE, INC. A Delaware Corporation Landlord and Tenant, by executing this Lease Amendment as provided do hereby amend the Original Lease referred to above as follows:
1. Rental ------ 11/01/94 - 03/31/95 Base Rent $ 8,559.00 Op. Exp. (est. '94) $ 4,790.00 ---------- Total Rent $13,349.00 04/01/95 - 04/30/96 Base Rent $ 8,951.00 Op. Exp. (est. '94) $ 4,790.00 ---------- Total Rent $13,741.00
All other terms and conditions of the original Lease Agreement shall apply to this Lease Amendment #3 Agreed to this ______ day of ________________, 1994. LANDLORD: SAN MATEO OFFICE LIMITED A California Limited Partnership By: _____________________________ Peter H. Schnugg Its: Agent for Owner Date: _____________________________ TENANT: VERY VISUAL SOFTWARE, INC. A Delaware Corporation By: _____________________________ Glenn Myers Its: Vice President of Finance Date: _____________________________ LEASE AMENDMENT 24 ORIGINAL LEASE DATE: March 7, 1993 LEASE AMENDMENT DATE: February 15, 1995 LANDLORD: SAN MATEO OFFICE LIMITED A California Limited Partnership TENANT: VISIGENIC SOFTWARE, INC. A Delaware Corporation Landlord and Tenant, by executing this Lease Amendment as provided do hereby amend the Original Lease referred to above as follows: 1. Term ---- 03/01/95 - 04/30/96 2. Premises -------- Approximately 1,677 square feet of leasable space on the third floor of San Mateo BayCenter, Phase I shall be incorporated into the original Lease Agreement. Total square footage shall increase from 7,852 to 9,529 square feet leasable. 3. Rental 03/01/95 - 03/31/95 Base Rent $10,773.00 Op. Exp. (est. '95) $6,004.00 ---------- Total Rent $16,777.00 04/01/95 - 04/30/96 Base Rent $11,165.00 Op. Exp. (est '95) $6,004.00 ---------- Total Rent $17,169.00 4. Proportionate Share ------------------- Tenants proportionate share shall increase from 6.64% to 8.05%. 5. Security Deposit ---------------- Security Deposit shall increase from $13,349 to $17,168.00. All other terms and conditions of the original Lease Agreement shall apply to this Lease Amendment #4 Agreed to this day of , 1995. ---- ------------- LANDLORD: SAN MATEO OFFICE LIMITED A California Limited Partnership By: -------------------------------------- Peter H. Schnugg as Attorney-In-Fact for Dennis E. Singleton, General Partner Date: -------------------------------------- TENANT: VERY VISUAL SOFTWARE, INC. A Delaware Corporation By: -------------------------------------- Glenn Myers Its: Vice President of Finance Date: ---------------------------- BLDG. 1 3RD FLOOR PLAN SAN MAETO BAY CENTER SPIEKER PARTNERS (415) 570-5990 REVISED LEASE AMENDMENT #5 -------------------------- ORIGINAL LEASE DATE: March 7, 1993 LEASE AMENDMENT DATE: June 28, 1995 LANDLORD: SAN MATEO OFFICE LIMITED A California Limited Partnership TENANT: VISIGENIC SOFTWARE, INC. A Delaware Corporation
Landlord and Tenant, by executing this Lease Amendment as provided do hereby amend the Original Lease referred to above as follows: 1. Term ---- 08/01/95 - 07/31/2000 2. Premises -------- Effective August 1, 1995 approximately 3,305 square feet of rentable space on the fourth floor (Suite 400) of San Mateo BayCenter, Phase I, shall be incorporated into the original Lease Agreement. Total square footage shall increase from 9,529 to 12,834 rentable. Effective May 1, 1996 approximately 1,495 square feet of rentable space on the fourth floor (Suite 420) of San Mateo BayCenter, Phase I, shall be incorporated into the original Lease Agreement. Total square footage shall increase from 12,834 to 14,329. 3. Rental ------ 08/01/95 - 04/30/96 (12,834 rsf) Base Rent $14.888.00 Op. Exp. (est. '95) $ 8,085.00 ----------- Total Rent $22,973.00 05/01/96 - 11/30/97 (14,329 rsf) Base Rent $19,631.00 Op. Exp. (est. '95) $ 9,027.00 ---------- Total Rent $28,658.00 12/01/97 - 07/31/99 (14,329 rsf) Base Rent $20,777.00 Op. Exp. (est. '95) $ 9,027.00 ---------- Total Rent $29,804.00 08/01/99 - 07/31/2000 (14,329 rsf) Base Rent $21,207.00 Op. Exp. (est. '95) $ 9,027.00 ---------- Total Rent $30,234.00
4. Proportionate Share ------------------- Tenant's proportionate share shall increase from 8.05% to 10.85%. Effective May 1, 1996, Tenant's proportionate share shall increase from 10.85% to 12.11%. 5. Security Deposit ---------------- Security Deposit shall increase from $17,168.00 to $28,658.00. 6. LEASE AMENDMENT #10 ------------------- ORIGINAL LEASE DATE: March 7, 1993 LEASE AMENDMENT DATE: June 11, 1996 LANDLORD: SAN MATEO OFFICE LIMITED A California Limited Partnership TENANT: VISIGENIC SOFTWARE, INC. A Delaware Corporation Landlord and Tenant, by executing this Lease Amendment as provided do hereby amend the Original Lease referred to above as follows: 1. PREMISES -------- The Premises of the Lease as defined per the Basic Lease Information and as previously amended, shall be amended such that effective July 1, 1996, approximately 2,674 square feet of rentable space on the first floor of San Mateo BayCenter, known as Suite #120 within the Phase I building, shall be incorporated into the Original Lease Agreement. Total square footage shall increase from 22,476 to 25,150 rentable square feet. Effective August 1, 2000, approximately 16,506 square feet of rentable space on the third and fourth floors known as Suites 360, 370, 400, 420, & 460 within the Phase I building, shall be reduced from the Original Lease Agreement. Total square footage shall decrease from 25,150 to 8,644 rentable square feet. Effective February 1, 2001, approximately 5,970 square feet of rentable space on the second and third floors known as Suites 230 & 430 within the Phase 1 building, shall be reduced from the Original Lease Agreement. Total square footage shall decrease from 8,644 to 2,674 rentable square feet. 2. TERM ---- The term of the Lease shall be extended so that the Scheduled Term Expiration Date, as defined per the Basic Lease Information within the Original Lease Agreement, shall be June 30, 2001. 3. RENTAL TOTAL ------ AMOUNT DUE: Additional Existing 07/01/96 - 04/30/97 2,674 rsf. 22,476 rsf. 25,150 rsf. - ------------------------------------------------------------------------------- Base Rent $ 4,706.00 $31,540.00 $36,246.00 Op. Exp. (est '96) $ 1,711.00 $14,385.00 $16,096.00 --------- ---------- ---------- Total Rent $ 6,417.00 $45,925.00 $52,342.00 Additional Existing 05/01/97 - 06/30/97 2,674 rsf. 22,476 rsf. 25,150 rsf. - -------------------------------------------------------------------------------- Base Rent $ 4,706.00 $31,663.00 $36,369.00 Op. Exp. (est '96) $ 1,711.00 $14,385.00 $16,096.00 ---------- ---------- ---------- Total Rent $ 6,417.00 $46,048.00 $52,465.00 Additional Existing 07/01/97 - 11/30/97 2,674 rsf. 22,476 rsf. 25,150 rsf. - ------------------------------------------------------------------------------- Base Rent $ 4,893.00 $31,663.00 $36,556.00 Op. Exp. (est '96) $ 1,711.00 $14,385.00 $16,096.00 ---------- ---------- ---------- Total Rent $ 6,604.00 $46,048.00 $52,652.00 Additional Existing 12/01/97 - 06/30/98 2,674 rsf. 22,476 rsf. 25,150 rsf. - ------------------------------------------------------------------------------- Base Rent $ 4,893.00 $33,223.00 $38,116.00 Op. Exp. (est '96) $ 1,711.00 $14,385.00 $16,096.00 ---------- ---------- ---------- Total Rent $ 6,604.00 $47,608.00 $54,212.00 Visigenic Software Lease Amendment #10 6/11/96 Page 2 RENTAL (Continued) Additional Existing 07/01/98-04/30/99 2,674 rsf. 22,476 rsf. 25,150 rsf. ---------------------------------------------------------------------------------------------------------- Base Rent $ 5,081.00 $33,223.00 $38,304.00 Op. Exp. (est '96) $ 1.71 1.00 $14,385.00 $16,096.00 Total Rent $ 6,792.00 $47,608.00 $54,400.00 Additional Existing 05/01/99 - 06/30/99 2,674 rsf. 22,476 rsf. 25,150 rsf. ---------------------------------------------------------------------------------------------------------- Base Rent $ 5,081.00 $33,407.00 $38,488.00 Op. Exp. (est '96) $ 1,711.00 $14,385.00 $16,096.00 Total Rent $ 6,792.00 $47,792.00 $54,584.00 Additional Existing 07/01/99 - 07/31/99 2,674 rsf. 22,476 rsf. 25,150 rsf. ---------------------------------------------------------------------------------------------------------- Base Rent $ 5,295.00 $33,407.00 $38,702.00 Op. Exp. (est '96) $ 1,711.00 $14,385.00 $16,096.00 Total Rent $ 7,006.00 $47,792.00 $54,798.00 Additional Existing 08/01/99 - 06/30/00 2,674 rsf. 22,476 rsf. 25,150 rsf. ---------------------------------------------------------------------------------------------------------- Base Rent $ 5,295.00 $34,448.00 $39,743.00 Op. Exp. (est '96) $ 1,711.00 $14,385.00 $16,096.00 Total Rent $ 7,006.00 $48,833.00 $55,839.00 Additional Existing 07/01/00 - 07/31/00 2,674 rsf. 22,476 rsf. 25,150 rsf. ---------------------------------------------------------------------------------------------------------- Base Rent $ 5,508.00 $34,448.00 $39,956.00 Op. Exp. (est '96) $ 1,711.00 $14,385.00 $16,096.00 Total Rent $ 7,219.00 $48,833.00 $56,052.00 Additional Existing 08/01/00 - 01/31/01 2,674 rsf. 5,970 rsf. 8,644 rsf. ---------------------------------------------------------------------------------------------------------- Base Rent $ 5,508.00 $ 9,714.00 $15,222.00 Op. Exp. (est '96) $ 1,711.00 $ 3,821.00 $ 5,532.00 Total Rent $ 7,219.00 $13,535.00 $20,754.00 Additional 02/01/01 - 06/30/01 2,674 rsf. Base Rent $ 5,508.00 Op. Exp. (est '96) $ 1,711.00 Total Rent $ 7,219.00
4. PROPORTIONATE SHARE ------------------- Tenant's Proportionate Share, as defined per the Basic Lease Information within the Original Lease Agreement and as amended shall increase effective July 1, 1996 from 18.99% to 21.25%. Effective August 1, 2000 Tenant's Proportionate Share shall decrease from 21.25% to 7.31%. Effective February 1, 2001 Tenant's Proportionate Share shall decrease from 7.31% to 2.26%. 5. SECURITY DEPOSIT ---------------- Security Deposit shall increase $6,500.00. Total Security Deposit to be $52,500.00. 6. TENANT IMPROVEMENTS ------------------- Landlord, at Landlords sole cost and expense shall provide the following tenant improvements to Suite #120: . Purchase and Install building standard carpet throughout Suite #120. Color to be selected by Tenant. Visigenic Software Lease Amendment #10 6/11/96 Page 3 TENANT IMPROVEMENTS (Continued) ------------------------------- * Paint entire Suite with building standard material. Color to be selected by Tenant. * Demo existing work area and storage room as highlighted in yellow on the attached exhibit A-1. * Purchase and Install mini-blinds on existing glass door as highlighted in blue on the attached Exhibit A-1. In addition, Landlord agrees to contribute an additional tenant improvement allowance of one thousand five hundred dollars ($1,500.00) to be applied towards the interior improvements as highlighted in yellow on the attached exhibit A-2. Landlord will act as General Contractor to perform all work as required provided, however, that Landlord not withstanding anything to the contrary contained in the Original Lease Agreement, shall not charge Tenant any construction supervisory fee or similar such fee in connection with said improvements. 7. RIGHT TO TERMINATE ------------------ It is hereby agreed and understood that the Right to Terminate as provided for in Lease Amendment #5, dated June 28, 1995 shall not apply to the additional 2,674 rentable square feet as provided for in this Lease Amendment #10 nor the 2,042 rentable square feet as provided for in this Lease Amendment #9, dated March 25, 1996 nor the 3,928 rentable square feet as provided for in Lease Amendment #7, dated December 20, 1995. Should Tenant exercise its Right to Terminate as outlined in Lease Amendment #5, dated June 28, 1995 and as amended to include 2,177 remitable square feet in Lease Amendment #6, dated July 25, 1995, it shall only apply to 16,506 rentable square feet known as Suites 360, 370, 400, 420 & 460 located at 951 Mariner's Island Blvd., San Mateo, CA 94404. All other terms amid conditions of the original Lease Agreement amid Lease Amendments 1 - 9 shall apply to this Lease Amendment #10. Agreed to this --- day of June, 1996. --------- LANDLORD: SAN MATEO OFFICE LIMITED a California Limited Partnership By: Spieker-Singleton 1168 Limited Partnership a California Limited Partnership, its General Partner By: ------------------------------------- Peter H. Schnugg, as Attorney-In-Fact for Dennis E. Singleton, General Partner Date: ------------------------------------ TENANT: VISIGENIC SOFTWARE, INC. A Delaware Corporation By: ------------------------------------ Its: Vice President of Finance ----------------------------------- Date: ----------------------------------- [ART APPEARS HERE] "Exhibit A-2" [ART APPEARS HERE] EX-27 10 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM VISIGENIC SOFTWARE, INC. CONSOLIDATED BALANCE SHEET, MARCH 31, 1996 AND JUNE 30, 1996, VISIGENIC SOFTWARE, INC. CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 1996 AND QUARTER ENDED JUNE 30, 1996. 12-MOS 3-MOS MAR-31-1996 MAR-31-1996 APR-01-1995 APR-01-1996 MAR-31-1996 JUN-30-1996 2,399 1,890 0 0 820 3,360 60 97 35 45 3,416 7,182 1,882 2,378 533 647 4,820 9,962 2,600 4,851 0 2,000 0 0 4 4 3 6 2,213 3,101 4,820 9,962 5,575 2,961 5,575 2,961 1,011 433 10,039 16,626 0 0 0 0 (85) (6) (4,379) (13,659) 0 0 (4,379) (13,659) 0 0 0 0 0 0 (4,379) (13,659) 0 0 (.39) (1.21)
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