-----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, WqVDTWaH/P0s3zvbB4ZKETQjtrUEf+Brcv7jHiI6bFAYP8vCHgYfT1S3pdw4nVKb 6HTHw9n5t7JX7dsec4CDVQ== 0000950109-97-000536.txt : 19970130 0000950109-97-000536.hdr.sgml : 19970130 ACCESSION NUMBER: 0000950109-97-000536 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 19970128 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 SEC ACT: 1933 Act SEC FILE NUMBER: 333-20583 FILM NUMBER: 97512602 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 1 FORM S-1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 28, 1997 REGISTRATION NO. 333- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------- 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. ROBERT A. FREEDMAN, 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. [_] -------------- CALCULATION OF REGISTRATION FEE - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
PROPOSED PROPOSED MAXIMUM TITLE OF EACH CLASS OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF SECURITIES TO BE TO BE OFFERING PRICE OFFERING REGISTRATION REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE - ---------------------------------------------------------------------------------- Common Stock, $0.001 par value................. 2,300,000 shares $13.5625 $31,193,750 $9,453
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- (1) Includes 300,000 shares which the Underwriters have the option to purchase to cover over-allotments, if any. (2) Estimated pursuant to Rule 457(c) solely for purposes of computing the registration fee, based on the average of the high and low trading prices for the Common Stock as reported by the Nasdaq National Market on January 24, 1997. -------------- 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. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +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 JANUARY 28, 1997 PROSPECTUS 2,000,000 SHARES [LOGO OF VISIGENIC SOFTWARE, INC. APPEARS HERE] COMMON STOCK Of the 2,000,000 shares of Common Stock offered hereby, 1,180,000 shares are being sold by the Company and 820,000 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." The Company's Common Stock is quoted on the Nasdaq National Market under the symbol VSGN. On January 24, 1997, the last reported sale price of the Common Stock was $14.00 per share. See "Price Range of Common Stock." ----------- 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 $500,000. (3) The Company has granted to the Underwriters a 30-day option to purchase up to 300,000 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 and Proceeds to Company 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 , 1997, at the office of the agent of Hambrecht & Quist LLC in New York, New York. HAMBRECHT & QUIST ROBERTSON, STEPHENS & COMPANY , 1997 [ART] 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 OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK OF THE COMPANY ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING." 2 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and the Consolidated Financial Statements and Notes thereto 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 independent provider of software tools for database access and distributed object technologies for the Internet, Intranet and enterprise computing environments. The Company's standards-based products facilitate the development, deployment and management of distributed business applications by providing database-independent access to leading databases and the communication framework for distributed object applications. In today's increasingly 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 business 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 business applications. Visigenic provides key software components that enable developers and information technology ("IT") professionals to develop, deploy and manage distributed business applications. The Company believes business applications increasingly will be comprised of objects, Java applets and databases that are distributed on networks. 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 business applications. 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, Oracle and Platinum technology. Additionally, the Company intends to leverage its products and expertise to continue to exploit the opportunities 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 Borland, Cisco, Compuware, Healtheon, Hewlett-Packard, Hitachi, Microsoft, Netscape, Oracle, Platinum technology and Software AG. 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 Web site is located at www.visigenic.com. Information contained on the Company's Web site shall not be deemed to be a part of this Prospectus. 3 THE OFFERING Common Stock offered by the Company.................... 1,180,000 shares Common Stock offered by the Selling Stockholders....... 820,000 shares Common Stock to be outstanding after the offering...... 13,895,390 shares (1) Use of proceeds........................................ General corporate purposes, including working capital Nasdaq National Market symbol.......................... VSGN
SUMMARY CONSOLIDATED FINANCIAL INFORMATION (IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED MARCH 31, NINE MONTHS ENDED DECEMBER 31, --------------------------------------- ------------------------------------- 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 $ 3,305 $ 11,534 $ 11,666 Gross profit............ -- 820 4,564 5,303 2,567 9,705 9,761 Loss from operations.... (2,496) (4,723) (4,464) (6,422) (3,743) (18,461) (18,697) Net loss................ $(2,454) $(4,629) $(4,379) $(6,337) $ (3,666) $ (18,271) $ (18,507) Pro forma net loss per share (3).............. -- -- $ (0.40) $ (0.57) $ (0.33) $ (1.51) $ (1.52) Pro forma weighted average common and common equivalent shares (3)............. -- -- 11,064 11,064 11,008 12,141 12,141
DECEMBER 31, 1996 --------------------------- ACTUAL AS ADJUSTED (4) ------- --------------- CONSOLIDATED BALANCE SHEET DATA: Cash and cash equivalents........................... $ 9,064 $24,093 Working capital..................................... 11,286 26,315 Total assets........................................ 19,921 34,950 Stockholders' equity................................ 15,296 30,325
- -------------- (1) Excludes 3,351,736 shares of Common Stock reserved for issuance under the Company's stock plans, of which 2,321,735 shares of Common Stock are issuable upon exercise of options outstanding as of December 31, 1996 at a weighted average exercise price of $5.69 per share. See "Capitalization," "Management--Stock Plans" and Note 6 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 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) Adjusted to reflect the sale of 1,180,000 shares of Common Stock offered by the Company hereby at an assumed public offering price of $14.00 and the receipt of the estimated net proceeds therefrom. See "Use of Proceeds" and "Capitalization." ---------------- Except as otherwise noted, all information in this Prospectus assumes no exercise of the Underwriters' overallotment option. See "Underwriting." 4 RISK FACTORS This Prospectus contains forward-looking statements that involve risks and uncertainties. Actual results could differ materially from those discussed in the forward-looking statements as a result of certain factors, including those set forth below and elsewhere in this Prospectus. The following risk factors should be considered carefully in addition to the other information in this Prospectus before purchasing the shares of Common Stock offered hereby. Limited Operating History and History of Losses. 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 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 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 December 31, 1996, the Company had cumulative operating losses of $29.8 million, with net losses of $2.5 million, $4.6 million, $4.4 million and $18.3 million for fiscal 1994, fiscal 1995, fiscal 1996 and the nine months ended December 31, 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 end of 1997. The Company has experienced substantial growth in revenue in fiscal 1996 and the first nine months of fiscal 1997. 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." 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 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 database access and distributed object 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 the next twelve months. 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 5 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, accounted for approximately 25% of the Company's total revenue. For the nine months ended December 31, 1996, approximately 55% of the Company's revenue was derived from ten customers, and revenues from two customers, Platinum technology and Cisco, accounted for approximately 14% and 13%, respectively, 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 force. The timing of such expansion and the rate at which new development and sales personnel become productive could cause material fluctuations in quarterly results of operations. 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." 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 access and distributed object 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. The Company's database access products are based on the Open Database Connectivity ("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 products. The Company's current distributed object 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, are just beginning to gain widespread acceptance and compete with proprietary solutions such as Microsoft's ActiveX and Distributed 6 Component Object Model ("DCOM"). The distributed object software market is relatively young and there are few proven products. Further, some of the Company's distributed object 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. 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 Borland, Cisco, Compuware, 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 nine months ended December 31, 1996, ten VAR and ISV customers accounted for approximately 55% 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." Product Concentration. Prior to the acquisition of PostModern in May 1996, the Company derived substantially all of its revenue from the licensing of its database access products, particularly its ODBC product line, and fees from related services. Since the acquisition of PostModern, the Company has also derived a significant portion of its revenue from its distributed object products. The Company's database access and distributed object products and services are each expected to continue to account for a significant portion of the Company's revenue for the foreseeable future. As a result, a reduction in demand or an 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." 7 Dependence on the Internet and Intranets. The Company believes that sales of its products, particularly its distributed object 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 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 8 distributed object 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 and Sales Personnel. The Company's future performance depends to a significant extent upon the continued service of its key technical, development, sales and marketing and 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. An increase in the sales 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 number of additional development and sales 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 access and distributed object 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. 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 and to $11.5 million in the nine months ended December 31, 1996. In addition, the Company acquired PostModern in May 1996 as part of its strategy of adding distributed object products to its product line. The growth of the Company's business and the expansion of the Company's customer base have placed a significant strain on the Company's management, operations and financial systems. 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, a new Vice President, Marketing in September 1996, and a new Vice President, Worldwide Sales in October 1996. 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. 9 Intense Competition. The Company's products are targeted at the emerging markets for standards-based database access software and standards-based distributed object 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 access market, the Company competes principally against Intersolv. The Company's database access products also indirectly compete against proprietary database access solutions from database vendors. In the standards-based distributed object market, the Company competes principally against two private companies, Iona and Expersoft. The Company's distributed object products also compete against existing or proposed distributed object 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 access and distributed object software continues to develop and expand. In particular, relational database vendors including Informix, Microsoft, Oracle and Sybase may offer standards-based database access 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 products bundled with their operating systems. For instance, Microsoft has introduced DCOM, which could reduce or 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 10 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 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 the base technology for the VisiODBC SDK products from Microsoft, security technology it plans to use in several of its future products from RSA Data Security, Inc. ("RSA") and Talarian SmartSockets from Talarian for inclusion into a version of the Company's VisiChannel product line. 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 occurred in December 1996. In addition, in January 1997, Microsoft notified the Company that Microsoft would convert its license to the Company from an exclusive to a non-exclusive license. The Company's licenses with RSA and Talarian may only be terminated for material breach. The Company has entered into a joint technology agreement with JavaSoft, a subsidiary of Sun, 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 11 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 12% of the Company's total revenue in fiscal 1996 and the nine months ended December 31, 1996, 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 Something Good Corporation ("ASCII"), a Japanese software distributor. The Company may not terminate these exclusive rights unless ASCII fails to meet 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 46.4% of the Company's outstanding Common Stock. As a result, these stockholders as a group may 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." 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 12 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." Broad Management Discretion over Use of Proceeds. The primary purpose of this offering is to increase the Company's equity capital. 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." Possible Volatility of Stock Price. The market price of the Company's Common Stock has been, and is likely to continue to be, volatile. Factors such as new product announcements or changes in product pricing policies by the Company or its competitors, quarterly fluctuations in the Company's operating results, announcements of technical innovations, announcements relating to strategic relationships or acquisitions, changes in earnings estimates by analysts and general conditions in the software development tools market, among other factors, may have a significant impact on the market price of the Company's Common Stock. Should the Company fail to introduce products on the schedule expected, the Company's stock price could be adversely affected. In addition, in recent years the stock market in general, and the shares of technology companies in particular, have experienced extreme price fluctuations. This volatility has had a substantial effect on the market prices of securities issued by many companies for reasons unrelated to the operating performance of the specific companies. These broad market fluctuations may 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, 4,786,355 shares will be freely tradeable. Commencing 90 days following the date of this offering and at various times over a period of less than two years, 9,109,035 additional shares will become freely tradeable upon the expiration of agreements not to sell such shares, and subject to compliance with Rule 144 or 701 under the Securities Act, as amended. 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. See "Shares Eligible for Future Sale." As of the effective date of the Registration Statement, the holders of 6,089,850 shares of the Company's Common Stock will be entitled to certain 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." 13 USE OF PROCEEDS The net proceeds to the Company from the sale of the 1,180,000 shares of Common Stock offered by the Company hereby are estimated to be approximately $15,029,000 (approximately $18,977,000 if the Underwriters' over-allotment option is exercised in full). The principal purpose of the offering is to increase the Company's equity capital. 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. 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. PRICE RANGE OF COMMON STOCK The Company effected its initial public offering on August 8, 1996 at a price to the public of $7.50 per share. Since that date, the Common Stock has been traded on the Nasdaq National Market under the symbol VSGN. Prior to that date, there was no public market for the Common Stock. The following table sets forth, for the fiscal period indicated, the high and low sale prices per share for the Common Stock, all as reported by Nasdaq.
HIGH LOW ------- ------- FISCAL YEAR ENDING MARCH 31, 1997 Second Quarter (from August 8, 1996)..................... $13.250 $ 9.000 Third Quarter............................................ $17.750 $10.500 Fourth Quarter (through January 24, 1997)................ $15.750 $13.375
On January 24, 1997 the last reported sale price of the Common Stock on the Nasdaq National Market was $14.00 per share. As of January 24, 1997, there were approximately 212 holders of record of the Common Stock. DIVIDEND POLICY The Company has not declared or paid any cash dividends on its capital stock. 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 facility contains covenants that prohibit the Company from paying dividends without prior bank consent. 14 CAPITALIZATION The following table sets forth (i) the actual capitalization of the Company at December 31, 1996, and (ii) the capitalization as adjusted to reflect the sale of 1,180,000 shares of Common Stock offered by the Company hereby at an assumed public offering price offered hereby of $14.00 and the receipt of the estimated net proceeds therefrom.
DECEMBER 31, 1996 --------------------- ACTUAL AS ADJUSTED -------- ----------- (IN THOUSANDS) Stockholders' equity (1): Preferred stock, $0.001 par value, 2,000,000 shares authorized, none issued and outstanding............ $ -- $ -- Common stock, $0.001 par value, 50,000,000 shares authorized, 12,715,390 shares issued and outstanding actual; 13,895,390 shares issued and outstanding as adjusted............................ 12 13 Additional paid in capital.......................... 45,017 60,045 Accumulated deficit................................. (29,733) (29,733) -------- ------- Stockholders' equity ............................. 15,296 30,325 -------- ------- Total capitalization............................ $ 15,296 $30,325 ======== =======
- -------- (1) Excludes 3,351,736 shares of Common Stock reserved for future issuance pursuant to the Company's stock plans. As of December 31, 1996, options to purchase 2,321,735 shares at a weighted average exercise price of $5.69 per share were outstanding. See "Management--Stock Plans" and Note 6 of Notes to Consolidated Financial Statements of Visigenic. 15 DILUTION The net tangible book value of the Company as of December 31, 1996 was $13.9 million or $1.09 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. Without taking into account any other change in such net tangible book value after December 31, 1996, other than to give effect to the sale by the Company of 1,180,000 shares offered hereby at an assumed public offering price of $14.00 per share and receipt of the estimated net proceeds therefrom, the pro forma net tangible book value of the Company as of December 31, 1996 would have been approximately $28.9 million, or $2.08 per share. This represents an immediate increase in such net tangible book value of $0.99 per share to existing stockholders and an immediate dilution of $11.92 per share to new investors. The following table illustrates this per share dilution: Public offering price per share.................................. $14.00 Net tangible book value per share as of December 31, 1996 be- fore the offering............................................. $1.09 Increase per share attributable to new investors............... 0.99 ----- Pro forma net tangible book value per share after the offering... 2.08 ------ Dilution per share to new investors.............................. $11.92 ======
The following table summarizes, on a pro forma basis as of December 31, 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)...... 12,715,390 91.5% $45,029,000 73.2% $ 3.54 New investors(1).............. 1,180,000 8.5 16,520,000 26.8 $14.00 ---------- ----- ----------- ----- Total....................... 13,895,390 100.0% $61,549,000 100.0% ========== ===== =========== =====
- -------- (1) Sales by Selling Stockholders in this offering will reduce the number of shares held by existing stockholders to 11,895,390 or approximately 85.6% of the total number of shares of Common Stock outstanding after this offering and will increase the number of shares held by new investors to 2,000,000 or approximately 14.4% of the total number of shares of Common Stock outstanding after the offering (2,300,000 or 16.2% if the Underwriters' over-allotment option is exercised in full). See "Principal and Selling Stockholders." The above computations assume no exercise of options after December 31, 1996. As of December 31, 1996, there were outstanding options to purchase 2,321,735 shares of Common Stock at a weighted average exercise price of $5.69 per share. To the extent outstanding options are exercised, there will be further dilution to new investors. See Note 6 of Notes to Consolidated Financial Statements of Visigenic. 16 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 December 31, 1996 and for the nine months ended December 31, 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 nine months ended December 31, 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 nine months ended December 31, 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, NINE MONTHS ENDED DECEMBER 31, ---------------------------------------- ------------------------------ 1996 1996 --------------------- -------------------------- PRO FORMA PRO FORMA 1994 (1) 1995 ACTUAL COMBINED (2) 1995 ACTUAL COMBINED (2) -------- ------- ------- ------------ --------- ---------- -------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) CONSOLIDATED STATEMENT OF OPERATIONS DATA: Revenue: Software products..... $ -- $ 892 $ 4,479 $ 4,783 $ 2,417 $ 9,895 $ 9,919 Service and other..... -- 223 1,096 1,794 888 1,639 1,747 ------- ------- ------- ------- --------- ---------- ---------- --- Total revenue....... -- 1,115 5,575 6,577 3,305 11,534 11,666 ------- ------- ------- ------- --------- ---------- ---------- --- Cost of revenue: Software products..... -- 36 284 328 212 399 410 Service and other..... -- 259 727 946 526 1,430 1,495 ------- ------- ------- ------- --------- ---------- ---------- --- Total cost of revenue............ -- 295 1,011 1,274 738 1,829 1,905 ------- ------- ------- ------- --------- ---------- ---------- --- Gross profit............ -- 820 4,564 5,303 2,567 9,705 9,761 ------- ------- ------- ------- --------- ---------- ---------- --- Operating expenses: Product development... 1,393 3,160 4,348 5,888 3,130 6,650 6,714 Sales and marketing... 503 1,511 3,215 3,638 2,138 6,977 7,045 General and administrative....... 600 872 1,465 1,677 1,042 1,814 1,888 Purchased in process product development.. -- -- -- -- -- 12,364 12,364 Amortization of excess of purchase price over net assets acquired............. -- -- -- 522 -- 361 447 ------- ------- ------- ------- --------- ---------- ---------- --- Total operating expenses........... 2,496 5,543 9,028 11,725 6,310 28,166 28,458 ------- ------- ------- ------- --------- ---------- ---------- --- Loss from operations......... (2,496) (4,723) (4,464) (6,422) (3,743) (18,461) (18,697) Interest and other income, net............ 42 94 85 85 77 190 190 ------- ------- ------- ------- --------- ---------- ---------- --- Net loss................ $(2,454) $(4,629) $(4,379) $(6,337) $ (3,666) $ (18,271) $ (18,507) ======= ======= ======= ======= ========= ========== ========== === Pro forma net loss per share (3).............. $ (0.40) $ (0.57) $ (0.33) $ (1.51) $ (1.52) ======= ======= ========= ========== ========== === Pro forma weighted average common and common equivalent shares (3)............. 11,064 11,064 11,008 12,141 12,141 ======= ======= ========= ========== ========== ===
MARCH 31, -------------------- DECEMBER 31, 1994 1995 1996 1996 ------ ------ ------ ------------ (IN THOUSANDS) CONSOLIDATED BALANCE SHEET DATA: Cash and cash equivalents........ $2,901 $ 553 $2,399 $ 9,064 Working capital..... 2,722 488 816 11,286 Total assets........ 3,346 1,829 4,820 19,921 Stockholders' equity............. 3,132 1,117 2,220 15,296
- ------- (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. 17 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with "Selected Consolidated Financial Data" and the Company's Consolidated Financial Statements and Notes thereto included elsewhere in this Prospectus. Except for the historical information contained herein, the discussion in this Prospectus contains certain forward-looking statements that involve risks and uncertainties, such as statements of the Company's plans, objectives, expectations and intentions. The cautionary statements made in this Prospectus should be read as being applicable to all related forward-looking statements wherever they appear in this Prospectus. The Company's actual results could differ materially from those discussed here. Factors that could cause or contribute to such differences include those discussed in "Risk Factors," as well as those discussed elsewhere herein. 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 first recognized material revenue in the fourth quarter of fiscal 1995. The Company shipped version 1.0 of the VisiODBC Software Development Kit ("SDK") and the VisiODBC Drivers 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. In May 1996, the Company acquired PostModern, a supplier of distributed object technology, and began selling VisiBroker for C++ and VisiBroker for Java, distributed object products based on technology acquired from PostModern. 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 and consulting revenue and engineering development fees. Prior to the acquisition of PostModern, the Company's revenue was attributable to non-recurring license fees for its database access products, particularly its VisiODBC product line, and fees from related services. Since the acquisition of PostModern, the Company's revenue has been attributable to non-recurring license fees for both its database access and its distributed object products and fees from related services. The Company expects that such products will account for substantially all of its license revenue 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 ninety 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 twelve 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 18 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 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, accounted for approximately 25% of the Company's total revenue. For the first nine months of fiscal 1997, licenses to the Company's ten largest customers accounted for approximately 55% of the Company's total revenue and licenses to two customers, Platinum technology and Cisco, accounted for approximately 14% and 13%, respectively, 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 are often lengthy (typically ranging from six to twelve months) and are 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 12% of total revenue for the first nine months 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 eight quarters primarily due to growth in software license revenue. 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 19 channels and its customer support capabilities; activities of and acquisitions by competitors; changes in database access and distributed object 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 end 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. In fiscal 1995 and fiscal 1996, the Company's service and other revenue consisted primarily of maintenance and consulting directly related to license sales and development fees. In fiscal 1997, the Company began making a significant investment in a professional services organization and a growing portion of its service and other revenue consisted of consulting and training revenues. 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. 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 and CustomWare, Inc. ("CustomWare"), a professional services firm, effective December 3, 1996. The acquisitions of PostModern and CustomWare were accounted for as a purchase in the quarter ended June 30, 1996 and the quarter ended December 31, 1996, respectively. See "--Purchased In Process Product Development and Amortization." Except for certain condensed combined financial statements included elsewhere in this Prospectus, PostModern's and CustomWare's financial results prior to the effective date of their respective acquisitions are not included in the Company's financial results presented herein. 20 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 table sets forth for the periods indicated the percentage of total revenue represented by certain line items from the Company's Consolidated Statement of Operations. Amounts have not been presented for fiscal 1994 as the Company did not record any revenue for that period.
NINE MONTHS ENDED YEAR ENDED MARCH 31, DECEMBER 31, -------------------- ------------------- 1995 1996 1995 1996 ---------- ---------- -------- -------- (UNAUDITED) Revenue: Software products................ 80.0% 80.3% 73.1% 85.8% Service and other................ 20.0 19.7 26.9 14.2 ------ ----- -------- -------- Total revenue.................. 100.0 100.0 100.0 100.0 ------ ----- -------- -------- Cost of revenue: Software products................ 3.3 5.1 6.4 3.5 Service and other................ 23.2 13.0 15.9 12.4 ------ ----- -------- -------- Total cost of revenue.......... 26.5 18.1 22.3 15.9 ------ ----- -------- -------- Gross profit....................... 73.5 81.9 77.7 84.1 ------ ----- -------- -------- Operating expenses: Product development.............. 283.4 78.0 94.7 57.7 Sales and marketing.............. 135.5 57.7 64.7 60.5 General and administrative....... 78.2 26.3 31.6 15.7 Purchased in process product de- velopment....................... -- -- -- 107.2 Amortization of excess of pur- chase price over net assets ac- quired.......................... -- -- -- 3.1 ------ ----- -------- -------- Total operating expenses:...... 497.1 162.0 191.0 244.2 ------ ----- -------- -------- Loss from operations............... (423.6) (80.1) (113.3) (160.1) Interest and other income, net..... 8.4 1.6 2.4 1.7 ------ ----- -------- -------- Net loss........................... (415.2)% (78.5)% (110.9)% (158.4)% ====== ===== ======== ========
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 309% from $2.4 million in the first nine months of fiscal 1996 to $9.9 million in the first nine months of fiscal 1997. The Company had no software products revenue in fiscal 1994. The revenue increase from fiscal 1995 to fiscal 1996 was primarily due to an increased volume of licensing of the Company's database access products, resulting from an increase in the number of products offered and the expansion of the Company's direct sales and telesales organizations. The revenue increase from the first nine months of fiscal 1996 to the first nine months of fiscal 1997 was primarily due to the increased volume of licensing of distributed object products resulting from the acquisition of PostModern and the Company's database access products. 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 85% from $888,000 in the first nine months of fiscal 1996 to $1.6 million in the first nine months 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 nine months of fiscal 1996 to the first nine months of fiscal 21 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 $212,000 in the first nine months of fiscal 1996 to $399,000 in the first nine months 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 $526,000 in the first nine months of fiscal 1996 to $1.4 million in the first nine months of fiscal 1997. This increase reflects the effect of fixed costs resulting from the Company's investment during the first nine months of fiscal 1997 in a larger professional services organization. The Company had no costs of service and other revenue in fiscal 1994. The Company intends to continue investing resources in its professional services organization and anticipates that the cost of service and other revenue may exceed service and other revenue in future periods. 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 112% from $3.1 million in the first nine months of fiscal 1996 to $6.7 million in the first nine months of fiscal 1997. The increases in the dollar amount of product development expenses were primarily attributable to costs of additional personnel, including the engineering personnel from PostModern beginning in June 1996, 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 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. 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 226% from 22 $2.1 million in the first nine months of fiscal 1996 to $7.0 million in the first nine months 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 the 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 was of a recurring nature. The Company plans to hire a substantial number of sales and sales support personnel in 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. 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 74% from $1.0 million in the first nine months of fiscal 1996 to $1.8 million in the first nine months 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 and expenses associated with being a public company. 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. PURCHASED IN PROCESS PRODUCT DEVELOPMENT AND AMORTIZATION In May 1996, the Company completed the acquisition of PostModern which was accounted for as a purchase in the quarter ended June 30, 1996. In December 1996, the Company completed the acquisition of CustomWare which was accounted for as a purchase in the quarter ended December 31, 1996. In connection with the acquisition of PostModern, the Company recorded a write-off in the quarter ended June 30, 1996 of approximately $12.0 million of in process product development. The remaining excess of purchase price over net assets acquired of approximately $1.1 million will be amortized over two years. In connection with the acquisition of CustomWare, the Company recorded a write-off in the quarter ended December 31, 1996 of $350,000 of in process product development. The remaining excess of purchase price over net assets acquired of approximately $700,000 will be amortized over one year. 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 $77,000 in the first nine months of fiscal 1996 to $190,000 in the first nine months of fiscal 1997, primarily due to the cash received from the Company's initial public offering, completed August 8, 1996. 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 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. 23 SELECTED QUARTERLY RESULTS OF OPERATIONS The following tables set forth statements of operations for each of the eight quarters ended December 31, 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, SEPT. 30, DEC. 31, 1995 1995 1995 1995 1996 1996 1996 1996 -------- -------- --------- -------- -------- -------- --------- -------- (IN THOUSANDS) Revenue: Software products...... $ 500 $ 544 $ 1,033 $ 840 $2,062 $ 2,505 $ 3,222 $ 4,168 Service and other...... 155 367 268 253 208 456 600 583 ------- ------ ------- ------- ------ -------- ------- ------- Total revenue........ 655 911 1,301 1,093 2,270 2,961 3,822 4,751 ------- ------ ------- ------- ------ -------- ------- ------- Cost of revenue: Software products...... 34 43 62 107 72 138 130 131 Service and other...... 105 146 180 200 201 295 402 733 ------- ------ ------- ------- ------ -------- ------- ------- Total cost of revenue............. 139 189 242 307 273 433 532 864 ------- ------ ------- ------- ------ -------- ------- ------- Gross profit............ 516 722 1,059 786 1,997 2,528 3,290 3,887 ------- ------ ------- ------- ------ -------- ------- ------- Operating expenses: Product development.... 660 729 972 1,429 1,218 1,657 2,481 2,512 Sales and marketing.... 543 636 770 732 1,077 2,006 2,397 2,574 General and administrative........ 324 335 336 371 423 473 628 713 Purchased in process product development... -- -- -- -- -- 12,014 -- 350 Amortization of excess of purchase price over net assets acquired.............. -- -- -- -- -- 43 129 189 ------- ------ ------- ------- ------ -------- ------- ------- Total operating expenses............ 1,527 1,700 2,078 2,532 2,718 16,193 5,635 6,338 ------- ------ ------- ------- ------ -------- ------- ------- Loss from operations.......... (1,011) (978) (1,019) (1,746) (721) (13,665) (2,345) (2,451) Interest and other income, net............ 4 1 28 48 8 6 42 142 ------- ------ ------- ------- ------ -------- ------- ------- Net loss................ $(1,007) $ (977) $ (991) $(1,698) $ (713) $(13,659) $(2,303) $(2,309) ======= ====== ======= ======= ====== ======== ======= ======= AS A PERCENTAGE OF TOTAL REVENUE ----------------------------------------------------------------------------------- Revenue: Software products...... 76.3% 59.7% 79.4% 76.9% 90.8% 84.6% 84.3% 87.7% Service and other...... 23.7 40.3 20.6 23.1 9.2 15.4 15.7 12.3 ------- ------ ------- ------- ------ -------- ------- ------- Total revenue........ 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 ------- ------ ------- ------- ------ -------- ------- ------- Cost of revenue: Software products...... 5.2 4.7 4.8 9.8 3.2 4.6 3.4 2.8 Service and other...... 16.0 16.0 13.8 18.3 8.8 10.0 10.5 15.4 ------- ------ ------- ------- ------ -------- ------- ------- Total cost of revenue............. 21.2 20.7 18.6 28.1 12.0 14.6 13.9 18.2 ------- ------ ------- ------- ------ -------- ------- ------- Gross profit............ 78.8 79.3 81.4 71.9 88.0 85.4 86.1 81.8 ------- ------ ------- ------- ------ -------- ------- ------- Operating expenses: Product development.... 100.8 80.1 74.7 130.7 53.7 56.0 64.9 52.9 Sales and marketing.... 82.9 69.8 59.2 67.0 47.4 67.7 62.7 54.2 General and administrative........ 49.4 36.8 25.8 33.9 18.6 16.0 16.4 15.0 Purchased in process product development... -- -- -- -- -- 405.7 -- 7.4 Amortization of excess of purchase price over net assets acquired.............. -- -- -- -- -- 1.5 3.5 3.9 ------- ------ ------- ------- ------ -------- ------- ------- Total operating expenses............ 233.1 186.7 159.7 231.6 119.7 546.9 147.5 133.4 ------- ------ ------- ------- ------ -------- ------- ------- Loss from operations.......... (154.3) (107.4) (78.3) (159.7) (31.7) (461.5) (61.4) (51.6) Interest and other income, net............ 0.6 0.2 2.1 4.3 0.3 0.2 1.1 3.0 ------- ------ ------- ------- ------ -------- ------- ------- Net loss................ (153.7)% (107.2)% (76.2)% (155.4)% (31.4)% (461.3)% (60.3)% (48.6)% ======= ====== ======= ======= ====== ======== ======= =======
24 With the exception of the third quarter of fiscal 1996, the Company's revenue has increased in each of the eight quarters ending December 31, 1996. The decline in 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 of fiscal 1996. The Company's cost of services and other revenue increased in the quarter ended December 31, 1996 relative to the prior quarters due to the addition of personnel and the inclusion of one month of expenses related to CustomWare, which the Company acquired effective December 3, 1996. Similarly, primarily as a result of the acquisition of PostModern in May 1996 and the hiring of additional personnel in connection with the Company's distributed object business, the Company's product development expenses increased significantly in the two quarters ended December 31, 1996. 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. LIQUIDITY AND CAPITAL RESOURCES In August 1996, the Company completed the initial public offering of its common stock. The Company sold 2,015,000 shares of Common Stock for net proceeds of approximately $13.2 million. Prior to its initial public offering, the Company financed its operations and met its capital requirements primarily from proceeds from the private sales of Preferred and Common Stock. At December 31, 1996 the Company's principal sources of liquidity included cash and cash equivalents of $9.1 million and a $3.0 million revolving line of credit agreement which expires on July 15, 1997. Advances under the agreement, which bear interest at the bank's prime lending rate plus 1.0%, are limited to 80% of the Company's eligible accounts receivable and are secured by substantially all of the assets and contractual rights of the Company. The line of credit agreement also contains certain financial restrictions and covenants. As of December 31, 1996, the Company was in compliance with these financial restrictions and covenants. See Note 3 of Notes to Consolidated Financial Statements of Visigenic. There were no borrowings outstanding under the agreement as of December 31, 1996. 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 $9.3 million in the first nine months 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 nine months of fiscal 1997 was primarily due to an increase in accounts receivable. The Company used $477,000, $378,000, $1.1 million and $3.5 million of net cash during fiscal 1994, fiscal 1995, fiscal 1996 and the first nine months 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 $19.4 million of net cash during fiscal 1994, fiscal 1995, fiscal 1996 and the first nine months of fiscal 1997, respectively, due to the issuance of Preferred and Common Stock and convertible notes and debt financing. 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. 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. As of December 31, 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. 25 BUSINESS OVERVIEW Visigenic Software, Inc. ("Visigenic" or the "Company") is a leading independent provider of software tools for database access and distributed object technologies for the Internet, Intranet and enterprise computing environments. The Company's standards-based products facilitate the development, deployment and management of distributed business applications by providing database-independent access to leading databases and the communication framework for distributed object 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 Borland, Cisco, Compuware, Healtheon, Hewlett-Packard, Hitachi, Microsoft, Netscape, Oracle, Platinum technology and Software AG. INDUSTRY BACKGROUND In today's increasingly 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. 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 access solutions. . The increasing use of object technologies to provide distributed business 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 Access 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, 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 database access application programming interface ("API") for C and C++ developers building DBMS-independent applications. With ODBC, a single application can access multiple databases on multiple platforms, avoiding the need for developers to write different 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++, PowerSoft PowerBuilder and the Oracle 2000 family, and Seagate Crystal Reports. As the popularity of the Java programming language has increased, the need for a database-independent data access solution for Java applications has grown. JavaSoft, a subsidiary of Sun Microsystems, developed the Java Database Connectivity ("JDBC") API to meet this requirement and provide a common base on which higher level tools and interfaces can be built. Similar to the ODBC API, the JDBC API provides a DBMS-independent interface to SQL databases from Java applications and applets. Most leading DBMS and tools vendors have endorsed and are developing products using the JDBC API. 26 The Company believes that organizations will require standards-based database access solutions like ODBC and JDBC to provide an open, consistent interface to the multiple DBMSs that they support. Further, the Company believes that database access must be centralized on the server to facilitate the development, deployment, and management of distributed business applications for the Internet, Intranet and enterprise computing environments. Distributed Object Connectivity In today's rapidly evolving computing environments, enterprises require improved software application architectures as well as improved database access. 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 a 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 application logic resides on the most appropriate system. 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 business applications because they 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 communication 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 new and legacy applications using ORBs, CORBA also specifies the Internet Inter-ORB Protocol ("IIOP"), which defines a standard distributed messaging protocol for communication between objects. IIOP is being adopted as a standard for communication between and among distributed objects, and leading vendors, such as Netscape and Oracle, have announced IIOP as a foundation technology for future product offerings. 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 framework. This meant that building enterprise-wide distributed applications entailed writing a new, proprietary communication framework--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 framework 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 communication framework. The Internet and Intranets Increase the Need for Distributed Applications The Internet has become the most significant new medium for communication between and among businesses, educational and government organizations and individuals. The widespread use of the Internet by enterprises has resulted in the emergence of Intranets, internal information systems based upon the Internet infrastructure. The Internet and Intranets allow the enterprise to 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. 27 The Internet and distributed object technologies are accelerating the importance of distributed business applications. The Internet provides an effective platform for fostering the growth of distributed object applications while new distributed object technology is improving the quality of these applications. The Internet and distributed object technologies are driving a change in how organizations design, develop, deploy, and maintain business applications. The Company believes new applications will be built from sets of objects that run on the Internet and Intranets, interact with each other through an Object Request Broker and access data using standards-based database access technology. VISIGENIC SOLUTION Visigenic provides key software components that enable developers and IT professionals to develop, deploy and manage distributed business applications. The Company provides software tools for database access and distributed objects for the Internet, Intranet and enterprise computing environments. The Company's cross-platform database access products, based on the ODBC and JDBC APIs, are open, flexible and cost effective for developing, deploying and maintaining DBMS-independent applications. The Company's distributed object products, consisting of CORBA-compliant Object Request Brokers, provide a communication framework and enable the development and deployment of reliable, flexible and cost-effective distributed business 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 which integrate legacy applications. The Company's database access products provide application developers with the flexibility to implement the database connection on the client, on the server or across the Internet. The Company's distributed object products allow developers to build applications that can be distributed over multiple client and server machines and can interoperate with other CORBA-compliant and legacy applications. This flexibility allows the enterprise to adapt its application architecture to meet changing business and computing requirements. Simplification of Distributed Application Development. Visigenic's products simplify application development by reducing the time and expertise required to develop applications. The Company's database access products allow developers to access multiple DBMSs by writing to a single API rather than to multiple proprietary APIs. The Company's distributed object products provide the developer with the communication framework required for distributed object applications, allowing the developer to focus on developing objects that incorporate core business logic 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 line is based on Visigenic's server-centric ODBC and JDBC architecture that shifts the database software components from clients to servers, thereby simplifying deployment and centralizing administration. VisiBroker's agent- based architecture reduces the deployment and administration effort for distributed applications by dynamically tracking and documenting the existence and location of all distributed objects on the network. Support of Open Industry Standards. Visigenic's products for database access and distributed objects 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 access standards such as ODBC, X/Open SQL Access, and JDBC and distributed object standards such as CORBA 2.0 and IIOP. 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 reduce the time and resources required to manage distributed applications. VisiChannel Manager lets administrators view and manage all VisiChannel- 28 based data access activity and key information about each active connection. VisiBroker enables the management of distributed object applications with its facility for monitoring the location, status and usage of distributed objects. 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 business 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 access and distributed object technology. 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 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 in its ORB products. The Company intends to continue promoting 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 access 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 and is a worldwide distributor of the VisiBroker product line. . Microsoft has entered into a series of agreements to incorporate certain of the Company's VisiODBC products with certain Microsoft products and to license to the Company the Microsoft ODBC SDK and test suites for non-Microsoft operating systems. . Netscape is a strategic investor in the Company and has entered into a license agreement to incorporate VisiBroker for Java into Netscape's client products, Navigator 4.0 and Communicator, and VisiBroker for C++ into Netscape's server products, Enterprise 3.0 and FastTrack 3.0. . 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 technology products. Provide a Broad Suite of Integrated Products. The Company offers a suite of software tools for database access and distributed objects. The Company intends to develop new products, enhance its current products and continue to integrate its database access technology with its distributed object technology to address the requirements of the development, deployment and management of business applications. Leverage Product Sales by Providing Professional Services. To address the growing demand for expertise in IIOP, CORBA and the development of distributed object applications, the Company employs a staff of 29 professional consultants and trainers who are experienced in database access and distributed object technologies. The Company intends to continue to develop and grow its professional service organization as a key differentiating component of its sales strategy. 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 access, distributed objects 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/Intranet Market Opportunities. The Company believes that the emergence of the Internet and Intranets will significantly increase the market for database access and distributed object connectivity software. Visigenic intends to leverage its products and expertise in heterogeneous database access and distributed objects to exploit the market opportunity for distributed applications for the Internet and Intranets. Expand Distribution Channels Worldwide. To achieve broad distribution of its database access and distributed object 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. 30 PRODUCTS The Company provides software tools for database access and distributed object technologies for Internet, Intranet and enterprise computing environments. The Company's products provide key software components that enable developers and IT professionals to develop, deploy and manage distributed business 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 ACCESS - ------------------------------------------------------------------------- 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 for ODBC 3/96 9/96 Windows 95 $500-$700/user Windows NT UNIX - ------------------------------------------------------------------------- DISTRIBUTED OBJECT TECHNOLOGY - ------------------------------------------------------------------------- VisiBroker for C++ 9/94 12/96 Windows 95 $3,000-$5,000/ Windows NT developer UNIX $150-$250/runtime - ------------------------------------------------------------------------- VisiBroker for Java 4/96 12/96 Windows 95 $3,000-$5,000/ Windows NT developer UNIX $150-$250/runtime - ------------------------------------------------------------------------- VisiBroker Naming 12/96 12/96 Windows 95 $995/developer Service for C++ and Windows NT Java UNIX - ------------------------------------------------------------------------- VisiBroker Events 12/96 12/96 Windows 95 $1,495/developer Service for C++ and Windows NT Java UNIX
(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. 31 Database Access Products The Visigenic software tools for database access are based on the ODBC and JDBC standards and enable database access independent of both the DBMS and platform. The database access products include the VisiODBC Drivers and DriverSets, VisiODBC SDKs, VisiChannel for ODBC and VisiChannel for JDBC. [DIGITIZED ARTWORK OF VISIODBC DRIVERS] VisiODBC Drivers and DriverSets. The VisiODBC Drivers and DriverSets provide cross-platform access to multiple SQL relational DBMSs--including Adabas, 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, Windows NT, HP-UX, IBM AIX, SGI Irix, SCO, Solaris, and Power Macintosh and OS/2. The Company initially released VisiODBC Drivers and DriverSets in November 1994. VisiODBC SDKs. VisiODBC 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 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. 32 VISICHANNEL ARCHITECTURE [DIGITIZED ARTWORK OF VISICHANNEL] VisiChannel for ODBC. VisiChannel for ODBC provides an architecture that simplifies database access in large distributed application environments such as the Internet, Intranets and enterprise computing environment. VisiChannel for ODBC'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 for ODBC, where server-side ODBC drivers manage the actual database connections. Since database connections are centralized, VisiChannel for ODBC can reduce the time and resources spent on deploying and managing database applications. In addition, 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 for ODBC can be deployed for use with existing ODBC applications without any changes to the client application. VisiChannel for ODBC is optimized for large-scale ODBC traffic and runs over standard TCP/IP transports, enabling it to be used for database access across the Internet. The Company initially released VisiChannel for ODBC in March 1996. The VisiChannel Server for ODBC is available for Windows NT, HP-UX and Sun Solaris, and VisiChannel Clients are available for Windows, Windows NT, HP-UX, and Sun Solaris. The Company expects to begin shipping VisiChannel Servers and Clients for additional UNIX platforms in the first half of 1997. VisiChannel for JDBC. VisiChannel for JDBC is a database access architecture that enables Java applications or applets to access data through the Java Database Connectivity, or JDBC, standard. As Internet, Intranet and Web-based applications built in Java emerge, VisiChannel for JDBC will provide an important solution for standards-based, high performance database access. VisiChannel for JDBC is currently in beta test. The Company expects VisiChannel for JDBC to be commercially available in the first half of 1997. VisiChannel for JDBC is the first product to integrate Visigenic's database access and CORBA/IIOP distributed object technologies. Its architecture consists of a thin JDBC all-Java client side driver that communicates to a VisiChannel for JDBC Server using the Internet standard, IIOP. The VisiChannel for JDBC Server, using the ODBC database access standard, accesses data via the appropriate ODBC database driver, either 33 supplied with VisiChannel (Oracle, Sybase, Informix), or by third parties. This allows enterprises to leverage their investment in their existing ODBC database access infrastructure. Distributed Object Products Visigenic develops and markets two Object Request Broker products: VisiBroker for C++ and VisiBroker for Java. Visigenic's ORBs, which are based on the CORBA specification, provide an object-oriented solution for the development and deployment of distributed applications. The VisiBroker product line also includes two object services, Events and Naming, that are service extensions to the CORBA specification. These services are extensions that developers frequently need when implementing distributed object applications. In addition, the Company has developed VisiBridge, a bridge from Microsoft ActiveX and DCOM to CORBA-based applications. VISIBROKER FOR JAVA AND VISIBROKER FOR C++ (OBJECT REQUEST BROKERS) LOGO [DIGITIZED ARTWORK OF VISIBROKER FOR JAVA] VisiBroker for C++ and VisiBroker for Java share a common architecture. Both products use IIOP as their internal communications protocol. IIOP is an emerging Internet 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. 34 VisiBroker for C++. VisiBroker for C++ 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, SGI Irix, Windows NT and Windows 95 platforms. VisiBroker for C++ was first released in September 1994 and the Company is currently shipping version 2.1. VisiBroker for Java. VisiBroker for Java 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. Netscape has entered into an agreement to incorporate VisiBroker for Java runtime in Navigator 4.0 and Communicator products. 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 for Java was first released in April 1996. VisiBroker Naming Service for C++ and Java. The VisiBroker Naming Service allows for the association of meaningful names with objects, and simplifies the management of object names within an application. Client applications are no longer bound to the specific objects they wish to use by having to specify an interface name. To enable more rapid connections, names are organized in a hierarchical fashion according to the frequency of object access. The combination of the VisiBroker ORB and its agent-based architecture, coupled with the VisiBroker Naming Service, provides a highly available, self- recovering naming service. VisiBroker Events Service for C++ and Java. The VisiBroker Events Service, a full implementation of the Object Management Group's CORBA Events Service standard, allows applications to be informed of events as they occur. The new service decouples communication between objects, asynchronously distributing data to multiple objects. One or more objects, called "suppliers," send data to an "event channel." The event channel then asynchronously distributes that data to one or more objects referred to as "consumers." This supplier-consumer communication model allows an object to communicate an important state change, such as a file server's disk running out of free space, to any number of other objects that might be interested in such an event. The VisiBroker Naming Service and the VisiBroker Events Service were first released in December 1996 and are currently available for Windows NT, Solaris and Java environments. VisiBridge. VisiBridge is currently in beta test and the Company expects it to be commercially available in the first half of 1997. VisiBridge is a connectivity tool that enables ActiveX controls implemented in Web pages, Visual Basic applications or OLE-enabled applications to interoperate with CORBA objects. This technology provides customers the flexibility to operate in familiar Microsoft applications and development environments, with the added benefit of transparently accessing distributed objects based on CORBA standards. Developers using ActiveX-enabled tools such as Microsoft Excel or Microsoft Access, or ActiveX-enabled development environments such as Microsoft's Visual Basic and Visual C++, Borland's Delphi and Powersoft's PowerBuilder, can build applications that transparently and easily access CORBA objects over the Internet or Intranets. Additionally, VisiBridge also serves to bridge the Microsoft DCOM environment to the VisiBroker 35 CORBA/IIOP environment. VisiBridge provides IT organizations that have a strong commitment to Microsoft's standard for object development a way to access environments where application functionality exists as CORBA objects. CUSTOMERS The Company's customers include the following: FINANCIAL SERVICES NETWORK MANAGEMENT/SYSTEMS MANAGEMENT Global Trade Technologies Merrill Lynch Bytex-A Division of Storage Wells Fargo Bank Technology Cisco TELECOMMUNICATIONS Compuware Embarcadero Technologies Bell Northern Research ENlighten British Telecom-North America Hewlett-Packard DSC Communications Network General MCI Telecommunications Platinum technology 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 nine months of fiscal 1997, two customers, Platinum technology and Cisco, accounted for approximately 14% and 13%, respectively, 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 nine months of fiscal 1997, approximately 55% of the Company's revenue was derived from ten customers. 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. Netscape. Netscape Communications Corporation, a leading provider of open software for linking people and information over enterprise networks and the Internet, has established IIOP and CORBA as the basis for the Netscape Open Network Environment ("ONE") distributed object model. To provide this distributed object model, Netscape has licensed the VisiBroker for Java runtime to be included with every copy of Navigator 4.0 and Communicator and the VisiBroker for C++ runtime in the Enterprise and FastTrack Server products. 36 Platinum technology. Platinum technology, a leading 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; Denver, Colorado; Atlanta, Georgia; Chicago, Illinois; 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 12% of revenue in fiscal 1996 and the first nine months 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 December 31, 1996, the Company had 22 international distributors. 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 access and distributed object 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 December 31, 1996, the Company's sales organization included 40 employees and its marketing organization included 13 employees. An increase in the sales 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 access and distributed object 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 37 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." PROFESSIONAL SERVICES The Company believes that a high level of customer service and support is critical to the Company's success. The Company's professional services organization provides product training, specialized consulting, and product support. These services are designed to promote the successful development and deployment of distributed business applications built with Visigenic's database access and distributed object products. Consulting and Training. Visigenic's consulting services include application design and development, strategy assessments, project mentoring and technology transfer enabling the customer to choose the level of service that fits their development needs. Visigenic's consultants are experienced in distributed objects, database access, and application architecture. The Company complements its consulting services with a training curriculum that includes product training, and complementary technologies, such as Java, CORBA, ODBC and JDBC. 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. 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 access technology with distributed object 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 integrated into the 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 access products will include development of VisiODBC SDKs, VisiODBC drivers 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 expects to enhance its VisiBroker for C++ and VisiBroker for Java products and expand its distributed object 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. 38 The Company also intends to continue to leverage its technologies to provide integrated database capabilities for its VisiBroker product line. VisiChannel for JDBC is the first product that integrates the database access and CORBA/IIOP technologies. VisiChannel for JDBC is expected to be commercially available in the first half of 1997. The Company's VisiBroker products will provide a more complete distributed object solution, addressing both the distributed object and database access requirements of its customer base. As of December 31, 1996, there were 61 employees on the Company's research and development staff. The Company's product development expenditures in fiscal 1995, fiscal 1996 and the first nine months of fiscal 1997 were $3.2 million, $4.3 million and $6.7 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 access software and standards-based distributed object 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 access market, the Company competes principally against Intersolv. The Company's database access products also indirectly compete against proprietary database access solutions from database vendors. In the standards-based distributed object market, the Company competes principally against two private companies, Iona and Expersoft. The Company's distributed object products also compete against existing or proposed distributed object 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 access and distributed object software continues to develop and expand. In particular, relational database vendors including Informix, Microsoft, Oracle and Sybase may offer standards-based database access 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 products bundled with their operating systems. For instance, Microsoft introduced DCOM, which could reduce or 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. 39 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 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 the base technology for the VisiODBC SDK products from Microsoft, security technology it plans to use in several of its future products from RSA and Talarian SmartSockets from Talarian for inclusion into a version of the VisiChannel product line. 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 occurred in December of 1996. In addition, in January 1997, Microsoft notified the Company that Microsoft would convert its license to the Company from an exclusive to a non-exclusive license. The Company's licenses with RSA and 40 Talarian may only be terminated for material breach. The Company has entered into a joint technology agreement with JavaSoft, a subsidiary of Sun, that grants the Company the right to sublicense 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 December 31, 1996, the Company employed 161 full time personnel, including 61 in product development, 25 in professional services, 53 in sales and marketing and 22 in finance and administration. See "Risk Factors-- Dependence on Key Personnel; Need to Increase Technical and Sales Personnel." FACILITIES The Company's principal executive offices and research and development facilities are located in San Mateo, California and consist of approximately 35,000 square feet under leases that will expire between November 2001 and January 2002. The Company has sales offices in Atlanta, Boston, Chicago, Dallas, Denver, 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. 41 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.......... 36 President and Chief Operating Officer Jens Christensen, 33 Vice President, Chief Technical Officer and Director Ph.D................... Kevin C. Eichler........ 37 Vice President, Finance, Chief Financial Officer, Treasurer and Secretary Scott Chalmers.......... 52 Vice President, Worldwide Sales Robert Macdonald........ 40 Vice President, Marketing Robert Perreault........ 39 Vice President, Professional Services Gill Cogan (2).......... 44 Director Cristina M. Morgan...... 44 Director Michael Moritz.......... 42 Director J. Sidney Webb (1)...... 77 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 serves as the Chairman of the Board. Mr. Sippl served as a director of Vantive since December 1990 until his appointment as Chairman in December 1996. Prior to his relationship with Vantive, Mr. Sippl founded Informix Software, a database software company ("Informix"), in 1980 and served as that company's President and Chief Executive Officer until 1989, and its 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, 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, Finance, and Chief Financial Officer for National Insurance Group, a financial services and related technology 42 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. Robert J. Macdonald has served as Vice President, Marketing of the Company since September 1996. Prior to that, Mr. Macdonald was employed for over 10 years at Informix where he held various positions, the most recent being Vice President, Corporate Marketing. Scott Chalmers has served as Vice President, Worldwide Sales of the Company since October 1996. Prior to joining the Company, Mr. Chalmers was employed for six years at Informix, where he held various positions, the most recent being Vice President of U.S. Sales. Mr. Chalmers has had 25 years experience in senior sales and management positions at such companies as Cullinet, AT&T Information Systems and IBM. Robert Perreault has served as Vice President, Professional Services of the Company since September 1996. Mr. Perreault served as Vice-President of Research and Development from September 1995, when he joined the Company, until his appointment as Vice-President, Professional Services. 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. 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 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 Bylaws 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. 43 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(/1/)
LONG TERM COMPENSATION ----------------- ANNUAL COMPENSATION AWARDS ------------ ----------------- NO. OF SECURITIES UNDERLYING NAME AND PRINCIPAL POSITION SALARY (2) 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 (3)......................... $106,667 27,500 Vice President, Marketing David T. Shewmake (3)........................... $115,000 10,000 Vice President, Technical Services Richard L. Gerould (3).......................... $115,000 15,000 Vice President, Corporate Development and General Counsel
- -------- (1) In fiscal 1997, the Company hired Jens Christensen as Vice President and Chief Technical Officer, Kevin C. Eichler as Vice President, Finance, Chief Financial Officer, Treasurer and Secretary, Scott Chalmers as Vice President, Worldwide Sales and Robert Macdonald as Vice President, Marketing. Based on their respective annual salaries, each of the above- referenced officers would have earned in excess of $100,000 had they been with the Company for all of fiscal 1997. (2) Amounts shown are on a full year basis and include cash and noncash compensation earned and received by executive officers. (3) In January 1997, Ms. Langlais was transferred to the position of Vice President of the Company, in October 1996, Mr. Shewmake began reporting to Mr. Eichler as the Director of Information Technology and in October 1996, Mr. Gerould began reporting to Mr. Chalmers as Vice President, Business Development. 44 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 $ 560,113 $ 897,810 12,500 1.5 $0.40 07/27/05 280,057 448,905 12,500 1.5 $0.40 10/25/05 280,057 448,905 12,500 1.5 $0.40 03/31/06 280,057 448,905 Therese H. Langlais.. 7,500 0.9 $0.40 04/18/05 168,034 269,343 10,000 1.2 $0.40 07/27/05 224,045 359,124 10,000 1.2 $0.40 03/15/06 224,045 359,124 David T. Shewmake.. 2,500 0.3 $0.40 04/18/05 56,011 89,781 7,500 0.9 $0.40 03/15/06 168,034 269,343 Richard L. Gerould... 5,000 0.6 $0.40 04/18/05 112,023 179,562 10,000 1.2 $0.40 03/15/06 224,045 359,124
- -------- (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 820,750 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 assumption that the fair market value of the Common Stock at the date of grant is the public offering price of $14.00, 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. 45 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. Of the 2,500,000 shares of Common Stock reserved for issuance under the Option Plan as of December 31, 1996, a total of 256,434 shares had been issued upon the exercise of options, of which 124,906 remain subject to 46 repurchase, options for the purchase of a total of 1,959,950 shares at a weighted average exercise price of $6.69 per share were outstanding and 283,616 shares were available for future option grants. 1996 Outside Directors Stock Option Plan. A total of 200,000 shares of Common Stock have been reserved for issuance under the Company's 1996 Outside Directors Stock Option Plan (the "Directors Plan"), none of which have been issued as of the effective date of this 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 equals the fair market value of a share of Common Stock on the date of grant. Options granted under the Directors Plan 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. A total of 450,000 shares of Common Stock have been reserved for issuance under the Company's 1996 Employee Stock Purchase Plan (the "Purchase Plan"), none of which have been issued as of the date of this Prospectus. 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 is implemented by sequential six-month offerings, the first of which commenced on the effective date of the Company's initial public 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) 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 47 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. Under the Directors Plan, directors who are not employees of the Company receive yearly grants of options to purchase Common Stock. 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 Restated Certificate of Incorporation 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 the 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 Restated Certificate of Incorporation 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 has entered 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 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 Bylaws covers at least negligence and gross negligence on the part of the indemnified party. 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. 48 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 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 the Company's initial public offering in August 1996, all outstanding shares of Series A Preferred Stock converted 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 and J. Sidney Webb, outside directors of the Company. 49 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 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 the Company's initial public offering in August 1996, all outstanding shares of Series B Preferred Stock converted 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 the Company's initial public offering in August 1996, all outstanding shares of Series C Preferred Stock converted into shares of Common Stock on a one-for-one basis, and the amount borrowed by the Company pursuant to the convertible notes converted into shares of the Company's Common Stock at a conversion price equal to $7.50 per share. 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 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 50 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 RogerLabs, Inc. ("RLI") 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 RLI. In June 1996, the Company acquired certain technology and other assets being developed by RLI that the Company expects it may use in a future product or products. The Company paid Mr. Sippl $40,000 to acquire these assets. RLI's cost of development of the technology, consisting chiefly of salaries of RLI employees and fees paid to consultants, exceeded the price paid by the Company. In connection with the asset sale, five employees of RLI 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 has entered into indemnification agreements with each of its directors and executive officers. Such indemnification agreements require the Company to indemnify such individuals to the fullest extent permitted by Delaware law. Cristina Morgan, a director of the Company, is a Managing Director of Hambrecht & Quist LLC, an investment banking firm. Hambrecht & Quist LLC is a managing underwriter of this offering. See "Management--Directors and Executive Officers," and "Principal and Selling Stockholders." 51 PRINCIPAL AND SELLING STOCKHOLDERS The following table sets forth certain information regarding the beneficial ownership of the Company's Common Stock as of December 31, 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 19.4% -- 2,468,750 17.8% Mark D. Hanson (3)...... 285,000 2.2 -- 285,000 2.0 Jens Christensen (4).... 1,529,720 12.0 65,116 1,399,487 10.5 Therese H. Langlais (5).................... 118,310 * -- 118,310 * David T. Shewmake (6)... 45,435 * -- 45,435 * Richard L. Gerould (7).. 90,125 * -- 90,125 * Michael Moritz (8)...... 740,500 5.8 -- 629,426 4.6 Cristina M. Morgan (9).. 109,374 * -- 109,374 * Gill Cogan (10)......... 592,500 4.7 -- 522,500 3.8 J. Sidney Webb (11)..... 70,000 * -- 70,000 * Eric Young (12)......... 550,000 4.3 -- 350,000 4.0 All executive officers and directors as a group (12 persons) (13)...... 6,846,938 51.5 66,116 6,724,790 46.4 5% STOCKHOLDERS Elizabeth G. Salmon (14)................... 2,468,750 19.4 -- 2,468,750 17.8 Neguine Navab (15)...... 1,529,720 12.0 65,117 1,399,487 10.5 Prasad Mokkapati (16)... 769,235 6.0 75,000 694,235 5.1 Funds affiliated with Sequoia Capital (17)... 740,500 5.8 111,074 629,426 4.6 3000 Sand Hill Road Menlo Park, California 94025 OTHER SELLING STOCKHOLDERS Blumenfield, Neil R. 65,000 * 2,000 63,000 * (18)................... Boich, Michael D........ 5,000 * 5,000 -- * Canaan Capital Partners 550,000 4.3 200,000 350,000 2.5 (19)................... Cisco Systems........... 357,574 2.8 71,515 286,060 2.1 Challa, Suresh (20)..... 346,507 2.7 30,000 316,507 2.3 The deBenedetti Family 20,750 * 5,000 15,750 * Trust.................. Demour, Alain (21)...... 127,952 1.0 30,000 89,967 * Fiust, Cheryl (22)...... 10,000 * 2,333 7,667 * Forrester, Richard 22,500 * 500 22,000 * (23)................... LaForce, Nathan......... 300 * 300 -- * Lampson, Dale (24)...... 26,249 * 1,000 25,249 * Mahler, Paul (25)....... 10,000 * 7,000 3,000 * Missire, Marc A. (26)... 17,500 * 500 17,000 * Moore, Kelly (27)....... 2,250 * 637 1,613 *
52
SHARES BENEFICIALLY SHARES BENEFICIALLY OWNED BEFORE THE OWNED AFTER THE OFFERING (1) OFFERING (1) ----------------------SHARES BEING ---------------------- BENEFICIAL OWNER NUMBER PERCENT OFFERED NUMBER PERCENT - ---------------- ----------- ---------------------- ----------- ---------- Netscape Communications 178,953 1.4 35,791 143,162 1.0 Corporation............ O'Neil, Tim (28)........ 3,000 * 708 2,292 * Parfitt, Richard (29)... 15,000 * 1,500 13,500 * Park, Thom (30)......... 25,000 * 2,000 23,000 * Perreault, Robert (31).. 89,999 * 1,000 87,159 * Platinum technology, 178,787 1.4 13,409 165,378 1.2 Inc. (32).............. Quai Limited (33)....... 50,000 * 20,000 30,000 * Sidebottom, Thomas 20,000 * 2,500 17,500 * (34)................... Smith, Sharlo (35)...... 11,250 * 1,000 10,250 * Weiss, Peck & Greer 592,500 4.7 70,000 522,500 3.8 Venture Partners (36)..
- -------- * 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 12,715,390 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 December 31, 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 138,700 shares subject to a right of repurchase in favor of the Company which lapses over time. Also includes 40,000 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 4,750 shares held by Ms. Langlais, as Co-Trustee of the Halloran 1990 Living Trust dated March 12, 1990. Also includes 32,167 shares subject to a right of repurchase in favor of the Company which lapses over time. Also includes 20,000 shares issuable upon exercise of options. (6) Includes 12,250 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 36,209 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 3,334 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. 53 (10) Represents all shares held by entities affiliated with Weiss, Peck & Greer Venture Partners. See footnote 36 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 3,334 shares subject to a right of repurchase in favor of the Company which lapses over time. (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, footnote 17, footnote 19, footnote 31 and footnote 36. Includes 2,935 shares held by and 95,000 shares issuable upon exercise of options by Kevin C. Eichler. Includes 165,000 shares issuable upon exercise of options by Robert Macdonald. Includes 72,500 shares issuable upon exercise of options by Mr. Perreault. Also includes 150,000 shares issuable upon exercise of options by Scott Chalmers. Of the 66,116 shares sold by the executive officers and directors of the Company, Mr. Christensen intends to sell 65,116 shares and Mr. Perreault intends to sell 1,000 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 V, 37,025 shares held by Sequoia Technology Partners V, 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. Of the 740,500 shares to be sold by these affiliated with Sequoia Capital, 101,078 shares will be sold by Sequoia Capital V, 5,553 shares will be sold by Sequoia Technology Partners V, 2,823 shares will be sold by Sequoia XXIII and the remaining 1,620 shares will be sold by Sequoia XXIV. See footnote 8 above. (18) Includes 5,000 shares issuable upon exercise of options. Also includes 27,000 shares subject to a right of repurchase in favor of the Company. (19) Represents 446,500 shares held by Canaan Capital Offshore Limited Partnership C.V., ("Offshore") 53,500 shares held by Canaan Capital Limited Partnership ("CCLP") and 50,000 shares held by Quai Limited ("Quai"). Eric Young is a director of the Company and is a general partner of Offshore and CCLP. Quai is a limited partner of Canaan Partners. Eric Young holds no voting or dispositive control over shares held by Quai, and he disclaims beneficial ownership of such shares. Of the 200,000 shares to be sold by entities affiliated with Canaan Capital Partners, 21,400 shares will be sold by CCLP and the remaining 178,600 shares will be sold by Offshore. 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 89,967 shares issuable upon exercise of options. (22) Includes 7,667 shares issuable upon exercise of options. (23) Includes 2,500 shares issuable upon exercise of options. Also includes 5,334 shares subject to a right of repurchase in favor of the Company which lapses over time. (24) Includes 20,000 shares issuable upon exercise of options. 54 (25) Includes 3,000 shares issuable upon exercise of options. (26) Includes 7,500 shares issuable upon exercise of options. Also includes 2,334 shares subject to a right of repurchase in favor of the Company which lapses over time. (27) Includes 1,613 shares issuable upon exercise of options. (28) Includes 2,292 shares issuable upon exercise of options. (29) Includes 13,500 shares issuable upon exercise of options. (30) Includes 23,000 shares issuable upon exercise of options. (31) Includes 72,500 shares issuable upon exercise of options. Mr. Perreault is Vice President, Professional Services for the Company. (32) Represents 134,000 shares held by Platinum Technology, Inc. and 44,697 shares held by Platinum Venture Partners II, L.P. (33) See footnote 19 above. (34) Includes 17,500 shares issuable upon exercise of options. (35) Includes 10,250 shares issuable upon exercise of options. (36) 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. Of the 70,000 shares being sold by these affiliated Weiss, Peck & Greer entities, 5,894 shares will be sold by Weiss, Peck & Greer Venture Associates II (Overseas), Ltd., 26894 shares will be sold by Weiss, Peck & Greer Venture Associates II, and the remaining 37,212 shares will be sold by WPG Enterprise Fund. See footnote 10 above. 55 DESCRIPTION OF CAPITAL STOCK The authorized capital stock of the Company consists of 50,000,000 shares of Common Stock and 2,000,000 shares of Preferred Stock, par value $0.001 per share. 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 Restated Certificate of Incorporation and Bylaws 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 December 31, 1996, there were approximately 12,715,390 shares of Common Stock outstanding held of record by approximately 210 stockholders. 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 6,089,850 shares held by holders of Common Stock issued upon conversion of Preferred Stock and convertible notes, the founder and certain employees of the Company, 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. 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, 56 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 requires 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 provides 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 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. 57 SHARES ELIGIBLE FOR FUTURE SALE 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 13,895,390 shares of Common Stock, assuming (i) the issuance of 1,180,000 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 December 31, 1996. Of these shares, on the date of this Prospectus, the 2,000,000 shares sold in the offering and approximately 2,786,355 additional shares already outstanding 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 9,109,035 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 90 days after the date of this Prospectus and at various times over a period of less than two years, such shares will become eligible for sale, subject in most cases to the limitations of Rule 144 and Rule 701. In addition, holders of stock options could exercise these options and sell certain of the shares issued upon exercise as described below. As of December 31, 1996, there were a total of 1,959,950 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 90 day lock-up agreement described below, and all other options are subject to a 90 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 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 139,000 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 the Company's initial public offering are now entitled to sell such shares 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 has filed registration statements under the Securities Act 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. As of December 31, 1996, the holders of approximately 6,089,850 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 shares to be registered and sold in the public market, such sales could have an adverse effect on the 58 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." Stockholders of the Company who will beneficially own in the aggregate 7,809,013 shares of Common Stock after the offering 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 90 days after the effective date of the offering without the prior written consent of Hambrecht & Quist LLC. 59 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.......................................................... 2,000,000 =========
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 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 public offering of the shares, the offering price and other selling terms may be changed by the Representatives. The Company has granted to the Underwriters an option, exercisable no later than 30 days after the date of this Prospectus, to purchase up to 300,000 additional shares of Common Stock at the 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 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 Company and its executive officers and directors, the Selling Stockholders and certain other stockholders of the Company who will own in the aggregate 7,809,013 shares of Common Stock after this offering, have agreed that they will not, without the prior written consent of Hambrecht & Quist LLC, sell, offer, contract to sell, make any short sale, pledge, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of any securities convertible into or exchangeable or exercisable for any other rights to purchase or acquire shares of Common 60 Stock owned by them during the 90-day period following the effective date of the Registration Statement for this offering, except that the Company may issue shares upon the exercise of options granted prior to the date hereof, may grant additional options under its stock option plans, and may issue shares pursuant to the Company's Employee Stock Purchase Plan. 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. In general, the rules of the Commission will prohibit the Underwriters from making a market in the Company's Common Stock during the "cooling off" period immediately preceding the commencement of sales in the offering. The Commission has, however, adopted exemptions from these rules that permit passive market making under certain conditions. These rules permit an underwriter to continue to make a market subject to the conditions, among others, that its bid not exceed the highest bid by a market maker not connected with the offering and that its net purchases on any one trading day not exceed prescribed limits, Pursuant to these exemptions, certain Underwriters, selling group members (if any) or their respective affiliates intend to engage in passive market making in the Company's Common Stock during the cooling off period. Hambrecht & Quist LLC and Robertson, Stephens & Company LLC served as co- managing underwriters of the Company's initial public offering in August 1996, and received customary discounts and commissions in connection therewith. 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 December 31, 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, Palo Alto, California. 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. 61 AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). Such reports, proxy statements and other information filed by the Company can be inspected and copied at the public reference facilities of the Commission located at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices at Seven World Trade Center, 13th Floor, New York, New York 10048, and Northwest Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials also can be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549 at prescribed rates. In addition, the Commission maintains a World Wide Web site that contains reports, proxy statements and other information regarding registrants that file electronically with the Commission. The address of the Commission's Web site is http://www.sec.gov. The Company's Common Stock is quoted for trading on The Nasdaq National Market and reports, proxy statements and other information concerning the Company may also be inspected at the offices of the Nasdaq Stock Market, Inc., 1735 K Street, N.W., Washington, D.C. 20006. The Company has filed with the Commission, Washington, D.C. 20549, a Registration Statement on Form S-1 under the Securities Act with respect to the shares of Common Stock offered hereby. This Prospectus 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 the Common Stock offered hereby, reference is made to the Registration Statement and the exhibits and schedules filed therewith. Statements contained in this Prospectus as to the contents of any contract or any other document referred to herein are not necessarily complete, and in each instance reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference. A copy of the Registration Statement may be inspected by anyone without charge at the Commission's principal office in Washington, D.C. 20549 or the Commission's Web site and copies of all or any part of the Registration Statement may be obtained from the Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549 upon the payment of the fees prescribed by the Commission. 62 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 January 27, 1997 F-2 VISIGENIC SOFTWARE, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
MARCH 31, ----------------- DECEMBER 31, 1995 1996 1996 ------- -------- ------------ ASSETS (UNAUDITED) CURRENT ASSETS: Cash and cash equivalents.................... $ 553 $ 2,399 $ 9,064 Accounts receivable, net of allowance for doubtful accounts of $0, $60 and $145......................... 472 760 5,605 Prepaid compensation......................... -- -- 645 Other current assets......................... 175 257 597 ------- -------- -------- Total current assets....................... 1,200 3,416 15,911 ------- -------- -------- PROPERTY AND EQUIPMENT, net.................... 607 1,349 2,543 OTHER ASSETS, net: Excess of purchase price over net assets acquired.................................... -- -- 1,384 Other........................................ 22 55 83 ------- -------- -------- $ 1,829 $ 4,820 $ 19,921 ======= ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable............................. $ 201 $ 811 $ 716 Accrued liabilities- Payroll and related benefits................ 86 347 1,320 Other....................................... 122 301 916 Deferred revenue............................. 303 1,141 1,673 ------- -------- -------- Total current liabilities.................. 712 2,600 4,625 ------- -------- -------- COMMITMENTS (Note 4) STOCKHOLDERS' EQUITY: Convertible preferred stock, $.001 par value, aggregate liquidation preference of $17,414 Authorized--10,000,000 shares at March 31, 1996; 2,000,000 at December 31, 1996. Outstanding--Series A, 803,000 shares in 1995, 1996; Series B, 1,496,625 shares in 1995 and 2,871,625 shares in 1996............................ 3 4 -- Common stock, $.001 par value, Authorized--20,000,000 shares at March 31, 1996; 50,000,000 at December 31, 1996 Outstanding--2,782,877 shares in 1995, 2,835,905 shares in 1996 and 12,715,390 shares at December 31, 1996.................................. 3 3 12 Additional paid-in capital................... 8,194 13,675 45,017 Accumulated deficit.......................... (7,083) (11,462) (29,733) ------- -------- -------- Total stockholders' equity................. 1,117 2,220 15,296 ------- -------- -------- $ 1,829 $ 4,820 $ 19,921 ======= ======== ========
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)
NINE MONTHS ENDED YEAR ENDED MARCH 31, DECEMBER 31, ------------------------- ------------------- 1994 1995 1996 1995 1996 ------- ------- ------- -------- --------- (UNAUDITED) REVENUE: Software products............ $ -- $ 892 $ 4,479 $ 2,417 $ 9,895 Service and other............ -- 223 1,096 888 1,639 ------- ------- ------- -------- --------- Total revenue.............. -- 1,115 5,575 3,305 11,534 ------- ------- ------- -------- --------- COST OF REVENUE: Software products............ -- 36 284 212 399 Service and other............ -- 259 727 526 1,430 ------- ------- ------- -------- --------- Total cost of revenue...... -- 295 1,011 738 1,829 ------- ------- ------- -------- --------- GROSS PROFIT................... -- 820 4,564 2,567 9,705 ------- ------- ------- -------- --------- OPERATING EXPENSES: Product development.......... 1,393 3,160 4,348 3,130 6,650 Sales and marketing.......... 503 1,511 3,215 2,138 6,977 General and administrative... 600 872 1,465 1,042 1,814 Purchased in process product development................. -- -- -- -- 12,364 Amortization of excess of purchase price over net as- sets acquired............... -- -- -- -- 361 ------- ------- ------- -------- --------- Total operating expenses... 2,496 5,543 9,028 6,310 28,166 ------- ------- ------- -------- --------- Loss from operations....... (2,496) (4,723) (4,464) (3,743) (18,461) INTEREST AND OTHER INCOME, net........................... 42 94 85 77 190 ------- ------- ------- -------- --------- NET LOSS....................... $(2,454) $(4,629) $(4,379) $ (3,666) $ (18,271) ======= ======= ======= ======== ========= PRO FORMA NET LOSS PER SHARE... $ (.40) $ (.33) $ (1.51) ======= ======== ========= PRO FORMA WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES........................ 11,064 11,008 12,141 ======= ======== =========
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 (unaudited)..... 444,444 -- -- -- 4,000 -- 4,000 Issuance of common stock in connection with the acquisition of PostModern Computing Technologies Inc. (unaudited)...... -- -- 3,099,821 3 10,382 -- 10,385 Exercise of stock options (unaudited)... -- -- 202,366 -- 91 -- 91 Issuance of common stock in public offering, net of issuance costs of $1,908 (unaudited).... -- -- 2,015,000 2 13,202 -- 13,204 Conversion of preferred stock in public offering (unaudited) ...................... (4,119,069) (4) 4,119,069 4 -- -- -- Conversion of convertible notes (unaudited)........... -- -- 270,871 -- 2,031 -- 2,031 Issuance of common stock in connection with the acquisition of CustomWare, Inc. (unaudited)...... -- -- 125,000 -- 1,500 -- 1,500 Issuance of common stock (unaudited)..... -- -- 47,358 -- 136 -- 136 Net loss (unaudited)... -- -- -- -- -- (18,271) (18,271) ---------- ----- ---------- ---- ------- -------- -------- BALANCE, DECEMBER 31, 1996 (unaudited)....... -- $ -- 12,715,390 $ 12 $45,017 $(29,733) $ 15,296 ========== ===== ========== ==== ======= ======== ========
The accompanying notes are an integral part of these financial statements. F-5 VISIGENIC SOFTWARE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
NINE MONTHS ENDED YEARS ENDED MARCH 31, DECEMBER 31, ------------------------- ------------------- 1994 1995 1996 1995 1996 ------- ------- ------- -------- --------- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss..................... $(2,454) $(4,629) $(4,379) $ (3,679) $ (18,271) Adjustments to reconcile net loss to net cash used in operating activities-- Depreciation and amortization............... 67 158 310 212 795 Purchased in process product development................ -- -- -- -- 12,364 Provision for allowance for doubtful accounts.......... -- -- 60 45 85 Changes in net assets and liabilities, net of acquisition of PostModern and CustomWare-- Increase in accounts receivable................ -- (472) (348) (1,317) (4,584) Increase in prepaid expenses and other current assets.................... (35) (139) (82) (56) (887) Increase in accounts payable................... 148 53 610 417 (186) Increase in accrued liabilities............... 66 142 440 170 1,075 Increase in deferred revenue................... -- 303 838 655 349 ------- ------- ------- -------- --------- Net cash used in operating activities............... (2,208) (4,584) (2,551) (3,553) (9,260) ------- ------- ------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Payment for purchase of PostModern and CustomWare, net of cash acquired........ -- -- -- -- (1,919) Purchases of property and equipment................... (457) (373) (1,052) (778) (1,553) Organization costs and other assets...................... (20) (5) (33) (18) (34) ------- ------- ------- -------- --------- Net cash used in investing activities............... (477) (378) (1,085) (796) (3,506) ------- ------- ------- -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of convertible notes........... -- -- -- -- 2,000 Net proceeds from issuance of preferred stock............. 5,345 2,465 5,460 5,469 4,000 Net proceeds from issuance of common stock................ 241 149 22 -- 13,431 ------- ------- ------- -------- --------- Net cash provided by financing activities..... 5,586 2,614 5,482 5,469 19,431 ------- ------- ------- -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.......... 2,901 (2,348) 1,846 1,120 6,665 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 $ 1,673 $ 9,064 ======= ======= ======= ======== =========
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 NINE MONTHS ENDED DECEMBER 31, 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, -------------- DECEMBER 31, 1995 1996 1996 ----- ------- ------------ Computer equipment............................ $ 453 $ 1,126 $ 2,215 Furniture and fixtures........................ 125 320 552 Purchased software............................ 239 401 654 Leasehold improvements........................ 12 34 80 ----- ------- ------- 829 1,881 3,501 Less--Accumulated depreciation and amortization................................. (222) (532) (958) ----- ------- ------- Property and equipment, net................. $ 607 $ 1,349 $ 2,543 ===== ======= =======
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, ------------- NINE MONTHS ENDED 1995 1996 DECEMBER 31, 1996 ----- ----- ----------------- Customer A................................. 55% * * Customer B................................. 20% * * Customer C................................. * 25% 14% Customer D................................. * * 13%
- -------- *less than 10% Customers C and D are related parties as they were purchasers of Series C convertible preferred stock in May 1996 and were also holders of the convertible notes payable to stockholders (see Note 5). Accounts receivable from these related parties as of December 31, 1996 totalled approximately $1.8 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 export sales were less than 10% of total revenue and for the nine months ended December 31, 1996 export sales were 12% of total revenues. 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 F-9 VISIGENIC SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 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 Company's initial public offering 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 occurred upon consummation of the Company's initial public offering. Unaudited Interim Financial Data The unaudited interim financial statements as of December 31, 1996 and for the nine months ended December 31, 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 nine months ended December 31, 1996 are not necessarily indicative of the results to be expected for any future period. 3. LINE OF CREDIT: The Company has a $3.0 million revolving line of credit agreement (the "Agreement") with a bank, which expires on July 15, 1997. 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 December 31, 1996, the Company was in compliance with the financial covenants. There were no borrowings outstanding under the Agreement as of March 31, 1996 or December 31, 1996. 4. COMMITMENTS: The Company leases its facilities under operating lease agreements expiring through January 2002. 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, including leases executed through December 31, 1996, were as follows (in thousands):
EAR ENDINGY MARCH 31, - ----------- 1997................................................................... $1,007 1998................................................................... 915 1999................................................................... 890 2000................................................................... 890 2001................................................................... 890 Thereafter............................................................. 720 ------ $5,312 ======
5. CONVERTIBLE PREFERRED STOCK AND CONVERTIBLE NOTES: 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. F-10 VISIGENIC SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 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 Series A preferred stock, 6,000,000 shares as Series B preferred stock and 1,000,000 shares as Series C preferred stock. In conjunction with the initial public offering of the Company's common stock on August 8, 1996, all outstanding shares of convertible preferred stock automatically converted into common stock upon closing of the offering. The Company amended its certificate of incorporation in August 1996 authorizing the issuance of up to 2,000,000 shares of preferred stock. No preferred shares have been issued as of December 31, 1996. 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. Between May 28 and June 7, 1996, the Company issued $2.0 million principal amount of convertible notes to the same three investors, bearing interest at the rate of 8.25% per annum. Upon the closing of the Company's initial public offering on August 8, 1996, the principal amount of each note and all accrued interest automatically converted into shares of the Company's common stock at $7.50 per share, the offering price per share to the public, and the Series C preferred stock automatically converted 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. 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. In August 1996, the Company completed the initial public offering of its common stock. The Company sold 2,015,000 shares for net proceeds of $13.2 million. Concurrent with the closing of the initial public offering, 4,119,069 shares of convertible preferred stock were converted into an equivalent number of shares of common stock and $2,000,000 of convertible notes plus accrued interest of $31,526 converted into 270,871 shares of common stock. (see Note 5) 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. 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. F-11 VISIGENIC SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 1995 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.................................. (820,750) 820,750 $ .40 Exercised................................ -- (54,068) $ .40 Canceled................................. 12,932 (12,932) $ .40 ---------- --------- ---------- Balance at March 31, 1996................. 1,192,182 753,750 $ .40 Authorized............................... 500,000 -- -- Granted.................................. (1,456,750) 1,456,750 $.40-16.75 Exercised................................ -- (202,366) $ 4.00 Canceled................................. 48,184 (48,184) $.40-16.75 ---------- --------- ---------- Balance at December 31, 1996.............. 283,616 1,959,950 $.40-16.75 ========== ========= ==========
At December 31, 1996, options outstanding for the purchase of 186,358 shares were vested under the 1995 Plan at an exercise price of $.40 - 9.50 per share. 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. 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. No shares have been issued under the Purchase Plan as of December 31, 1996. 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. 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. No options have been issued under the Directors Plan as of December 31, 1996. F-12 VISIGENIC SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Executive Performance Incentive Plan The Company's Executive Performance Incentive Plan (the "Incentive Plan") was adopted by the Company's Board of Directors in October 1996. A total of 100,000 shares of common stock has been reserved for issuance under the Incentive Plan. Under the Incentive Plan, the Compensation Committee of the Board of Directors may award performance units to designated executives, that will vest and become payable if one or more pre-established performance goals are attained during a specified performance period and the participant remains an employee. As of December 31, 1996, 3,615 shares had been issued under the Incentive Plan. Common Stock Reserved for Future Issuance As of December 31, 1996, the Company has reserved the following shares of common stock for future issuance: 1995 Stock Option Plan and options assumed from PostModern......... 2,605,351 1996 Stock Plans................................................... 746,385 --------- 3,351,736 =========
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. F-13 VISIGENIC SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 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. FISCAL 1997 ACQUISITIONS: 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. 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. See unaudited Pro Forma Condensed Combined Financial Statements included elsewhere in this Prospectus. Acquisition of CustomWare, Inc. In December 1996, the Company completed the acquisition of CustomWare, Inc., a training and consulting organization that specializes in distributed object technology. In the acquisition, which was structured as a merger, the Company issued 125,000 shares of its common stock to the shareholders of CustomWare, resulting in a total purchase price of approximately $1.5 million. The acquisition of CustomWare was accounted for as a purchase in the quarter ended December 31, 1996. In connection with the purchase price allocation, the Company received an appraisal of the intangible assets which indicated that approximately $350,000 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 of the CustomWare 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 December 31, 1996. As a result of the purchase price allocation, the excess of the purchase price over net assets acquired is $700,000, which is being amortized on a straight-line basis over a period of one year. Management believes that the unamortized balance is recoverable through future operating results. Comparative pro forma information reflecting the acquisition of CustomWare has not been presented because the operations of CustomWare are not material to the Company's consolidated financial statements. 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 nine months ended December 31, 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 nine months ended December 31, 1996. The historical financial statements of PostModern for the nine months ended December 31, 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 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............... $ (.40) $ (.57) ======= ======= PRO FORMA WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES.... 11,064 11,064(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)
NINE MONTHS ENDED DECEMBER, 1996 ------------------------------------------- HISTORICAL HISTORICAL PRO FORMA PRO FORMA VISIGENIC POSTMODERN ADJUSTMENTS COMBINED ---------- ---------- ----------- --------- REVENUE: Software products.............. $ 9,895 $ 24 $ -- $ 9,919 Service and other.............. 1,639 108 -- 1,747 -------- ----- -------- Total revenue................ 11,534 132 11,666 -------- ----- -------- COST OF REVENUE: Software products.............. 399 11 -- 410 Service and other.............. 1,430 65 -- 1,495 -------- ----- -------- Total cost of revenue........ 1,829 76 1,905 -------- ----- -------- GROSS PROFIT..................... 9,705 56 9,761 -------- ----- -------- OPERATING EXPENSES: Product development............ 6,650 64 -- 6,714 Sales and marketing............ 6,977 68 -- 7,045 General and administrative..... 1,814 74 -- 1,888 Purchased in process product development................... 12,364 -- -- 12,364 Amortization of excess of purchase price over net assets acquired...................... 361 -- 86(a) 447 -------- ----- -------- Total operating expenses..... 28,166 206 28,458 -------- ----- -------- Operating income (loss)...... (18,461) (150) -- (18,697) INTEREST AND OTHER INCOME, net... 190 -- -- 190 -------- ----- -------- INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES................ (18,271) (150) -- (18,507) PROVISION FOR INCOME TAXES....... -- -- -- -- -------- ----- -------- NET INCOME (LOSS)................ $(18,271) $(150) $(18,507) ======== ===== ======== NET LOSS PER SHARE............... $ (1.51) $ (1.52) ======== ======== PRO FORMA WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES.... 12,141 12,141 (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 nine months ended December 31, 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 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 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............................................................. 5 Use of Proceeds.......................................................... 14 Price Range of Common Stock.............................................. 14 Dividend Policy.......................................................... 14 Capitalization........................................................... 15 Dilution................................................................. 16 Selected Consolidated Financial Data..................................... 17 Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................... 18 Business................................................................. 26 Management............................................................... 42 Certain Transactions..................................................... 49 Principal and Selling Stockholders....................................... 52 Description of Capital Stock............................................. 56 Shares Eligible for Future Sale.......................................... 58 Underwriting............................................................. 60 Legal Matters............................................................ 61 Experts.................................................................. 61 Available Information.................................................... 62 Index to Financial Statements............................................ F-1
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 2,000,000 SHARES [LOGO OF VISIGENIC SOFTWARE, INC. APPEARS HERE] COMMON STOCK --------------- PROSPECTUS --------------- HAMBRECHT & QUIST ROBERTSON, STEPHENS & COMPANY , 1997 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 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, the NASD filing fee and the Nasdaq National Market fee.
AMOUNT TO BE PAID --------- Registration fee...................................................... $ 9,543 NASD filing fee....................................................... 3,620 Nasdaq National Market fee............................................ 17,500 Blue sky qualification fees and expenses.............................. 10,000 Printing and engraving expenses....................................... 150,000 Legal fees and expenses............................................... 150,000 Accounting fees and expenses.......................................... 75,000 Transfer agent and registrar fees..................................... 5,000 Fee for Custodian for Selling Stockholders............................ 65,000 Miscellaneous......................................................... 39,337 -------- Total............................................................. $500,000 ========
-------- * 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 Restated Certificate of Incorporation, and Bylaws provide that the Company shall indemnify its directors, officers, employees and agents to the full extent permitted by the Delaware General Corporation Law, including in circumstances in which indemnification is otherwise discretionary under Delaware law. In addition, the Company has entered 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 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. The Underwriting Agreement entered into by the Company and the underwriters in connection with the Company's initial public offering in August 1996 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 November 26, 1996, the Company sold an aggregate of 995,395 shares of its Common Stock to 65 stockholders for an aggregate of $623,167 and issued options to purchase an aggregate of 2,066,000 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 158 optionholders. (l) In December 1996, the Company entered into an Agreement and Plan of Reorganization with CustomWare, Inc. ("CustomWare") pursuant to which the Company issued 125,000 shares of Common Stock to the sole shareholder of CustomWare. 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) through 15(l) 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.(1) 2.2 Agreement and Plan of Reorganization between the Company and CustomWare, Inc., dated December 3, 1996.(2) 3.1 Restated Certificate of Incorporation.(1) 3.2 Bylaws.(1) 4.1 Specimen Common Stock Certificate of the Company.(1) 4.2 Registration Rights Agreement between the Company and certain investors dated March 31, 1993.(1) 4.3 Supplemental Registration Rights Agreement between the Company and certain investors dated May 10, 1996.(1) 5.1 Opinion of Gray Cary Ware & Freidenrich, A Professional Corporation. 10.1 Form of Indemnification Agreement for directors and officers.(1) 10.2 1995 Stock Option Plan and forms of agreements thereunder.(1) 10.3 1996 Employee Stock Purchase Plan.(1) 10.4 1996 Outside Directors Stock Option Plan.(1) 10.5 Non-Compete and Non-Solicitation Agreement between the Company and Jens Christensen dated April 28, 1996.(1) 10.6 Non-Compete and Non-Solicitation Agreement between the Company and Neguine Navab dated April 28, 1996.(1) 10.7 Non-Compete and Non-Solicitation Agreement between the Company and Prasad Mokkapatti dated April 28, 1996.(1) 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.(1) 10.9 Form of Convertible Promissory Note.(1) 10.10 Source Code License Agreement, as amended, between the Company and Microsoft Corporation ("Microsoft") dated June 20, 1995.(1) 10.11 Source Code License Agreement between the Company and Microsoft Corporation dated February 10, 1995.(1) 10.12 Lease Agreement, as amended, between the Company and San Mateo Office Limited, dated March 7, 1993. 10.13 Lease Agreement, as amended, between the Company and Spieker- Singleton #68 Limited Partnership dated September 11, 1996. 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). 27.1 Financial Data Schedule (available in EDGAR format only).
-------- (1) Incorporated by reference herein to the Company's Registration Statement on Form S-1 (File No. 333-06285). (2) Incorporated by reference herein to Exhibit 2.1 to the Company's Form 8-K filed with the Securities and Exchange Commission on December 17, 1996. II-3 (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. 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 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 27TH DAY OF JANUARY 1997. VISIGENIC SOFTWARE, INC. /s/ Mark D. Hanson By: _________________________________ MARK D. HANSON PRESIDENT AND CHIEF OPERATING OFFICER POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS BELOW HEREBY CONSTITUTES AND APPOINTS ROGER J. SIPPL AND MARK D. HANSON, AND EACH OF THEM ACTING INDIVIDUALLY, AS HIS ATTORNEY-IN-FACT, EACH WILL FULL POWER OF SUBSTITUTION, FOR HIM IN ANY AND ALL CAPACITIES, TO SIGN ANY AND ALL AMENDMENTS TO THIS REGISTRATION STATEMENT, AND TO FILE THE SAME, WITH EXHIBITS THERETO AND OTHER DOCUMENTS IN CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE COMMISSION, HEREBY RATIFYING AND CONFIRMING OUR SIGNATURES AS THEY MAY BE SIGNED BY OUR SAID ATTORNEY TO ANY AND ALL AMENDMENTS TO SAID REGISTRATION STATEMENT. 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 January 27, 1997 - ------------------------------------- Officer and ROGER J. SIPPL Director (Principal Executive Officer) /s/ Kevin C. Eichler Vice President-- January 27, 1997 - ------------------------------------- Finance (Principal KEVIN C. EICHLER Financial and Accounting Officer) /s/ Gill Cogan Director January 27, 1997 - ------------------------------------- GILL COGAN /s/ Cristina Morgan Director January 27, 1997 - ------------------------------------- CRISTINA MORGAN II-5 SIGNATURE TITLE DATE /s/ Michael Moritz Director January 27, - ------------------------------------- 1997 MICHAEL MORITZ /s/ J. Sidney Webb Director January 27, - ------------------------------------- 1997 J. SIDNEY WEBB /s/ Eric Young Director January 27, - ------------------------------------- 1997 ERIC YOUNG /s/ Jens Christensen Director January 27, - ------------------------------------- 1997 JENS CHRISTENSEN II-6 EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC 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 January 28, 1997 II-7 EXHIBIT INDEX
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.(1) 2.2 Agreement and Plan of Reorganization between the Company and CustomWare, Inc., dated December 3, 1996.(2) 3.1 Restated Certificate of Incorporation.(1) 3.2 Bylaws.(1) 4.1 Specimen Common Stock Certificate of the Company.(1) 4.2 Registration Rights Agreement between the Company and certain investors dated March 31, 1993.(1) 4.3 Supplemental Registration Rights Agreement between the Company and certain investors dated May 10, 1996.(1) 5.1 Opinion of Gray Cary Ware & Freidenrich, A Professional Corporation. 10.1 Form of Indemnification Agreement for directors and officers.(1) 10.2 1995 Stock Option Plan and forms of agreements thereunder.(1) 10.3 1996 Employee Stock Purchase Plan.(1) 10.4 1996 Outside Directors Stock Option Plan.(1) 10.5 Non-Compete and Non-Solicitation Agreement between the Company and Jens Christensen dated April 28, 1996.(1) 10.6 Non-Compete and Non-Solicitation Agreement between the Company and Neguine Navab dated April 28, 1996.(1) 10.7 Non-Compete and Non-Solicitation Agreement between the Company and Prasad Mokkapatti dated April 28, 1996.(1) 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.(1) 10.9 Form of Convertible Promissory Note.(1) 10.10 Source Code License Agreement, as amended, between the Company and Microsoft Corporation ("Microsoft") dated June 20, 1995.(1) 10.11 Source Code License Agreement between the Company and Microsoft Corporation dated February 10, 1995.(1) 10.12 Lease Agreement, as amended, between the Company and San Mateo Office Limited, dated March 7, 1993. 10.13 Lease Agreement, as amended, between the Company and Spieker- Singleton #68 Limited Partnership dated September 11, 1996. 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). 27.1 Financial Data Schedule (available in EDGAR format only).
-------- (1) Incorporated by reference herein to the Company's Registration Statement on Form S-1 File No. 333-06285. (2) Incorporated by reference herein to Exhibit 2.1 to the Company's Form 8-K filed with the Securities and Exchange Commission on December 17, 1996. EX-1.1 2 UNDERWRITING AGREEMENT Exhibit 1.1 VISIGENIC SOFTWARE, INC. 2,000,000 Shares/1/ Common Stock UNDERWRITING AGREEMENT ---------------------- February __, 1997 HAMBRECHT & QUIST LLC ROBERTSON, STEPHENS & COMPANY LLC As Representatives of the Several Underwriters Named on Schedule I hereto c/o Hambrecht & Quist LLC One Bush Street San Francisco, CA 94104 Ladies and Gentlemen: Visigenic Software, Inc., a Delaware corporation (herein called the Company), proposes to issue and sell 1,180,000 shares of its authorized but unissued Common Stock, $0.001 par value (herein called the Common Stock), and the stockholders of the Company named in Schedule II hereto (herein collectively called the Selling Securityholders) propose to sell an aggregate of 820,000 shares of Common Stock of the Company to the Underwriters (as hereinafter defined) (said 2,000,000 shares of Common Stock being herein called the Underwritten Stock). The Company proposes to grant to the Underwriters an option to purchase up to 300,000 additional shares of Common Stock (herein called the Option Stock and with the Underwritten Stock herein collectively called the Stock). The Common Stock is more fully described in the Registration Statement and the Prospectus hereinafter mentioned. The Company and the Selling Securityholders severally hereby confirm the agreements made with respect to the purchase of the Stock by the several underwriters, for whom you are acting, named in Schedule I hereto (herein collectively called the Underwriters, which term shall also include any underwriter purchasing Stock pursuant to Section 3(b) hereof). You represent and warrant that you have been authorized by each of the other Underwriters to enter into this Agreement on its behalf and to act for it in the manner herein provided. 1. Registration Statement. The Company has filed with the Securities and Exchange Commission (herein called the Commission) a registration statement on Form S-1 (No. 333-________), including the related preliminary prospectus, for the registration under the Securities Act of 1933, as amended (herein called the Securities Act), of the Stock. Copies of such registration statement and of each amendment thereto, if any, including the related preliminary prospectus (meeting the requirements of Rule 430A of the rules and regulations of the Commission) heretofore filed by the Company with the Commission have been delivered to you. The term Registration Statement as used in this agreement shall mean such registration statement, including all exhibits and financial statements, all information omitted therefrom in reliance upon Rule 430A and contained in the Prospectus referred to below, in the form in which it became effective, and any registration statement filed pursuant to Rule 462(b) of the rules and regulations of the Commission with respect to the Stock (herein called a Rule 462(b) registration statement), and, in the event of any amendment thereto after the effective date of such registration statement (herein called the Effective Date), shall also mean (from and after the effectiveness of such - ----------------- /1/ Plus an option to purchase from the Company up to an additional 300,000 shares of Common Stock of the Company. amendment) such registration statement as so amended (including any Rule 462(b) registration statement). The term Prospectus as used in this Agreement shall mean the prospectus relating to the Stock first filed with the Commission pursuant to Rule 424(b) and Rule 430A (or if no such filing is required, as included in the Registration Statement) and, in the event of any supplement or amendment to such prospectus after the Effective Date, shall also mean (from and after the filing with the Commission of such supplement or the effectiveness of such amendment) such prospectus as so supplemented or amended. The term Preliminary Prospectus as used in this Agreement shall mean each preliminary prospectus included in such registration statement prior to the time it becomes effective. The Registration Statement has been declared effective under the Securities Act, and no post-effective amendment to the Registration Statement has been filed as of the date of this Agreement. The Company has caused to be delivered to you copies of each Preliminary Prospectus and has consented to the use of such copies for the purposes permitted by the Securities Act. 2. Representations and Warranties of the Company and the Selling Securityholders (a) The Company hereby represents and warrants as follows: (i) Each of the Company and its subsidiaries has been duly incorporated and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, has full corporate power and authority to own or lease its properties and conduct its business as described in the Registration Statement and the Prospectus and as being conducted, and is duly qualified as a foreign corporation and in good standing in all jurisdictions in which the character of the property owned or leased or the nature of the business transacted by it makes qualification necessary (except where the failure to be so qualified would not have a material adverse effect on the condition (financial or otherwise), earnings, operations, business or business prospects of the Company (and its subsidiaries taken as a whole.) The Company does not own or control, directly or indirectly, any corporation, association or other entity other than Visigenic Software Limited, a United Kingdom corporation and Visigenic Software S.A.R.L., a French corporation. None of the Company's subsidiaries is a "significant subsidiary" as defined under Regulation S-X promulgated under the Securities Exchange Act of 1934, as amended (herein called the Exchange Act). (ii) Since the respective dates as of which information is given in the Registration Statement and the Prospectus, there has not been any materially adverse change in the business, properties, financial condition or results of operations of the Company or its subsidiaries taken as a whole, whether or not arising from transactions in the ordinary course of business, other than as set forth in the Registration Statement and the Prospectus, and since such dates, except in the ordinary course of business, neither the Company nor its subsidiaries has entered into any material transaction not referred to in the Registration Statement and the Prospectus. (iii) The Registration Statement and the Prospectus comply, and on the Closing Date (as hereinafter defined) and any later date on which Option Stock is to be purchased, the Prospectus will comply, in all material respects, with the provisions of the Securities Act and the rules and regulations of the Commission thereunder. On the Effective Date, the Registration Statement did not contain any untrue statement of a material fact and did not omit to state any material fact required to be stated therein or necessary in order to make the statements therein not misleading; and, on the Effective Date the Prospectus did not and, on the Closing Date and any later date on which Option Stock is to be purchased, will not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that none of the representations and warranties in this subparagraph (iii) shall apply to statements in, or omissions from, the Registration Statement or the Prospectus made in reliance upon and in conformity with information herein or otherwise furnished in writing to the Company by or on behalf of the Underwriters for use in the Registration Statement or the Prospectus. (iv) The Company's outstanding capital stock has been validly authorized, is fully paid and nonassessable, was issued in compliance with the registration and qualification provisions of 2 applicable federal and state securities laws and was issued free of any preemptive right, right of first refusal or similar right. The Stock is duly and validly authorized, is (or, in the case of shares of the Stock to be sold by the Company, will be, when issued and sold to the Underwriters as provided herein) duly and validly issued, fully paid and nonassessable and conforms to the description thereof in the Prospectus. No further approval or authority of the stockholders or the Board of Directors of the Company will be required for the transfer and sale of the Stock to be sold by the Selling Securityholders or the issuance and sale of the Stock as contemplated herein. No preemptive right, or right of first refusal in favor of stockholders, exists with respect to the Stock, or the issue and sale thereof, pursuant to the Certificate of Incorporation or Bylaws of the Company, and there is no contractual preemptive right, right of first refusal, right of co-sale or similar right which exists and has not been waived with respect to the Stock being sold by the Selling Securityholders or the issue and sale of the Stock. (v) The Registration Statement has become effective under the Securities Act and no stop order suspending the effectiveness of the Registration Statement or suspending or preventing the use of the Prospectus is in effect and, to the Company's knowledge after inquiry, no proceeding for that purpose has been instituted or is contemplated by the Commission. (vi) This Agreement has been duly authorized, executed and delivered by the Company and, assuming due authorization, execution and delivery by the Representatives, constitutes a valid and binding obligation of the Company enforceable in accordance with its terms, except as rights to indemnity or contribution may be limited by federal or state securities laws and except as enforcement (i) may be limited by the effect of bankruptcy, insolvency, reorganization, arrangement, moratorium, fraudulent conveyance and other similar laws relating to or affecting the rights of creditors generally, (ii) is subject to general principles of equity and similar principles, including, without limitation, concepts of materiality, reasonableness, unconscionability, good faith and fair dealing and the possible unavailability of specific performance, injunctive relief or other equitable remedies, regardless of whether considered in a proceeding in equity or at law or (iii) is subject to the effect of public policy. (vii) The execution and delivery by the Company of, and the performance by the Company of its obligations under, this Agreement, and the issue and sale by the Company of the shares of Stock to be sold by the Company as provided herein will not conflict with, or result in a breach of, the Certificate of Incorporation or Bylaws of the Company or any material agreement or instrument to which the Company is a party or any applicable law or regulation, or any judgment, order, writ, injunction or decree, of any jurisdiction, court or governmental instrumentality binding on the Company. (viii) All holders of securities of the Company having rights to the registration of shares of Common Stock, or other securities, because of the filing of the Registration Statement by the Company have waived such rights with respect to the Registration Statement or such rights have expired by reason of lapse of time following notification of the Company's intent to file the Registration Statement. (ix) No consent, approval, authorization or order of any court or governmental agency or body is required for the consummation of the transactions contemplated herein, except such as have been (or will before the Closing Date have been) obtained under the Securities Act and such as may be required under state securities or blue sky laws in connection with the purchase and distribution of the Stock by the Underwriters. (x) The Company has timely filed all necessary federal, state and foreign income and franchise tax returns and has paid all taxes shown thereon as due, and there is no tax deficiency that has been or, to the best of the Company's knowledge, might be asserted against the Company or any of its subsidiaries that could have a material adverse effect on the condition (financial or otherwise), earnings, operations, business or business prospects of the Company; and all tax liabilities are adequately provided for on the books of the Company. (xi) To the best of Company's knowledge, no labor disturbance by the employees of the Company exists or is imminent; and the Company is not aware of any existing or imminent labor 3 disturbance by the employees of any of its principal value added resellers, subcontractors, original equipment manufacturers, authorized dealers or international distributors that might be expected to result in a material adverse change in the condition (financial or otherwise), earnings, operations, business or business prospects of the Company. No collective bargaining agreement exists with any of the Company's employees and, to the best of the Company's knowledge, no such agreement is imminent. (xii) The consolidated financial statements, including the notes thereto, and supporting schedules included in the Registration Statement and the Prospectus present fairly the financial position of each of the Company and PostModern Computing Technologies Inc. (herein called PostModern) as of the dates indicated and the results of its operations for the periods specified; except as otherwise stated in the Registration Statement, said consolidated financial statements have been prepared in conformity with generally accepted accounting principles applied on a consistent basis; and the supporting schedules included in the Registration Statement present fairly the information required to be stated therein. Such consolidated financial statements have been prepared in accordance with generally accepted accounting principles consistently applied throughout the periods involved, are correct and complete, and are in accordance with the books and records of the Company in all material respects. The unaudited pro forma combined financial information (including the related notes and supporting schedules) contained in the Prospectus complies as to form in all material respects to the accounting requirements of the Securities Act and the rules and regulations of the Commission thereunder, and management of the Company believes that the assumptions underlying the pro forma adjustments are reasonable. All necessary pro forma adjustments have been properly applied to the historical amounts in the compilation of the information and such information presents fairly with respect to the respective combined entities presented therein the financial position, results of operations, and other information purported to be shown therein at the respective dates and for the respective periods specified on a basis consistent with the audited financial statements included in the Registration Statement and Prospectus. No other financial statements are required by Form S-1 or otherwise to be included in the Registration Statement or Prospectus. (xiii) The Company has good and marketable title to all the properties and assets reflected as owned in the financial statements (or elsewhere in the Prospectus), subject to no lien, mortgage, pledge, charge or encumbrance of any kind except (i) those, if any, reflected in the financial statements (or elsewhere in the Prospectus), or (ii) those which are not material in amount and do not materially adversely affect the use made and proposed to be made of such property by the Company. The Company holds its leased properties under valid and binding leases, with such exceptions as are not materially significant in relation to the business of the Company. Except as disclosed in the Prospectus, the Company owns or leases all such properties as are necessary to its operations as now conducted or as proposed to be conducted. (xiv) Neither the Company nor, to the Company's knowledge, any other party is in violation or breach of, or in default with respect to complying with, any material provision of any contract, agreement, instrument, lease, license, arrangement or understanding which is material to the Company, and each such contract, agreement, instrument, lease, license, arrangement and understanding is in full force and is the legal, valid and binding obligation of the Company and, to the Company's knowledge, the other parties thereto and is enforceable against the Company and, to the Company's knowledge, against the other parties thereto in accordance with its terms except as enforcement (i) may be limited by the effect of bankruptcy, insolvency, reorganization, arrangement, moratorium, fraudulent conveyance and other similar laws relating to or affecting the rights of creditors generally, (ii) is subject to general principles of equity and similar principles, including, without limitation, concepts of materiality, reasonableness, unconscionability, good faith and fair dealing and the possible unavailability of specific performance, injunctive relief or other equitable remedies, regardless of whether considered in a proceeding in equity or at law or (iii) is subject to the effect of public policy. The Company enjoys peaceful and undisturbed possession under all leases and licenses under which it is operating. The Company is not in violation or breach of, or in default with respect to, any term of its Certificate of Incorporation or Bylaws. (xv) To the best of its knowledge, the Company is not infringing or otherwise violating any patent, copyright, trade secret, trademark, service mark, trade name, technology, know-how 4 or other proprietary information or material of others. The Company has not received any notice of infringement or conflict with (and the Company knows of no conflict or infringement with) asserted rights of others with respect to any patents, copyrights, trademarks, service marks, trade names, technology or know-how, which could have a material adverse effect on the condition (financial or otherwise), earnings, operations, business or business prospects of the Company. (xvi) The Company owns or possesses sufficient licenses or other rights to use all patents, copyrights, trade secrets, trademarks, service marks, trade names, technology, know-how or other proprietary information or materials necessary to conduct the business now being conducted by the Company as described in the Prospectus. (xvii) The Company (A) is in compliance with any and all applicable foreign, federal, state and local laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants (herein called Environmental Laws), (B) has received all permits, licenses or other approvals required of it under applicable Environmental Laws to conduct its business and (C) is in compliance with all terms and conditions of any such permit, license or approval, except where such noncompliance with Environmental Laws, failure to receive required permits, licenses or other approvals or failure to comply with the terms and conditions of such permits, licenses or approvals would not, singly or in the aggregate, have a material adverse effect on the condition (financial or otherwise), earnings, operations, business or business prospects of the Company. (xviii) There is no legal or governmental proceeding pending or, to the Company's knowledge, threatened to which the Company or its subsidiaries is a party or to which any of the properties of the Company is subject that is required to be described in the Registration Statement or the Prospectus and is not so described, nor is there any statute, regulation, contract or other document that is required to be described in the Registration Statement or the Prospectus or to be filed as an exhibit to the Registration Statement that is not described or filed. (xix) The Company has all necessary consents, authorizations, approvals, orders, certificates and permits of and from, and has made all declarations and filings with, all governmental authorities to own, lease, license and use its properties and assets and to conduct its business in the manner described in the Prospectus, except to the extent that the failure to obtain or file such would not have a material adverse effect on the condition (financial or otherwise), earnings, operations, business or business prospects of the Company. (xx) The Common Stock has been approved for listing on the National Association of Securities Dealers Automated Quotation (Nasdaq) National Market. The Company has duly filed a Nasdaq National Market Notification Form for Listing of Additional Shares and a Form 10-C with respect to the sale and issuance of the Stock in accordance with the rules and regulations of the National Association of Securities Dealers, Inc. (herein called the NASD). (xxi) The Company has not distributed and will not distribute prior to the Closing Date any offering material in connection with the offering and sale of the Shares other than the Preliminary Prospectus, the Prospectus, the Registration Statement and the other materials permitted by the Securities Act. (xxii) The Company maintains insurance of the types and in the amounts generally deemed adequate for its business, including, but not limited to, insurance covering real and personal property owned or leased by the Company and its subsidiaries against theft, damage, destruction, acts of vandalism and all other risks customarily insured against, all of which insurance is in full force and effect. The Company has not been refused any insurance coverage sought or applied for; and the Company has no reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not materially and adversely affect the condition (financial or otherwise), earnings, operations, business or business prospects of the Company. 5 (xxiii) Neither the Company nor any of its subsidiaries has at any time during the last five (5) years in any jurisdiction (A) made any unlawful contribution to any candidate for office, or failed to disclose fully any contribution in violation of law, or (B) made any payment to any governmental officer or official, or other person charged with similar public or quasi-public duties other than payments required or permitted by the laws of the United States. (xxiv) There are no outstanding loans, advances (except normal advances for business expenses in the ordinary course of business) or guarantees of indebtedness by the Company to or for the benefit of any of the officers or directors of the Company or any of the members of the families of any of them, except as disclosed in the Registration Statement and the Prospectus. (xxv) Neither the Company nor any of its affiliates does business with the government of Cuba or with any person or affiliate located in Cuba. (xxvi) The Company maintains a system of internal accounting controls sufficient to provide reasonable assurances that (A) transactions are executed in accordance with management's general or specific authorization; (B) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets; (C) access to its assets is permitted only in accordance with management's general or specific authorization; and (D) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to differences. (xxvii) The Company has duly filed on a timely basis with the Commission all reports, registration statements and other documents required by the Securities Act, the Exchange Act, or the rules and regulations of the Commission promulgated pursuant to the Securities Act or Exchange Act. All of such reports, registration statements and other documents, when they were filed with the Commission, conformed in all material respects to the requirements of the Securities Act, the Exchange Act or the rules and regulations of the Commission promulgated pursuant to the Securities Act or Exchange Act, as appropriate. None of such reports, registration statements or other documents contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading. (xxviii) In connection with the sale by the Company of shares of its Common Stock pursuant to the Underwriting Agreement dated August 7, 1996 among the Company, the selling stockholders named therein and the underwriters named therein, the Company applied the net proceeds received by it from the sale of such shares substantially as described in the registration statement on Form S-1 (No. 333-06285). (xxix) The Company is familiar with the Investment Company Act of 1940, as amended (the 1940 Act), and the rules and regulations thereunder, and has in the past conducted, and intends in the future to continue to conduct, its affairs in such a manner as to insure that it will not become an "investment company" within the meaning of the 1940 Act and such rules and regulations. (b) Each of the Selling Securityholders, severally and not jointly, hereby represents and warrants as follows: (i) Such Selling Securityholder has good and marketable title to all the shares of Stock to be sold by such Selling Securityholder hereunder, free and clear of all liens, encumbrances, equities, security interests and claims whatsoever, with full right and authority to deliver the same hereunder, subject, in the case of each Selling Securityholder, to the rights of The First National Bank of Boston, as Custodian (herein called the Custodian), and that upon the delivery of and payment for such shares of the Stock hereunder, the several Underwriters will receive good and marketable title thereto, free and clear of all liens, encumbrances, equities, security interests and claims whatsoever. 6 (ii) Certificates in negotiable form for the shares of the Stock to be sold by such Selling Securityholder have been placed in custody under a Custody Agreement for delivery under this Agreement with the Custodian; such Selling Securityholder specifically agrees that the shares of the Stock represented by the certificates so held in custody for such Selling Securityholder are subject to the interests of the several Underwriters and the Company, that the arrangements made by such Selling Securityholder for such custody, including the Power of Attorney provided for in such Custody Agreement, are to that extent irrevocable, and that the obligations of such Selling Securityholder shall not be terminated by any act of such Selling Securityholder or by operation of law, whether by the death or incapacity of such Selling Securityholder (or, in the case of a Selling Securityholder that is not an individual, the dissolution or liquidation of such Selling Securityholder) or the occurrence of any other event prior to _______________, 1997 if any such death, incapacity, dissolution, liquidation or other such event should occur before the delivery of such shares of the Stock hereunder, certificates for such shares of the Stock shall be delivered by the Custodian in accordance with the terms and conditions of this Agreement as if such death, incapacity, dissolution, liquidation or other event had not occurred, regardless of whether the Custodian shall have received notice of such death, incapacity, dissolution, liquidation or other event. (iii) Such Selling Securityholder, who is a director or executive officer of the Company (including such Selling Securityholder who is an affiliate of a director or executive officer of the Company) or who beneficially owns more than 5% of the Company's outstanding stock has reviewed the Registration Statement and Prospectus and, although such Selling Securityholder has not independently verified the accuracy or completeness of all the information contained therein, nothing has come to the attention of such Selling Securityholder that would lead such Selling Securityholder to believe that on the Effective Date, the Registration Statement contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary in order to make the statements therein not misleading; and, on the Effective Date the Prospectus contained and, on the Closing Date and any later date on which Option Stock is to be purchased, contains any untrue statement of a material fact or omitted or omits to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. (iv) All information furnished in writing by or on behalf of such Selling Securityholder for use in the Registration Statement and Prospectus is, and on the Closing Date will be, true, correct, and complete, and does not, and on the Closing Date will not, contain any untrue statement of a material fact or omit to state any material fact necessary to make such information not misleading. (v) Such Selling Securityholder, who is a director or executive officer of the Company (including such Selling Securityholder who is an affiliate of a director or executive officer of the Company) or who beneficially owns more than 5% of the Company's outstanding stock has no reason to believe that any representation or warranty of the Company set forth in Section 2(a) above is untrue or inaccurate in any material respect. (vi) The sale of the Stock by such Selling Securityholder pursuant hereto is not prompted by any material adverse information concerning the Company which is not set forth in the Registration Statement and Prospectus. (vii) The execution and delivery by such Selling Securityholder of, and the performance by such Selling Securityholder of its obligations under, this Agreement, the custody agreement signed by such Selling Securityholder and the Custodian, relating to the deposit of the Stock to be sold by such Selling Securityholder (herein called the Custody Agreement) and the power of attorney appointing certain individuals as such Selling Securityholder's attorneys-in-fact to the extent set forth therein relating to the transactions contemplated hereby and by the Registration Statement (herein called the Power of Attorney) will not contravene any provision of applicable law, or the certificate or articles of incorporation or by-laws of such Selling Securityholder (if such Selling Securityholder is a corporation), or any agreement or other instrument binding upon such Selling Securityholder or any judgment, order or decree of any governmental body, agency or court having jurisdiction over such Selling Securityholder, and no consent, approval, authorization or order of or qualification with any court or governmental body or 7 agency is required for the performance by such Selling Securityholder of its obligations under this Agreement, the Custody Agreement or the Power of Attorney of such Selling Securityholder, except such as may be required under the Securities Act or by the securities or blue sky laws of various states in connection with the offer and sale of the Stock by the Underwriters. (viii) Such Selling Securityholder has, and on the Closing Date will have, the legal right and power, and all authorization and approval required by law, to enter into this Agreement, the Custody Agreement and the Power of Attorney and to sell, transfer and deliver in the manner provided in this Agreement the shares of Stock to be sold by such Selling Securityholder. (ix) Each of this Agreement, the Custody Agreement and the Power of Attorney has been duly authorized, executed and delivered by or on behalf of such Selling Securityholder and, assuming due authorization, execution and delivery by the other parties thereto, constitutes a valid and binding obligation of such Selling Securityholder enforceable in accordance with its terms, except as rights to indemnity or contribution may be limited by federal or state securities laws and except as enforcement (i) may be limited by the effect of bankruptcy, insolvency, reorganization, arrangement, moratorium, fraudulent conveyance and other similar laws relating to or affecting the rights of creditors generally, (ii) is subject to general principles of equity and similar principles, including, without limitation, concepts of materiality, reasonableness, unconscionability, good faith and fair dealing and the possible unavailability of specific performance, injunctive relief or other equitable remedies, regardless of whether considered in a proceeding in equity or at law or (iii) is subject to the effect of public policy. 3. Purchase of the Stock by the Underwriters. (a) On the basis of the representations and warranties and subject to the terms and conditions herein set forth, the Company agrees to issue and sell 1,180,000 shares of the Underwritten Stock to the several Underwriters, each Selling Securityholder agrees to sell to the several Underwriters the number of shares of the Underwritten Stock set forth in Schedule II opposite the name of such Selling Securityholder, and each of the Underwriters agrees to purchase from the Company and the Selling Securityholders the respective aggregate number of shares of Underwritten Stock set forth opposite its name in Schedule I. The price at which such shares of Underwritten Stock shall be sold by the Company and the Selling Securityholders and purchased by the several Underwriters shall be _______ per share. The obligation of each Underwriter to the Company and each of the Selling Securityholders shall be to purchase from the Company and the Selling Securityholders that number of shares of the Underwritten Stock which represents the same proportion of the total number of shares of the Underwritten Stock to be sold by each of the Company and the Selling Securityholders pursuant to this Agreement as the number of shares of the Underwritten Stock set forth opposite the name of such Underwriter in Schedule I hereto represents of the total number of shares of the Underwritten Stock to be purchased by all Underwriters pursuant to this Agreement, as adjusted by you in such manner as you deem advisable to avoid fractional shares. In making this Agreement, each Underwriter is contracting severally and not jointly; except as provided in paragraphs (b) and (c) of this Section 3, the agreement of each Underwriter is to purchase only the respective number of shares of the Underwritten Stock specified in Schedule I. (b) If for any reason one or more of the Underwriters shall fail or refuse (otherwise than for a reason sufficient to justify the termination of this Agreement under the provisions of Section 8 or 9 hereof) to purchase and pay for the number of shares of the Stock agreed to be purchased by such Underwriter or Underwriters, the Company or the Selling Securityholders shall immediately give notice thereof to you, and the non-defaulting Underwriters shall have the right within 24 hours after the receipt by you of such notice to purchase, or procure one or more other Underwriters to purchase, in such proportions as may be agreed upon between you and such purchasing Underwriter or Underwriters and upon the terms herein set forth, all or any part of the shares of the Stock which such defaulting Underwriter or Underwriters agreed to purchase. If the non-defaulting Underwriters fail so to make such arrangements with respect to all such shares and portion, the number of shares of the Stock which each non-defaulting Underwriter is otherwise obligated to purchase under this Agreement shall be automatically increased on a pro rata basis to absorb the remaining shares and portion which the defaulting Underwriter or Underwriters agreed to purchase; provided, however, that the non-defaulting Underwriters shall not be obligated to purchase the shares and portion which the defaulting Underwriter or Underwriters agreed to 8 purchase if the aggregate number of such shares of the Stock exceeds 10% of the total number of shares of the Stock which all Underwriters agreed to purchase hereunder. If the total number of shares of the Stock which the defaulting Underwriter or Underwriters agreed to purchase shall not be purchased or absorbed in accordance with the two preceding sentences, the Company and the Selling Securityholders shall have the right, within 24 hours next succeeding the 24-hour period above referred to, to make arrangements with other underwriters or purchasers satisfactory to you for purchase of such shares and portion on the terms herein set forth. In any such case, either you or the Company and the Selling Securityholders shall have the right to postpone the Closing Date determined as provided in Section 5 hereof for not more than seven business days after the date originally fixed as the Closing Date pursuant to said Section 5 in order that any necessary changes in the Registration Statement, the Prospectus or any other documents or arrangements may be made. If neither the non-defaulting Underwriters nor the Company and the Selling Securityholders shall make arrangements within the 24-hour periods stated above for the purchase of all the shares of the Stock which the defaulting Underwriter or Underwriters agreed to purchase hereunder, this Agreement shall be terminated without further act or deed and without any liability on the part of the Company or the Selling Securityholders to any non-defaulting Underwriter and without any liability on the part of any non-defaulting Underwriter to the Company or the Selling Securityholders. Nothing in this paragraph (b), and no action taken hereunder, shall relieve any defaulting Underwriter from liability in respect of any default of such Underwriter under this Agreement. (c) On the basis of the representations, warranties and covenants herein contained, and subject to the terms and conditions herein set forth, the Company grants an option to the several Underwriters to purchase, severally and not jointly, up to the maximum number of shares of the Option Stock from the Company at the same price per share as the Underwriters shall pay for the Underwritten Stock. Said option may be exercised only to cover over-allotments in the sale of the Underwritten Stock by the Underwriters and may be exercised in whole or in part at any time (but not more than once) on or before the thirtieth day after the date of this Agreement upon written, facsimile or telegraphic notice by you to the Company setting forth the aggregate number of shares of the Option Stock as to which the several Underwriters are exercising the option. Delivery of certificates for the shares of Option Stock, and payment therefor, shall be made as provided in Section 5 hereof. The number of shares of the Option Stock to be purchased by each Underwriter shall be the same percentage of the total number of shares of the Option Stock to be purchased by the several Underwriters as such Underwriter is purchasing of the Underwritten Stock, as adjusted by you in such manner as you deem advisable to avoid fractional shares. 4. Offering by Underwriters. (a) The terms of the public offering by the Underwriters of the Stock to be purchased by them shall be as set forth in the Prospectus. The Underwriters may from time to time change the public offering price after the closing of the public offering and increase or decrease the concessions and discounts to dealers as they may determine. (b) The information set forth in the last paragraph on the front cover page and under "Underwriting" in the Registration Statement, any Preliminary Prospectus and the Prospectus relating to the Stock filed by the Company (insofar as such information relates to the Underwriters) constitutes the only information furnished by the Underwriters to the Company for inclusion in the Registration Statement, any Preliminary Prospectus, and the Prospectus, and you on behalf of the respective Underwriters represent and warrant to the Company that the statements made therein are correct. 5. Delivery of and Payment for the Stock (a) Delivery of certificates for the shares of the Underwritten Stock and the Option Stock (if the option granted by Section 3(c) hereof shall have been exercised not later than 7:00 A.M., San Francisco time, on the date two business days preceding the Closing Date), and payment therefor, shall be made at the office of Gray Cary Ware & Freidenrich, 400 Hamilton Avenue, Palo Alto, California 94301, at 7:00 a.m., San Francisco 9 time, on the fourth/2/ business day after the date of this Agreement, or at such time on such other day, not later than seven full business days after such fourth business day, as shall be agreed upon in writing by the Company, the Selling Securityholders and you. The date and hour of such delivery and payment (which may be postponed as provided in Section 3(b) hereof) are herein called the Closing Date. (b) If the option granted by Section 3(c) hereof shall be exercised after 7:00 a.m., San Francisco time, on the date two business days preceding the Closing Date, delivery of certificates for the shares of Option Stock, and payment therefor, shall be made at the office of Gray Cary Ware & Freidenrich, 400 Hamilton Avenue, Palo Alto, California 94301, at 7:00 a.m., San Francisco time, on the third business day after the exercise of such option. (c) Payment for the Stock purchased from the Company shall be made to the Company or its order, and payment for the Stock purchased from the Selling Securityholders shall be made to the Custodian, for the account of the Selling Securityholders, in each case by one or more certified or official bank check or checks in next day funds (and the Company and the Selling Securityholders agree not to deposit any such check in the bank on which drawn until the day following the date of its delivery to the Company or the Custodian, as the case may be). Such payment shall be made upon delivery of certificates for the Stock to you for the respective accounts of the several Underwriters against receipt therefor signed by you. Certificates for the Stock to be delivered to you shall be registered in such name or names and shall be in such denominations as you may request at least two business days before the Closing Date, in the case of Underwritten Stock, and at least two business days prior to the purchase thereof, in the case of the Option Stock. Such certificates will be made available to the Underwriters for inspection, checking and packaging at the offices of Lewco Securities Corporation, 2 Broadway, New York, New York 10004 on the business day prior to the Closing Date or, in the case of the Option Stock, by 3:00 p.m., New York time, on the business day preceding the date of purchase. It is understood that you, individually and not on behalf of the Underwriters, may (but shall not be obligated to) make payment to the Company and the Selling Securityholders for shares to be purchased by any Underwriter whose check shall not have been received by you on the Closing Date or any later date on which Option Stock is purchased for the account of such Underwriter. Any such payment by you shall not relieve such Underwriter from any of its obligations hereunder. 6. Further Agreements of the Company and the Selling Securityholders. The Company and the Selling Securityholders covenant and agree as follows: (a) The Company will (i) prepare and timely file with the Commission under Rule 424(b) a Prospectus containing information previously omitted at the time of effectiveness of the Registration Statement in reliance on Rule 430A and (ii) not file any amendment to the Registration Statement or supplement to the Prospectus of which you shall not previously have been advised and furnished with a copy or to which you shall have reasonably objected in writing within a reasonable time or which is not in compliance with the Securities Act or the rules and regulations of the Commission. (b) The Company will promptly notify each Underwriter in the event of (i) the request by the Commission for amendment of the Registration Statement or for supplement to the Prospectus or for any additional information, (ii) the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement, (iii) the institution or notice of intended institution of any action or proceeding for that purpose, (iv) the receipt by the Company of any notification with respect to the suspension of the qualification of the Stock for sale in any jurisdiction, or (v) the receipt by it of notice of the initiation or threatening of any proceeding for such purpose. The Company and the Selling Securityholders will make every reasonable effort to prevent the issuance of such a stop order and, if such an order shall at any time be issued, to obtain the withdrawal thereof at the earliest possible moment. - ----------------- /2/ This assumes that the transaction will be priced after the close of market and that T+4 will apply to the transaction. If the pricing took place before or during market hours (which will generally not be the case), the closing would be three business days after pricing. 10 (c) The Company will (i) on or before the Closing Date, deliver to you a signed copy of the Registration Statement as originally filed and of each amendment thereto filed prior to the time the Registration Statement becomes effective and, promptly upon the filing thereof, a signed copy of each post- effective amendment, if any, to the Registration Statement (together with, in each case, all exhibits thereto unless previously furnished to you) and will also deliver to you, for distribution to the Underwriters, a sufficient number of additional conformed copies of each of the foregoing (but without exhibits) so that one copy of each may be distributed to each Underwriter, (ii) as promptly as possible deliver to you and send to the several Underwriters, at such office or offices as you may designate, as many copies of the Prospectus as you may reasonably request, and (iii) thereafter from time to time during the period in which a prospectus is required by law to be delivered by an Underwriter or dealer, likewise send to the Underwriters as many additional copies of the Prospectus and as many copies of any supplement to the Prospectus and of any amended prospectus, filed by the Company with the Commission, as you may reasonably request for the purposes contemplated by the Securities Act. (d) If at any time during the period in which a prospectus is required by law to be delivered by an Underwriter or dealer any event relating to or affecting the Company, or of which the Company shall be advised in writing by you, shall occur as a result of which it is necessary, in the opinion of counsel for the Company or of counsel for the Underwriters, to supplement or amend the Prospectus in order to make the Prospectus not misleading in the light of the circumstances existing at the time it is delivered to a purchaser of the Stock, the Company will forthwith prepare and file with the Commission a supplement to the Prospectus or an amended prospectus so that the Prospectus as so supplemented or amended will not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances existing at the time such Prospectus is delivered to such purchaser, not misleading. If, after the public offering of the Stock by the Underwriters and during such period, the Underwriters shall propose to vary the terms of offering thereof by reason of changes in general market conditions or otherwise, you will advise the Company in writing of the proposed variation, and, if in the opinion either of counsel for the Company or of counsel for the Underwriters such proposed variation requires that the Prospectus be supplemented or amended, the Company will forthwith prepare and file with the Commission a supplement to the Prospectus or an amended prospectus setting forth such variation. The Company authorizes the Underwriters and all dealers to whom any of the Stock may be sold by the several Underwriters to use the Prospectus, as from time to time amended or supplemented, in connection with the sale of the Stock in accordance with the applicable provisions of the Securities Act and the applicable rules and regulations thereunder for such period. (e) Prior to the filing thereof with the Commission, the Company will submit to you, for your information, a copy of any post-effective amendment to the Registration Statement and any supplement to the Prospectus or any amended prospectus proposed to be filed. (f) The Company will cooperate, when and as requested by you, in the qualification of the Stock for offer and sale under the securities or blue sky laws of such jurisdictions as you may reasonably designate and, during the period in which a prospectus is required by law to be delivered by an Underwriter or dealer, in keeping such qualifications in good standing under said securities or blue sky laws; provided, however, that the Company shall not be obligated to file any general consent to service of process or to qualify as a foreign corporation in any jurisdiction in which it is not so qualified. The Company will, from time to time, prepare and file such statements, reports, and other documents as are or may be required to continue such qualifications in effect for so long a period as you may reasonably request for distribution of the Stock. (g) During a period of five years commencing with the date hereof, the Company will furnish to you, and to each Underwriter who may so request in writing, copies of all periodic and special reports furnished to stockholders of the Company and of all information, documents and reports filed with the Commission. (h) Not later than the 45th day following the end of the fiscal quarter first occurring after the first anniversary of the Effective Date, the Company will make generally available to its security holders an earnings statement in accordance with Section 11(a) of the Securities Act and Rule 158 thereunder. (i) The Company agrees to pay all costs and expenses incident to the performance each of its and each Selling Securityholder's obligations under this Agreement, including all costs and expenses incident to 11 (i) the preparation, printing and filing with the Commission and the NASD of the Registration Statement, any Preliminary Prospectus and the Prospectus, (ii) the furnishing to the Underwriters of copies of any Preliminary Prospectus and of the several documents required by paragraph (c) of this Section 6 to be so furnished, (iii) the printing of this Agreement and related documents delivered to the Underwriters, (iv) the preparation, printing and filing of all supplements and amendments to the Prospectus referred to in paragraph (d) of this Section 6, (v) the furnishing to you and the Underwriters of the reports and information referred to in paragraph (g) of this Section 6 and (vi) the printing and issuance of stock certificates, including the transfer agent's fees. The Selling Securityholders will pay any transfer taxes incident to the transfer to the Underwriters of the Shares of Stock being sold by the Selling Securityholders. (j) The Company agrees to reimburse you, for the account of the several Underwriters, for blue sky fees and related disbursements (including counsel fees and disbursements and cost of printing memoranda for the Underwriters) paid by or for the account of the Underwriters or their counsel in qualifying the Stock under state securities or blue sky laws and in the review of the offering by the NASD. (k) The provisions of paragraphs (i) and (j) of this Section are intended to relieve the Underwriters from the payment of the expenses and costs which the Company hereby agrees to pay and shall not affect any agreement which the Company and the Selling Securityholders may make, or may have made, for the sharing of any such expenses and costs. (l) The Company hereby agrees that, without the prior written consent of Hambrecht & Quist LLC on behalf of the Underwriters, the Company will not, for a period of 90 days following the commencement of the public offering of the Stock by the Underwriters, directly or indirectly, (i) sell, offer, contract to sell, make any short sale, pledge, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of any shares of Common Stock or any securities convertible into or exchangeable or exercisable for or any rights to purchase or acquire Common Stock or (ii) enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences or ownership of Common Stock, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise. The foregoing sentence shall not apply to (A) the Stock to be sold to the Underwriters pursuant to this Agreement, (B) shares of Common Stock issued by the Company upon the exercise of options granted under the stock option plans and stock purchase plans of the Company (herein called the Plans), all as described in "Management--Stock Plans" in the Preliminary Prospectus, and (C) options to purchase Common Stock granted under the Plans. (m) The Selling Securityholders agree that, without the prior written consent of Hambrecht & Quist LLC on behalf of the Underwriters, the Selling Securityholders will not, directly or indirectly, sell, offer, contract to sell, make any short sale, pledge or otherwise dispose of any shares of Common Stock or any securities convertible into or exchangeable or exercisable for or any rights to purchase or acquire Common Stock for a period of 90 days following the commencement of the public offering of the Stock by the Underwriters. (n) The Company agrees to use its best efforts to cause all directors, officers, stockholders and optionees of the Company to agree that, without the prior written consent of Hambrecht & Quist LLC, such person or entity will not, for a period of ninety (90) days following the commencement of the public offering of the Stock by the Underwriters, directly or indirectly, (i) sell, offer, contract to sell, make any short sale, pledge, sell any option or contract to purchase or otherwise transfer or dispose of any shares of Common Stock or any securities convertible into or exchangeable or exercisable for or any rights to purchase or acquire Common Stock or (ii) enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences or ownership of Common Stock, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise. In addition, the Company further agrees to enforce any market standoff or lock-up agreements it has entered into with its directors, officers, stockholders and optionees and will not release any such persons from such agreements for ninety (90) days following the commencement of the public offering of the Stock by the Underwriters without the prior written consent of Hambrecht & Quist LLC. (o) The Company is familiar with the Investment Company Act of 1940, as amended, and has in the past conducted its affairs, and will in the future conduct its affairs, in such a manner to ensure that the 12 Company was not and will not be an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended, and the rules and regulations thereunder. 7. Indemnification and Contribution (a) The Company agrees to indemnify and hold harmless each Underwriter and each person (including each partner or officer thereof) who controls any Underwriter within the meaning of Section 15 of the Securities Act from and against any and all losses, claims, damages or liabilities, joint or several, to which such indemnified parties or any of them may become subject under the Securities Act, the Exchange Act, or the common law or otherwise, and the Company agrees to reimburse each such Underwriter and controlling person for any legal or other expenses (including, except as otherwise hereinafter provided, reasonable fees and disbursements of counsel) incurred by the respective indemnified parties in connection with defending against any such losses, claims, damages or liabilities or in connection with any investigation or inquiry of, or other proceeding which may be brought against, the respective indemnified parties by a third party, in each case arising out of or based upon (i) any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (including the Prospectus as part thereof and any Rule 462(b) registration statement) or any post-effective amendment thereto (including any Rule 462(b) registration statement), or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or (ii) any untrue statement or alleged untrue statement of a material fact contained in any Preliminary Prospectus or the Prospectus (as amended or as supplemented if the Company shall have filed with the Commission any amendment thereof or supplement thereto) or the omission or alleged omission to state therein a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that (1) the indemnity agreements of the Company contained in this paragraph (a) shall not apply to any such losses, claims, damages, liabilities or expenses if such statement or omission was made in reliance upon and in conformity with information furnished as herein stated or otherwise furnished in writing to the Company by or on behalf of any Underwriter for use in any Preliminary Prospectus or the Registration Statement or the Prospectus or any such amendment thereof or supplement thereto and, (2) the indemnity agreement contained in this paragraph (a) with respect to any Preliminary Prospectus shall not inure to the benefit of any Underwriter from whom the person asserting any such losses, claims, damages, liabilities or expenses purchased the Stock which is the subject thereof (or to the benefit of any person controlling such Underwriter) if at or prior to the written confirmation of the sale of such Stock a copy of the Prospectus (or the Prospectus as amended or supplemented) was not sent or delivered to such person and the untrue statement or omission of a material fact contained in such Preliminary Prospectus was corrected in the Prospectus (or the Prospectus as amended or supplemented) unless the failure is the result of noncompliance by the Company with paragraph (c) of Section 6 hereof. The indemnity agreements of the Company in this paragraph (a) and the representations and warranties of the Company contained in paragraph (a) of Section 2 hereof shall remain operative and in full force and effect regardless of any investigation made by or on behalf of any indemnified party and shall survive the delivery of and payment for the Stock. (b) Subject to the provisions of paragraph (g) of this Section 7, each Selling Securityholder, severally and not jointly, agrees to indemnify and hold harmless each Underwriter and each person (including each partner or officer thereof) who controls any Underwriter within the meaning of Section 15 of the Securities Act from and against any and all losses, claims, damages or liabilities, joint or several, to which such indemnified parties or any of them may become subject under the Securities Act, the Exchange Act or the common law or otherwise, and such Selling Securityholder agrees to reimburse each such Underwriter, and controlling person for any legal or other expenses (including, except as otherwise hereinafter provided, reasonable fees and disbursements of counsel) incurred by the respective indemnified parties in connection with defending against any such losses, claims, damages or liabilities or in connection with any investigation or inquiry of, or other proceeding which may be brought against, the respective indemnified parties by a third party, in each case arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (including the Prospectus as part thereof and any Rule 462(b) registration statement) or any post-effective amendment thereto (including any Rule 462(b) registration statement), or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, but only with respect to information relating to such Selling Securityholder furnished in writing by or on behalf of such Selling Securityholder expressly for use in the Registration Statement or the Prospectus or in any Preliminary Prospectus or 14 any amendment or supplement thereto; provided, however, that the indemnity -------- agreement contained in this paragraph (b) with respect to any Preliminary Prospectus shall not inure to the benefit of any Underwriter from whom the person asserting any such losses, claims, damages, liabilities or expenses purchased any of the Stock which is the subject thereof (or to the benefit of any person controlling such Underwriter) if at or prior to the written confirmation of the sale of such Stock a copy of the Prospectus (or the Prospectus as amended or supplemented) was not sent or delivered to such person and the untrue statement or omission of a material fact contained in such Preliminary Prospectus was corrected in the Prospectus (or the Prospectus as amended or supplemented) unless the failure is the result of noncompliance by the Company with paragraph (c) of Section 6 hereof. The indemnity agreements of the Selling Securityholders contained in this paragraph (b) and the representations and warranties of the Selling Securityholders contained in paragraph (b) of Section 2 hereof shall remain operative and in full force and effect regardless of any investigation made by or on behalf of any indemnified party and shall survive the delivery of and payment for the Stock. (c) Each Underwriter severally agrees to indemnify and hold harmless the Company, each of its officers who signs the Registration Statement on his own behalf or pursuant to a power of attorney, each of its directors, each other Underwriter, each person (including each partner or officer thereof) who controls the Company or any such other Underwriter within the meaning of Section 15 of the Securities Act, and the Selling Securityholders from and against any and all losses, claims, damages or liabilities, joint or several, to which such indemnified parties or any of them may become subject under the Securities Act, the Exchange Act, or the common law or otherwise and to reimburse each of them for any legal or other expenses (including, except as otherwise hereinafter provided, reasonable fees and disbursements of counsel) incurred by the respective indemnified parties in connection with defending against any such losses, claims, damages or liabilities or in connection with any investigation or inquiry of, or other proceeding which may be brought against, the respective indemnified parties, in each case arising out of or based upon (i) any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (including the Prospectus as part thereof and any Rule 462(b) registration statement) or any post-effective amendment thereto (including any Rule 462(b) registration statement) or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading or (ii) any untrue statement or alleged untrue statement of a material fact contained in the Prospectus (as amended or as supplemented if the Company shall have filed with the Commission any amendment thereof or supplement thereto) or the omission or alleged omission to state therein a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, if such statement or omission was made in reliance upon and in conformity with information furnished as herein stated or otherwise furnished in writing to the Company by or on behalf of such indemnifying Underwriter for use in the Registration Statement or the Prospectus or any such amendment thereof or supplement thereto. The indemnity agreement of each Underwriter contained in this paragraph (c) and the representation of each Underwriter contained in paragraph (b) of Section 4 hereof shall remain operative and in full force and effect regardless of any investigation made by or on behalf of any indemnified party and shall survive the delivery of and payment for the Stock. (d) Each party indemnified under the provision of paragraphs (a), (b) and (c) of this Section 7 agrees that, upon the service of a summons or other initial legal process upon it in any action or suit instituted against it or upon its receipt of written notification of the commencement of any investigation or inquiry of, or proceeding against, it in respect of which indemnity may be sought on account of any indemnity agreement contained in such paragraphs, it will promptly give written notice (herein called the Notice) of such service or notification to the party or parties from whom indemnification may be sought hereunder. No indemnification provided for in such paragraphs shall be available to any party who shall fail so to give the Notice if the party to whom such Notice was not given was unaware of the action, suit, investigation, inquiry or proceeding to which the Notice would have related and was prejudiced by the failure to give the Notice, but the omission so to notify such indemnifying party or parties of any such service or notification shall not relieve such indemnifying party or parties from any liability which it or they may have to the indemnified party for contribution or otherwise than on account of such indemnity agreement. Any indemnifying party shall be entitled at its own expense to participate in the defense of any action, suit or proceeding against, or investigation or inquiry of, an indemnified party. Any indemnifying party shall be entitled, if it so elects within a reasonable time after receipt of the Notice by giving written notice (herein called the Notice of Defense) to the indemnified party, to assume (alone or in conjunction with any other indemnifying party or parties) the entire defense of such action, suit, investigation, inquiry or proceeding, in which event such defense shall be conducted, at the expense of the indemnifying party or parties, by counsel chosen by such indemnifying party or parties and reasonably satisfactory to the indemnified party or parties; provided, however, that (i) if the indemnified party or parties reasonably determine that there may be a conflict between the positions of the indemnifying party or parties and of the indemnified party or parties in conducting the defense of such action, suit, investigation, inquiry or 14 proceeding or that there may be legal defenses available to such indemnified party or parties different from or in addition to those available to the indemnifying party or parties, then counsel for the indemnified party or parties shall be entitled to conduct the defense to the extent reasonably determined by such counsel to be necessary to protect the interests of the indemnified party or parties and (ii) in any event, the indemnified party or parties shall be entitled to have counsel chosen by such indemnified party or parties participate in, but not conduct, the defense. If, within a reasonable time after receipt of the Notice, an indemnifying party gives a Notice of Defense and the counsel chosen by the indemnifying party or parties is reasonably satisfactory to the indemnified party or parties, the indemnifying party or parties will not be liable under paragraphs (a) through (d) of this Section 7 for any legal or other expenses subsequently incurred by the indemnified party or parties in connection with the defense of the action, suit, investigation, inquiry or proceeding, except that (A) the indemnifying party or parties shall bear the legal and other expenses incurred in connection with the conduct of the defense as referred to in clause (i) of the proviso to the preceding sentence and (B) the indemnifying party or parties shall bear such other expenses as it or they have authorized to be incurred by the indemnified party or parties. If, within a reasonable time after receipt of the Notice, no Notice of Defense has been given, the indemnifying party or parties shall be responsible for any legal or other expenses incurred by the indemnified party or parties in connection with the defense of the action, suit, investigation, inquiry or proceeding. (e) If the indemnification provided for in this Section 7 is unavailable or insufficient to hold harmless an indemnified party under paragraph (a), (b) or (c) of this Section 7, then each indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of the losses, claims, damages or liabilities referred to in paragraph (a), (b) or (c) of this Section 7 (i) in such proportion as is appropriate to reflect the relative benefits received by each indemnifying party from the offering of the Stock or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of each indemnifying party in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, or actions in respect thereof, as well as any other relevant equitable considerations. The relative benefits received by the Company, the Selling Securityholders and the Underwriters shall be deemed to be in the same respective proportions as the total net proceeds from the offering of the Stock received by the Company and the Selling Securityholders and the total underwriting discount received by the Underwriters, as set forth in the table on the cover page of the Prospectus, bear to the aggregate public offering price of the Stock. Relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by each indemnifying party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The parties agree that it would not be just and equitable if contributions pursuant to this paragraph (e) were to be determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take into account the equitable considerations referred to in the first sentence of this paragraph (e). The amount paid by an indemnified party as a result of the losses, claims, damages or liabilities, or actions in respect thereof, referred to in the first sentence of this paragraph (e) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigation, preparing to defend or defending against any action or claim which is the subject of this paragraph (e). Notwithstanding the provisions of this paragraph (e), no Underwriter shall be required to contribute any amount in excess of the underwriting discount applicable to the Stock purchased by such Underwriter. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations in this paragraph (e) to contribute are several in proportion to their respective underwriting obligations and not joint. Each party entitled to contribution agrees that upon the service of a summons or other initial legal process upon it in any action instituted against it in respect of which contribution may be sought, it will 15 promptly give written notice of such service to the party or parties from whom contribution may be sought, but the omission so to notify such party or parties of any such service shall not relieve the party from whom contribution may be sought from any obligation it may have hereunder or otherwise (except as specifically provided in paragraph (d) of this Section 7). (f) Neither the Company nor the Selling Securityholders, without the prior written consent of each Underwriter, will settle or compromise or consent to the entry of any judgment in any pending or threatened claim, action, suit or proceeding in respect of which indemnification may be sought hereunder (whether or not such Underwriter or any person who controls such Underwriter within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act is a party to such claim, action, suit or proceeding) unless such settlement, compromise or consent includes an unconditional release of such Underwriter and each such controlling person from all liability arising out of such claim, action, suit or proceeding. No Underwriter will settle or compromise or consent to the entry of any judgment in any pending or threatened claim, action, suit or proceeding in respect of which indemnification may be sought hereunder unless such settlement, compromise or consent has been reasonably approved by the indemnified parties or includes an unconditional release of the indemnified parties from all liability arising out of such claim, action, suit or proceeding. (g) The liability of each Selling Securityholder under the indemnity, contribution and reimbursement agreements contained in the provisions of this Section 7 and Section 11 hereof shall be limited to an amount equal to the respective proceeds received by each such Selling Securityholder from the sale to the Underwriters of the Stock in the public offering. The Company and the Selling Securityholders may agree, as among themselves and without limiting the rights of the Underwriters under this Agreement, as to the respective amounts of such liability for which they each shall be responsible. 8. Termination. This Agreement may be terminated by you at any time prior to the Closing Date by giving written notice to the Company and the Selling Securityholders if after the date of this Agreement trading in the Common Stock shall have been suspended, or if there shall have occurred (i) the engagement in hostilities or an escalation of major hostilities by the United States or the declaration of war or a national emergency by the United States on or after the date hereof, (ii) any outbreak of hostilities or other national or international calamity or crisis or change in economic or political conditions if the effect of such outbreak, calamity, crisis or change in economic or political conditions in the financial markets of the United States would, in the Underwriters' reasonable judgment, make the offering or delivery of the Stock impracticable, (iii) suspension of trading in securities generally or a material adverse decline in value of securities generally on the New York Stock Exchange, the American Stock Exchange or The Nasdaq Stock Market, or limitations on prices (other than limitations on hours or numbers of days of trading) for securities on either such exchange or system, (iv) the enactment, publication, decree or other promulgation of any federal or state statute, regulation, rule or order of, or commencement of any proceeding or investigation by, any court, legislative body, agency or other governmental authority which in the Underwriters' reasonable opinion materially and adversely affects or will materially or adversely affect the business or operations of the Company, (v) declaration of a banking moratorium by either federal or New York State authorities, (vi) the taking of any action by any federal, state or local government or agency in respect of its monetary or fiscal affairs which in the Underwriters' reasonable opinion has a material adverse effect on the securities markets in the United States or (vii) any material change in the market for securities in general or in political, financial or economic conditions from those reasonably foreseeable as to render it impracticable in your reasonable judgment to make a public offering of the Stock, or a material adverse change in market levels for securities in general (or those of companies in particular) or financial or economic conditions which render it inadvisable to proceed. If this Agreement shall be terminated pursuant to this Section 8, there shall be no liability of the Company or the Selling Securityholders to the Underwriters and no liability of the Underwriters to the Company or the Selling Securityholders; provided, however, that in the event of any such termination the Company agrees to indemnify and hold harmless the Underwriters from all costs or expenses incident to the performance of the obligations of the Company and the Selling Securityholders under this Agreement, including all costs and expenses referred to in paragraphs (i) and (j) of Section 6 hereof. 9. Conditions of Underwriters' Obligations. The obligations of the several Underwriters to purchase and pay for the Stock shall be subject to the performance by the Company of all its obligations to be 16 performed hereunder at or prior to the Closing Date or any later date on which Option Stock is to be purchased, as the case may be, and to the following further conditions: (a) The Registration Statement shall have become effective; and no stop order suspending the effectiveness thereof shall have been issued and no proceedings therefor shall be pending or threatened by the Commission. (b) The legality and sufficiency of the sale of the Stock hereunder and the validity and form of the certificates representing the Stock, all corporate proceedings and other legal matters incident to the foregoing, and the form of the Registration Statement and of the Prospectus (except as to the financial statements contained therein), shall have been approved at or prior to the Closing Date by Fenwick & West LLP, counsel for the Underwriters. (c) You shall have received from Gray Cary Ware & Freidenrich, counsel for the Company and the Selling Securityholders, an opinion, addressed to the Underwriters and dated the Closing Date, covering the matters set forth in Annex A hereto, and if Option Stock is purchased at any date after the Closing Date, an additional opinion from such counsel, addressed to the Underwriters and dated such later date, confirming that the statements expressed as of the Closing Date in such opinion remain valid as of such later date. (d) You shall be satisfied that (i) as of the Effective Date, the statements made in the Registration Statement and the Prospectus were true and correct and neither the Registration Statement nor the Prospectus omitted to state any material fact required to be stated therein or necessary in order to make the statements therein, respectively, not misleading, (ii) since the Effective Date, no event has occurred which should have been set forth in a supplement or amendment to the Prospectus which has not been set forth in such a supplement or amendment, (iii) since the respective dates as of which information is given in the Registration Statement in the form in which it originally became effective and the Prospectus contained therein, there has not been any material adverse change or any development involving a prospective material adverse change in or affecting the business, properties, financial condition or results of operations of the Company, whether or not arising from transactions in the ordinary course of business, and, since such dates, except in the ordinary course of business, neither the Company nor its subsidiaries have entered into any material transaction not referred to in the Registration Statement in the form in which it originally became effective and the Prospectus contained therein, (iv) neither the Company nor its subsidiaries have any material contingent obligations which are not disclosed in the Registration Statement and the Prospectus, (v) there are not any pending or known threatened legal proceedings to which the Company or its subsidiaries is a party or of which property of the Company or its subsidiaries is the subject which are material and which are not disclosed in the Registration Statement and the Prospectus, (vi) there are not any franchises, contracts, leases or other documents which are required to be filed as exhibits to the Registration Statement which have not been filed as required, (vii) the representations and warranties of the Company herein are true and correct in all material respects as of the Closing Date or any later date on which Option Stock is to be purchased, as the case may be and (viii) there has not been any material change in the market for securities in general or in political, financial or economic conditions from those reasonably foreseeable as to render it impracticable in your reasonable judgment to make a public offering of the Stock, or a material adverse change in market levels for securities in general (or those of companies in particular) or financial or economic conditions which render it inadvisable to proceed. (e) You shall have received on the Closing Date and on any later date on which Option Stock is purchased a certificate, dated the Closing Date or such later date, as the case may be, and signed on behalf of the Company by the President and the Chief Financial Officer of the Company, stating that the respective signers of said certificate have carefully examined the Registration Statement in the form in which it originally became effective and the Prospectus contained therein and any supplements or amendments thereto, and that the statements included in clauses (i) through (vii) of paragraph (d) of this Section 9 are true and correct. (f) You shall have received from Arthur Andersen LLP a letter or letters, addressed to the Underwriters and dated the Closing Date and any later date on which Option Stock is purchased, confirming that they are independent public accountants with respect to the Company within the meaning of the Securities Act and the applicable published rules and regulations thereunder and based upon the procedures described in their letter 17 delivered to you concurrently with the execution of this Agreement (herein called the Original Letter), but carried out to a date not more than three business days prior to the Closing Date or such later date on which Option Stock is purchased (i) confirming, to the extent true, that the statements and conclusions set forth in the Original Letter are accurate as of the Closing Date or such later date, as the case may be, and (ii) setting forth any revisions and additions to the statements and conclusions set forth in the Original Letter which are necessary to reflect any changes in the facts described in the Original Letter since the date of the Original Letter or to reflect the availability of more recent financial statements, data or information. The letters shall not disclose any change, or any development involving a prospective change, in or affecting the business or properties of the Company or its subsidiary which, in your sole judgment, makes it impractical or inadvisable to proceed with the public offering of the Stock or the purchase of the Option Stock as contemplated by the Prospectus. (g) You shall have received from Arthur Andersen LLP a letter stating that their review of the Company's system of internal accounting controls, to the extent they deemed necessary in establishing the scope of their examination of the Company's financial statements as at March 31, 1996, did not disclose any weakness in internal controls that they considered to be material weaknesses. (h) You shall have been furnished evidence in usual written or telegraphic form from the appropriate authorities of the several jurisdictions, or other evidence satisfactory to you, of the qualification referred to in paragraph (f) of Section 6 hereof. (i) Prior to the Closing Date, the Stock to be issued and sold by the Company shall have been duly authorized for listing by the Nasdaq National Market upon official notice of issuance. (j) On or prior to the Closing Date, you shall have received from all of the Company's directors, officers, Selling Securityholders, stockholders holding substantially all of the outstanding shares of Common Stock and optionees whose options will vest, in whole or in part, prior to June 30, 1997, agreements, in form reasonably satisfactory to Hambrecht & Quist LLC, stating that without the prior written consent of Hambrecht & Quist LLC on behalf of the Underwriters, such person or entity will not, for a period of 90 days following the commencement of the public offering of the Stock by the Underwriters, directly or indirectly, (i) sell, offer, contract to sell, make any short sale, pledge, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of any shares of Common Stock or any securities convertible into or exchangeable or exercisable for or any rights to purchase or acquire Common Stock other than as a bona fide gift or gifts, provided the donee or donees thereof agree in writing to be bound by this restriction, or (ii) enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences or ownership of Common Stock, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise. Furthermore, the Company agrees that it will not, without the prior written consent of Hambrecht & Quist LLC, release any of its stockholders from, or grant any waiver of or consent to the entering into of any transactions contrary to, any provisions of any agreement between the Company and such stockholder which provisions are similar to the restrictions set forth in this paragraph (j). All the agreements, opinions, certificates and letters mentioned above or elsewhere in this Agreement shall be deemed to be in compliance with the provisions hereof only if Fenwick & West LLP, counsel for the Underwriters, shall be satisfied that they comply in form and scope. In case any of the conditions specified in this Section 9 shall not be fulfilled, this Agreement may be terminated by you by giving notice to the Company and to the Selling Securityholders. Any such termination shall be without liability of the Company or the Selling Securityholders to the Underwriters and without liability of the Underwriters to the Company or the Selling Securityholders; provided, however, that (i) in the event of such termination, the Company agrees to indemnify and hold harmless the Underwriters from all costs or expenses incident to the performance of the obligations of the Company and the Selling Securityholders under this Agreement, including all costs and expenses referred to in paragraphs (i) and (j) of Section 6 hereof, and (ii) if this Agreement is terminated by you because of any refusal, inability or failure on the part of the Company or the Selling Securityholders to perform any agreement herein, to fulfill any of the conditions herein, or to comply with any provision hereof other than by reason of a default by any of the Underwriters, the Company will reimburse the 18 Underwriters severally upon demand for all out-of-pocket expenses (including reasonable fees and disbursements of counsel) that shall have been incurred by them in connection with the transactions contemplated hereby. 10. Conditions of the Obligation of the Company and the Selling Securityholders. The obligation of the Company and the Selling Securityholders to deliver the Stock shall be subject to the conditions that (a) the Registration Statement shall have become effective and (b) no stop order suspending the effectiveness thereof shall be in effect and no proceedings therefor shall be pending or threatened by the Commission. In case either of the conditions specified in this Section 10 shall not be fulfilled, this Agreement may be terminated by the Company and the Selling Securityholders by giving notice to you. Any such termination shall be without liability of the Company and the Selling Securityholders to the Underwriters and without liability of the Underwriters to the Company or the Selling Securityholders; provided, however, that in the event of any such termination, the Company agrees to indemnify and hold harmless the Underwriters from all costs or expenses incident to the performance of the obligations of the Company and the Selling Securityholders under this Agreement, including all costs and expenses referred to in paragraphs (i) and (j) of Section 6 hereof. 11. Reimbursement of Certain Expenses. In addition to its other obligations under Section 7 of this Agreement (and subject, in the case of a Selling Securityholder, to the provisions of paragraph (f) of Section 7), (i) the Company agrees to reimburse on a quarterly basis the Underwriters for all reasonable legal and other expenses incurred in connection with investigating or defending any claim, action, investigation, inquiry or other proceeding arising out of or based upon any statement or omission, or any alleged statement or omission, described in paragraph (a) of Section 7 of this Agreement, and (ii) the Selling Securityholders hereby severally agree to reimburse on a quarterly basis the Underwriters for all reasonable legal and other expenses incurred in connection with investigating or defending any claim, action, investigation, inquiry or other proceeding arising out of or based upon any statement or omission, or any alleged statement or omission, described in paragraph (b) of Section 7 of this Agreement, notwithstanding the absence of a judicial determination as to the propriety and enforceability of the obligations under this Section 11 and the possibility that such payments might later be held to be improper; provided, however, that (i) to the extent any such payment is ----------------- ultimately held to be improper, the persons receiving such payments shall promptly refund them and (ii) such persons shall provide to the Company, upon request, reasonable assurances of their ability to effect any refund, when and if due. 12. Persons Entitled to Benefit of Agreement. This Agreement shall inure to the benefit of the Company, the Selling Securityholders and the several Underwriters and, with respect to the provisions of Section 7 hereof, the several parties (in addition to the Company, the Selling Securityholders and the several Underwriters) indemnified under the provisions of said Section 7, and their respective personal representatives, successors and assigns. Nothing in this Agreement is intended or shall be construed to give to any other person, firm or corporation any legal or equitable remedy or claim under or in respect of this Agreement or any provision herein contained. The term "successors and assigns" as herein used shall not include any purchaser, as such purchaser, of any of the Stock from any of the several Underwriters. 13. Notices. Except as otherwise provided herein, all communications hereunder shall be in writing or by telegraph and, if to the Underwriters, shall be mailed, telegraphed, sent by facsimile transmission or delivered to Hambrecht & Quist LLC, One Bush Street, San Francisco, California 94104, Attn.: Cristina M. Morgan (with a copy to the General Counsel); and if to the Company or the Selling Securityholders, shall be mailed, telegraphed, sent by facsimile transmission or delivered to the Company or the Selling Shareholders at the Company's office, 951 Mariner's Island Blvd., Suite 120, San Mateo, CA 94404, Attn.: Roger J. Sippl. All notices given by telegraph or facsimile transmission shall be promptly confirmed by letter. 14. Miscellaneous. The reimbursement, indemnification and contribution agreements contained in this Agreement and the representations, warranties and covenants in this Agreement shall remain in full force and effect regardless of (a) any termination of this Agreement, (b) any investigation made by or on behalf of any Underwriter or controlling person thereof, or by or on behalf of the Company or the Selling Securityholders or their respective directors or officers, and (c) delivery and payment for the Stock under this Agreement; provided, however, that if this Agreement is terminated prior to the Closing - ----------------- Date, the provisions of paragraphs (l), (m) and (n) of Section 6 hereof shall be of no further force or effect. 19 This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Agreement shall be governed by, and construed in accordance with, the laws of the State of California. 20 Please sign and return to the Company and the Selling Securityholders the enclosed duplicates of this letter, whereupon this letter will become a binding agreement among the Company, the Selling Securityholders and the several Underwriters in accordance with its terms. Very truly yours, VISIGENIC SOFTWARE, INC. By:__________________________________ Mark D. Hanson, President SELLING SECURITYHOLDERS: ______________________________________ Mark D. Hanson, Attorney-in-Fact The foregoing Agreement is hereby confirmed and accepted as of the date first above written. HAMBRECHT & QUIST LLC ROBERTSON, STEPHENS & COMPANY LLC By Hambrecht & Quist LLC By:______________________________ Managing Director Acting on behalf of the several Underwriters, including themselves, named in Schedule I hereto. 21 SCHEDULE I UNDERWRITERS
Number of Shares to be Underwriters Purchased - ------------ --------- Hambrecht & Quist LLC................... Robertson, Stephens & Company LLC....... Total................................... 2,000,000
22 SCHEDULE II SELLING SECURITYHOLDERS
Number of Shares of Underwritten Name of Selling Securityholder Stock to be Sold - ------------------------------ ---------------- Total......................... 820,000
23 ANNEX A Matters to be Covered in the Opinion of Gray Cary Ware & Freidenrich Counsel for the Company and the Selling Securityholders (i) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, is duly qualified as a foreign corporation and in good standing in each state of the United States of America in which its ownership or leasing of property requires such qualification (except where the failure to be so qualified would not have a material adverse effect on condition (financial or otherwise), earnings, operations or business of the Company), and has full corporate power and authority to own or lease its properties and conduct its business as described in the Registration Statement; (ii) the authorized capital stock of the Company consists of 2,000,000 shares of Preferred Stock, of which there are no shares outstanding, and 50,000,000 shares of Common Stock, $0.001 par value, of which there are outstanding __________ shares (including the Underwritten Stock plus the number of shares of Option Stock issued on the date hereof); proper corporate proceedings have been taken validly to authorize such authorized capital stock; all of the outstanding shares of such capital stock (including the Underwritten Stock and the shares of Option Stock issued, if any) have been duly and validly issued and are fully paid and nonassessable; any Option Stock purchased after the Closing Date, when issued and delivered to and paid for by the Underwriters as provided in the Underwriting Agreement, will have been duly and validly issued and be fully paid and nonassessable; and no preemptive rights of, or rights of refusal in favor of, stockholders exist with respect to the Stock, or the issue and sale thereof, pursuant to the Certificate of Incorporation or Bylaws of the Company and, to the knowledge of such counsel, there are no contractual preemptive rights that have not been waived, rights of first refusal or rights of co-sale which exist with respect to the issue and sale of the Stock; (iii) the Registration Statement has become effective under the Securities Act and, to the best of such counsel's knowledge, no stop order suspending the effectiveness of the Registration Statement or suspending or preventing the use of the Prospectus is in effect and no proceedings for that purpose have been instituted or are pending or contemplated by the Commission; (iv) the Registration Statement and the Prospectus (except as to the financial statements and schedules and other financial data contained therein, as to which such counsel need express no opinion) comply as to form in all material respects with the requirements of the Securities Act and with the rules and regulations of the Commission thereunder; (v) the information required to be set forth in the Registration Statement in answer to Items 9, 10 (insofar as it relates to such counsel) and 11(c) of Form S-1 is to the best of such counsel's knowledge accurately and adequately set forth therein in all material respects or no response is required with respect to such Items, and the description of the Company's stock option plans and the options granted and which may be granted thereunder set forth in the Prospectus accurately and fairly presents the information required to be shown with respect to said plans and options to the extent required by the Securities Act and the rules and regulations of the Commission thereunder; (vi) such counsel do not know of any franchises, contracts, leases, documents or legal proceedings, pending or threatened, which in the opinion of such counsel are of a character required to be described in the Registration Statement or the Prospectus or to be filed as exhibits to the Registration Statement, which are not described and filed as required; (vii) the Underwriting Agreement has been duly authorized, executed and delivered by the Company; (viii) (A) the Underwriting Agreement has been duly executed and delivered by or on behalf of each of the Selling Securityholders; (B) the Custody Agreement between the Selling Securityholders and The First National Bank of Boston, as Custodian, and the Power of Attorney referred to in such Custody Agreement have been duly 24 executed and delivered by each of the Selling Securityholders; (C) the Custody Agreement entered into by, and the Power of Attorney given by, such Selling Securityholder is valid and binding on such Selling Securityholder; and (D) each Selling Securityholder has full legal right and authority to enter into the Underwriting Agreement and to sell, transfer and deliver in the manner provided in the Underwriting Agreement the shares of Stock sold by such Selling Securityholder hereunder; (ix) the issue and sale by the Company of the shares of Stock sold by the Company as contemplated by the Underwriting Agreement will not conflict with, or result in a breach of, the Certificate of Incorporation or Bylaws of the Company or any material agreement or instrument known to such counsel to which the Company is a party or any applicable law or regulation, or so far as is known to such counsel, any order, writ, injunction or decree, of any jurisdiction, court or governmental instrumentality; (x) all holders of securities of the Company having rights to the registration of shares of Common Stock, or other securities, because of the filing of the Registration Statement by the Company have waived such rights with respect to the Registration Statement or such rights have expired by reason of lapse of time following notification of the Company's intent to file the Registration Statement; (xi) to the best of such counsel's knowledge, good and marketable title to the shares of Stock sold by the Selling Securityholders under the Underwriting Agreement, free and clear of all liens, encumbrances, equities, security interests and claims (other than any liens, encumbrances, equities, security interests and claims that result from actions taken against the Underwriters), has been transferred to the Underwriters who have severally purchased such shares of Stock under the Underwriting Agreement, assuming for the purpose of this opinion that the Underwriters purchased the same in good faith without any notice of adverse claims; and (xii) no consent, approval, authorization or order of any court or governmental agency or body is required for the consummation of the transactions contemplated in the Underwriting Agreement, except such as have been obtained under the Securities Act and such as may be required under state securities or blue sky laws in connection with the purchase and distribution of the Stock by the Underwriters. (xiii) to the best of such counsel's knowledge, all options granted by the Company to optionees of the Company and evidenced by option agreements (except those granted under the Company's 1993 Stock Option Plan) contain a market standoff provision pursuant to which shares subject to such options may not be sold during the ninety (90) day period following the effective date of the Registration Statement. In rendering the foregoing opinion, such counsel may rely as to matters involving the application of laws other than the laws of the United States and jurisdictions in which they are admitted, to the extent such counsel deem proper and to the extent specified in such opinion, upon an opinion or opinions (in form and substance reasonably satisfactory to counsel for the Underwriters) of other counsel familiar with applicable laws, in which case their opinion is to state that they are so relying and that they have no knowledge of any material misstatement or inaccuracy in any such opinion. In addition to the matters set forth above, counsel rendering the foregoing opinion shall also include a statement to the effect that nothing has come to the attention of such counsel that leads them to believe that the Registration Statement (except as to the financial statements and schedules and other financial and statistical data contained or incorporated by reference therein, as to which such counsel need not express any opinion or belief) at the Effective Date contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, that the Prospectus (except as to the financial statements and schedules and other financial and statistical data contained or incorporated by reference therein, as to which such counsel need not express any opinion or belief) as of its date or at the Closing Date (or any later date on which Option Stock is purchased), contained or contains any untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. 25 EX-5.1 3 OPINION OF GRAY CARY WARE & FREIDENRICH OUR FILE NO. 1220386-900000 JANUARY 27, 1997 Securities and Exchange Commission Judiciary Plaza 450 Fifth Street, N.W. Washington, D.C. 20549 Re: Visigenic Software, Inc. Registration Statement on Form S-1 ----------------------------------------------------------- Ladies and Gentlemen: As counsel to Visigenic Software, Inc. (the "Company"), we are rendering this opinion in connection with a proposed sale of those certain shares of the Company's newly-issued Common Stock and those certain additional shares of the Company's Common Stock held by certain stockholders as set forth in the Registration Statement on Form S-1 to which this opinion is being filed as Exhibit 5.1 (the "Shares"). We have examined all instruments, documents and records which we deemed relevant and necessary for the basis of our opinion hereinafter expressed. In such examination, we have assumed the genuineness of all signatures and the authenticity of all documents submitted to us as originals and the conformity to the originals of all documents submitted to us as copies. We express no opinion with respect to (i) the availability of equitable remedies, including specific performance, or (ii) the effect of bankruptcy, insolvency, reorganization, moratorium or equitable principles relating to or limiting creditors' rights generally. Based on such examination, we are of the opinion that the Shares identified in the above-referenced Registration Statement will be, upon effectiveness of the Registration Statement and receipt by the Company of payment thereof, validly authorized, legally issued, fully paid, and nonassessable. GRAY CARY WARE & FREIDENRICH Securities and Exchange Commission January 27, 1997 Page 2 We hereby consent to the filing of this opinion as an exhibit to the above-referenced Registration Statement and to the use of our name wherever it appears in said Registration Statement, including the Prospectus constituting a part thereof, as originally filed or as subsequently amended. Respectfully submitted, GRAY CARY WARE & FREIDENRICH A Professional Corporation EX-10.12 4 LEASE AGREEMENT WITH SAN MATEO OFFICE LIMITED 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] LEASE AMENDMENT #11 ------------------- ORIGINAL LEASE DATE: March 7, 1993 LEASE AMENDMENT DATE: June 26, 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 Lease as defined per the Basic Lease Information and as previously amended, shall be amended such that effective July 15, 1996, approximately 3,786 square feet of rentable space on the first floor of San Mateo BayCenter, known as Suite # 150 within the Phase I building, shall be incorporated into the Original Lease Agreement. Total square footage shall increase from 25,150 to 28,936 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 1 building, shall be reduced from the Original Lease Agreement. Total square footage shall decrease from 28,936 to 12,430 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 I building, shall be reduced from the Original Lease Agreement. Total square footage shall decrease from 12,430 to 6,460 rentable square feet. Effective July 1, 2001, approximately 2,974 square feet of rentable space on the first floor known as Suites 120 within the Phase I building, shall be reduced from the Original Lease Agreement. Total square footage shall decrease from 6,460 to 3,786 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 January 31, 2002. 3. RENTAL ------
TOTAL AMOUNT DUE: Additional Existing 07/01/96 - 07/31/96 3,786 rsf. 25,150 rsf. 28,936 rsf. --------------------------------------------------------------- Base Rent $ 2,818.00 $36,246.00 $39,064.00 Op. Exp. (est '96) $ 1,373.00 $16.096.00 $17,469.00 ---------- ---------- ---------- Total Rent $ 4,191.00 $52,342.00 $56,533.00 Additional Existing 08/01/96 - 01/31/97 3.786 rsf. 25.150 rsf. 28,.936 RSF. ----------------------- ---------- ----------- ------------ Base Rent $ 5,149.00 $36,246.00 $41,395.00 Op. Exp. (est '96) $ 2,423.00 $16,096.00 $18,519.00 ---------- ---------- ---------- Total Rent $ 7,572.00 $52,342.00 $59,914.00 Additional Existing 02/01/97 - 04/30/97 3.786 rsf. 25.150 rsf. 28,936 RSF. ----------------------- ---------- ----------- ------------ Base Rent $ 6,663.00 $36,246.00 $42,909.00 Op. Exp. (est '96) $ 2,423.00 $16,096.00 $18,519.00 Total Rent $ 9,086.00 $52,342.00 $61,428.00 Additional Existing 05/01/97 - 06/30/97 3.786 rsf. 25.150 rsf. 28,936 RSF. ----------------------- ---------- ----------- ------------ Base Rent $ 6,663.00 $36,369.00 $43,032.00 Op. Exp. (est '96) $ 2.423,00 $16,096.00 $18,519.00 Total Rent $ 9,086.00 $52,465.00 $61,551.00
Visigenic Software Lease Amendment #11 6/26/96 Page 2
RENTAL (Continued) ------------------ Additional Existing 07/01/97-11/30/97 3,786 rsf. 25,150 rsf. 28,936 RSF. --------------------------------------------------------------- Base Rent $ 6,663.00 $36,556.00 $43,219.00 Op. Exp. (est '96) $ 2,423.00 $16,096.00 $18,519.00 ---------- ---------- ---------- Total Rent $ 9,086.00 $52,652.00 $61,738.00 ---------- Additional Existing 12/01/97 - 06/30/98 3,786 rsf. 25,150 rsf. 28,936 RSF. --------------------------------------------------------------- Base Rent $ 6,966.00 $38,116.00 $45,082.00 Op. Exp. (est '96) $ 2,423.00 $16,096.00 $18,519.00 ---------- ---------- ---------- Total Rent $ 9,389.00 $54,212.00 $63,601.00 Additional Existing 07/01/98-04/30/99 3,786 rsf. 25,150 rsf. 28,936 RSF. --------------------------------------------------------------- Base Rent $ 6,966.00 $38,304.00 $45,270.00 Op. Exp. (est '96) $ 2,423.00 $16,096.00 $18,519.00 ---------- ---------- ---------- Total Rent $ 9,389.00 $54,400.00 $63,789.00 Additional Existing 05/01/99-06/30/99 3,786 rsf. 25,150 rsf. 28,936 RSF. --------------------------------------------------------------- Base Rent $ 6,966.00 $38,488.00 $45,454.00 Op. Exp. (est '96) $ 2,423.00 $16,096.00 $18,519.00 ---------- ---------- ---------- Total Rent $ 9,389.00 $54,584.00 $63,973.00 Additional Existing 07/01/99-07/31/99 3,786 rsf. 25,150 rsf. 28,936 RSF. --------------------------------------------------------------- Base Rent $ 7,307.00 $38,702.00 $46,009.00 Op. Exp. (est '96) $ 2,423.00 $16,096.00 $18,519.00 ---------- ---------- ---------- Total Rent $ 9,730.00 $54,798.00 $64,528.00 Additional Existing 08/01/99-06/30/00 3,786 rsf. 25,150 rsf. 28,936 RSF. -------------------------------------------------------------- Base Rent $ 7,307.00 $39,743.00 $47,050.00 Op. Exp. (est '96) $ 2,423.00 $16,096.00 $18,519.00 ---------- ---------- ---------- Total Rent $ 9,730.00 $55,839.00 $65,569.00 Additional Existing 07/01/00 - 07/31/00 3,786 rsf 25,150 rsf. 28,936 RSF. --------------------------------------------------------------- Base Rent $ 7,307.00 $39,956.00 $47,263.00 Op. Exp. (est '96) $ 2,423.00 $16,096.00 $18,519.00 ---------- ---------- ---------- Total Rent $ 9,730.00 $56,052.00 $65,782.00 Additional Existing 08/01/00 - 01/31/01 3,786 rsf. 8,644 rsf. 12.430 RSF. --------------------------------------------------------------- Base Rent $ 7,648.00 $15,222.00 $22,870.00 Op. Exp. (est '96) $ 2,423.00 $ 5,532.00 $ 7.955,00 ---------- ---------- ---------- Total Rent $10,071.00 $20,754.00 $30,825.00 Additional Existing 02/01/01 - 06/30/01 3,786 rsf. 2,674 rsf 6,460 RSF. -------------------------------------------------------------- Base Rent $ 7,648.00 $ 5,508.00 $13,156.00 Op. Exp. (est '96) $ 2,423.00 $ 1,711.00 $ 4,134.00 ---------- ---------- ---------- Total Rent $10,071.00 $ 7,219.00 $17,290.00 Additional 07/01/01 - 01/31/02 3,786 rsf. -------------------------------------------------------------- Base Rent $ 7,988.00 Op. Exp. (est '96) $ 2,423.00 ---------- Total Rent $10,411.00
Visigenic Software Lease Amendment 1111 6/26/96 Page 3 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 15, 1996 from 21.25% to 24.45%. Effective August 1, 2000 Tenant's Proportionate Share shall decrease from 24.45% to 10.50%. Effective February 1, 2001 Tenant's Proportionate Share shall decrease from 10.5% to 5.46%. Effective July 1, 2001 Tenant's Proportionate Share shall decrease from 5.46% to 3.21%. 5. SECURITY DEPOSIT ---------------- Security Deposit shall increase $4,500.00. Total Security Deposit to be $57,000.00. 6. TENANT IMPROVEMENTS ------------------- Landlord to deliver Suite #150 as drawn per the attached Exhibit A which includes the construction of a private office as shown iii yellow on the attached Exhibit A. In addition, Landlord shall paint the entire Suite with building standard material. Color to be selected by Tenant. 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 3,786 rentable square feet as provided for in this Lease Amendment #11 nor 2,674 rentable square feet as provided for in Lease Amendment #10 nor the 2,042 rentable square feet as provided for in Lease Amendment #9, dated March 25, I 996 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 rentable 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 and conditions of the original Lease Agreement and Lease Amendments 1 - 10 shall apply to this Lease Amendment #11. Agreed to this 27th day of______June, 1996. LANDLORD: SAN MATEO OFFICE LIMITED a California Limited Partnership By: Spieker-Singleton #68 Limited Partnership a California Limited Partnership, its General Partner By PETER H. SCHNUGG -------------------------------------- Peter H. Schnugg, as Attorney-In-Fact for Dennis E. Singleton, General Partner Date: 7/11/96 --------------- TENANT: VISIGENIC SOFTWARE INC. A Delaware Corporation By GLENN MYERS ---------------------------------------- Glenn Myers Its: Vice President of Finance --------------------------------- Date: 6/27/96 -------------- [PLAN APPEARS HERE] EXHIBIT "A" LEASE AMENDMENT #12 ------------------- ORIGINAL LEASE DATE: March 7, 1993 LEASE AMENDMENT DATE: July 22, 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 August 1, 1996 approximately 1,472 square feet of rentable space on the third floor of San Mateo BayCenter, known as Suite #330 within the Phase I building, shall be incorporated into the Original Lease Agreement. Total square footage shall increase from 28,936 to 30,408 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 30,408 to 13,902 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 I building, shall be reduced from the Original Lease Agreement. Total square footage shall decrease from 13,902 to 7,932 rentable square feet. Effective July 1, 2001, approximately 2,674 square feet of rentable space on the first floor known as Suite 120 within the Phase I building, shall be reduced from the Original Lease Agreement. Total square footage shall decrease from 7,932 to 5,258 rentable square feet. Effective August 1, 2001 approximately 1,472 rentable space on the third floor known as Suite 330 within the Phase I building shall be reduced from the Original Lease Agreement. Total square footage shall decrease from 5,258 to 3,486 rentable square feet. 2. RENTAL ------
TOTAL AMOUNT DUE: Additional Existing 08/01/96 - 01/31/97 1,472 rsf. 28,936 rsf. 30,408 RSF ---------------------------------------------------------------- Base Rent $2,591.00 $41,395.00 $43,986.00 Op. Exp. (est. '96) $ 942.00 $18,519.00 $19,461.00 --------- ---------- ---------- Total Rent $3,533.00 $59,914.00 $63,447.00 Additional Existing 02/01/97 - 04/30/97 1,472 rsf. 28,936 rsf. 30,408 RSF. ---------------------------------------------------------------- Base Rent $2,591.00 $42,909.00 $45,500.00 Op. Exp. (est. '96) $ 942.00 $18,519.00 $19,461.00 --------- ---------- ---------- Total Rent $3,533.00 $61,428.00 $64,961.00 Additional Existing 05/01/97 - 06/30/97 1,472 rsf. 28,936 rsf. 30,408 RSF. ---------------------------------------------------------------- Base Rent $2,591.00 $43,032.00 $45,623.00 Op. Exp. (est. '96) $ 942.00 $18,519.00 $19,461.00 --------- ---------- ---------- Total Rent $3,533.00 $61,551.00 $65,084.00 Additional Existing 07/01/97 - 11/30/97 1,472 rsf. 28,936 rsf. 30,408 RSF. ---------------------------------------------------------------- Base Rent $2,591.00 $43,219.00 $45,810.00 Op. Exp. (est. '96) $ 942.00 $18,519.00 $19,461.00 --------- ---------- ---------- Total Rent $3,533.00 $61,738.00 $65,271.00
Visigenic Software Lease Amendment #11 7/22/96 Page 2
RENTAL (Continued) ------------------ Additional Existing 12/01/97 - 06/30/98 1,472 rsf. 28,936 rsf. 30,408 RSF. ---------------------------------------------------------------------- Base Rent $2,723.00 $45,082.00 $47,805.00 Op. Exp. (est. '96) $ 942.00 $18,519.00 $19,461.00 --------- ---------- ---------- Total Rent $3,665.00 $63,601.00 $67,266.00 Additional Existing 07/01/98-04/30/99 1,472 rsf. 28,936 rsf. 30,408 RSF. ---------------------------------------------------------------------- Base Rent $2,723.00 $45,270.00 $47,993.00 Op. Exp. (est. '96) $ 942.00 $18,519.00 $19,461.00 --------- ---------- ---------- Total Rent $3,665.00 $63,789.00 $67,454.00 Additional Existing 05/01/99-06/30/99 1,472 rsf. 28,936 rsf. 30,408 RSF. ---------------------------------------------------------------------- Base Rent $2,723.00 $45,454.00 $48,177.00 Op. Exp. (est. '96) $ 942.00 $18,519.00 $19,461.00 --------- ---------- ---------- Total Rent $3,665.00 $63,973.00 $67,638.00 Additional Existing 07/01/99-07/31/99 1,472 rsf. 28,936 rsf. 30,408 RSF. ---------------------------------------------------------------------- Base Rent $2,841.00 $46,009.00 $48,850.00 Op. Exp. (est. '96) $ 942.00 $18,519.00 $19,461.00 --------- ---------- ---------- Total Rent $3,783.00 $64,528.00 $68,311.00 Additional Existing 08/01/99-06/30/00 1,472 rsf. 28,936 rsf. 30,408 RSF. ---------------------------------------------------------------------- Base Rent $2,841.00 $47,050.00 $49,891.00 Op. Exp. (est. '96) $ 942.00 $18,519.00 $19,461.00 --------- ---------- ---------- Total Rent $3,783.00 $65,569.00 $69,352.00 Additional Existing 07/01/00 - 07/31/00 1,472 rsf. 28,936 rsf. 30,408 RSF. ---------------------------------------------------------------------- Base Rent $2,841.00 $47,263.00 $50,104.00 Op. Exp. (est. '96) $ 942.00 $18,519.00 $19,461.00 --------- ---------- ---------- Total Rent $3,783.00 $65,782.00 $69,565.00 Additional Existing 08/01/00 - 01/31/01 1,472 rsf. 12.430 rsf. 13,902 RSF. ---------------------------------------------------------------------- Base Rent $2,973.00 $22,870.00 $25,843.00 Op. Exp. (est. '96) $ 942.00 $ 7,955.00 $ 8,897.00 --------- ---------- ---------- Total Rent $3,915.00 $30,825.00 $34,740.00 Additional Existing 02/01/01 - 06/30/01 1,472 rsf. 6.460 rsf 7,932 RSF. --------------------------------------------------------------------- Base Rent $2,973.00 $13,156.00 $16,129.00 Op. Exp. (est. '96) $ 942.00 $ 4,134.00 $ 5,076.00 --------- ---------- ---------- $3,915.00 $17,290.00 $21,205.00 Additional Existing 07/01/01 - 07/31/01 1,472 rsf. 3,786 rsf 5,258 RSF. --------------------------------------------------------------------- Base Rent $2,973.00 $ 7,988.00 $10,961.00 Op. Exp. (est. '96) $ 942.00 $ 2,423.00 $ 3,365.00 --------- ---------- ---------- $3,915.00 $10,411.00 $14,326.00 Existing 08/01/01 - 01/31/02 3.786 rsf. 3,786 RSF --------------------------------------------------------------------------- Base Rent $ 7,988.00 $ 7,988.00 Op. Exp. (est. '96) $ 2,423.00 $ 2,423.00 ---------- ---------- Total Rent $10,411.00 $10,411.00
Visigenic Software Lease Amendment #11 7/22/96 Page 3 3. PROPORTIONATE SHARE ------------------- Tenant's Proportionate Share, as defined per the Basic Lease Information within the Original Lease Agreement and as amended shall increase effective August 1, 1996 from 24.45% to 25.70%. Effective August 1, 2000 Tenant's Proportionate Share shall decrease from 25.70% to 11.75%. Effective February 1, 2001 Tenant's Proportionate Share shall decrease from 11.75% to 6.70%. Effective July 1, 2001 Tenant's Proportionate Share shall decrease from 6.70% to 4.44%. Effective August 1, 2001 Tenant's Proportionate Share shall decrease from 4.44% to 3.21%. 4. SECURITY DEPOSIT ---------------- Security Deposit shall increase $7,000.00. Total Security Deposit to be $64,000.00. 5. TENANT IMPROVEMENTS ------------------- Landlord to deliver Suite #330 as drawn per the attached Exhibit A however, Landlord agrees to remove existing wallcovering, prep walls as needed and repaint entire suite. In addition, Landlord to purchase and install new building standard carpet throughout suite, other than the storage area in which the existing V.C.T. floorcovering shall remain. Color of carpet, base and paint to be selected by Tenant. 6. 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 1,472 rentable square feet as provided for in this Lease Amendment #12 nor the 3,786 rentable square feet as provided for in Lease Amendment #11 nor the 2,674 rentable square feet as provided for in Lease Amendment #10 nor the 2,042 rentable square feet as provided for in 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 rentable 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 and conditions of the original Lease Agreement and Lease Amendments 1 - 11 shall apply to this Lease Amendment #12. Agreed to this 24th day of July, 1996. LANDLORD: SAN MATEO OFFICE LIMITED a California Limited Partnership By: Spieker-Singleton #68 Limited Partnership a California Limited Partnership, its General Partner By /s/ Peter H. Schnugg ------------------------------- Peter H. Schnugg, as Attorney-In-Fact for Dennis E. Singleton, General Partner Date: 7/29/96 ------------------ TENANT: VISIGENIC SOFTWARE INC. A Delaware Corporation By: /s/ Glenn Myers -------------------------------- Glenn Myers Its: Vice President ------------------------------ Date: 7/24/96 -------------------- [PLAN APPEARS HERE] Suite 330 1,472 Sq. Ft. San Mateo BayCenter 951 Mariner's Island Boulevard San Mateo, CA EXHIBIT "A" LEASE AMENDMENT #13 ------------------- ORIGINAL LEASE DATE: March 7, 1993 LEASE AMENDMENT DATE: September 4, 1996 LANDLORD: SAN MATEO OFFICE LIMITED A California limited partnership TENANT: VERY VISUAL 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. Tenant ------ Tenant Name shall be revised, effective December 1, 1993, to the following: VISIGENIC SOFTWARE, INC. A DELAWARE CORPORATION All other terms and conditions of the original Lease Agreement and Lease Amendments #1 - #12 shall apply to this Lease Amendment #13. Agreed to this 16TH day of SEPTEMBER , 1996. ----------- LANDLORD: SAN MATEO OFFICE LIMITED a California Limited Partnership By: Spieker-Singleton #68 Limited Partnership a California Limited Partnership, its General Partner By /s/ Peter H. Schnugg ---------------------------- Peter H. Schnugg, as Attorney-In-Fact for Dennis E. Singleton, General Partner Date: 9/21/96 ---------------- TENANT: VISIGENIC SOFTWARE INC. A Delaware Corporation By: /s/ Kevin C. Eichler -------------------------- Kevin C. Eichler Its: CFO ------------------------- Date: 9/11/96 ---------------- EX-10.13 5 LEASE AGREEMENT WITH SPIEKER-SINGLETON #68 SAN MATEO BAY CENTER MARINERS ISLAND SAN MATEO, CALIFORNIA [PHOTO] LEASE VISIGENIC SOFTWARE, INC. a Delaware Corporation SPIEKER PROPERTIES BASIC LEASE INFORMATION OFFICE LEASE Lease Date: August 30, 1996 Landlord: SPIEKER-SINGLETON #68 LIMITED PARTNERSHIP a California limited partnership Address of Landlord: 951 Mariner's Island Boulevard Suite #200 San Mateo, California 94404 Tenant: VISIGENIC SOFTWARE, INC. a Delaware Corporation Address of Tenant: 901 Mariner's Island Boulevard Suite #325 San Mateo, California 94404 Contact: Mr. Glenn Myers Telephone: (415) 286-1900 Premises: Approximately 4,370 rentable square feet on the third of San Mateo BayCenter, Suite #325, 901 Mariner's Island Boulevard, San Mateo, California, 94404, as shown in the attached "Exhibit B". Scheduled Term Commencement Date: December 1, 1996 Scheduled Length of Term: 5 years Scheduled Term Expiration Date: November 30, 2001 Rent: See Addendum #1, Rent, attached hereto and made a part hereof. Security Deposit: $10,750.00 Tenant's Proportionate Share: 3.7% Permitted Use: General Office Occupancy Density: 4/1000 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: SPIEKER-SINGLETON #68 LTD PARTNERSHIP VISIGENIC SOFTWARE. INC. - ------------------------------------- ------------------------------ a California limited partnership a Delaware Corporation By /s/ Peter H. Schnugg By /s/ KEVIN C. EICHLER ----------------------------------- ---------------------------- Peter H. Schnugg KEVIN C. EICHLER Its Agent for Owner Its CFO --------------------------------- --------------------------- Date: 9/16/96 Date: 9/11/96 ------------------------ ------------------------ LEASE TABLE OF CONTENTS
Basic Lease Information 1. Premises 1 2. Occupancy 1 3. Term and Possession 1 4. Rent 1 5. Restrictions On Use 2 6. Compliance With Laws 2 7. Alterations 2 8. Repairs 3 9. Liens 3 10. Assignment and Subletting 3 11. Insurance and Indemnification 4 12. Waiver of Subrogation 5 13. Services and Utilities 5 14. Estoppel Certificate 6 15. Security Deposit 6 16. Substitution 7 17. Holding Over 7 18. Subordination 7 19. Rules and Regulations 7 20. Re-entry by Landlord 8 21. Default by Tenant 8 22. Damage by Fire, Etc. 10 23. Eminent Domain 11 24. Sale by Landlord and Tenant's Remedies 11 25. Right of Landlord To Perform 11 26. Surrender of Premises 11 27. Waiver 12 28. Notices 12 29. Rental Adjustments 12 30. Taxes Payable by Tenant 15 31. Successors and Assigns 15 32. Attorneys' Fees 15 33. Light and Air 15 34. Public Transportation Information 15 35. Miscellaneous 15 36. Lease Effective Date 16 Signatures 16 Addendum #1-8 17
Exhibit A Rules and Regulations Exhibit B Outline of Premises, Suite #325 Exhibit C Current Build-Out, Suite #325 Exhibit D Form of Tenant Certificate ___________________________________________________________________________LEASE THIS LEASE is made as of this 30th day of August, 1 96, between Spieker- ---- ------ ------- Singleton #68 Limited Partnership, a California limited partnership (hereinafter - ------------------------------------------------------------------- called "Landlord") and Visigenic Software Inc.. a Delaware Corporation ----------------------------------------------- (hereinafter "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"). The Premises may be all or part of the building (the "Building") or of the project (the "Project") which may consist of more than one 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 POSSESSION 3. (A) The parties project that the term shall 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 delivered to Tenant by Landlord, or (ii) the date on which Tenant takes possession of; or commences the operation of its business in some or all of the Premises. Should the Term Commencement Date be a date other than the Scheduled Term Commencement Date, either Landlord or Tenant, at the request of the other shall execute a declaration specifying the Term Commencement Date and the rent commencement date which shall be binding upon the parties as to the matters therein stated. Tenant's obligation to pay Rent and its other obligations for payment under this Lease shall commence upon 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. RENT 4. Tenant shall pay to Landlord throughout the Term Rent as specified in 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 Page-1- 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 ON USE 5. Tenant shall not do or permit anything to be done in or about the Premises which will in any way obstruct or interfere with the rights of other tenants or occupants of the Building or injure or annoy them, nor use or allow the Premises to be used for any improper, immoral, unlawful or objectionable purposes, 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 WITH LAWS 6. Tenant shall not use the Premises or permit anything to be done in or about the Premises which will in any way conflict with any law, statute, ordinance or 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. See Addendum #3 attached hereto and made a part hereof. 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. Page-2- REPAIRS 8. By taking possession 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 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 other elements. Tenant waives all right it may have under Section 1942 of the Civil Code of the State of California and any similar law, statues 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 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 therein or in EXHIBIT C. LIENS 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 or posting of a proper bond, Landlord shall have, in addition to all other remedies provided herein and by law, the right, but no obligation, to cause the same to be released by such means as it shall deem proper, including payment of the claim giving rise to such lien. 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 liens. ASSIGNMENT AND SUBLETTING 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 (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) days 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 writing 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 still be required. Refusal by Landlord to approve a 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 space to be so sublet shall leave this Lease in full force and effect 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 Page-3- Tenant. This Lease as so amended shall continue thereafter in full force and effect and references 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 or the reasonable cost of the improvements over the remainder of the Term for which Tenant has paid and reasonable subletting and assignment costs, shall be divided and paid fifty percent (50%) to Landlord and ten 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 INDEMNIFICATION 11. (A) Landlord shall not be liable to Tenant and Tenant 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, 6n 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 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 Landlord harmless 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 Tenant harmless 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 Page-4- 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 claims 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 reasonably 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 19 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 canceled 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 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 coverings when necessary because of the sun's position, and Tenant 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, ventilating and air-conditioning systems. Wherever heat- generating machines, excess lighting or equipment are used in the Premises which affect Page-5- 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 operating and maintenance thereof; shall be paid by Tenant to Landlord upon demand by Landlord. SEE ADDENDUM #4 ATTACHED HERETO AND MADE A PART HEREOF. (C) Tenant shall not without written consent of Landlord use any apparatus or device in the Premises, including without limitation, electronic 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; not 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 electrical current or any other resource in excess of that usually furnished or supplied for the Permitted Uses 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 Costs 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, electrical 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 accidents or other conditions beyond the reasonable control of Landlord, or by 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 government 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 CERTIFICATE 14. Within ten (10) days following any written request 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 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. Page-6- 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 Premises. HOLDING OVER 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 to 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 holding over without Landlord's written consent. SUBORDINATION 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 leases 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 for 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 REGULATIONS 19. Tenant shall faithfully observe and comply with the rules 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. Page-7- RE-ENTRY BY LANDLORD 20. Landlord reserves and shall WITH REASONABLE ADVANCE NOTICE EXCEPT IN EMERGENCIES have the right to re-enter the Premises to inspect the same, to provide any services 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 any 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 therefore, 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 charge 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. The due dates for payment of installments of rent provided for herein shall be absolute and the existence of a cure period or notice period shall not be deemed to extend said date for purposes of determining Tenant's compliance with its obligations hereunder. (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 times 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 Page-8- 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 day 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 of substantially all of Tenant's assets or the Premises, if such receivership remains undissolved for a period often (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 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 Page-9- 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 and 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 sum 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 rights, 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. DAMAGE BY FIRE, ETC. 22. If the Premises or the Building are damaged by fire or other casualty, Landlord shall forthwith repair the same, provided such repairs can be made within one hundred eighty (180) days from the date of such damage under the laws and regulations of the federal, state and local governmental authorities having jurisdiction 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)f 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 to 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. SEE ADDENDUM #5 ATTACHED HERETO AND MADE A PART HEREOF. Page-10- 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 subject to the rights of Landlord's first mortgage (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. hereafter 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 o 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 TENANT'S REMEDIES 24. In the event of a sale or conveyance by Landlord of the Building, the same shall operate to release Landlord from any future liability upon any of the covenants 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 PERFORM 25. All covenants and agreements to be performed by 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 in the case of default by Tenant in the payment of the Rent. SURRENDER OF 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 day, 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 Page-11- all improvements, fixtures or 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 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. WAIVER 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, covenants 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 demands by Landlord to Tenant shall be sent by United States certified or registered mail, or r Federal Express or similar overnight carrier, postage or freight 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, or Federal Express or similar overnight carrier, postage or freight 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 ADJUSTMENT 29. In addition to Base Rent provided to be paid hereunder, Tenant shall pay as Rent Tenant's Proportionate Share of Basic Operating Cost in the manner set forth below. See Addendum #8 attached hereto and made a part hereof. (a) DEFINITION: For purposes hereof; the terms used in this Paragraph 29 shall have the following meanings: (1) "Basic Operating Cost" shall mean all expenses and costs of every kind and nature which Landlord shall pay or become obligated to pay because of or in connection with the ownership and operation 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 or 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. Page-12- (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 accountants; 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) Repairs, 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, unforeseen 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 or estate taxes imposed upon or assessed against the interest of any person in the Building or any part thereof or 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 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 attached hereto and made a part hereof. 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 payment) 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. (2) "Estimated Basic Operating Cost" for any particular year shall mean Landlord's estimate of the Basic Operating Cost for such fiscal year made prior to commencement of such fiscal 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. Page-13- (3) "Basic Operating Cost Adjustment" shall mean the difference between Basic Operating Cost and Estimated Basic Operating Cost for any fiscal year determined as hereinafter provided. (B) PAYMENT OF ESTIMATED BASIC OPERATING COST. During the last month of each fiscal 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 fiscal year. The Estimated Basic Operating Cost for the fiscal 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 fiscal 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 fiscal 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 fiscal year and Tenant shall pay Tenant's Proportionate Share of the Estimated Basic Operating Cost as so revised for the balance of the then current fiscal 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 (provided 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)(l) 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 fiscal year a portion of which falls within the Term for purposes of verifying Landlord's calculations of Basic Operating Cost and Basic Operating Cost Adjustments. In the event that Tenant shall dispute the amount set forth in any statement provided by Landlord under paragraph 29(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 fiscal 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 30(d), such statement shall be final and binding for all purposes hereof. Page-14- TAXES PAYABLE BY TENANT 30. (A) Tenant shall pay before delinquency any and all taxes levied or assessed and which become payable by Landlord (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 to Tenant under this paragraph 30 shall be additional rental. SUCCESSORS AND ASSIGNS 31. Subject to the provisions of paragraph 10 hereof; the 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' FEES 32. In the event that any action or proceeding is brought to 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 TRANSPORTATION INFORMATION 34. Tenant shall establish and maintain during the Term hereof a program to encourage maximum use of public 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 or proximate 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 obligations hereunder 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. Page-15- (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 this 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 unenforceable or ineffective, all of the other provisions shall be and remain in full force and effect. (k) See Addenda #1 - #8 attached hereto and made a part hereof. LEASE EFFECTIVE 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" SPIEKER-SINGLETON #68 LIMITED PARTNERSHIP ----------------------------------------- a California limited partnership By /s/ Peter H. Schnugg --------------------------- Peter H. Schnugg Its Agent for Owner -------------------------- Date: 9/16/96 ------------------------------ "TENANT" VISIGENIC SOFTWARE INC. ----------------------------------------- a Delaware Corporation By /s/ Kevin C. Eichler ---------------------------- Kevin C. Eichler Its CFO --------------------------- Date: 9/11/96 ------------------------------ Page-16- LEASE DATE: AUGUST 30, 1996 LANDLORD: SPIEKER-SINGLETON #68 LIMITED PARTNERSHIP A CALIFORNIA LIMITED PARTNERSHIP TENANT: VISIGENIC SOFTWARE, INC. A DELAWARE CORPORATION ADDENDUM #1 RENT - ---------------- Rent for the Premises shall be as follows: Months 1 - 12 Base Rent $ 8,085.00 Basic Operating Costs (1996 Estimate) 2,622.00 --------- $10,707.00 Months 13-24 Base Rent $ 8,390.00 Basic Operating Costs (1996 Estimate) 2,622.00 --------- $11,012.00 Months 25-36 Base Rent $ 8,740.00 Basic Operating Costs (l996 Estimate) 2,622.00 --------- $11,362.00 Months 37-48 Base Rent $ 9,090.00 Basic Operating Costs (l996 Estimate) 2,622.00 --------- $11,712.00 Months 49-60 Base Rent $ 9,439.00 Basic Operating Costs (1996 Estimate) 2,622.00 --------- $12,061.00 ADDENDUM #2 TENANT IMPROVEMENTS - ------------------------------- Landlord shall furnish and install, at its expense, the following improvements to Suite #325 as built per the attached Exhibit C: -Re-paint entire Suite with building standard paint, tenant to choose color. -Install new building standard carpet throughout entire Suite, tenant to choose color. -Install new building standard VCT in kitchen and storage rooms, tenant to choose color. In addition to the above, Landlord will provide an $8,740 Tenant Improvement allowance to be used towards building standard improvements within the Suite. Such improvements shall be mutually agreed upon between Landlord and Tenant, and performed by Landlord's contractor. Any costs incurred above this $8,740 allowance will be paid by Tenant prior to occupancy of the Suite. Page-17- ADDENDUM #3 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 #4 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 #5 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 #6 PARKING - ------------------- Tenant shall have the non-exclusive use of no more that four (4) on-site parking spaces per every 1,000 square feet of leased office space. ADDENDUM #7 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 #8 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. "LANDLORD" SPIEKER-SINGLETON #68 LIMITED PARTNERSHIP ----------------------------------------- a California limited partnership By /s/ Peter H. Schnugg ------------------------ Peter H. Schnugg Its Agent for Owner ----------------------- Date 9/16/96 ----------------------- "TENANT" VISIGENIC SOFTWARE, INC. ------------------------------------- a Delaware Corporation By /s/ Kevin C. Eichler ---------------------------------- Kevin C. Eichler Its CFO ---------------------- Date 9/11/96 ---------------------- Page-18- RULES AND REGULATIONS 1. Sidewalks, halls, passages, exits, entrances, elevators, escalators and stairways shall not be obstructed by Tenants or used by them for any purpose 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 judgment 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 employee or invitees of any Tenant, shall go upon the roof of the Building, except as authorized by Landlord. 2. No signs, 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 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 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 particular 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, shades, 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 the prior written consent of Landlord. In any event with the prior written consent of Landlord, all such items shall be installed inboard of Landlord's standard window covering and shall in no way be visible from the 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 partitions or doors which might appear unsightly from outside Tenant's Premises. 5. Landlord reserves the right to exclude from the Building between the hours of 6 p.m. and 8 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 omission to or exclusion from the Building of any person. During the continuance of any invasion, mob, riot, public excitement or other circumstances 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 any 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 regulation fixed by Landlord, or accept barbering or bootblacking services in its premises except from persons authorized by Landlord. EXHIBIT "A" Page-1- 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 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 Premises, 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 alter 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 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, urinals, 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 or 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 of heating or air-conditioning other than that supplied by Landlord. 14. No Tenant shall use, keep or permit to be used in its premises any foul or noxious gas or substance or permit or suffer such premises to be occupied 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 or 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 its premises (except that used 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. 16. Except with the prior written consent of Landlord, no tenant shall sell, or permit the sale, at retail, of newspapers, magazines, periodicals, theater 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 activity other than that specifically provided for in such Tenant'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 or 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. EXHIBIT "A" Page-2- 20. No Tenant shall lay linoleum, tile, carpet or any 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 e 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 weigh thereof. Landlord will not be responsible for loss of or damage to any such safe, equipment or property from any cause, and all damage done to the Building by moving or maintaining any such safe, equipment or other property shall be repaired a 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 any space therein to such a degree as to be objectionable to Landlord or to any tenants in the Building shall be placed and maintained by Tenant, at Tenant'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. 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 a 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, excercisable without notice and 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 promotion 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. EXHIBIT "A" Page-3- 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 judgment 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 the 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-4- [3RD FLOOR PLAN SAN MATEO BAY CENTER] Suite #325 Outline of Premises Exhibit "B" [PLAN APPEARS HERE] Suite #325 Existing Build-Out Exhibit "C" FORM OF TENANT CERTIFICATE _______________________________________ _______________________________________ _______________________________________ _______________________________________ RE: Gentlemen: The undersigned, as Tenant under that certain lease (the "Lease") dated _____________________________ l9 ___, 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 that 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 exists 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 loan 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" Page -1- EX-11.1 6 STATEMENT OF COMPUTATION OF PER SHARE LOSS EXHIBIT 11.1 VISIGENIC SOFTWARE, INC. STATEMENTS OF COMPUTATION OF PRO FORMA COMMON SHARES AND EQUIVALENTS (IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
NINE MONTHS ENDED DECEMBER 30, YEAR ENDED ------------------- MARCH 31, 1996 1995 1996 -------------- -------- --------- PRIMARY Net loss.................................. $(4,379) $ (3,666) $ (18,271) ======= ======== ========= Weighted average common shares outstanding.............................. 2,779 2,780 6,085 Weighted average common equivalent shares: Weighted average preferred stock outstanding............................ 2,875 2,818 3,050 Adjustments to reflect requirements of the Securities and Exchange Commission's Staff Accounting Bulletin No. 83: Common stock issuances.................. 3,376 3,376 1,876 Preferred stock issuances............... 1,069 1,069 594 Common stock option grants.............. 965 965 536 ------- -------- --------- Pro forma total weighted average common shares and equivalents................... 11,064 11,008 12,141 ======= ======== ========= Pro forma net loss per share.............. $ (0.40) $ (0.33) $ (1.51) ======= ======== ========= FULLY DILUTED Net loss.................................. $(4,379) $ (3,666) $ (18,271) ======= ======== ========= Weighted average common shares outstanding.............................. 2,779 2,780 6,085 Weighted average common equivalent shares: Weighted average preferred stock outstanding............................ 2,875 2,818 3,050 Adjustments to reflect requirements of the Securities and Exchange Commission's Staff Accounting Bulletin No. 83: Common stock issuances.................. 3,376 3,376 1,876 Preferred stock issuances............... 1,069 1,069 594 Common stock option grants.............. 965 965 536 ------- -------- --------- Pro forma total weighted average common shares and equivalents................... 11,064 11,008 12,141 ======= ======== ========= Pro forma net loss per share.............. $ (0.40) $ (0.33) $ (1.51) ======= ======== =========
EX-27 7 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM VISIGENIC SOFTWARE, INC. CONSOLIDATED BALANCE SHEET, AT DECEMBER 31, 1996 AND VISIGENIC SOFTWARE, INC. CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS MAR-31-1996 APR-01-1996 DEC-31-1996 9,064 0 5,750 145 39 15,911 3,501 958 19,921 4,625 0 0 0 12 15,284 19,921 11,534 11,534 1,829 28,166 0 0 190 (18,271) 0 (18,271) 0 0 0 (18,271) 0 (1.51)
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