-----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, GeA8iYVXFUz9+4N+jmHNzxnEDSPWMJ9nDGRxi08dRY3Uaw1kXyPGbcZHb6BrDPVx CWgj5QQUMy0TJi51ZXHXhw== 0000929624-00-000291.txt : 20000307 0000929624-00-000291.hdr.sgml : 20000307 ACCESSION NUMBER: 0000929624-00-000291 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 18 FILED AS OF DATE: 20000302 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRINET EMPLOYER GROUP INC CENTRAL INDEX KEY: 0000937098 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 943081033 FILING VALUES: FORM TYPE: S-1 SEC ACT: SEC FILE NUMBER: 333-31534 FILM NUMBER: 560207 BUSINESS ADDRESS: STREET 1: 101 CALLAN AVENUE STREET 2: 2ND FL CITY: SAN LEANDRO STATE: CA ZIP: 94577 BUSINESS PHONE: 5103525000 MAIL ADDRESS: STREET 1: 101 CALLAN AVE STREET 2: 2ND FL CITY: SAN LEANDRO STATE: CA ZIP: 94577 S-1 1 FORM S-1 As filed with the Securities and Exchange Commission on March 2, 2000 Registration No. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ---------------- TRINET GROUP, INC. (Exact Name of Registrant as Specified in Its Charter) California (prior to reincorporation) 7389 94-3081033 Delaware (following reincorporation) (Primary Standard Industrial (I.R.S. Employer (State or other jurisdiction of Classification Code Number) Identification No.) incorporation or organization)
101 Callan Avenue San Leandro, CA 94577 (510) 352-5000 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) ---------------- Martin Babinec Chief Executive Officer TriNet Group, Inc. 101 Callan Avenue San Leandro, CA 94577 (510) 352-5000 (Name, address, including zip code, and telephone number, including area code, of agent for service) ---------------- Copies to: Christopher A. Westover, Esq. Nora L. Gibson, Esq. Jamie E. Chung, Esq. Lindsay C. Freeman, Esq. Virginia C. Edwards, Esq. Jeanine M. Larrea, Esq. Jennifer J. Nam, Esq. Shelley E. Wharton, Esq. Cooley Godward llp Brobeck, Phleger & Harrison LLP One Maritime Plaza, 20th Floor One Market Plaza San Francisco, CA 94111 San Francisco, CA 94105 (415) 693-2000 (415) 442-0900
---------------- Approximate date of commencement of proposed sale to 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 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, check the following box and list the Securities Act registration statement number of the earlier effective registration statement number 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 this Form is a post-effective amendment filed pursuant to Rule 462(d) 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 - ---------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------
Title of Each Class of Proposed Maximum Amount of Securities to be Registered Aggregate Offering Price Registration Fee - ---------------------------------------------------------------------------------------------- Common Stock, $0.0001 par value per share...... $57,500,000 $15,180 - ---------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------
(1) Includes shares of common stock issuable upon exercise of the underwriters' over-allotment option. (2) Estimated solely for the purpose of calculating the amount of the registration fee in accordance with Rule 457(a) of the Securities Act of 1933, as amended. ---------------- 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 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. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +The information in this Prospectus is not complete and may be changed. We may + +not sell these securities until the registration statement filed with the + +Securities and Exchange Commission is effective. This Prospectus is not an + +offer to sell these securities and we are not soliciting offers to buy these + +securities, in any state where the offer or sale is not permitted. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION, DATED MARCH 2, 2000 [TriNet Logo] Shares Common Stock TriNet Group, Inc. is offering shares of its common stock and one of our stockholders is selling an additional shares. This is our initial public offering and no public market currently exists for our shares. We have applied to have our common stock approved for quotation on the Nasdaq National Market under the symbol "TRNE." We estimate that the initial public offering price will be between $ and $ per share. ----------- Investing in our common stock involves risks. See "Risk Factors" beginning on page 5. -----------
Per Share Total ------ ----------- Public Offering Price....................................... $ $ Underwriting Discounts and Commissions...................... $ $ Proceeds to TriNet.......................................... $ $ Proceeds to the Selling Stockholder......................... $ $
The Securities and Exchange Commission and state securities regulators have not approved or disapproved these securities, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. We and our selling stockholders have granted the underwriter a 30-day option to purchase up to an additional shares of our common stock to cover over-allotments. FleetBoston Robertson Stephens Inc. expects to deliver the shares of common stock to purchasers on , 2000. ----------- Robertson Stephens Dain Rauscher Wessels Robert W. Baird & Co. The date of this prospectus is , 2000 [Description of inside front cover graphics: Art to be depicted on the inside front cover shows graphics explaining TriNet's business structure, plus explanatory text.] [Banner running across top of page contains the text: "Payroll Benefits 401(k) Reporting HR Knowledge" Text is repeated all the way across the page.] [TriNet logo with the caption: We are a leading provider of web-enabled business process outsourcing for payroll, benefits and human resource support to fast-growth technology companies.] [Pictorial description of TriNet's business structure. The first graphic depicts stick figures with the caption: Customer Employees The stick figures are following another stick figure with the caption: Customer Management Team The previous graphic connects to the next graphic depicting two paths. The first path includes a picture of a computer with the caption: Web Enabled The other path depicts a stick figure walking toward TriNet with the caption: Personal Contact The previous graphic connects to the next graphic which is a picture of a building with the caption: TriNet From the building extends three paths. The first path leads to a platform of four structures with the caption: TriNet's Integrated eBusiness Platform The four central processing units are marked: Benefits, 401(k), HR, Payroll. The path continues to another platform with the caption: Back Office Processing On the platform are three stick figures captioned: Benefits, 401(k), Payroll. The path continues to a final platform of four buildings with the caption: Multi Vendor Cosolidation The four buildings are captioned: Health Companies, IRS, Investment Managers, Banks. The second path from the TriNet building leads to a platform with a building and the caption: HR Knowledge The path continues to connect with the platform from the first path labeled: TriNet's Integrated eBusiness Platform The third path from the TriNet building leads to a platform with a building and the caption: Recruiting] [Bullet points centered below graphics with the following captions: Fully Integrated Service Managers at customer companies access an integrated suite of payroll, benefits and human resource support, as well as an array of consulting and recruiting solutions. The service is delivered via web-enabled desktop platform, protected by enterprise-class encryption technology. Customers may also take advantage of personal contact with our professional and support teams, ranging from on-site visits by our human resource managers to toll free calls to our employee service center. Integrated Payroll, Benefits and HR Support We manage the flow of payroll, benefits and human resource data for our customers. This business-to-business solution is our core competency, and it allows technology companies to expand their workforce quickly. HR Knowledge Over a 10-year history serving fast-growth technology companies, we have accumulated specialized knowledge of human resource issues. We deploy human resource expertise in both ongoing service arrangements and consulting engagements. Our eBusiness platform enhances this expertise for functions such as cash and equity compensation, organizational development, training and international services. Recruiting Our recruiting service, Venture Talent, specializes in finding the unique individuals who survive and flourish within the fast paced environment of a venture-backed startup. Venture Talent offers full service and contingency staffing solutions to help companies meet aggressive hiring targets. Third Party Data We act as a single point for contact for our customers. By consolidating multiple vendors, from health and benefit companies to banks and the Internal Revenue Service, we reduce administrative headcount and provide a completely scalable solution. Our personnel handle the day-to-day back-office processing of benefits, 401(k), payroll and selected areas of legal compliance for our customer companies. [Banner running across bottom of page contains the text: "Payroll Taxes Direct Deposit Management Reporting Payroll Remittance Online Benefits Enrollment Flexible Spending Accounts Cobra Government Reporting Online Employee Records HIPPA Online Employee Handbook"] You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus. We are offering to sell, and seeking offers to buy, shares of common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of the common stock. In this prospectus, references to "TriNet," "we," "us" and "our" refer to TriNet Group, Inc. Until , all dealers that buy, sell or trade our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. ---------------- TABLE OF CONTENTS
Page ---- Summary.................................................................. 4 Risk Factors............................................................. 8 Forward-Looking Statements............................................... 20 Use of Proceeds.......................................................... 21 Dividend Policy.......................................................... 21 Capitalization........................................................... 22 Dilution................................................................. 23 Selected Financial Data.................................................. 24 Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................... 25 Business................................................................. 33 Management............................................................... 53 Related Party Transactions............................................... 64 Principal and Selling Stockholders....................................... 65 Description of Capital Stock............................................. 67 Shares Eligible for Future Sale.......................................... 71 Underwriting............................................................. 73 Legal Matters............................................................ 75 Experts.................................................................. 75 Where You Can Find Additional Information................................ 76 Index to Financial Statements............................................ F-1
---------------- The "TriNet" name and logo and the names of our products and services mentioned in this prospectus are our trademarks, registered trademarks, service marks or registered service marks. Other service marks, trademarks and trade names referred to in this prospectus are the property of their respective owners. 3 SUMMARY You should read this summary together with the entire prospectus, especially "Risk Factors" and the financial statements and related notes, before deciding to invest in shares of our common stock. Unless otherwise indicated, the information contained in this prospectus assumes the underwriters do not exercise their over-allotment option and gives effect to the conversion of all outstanding shares of our preferred stock into common stock, which will occur before the closing of this offering. Information in this prospectus gives effect to our reincorporation in Delaware and a stock split, both of which will occur before the closing of this offering. We are a leading provider of web-enabled business process outsourcing, or BPO, of payroll, benefits and human resource support and technology to fast- growth technology companies in North America. With significant web delivery capabilities already enabled, and others in development, we believe that we offer the first fully integrated end-to-end e-commerce solution for payroll, benefits and human resource transactions. With over 10 years of industry experience, we have developed an eBusiness platform that currently services over 375 customers who collectively employ more than 10,000 people. Our typical client is characterized by rapid headcount growth, outside equity financing and a highly skilled, technically savvy work force. Our systems and services allow our customers to focus on their respective core business functions by outsourcing their human resource technology or entire human resource functions to us without losing real-time access to critical data. With an integrated technology platform, back-office processing and a wide breadth of service offerings, we help to alleviate administrative burdens commonly encountered by firms which must coordinate transactions between multiple outsourcing providers. In addition, we serve as an exchange between our customers and a variety of benefit plan and financial service providers, creating economies of scale and efficiencies in the procurement, set-up and on-going maintenance of vendor relationships involving the full range of payroll, benefits and human resource processes. We provide fast-growth technology companies with access to enterprise-class technology, benefits packages and employee self-service offerings to implement and maintain these complex functions. According to Dataquest, the human resource outsourcing industry is forecast to grow from $13.9 billion in 1999 to $37.7 billion in 2003, representing a compound annual growth rate of 28.3%. Payroll, benefits and human resource processes have become increasingly complex, cumbersome, expensive and highly inefficient. As a result, companies are increasingly turning to BPO to address these needs that were formerly handled in-house. The data and transaction intensive nature of payroll, benefits and human resource functions combine to form a complex undertaking for a company that wishes to integrate all related processes to a single information system. The processes necessary to implement such a system consist of two basic components, commonly referred to as the "front-end" and "back-end" processes. The front-end includes processes and interfaces to collect, update, effect and communicate changes in employee data. The back-end involves high volume information processing of functions that are sufficiently standardized across all companies to permit specialized systems to receive, store and transact routine and repetitive functions involving payroll, benefits and human resources. With the widespread implementation of intranets and the adoption of the Internet as a business communications platform, organizations can now automate enterprise-wide and interorganizational human resource transactions. The availability of this technology creates a significant market opportunity for Internet-based business-to-business e-commerce solutions for payroll, benefits and human resources. 4 Payroll, benefits and human resource transactions lend themselves to Internet processing because these transactions are information-based and do not require delivery of durable goods at the point of payment. However, payroll, benefits and human resource functions involve confidential information, complex and interrelated data elements and ongoing data management between multiple organizations, unlike other e-commerce opportunities such as making travel reservations or purchasing merchandise. Currently, there are mature outsourcing providers for selected back-office processes involving payroll and benefits and an emerging number of web-based front-end solutions that must interface with back-end providers. We believe an optimal e-commerce solution for payroll, benefits and human resources can only exist if there is seamless end-to-end integration of the front- and back-end processes on a single information systems platform that is scalable for large volume transaction processing. We believe our approach delivers the first end-to-end business-to-business e-commerce solution, giving our customers access to enterprise-class technology for payroll, benefits and human resource functions. Our solution integrates a web-based front-end for self-directed transactions with back-end processes that include electronic interfaces to our service providers and offers the following key benefits: . provide an advanced integrated solution that allows customers to focus on their core business; . provide human resource solutions tailored to fast-growth technology companies' employees; . provide an easily scalable and integrated solution; and . provide customers with economies of scale and efficiencies. Our objective is to be the leading provider of web-enabled business process outsourcing of payroll, benefits and human resource support and related technology to fast-growth technology companies worldwide. Key elements of our strategy to achieve this objective are: . continue to develop and improve our end-to-end e-commerce solution for a complete range of payroll, benefits and human resource transactions; . leverage our existing customer base for internal growth and referrals; . enhance TriNet brand recognition in the middle market; . pursue key strategic relationships and develop new product offerings to further enhance our revenue streams, customer base and solutions; and . expand geographically to new markets. We were incorporated in California in 1988 under the name TriNet Employer Group, Inc. We plan to change our name to TriNet Group, Inc. in connection with our reincorporation in Delaware. Our principal executive offices are located at 101 Callan Avenue, San Leandro, California 94577, and our telephone number is (510) 352-5000. Our web site address is www.trinetvco.com. The information on our web site is not part of this prospectus. 5 The Offering Common stock offered by TriNet.................... shares Common stock offered by the selling stockholder... shares Common stock to be outstanding after the offering.......................................... shares Use of proceeds................................... To repay indebtedness and for general corporate purposes, including working capital, sales and marketing expenditures, development of new products and services, investments in technology infrastructure and possible acquisitions. See "Use of Proceeds." Nasdaq National Market symbol..................... TRNE
The number of shares of common stock to be outstanding after this offering is based on the total number of shares outstanding as of , 2000. This excludes: . shares of common stock issuable upon exercise of outstanding options at a weighted average exercise price of $ ; and . shares reserved for future issuance under our employee benefit plans. 6 Summary Financial Data (in thousands, except per share data) The following table is a summary of the financial data for our business. You should read this information together with our financial statements and the related notes appearing at the end of this prospectus and the information under "Management's Discussion and Analysis of Financial Condition and Results of Operations."
Year Ended December 31, --------------------------------------- 1995 1996 1997 1998 1999 ------ ------ ------ ------- ------- Results of Operations: Service revenues (net of direct costs billed of $79,077, $117,026, $241,917, $386,221, $712,945, respectively)........................ $2,515 $3,139 $7,749 $12,443 $19,127 Research and development expense...... 180 194 488 719 2,353 Other operating expenses.............. 2,801 3,075 6,273 9,975 16,580 ------ ------ ------ ------- ------- Operating income (loss)............... (466) (130) 988 1,749 194 Net income (loss)..................... (465) (157) 760 982 (103) Net income (loss) available to common stockholders......................... (466) (217) (347) 455 (133) Basic net income (loss) per common share................................ $(0.14) $(0.07) $(0.10) $ 0.07 $ (0.02) Basic weighted average shares outstanding.......................... 3,260 3,323 3,599 6,303 6,340 Diluted net income (loss) per common share................................ $(0.14) $(0.07) $(0.10) $ 0.07 $ (0.02) Diluted weighted average shares outstanding.......................... 3,260 3,323 3,599 6,593 6,340
The pro forma as adjusted balance sheet data give effect to: . the conversion of all outstanding shares of our preferred stock into 542,304 shares of common stock before the closing of this offering; and . the sale of shares of common stock offered by us at an assumed initial public offering price of $ per share and our receipt of the net proceeds from the sale of those shares, after deducting estimated underwriting discounts and commissions and offering expenses payable by us.
December 31, 1999 ------------------- Pro Forma Actual As Adjusted ------- ----------- Balance Sheet Data: Cash and cash equivalents................................... $16,777 $ Working capital............................................. 113 Total assets................................................ 35,791 Long-term obligations....................................... 2,851 Redeemable convertible preferred stock...................... 500 Total stockholders' equity.................................. 4,816
See Note 6 of Notes to Consolidated Financial Statements for an explanation of the determination of the number of shares used in computing per share data. 7 RISK FACTORS This offering involves a high degree of risk. You should carefully consider the risks described below and other information in this prospectus, including our financial statements and the related notes, before making a decision to buy our common stock. If any of the events or circumstances described in the following risks actually occurs, our business, operating results or financial condition would likely suffer. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment. Risks Related to Our Business Fluctuations in our quarterly operating results may cause our stock price to decline. It is likely that our quarterly operating results in one or more quarters may be below the expectations of investors, and as a result the price of our common stock could decline. Our expenses are relatively fixed in the near and medium terms and are based in part on our expectations of future revenues, which may vary significantly. If we do not achieve expected revenue targets, we may be unable to adjust our spending quickly enough to offset any revenue shortfall, which could harm our operating results. Factors that may cause our quarterly operating results to fluctuate include: . the number and size of new customers initiating service; . the decision of one or more customers to delay implementation or cancel ongoing services; . our ability to design, develop and introduce new services and features for existing services on a timely basis; . costs associated with strategic acquisitions and alliances or investments in technology; . expenses incurred for geographic and service expansion; . a reduction in the number of employees of our customers; and . acquisitions of our customers by other companies. Further, our customer agreements generally do not include penalties for cancellation. As a result, any decision by a customer to cancel our services may cause significant variations in operating results in a particular quarter and could result in losses for that quarter. As we secure larger customers, any cancellation of services by a larger customer likely would result in larger fluctuations in operating results than historically experienced. We have recently experienced net losses, we expect continuing losses and we may never achieve profitability. We incurred net losses of approximately $103,000 for the year ended December 31, 1999 and we may be unable to achieve or maintain significant revenues or profitability. We expect to continue to incur significant development, sales and marketing and other operational expenses in connection with our business. We may also incur expenses in connection with acquisitions or other strategic relationships. As a result of these expenses, we will need to generate significant quarterly revenue increases to achieve and maintain profitability. We expect that we will incur net losses for the foreseeable future. 8 If we fail to effectively expand our sales and marketing efforts in order to penetrate the middle market, our profitability may be harmed. In January 1999, we initially launched Enterprise Employer Services to expand our customer base from emerging companies to larger, more established middle-market companies. To date, we have six middle-market customers, and our business strategy and revenue goals depend on growing this customer base. We intend to increase our sales and marketing expenditures to penetrate the middle market. However, we have little experience marketing to middle-market companies, and we may find that we are unable to achieve our Enterprise Employer Services' goals or that achieving such goals requires significant unanticipated expenditures in sales and marketing that could harm our profitability. The lengthy sales cycle for Enterprise Employer Services products and services may cause us to incur substantial expenses and expend management time without generating corresponding revenues, which would affect our cash flow. A prospective customer's decision whether or not to implement our Enterprise Employer Services products and services requires us to dedicate a substantial amount of time, expense and other resources. The Enterprise Employer Services sales cycle varies in length from a few weeks to several months. If at the end of a sales effort a prospective customer does not purchase our products or services, we may have incurred substantial expenses and expended management time that cannot be recovered and that will not generate corresponding revenues. As a result, our cash flow and our ability to fund expenditures incurred during the sales cycle may be impaired. We are growing rapidly and must effectively manage and support our growth in order for our business strategy to succeed. We have grown rapidly in a relatively short period of time and will need to continue to grow in all areas of operation in order to execute our business strategy. Since 1995, we have expanded in response to significant customer growth and industry trends in favor of using outsourced business solutions. Managing and sustaining our growth has placed, and will continue to place, significant demands on our management as well as on our administrative, operational and financial systems and controls. If we are unable to manage our growth effectively, we may be unable to devote the necessary management and revenue resources to accomplish continued growth of our business and implementation of our business strategy. Key vendors are essential to maintaining our business systems. Our success depends in part on our ability to forge and maintain arrangements and relationships with key vendors who supply us with integral components of our software architecture. A substantial portion of the software that is integrated into our products and services is licensed from third parties, including PeopleSoft, Inc. and Concur Technologies, Inc. If we are unable to maintain these relationships, or if we are required to make significant changes in the terms and conditions of these arrangements, our business systems could be harmed. Our agreements with our software vendors are non-exclusive. Our vendors may choose to compete with us directly. Our vendors may also enter into strategic relationships with our competitors. These relationships may take the form of strategic investments, or marketing or other contractual arrangements. Our competitors may also license and use the same technology in competition with us. We cannot guarantee that the vendors of technology used in our products and services will continue to support their technology. Financial or other difficulties experienced by our vendors may adversely affect the technologies incorporated into our products and services. If these technologies become unavailable, we may be unable to find suitable alternatives. 9 We also rely on third parties such as Hewlett-Packard Company, Sun Microsystems, Inc. and Cisco Systems, Inc. to supply servers, routers, firewalls, encryption technology and other key components of our telecommunications and network infrastructure. If any of our vendors fail to provide necessary products or services in a timely fashion or at an acceptable cost, our business could be harmed. A disruption in telecommunications capacity could prevent us from maintaining our standard of service. Some of the key components of our systems and network are available only from sole or limited sources in the quantities and quality we require. Our success depends upon our ability to provide new and enhanced products and services that meet customer expectations. Our success will continue to depend upon our ability to provide new and enhanced products and services that address the needs of the market. Failure to develop and introduce new and enhanced products and services in accordance with customers' expectations could prevent us from maintaining existing customer relationships, gaining new customers or expanding our markets. Any failure in our systems could reduce the quality of our business services, which could harm our reputation and the success of our business and expose us to liability. Our business systems rely on the complex integration of numerous hardware and software subsystems to manage the transactions involved in acquiring the customer relationship through the processing of employee, payroll and benefits data. Any delay or failure in our systems, such as obstructions in our ability to communicate electronically with customers, employees or vendors, or in our ability to process data, could harm our reputation and the success of our business. We have from time to time experienced operational errors in these systems, which have caused errors in employee data, paychecks and benefits processing. The efficient operation of our systems is essential to customer acceptance of our products and services. If we are unable to meet customer demands or service expectations, we may be unable to forge and maintain the customer relationships that lead to recurring revenues. In addition, errors in our products and services, such as the improper denial of healthcare benefits or delays in making payroll, could expose our customers to liability for which we are contractually obligated to provide indemnification. Operational "bugs" may arise from one or more factors, including electro-mechanical equipment failures, computer server or systems failures, network outages, software performance problems, vendor performance problems and power failures. We expect bugs to continue to occur from time to time, any of which could cause our business to suffer. Our operations are dependent on each of our data centers being able to successfully provide back-up processing capability if we are unable to protect our computer and network systems against damage from a major catastrophe such as an earthquake or other natural disaster, fire, power loss, security breach, telecommunications failure or similar event. The precautions that we have taken to protect ourselves against these types of events may prove to be inadequate. If we suffer damage to our data or operations center, experience a telecommunications failure or experience a security breach, our operations could be seriously interrupted. Any interruption or other loss may not be covered by our insurance and could harm our reputation. In addition, we depend on the efficient operation of Internet and network connections among our systems, customers, benefit plans, plan administrators, financial institutions and regulatory entities. These connections in turn are based on the efficient operation of data exchange tools, web browsers, Internet service providers and Internet backbone service providers. Any disruption in Internet access provided by third parties could harm our business. 10 We must keep pace with rapid technological change in order to succeed. Our business depends upon the use of rapidly developing software, hardware, networking and Internet technologies. To succeed, we will need to effectively integrate new technologies as they become available to improve our products and services commensurate with customer requirements. In particular, we rely on enterprise software applications licensed from third parties that are upgraded from time to time. We may experience difficulties in adapting new technologies or product upgrades to our systems that could harm our performance or delay or prevent the successful development, introduction or marketing of new products and services. New products or upgrades may not be released according to schedule, or may contain defects when released. Difficulties in integrating new technologies could result in adverse publicity, loss of sales, delay in market acceptance of our products or services, or customer claims against us, any of which could harm our business. We could also incur substantial costs if we need to modify our services or infrastructure to adapt to these changes. In addition, we could lose market share if our competitors develop technologically superior products and services. The software that we have integrated into our products and services may have defects that could harm our reputation or decrease market acceptance of our products and services. Any interruptions caused by unknown defects in our software could damage our reputation, cause our customers to initiate product liability suits against us, cause us to lose revenue or delay market acceptance of the outsourced business service that is based on this software. Our software may contain errors or defects, particularly when new versions or enhancements are released. We may not discover software defects that affect our current software or enhancements until after they are incorporated into our systems, which could harm our business. The software applications that we license from PeopleSoft, Concur and other third parties and integrate into our service offerings may contain defects when introduced or when new versions or enhancements are released. If our products and services incorporate software that has defects and these defects impair our service offerings, our business may be harmed. Our executive officers and key technical employees are critical to our business and they may not remain with us in the future. Our future success will depend to a significant extent on the continued services of our executive officers and those of our technical employees who are skilled in transactional technology, database and networking. The loss of services of any of our executive officers and key technical employees could cause us to incur increased operating expenses and divert other senior management time in seeking replacements. The loss of their services could also harm our reputation as our customers could become concerned about our future operations. We must continually attract and retain highly skilled personnel or we will be unable to execute our business strategy. Our future success also will depend on our ability to attract, hire, train and retain highly skilled technical, sales and marketing and support personnel, particularly with expertise in outsourced solutions and the technology platforms that we deploy today and will deploy in the future. Qualified personnel are in great demand throughout the Internet and business process outsourcing industries. Our failure to attract and retain the appropriate personnel may limit the rate at which we can expand our business, including developing new products and services and attracting new customers. 11 Acquisitions could result in dilution, operating difficulties and other harmful consequences. We may, from time to time, pursue acquisitions that could provide new, or enhance existing, products or services, additional industry expertise, a broader customer base or an expanded geographic presence. We may pay for acquisitions by issuing additional common stock and this would dilute our stockholders. We may also use significant amounts of cash or incur debt or amortization expenses associated with goodwill and other intangible assets, any one of which could harm our business. In addition, acquisitions involve numerous risks, including: . difficulties in the assimilation of the operations, technologies, products and personnel of the acquired company; . diversion of management's attention from other business concerns; . entering markets in which we have no prior experience and may not succeed; and . potential loss of key employees of the acquired company. There are currently no active negotiations, commitments or agreements with respect to any such acquisition. Current and potential competitors could decrease our market share and harm our business. Our industry is intensely competitive, evolving rapidly and subject to technological change. Increased competition in the business process outsourcing industry could result in price reductions, reduced gross margins or loss of market share, any of which could decrease our revenues and profitability and harm our reputation. We expect competition to intensify in the future in each of the following principal competitive factors in this market: . human capital expertise; . data integration and transfer technology; . service integration technology; . customer service and support; and . product and service fees. We currently compete and face potential competition for customers with a number of companies, including the following: . human resource and information systems departments of companies that perform their own administration of benefits, payroll and human resources; . business process outsourcers with high-volume transaction and administrative capabilities, such as Automatic Data Processing, Inc. and ProBusiness Services, Inc.; . benefits exchanges, such as eBenefits and SmartBenefits; . providers of web-enabled human resource applications, such as Simpata, Inc. and Workscape, Inc.; and . application service providers, such as Corio, Inc., Employease Inc. and Usinternetworking, Inc. As the market evolves, we expect increased competition from new market entrants. Some of our current and future competitors are significantly larger, have greater name recognition and have greater financial, marketing and other resources than we do. We may be unable to compete successfully against current and future competitors. 12 Our business and reputation may be harmed if we are unable to protect customer and employee privacy. Our information systems and Internet communications may be vulnerable to physical break-ins, attacks by computer vandals or similar intrusions. A third party may attempt to breach our security and gain access to confidential customer, employee, benefit plan or payroll information, or our own confidential information. We may be liable to our customers for any breach in our security and any breach could harm our business and reputation. We rely on encryption technology licenses from third parties. We may be required to expend significant capital and other resources to license additional encryption technology and other technologies to protect against security breaches or to alleviate problems caused by any security breach. Our products and services are targeted at early stage and middle-market companies, which may be more volatile than well-established companies. As a result, we may experience greater customer turnover than if we targeted more mature companies. Our products and services are targeted at early stage and middle-market companies, which may be more likely to be acquired or to cease operations than other companies. As a result, our customer base may be more volatile than the customer bases of companies that have greater emphasis on more established companies. If we experience greater than expected customer turnover, either because our customers are acquired or cease operations or for any other reason, our business could be harmed. We must establish and maintain strategic partnerships to increase revenue growth. We believe that our future revenue growth depends in part on the successful forging and maintenance of relationships with strategic partners that can add value to our customer offering. We would like to partner with portal and other service providers such as banks and travel agencies to offer online services targeted to our customers. To date, we have established only a limited number of these relationships. Failure to maintain these relationships or establish new partnerships may slow our revenue growth. Economic downswings in the Northern California/Silicon Valley area would likely harm our business. While we presently maintain offices in seven markets, a significant portion of our business is concentrated in the Northern California/Silicon Valley area. As a result, negative economic and industry trends in this area could reduce the demand for business process outsourcing and harm our business. If the Financial Accounting Standards Boards, or FASB, were to reverse its current position on the issuance of stock options in a shared employer relationship, Venture Employer Services could experience significant customer loss. Whether or not a company can elect the intrinsic value method of accounting for stock options as specified in Accounting Principles Board, or APB, Opinion No. 25, depends on several factors, including whether the stock options are granted to employees of the grantor. When the grantor's employees are employed by the grantor as reflected on the grantor's payroll, the grantor can generally successfully elect the intrinsic value method of accounting. However, if stock options are granted to temporary employees or non-employee Board members, the FASB requires that the grantor account for the stock options under the standards specified in Statement of Financial 13 Accounting Standards No. 123, which would result in the grantor taking a charge to earnings. The effect of this distinction on shared employees where the grantor's employees were on the payroll of a business outsourcing provider such as Venture Employer Services was uncertain until the FASB began to clarify the issue in 1998. On March 31, 1999, the FASB released an Exposure Draft entitled "Proposed Interpretation Accounting for Certain Transactions Involving Stock Compensation--an Interpretation of APB Opinion No. 25," which sought to clarify this and other related issues. In that interpretation, the FASB concluded that the issuance of stock options in a shared employer relationship does qualify for APB Opinion No. 25 accounting treatment so long as certain criteria are met. In August and October of 1999, the FASB reiterated this position. We believe that our customer contracts comply with this criteria and that our customers may use APB Opinion No. 25 when accounting for the issuance of stock options. However, if the FASB were to reverse its position, we would expect to experience significant Venture Employer Services customer loss. Through Venture Employer Services we may be subject to liability for customer and employee activities. Our Venture Employer Services offering delivers services through a shared employer arrangement. A number of legal issues remain unresolved with respect to these arrangements, including uncertainties concerning the ultimate liability for violations of employment and discrimination laws. The Venture Employer Services customer service agreement establishes the contractual division of responsibilities between us and our customers for various matters arising out of the employment relationship, including compliance with and liability under various laws and regulations. We may be subject to liability for violations of these or other laws and regulations despite these contractual provisions, even if we do not participate in such violations. We have historically been, and expect to continue to be in the future, named as a co- defendant in employment practices liability lawsuits against our Venture Employer Services customers. Generally, federal and state laws that apply to the employer-employee relationship do not specifically address the obligations and responsibilities of shared employers like us. If these or other federal or state laws are ultimately applied to our customer relationships in a manner adverse to us, our business could be harmed. In addition, Venture Employer Services employees may be deemed our agents by legal authorities, which would subject us to liability for their violations. Although the Venture Employer Services customer service agreement provides that the customer indemnifies us for any liability attributable to the conduct and activities of the customer or its employees, we may be unable to collect on a contractual indemnification claim and thus may be responsible for satisfying these liabilities. In addition, although we carry insurance that is intended to cover us in the event of an agency finding or an adverse determination with respect to our liability for the conduct of our customers' employees, our insurers may deny coverage for the full amount of our submitted claims, and any claims submissions could result in cost increases in our insurance premiums. Implementation of new government regulations or changes in existing government regulations could significantly affect the cost of our operations. Our operations are governed by numerous federal, state and local laws relating to labor, tax and employment matters. However, most jurisdictions do not regulate the provision of outsourced human resources in a shared employer relationship. If federal, state or local jurisdictions were to change their regulatory framework related to outsourced human resources, or if additional jurisdictions 14 implemented laws governing our industry that were materially different from existing laws, we could be required to make significant changes in our methods of doing business which could increase our cost of operations. In addition, state regulatory authorities generally require licenses for companies that do business in their states as insurance agents or third party administrators, or TPAs. Insurance and TPA regulation covers a host of activities, including sales, underwriting, rating, claims payments and record keeping by companies and agents. If regulatory authorities were to determine that the nature of our business requires that we be licensed as an insurance agent or as a TPA, we would incur substantial increased costs and become subject to greater restrictions, which could harm our business. Further, because the application of e-commerce to the payroll, benefits and human resource fields is relatively new, the impact of current or future laws and regulations on our business is difficult to anticipate. Increases in premiums for insurance policies used by Venture Employer Services could harm our financial condition. A significant benefit offered by Venture Employer Services is maintaining health and workers compensation insurance plans that cover customer worksite employees. Any disruption in our relationship with the vendors who provide our health and workers compensation insurance or any failure to maintain cost- effective health and workers compensation plans could harm our business. Health insurance premiums, state unemployment taxes and workers compensation rates for Venture Employer Services are in part determined by our claims experience and comprise a significant portion of our direct costs billed. Each of these costs represents overhead items for Venture Employer Services. We employ extensive risk management procedures in an attempt to control claims incidence and ultimate cost. These measures include in-house staff, regular training, partnerships with skilled brokers and like strategies. Should we experience a large increase in claim activity, unemployment taxes, health insurance premiums or workers compensation insurance rates may increase. We may be unable to or delayed in incorporating these increases into service fees to customers. As a result, these increases could have a material adverse effect on our financial condition. An increase in bad debt expenses could harm our financial condition. The Venture Employer Services customer service agreement establishes a shared employer relationship with worksite employees and obligates us to assume payment of salaries, wages and related benefit costs and payroll taxes of these employees. Our direct obligation to these employees requires that we pay their salaries and wages regardless of whether the customer company makes timely payment to us of the associated service fee. We also must provide benefit plans to these employees even if the costs we incur exceed the fees paid by the customer company. We address this risk by requiring all customers to execute electronic funds transfer authorizations in our favor and by collecting payment for health insurance and payroll charges in advance of disbursement to the employees and carriers. We also secure surety bond coverage for the fees that are owed to us by our customers. During the period from January 1, 1994 through December 31, 1999, we have recorded approximately $298,000 in bad debt expense on approximately $1.6 billion of total payroll and insurance costs billed. In the event there are changes in the business markets that adversely affect the financial condition of large numbers of our customers at once, our protective measures may be insufficient and we may incur substantial liability for worksite employee payroll and benefits costs that would harm our financial condition. 15 If we are unable to protect our intellectual property, or if we infringe on the intellectual property rights of others, our business may be harmed. Our success depends in part on intellectual property rights to products and services that we develop. We rely on a combination of contractual rights, including non-disclosure agreements, trade secrets, copyrights and trademarks to establish and protect our intellectual property rights in our names, products, services and related technologies. Loss of intellectual property protection, or the inability to secure intellectual property protection on any of our names, confidential information, or technology could harm our business. We currently have no registered patents or pending patent applications covering any of our technology. We have received U.S. trademark registrations for TriNet Employer Group, TriNet Employer Group, Inc. (and Design) and Venture Talent. Our registrations may be unenforceable or ineffective in protecting our marks. We also claim common law rights in the Triangle Logo, and the marks TriNet, ePowered HR for Fast Companies, HR Passport, Passport Portal and Digital Human Resources. We typically enter into non-disclosure and confidentiality agreements with our employees and consultants with access to sensitive information. These agreements may be inadequate to protect our intellectual property rights or prevent misappropriation of our technology. Products and services with features similar to our products and services may be independently developed. Although we believe that none of our intellectual property infringes on the rights of others, third parties may nevertheless assert infringement claims against us in the future. We may be required to modify our products, services, internal systems, or technologies, or obtain a license to permit our continued use of those rights. We may be unable to do so in a timely manner, or upon reasonable terms and conditions. Failure to do so could harm our business. In addition, future litigation over these matters could result in substantial costs and resource diversion. Adverse determinations in any litigation or proceedings of this type could subject us to significant liabilities to third parties and could prevent us from using some of our products, services, internal systems or technologies. Our name and marks may be unenforceable in countries outside of the United States, which may adversely affect our ability to use our name and marks outside of the United States. We invest funds transferred to us by our customers for use in servicing their business until needed for the applicable service. We are liable for any losses ensuing from this investment activity, and our business could be harmed by unexpected fluctuations in interest rates. We invest funds transferred to us by customers, such as wage, benefits and tax funds, until needed for the applicable service, such as remitting the payroll tax funds to tax authorities when due. We typically invest these funds in short-term financial instruments such as overnight U.S. government direct and agency obligations repurchase agreements, commercial paper rated A-1 and/or P-1 and money market funds with an underlying credit quality of AA or better. These investments are exposed to credit risks from the possible inability of the borrowers to meet the terms of their obligations under the financial instruments. We are liable for any losses on these investments. In addition, interest income earned from investing these funds represents a portion of our revenues. As a result, our business could be significantly impacted by interest rate fluctuations. 16 There are many risks associated with international operations. We are actively engaged in business in Canada and are targeting efforts to further diversify internationally. Our expansion into international markets will subject us to a number of risks, including: . costs of customizing products and services for foreign countries; . laws and business practices favoring local competition; . dependence on local vendors; . compliance with multiple, conflicting and changing governmental laws and regulations; . longer sales cycles; . greater difficulty in collecting accounts receivable; . import and export restrictions and tariffs; . difficulties staffing and managing foreign operations; and . political and economic instability. Our future revenue growth depends in part on the development and growth of the Internet and e-commerce. Rapid growth in the use of the Internet and the development of e-commerce is a recent phenomenon. The use of our Internet-related services, which will affect our future revenue growth, may not grow if Internet use in general does not continue to grow. Internet acceptance and use may not continue to develop at historical rates and a sufficiently broad base of business customers may not adopt or continue to use the Internet as a medium of commerce. Varying factors could inhibit future growth in Internet usage, including: . inadequate network infrastructure; . security concerns; . inconsistent quality of service; and . unavailability of cost effective, high speed service. We face risks in connection with the year 2000. Many installed computer systems and software products were programmed to accept only two digits in the date code field. As of January 1, 2000, it became necessary for these code fields to accept four digit entries to distinguish years beginning with "19" from those beginning with "20." We have assessed all of our internal computer systems and software products, tested those systems and products and remedied any known problems. We have communicated with our key suppliers to assess whether or not the products, services, networks and technologies of these suppliers are year 2000 compliant. We have also completed an assessment of whether our networks that depend upon third parties for telecommunications services and power are year 2000 compliant. In the fourth quarter of 1999, we completed our year 2000 assessment, testing and remediation efforts. We have a contingency plan for handling year 2000 problems that were not detected and corrected prior to their occurrence, and we are continuing to assess any exposure areas in order to determine what additional steps are advisable. We are prepared to use backup systems and have developed other alternative contingency plans for other critical functions where computer systems are essential. To date, we have not experienced any material year 2000 problems. However, if all of our potential year 2000 problems were not properly identified or if adequate assessment and remediation are not timely effected with respect to any year 2000 problems, our business could be harmed. Moreover, any year 2000 compliance problems facing our suppliers or vendors could also harm our business. 17 Risks Related to Our Offering Our stock price may be volatile. We expect our stock price to be subject to wide fluctuations in response to a variety of factors, including factors beyond our control. These broad market and industry factors could harm the market price of our common stock, regardless of our performance. These factors include: . actual or anticipated quarterly variations in our operating results; . changes in expectations as to our future financial performances or changes in financial estimates, if any, of securities analysts; . announcements of new human resources products, services or technological innovations; . announcements relating to strategic relationships and transactions; . customer relationship developments; . regulatory changes; . success of our operating strategy; . competition; . additions or changes in key personnel; . sales of substantial amounts of our common stock or other securities on the open market; and . the operating and stock price performance of comparable companies. In addition, the stock market has experienced extreme price and volume fluctuations, which have particularly affected the prices of many Internet and e-commerce companies and which have often been unrelated to the operating performance of these companies. These market fluctuations may cause a decline in the market price of our common stock. In the past, following periods of volatility in the market price of a particular company's securities, securities class action litigation has often been brought against that company. We may become involved in this type of litigation in the future. Litigation is often expensive and diverts management's attention and resources, which could harm our business. An active public market for our common stock may not develop. An active public market for our common stock may not develop or be sustained after this offering. The initial public offering price for the shares has been determined by negotiations between us and the representatives of the underwriters and does not necessarily relate to any established criteria of value. As a result, our stock price may trade at prices below our offering price. The allocation of proceeds from this offering may not yield significant returns for our stockholders. We have not yet allocated a substantial portion of the net proceeds of this offering to specific uses. Management will have broad discretion as to the application of the offering proceeds. Pending the use of such proceeds for general corporate purposes and acquisitions, such proceeds will be placed in short-term, interest-bearing, investment-grade debt securities, certificates of deposit or direct or guaranteed obligations of the United States. It is possible that the return on such investments will be less than that which would be realized were we immediately to use such funds for other purposes. 18 A large number of shares becoming eligible for sale after this offering could cause our stock price to decline. Sales of a substantial number of shares of our common stock in the public market following this offering, or the perception that sales could occur, could cause the market price of our common stock to decline. See "Shares Eligible for Future Sale." Our directors, executive officers and principal stockholders will be able to exert significant influence over us. After this offering, our directors, executive officers and our stockholders who currently own over 5% of our common stock will beneficially own approximately % of our outstanding common stock. These stockholders, if they vote together, will be able to exercise significant influence over all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. This concentration of ownership may also delay or prevent a change in control of us. You will incur immediate and substantial dilution in the net tangible book value of the stock you purchase. The initial public offering price is substantially higher than the net tangible book value of $ per share that our outstanding common stock will have immediately after this offering. Accordingly, if you purchase shares of our common stock, you will incur immediate and substantial dilution of $ per share. If the holders of outstanding options exercise those options, you will suffer further dilution. See "Dilution." Our undesignated preferred stock may inhibit potential acquisition bids for us, cause the market price for our common stock to fall and diminish the voting rights of the holders of our common stock. If our board of directors issues preferred stock, potential acquirors may not make acquisition bids for us, our stock price may fall and the voting rights of existing stockholders may diminish as a result. Our board of directors has the authority to issue up to 5,000,000 shares of preferred stock in one or more series. Our board of directors can fix the price, rights, preferences, privileges and restrictions of the preferred stock without any further vote or action by our stockholders. See "Description of Capital Stock-- Preferred Stock." We have anti-takeover defenses and employment agreements that could delay or prevent an acquisition of our company. Provisions of our certificate of incorporation and bylaws and Delaware law could make it more difficult for a third party to acquire us, even if doing so would be beneficial to our stockholders. In addition, we have employment agreements with our executive officers that provide for the payment of certain benefits, the acceleration of vesting of stock options and the rights of these officers to require us to purchase their stock at a premium if these officers are terminated within a specified period following the occurrence of a change of control event. These agreements may make it more difficult for a third party to acquire us. See "Management--Employment Agreements" and "Description of Capital Stock." 19 We may need to raise additional capital to achieve our business objectives. We may need to raise additional capital to continue to develop our business. Additional financing may not be available on favorable terms or at all. If adequate funds are not available or are not available on acceptable terms, we would be unable to achieve one or more of our business objectives, including: . continue to develop our business; . take advantage of acquisition opportunities; . develop or enhance our products and services; . increase our revenues; or . respond to competitive pressures. FORWARD-LOOKING STATEMENTS This prospectus, including the "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business" sections, contains forward-looking statements that involve risks and uncertainties. The statements relate to future events or our future financial performance. In many cases, you can identify forward-looking statements by the use of words such as may, will, should, expects, plans, anticipates, believes, estimates, predicts, potential or continue, or the negative of these terms or other comparable terminology. Our actual results could be materially different from those anticipated in these forward-looking statements as a result of a number of factors, including the risks we face described above and elsewhere in this prospectus. Before you decide to invest in our common stock, you should be aware that if any of the events described in the "Risk Factors" section and elsewhere in this prospectus occur, they could have an adverse affect on our business, financial condition and results of operations. We are not obligated to update any forward-looking statements. 20 USE OF PROCEEDS We estimate that the net proceeds we will receive from the sale of the shares of common stock offered by us will be $ million. Our calculation of the net proceeds assumes an initial public offering price of $ per share and is net of the estimated underwriting discounts and commissions and offering expenses payable by us. We will not receive any proceeds from shares sold by the selling stockholder. We intend to use approximately $ million of the net proceeds of this offering to discharge our loan from Sanwa Bank California. The interest rate on this debt is either LIBOR plus 3.6% or the bank's reference rate plus 1.0%, at our option, and the line of credit that we have with the bank converts into a term loan on March 31, 2000 that matures on March 31, 2003. We borrowed this money to develop our software systems and licensing and to purchase computer hardware. The remaining net proceeds of this offering will be used for general corporate purposes, including working capital, sales and marketing expenditures and development of new products and services, and we may also use a portion of the net proceeds to acquire or invest in complementary businesses, technologies, products or services, although we have no present agreement or understanding with respect to any material acquisition or investment. We have not determined the amount of net proceeds to be used specifically for each of the foregoing purposes. Accordingly, our management will have broad discretion to spend flexibly in applying most of the net proceeds of this offering. Pending their use we intend to invest the net proceeds of this offering in interest-bearing securities. DIVIDEND POLICY We have never declared or paid any cash dividends on our common stock. We currently intend to retain future earnings to finance the growth and development of our business, and we do not expect to pay any cash dividends in the foreseeable future. 21 CAPITALIZATION The following table presents our capitalization as of December 31, 1999: . on an actual basis; . on a pro forma basis to reflect the conversion of all outstanding preferred shares into 542,304 shares of common stock, which will occur before the closing of this offering; and . on a pro forma as adjusted basis to reflect the pro forma adjustment and our sale of shares of common stock in this offering at an assumed initial offering price of $ per share and our receipt of the net proceeds from the sale of those shares, after deducting estimated underwriting discounts and commissions and offering expenses payable by us.
As of December 31, 1999 -------------------------------- Pro Forma Actual Pro Forma As Adjusted ------- ----------- ----------- (unaudited) (unaudited) (in thousands, except share data) Long-term debt................................ $ 1,767 $ 1,767 $ Deferred income taxes......................... 1,084 1,084 Redeemable convertible preferred stock, Series E, $40 stated value, 75,000 shares authorized; 12,500 shares outstanding (actual); no shares outstanding (pro forma and pro forma, as adjusted).................. 500 -- Stockholders' equity: Preferred stock, $0.0001 par value; 5,000,000 shares authorized; no shares outstanding (actual, pro forma and pro forma as adjusted)................................... -- -- Common stock, $0.0001 par value; 100,000,000 shares authorized; 6,385,394 shares outstanding (actual); 6,927,698 shares outstanding (pro forma); and shares outstanding (pro forma as adjusted)......... 6,620 7,120 Deferred compensation......................... (1,073) (1,073) Accumulated deficit........................... (725) (725) Accumulated other comprehensive loss.......... (6) (6) ------- ------- ---------- Total stockholders' equity.................. 4,816 5,316 ------- ------- ---------- Total capitalization....................... $ 8,167 $ 8,167 $ ======= ======= ==========
The above information excludes as of December 31, 1999: . 689,627 shares of common stock issuable upon exercise of outstanding options at a weighted average exercise price of $4.82; and . shares reserved for future issuance under our employee benefit plans. 22 DILUTION Our pro forma net tangible book value as of December 31, 1999 was $ million, or $ per share of common stock. Pro forma net tangible book value per share is determined by dividing the amount of pro forma tangible assets less total liabilities, by the pro forma number of shares of common stock outstanding, assuming the conversion of all outstanding shares of preferred stock into common stock. Dilution in net tangible book value per share represents the difference between the amount per share paid by purchasers of shares of common stock in this offering and the pro forma net tangible book value per share of our common stock immediately after this offering. After giving effect to our sale of shares of common stock in this offering at an assumed initial public offering price of $ per share and after deducting estimated underwriting discounts and commissions and offering expenses payable by us, our adjusted pro forma net tangible book value as of December 31, 1999 would have been $ million, or $ per share. This amount represents an immediate increase in pro forma net tangible book value of $ per share to existing stockholders and an immediate dilution of $ per share to investors in this offering. The following table illustrates this dilution of net tangible book value per share: Assumed initial public offering price............................ $ Pro forma net tangible book value per share as of December 31, 1999.......................................................... $ Increase per share attributable to new investors............... ---- Pro forma as adjusted net tangible book value per share after this offering................................................... ---- Dilution per share to new investors.............................. $ ====
The following table summarizes as of December 31, 1999, on the pro forma basis discussed above, the number of shares of common stock purchased from us, the total consideration paid to us and the average price per share paid by existing stockholders and by the investors purchasing shares of common stock in this offering, at an assumed initial public offering price of $ per share, before deducting estimated underwriting discounts and commissions and offering expenses payable by us. Shares to be sold by the selling stockholder are excluded from the shares purchased by the new investors and included in shares purchased by the existing stockholders in this table.
Shares Total Purchased Consideration -------------- -------------- Average Price Number Percent Amount Percent Per Share ------ ------- ------ ------- ------------- Existing stockholders............ % $ % $ New investors.................... ---- ----- ----- ----- Total.......................... 100.0% $ 100.0% ==== ===== ===== =====
Sales by the selling stockholder in this offering will have the following effects: . it will reduce the shares held by existing stockholders to shares, or % of the total shares outstanding after this offering; and . it will increase the shares held by new investors to , or % of the total shares outstanding after this offering. The exercise of the underwriters' over-allotment in full will have the following effects: . it will reduce the shares held by existing stockholders to shares, or % of the total shares outstanding after this offering; and . it will increase the shares held by new investors to , or % of the total shares outstanding after this offering. The above information excludes 689,627 shares of common stock issuable upon the exercise of options outstanding as of December 31, 1999 at a weighted average exercise price of $4.82 per share. If any of those options are exercised, new investors will incur further dilution. 23 SELECTED FINANCIAL DATA The tables that follow present portions of our financial statements and are not complete. You should read the selected financial data below in conjunction with our financial statements and the related notes included elsewhere in this prospectus and in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing elsewhere in this prospectus. The following selected financial data as of December 31, 1998 and 1999 and for the years ended December 31, 1997, 1998 and 1999, have been derived from, and are qualified by reference to, our audited financial statements and notes thereto, which are included elsewhere in this prospectus. The selected financial data as of December 31, 1995, 1996 and 1997 and for the years ended December 31, 1995 and 1996 were derived from our audited financial statements, which do not appear in this prospectus. Historical results are not necessarily indicative of future results.
Year Ended December 31, ----------------------------------------- 1995 1996 1997 1998 1999 ------ ------ ------- ------- ------- (in thousands, except per share data) Results of Operations: Service revenues (net of direct costs billed of $79,077, $117,026, $241,917, $386,221, $712,945, respectively)...................... $2,515 $3,139 $ 7,749 $12,443 $19,127 Operating expenses: Cost of providing services......... 1,586 1,687 4,120 6,379 10,102 Client acquisition costs........... 521 635 1,078 1,102 2,541 General and administrative......... 582 614 846 1,783 2,543 Research and development........... 180 194 488 719 2,353 Depreciation....................... 112 139 229 565 743 Stock-based compensation........... -- -- -- 146 651 ------ ------ ------- ------- ------- Total operating expenses.......... 2,981 3,269 6,761 10,694 18,933 ------ ------ ------- ------- ------- Operating income (loss)............. (466) (130) 988 1,749 194 Interest income (expense), net...... (19) (26) 19 38 64 Foreign exchange gain (loss)........ -- -- -- (26) 38 (Provision) benefit for income taxes.............................. 20 (1) (247) (779) (399) ------ ------ ------- ------- ------- Net income (loss)................... $ (465) $ (157) $ 760 $ 982 $ (103) ====== ====== ======= ======= ======= Net income (loss) available to common stockholders................ (466) (217) (347) 455 (133) Basic net income (loss) per common share.............................. $(0.14) $(0.07) $ (0.10) $ 0.07 $ (0.02) Basic weighted average shares outstanding........................ 3,260 3,323 3,599 6,303 6,340 Diluted net income (loss) per common share.............................. $(0.14) $(0.07) $ (0.10) $ 0.07 $ (0.02) Diluted weighted average shares outstanding........................ 3,260 3,323 3,599 6,593 6,340 Pro forma basic and diluted net (loss) per common share (unaudited)........................ $ (0.01) Pro forma basic and diluted weighted average shares outstanding (unaudited)........................ 6,883 December 31, ----------------------------------------- 1995 1996 1997 1998 1999 ------ ------ ------- ------- ------- (in thousands) Consolidated Balance Sheet Data: Cash and cash equivalents........... $2,470 $4,807 $ 7,927 $ 8,585 $16,777 Working capital..................... 550 418 251 1,005 113 Total assets........................ 4,797 8,528 14,758 20,092 35,791 Long-term obligations............... 176 66 -- 531 2,851 Redeemable convertible preferred stock.............................. 959 1,455 -- 500 500 Total stockholders' equity (deficit).......................... (10) (411) 2,943 4,068 4,816
24 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with our financial statements and the related notes and the other financial information appearing elsewhere in this prospectus. In addition to historical information, the following discussion and other parts of this prospectus contain forward-looking information that involves risks and uncertainties. Our actual results could differ materially from those anticipated by forward-looking information due to factors discussed under "Risk Factors," "Business" and elsewhere in this prospectus. Overview We provide web-enabled business process outsourcing, or BPO, of payroll, benefits and human resource support to fast growth technology companies in North America. In 1990, we introduced Venture Employer Services targeted to emerging fast-growth technology companies. In January 1999, we initially launched Enterprise Employer Services, an integrated outsourced payroll and benefits administration service for middle-market companies. Service revenues for Venture Employer Services, Enterprise Employer Services, Venture Talent and Venture Management Resources consist of fees charged for services and vary based on the level of services provided. Customers of Venture Employer Services enter into a customer service agreement that establishes a shared employer relationship between us and the customer. The agreement provides for an initial one-year term, subject to cancellation on 30 days' notice by either us or the customer. Direct costs billed that are associated with the gross payroll of each employee, the estimated costs of employment related taxes, and health and welfare benefit plan premiums are not included in service revenue. These fees are invoiced along with each periodic payroll processed. Each customer service agreement obligates us to provide the benefits and services enumerated in that agreement as well as to pay the direct costs billed associated with these benefits and services regardless of whether the customer makes timely payments to us. The most significant direct costs associated with each customer service agreement are the salaries and wages of employees that generally are disbursed promptly after the applicable customer service fee is received. Investment revenue is earned during the period between collecting customer funds and the payment of applicable wages and the remittance of funds to the applicable taxing authorities as well as other regulatory and insurance entities. Investment revenue by Venture Employer Services and Enterprise Employer Services is included in service revenues. Cost of providing services consists primarily of salaries and wages from our payroll, benefits and human resource departments as well as the overhead relating to these functions. As we expand our operations to service additional customers and employees, we expect these expenses will continue to increase. Client acquisition costs consist primarily of salaries, commissions and wages associated with our sales force, marketing department and client implementation services. In addition to these costs, costs relating to the marketing programs supporting us are included within client acquisition costs. We intend to pursue additional sales and marketing campaigns and therefore expect these expenses to increase in the future. 25 General and administrative expenses consist primarily of salaries and related personnel expenses for executive, accounting and administrative personnel, professional fees and other general corporate expenses. As we add personnel and incur additional costs related to the growth of our business and assume the responsibilities and costs associated with becoming a public company, we expect that general and administrative expenses will also increase. Research and development expenses consist primarily of salaries and related personnel expenses, consultant fees relating to the design, development, testing and enhancement of our back-end software and processes as well as employee and management interfacing applications. We believe that continued investment in research and development is critical to attaining our stated objectives. We expect these expenses to increase significantly in the future as we continue to develop and enhance our service offerings. In connection with the grant of certain options to employees, we recorded non-cash stock-based compensation charges of approximately $1.4 million for the year ended December 31, 1999 and $503,000 for the year ended December 31, 1998, representing the difference between the exercise price of these options and the deemed fair value of our common stock as of the date of grant. These amounts are being amortized over the respective vesting periods of the options using a graded method. As of December 31, 1999, the remaining deferred compensation was scheduled to be amortized at the rate of $674,000 for the year ending December 31, 2000, $279,000 for the year ending December 31, 2001, $106,000 for the year ending December 31, 2002 and $14,000 for the year ending December 31, 2003. The actual amount of stock-based compensation expense to be recognized in future periods could decrease if options for which deferred compensation has been recorded are terminated before they vest. Our provision for income taxes exceeds the U.S. statutory rate of 34% and is expected to continue to exceed the statutory rate primarily due to state income taxes and the amortization of nondeductible stock-based compensation. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities used for financial reporting purposes and the amounts used for income tax purposes. Significant items resulting in deferred income taxes include software development costs, depreciation and accrued expenses. Changes in these items are reflected in our financial statements through our deferred income tax provision. We believe that period-to-period comparisons of our operating results should not be relied upon as indicative of future performance. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in new and rapidly evolving markets. We may not succeed in addressing these risks and difficulties. Although we have experienced revenue growth in the past, this growth may not continue. 26 Results of Operations The following table sets forth statement of operations data as a percentage of total revenues for the periods indicated:
Year Ended December 31, --------------------------- 1997 1998 1999 ------- ------- ------- Service revenues (net of direct costs billed).... 100.0 % 100.0 % 100.0 % ------- ------- ------- Operating expenses: Cost of providing services...................... 53.2 51.3 52.8 Client acquisition costs........................ 13.9 8.8 13.3 General and administrative...................... 10.9 14.3 13.3 Research and development........................ 6.3 5.8 12.3 Depreciation.................................... 3.0 4.5 3.9 Stock-based compensation ....................... -- 1.2 3.4 ------- ------- ------- Total operating expenses....................... 87.3 85.9 99.0 ------- ------- ------- Operating income................................. 12.7 14.1 1.0 Interest income (expense), net................... 0.2 0.3 0.3 Foreign exchange gain (loss)..................... -- (0.2) 0.2 (Provision) benefit for income taxes............. (3.1) (6.3) (2.0) ------- ------- ------- Net income (loss)................................ 9.8 % 7.9 % (0.5)% ======= ======= =======
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998 Service Revenues. Our service revenues increased $6.7 million to $19.1 million in 1999 from $12.4 million in 1998, representing an increase of 53.7%. This increase was primarily due to the introduction of Enterprise Employer Services, an increase in the number of customers and related increases in the number of employees processed under Venture Employer Services and increases in placement fees generated by Venture Talent. Prior to 1999, we had no service revenues from Enterprise Employer Services. Cost of Providing Services. Our cost of providing services increased $3.7 million to $10.1 million in 1999 from $6.4 million in 1998, representing an increase of 58.4%. The increase was due to increases in the number of personnel in payroll, benefits and human resource administration functions relating to providing services to our customers. Client Acquisition Costs. Client acquisition costs increased by $1.4 million to $2.5 million in 1999 from $1.1 million in 1998, representing an increase of 130.5%. This increase was primarily attributable to salaries and commissions associated with newly hired personnel as a result of expanding into new geographic markets and new marketing programs. General and Administrative Expense. General and administrative expense increased by $761,000 to $2.5 million in 1999 from $1.8 million in 1998, representing an increase of 42.7%. The increase primarily resulted from salaries associated with newly hired personnel and related operational costs required to manage our growth. Research and Development Expense. Research and development expense increased $1.6 million to $2.4 million in 1999 from $719,000 in 1998, representing an increase of 227.4%. The 27 increase in research and development expense reflects our additional expenditures for the development of front-end and back-end software applications. Depreciation Expense. Depreciation expense increased $178,000 to $743,000 in 1999 from $565,000 in 1998, representing an increase of 31.5%. This is due to an increase in capitalized information technology equipment and capitalized licensed software as a result of additional development of front-end and back- end software applications. Year Ended December 31, 1998 Compared to Year Ended December 31, 1997 Service Revenues. Our service revenues increased $4.7 million to $12.4 million in 1998 from $7.7 million in 1997, representing an increase of 60.6%. This increase was primarily due to an increase in the number of customers and related increases in the number of employees processed under Venture Employer Services as well as increases in placement fees generated by Venture Talent. Cost of Providing Services. Our cost of providing services increased $2.3 million to $6.4 million in 1998 from $4.1 million in 1997, representing an increase of 54.8%. The increase was due to increases in the number of personnel in payroll, benefits and human resource administration functions relating to providing services to our customers. Client Acquisition Costs. Client acquisition costs remained consistent between 1998 and 1997 at approximately $1.1 million. The amount remained constant as a result of no net increase in personnel costs during 1998 and 1997. General and Administrative Expense. General and administrative expense increased by $1.0 million to $1.8 million in 1998 from $846,000 in 1997, representing an increase of 110.6%. The increase primarily resulted from salaries associated with newly hired personnel and related operational costs required to manage our growth. Research and Development Expense. Research and development expense increased by $231,000 to $719,000 in 1998 from $488,000 in 1997, an increase of 47.1%. The increase in research and development expense reflects our additional expenditure for the development of front-end and back-end software applications. Depreciation Expense. Depreciation expense increased $336,000 to $565,000 in 1998 from $229,000 in 1997, an increase of 147.1%. This was due to an increase in capitalized information technology equipment and capitalized licensed software as a result of additional development of front-end and back-end software applications. 28 Quarterly Results of Operations The following tables represent unaudited statement of operations data for our most recent eight quarters. The first table contains revenue and expense data expressed in dollars, while the second table contains the same data expressed as a percentage of our revenue for the periods indicated. You should read the following table in conjunction with our consolidated financial statements and related notes appearing elsewhere in this prospectus. We have prepared this unaudited information on a basis consistent with the audited consolidated financial statements contained in this prospectus and includes all adjustments, consisting only of normal recurring adjustments, that we consider necessary for a fair presentation of our financial position and operating results for the quarters presented. Our quarterly results have been in the past, and in the future may be, subject to fluctuations. As a result, we believe that results of operations for the interim periods are not necessarily indicative of results for any future period.
Three Months Ended -------------------------------------------------------------------------------- Mar. 31 June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31, 1998 1998 1998 1998 1999 1999 1999 1999 ------- -------- --------- -------- -------- -------- --------- -------- (in thousands) Service revenues (net of direct costs).......... $2,724 $2,819 $3,321 $3,579 $4,160 $4,360 $4,779 $5,828 Cost of providing services............... 1,468 1,548 1,614 1,749 2,093 2,210 2,600 3,199 Client acquisition costs.................. 277 267 243 315 474 574 562 931 General and administrative ........ 433 418 438 494 613 565 577 788 Research and development ....................... 215 126 159 219 363 358 477 1,155 Depreciation ........... 136 139 141 149 168 180 188 207 Stock-based compensation ....................... 2 7 63 74 90 121 216 224 ------ ------ ------ ------ ------ ------ ------ ------ Total operating expenses.............. 2,531 2,505 2,658 3,000 3,801 4,008 4,620 6,504 ------ ------ ------ ------ ------ ------ ------ ------ Operating income (loss)................. 193 314 663 579 359 352 159 (676) Other income (expense): Interest income, net... 9 9 12 8 11 12 13 28 Foreign exchange gain (loss)................ (8) (8) (10) -- (22) 15 2 43 ------ ------ ------ ------ ------ ------ ------ ------ Income (loss) before provision for income taxes.................. 194 315 665 587 348 379 174 (605) (Provision) benefit for income taxes........... (81) (131) (297) (270) (504) (544) (267) 916 ------ ------ ------ ------ ------ ------ ------ ------ Net income (loss)....... $ 113 $ 184 $ 368 $ 317 $(156) $ (165) $ (93) $ 311 ====== ====== ====== ====== ====== ====== ====== ====== As a percentage of total revenues: Service revenues (net of direct costs).......... 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % Cost of providing services............... 53.9 54.9 48.6 48.9 50.3 50.7 54.4 54.9 Client acquisition costs.................. 10.2 9.5 7.3 8.8 11.4 13.2 11.8 16.0 General and administrative ........ 15.9 14.9 13.2 13.8 14.7 12.9 12.1 13.5 Research and development ....................... 7.9 4.5 4.8 6.1 8.7 8.2 10.0 19.8 Depreciation ........... 5.0 4.9 4.2 4.1 4.1 4.1 3.9 3.6 Stock-based compensation ....................... 0.0 0.2 1.9 2.1 2.2 2.8 4.5 3.8 ------ ------ ------ ------ ------ ------ ------ ------ Total operating expenses.............. 92.9 88.9 80.0 83.8 91.4 91.9 96.7 111.6 ------ ------ ------ ------ ------ ------ ------ ------ Operating income (loss)................. 7.1 11.1 20.0 16.2 8.6 8.1 3.3 (11.6) Other income (expense): Interest income, net... 0.3 0.3 0.4 0.2 0.3 0.3 0.3 0.5 Foreign exchange gain (loss)................ (0.3) (0.3) (0.4) 0.0 (0.5) 0.3 0.1 0.7 ------ ------ ------ ------ ------ ------ ------ ------ Income (loss) before provision for income taxes.................. 7.1 11.1 20.0 16.4 8.4 8.7 3.7 (10.4) (Provision) benefit for income taxes........... (3.0) (4.6) (8.9) (7.5) (12.1) (12.5) (5.6) 15.7 ------ ------ ------ ------ ------ ------ ------ ------ Net income (loss)....... 4.1 % 6.5 % 11.1 % 8.9 % (3.7)% (3.8)% (1.9)% 5.3 % ====== ====== ====== ====== ====== ====== ====== ======
29 Our quarterly operating results have fluctuated significantly in the past, and will continue to fluctuate in the future as a result of a number of factors, many of which are outside of our control, including: . the number and size of new customers initiating service; . the decision of one or more customers to delay implementation or cancel ongoing services; . our ability to design, develop and introduce new services and features for existing services on a timely basis; . costs associated with strategic acquisitions and alliances or investments in technology; . expenses incurred for geographic and service expansion; . a reduction in the number of employees of our customers; and . acquisitions of our customers by other companies. Our expenses are relatively fixed in the near and medium terms and are based in part on our expectations of future revenues, which may vary significantly. Our expectations regarding future revenues may not be accurate. If we do not achieve expected revenue targets, we may be unable to adjust our spending quickly enough to offset any revenue shortfall, which could harm our operating results. Liquidity and Capital Resources Since our inception we have funded our operations primarily through private sales of convertible preferred equity securities resulting in aggregate net proceeds of $7.25 million and cash from operations. We have also funded our operations through a debt agreement with Sanwa Bank California that provides us with up to $4.0 million in financing. We had drawn down $2.4 million on this line of credit as of December 31, 1999. Net cash provided by operating activities for 1999 was $11.6 million as a result of a net loss of $103,000 and an increase in accrued compensation and related expenses relating to timing differences in receiving and remitting funds to insurance carriers and taxing authorities of customer payrolls of $10.7 million. Net cash provided by operating activities was $2.2 million in 1998 and $4.2 million in 1997. This decrease resulted from the timing of payrolls at the end of the reporting periods and the associated accruals. Net cash used in investing activities was $4.7 million for 1999 as a result of purchases of equipment and the capitalization of development costs relating to the migration of our back-office processing systems to our new PeopleSoft platform. Net cash used in investing activities was $1.9 million in 1998 and $2.2 million in 1997 and was related to investments in infrastructure for expansion of long-term operations, including software development costs. Net cash provided by financing activities was $1.4 million for 1999, primarily as a result of borrowing $1.2 million from Sanwa Bank California. Net cash provided by financing activities was $427,000 during 1998 and $1.2 million during 1997, primarily due to the issuance of $500,000 in preferred stock in 1998 as compared with $1.0 million in preferred stock in 1997. 30 We expect to experience growth in our working capital needs for the foreseeable future in order to execute our business plan. We anticipate that operating activities as well as planned capital expenditures will constitute a substantial use of our cash resources. In addition, we may utilize cash resources to fund acquisitions or investments in complementary businesses, technologies or products. We believe that the net proceeds from this offering, together with our current cash and cash equivalents and cash generated from operations will be sufficient to meet our anticipated cash requirements for working capital and capital expenditures for the next 12 months. During or after this period, if cash generated by operations is insufficient to satisfy our operating requirements, we will be required to seek additional debt or equity financing. We may be unable to obtain any financing on terms acceptable to us, if at all. If we sell additional equity securities, our stockholders' holdings could be diluted. Year 2000 Issues The Year 2000 issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any computer programs or hardware that have date-sensitive software or embedded chips may recognize a date using 00 as the year 1900 rather than the year 2000. This could result in system failures or miscalculations causing disruptions of operations for any company using computer programs or hardware, including among other things, a temporary inability to process data or engage in normal business activities. As a result, many companies' computer systems may need to be upgraded or replaced in order to avoid Year 2000 issues. State of Readiness. We have completed our assessment of any potential Year 2000 issues for our internal computer applications, including embedded control systems in equipment to determine whether they will function for the Year 2000 and beyond and what modifications would be required to ensure their continuing functionality. We implemented a new financial accounting system in May of 1998 that is Year 2000 compliant. Our legacy human resource information system has been upgraded to be Year 2000 compliant and we are migrating all customers to our new human resource information system that is also Year 2000 compliant. We performed backups of the existing and previous versions of our legacy human resource information system so that in the event our new human resource information system and related hardware do not function properly we can continue to operate under our legacy system. We are unable to control whether systems operated by our suppliers of goods and services are Year 2000 compliant. The failure of systems operated by our suppliers could cause us to incur significant expenses to remedy any problems or otherwise seriously damage our business. We have communicated with suppliers to assess the risk of Year 2000 issues. Based on these results, we do not expect any material Year 2000 issues regarding our dealings with our suppliers. We do not believe that Year 2000 issues will have a material impact on our business, financial condition or results of operations. Budget. Our costs of Year 2000 compliance have been immaterial. Reasonably Likely Worst Case Scenario. If we or our suppliers of goods and services fail to remedy any Year 2000 issues, the reasonably likely worst case scenario would be the interruption of our services to our customers, which could harm our business. We are unable to estimate the duration and extent of any interruption, or estimate the effect such interruption may have on our future results of operations. 31 Contingency Plans. We have adopted contingency measures to ensure the uninterrupted operation of our business, including: . creation of an additional processing facility to reduce the dependency on a single facility; . off-site storage of tape backup; . paper archive copies of critical data; and . availability of information systems staff to correct any isolated problems. Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," or FAS 133. FAS 133 requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designed as part of a hedge transaction, and, if so, the type of hedge transaction. In June 1999, the FASB issued Statement of Financial Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133," or FAS 137, which amends FAS 133 to be effective for all fiscal quarters or all fiscal years beginning after June 15, 2000 or January 1, 2001 for us. We do not expect that adoption of FAS 137 will have a material impact on our reported results of operations. Quantitative and Qualitative Disclosures About Market Risk Interest Rate Risk. We are subject to market risk from exposure to changes in interest rates based on our investing and cash management activities. We use overnight investments that may include U.S. government agency and other corporate debt and securities. Our current borrowings from Sanwa Bank bear interest at a variable rate and on March 31, 2000 will convert to a fixed rate term note. Accordingly, we believe there is currently minimal exposure to interest rates. Foreign Currency Exchange Rate Risk. To date, substantially all of our service revenues have been denominated in U.S. dollars and generated primarily from customers in the United States, and our exposure to foreign currency exchange rates has been immaterial. We expect, however, that future service revenues may also be derived from international operations where service revenues may be denominated in currency of the applicable market. We do not currently use or anticipate using financial hedging techniques to attempt to minimize fluctuations in exchange rates. 32 BUSINESS Introduction We are a leading provider of web-enabled business process outsourcing, or BPO, of payroll, benefits and human resource support and technology to fast- growth technology companies in North America. With significant web delivery capabilities already enabled, and others in development, we believe that we offer the first fully integrated end-to-end e-commerce solution for payroll, benefits and human resource transactions. Our systems and services allow our customers to focus on their respective core business functions by outsourcing their human resource technology or entire human resource functions to us without losing real-time access to critical data. In addition, we serve as an exchange between our customers and a variety of benefit plan and financial service providers, creating economies of scale and efficiencies in the procurement, set-up and on-going maintenance of vendor relationships involving the full range of payroll, benefits and human resource processes. We have over 10 years of industry experience in providing BPO services to fast-growth technology companies in North America. We target "fast companies" that are characterized by rapid headcount growth, outside equity financing and highly skilled, technically savvy work forces. The complexities of managing rapid growth make fast companies receptive to value-added outsourcing relationships. We provide fast companies with access to enterprise-class technology, benefits packages and employee self-service offerings while alleviating time-consuming administrative tasks associated with the implementation and maintenance of these complex functions. Our market focus has created a large and growing referral network among venture investors and also provides an opportunity for us to achieve compounding internal growth as our customers expand their employee headcount. Industry Overview of Business Process Outsourcing for Payroll, Benefits and Human Resources According to Dataquest, the human resource outsourcing industry is forecast to grow from $13.9 billion in 1999 to $37.7 billion in 2003, representing a compound annual growth rate of 28.3%. Companies are increasingly turning to BPO to address a range of needs, such as payroll, benefits and human resource processes, that were formerly handled in-house. In a PricewaterhouseCoopers study performed by Yankelovich Partners of global top decision makers on BPO, 42% of surveyed executives indicated a company-wide shift toward using BPO. The study reported that the 10 business processes most likely to be outsourced to external service providers are payroll, benefits management, real estate management, tax compliance, claims administration, applications processing, human resources, internal auditing, sourcing/procurement and finance/accounting. The Yankelovich study reported that 90% of the top decision makers selected a BPO service provider based on its track record and business process specialization. The market for BPO of payroll, benefits and human resource processes has grown significantly in part due to the difficulties of managing these activities internally. Within a company, these processes are complex, cumbersome, expensive and highly inefficient. This is caused by a number of factors, including: . complex, voluminous and constantly changing government regulations involving payroll, benefits and human resources; . substantial liability that employers face for non-compliance and employee-initiated claims; 33 . the need for a verifiable audit trail to provide precision in payroll, benefits and human resource transactions; . the practice of larger employers in the United States to provide multiple benefit plan options allowing employees to make choices that suit their individual need; . the dedication of technology resources to mission critical activities involving product development and sales, causing human resource processes to remain on largely inefficient platforms; and . the expense associated with creating an integrated platform and quick obsolescence of these platforms. In addition, for many small and middle-market employers, the functions of payroll, benefits and human resources are typically outsourced to multiple vendors, which specialize in a specific category. The following vendor relationships are typically established: . payroll service provider; . insurance broker for benefits such as health, life and disability plans; . casualty insurance broker for workers compensation; . insurance carriers and health plan providers; . cafeteria plan administrator for claims, enrollments and records involving flexible benefits; . 401(k) securities advisor; and . 401(k) plan administrator. Growth in Applications Outsourcing The data and transaction intensive nature of payroll, benefits and human resource functions combine to form a complex undertaking for a company that wishes to integrate all related processes to a single information system. Fortune 1000 companies may streamline and integrate aspects of related business processes through implementing enterprise resource planning, or ERP, systems such as PeopleSoft, SAP AG or Oracle Corporation. However, the long implementation time and high cost of an ERP system precludes many middle-market companies, or companies with 200 to 5,000 employees, and most emerging growth companies, or companies with up to several hundred employees, from pursuing this option. Recently, a number of companies, known as application service providers, or ASPs, began providing integrated ERP applications that are hosted by the ASP and accessed by the customer through the Internet. Growing prominence of the Internet as a platform to host and distribute ERP applications has contributed to the Forrester Report's prediction that the applications outsourcing industry will grow from $17 billion in 1997 to reach $21 billion by 2001. Growth of Outside Equity Financed Technology Companies The challenges and complexities of payroll, benefits and human resource functions are heightened for companies characterized by high growth and intense competition for qualified employees. These companies need processes that are easily integrated and scalable and can offer them a competitive advantage in the tight labor market. One segment of these companies is technology firms whose rapid growth is fueled by outside equity investment such as venture capital, corporate partnerships or the public market. As a result of the increasing availability of private and 34 public financing, the number of fast-growth technology companies has increased in the recent past and continues to increase. According to PricewaterhouseCoopers, the number of companies funded by venture capital for 1999 was 4,006 firms, a 41% increase from 1998. PricewaterhouseCoopers also reported that the total amount of venture capital invested rose from $14.2 billion in 1998 to $35.6 billion in 1999 of which $10.8 billion in 1998 and $32.4 billion in 1999 was invested in technology companies. According to PricewaterhouseCoopers, the average deal size for all venture capital investments increased from $5.2 million in 1998 to $8.9 million in 1999. Payroll, Benefits and Human Resource Processes The payroll, benefits and human resource processes consist of two basic components commonly referred to as the "front-end" and "back-end" processes. The front-end includes processes and interfaces to collect, update, effect and communicate changes in employee data. Front-end transactions include the processing of personal and employment life event changes such as new hires, family members, salary, address and termination, and require interactions between the employee, manager or human resources administrator. Unless automated, these changes typically involve a lengthy period of time for these parties to initiate, approve and post transactions to one or more information systems. While employees, managers and administrators all require access to human resource information, the confidential nature of this information requires adequate safeguards to prevent unauthorized disclosure. Automation of front-end processes has historically been difficult to achieve as access and approval must conform to, and evolve with, a company's unique organizational structure. Front-end processes include: . obtaining information about an employee's current status or historical transactions involving payroll, benefits or human resources; . accessing management reporting for company-wide or work unit information appropriate to the manager's or administrator's position in the organization; . enrollment in, on-going communication related to, and changes to all employee benefit plans offered in the organization; . initiating and approving the full range of payroll, benefits and human resource transactions including routine personal and employment life event changes; and . communicating customized company policy information and processes involving payroll, benefits and human resources. The back-end involves high volume information processing of functions that are sufficiently standardized across all companies to permit specialized systems to receive, store and transact routine and repetitive functions involving payroll, benefits and human resources. Portions of the back-end functions may be performed through a company's internal human resource information system. For fast growth technology companies, these functions are more typically outsourced to specialized third party providers. Back-end processes include: . data storage of all historical transactions covering payroll, benefits and human resource transactions; . calculation, withholding and electronic remittance of payroll taxes to taxing authorities nationwide; 35 . calculation, deduction, and electronic remittance of payment transactions with exchange partners such as benefit plan and financial service providers; and . exchange systems that transfer data involving eligibility, enrollment, life event and related transactions to benefit plan and financial service providers. Limitations of Traditional Outsourcing Alternatives Each service or benefit plan provider has its own information system and separate reporting requirements for the employer to inform the provider of routine personal and employment life event changes such as new hires, family members, salary, address and termination. As the information systems of the different service and benefit plan providers do not interface with each other, an employer's in-house staff must coordinate the processing of each change with all related vendors. In addition, the collection, storage and transmission of this data to vendors remains a labor-intensive, paper-based and error-prone process. If an employer fails to accurately update eligibility or financial data in a timely fashion, an employee may be denied health care coverage or receive an incorrect salary deposit. Errors increase administrative costs and impair employee morale. Except for organizations deploying an ERP system for payroll, benefits and human resources, the front-end processes for these functions are accomplished in most companies through a combination of paper and e-mail based processes, or direct contact between a manager or employee with the company's human resources administrator. As a result of recent developments in web-based technology, several front-end solutions are emerging in the marketplace for payroll, benefits and human resources. However, front-end only solutions are limited in their ability to provide access to all of the relevant data desired by the customer as they are dependent upon back-end providers like payroll processing firms and third party administrators to perform transactions and store data. In addition, most front-end solution providers rely upon manual and bridged data transfers between multiple and redundant software applications, or entirely outsourced functional areas, which decrease the flexibility and scalability of these solutions. We believe that back-end providers such as payroll processing firms and third party administrators are currently not significantly involved in integrating the functions of payroll, benefits and human resources to a single information system. We are unaware of any back-end providers that offer web- based front-ends that extend to the employee and manager desktops for initiation and approval of self-directed transactions involving payroll, benefits and human resources. Because most back-end providers market their services to companies across a broad spectrum of industries, we believe their user populations are not yet consistently web-enabled to warrant the significant investment required to develop and deploy a web-based front-end that extends across the entire workforce of their customer companies. In addition, the lack of integration and data warehousing restricts these back-end providers' ability to increase operational efficiency and develop personalized technology for targeted service deliveries in specific markets. While ASPs have evolved as a means for companies to outsource the procurement, hosting, implementation and maintenance of ERP systems, we believe that ASPs do not currently perform transaction processing or provide the functional expertise to manage the operation of technology related to the integration of the payroll, benefits and human resource functions. 36 Opportunity for an Integrated Business-to-Business E-Commerce Solution With the widespread implementation of intranets and the adoption of the Internet as a business communications platform, organizations can now automate enterprise-wide and interorganizational human resource transactions. The availability of this technology creates a significant market opportunity for Internet-based business-to-business e-commerce solutions for payroll, benefits and human resources. Payroll, benefits and human resource transactions lend themselves to Internet processing because these transactions are information-based and do not require delivery of durable goods at the point of payment. However, payroll, benefits and human resource functions involve confidential information, complex and interrelated data elements, and ongoing data management between multiple organizations, unlike other e-commerce opportunities such as making travel reservations or purchasing merchandise. Currently, there are mature outsourcing providers for selected back-office processes involving payroll and benefits. There are an emerging number of web- based front-end solutions that must interface with back-end providers. We believe an optimal e-commerce solution for payroll, benefits and human resources can only exist if there is seamless end-to-end integration of the front- and back-end processes on a single information systems platform that is scalable for large volume transaction processing. TriNet Solution We believe our approach delivers the first end-to-end business-to-business e-commerce solution for payroll, benefits and human resources. Our solution integrates a web-based front-end for self-directed transactions with back-end processes that include electronic interfaces to our service providers. Our solution provides the following key benefits: Provide an advanced integrated solution that allows customers to focus on their core business. From providing BPO to 58 companies in 1995 to over 375 customers in 1999, we have built systems and services that enable customers to integrate payroll, benefits and human resources to a single information systems platform, as well as outsource related back-end transaction processing functions. We are committed to providing our customers with the most advanced applications and systems available. To allow our customers to avail themselves of Internet technology for human resources, we provide a user-friendly, intranet or extranet-based system that links employees, managers and administrators with an integrated global network. By accessing our human resource information systems infrastructure and using our enterprise level business processes, customers can outsource major portions of their human resource needs and focus on their own core business functions. Provide human resource solutions tailored to fast growth technology companies' employees. We provide fast-growth technology companies with rapid deployment of our products and services, with an average of two weeks from engagement to implementation. Once implemented, our system streamlines the payroll, benefits and human resource processes. In addition, employees of these companies typically have desktop Internet access and can take full advantage of our web-based front-end solutions to fulfill self-directed transactions. 37 Provide an easily scalable and integrated solution. The business environment created by outside equity financing of technology companies also prompts a rapid and continuous growth in employee headcount, creating a variety of specialized needs within the category of human resources that are suitable for outsourcing. Time and growth pressures fueled by the outside equity investor model create special needs for scalable and integrated human resource solutions. Our modular and integrated solution is capable of handling many aspects of a company's growing payroll, benefits and human resource needs from a company's inception through its growth into the middle market. Provide customers with economies of scale and efficiencies. Because we serve as an exchange between our customers and a variety of benefit plan and financial service providers, we provide customers with economies of scale and efficiencies in the procurement, set-up and on going maintenance of vendor relationships involving the full range of human resource functions. Our system takes advantage of an organization's existing investments in information technologies by working with and connecting to multiple systems, including the company's financial and internal reporting processes. Our aggregation of customers serviced by our system permits us to offer to emerging growth and middle-market companies enterprise-class solutions that are otherwise cost prohibitive to all but the largest companies. TriNet Strategy Our objective is to be the leading provider of web-enabled business process outsourcing of payroll, benefits and human resource support and related technology to fast-growth technology companies worldwide. Key elements of our strategy to achieve this objective are: Continue to develop and improve our end-to-end e-commerce solution for a complete range of payroll, benefits and human resource transactions. Our existing web-enabled front-end is being enhanced with applications currently being implemented and others now in development. These advances will add significant value to our customer service, as well as increase internal operating efficiencies and improve our solution's scalability to address the needs of middle-market companies. We plan to create multiple layers of customer dependency by increasing the penetration of our complementary products such as comprehensive recruitment solutions and consulting services. In addition, we will continually enhance our services through initiatives integral to our quality management program installed and implemented pursuant to the international ISO 9001 certification of this program. Leverage our existing customer base for internal growth and referrals. A common characteristic of technology firms whose growth is fueled by venture capital and public financing is their rapid growth. Because a majority of our services are provided on a fee per employee basis, our customers' growth results in increased revenue opportunities for us. Because many of these fast- growth technology companies have obtained their equity financing from many of the same entities, through our relationships with our customers, we have been able to build a network of referral sources. In addition, many of our customers are venture capital firms and service providers who support these "fast companies." We intend to aggressively pursue referral opportunities generated by these customers as well as joint partnerships with customers. As we develop complementary products, we will take advantage of our cross-selling opportunities to increase revenue growth from existing customer relationships. Enhance TriNet brand recognition in the middle market. While we will continue to preserve a leadership position in the market of fast-growth technology companies with up to several hundred 38 employees, our strategy includes attaining a similar level of recognition and revenue generation among middle-market fast-growth technology companies with 200 to 5,000 employees. We estimate that we have approximately an 85% retention rate of total serviced employees in the United States. However, as many of our earlier stage customers grow, they no longer need to aggregate their employees with us in order to enjoy economies of efficiency and scale. To address our maturing customer base, we have begun implementing a new product offering targeted to the middle market. As of January 31, 2000, we had entered into agreements with six middle-market customers. Our services offer middle-market companies a scalable and integrated platform that they can use for payroll, benefits and human resource functions. Pursue key strategic relationships and develop new product offerings to further enhance our revenue streams, customer base and solutions. We intend to pursue key strategic relationships, including partnerships, joint ventures and acquisitions. These strategic relationships could include companies that provide additional business development opportunities and service offerings of interest to our customers, including 401(k) plan administration, asset management, stock option administration, electronic banking and human resource consulting. We also intend to use our market knowledge and experience to develop new products that will leverage the market channels created by the deployment of our technology. Based on the nexus between our business customers and individual employees to whom we provide service, we plan to create a network effect that will build on the strengths of both the business-to- business and business-to-consumer delivery models. For example, by mining data, we can help our portal partners deliver their marketing messages on a more targeted basis. We also plan to expand our revenue generating opportunities by mining and offering portions of our data online. Through a human resource e- commerce portal, we will help organizations obtain knowledge about fast-growth technology companies, their practices and the people who work for them. Expand geographically to new markets. We intend to pursue additional market development activities in both new and developed markets, and evaluate other geographic areas where there are demonstrated concentrations of firms fitting our fast-growth technology company target profile in both emerging and middle markets. We currently have sales offices in six of the top 10 venture-funded geographical areas cited by the PricewaterhouseCoopers' Quarterly Moneytree survey for the third quarter of 1999. We opened three of these sales offices in the last six months and we intend to open additional offices in key technology centers. As existing customers request the services of foreign employees in other countries, we anticipate targeting our resources and systems capabilities towards our goal of becoming the first global provider of BPO for payroll, benefits and human resources. Products and Services We provide web-enabled business process outsourcing of payroll, benefits and human resource support using an integrated information systems platform that is supported by our back-office transaction processing capabilities. For over a decade, our market focus has been devoted exclusively to fast-growth technology companies that are characterized by rapid headcount growth, outside equity financing and highly skilled, technically savvy work forces. Our systems infrastructure and transaction processing are supplemented by optional layers of fee-based human resource management expertise including employer related risk management, recruitment, international employer services and management consulting. The combination of our service modules permits customers to engage us for services that would otherwise typically involve from five to a dozen different vendor relationships. 39 Our decade-long focus on fast companies has facilitated the development of a range of human resource products and services based on a single technology platform. We have tailored each offering to meet the specialized needs of companies fitting our customer profile. [SINGLE TECHNOLOGY PLATFORM GRAPHIC APPEARS HERE] SINGLE TECHNOLOGY PLATFORM WITH CUSTOMIZED SERVICE SUITE TriNet's eBusiness Platform . Payroll . Benefits . Call Center . HR Information System . HR Passport--Sell-directed Web-based Transactions Venture Employer Services Enterprise Employer Services . Emerging companies . Middle market companies . TriNet is employer of record . Customer is employer of record TriNet payroll ID# Customer payroll ID# TriNet benefit plans* Customer benefit plans TriNet workers comp policy Customer workers comp policy TriNet shares employer risk Customer keeps all employer risk . TriNet provides scalable levels of . Customer builds own HR team HR management
* except for 401(k) and incentive stock option plans sponsored by customer Venture Employer Services, our largest and most mature business unit, is targeted to emerging fast-growth technology companies of up to several hundred employees and leverages our eBusiness platform to integrate functions of payroll, benefits and human resource support to a single information system. We aggregate the employees of smaller fast-growth technology companies into a single employer group with TriNet serving as employer of record for payroll taxes, selected benefit plans and related employer compliance requirements. This aggregation permits us to offer the customer economies of scale in purchasing benefits, as well as economies of efficiency in the administration of various employer requirements ranging from payroll tax deposits to workers compensation and government reporting. Venture Employer Services includes scalable levels of on-site human resource management support and, as our flagship business service, represents the largest of our business units. Our Venture Employer Services customer base increased from 58 customers as of January 31, 1995 to over 370 customers as of January 31, 2000, which represented 84% of our total serviced employees. Enterprise Employer Services, targeted to middle-market fast-growth technology companies with 200 to 5,000 employees, uses our eBusiness platform to integrate selected functions of payroll, benefits and human resource support to a single information system. These services are also supported by our back- office processing capabilities. In January 1999, we initially launched Enterprise Employer Services to offer an upward migration path for Venture Employer Service customers, particularly those growing to several hundred or more employees. However, our continued development and deployment of web technology has made the model attractive for any fast-growth 40 technology company that no longer needs to aggregate employees with us in order to enjoy economies of efficiency and scale, but still values a web-enabled, scalable and integrated offering. Our Enterprise Employer Services customer base increased to six customers as of January 31, 2000, which represented 16% of our total serviced employees. Venture Talent, launched in 1996, targeted to fast-growth technology companies of up to several hundred employees, provides comprehensive and integrated staffing and recruitment solutions such as Internet delivered automation tools, on-site recruitment staff, off-site research and candidate development and an applicant tracking system. By combining multiple candidate sources, including Venture Talent generated resumes, web posting responses, resumes from online databases, employee referrals and recruitment agency candidates, this service enables customers to meet their critical hiring needs faster than if they used any one of these sources individually. Venture Talent offers a range of service solutions customized to meet the needs of fast-growth technology companies throughout their growth cycle, and allows them to benefit from our growing network of referral sources and business relationships. The length and scope of engagements for Venture Talent vary based upon customer need. Our Venture Talent customer base increased from 10 customers as of January 31, 1997 to 45 customers as of January 31, 2000. Venture Management Resources, our consulting service which we initially launched in 1998, is targeted to emerging and middle-market fast-growth technology companies. Venture Management Resources is empowered with easy access to our extensive database of information involving human resource practices of fast-growth technology companies, including those derived from data mining of our payroll, benefits and human resource transactions processed through our Venture and Enterprise Employer Services. Using a combination of data analysis and a decade long history of working with management issues specific to fast-growth technology companies, Venture Management Resources provides fee-for-service consulting and administrative services involving pay and performance, change management, training, international employment, policy development, employee relations, pre-employment screenings and employee communications. The length and scope of engagements for Venture Management Resources vary based upon customer need. Our Venture Management Resources customer base consisted of 29 customers in the 12 months ended January 31, 2000. 41 Representative Functions Performed by TriNet's eBusiness Platform
Payroll Benefits Human Resources - --------------------------------------------------------------------------------- Calculation and End-to-end, online Government mandated remittance of payroll enrollment for benefit reporting for all taxes plans employers - --------------------------------------------------------------------------------- Calculation and Online access to benefit Online access to withholding of all plan information individual employee benefit plan deductions records - --------------------------------------------------------------------------------- Direct deposit of Total administration of Online new hire processing paychecks flexible spending accounts - --------------------------------------------------------------------------------- Customized management Administration of Online access for human reporting to reflect Consolidated Omnibus resource related guidance customer's cost center Budget Reconciliation Act for managers and organization (COBRA) and Health structure Insurance Portability and Accounting Act (HIPAA) - --------------------------------------------------------------------------------- Remittance of payments Reconciliation of benefit Online access to employee to all benefit plan and plan payments with all handbook and company financial service enrollment, change and policy vendors termination transactions - --------------------------------------------------------------------------------- Employment verifications Annual open enrollment Posting service for job involving employee communications and openings at client income administration companies - --------------------------------------------------------------------------------- Wage garnishments and Liaison with benefit plan Online access to related reporting providers for employee information on products service issues and services where we have negotiated volume discounts
Customers and Partners We tailor our services to meet the specific needs of fast-growth technology companies. As a leader in providing BPO to the fast-growth technology company market niche, we have developed specialized knowledge of the products and services important to these organizations. We qualify customer prospects based on the following fast-growth technology company profile: . Fast headcount growth. The headcount growth rate is a significant part of our economic model as pricing of our core services for Venture and Enterprise Employer Services is based on the number of employees we service for the customer. Every time a customer adds a new person to its total employee headcount, we compound our revenue stream. Our historical average over the last five years has shown a rate of "internal growth," net of new sales activity, to be in excess of 3% per month. . Outside equity financing. We seek customers that have received substantial outside equity financing from professional investors. Servicing outside equity-financed companies provides us with customers who have low credit risk and the ability to meet aggressive hiring targets, 42 and allows us to leverage a growing network of referral sources and business relationships with various venture capitalists and corporate financiers. Currently, over 85% of our customers either have received outside equity financing in the form of venture capital, sophisticated angel investors, corporate financing or the public market or are venture capital firms. . Highly compensated, professional/technical workforce. Our customers' employees averaged $89,000 per year in salary as of the quarter ended December 31, 1999. A highly compensated workforce helps ensure our customers have a consistent employee profile and can take advantage of both our web-enabled service delivery platform and full service suite, including Venture Talent and Venture Management Resources. For Venture Employer Services, consistency in the highly compensated professional/technical workforce reduces our risk in managing aspects of serving as employer of record. Through Venture Employer Services, we have historically targeted emerging fast-growth technology companies with up to several hundred employees. In response to the maturing of these emerging fast-growth technology companies into middle-market companies with 200 to 5,000 employees, we introduced Enterprise Employer Services specifically to target these middle-market companies. As of January 31, 2000, our over 375 customers had employees in 47 U.S. states, as well as Canada and the United Kingdom. We are also providing expatriate services to customers with employees in Brazil, Germany, the Netherlands, Taiwan and the United Kingdom. As of January 31, 2000, while 58% of our customers were based in Silicon Valley, our fastest growing regional offices have been in the southeastern and southwestern United States. In the year ended December 31, 1999, no customer contributed more than 3.5% to our service revenues and our top five customers combined for a total of 11.1% of our service revenues. Representative Customer Profiles The following are a representative sample of our "customer-oriented" solutions: Entrust Technologies Inc. Entrust Technologies Inc. (NASDAQ: ENTU) is a global leader in providing products and services that allow eBusinesses to manage trusted, secure electronic transactions and communications over today's advanced networks, including the Internet, extranets and intranets. Opportunity: Entrust was founded in 1997 as a corporate spin-off from Nortel Networks. The founding team included a number of management and technical staff who left their positions at Nortel to launch Entrust. As a new company with defined expectations from an existing base of employees, Entrust sought to establish a full corporate benefits and human resource system to transition from Nortel as well as facilitate its planned rapid growth. Solution: Entrust selected Venture Employer Services as a platform to launch its payroll, benefits and human resource functions when the company was formed. We currently service the entire Entrust U.S.-based workforce of 90 employees as of January 31, 2000 in 8 states. We have also incorporated Entrust's patented encryption technology into our eBusiness platform to ensure confidentiality of our customer and employee information for web-enabled transactions and management reporting. 43 Interliant, Inc. Interliant, Inc. (NASDAQ:INIT), which had received venture funding from SoftBank, is a leading ASP. Interliant's solutions enable companies of all sizes to capitalize on the latest web-based technologies and packaged software applications quickly and cost effectively. Opportunity: Interliant needed a cost-effective human resource outsourcing provider that could support its acquisition growth strategy. Acquisitions enable a company to grow rapidly but challenge a company's ability to deliver consistent employee support to disparate and geographically diverse entities. Interliant sought a unified human resource infrastructure that could quickly support large employee increases. Solution: We began working with Interliant on January 1, 2000 and rapidly implemented our Enterprise Employer Services in each of 12 Interliant locations in the United States with approximately 840 employees nationwide as of January 31, 2000. Interliant continues to grow via acquisitions, and enjoys integrated multistate compliant service for all acquired units. We currently service Interliant's locations in California, Florida, Maryland, Massachusetts, New Jersey, New York, Texas and Virginia. MobileForce Technologies, Inc. Funded by Capstone Ventures, GECC, Oak Hill Ventures and VantagePoint Venture Partners, MobileForce provides broadband operational support system solutions for the cable, telecommunications and Internet provider industries. Its "Nvision" software provides innovative field service automation with wireless communications enabled by an intuitive browser-based user interfaces. Opportunity: MobileForce needed to tap the technology labor pool available in the United States and Canada to gain a significant competitive advantage for furthering its technology and bringing its product to market. To solve the compliance and employee equity challenges of having employees dispersed in the United States and Canada, MobileForce sought a single-source provider that could establish and maintain specialized payroll, benefits and human resources processes required to service its employees in multiple U.S. states and Canada. Solution: We began our strategic relationship with MobileForce in early 1998. We have provided MobileForce with scaleable human resource as the company's employees have expanded to multiple locations in the United States and Canada. As of January 31, 2000, MobileForce had 72 employees in California, Colorado, Massachusetts, New Jersey, Texas and Canada. Symbian, Inc. Symbian owns, licenses, develops and supports leading software, user interfaces, application frameworks and development tools for wireless information devices such as communicators and smartphones. Symbian aims to promote standards for the interoperability of wireless information devices with wireless networks, content services, and messaging and enterprise-wide solutions. Headquartered in London, England,Symbian has offices in Tokyo and Kanazawa, Japan; Ronneby, Sweden; Cambridge, England and the San Francisco Bay Area. Symbian is owned by Ericsson, Inc., Matsushita Electric Industrial Co., Ltd., Motorola, Inc., Nokia Corp. and Psion PLC. Opportunity: Because Symbian was the product of a joint venture between well-established corporations, we serve a workforce that, although belonging to a "startup" company, had expectations of corporate-level payroll, benefits and human resource support. Furthermore, Symbian 44 was headquartered outside the United States and consequently had little experience with employment issues and potential liabilities in the United States. Because of this, the company sought assistance in modifying its corporate structure and human capital management for both competitive and compliance reasons. Solution: Seeking to compete in a high-growth space, in 1999 Symbian selected our single source solution by engaging a full suite of services to aid its United States market penetration. As of January 31, 2000, Symbian had nine employees in the United States. Venture Employer Services addresses Symbian's human resource needs in the areas of payroll processing, benefits administration, human resource information system support, risk control and human resource management. Our Venture Management Resources group helped Symbian develop United States compliant and labor market sensitive job descriptions, compensation plans and corporate human resource policies and practices. Symbian selected full-service staffing solutions from our Venture Talent division and with its assistance has hired candidates for key positions throughout the organization. Webvan Group, Inc. Webvan Group, Inc. (NASDAQ: WBVN) is a full service online grocery and drug store with free delivery for orders over $50. Orders can be placed 24 hours a day, seven days a week, with delivery the same day or up to seven days later within a 30-minute window specified by the user. Opportunity: Founded in 1996, the company launched with a handful of employees and a contract with us to handle all of its human resource needs. Though small, Webvan needed a solution that would deliver employee support services during its entire lifecycle. Webvan also needed a selection of national, AAA-rated benefits plans to attract and retain employees, thereby expediting its aggressive growth strategy. Solution: Webvan selected Venture Employer Services to support its long-term growth and national expansion. Headquartered in the Bay Area in Foster City, California, Webvan reached a total of 343 corporate employees during 1999 and became a publicly-traded company late in 1999. After raising more than $375 million in its initial public offering, Webvan signed a service agreement extending Venture Employer Services for an additional 12 months. Marketing and Provider Relationships We have entered into a number of strategic marketing and provider relationships with companies that are recognized in their respective fields as market leaders. Bessemer Venture Partners Bessemer Venture Partners is a venture capital firm which through its funds, Bessemer Ventures V L.P., Bessec Ventures V L.P. and BVE LLP, has made an equity investment in us. Bessemer is among the oldest venture capital firms, and it invests about $200 million annually in a portfolio that includes companies who are our customers. We are providing services to a new company recently formed by Bessemer to capitalize and accelerate business-to-business e-commerce ventures. We anticipate referrals to new ventures capitalized by this new company. 45 Select Appointments (Holdings) PLC Select Appointments (Holdings) PLC is a wholly owned subsidiary of Vedior NV (AEX:VDOR). Vedior NV is the world's third largest publicly traded international staffing and outsourced human resource firm. Our equity financing and strategic relationship with Select enable us to access its portfolio companies in 28 countries. Through our sister-relationship with other companies in the Select portfolio, we have obtained local country management support and transaction processing as a service to our customers who hire foreign employees in other countries. SoftBank Venture Capital One of the largest venture capital groups with more than $900 million under management, SoftBank's investments include E*TRADE Group, Inc., Yahoo! Inc., ZDNet Group, Critical Path, Inc., E-Loan Inc. and GeoCities. We are the only business process outsourcer for human resources to enjoy a preferred provider relationship with SoftBank's incubator unit and have the opportunity to be referred to each company that flows through the incubator's portfolio. Our services help SoftBank portfolio companies meet their aggressive growth targets. Silicon Valley Bank Silicon Valley Bank, or SVB, is a leading provider of financial services to emerging growth outside equity financed technology companies. With a similar target market profile, SVB has an office in each geographic area of the United States where we maintain a branch office. We enjoy a formal referral relationship with SVB where both parties share in business development opportunities. Additionally, we are a member of SVB's partnership program, eSource, and contribute human resource content to the eSource extranet on an ongoing basis. United HealthCare Our largest health care insurance carrier vendor is United HealthCare, which treats us as a national account. Because of our relationship with United HealthCare, we are able to structure an array of benefits offerings which reflects the preferences of our fast-growth technology company target market. We supplement this offering with our own fully staffed Benefits Department and Call Center, allowing us to provide a sophisticated benefits service suite. Sales and Marketing We currently market and sell our service suite through a direct sales force of 14 regional managers and three sales executives, supported by a sales administration staff of three persons. In the fourth quarter 1999 and the first quarter 2000, we expanded our sales force from seven to 14 sales professionals for Venture Employer Services, with three sales executives focused on major account sales for Enterprise Employer Services. Our sales offices are located in six of the top 10 markets for investment of venture capital in the United States according to PricewaterhouseCoopers' Quarterly Moneytree Survey for the third quarter of 1999. Our sales process has demonstrated increased efficiency at leveraging the rapid pace of decision making in our target market of fast-growth technology companies. In 1999, with almost the same number of sales professionals as the prior year, we nearly doubled the number of new customers acquired. Our sales professionals tap into a highly developed referral relationship and lead exchange program comprised of venture capitalists and other trusted advisors to our target market decision makers. 46 We deploy sales personnel in technology centers and areas with high levels of formal venture capital or private equity investment in accordance with our target market of fast-growth technology companies. We employ a "pull" expansion strategy in which we initially sell in a new area on a remote basis and, upon reaching a target operating volume of customers, make an investment in opening a new branch office to further leverage referral contacts from local customers, venture capitalists and trusted business advisors. We recruit sales personnel from outsourced human resource services, payroll services, insurance brokerage and legal practices and focus on people who are trained in a customer-centered consultative sales approach. Most leads are generated for Venture Employer Services customers through the tight knit referral community that incubates venture capital backed companies. As of January 31, 2000, our customers had received financing from more than 200 venture capital firms, providing a deep network of relationships that we continue to develop. With approximately 40 venture capital firms and their employees on our payroll as of January 31, 2000, we are a larger employer of venture capital professionals than any firm currently listed with the National Venture Capital Association. We have steadily built these relationships, along with those of trusted advisors in the venture-backed community, over time to produce an ongoing flow of new business development opportunities in our target market of fast-growth technology companies. Our relationship-selling model and narrowly defined target market of fast- growth technology companies enable a lean, but highly focused marketing effort. In 1999 we had three marketing professionals. We recently added a marketing vice president and are currently recruiting additional marketing staff. Our limited marketing resources and a decade of experience in marketing to fast-growth technology companies have allowed us to gain experience in carefully pinpointing the customer decision makers we seek and how to attract them. As a result, we intend to build our brand and attract new middle-market customers through carefully targeted print and online advertising, direct e-marketing, event sponsorship, public relations campaigns and an active public web site with content of interest to fast-growth technology companies. We plan to continue to pursue our target market through local and regional advertising and technology and venture capital-related associations and events. As we continue to extend our market focus from emerging to middle-market companies, we plan to target our larger Venture Employer Services customers as candidates for Enterprise Employer Services. With the deployment of significant enhancements to our web-enabled product suite, our sales and marketing efforts have expanded to include those middle-market firms that are not necessarily customers of Venture Employer Services. Our inexperience in marketing to this new segment, and the difference in the sales cycle from our historical niche of emerging fast growth technology companies make it difficult for us to predict the adoption rate by middle-market companies of Enterprise Employer Services. Systems and Technology Systems. Our information systems platform is a combination of licensed applications from leading enterprise software companies and proprietary applications that both integrate licensed applications and perform functions that are specific to our business model and customer preferences. The following chart provides a listing of licensed and proprietary systems and their state of implementation as of January 31, 2000: 47 Product Chart And Technology Development
Front/ Capability Purpose Status Platform Back-End - ------------------------------------------------------------------------------------ Enterprise Human resource In service-- Proprietary Back-end HRIS information system Corporate and licensed platform supporting payroll since software international and 1998, all (PeopleSoft domestic payroll, Enterprise HRIS) benefits and advanced customers since human resource functions 1999, Venture customers throughout 2000 - ------------------------------------------------------------------------------------ Enroll Now! Web enabled benefits In service Proprietary Front-end information base and enrollment application - ------------------------------------------------------------------------------------ TriNet VSales Online capture of In service Proprietary Front-end (Venture proposal requests, Sales) automated production of proposal and contract material - ------------------------------------------------------------------------------------ TriNet CSLi Track all In service Proprietary Back-end (Customer customer/employee Service Log-- transactions for follow- intranet) up, quality and consistency of service response and customer service analysis - ------------------------------------------------------------------------------------ Carrier Data On line transmission of In service-- Proprietary Back-end Exchange enrollment data to expanding to health plan providers new vendors and insurance carriers throughout 2000 - ------------------------------------------------------------------------------------ Venture Data warehouse of fast Portions in Proprietary Back-end Company Data growth technology service, (VCOD) company customer upgrading of business information to data mining support management functionality consulting and strategic by Q3 2000 partner channel relationships - ------------------------------------------------------------------------------------ Setup and Automated capture of Portions in Proprietary Front-end Migration customer setup service, and licensed and Wizards information and expanding software Back-end conversion of data from functionality (NEON Convoy) other human resource throughout 2000 platforms - ------------------------------------------------------------------------------------ HR Passport Full suites of self- Selective Proprietary Front-end directed human resource customer and licensed transactions including rollout Q1 2000 technology employee and management (Concur actions, view payroll, Technologies) human resource and organizational information online - ------------------------------------------------------------------------------------ Report Mart Deliver all reports over Selective Proprietary Front-end the web in a variety of customer and licensed formats suitable for rollout Q1 2000 technology interfacing to customer (Brio systems, and with online Technology) analytical processing, or OLAP, capability - ------------------------------------------------------------------------------------ Strong Digital certificates Selective Licensed Front-end Security available for all customer technology and employees enabling rollout Q2 2000 (Entrust Back-end paperless employee Technology) transactions through digital certificates - ------------------------------------------------------------------------------------ Intranet Link our services to Selective Proprietary Front-end Portals customer intranet, customer and licensed provide intranet service rollout in Q2 technology to customer base 2000, - ------------------------------------------------------------------------------------ Benefits Expert system for Call center use Proprietary Front-end Knowledgebase answering inquiries in Q2 2000, web and licensed and about benefit plan rules rollout in Q3 software Back-end and coverage 2000 (Authoria)
48 Technology Platform We have effectively integrated the customer facing front-end of our web- enabled delivery with back-end systems that seamlessly link our service providers, suppliers and customers into our online operations. Through our technology platform, we offer: Integrated, web-enabled payroll and human resource platform. Our human resource information system platform combines enterprise class software applications and proprietary technology to deliver a fully web-enabled, integrated, end-to-end solution for delivering employer services that would be difficult for an emerging or middle-market company to deliver on its own. Our back-end systems link to our health insurance providers, our 401(k) providers, and tax and regulatory agencies to provide data interchange on customer initiated transactions. Scalable architecture. We developed our technology platform by selecting highly scalable components such as Human Resource ERP solutions from PeopleSoft, systems from Sun Microsystems, Hewlett-Packard, and Compaq Computer Corporation, database tools from Oracle, and web tools from enterprise class providers such as Concur Technologies, Brio and Authoria. We have negotiated software licensing agreements tailored to our business model, deviating from traditional, enterprise-class models that are not based on outsourcing. System backup and disaster recovery. The major components of our network are located in our corporate headquarters in San Leandro, California, our secondary processing facility in Reno, Nevada, and at AboveNet Communication's Data Center in San Jose, California. AboveNet provides Internet co-location services for Internet businesses. Its facility provides the benefit of a highly peered, Internet service provider with a "hardened" data center for our customer, web- based systems. Our other primary processing facilities have data replication, backup power, fire retardation and offsite data storage providing redundant business continuity. Strong authentication and security. Confidentiality of information is of the utmost importance in our technology architecture. Our web site has offered transaction processing under Secure Socket Layer security since 1997, and moved to Entrust SSL certification in 1999 to ward off browser authentication problems caused by other expiring trust authorities. In 2000, we intend to introduce digital certificates across our customer base to provide strong authentication and the basis for paperless employer/employee transactions. Physical security in the data centers is enhanced by restricted card access to the data centers. Web security is managed through firewalls, encryption and access controls. Technology Agreements In developing our products and services, we have contracted with some of the leading technology providers to license to us and support the essential applications that underlie our e-business platform. Authoria. We have a licensing agreement with Authoria to license its Authoria Benefits knowledgebase. This agreement allows for servicing a growing employee base with a proportionally decreasing cost per employee in perpetuity. Brio Technology. We have a perpetual agreement with Brio Technology (NASDAQ: BRYO) under which we license its enterprise information portal product, Brio Portal. This agreement allows us to support our total customer base with a set number of central processing units. 49 Concur Technologies. We have an agreement with Concur (NASDAQ: CNQR) under which we license its Concur eWorkplace human resource product suite. This five- year agreement does not limit the number of employees accessing the system. Entrust Technologies. We have an agreement with Entrust (NASDAQ: ENTU) under which we license its Entrust PKI products for digital certification. This agreement allows for servicing a growing employee base with a proportionally decreasing cost per employee in perpetuity. New Era of Networks, Inc. We have a perpetual licensing agreement with New Era of Networks (NASDAQ: NEON) under which we license its Convoy software for moving data from foreign systems into our PeopleSoft human resource information system database. PeopleSoft. Our enterprise HRIS and Financial applications are licensed from PeopleSoft (NASDAQ: PSFT). Competition The market for our solution is intensely competitive, evolving quickly and subject to rapid technological change. Competitors vary in size, scope and breadth of products and services offered. Many of our existing and potential competitors have announced or introduced products and/or services that compete, at least in part, with our solution. Some of our current and future competitors may be significantly larger and have greater name recognition and financial, marketing and other resources than we do. Increased competition is expected and may result in reduced prices and service revenue on a per customer basis. We believe the principal competitive factors in our market at this time are: scalable data-integration and transfer technology, breadth and depth of offering, critical-mass of installed reference customers, data warehousing for personalization of technology, strategic relationship management, domain expertise depth across all functional areas, sales professionalism and quality customer support. We believe that we currently compete favorably with respect to these factors. We encounter competition with respect to different components of our solution from benefits consultants, in-house human resource and information systems departments, single and multiple competency human resource outsourcers, insurance aggregators and application service providers. Our competitors most typically have primary competency in a single function, such as benefits procurement, payroll, human resource information systems or web delivery. Among multi-function human resource outsourcers and ASPs, we believe that we compete favorably based upon breadth and depth of offering, scalable data-integration and transfer technology and data warehousing capabilities. As other outsourcers attempt entry to the fast company market niche, we have occasionally lost customers to competitors based on price or other incentives that we were not willing to match. As the market evolves, we expect increased competition from new market entrants. It is possible that current and future competitors have or may form cooperative alliances among themselves or with third parties that would have a material and adverse effect on our ability to compete, service revenue and operating margins. If we fail to compete in any one of the competitive areas, we may lose existing and potential customers. Additionally, we may not be able to maintain a competitive position against competitors with significantly greater financial, marketing, service, support, technical and other resources or with larger installed customer bases. 50 Intellectual Property Our success depends significantly on our ability to protect our trademarks, trade secrets and certain proprietary technology. To accomplish this, we rely on a combination of copyrights, trademarks and trade secret laws and contractual restrictions to protect our proprietary rights in products and services. We also require that our employees and consultants sign confidentiality and nondisclosure agreements. We generally regulate access to and distribution of our documentation and other proprietary information. Despite these efforts, it may be possible for a third party to copy or otherwise obtain and use our proprietary information without authorization or to develop similar technology independently. We cannot be certain that we will succeed in preventing the misappropriation of our trade name and trademarks. Any steps we take to protect our intellectual property may be inadequate, time consuming and expensive. In addition, the laws of some foreign countries do not protect proprietary rights to as great an extent as the laws of the United States. We depend on technology that we license from third parties, including software that is integrated with internally developed software. If we are unable to continue to license any of this software on reasonable terms, we will face delays in releases of our technology until suitable replacements can be identified or developed. Should they occur, these delays may have a serious adverse impact on our business. We do not believe that our products infringe the intellectual property rights of third parties. However, third parties may in the future assert infringement claims against us, which may result in costly litigation or require us to obtain a license to third-party intellectual property rights. We cannot assure you that such licenses would be available on reasonable terms, or at all, which could harm our business. Employees As of January 31, 2000, we had 233 full-time employees, including 37 in information technology, 91 in operations, 31 in account management, 29 in sales, marketing and new account set-up, 25 in consulting and 20 in administration and executive management. We have never had a work stoppage and none of our employees are represented under collective bargaining agreements. We consider our relations with our employees to be good. Facilities We maintain two primary facilities. Our corporate headquarters are located in the Bay Area in San Leandro, California under a lease that expires in September 2002. This location includes approximately 33,000 square feet of leased space in which our executive offices, corporate staff, data-processing center, training facilities and all other corporate functions are housed. Our other primary facility is located in Reno, Nevada under a lease that expires in September 2004. This 12,500 square foot leased facility, which became operational in December 1999 serves as an additional processing facility and the backup recovery site in case the primary process facility is unable to process transactions. We also lease six other facilities in Irvine, California, Louisville, Colorado, Cambridge, Massachusetts, McLean, Virginia, Seattle, Washington and Ontario, Canada that serve as local service offices for sales and human resource personnel. We believe our existing facilities are adequate for the purposes for which they are intended and that our headquarters have sufficient additional capacity to accommodate our foreseeable expansion plan. 51 Legal Proceedings We are not a party to any material pending legal proceedings other than ordinary routine litigation incidental to our business that we believe would not have a material adverse effect on our business. 52 MANAGEMENT Directors, Executive Officers and Key Employees The following table sets forth certain information regarding our directors, executive officers and certain other key employees as of February 15, 2000.
Name Age Position - ---- --- -------- Martin Babinec(1)....... 44 President, Chief Executive Officer and Chairman of the Board Douglas P. Devlin....... 38 Chief Financial Officer, Secretary, Treasurer and Director Gregory L. Hammond...... 44 Vice President and General Counsel Steven H. Carlson....... 46 Chief Information Officer Craig A. McGannon....... 35 Divisional President, Venture Employer Services Deisy G. Bach........... 42 Divisional President, Enterprise Employer Services John K. Younger......... 37 Divisional President, Venture Talent Marie-Jeanne Juilland... 39 Vice President, Marketing Lyle E. DeWitt, C.P.A... 40 Vice President, Finance and Operations Anthony F. Zuanich...... 31 Vice President, Sales James P. Hanson, 54 Director C.P.A.(2)(3)........... H. Lynn Hazlett, 63 Director D.B.A.(2)(3)........... Anthony V. Martin(1).... 60 Director T. Joe Willey, 62 Director Ph.D.(3)...............
- -------- (1) Member of the nominating committee (2) Member of the compensation committee (3) Member of the audit committee Martin Babinec has served as our president, chief executive officer and chairman of the board since founding TriNet in November 1988. From 1980 to 1988, Mr. Babinec's was a human resource generalist for Navy Exchanges. During this period a majority of his assignments involved international labor relations while residing in Europe and Asia. Mr. Babinec is a 1996 recipient of Silicon Valley Service Entrepreneur of the Year award and serves in various industry and entrepreneurial leadership capacities, including serving on the board of advisors for the Kauffman Foundation's Center for Entrepreneurial Leadership. Mr. Babinec holds a B.S. in business administration from Shippensburg University and has earned the accreditation of senior professional in human resources through the Human Resources Certification Institute. Douglas P. Devlin has served as our chief financial officer since April 1993 on a full-time basis and prior to that on a part-time basis since 1989. Mr. Devlin has served as secretary and director since November 1997 and treasurer since April 1993. In 1988, Mr. Devlin founded and then managed until 1992 Integrated Health Care Technology Group, Inc., an International Business Machines business partner providing advanced accounting systems. Mr. Devlin holds a B.S. in business administration from California State University, Chico and an M.B.A. in finance from Golden Gate University. Gregory L. Hammond has served as our vice president and general counsel since November 1997. Mr. Hammond manages our employer risk for both employee relations and insurance purposes. Mr. Hammond joined us from Hammond & Kazaglis, L.P.A., which he founded in 1989. From 1989 to 1996, Mr. Hammond worked as our retained counsel. From 1987 to 1991, Mr. Hammond was general counsel to the National Association of Professional Employer Organizations. Mr. Hammond holds a B.A. summa cum laude in history and political science from Mercer University and a J.D. from the University of Chicago School of Law. 53 Steven H. Carlson has served as our chief information officer since August 1998. From January 1997 to August 1998, Mr. Carlson served as our director, information systems and from January 1995 to January 1997, Mr. Carlson served as our vice president, information technology. In 1989, Mr. Carlson founded, and then managed until 1995 CBI, Inc., a regional systems integration company. Prior to this, Mr. Carlson held several management positions with General Electric Information Services Company. Mr. Carlson holds a B.S. in computer science from the University of California at Santa Cruz. Craig A. McGannon has served as our divisional president, Venture Employer Services since September 1998. From March 1998 to September 1998, Mr. McGannon served as our vice president, sales. Mr. McGannon joined us in October 1997 as regional manager in the Raleigh/Durham office. From October 1996 to October 1997, Mr. McGannon was the chief executive officer of ESG, an information technology staffing company and from February 1995 to October 1996, Mr. McGannon was the risk manager of The Byrnes Group, a staffing and human resource and sourcing company. Mr. McGannon has also served as managing partner of North American Claims Management, L.L.P., a U.K.-based reinsurance/legal consulting firm from January 1992 to September 1999. Mr. McGannon holds a B.A. in American studies from Providence College, a J.D. from Pace University and an M.B.A. summa cum laude in marketing from the University of San Moritz. Deisy G. Bach has served as our divisional president, Enterprise Employer Services since November 1998. From November 1997 to November 1998, Ms. Bach served as our vice president, product development. From July 1995 to November 1997, Ms. Bach served as our vice president, operations. Ms. Bach joined us in 1991 as our operations manager. From November 1988 to November 1991, Ms. Bach was with the law firm Hallgrimson, McNichols, McCann & Inderbitzen, where she was an administrator and managed operations, marketing, finance and human resources. She is a member of the Society of Human Resources Management. Ms. Bach holds a B.A in political science from Montclair State University and is an ABA-certified paralegal. John K. Younger has served as our divisional president, Venture Talent since November 1996 when we acquired Younger Consulting, a recruitment optimization and automation firm, which Mr. Younger founded in 1994 and subsequently served as president. From January 1987 to May 1994, Mr. Younger was with Bank of America, most recently as vice president of human resources. Mr. Younger is a co-founder and director of the Northern California Technical Recruiter Network. Mr. Younger holds a B.S. in mathematics and computer science from the University of Notre Dame. Marie-Jeanne Juilland has served as our vice president, marketing since February 2000. From November 1999 to January 2000, Ms. Juilland served as our interim vice president, marketing. In 1993, Ms. Juilland founded and then, through January 2000, managed, the Juilland Group, a strategic marketing organization that specialized in serving fast-growth technology companies. From 1991 to 1993, Ms. Juilland served as communications manager for Robert Half International, a staffing and outsourced human resource company. From 1986 to 1991, Ms. Juilland served as west coast bureau chief for Venture magazine. Ms. Juilland holds a B.A. in political science from Stanford University. Lyle E. DeWitt has served as our vice president, finance and operations since September 1999. From June 1994 to September 1999, Mr. DeWitt served as our controller. From April 1990 to June 1994, Mr. DeWitt was in public accounting at Armanino, McKenna, LLP, a public accounting firm. Mr. DeWitt holds a B.S. in business administration from the University of California, Berkeley and is a certified public accountant. 54 Anthony F. Zuanich has served as our vice president, sales since April 1999. From October 1997 to April 1999, Mr. Zuanich served as our director of sales for the east coast. Mr. Zuanich joined us in December 1995 as a district sales manager. From June 1992 to November 1995, Mr. Zuanich was regional sales manager for ADP, a payroll processing outsourcing company. Mr. Zuanich holds a B.A. in marketing from New Mexico State University. James P. Hanson has served as our director since November 1990. Since 1987, Mr. Hanson has been president of James P. Hanson Accountancy Corporation, a provider of financial services to small businesses and individuals. Mr. Hanson holds a B.S. magna cum laude in accounting from California State University, Fresno and is a certified public accountant and registered investment advisor. H. Lynn Hazlett has served as our director since February 1998. From February 1997 to December 1998, Dr. Hazlett served as chief executive officer and president of QRS Corporation, a publicly traded, e-commerce solutions provider. From 1995 until February 1997, Dr. Hazlett served as a consultant to QRS. From January 1994 to February 1997, Dr. Hazlett owned and operated Supply Chain Associates, a retail supply chain consultancy firm. From 1989 to January 1995, Dr. Hazlett served as vice president, business systems at VF Corporation, a global apparel manufacturer. Dr. Hazlett holds a B.S. in industrial management from the Georgia Institute of Technology, an M.B.A. in financial management and a D.B.A. from George Washington University. Anthony V. Martin has served as our director since July 1995 as a result of his position from 1992 to the present time as Chairman with Select Appointments (Holdings) PLC, a wholly owned subsidiary of Vedior N.V., and Select's investment in July 1995 in TriNet. Since December 1999, Mr. Martin has also been vice-chairman and member of the board of Vedior N.V., a Netherlands based staffing and outsourced human resource company. From 1985 to 1992, Mr. Martin held various executive positions with Adia S.A. (now Adecco S.A.), a Swiss- based recruitment company, most recently as director of its European division. Mr. Martin holds certificates of education from the combined boards of Oxford and Cambridge Universities and a postgraduate degree from the University of Southern California, Los Angeles. T. Joe Willey has served as our director since June 1994. From 1991 to 1994, Dr. Willey founded and then served as the chief executive officer of Staffing Services, Inc., an employer support services group. In June 1986, Dr. Willey founded and currently serves as the president of The Aegis Group, a software consulting and business development organization for the human resource outsourcing industry. Dr. Willey holds a B.S. and an M.A. in biology from Walla Walla College and a Ph.D. from the University of California, Berkeley. Board Composition Upon the completion of this offering, we will have authorized six directors. In accordance with the terms of our certificate of incorporation and bylaws, each of which will become effective upon the completion of this offering, the board of directors will be divided into three classes, Class I, Class II and Class III, with each class serving staggered terms. Upon the completion of this offering, the members of the classes will be divided as follows: . Messrs. Babinec and Martin will be designated as Class I directors whose initial term will expire at the annual meeting of stockholders to be held in 2001; . Messrs. Devlin and Hazlett will be designated as Class II directors whose initial term will expire at the annual meeting of stockholders to be held in 2002; and . Messrs. Hanson and Willey will be designated as Class III directors whose initial term will expire at the annual meeting of stockholders to be held in 2003. 55 At each annual meeting of stockholders after the initial classification, the successors to directors whose terms will then expire will be elected to serve from the time of election and qualification until the third annual meeting following the election or special meeting held in lieu thereof. Board Committees The audit committee of the board of directors consists of Messrs. Hanson, Hazlett and Willey. The audit committee assists the board in fulfilling its financial and accounting oversight responsibilities by reviewing the financial information that will be provided to stockholders and others, the systems of internal controls regarding finance, accounting, legal compliance and ethics that management and the board have established, and our auditing, accounting and financial reporting processes generally. The compensation committee of the board of directors consists of Messrs. Hanson and Hazlett. The compensation committee makes recommendations to the board of directors concerning salaries and incentive compensation for our officers and employees and administers our employee benefit plans. The nominating committee of the board of directors consists of Messrs. Babinec and Martin. The nominating committee makes recommendations to the board of directors regarding persons to be nominated for election to the board of directors. Director Compensation Non-employee directors, except Anthony V. Martin, receive $5,000 in annual compensation and are reimbursed for their reasonable expenses in attending board meetings. All directors are eligible to participate in our 2000 Equity Incentive Plan and employee directors will be eligible to participate in our 2000 Employee Stock Purchase Plan. See "--Stock Option Plans" for additional information relating to these plans. In January 1999, Messrs. Hanson, Hazlett and Willey were each granted an option to purchase 463 shares of common stock at a price of $7.22 per share. In May 1999, Messrs. Hanson, Hazlett and Willey were each granted an option to purchase 463 shares of common stock at a price of $7.22 per share. In June 1999, Messrs. Hanson, Hazlett and Willey were each granted an option to purchase 368 shares of common stock at a price of $9.03 per share. In September 1999, Messrs. Hanson, Hazlett and Willey were each granted an option to purchase 368 shares of common stock at a price of $9.03 per share. Compensation Committee Interlocks and Insider Participation None of the members of the compensation committee of the board of directors has at any time been one of our officers or employees. None of our executive officers serves as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving on our board of directors or compensation committee. The compensation committee of the board of directors was formed in 1998, and currently consists of Messrs. Hanson and Hazlett. Prior to the formation of the compensation committee, compensation decisions were made and approved by our board of directors. 56 Executive Compensation The following table presents the compensation earned by our chief executive officer and our other four most highly compensated executive officers whose salary and bonus for the year ended December 31, 1999 were in excess of $100,000, referred to as the named executive officers. In accordance with the rules of the Securities and Exchange Commission, the compensation described in this table does not include medical, group life insurance or other benefits received by the named executive officers that are available generally to all our salaried employees and certain perquisites and other personal benefits received by the named executive officers, which do not exceed the lesser of $50,000 or 10% of any such officer's salary and bonus contained in the table. Summary Compensation Table
Annual Compensation for Long-Term Fiscal Year 1999 Compensation Awards ---------------- ------------------- Securities Name and Principal Position Salary Bonus Underlying Options - --------------------------- -------- ------- ------------------- Martin Babinec........................... $155,718 $25,000 -- President, Chief Executive Officer and Chairman of the Board Douglas P. Devlin........................ $150,024 $25,000 15,000 Chief Financial Officer, Secretary, Treasurer and Director Gregory L. Hammond....................... $143,588 $39,525 25,000 Vice President and General Counsel Craig A. McGannon........................ $149,790 $57,575 25,000 Divisional President, Venture Employer Services John K. Younger.......................... $122,283 $80,328 94,211 Divisional President, Venture Talent
57 Option Grants in 1999 The following table presents each grant of stock options made to each of the named executive officers during the year ended December 31, 1999. These options vest ratably over four years commencing on the first anniversary of the date of grant and the exercise price per share of each option was equal to the fair market value of the common stock on the date of grant, as determined by our board of directors. In the year ended December 31, 1999, we granted to our employees options to purchase a total of 261,286 shares of our common stock. Potential realizable value is calculated assuming that the stock price on the date of grant appreciates at the indicated rate compounded annually until the option is exercised and sold on the last day of its term for the appreciated stock price. The 5% and 10% assumed rates of appreciation are required by the rules of the Securities and Exchange Commission and do not represent our estimate or projection of the future common stock price. Based on an assumed initial offering price of $ per share, the actual appreciation exceeds these values. Option Grants in 1999
Individual Grants --------------------------------------------- Potential Realizable Value at Assumed Number of % of Total Annual Rates of Stock Securities Options Exercise Price Appreciation Underlying Granted to or Base for Option Term Options Employees Price Expiration --------------------- Name Granted in Fiscal Year ($/Sh) Date 5% 10% - ---- ---------- -------------- -------- ---------- ---------- ---------- Martin Babinec.......... -- -- -- -- -- -- Douglas P. Devlin....... 15,000 5.7% $9.03 06/21/04 Gregory L. Hammond...... 25,000 9.6% $9.03 06/21/04 Craig A. McGannon....... 25,000 9.6% $9.03 06/21/04 John K. Younger......... 84,211 32.2% $7.22 01/28/04 10,000 3.8% $9.03 06/21/04
Option Exercises and Year End Option Values The following table presents option exercises and the value realized from those exercises during 1999, as well as unexercised options that were held at the end of 1999 by each named executive officer. The value realized represents the aggregate market value of the underlying securities on the exercise date, as determined by the board of directors, minus the aggregate exercise price paid for those shares. Also presented is the value of the in-the-money options, which is based upon a value of $ per share, the assumed initial public offering price, minus the aggregate exercise price payable for those shares. Aggregated Option Exercises in 1999 and FY-End Option Values
Number of Securities Value of Unexercised Underlying Unexercised In-the-Money Options Shares Options at FY-End (#) at FY-End ($) Acquired Value ------------------------- ------------------------- Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable - ---- ----------- -------- ----------- ------------- ----------- ------------- Martin Babinec.......... -- $ -- -- -- -- -- Douglas P. Devlin....... 6,000 37,320 27,175 30,125 Gregory L. Hammond...... 1,100 4,488 11,450 37,500 Craig A. McGannon....... -- -- 5,050 40,000 John K. Younger......... -- -- 131,562 71,038
58 Employment Agreements A change of control is generally defined as a merger in which we are not the surviving corporation or after which our stockholders do not own a majority of the stock of the surviving corporation, or the acquisition of 40% or more of our stock or a sale of all or substantially all of our assets. In May 1999, we entered into an employment agreement with Martin Babinec to serve as our chief executive officer at a base salary of $155,000 a year with a discretionary bonus of $25,000. In the event of a change of control, if Mr. Babinec is involuntarily terminated without cause or by constructive termination within six months following the change of control, he is entitled to a lump sum payment of $2.0 million. Further, all stock options granted to Mr. Babinec will fully vest and he may compel us to repurchase any stock he owns at the then prevailing market value plus 25%. In May 1999, we entered into an employment agreement with Douglas P. Devlin to serve as our chief financial officer at a base salary of $150,000 a year, with a discretionary bonus of $25,000 and up to 15,000 incentive stock options to purchase common stock subject to the vesting schedule, terms and conditions of our 1990 Stock Option Plan. In the event of a change of control, if Mr. Devlin is involuntarily terminated without cause or by constructive termination within six months following the change of control, he is entitled to a lump sum payment of $2.0 million. Further, all stock options granted to Mr. Devlin will fully vest and he may compel us to repurchase any stock he owns at the then prevailing market value plus 25%. In May 1999, we entered into an employment agreement with Gregory L. Hammond to serve as our vice president and general counsel at a base salary of $150,000 a year, with a discretionary bonus of $25,000 and up to 25,000 incentive stock options to purchase common stock subject to the vesting schedule, terms and conditions of our 1990 Stock Option Plan. In the event of a change of control, if Mr. Hammond is involuntarily terminated without cause or by constructive termination within six months following the change of control, he is entitled to a lump sum payment of $2.0 million. Further, all stock options granted to Mr. Hammond will fully vest and he may compel us to repurchase any stock he owns at the then prevailing market value plus 25%. In May 1999, we entered into an employment agreement with Craig A. McGannon to serve as our divisional president, Venture Employer Services, at a base salary of $150,000 a year, with a discretionary bonus of $25,000 and up to 25,000 incentive stock options to purchase common stock subject to the vesting schedule, terms and conditions of our 1990 Stock Option Plan. In the event of a change of control, if Mr. McGannon is involuntarily terminated without cause or by constructive termination within six months following the change of control, he is entitled to a lump sum payment of $2.0 million. Further, all stock options granted to Mr. McGannon will fully vest and he may compel us to repurchase any stock he owns at the then prevailing market value plus 25%. In May 1999, we entered into an employment agreement with John K. Younger to serve as our divisional president, Venture Talent, at a base salary of $132,000 a year. In the event of a change of control, if Mr. Younger is involuntarily terminated without cause or by constructive termination within six months following the change of control, all stock options granted to Mr. Younger will fully vest and he may compel us to repurchase any stock he owns at the then prevailing market value plus 25%. Stock Option Plans 2000 Equity Incentive Plan. Our board of directors will adopt the 2000 Equity Incentive Plan and seek stockholder approval prior to the effective date of this offering. The 2000 Equity Incentive Plan is intended to replace and supersede our 1990 Stock Option Plan. 59 Share Reserve. We intend to reserve a total of shares of our common stock for issuance under the incentive plan. On each , starting with and continuing through and including , the share reserve automatically will be increased by a number of shares equal to the least of: . % of our then outstanding shares of common stock; . shares; or . a lesser number determined by our board. If the recipient of a stock award does not purchase the shares subject to such stock award before the stock award expires or otherwise terminates, the shares that are not purchased will again become available for issuance under the incentive plan. Administration. The board will administer the incentive plan unless it delegates administration to a committee. The board will have the authority to construe, interpret and amend the incentive plan. The board also will have the authority to determine the recipients of stock awards under the incentive plan and the terms of such stock awards, including the number of shares subject to the stock awards, the vesting and/or exercisability schedule applicable to the stock awards and the exercise price of the stock awards. Eligibility and Types of Stock Awards. The board may grant incentive stock options that qualify under Section 422 of the Internal Revenue Code to our employees and to the employees of our affiliates. The board also may grant nonstatutory stock options, stock bonuses and restricted stock purchase awards to our employees, directors and consultants as well as to the employees, directors and consultants of our affiliates. Option Terms. The board may grant incentive stock options with an exercise price of 100% or more of the fair market value of a share of our common stock on the grant date and nonstatutory stock options with an exercise price as low as 85% of the fair market value of a share on the grant date. Incentive stock options granted to persons who, at the time of the grant, own or are deemed to own stock possessing more than 10% of our total combined voting power or the total combined voting power of one of our affiliates must have an exercise price of at least 110% of the fair market value of the stock on the grant date and a term of five or fewer years. For other options, the maximum term is 10 years. Generally, fair market value means the closing sales price (rounded up where necessary to the nearest whole cent) for such shares (or the closing bid, if no sales were reported) as quoted on the Nasdaq National Market on the trading day prior to the relevant determination date, as reported in The Wall Street Journal. Automatic Grants. Upon the completion of this offering, each non-employee director will automatically be granted an option to purchase shares of common stock. Any individual who becomes a non-employee director after this offering will automatically receive this initial grant upon being elected to the board of directors. Any person who is a non-employee director on the day following each annual meeting of our stockholders will be granted an additional option to purchase shares of common stock on that day. Any director who has not served as a non-employee director for the entire period since the preceding annual meeting of stockholders will have his or her automatic additional grant for that year reduced pro rata for each full quarter prior to the date of grant during which that person did not serve as a non-employee director. 60 Vesting. Initial option grants to non-employee directors will vest at a rate of each month on the last day of each month following the date of grant. Annual grants will also vest at a rate of each month beginning on of each year. No employee may receive incentive stock options that exceed the $100,000 per year fair market value limitation set forth in Section 422(d) of the Internal Revenue Code. To determine whether the $100,000 per year limitation has been exceeded, we will calculate the fair market value of the aggregate number of shares under all incentive stock options granted to an employee that will become exercisable for the first time during a calendar year. Under the incentive plan, options covering stock in excess of the $100,000 limitation will be automatically converted into nonstatutory stock options. The board may provide for exercise periods of any length following an optionholder's termination of service in individual options. Generally, options will provide that they terminate three months after the optionholder's service to us and our affiliates terminates. In the case of an optionholder's disability or death, the exercise period generally is extended to 12 months or 18 months, respectively. The board may provide for the transferability of nonstatutory stock options but not incentive stock options. However, the optionholder may designate a beneficiary to exercise either type of option following the optionholder's death. If the optionholder does not designate a beneficiary, the optionholder's rights will pass to his or her heirs by will or the laws of descent and distribution. Section 162(m) of the Internal Revenue Code denies a deduction to publicly- held corporations for compensation paid to the corporation's chief executive officer and its four highest compensated officers in a taxable year to the extent that the compensation for each such officer exceeds $1,000,000. In order to qualify options granted under the incentive plan for an exemption for performance based compensation provided under Section 162(m), no employee may be granted options under the incentive plan covering an aggregate of more than shares in any calendar year. Terms of Other Stock Awards. The board will determine the purchase price of other stock awards, which may not be less than 85% of the fair market value of our common stock on the grant date. However, the board may award stock bonuses in consideration of past services without a cash purchase price. Shares that we sell or award under the incentive plan may, but need not be, restricted and subject to a repurchase option in our favor in accordance with a vesting schedule that the board determines. The board, however, may accelerate the vesting of such stock awards. Corporate Transactions. Transactions not involving our receipt of consideration, such as a merger, consolidation, reorganization, stock dividend, or stock split, may change the class and number of shares subject to the equity incentive plan and to outstanding stock awards. Following such a transaction, the board will appropriately adjust the incentive plan (including the 162(m) limitation) as to the class and the maximum number of shares subject to the incentive plan. It also will adjust outstanding stock awards as to the class, number of shares and price per share applicable to such awards. If we dissolve or liquidate, then outstanding stock awards will terminate immediately prior to such event. Upon certain change in control transactions, the surviving corporation may assume all outstanding stock awards under the incentive plan or substitute other awards therefor. If the surviving corporation does not so assume or substitute, then the vesting and exercisability of all stock awards held by persons who are then providing services to us will accelerate, and all stock awards 61 outstanding under the incentive plan will terminate immediately prior to the occurrence of the change in control. Plan Termination. The incentive plan will terminate in 2010 unless the board terminates it sooner. 1990 Stock Option Plan. Our stock option plan will terminate as of the effective date of this offering. The termination of the stock option plan will have no effect on the options that have been granted thereunder. However, following the termination of the stock option plan, no new stock options may be granted under it. Corporate Transactions. Transactions not involving our receipt of consideration, such as a merger, consolidation, reorganization, stock dividend, or stock split, may change the class and number of shares subject to the stock option plan and to outstanding options. Following such a transaction, the board will appropriately adjust the stock option plan as to the class and the maximum number of shares subject to the stock option plan. It also will adjust outstanding options as to the class, number of shares and price per share applicable to such options. If we dissolve, then outstanding stock options will terminate prior to such dissolution. In the event of a merger or consolidation as a result of which our shares are converted into securities of another company or into other property, then the outstanding stock options will be treated differently. In such situations, the board may determine that the outstanding stock options will be assumed by a surviving corporation and thereafter pertain to the stock or other property of the surviving corporation. Alternatively, the board may determine that the vesting and exercisability of the outstanding options shall accelerate and such options shall terminate if not exercised prior to the effective date of the merger or consolidation. Stock Options Granted. As of January 31, 2000, we had issued 259,967 shares upon the exercise of options under the stock option plan and options to purchase 900,741 shares at a weighted average exercise price of $10.60 were outstanding. 2000 Employee Stock Purchase Plan. Our board will adopt the 2000 Employee Stock Purchase Plan and seek stockholder approval prior to the effective date of the offering. Share Reserve. We will authorize the issuance of shares of our common stock pursuant to purchase rights granted to eligible employees under the purchase plan. On each , starting with and continuing through and including , the share reserve will automatically be increased by a number of shares equal to the least of: . % of our then outstanding shares of common stock; . shares; or . a lesser number determined by our board. Eligibility. The purchase plan is intended to qualify as an employee stock purchase plan within the meaning of Section 423 of the Internal Revenue Code. The purchase plan provides a means by which eligible employees may purchase our common stock through payroll deductions. We will implement the purchase plan by offerings of purchase rights to eligible employees. Generally, all of our full- time employees and full-time employees of our affiliates incorporated in the United States may participate in offerings under the purchase plan. However, no employee may participate in the 62 purchase plan if, immediately after we grant the employee a purchase right, the employee has voting power over 5% or more of our outstanding capital stock. General Terms of the Plan. Under the purchase plan, the board may specify offerings of up to 27 months. Unless the board otherwise determines, common stock will be purchased for accounts of participating employees at a price per share equal to the lower of: . 85% of the fair market value of a share on the first day of the offering; or . 85% of the fair market value of a share on the purchase date. For the first offering, which will begin on the effective date of this initial public offering, we will offer shares registered on a Form S-8 registration statement. The fair market value of the shares on the first date of this initial public offering will be the price per share at which our shares are first sold to the public as specified in the final prospectus with respect to this initial public offering. Otherwise, fair market value generally means the closing sales price (rounded up where necessary to the nearest whole cent) for such shares (or the closing bid, if no sales were reported) as quoted on the Nasdaq National Market on the trading day prior to the relevant determination date, as reported in The Wall Street Journal. The board may provide that employees who become eligible to participate after the offering period begins nevertheless may enroll in the offering. These employees will purchase our stock at the lower of 85% of the fair market value of a share on the day they began participating in the purchase plan or 85% of the fair market value of a share on the purchase date. If authorized by the board, participating employees may authorize payroll deductions of up to 15% of their base compensation for the purchase of stock under the purchase plan. Generally employees may end their participation in the offering at any time before a purchase period ends. Their participation ends automatically on termination of their employment or loss of full-time status. The board may grant eligible employees purchase rights under the purchase plan only if the purchase rights, together with any other purchase rights granted under other employee stock purchase plans established by us or by our affiliates, if any, do not permit the employee's rights to purchase our stock to accrue at a rate that exceeds $25,000 of fair market value of our stock for each calendar year in which the purchase rights are outstanding. Corporate Transactions. Upon a change in control, a surviving corporation may assume outstanding purchase rights or substitute other purchase rights therefor. If the surviving corporation does not assume or substitute the purchase rights, the offering period will be shortened and our stock will be purchased for the participants immediately before the change in control. Description of 401(k) Plan. We maintain a retirement and deferred savings plan for our U.S. employees. The retirement and deferred savings plan is intended to qualify as a tax-qualified plan under Section 401 of the Internal Revenue Code. The retirement and deferred savings plan provides that each participant may contribute up to % of his or her pre-tax compensation (up to a statutory limit, which is $10,500 in calendar year 2000). Under the plan, each employee is fully vested in his or her deferred salary contributions. Employee contributions are held and invested by the plan's trustee. The retirement and deferred savings plan also permits us to make discretionary contributions and matching contributions, subject to established limits and a vesting schedule. To date, we have not made any discretionary contributions or matching contributions to the retirement and deferred savings plan on behalf of participating employees. 63 RELATED PARTY TRANSACTIONS Other than the transactions described below and in the "Management-- Employment Agreements" section, since January 1, 1997 there has not been nor is there currently proposed any transaction or series of similar transaction to which we were or will be a party: . in which the amount involved exceeded or will exceed $60,000; and . in which any director, executive officer, holder of more than 5% of our common stock or any member of their immediate family had or will have a direct or indirect material interest. Preferred Stock Financing From February 1997 to January 1998, we issued and sold an aggregate of 25,000 shares of Series E preferred stock for proceeds of approximately $1.0 million to Select Appointments North America Inc., or Select. Anthony Martin, one of our directors, is chairman of the board of Select. In December 1997, Select converted 62,500 shares of Series E preferred stock into 2,678,773 shares of common stock. The remaining 12,500 shares of Series E preferred stock are currently convertible into 542,304 shares of common stock. In consideration for Select's agreement in December 1997 to convert its shares of Series E preferred stock into common stock, we entered into a letter agreement with Select dated December 30, 1997 pursuant to which we agreed to issue to Select one share of common stock for each additional security we issued, subject to certain conditions. On February 24, 2000, we and Select agreed to terminate this letter agreement and on February 29, 2000, we issued to Select an aggregate of 217,256 shares of common stock in full satisfaction of our obligations to Select under the letter agreement. 64 PRINCIPAL AND SELLING STOCKHOLDERS The following table sets forth certain information known to us with respect to beneficial ownership of our common stock as of January 31, 2000 by: . each stockholder known by us to be the beneficial owner of more than 5% of our common stock; . each of our directors; . the named executive officers; . all executive officers and directors as a group; and . the selling stockholder. Beneficial ownership is determined under the rules of the Securities and Exchange Commission. All options exercisable within 60 days of January 31, 2000 are reported as currently exercisable. The shares issuable under these options are treated as if outstanding for computing the percentage ownership of the person holding these options but are not treated as if outstanding for the purposes of computing the percentage ownership of any other person. Percentage ownership is based on 6,932,803 shares of common stock outstanding as of January 31, 2000, assuming the conversion of all outstanding shares of preferred stock into common stock, and shares of common stock outstanding immediately following the completion of this offering. Except as otherwise indicated, the stockholders listed in the tables have sole voting and investment powers over the common stock owned by them, subject to community property laws where applicable. Unless otherwise specified, the address of each of the individuals or entities named below is: c/o TriNet Group, Inc., 101 Callan Avenue, San Leandro, California 94577.
Shares Shares Beneficially Beneficially Owned Before the Number Owned After the Offering of Shares Offering ----------------- Being ----------------- Number Percent Offered Number Percent --------- ------- --------- --------- ------- 5% Stockholders Select Appointments North America Inc. (1)............... 3,938,333 57.0% Zigguart Grosvenor Road St. Albans Hertfordshire, AL13 HW United Kingdom Directors and Executive Officers Martin Babinec(2)............... 1,928,500 28.0% -- 1,928,500 Douglas P. Devlin(3)............ 329,597 4.8% -- 329,597 Gregory L. Hammond(4)........... 12,550 * -- 12,550 * Craig A. McGannon(5)............ 5,050 * -- 5,050 * James P. Hanson(6).............. 214,244 3.1% -- 214,244 H. Lynn Hazlett(7).............. 3,120 * -- 3,120 * Anthony V. Martin(8)............ 3,938,333 57.0% T. Joe Willey(7)................ 15,444 * -- 15,444 * Directors and executive officers as a group (8 persons)(9)...... 6,446,838 92.3% --
- -------- * Represents beneficial ownership at less than 1% of the outstanding shares of our common stock. 65 (1) Includes 44,110 shares held by Ogier Trustee Limited, a fund established for the benefit of Select Appointments North America Inc., or Select, employees and administered by a trustee and 217,256 shares Select has the right to acquire within 60 days of January 31, 2000 and did acquire on February 29, 2000. (2) Shares are held by Martin and Krista Babinec, Trustees of the Babinec Family Trust dated 7/16/95. (3) Includes 33,425 shares issuable upon exercise of options exercisable within 60 days of January 31, 2000. (4) Includes 11,450 shares issuable upon exercise of options exercisable within 60 days of January 31, 2000. (5) Includes 5,050 shares issuable upon exercise of options exercisable within 60 days of January 31, 2000. (6) Includes 195,681 shares held by James P. and Kristy L. Hanson, husband and wife as community property, 18,450 shares held by James P. and Kristy L. Hanson Accountancy Corporation Profit Sharing Plan #1 and 113 shares issuable upon exercise of options exercisable within 60 days of January 31, 2000. (7) Includes 113 shares issuable upon exercise of options exercisable within 60 days of January 31, 2000. (8) Includes 3,894,223 shares held by Select and 44,110 shares held by Ogier Trustee Limited, a fund established for the benefit of Select employees and administered by a trustee and 217,256 shares Select has the right to acquire within 60 days of January 31, 2000 and did acquire on February 29, 2000. Anthony V. Martin, one of our directors, is chairman of the board of Select and disclaims beneficial ownership of these shares. (9) See footnotes (2) through (8) above, as applicable. 66 DESCRIPTION OF CAPITAL STOCK The following description of our capital stock and material provisions of our certificate of incorporation and bylaws, which will become effective upon the completion of this offering, is a summary only and is qualified in its entirety by the complete provisions of the certificate of incorporation and bylaws, which have been filed as exhibits to the registration statement, of which this prospectus is a part. Upon completion of this offering and the filing of our amended and restated certificate of incorporation, our authorized capital stock will consist of 100,000,000 shares of common stock, $0.0001 par value, and 5,000,000 shares of preferred stock, $0.0001 par value. Common Stock As of January 31, 2000, there were 6,932,803 shares of common stock outstanding that were held of record by approximately 40 stockholders after giving effect to the conversion of our preferred stock into common stock. There will be shares of common stock outstanding (assuming no exercise of the outstanding options) after giving effect to the sale of the shares of common stock offered by this prospectus. Subject to preferences that may apply to shares of preferred stock outstanding at the time, the holders of outstanding shares of common stock are entitled to receive dividends out of assets legally available therefor at such times and in such amounts as the board of directors may from time to time determine. Each stockholder is entitled to one vote for each share of common stock held on all matters submitted to a vote of stockholders. Unless Section 2115 of the California Corporations Code is applicable to us, holders of common stock are not entitled to cumulative voting rights with respect to the election of directors and, as a consequence, minority stockholders will not be able to elect directors on the basis of their votes alone. Upon a liquidation, dissolution or winding-up of TriNet, the assets legally available for distribution to stockholders are distributable ratably among the holders of the common stock and any participating preferred stock outstanding at that time after payment of liquidation preferences, if any, on any outstanding preferred stock and payment of other claims of creditors. Each outstanding share of common stock is, and all shares of common stock to be outstanding upon completion of this offering will be, fully paid and nonassessable. Preferred Stock Upon the closing of this offering, the board of directors will have the authority, without further action by the stockholders, to issue up to 5,000,000 shares of preferred stock in one or more series, to establish from time to time the number of shares to be included in each such series, to fix the rights, preferences and privileges of the shares of each wholly unissued series and any qualifications, limitations or restrictions thereon, and to increase or decrease the number of shares of any such series (but not below the number of shares of such series then outstanding). The board of directors may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of the common stock. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could, among other things, have the effect of delaying, deferring or preventing a change in control of TriNet and may adversely affect the market price of the common stock and the voting and other rights of the holders of common stock. 67 Registration Rights of Stockholders Upon the earlier of July 30, 2001 or 12 months after this offering holders of an aggregate of 150,263 shares of our common stock, and beginning 180 days after this offering holders of an aggregate of 3,894,223 shares of our common stock, will be entitled to register these shares under the Securities Act. These rights are provided under the amended and restated investor's rights agreement by and among us, Select Appointments North America Inc., Bessemer Venture Partners V L.P., Bessec Ventures V L.P. and BVE LLP dated March 2, 2000. If we propose to register any of our securities under the Securities Act, either for our own account or for the account of others, the holders of these shares are entitled to notice of the registration and are entitled to include, at our expense, their shares of common stock in the registration and any related underwriting, provided, among other conditions, that the underwriters may limit the number of shares to be included in the registration and in some cases, including this offering, exclude these shares entirely. In addition, the holders of these shares may require us at our expense to register their shares on Form S-3 when this form becomes available. Anti-Takeover Provisions of Delaware Law and Charter Provisions We are subject to Section 203 of the Delaware General Corporation Law. In general, the statute prohibits a publicly-held Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years following the date that the stockholder became an interested stockholder unless: . prior to that date, the board of directors approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder; . upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding those shares owned by persons who are directors and also officers, and by employee stock plans in which shares held subject to the plan will be tendered in a tender or exchange offer; or . on or subsequent to that date, the business combination is approved by the board of directors and is authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least two-thirds of the outstanding voting stock not owned by the interested stockholder. Section 203 defines "business combination" to include: . any merger or consolidation involving the corporation and the interested stockholder; . any sale, transfer, pledge or other disposition involving the interested stockholder of 10% or more of the assets of the corporation; . subject to exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder; and . 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 the entity or person. 68 A Delaware corporation may "opt out" of Section 203 with an express provision in its original certificate of incorporation or an express provision in its certificate or incorporation or bylaws resulting from a stockholders' amendment approved by at least a majority of the outstanding voting shares. We have not "opted out" of the provisions of the Section 203. The statute could prohibit or delay mergers or other takeover or change-in-control attempts with respect to us and, accordingly, may discourage attempts to acquire us. Charter Provisions Our certificate of incorporation requires that upon completion of this public offering, any action required or permitted to be taken by our stockholders must be effected at a duly called annual or special meeting of stockholders and may not be effected by a consent in writing. Additionally, our certificate of incorporation: . eliminates cumulative voting in the election of directors; . provides that the authorized number of directors may be changed only by resolution of our board of directors; and . authorizes our board of directors to issue blank check preferred stock to increase the amount of outstanding shares. Our bylaws provide that candidates for director may be nominated only by our board of directors or by a stockholder who gives written notice to us no later than 60 days prior nor earlier than 90 days prior to the first anniversary of the last annual meeting of stockholders. Our board of directors currently consists of six members divided into three classes with staggered terms. Our board of directors may appoint new directors to fill vacancies or newly created directorships. Our bylaws also limit who may call a special meeting of stockholders. Delaware law and these charter provisions may have the effect of deterring hostile takeovers or delaying changes in control of our management, which could depress the market price of our common stock. Limitation of Liability and Indemnification Our certificate of incorporation, which will become effective upon the closing of this offering, contains provisions permitted under Delaware law relating to the liability of directors. These provisions eliminate a director's personal liability for monetary damages resulting from a breach of fiduciary duty, except in circumstances involving wrongful acts, such as: . any breach of the director's duty of loyalty; . acts or omissions which involve a lack of good faith, intentional misconduct or a knowing violation of the law; . payment of dividends or approval of stock repurchases or redemptions that are unlawful under Delaware law; or . any transaction from which the director derives an improper personal benefit. These provisions do not limit or eliminate our rights or any stockholder's rights to seek non-monetary relief, such as an injunction or rescission, in the event of a breach of director's fiduciary duty. These provisions will not alter a director's liability under federal securities laws. 69 Our bylaws, which will become effective upon the closing of this offering, require us to indemnify our directors and executive officers to the fullest extent not prohibited by the Delaware law. We may limit the extent of such indemnification by individual contracts with our directors and executive officers. Further, we may decline to indemnify any director or executive officer in connection with any proceeding initiated by such person or any proceeding by such person against us or our directors, officers, employees or other agents, unless indemnification is expressly required to be made by law or the proceeding was authorized by our board of directors. We intend to enter into indemnity agreements with each of our current directors and certain of our executive officers to give such directors and officers additional contractual assurances regarding the scope of the indemnification set forth in our certificate of incorporation and bylaws and to provide additional procedural protections. At present, there is no pending litigation or proceeding involving any of our directors, officers or employees for which indemnification is sought, nor are we aware of any threatened litigation that may result in claims for indemnification. We have the power to indemnify our other officers, employees and other agents, as permitted by Delaware law, but we are not required to do so. We plan to obtain directors' and officers' liability insurance. Transfer Agent and Registrar The transfer agent and registrar for the common stock is Norwest Bank, Minnesota N.A. 70 SHARES ELIGIBLE FOR FUTURE SALE Prior to this offering, there has been no market for our common stock, and a significant public market for our common stock may not develop or be sustained after this offering. As described below, shares currently outstanding will be available for sale immediately after this offering due to certain contractual and securities law restrictions on resale. Sales of substantial amounts of our common stock in the public market after the restrictions lapse could adversely affect the prevailing market price and our ability to raise equity capital in the future. Upon completion of this offering, we will have outstanding shares of common stock. Of these shares, all of the shares sold in this offering will be freely tradable without restriction or further registration under the Securities Act, unless these shares are purchased by our "affiliates," as that term is defined in Rule 144 under the Securities Act. In general, affiliates include officers, directors or 10% stockholders. The remaining 6,932,803 shares outstanding are "restricted securities" within the meaning of Rule 144. These restricted securities may be sold in the public market only if registered or if they qualify for an exemption from registration under Rules 144, 144(k) or 701 promulgated under the Securities Act, which are summarized below. Sales of the restricted securities in the public market, or the availability of these shares for sale, could adversely affect the market price of our common stock. All of our directors and officers and a majority of our stockholders and option holders have entered into lock-up agreements in connection with this offering generally providing that they will not offer, sell, contract to sell or grant any option to purchase or otherwise dispose of our common stock or any securities exercisable for or convertible into our common stock owned by them for a period of 180 days after the date of this prospectus without the prior written consent of FleetBoston Robertson Stephens Inc. Taking into account these lock-up agreements, and assuming FleetBoston Robertson Stephens Inc. does not release stockholders from their agreements, the following shares will be eligible for sale in the public market at the following times: . no shares will be eligible for sale upon completion of this offering; . 6,845,130 shares will be eligible for sale upon the expiration of lock-up agreements, beginning 180 days after the date of this prospectus; . 87,673 of the remaining shares may be sold under Rule 144 or 144(k) once they have been held for the required time. Additionally, of the shares that may be issued upon the exercise of options outstanding as of January 31, 2000, approximately shares will be vested and eligible for sale 180 days after completion of this offering. In general, under Rule 144 as currently in effect, after expiration of the lock-up agreements, a person who has beneficially owned restricted securities for at least one year would be entitled to sell within any three-month period a number of shares that does not exceed the greater of: . one percent of the number of shares of common stock then outstanding, which will equal approximately shares immediately after this offering; or . the average weekly trading volume of the common stock during the four calendar weeks preceding the sale. 71 Sales under Rule 144 must comply with the requirements with respect to manner of sale, notice and the availability of current public information about us. Under Rule 144(k), a person who is not deemed to have been our affiliate at any time during the three months preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years, is entitled to sell these shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144. Rule 701, as currently in effect, permits our employees, officers and directors or consultants who purchased shares under a written compensatory plan or contract to resell these shares in reliance upon Rule 144 but without compliance with specific restrictions. Commencing 90 days after the date of this offering, Rule 701 permits affiliates to sell their Rule 701 shares under Rule 144 without complying with the holding period requirement and permits non- affiliates to sell these shares in reliance on Rule 144 without complying with the holding period, public information, volume limitation or notice provisions of Rule 144. Registration Rights. Upon the earlier of July 30, 2001 or twelve months after this offering the holders of an aggregate of 150,263 shares of our common stock, and beginning 180 days after this offering holders of an aggregate of 3,894,223 shares of our common stock, will be entitled to rights with respect to the registration of their shares under the Securities Act. Registration of their shares under the Securities Act would result in these shares becoming freely tradable without restriction under the Securities Act, except for shares purchased by affiliates, immediately upon the effectiveness of this registration. In addition, we intend to file, immediately after the effectiveness of this offering, a registration statement on Form S-8 under the Securities Act covering all shares of common stock reserved for issuance under our 2000 Equity Incentive Plan and our 2000 Employee Stock Purchase Plan. Shares registered under this registration statement would be available for sale in the open market in the future, providing there is compliance with Rule 144 restrictions, in the case of affiliates, and the contractual restrictions described above. 72 UNDERWRITING The underwriters named below, acting through their representatives, FleetBoston Robertson Stephens Inc., Dain Rauscher Incorporated and Robert W. Baird & Co. Incorporated, have agreed with us and the selling stockholders, subject to conditions in the underwriting agreement, to purchase from us and the selling stockholders the number of shares of common stock listed opposite their names below. The underwriters are committed to purchase and pay for all shares if any are purchased.
Underwriter Number of Shares ----------- ---------------- FleetBoston Robertson Stephens Inc. ........................ Dain Rauscher Incorporated.................................. Robert W. Baird & Co. Incorporated.......................... ------ Total..................................................... ======
The representatives have advised us and our selling stockholders that the underwriters propose to offer the shares of common stock to the public at the public offering price on the cover page of this prospectus. The underwriters may sell shares to dealers at that price less a concession of not in excess of $ per share, of which $ may be reallowed to other dealers. After this offering, the public offering price, concession and reallowance to dealers may be reduced by the representatives, but any reduction will not change the amount of proceeds to be received by us or the selling stockholder. The common stock is offered by the underwriters on the terms discussed in this prospectus, subject to receipt and acceptance by them, and subject to their right to reject any order. The underwriters have advised us that they do not expect sales to discretionary accounts to exceed five percent of the total number of shares offered. No Public Market. Before this offering, there has been no public market for our common stock. Consequently, the public offering price for the common stock offered by this prospectus will be determined through negotiations among the representatives and us. Among the factors considered in these negotiations will be prevailing market conditions, our financial information, market valuations of other companies that we and the representatives believe to be comparable to us, estimates of our business potential and the present state of our development. Over-Allotment Option. We and our selling stockholders have granted the underwriters an option, exercisable during the 30-day period after the date of this prospectus, to purchase up to additional shares of common stock solely to cover any over-allotments, at the public offering price less the underwriting discount on the cover page of this prospectus. If the underwriters exercise their over-allotment option to purchase any of the additional shares of common stock, they have agreed, subject to specified conditions, to purchase approximately the same percentage of these additional shares as the number of shares to be purchased by each of them bears to the total number of shares of common stock in this offering. If purchased, these additional shares will be sold by the underwriters on the same terms as those on which the shares offered in this offering are being sold. We and our selling stockholders will be obligated to sell shares to the underwriters to the extent the over-allotment option is exercised. 73 The following table summarizes the compensation to be paid to the underwriters by us and our selling stockholders:
Total ------------------- Without With Per Over- Over- Share allotment allotment ----- --------- --------- Underwriting discounts and commissions payable by us.............................................. $ $ $ Underwriting discounts and commissions payable by the selling stockholders........................ $ $ $
We estimate the expenses payable by us in connection with this offering, other than the underwriting discounts and commissions referred to above, will be approximately $ . Indemnity. The underwriting agreement contains covenants of indemnity among the underwriters, us and the selling stockholders against civil liabilities, including liabilities under the Securities Act. Lock-Up Agreements. Holders of % of our outstanding stock and all of our officers and directors have signed lock up agreements with the underwriters. Under these agreements, these parties have agreed, during the period of 180 days after the date of this prospectus and subject to various exceptions, not to offer to sell, contract to sell, or transfer any shares of common stock they own or later acquire, other than shares purchased in the public markets. These agreements contain similar terms for options or warrants to purchase any shares of common stock, or any securities convertible into or exchangeable for shares of common stock. However, FleetBoston Robertson Stephens Inc. may, in its sole discretion and at any time without notice, release any portion of the securities subject to lock-up agreements. There are no existing agreements between the representatives and any of our stockholders who have executed a lock-up agreement providing consent to the sale of shares before the expiration of the lock-up period. In addition, we have agreed that during the lock-up period we will not, without the prior written consent of FleetBoston Robertson Stephens Inc., consent to the disposition of any shares held by stockholders subject to lock- up agreements before the expiration of the lock-up period, or issue, sell, contract to sell, or dispose of, any shares of common stock, any options or warrants to purchase any shares of common stock or any securities convertible into, exercisable for or exchangeable for shares of common stock. However, the following are examples of exceptions to this agreement: . our sale of shares in this offering; . the issuance of our common stock upon the exercise of outstanding options or warrants; and . the issuance of options under existing stock option and incentive plans, provided that those options do not vest before the expiration of the lock-up period. Listing. We have applied to have the common stock approved for quotation on the Nasdaq National Market under the symbol "TRNE." Stabilization. The representatives have advised us that, under Regulation M of the Exchange Act, some persons participating in the offering may engage in any of the following transactions: . stabilizing bids, which are bids for the purchase of common stock on behalf of the underwriters that are intended to fix or maintain the price of the common stock; 74 . syndicate covering transactions, which are bids for the purchase of common stock on behalf of the underwriters to reduce a short position incurred by the underwriters in connection with the offering; a short position results when an underwriter sells more shares than it has committed to purchase; and . penalty bids, which are arrangements that permit the representatives to reclaim the selling concession otherwise accruing to an underwriter or syndicate member in connection with the offering if the common stock originally sold by the underwriter or syndicate member is purchased by the representatives in a syndicate covering transaction, and has not been effectively placed by this underwriter or syndicate member. These transactions may be effected on the Nasdaq National Market and, if commenced, may be discontinued at any time. Directed Share Program. At our request, the underwriters have reserved up to shares of common stock to be issued by us and offered for sale, at the initial public offering price, to our directors, officers, employees, business associates and related persons. The number of shares of common stock available for sale to the general public will be reduced to the extent that these individuals purchase all or a portion of these reserved shares. Any reserved shares which are not purchased will be offered by the underwriters to the general public on the same terms as the shares of common stock offered in this offering. LEGAL MATTERS The validity of the shares of common stock offered in this prospectus will be passed upon for us by Cooley Godward LLP, San Francisco, California. Legal matters related to the offering will be passed upon for the underwriters by Brobeck, Phleger & Harrison LLP, San Francisco, California. EXPERTS Ernst & Young LLP, independent auditors, have audited our consolidated financial statements at December 31, 1999, and 1998, and for each of the three years in the period ended December 31, 1999, as set forth in their report. We have included our financial statements in the prospectus and elsewhere in the registration statement in reliance on Ernst & Young LLP's report, given on their authority as experts in accounting and auditing. 75 WHERE YOU CAN FIND ADDITIONAL INFORMATION We have filed with the Securities and Exchange Commission a registration statement on Form S-1 under the Securities Act to offer shares of our common stock. This prospectus is only a part of the registration statement and does not contain all of the information included in the registration statement. Further information about us and our common stock can be found in the registration statement. The rules and regulations of the Securities and Exchange Commission allow us to omit various information from the prospectus that is included in the registration statement. Statements made in this prospectus about the contents of any contract, agreement or other documents are summaries. If we filed any of those documents as exhibits to the registration statement, you may read the document itself for a complete description of its terms. The registration statement and the related exhibits and schedules filed by us with the Securities and Exchange Commission can be inspected and copies obtained at prescribed rates from the public reference facilities maintained by the Securities and Exchange Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain information on the operation of the public reference room by calling the Securities and Exchange Commission at 1-800-SEC-0330. The Securities and Exchange Commission also maintains a website that contains reports, proxy and information statements and other information about registrants that file electronically with the Securities and Exchange Commission, like us, at http://www.sec.gov. 76 TriNet Group, Inc. Consolidated Financial Statements Years Ended December 31, 1999, 1998 and 1997 Contents
Page ---- Report of Independent Auditors............................................. F-2 Audited Financial Statements 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
F-1 Report of Independent Auditors Board of Directors TriNet Group, Inc. We have audited the accompanying consolidated balance sheets of TriNet Group, Inc. as of December 31, 1999 and 1998, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1999. 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 auditing standards generally accepted in the United States. 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 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of TriNet Group, Inc. at December 31, 1999 and 1998, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1999 in conformity with accounting principles generally accepted in the United States. Walnut Creek, California February 18, 2000, except for paragraph 2 of Note 4, as to which the date is February 29, 2000 F-2 TriNet Group, Inc. Consolidated Balance Sheets
Pro Forma Stockholders' December 31, Equity at ------------------------ December 31, 1998 1999 1999 ----------- ----------- ------------- Assets (unaudited) Current assets: Cash and cash equivalents............. $ 8,584,563 $16,777,235 Accounts receivable, net of allowance for doubtful accounts of $7,157 in 1998 and $100,000 in 1999............ 1,676,753 3,637,345 Unbilled revenues..................... 4,667,940 4,781,704 Refundable income tax prepayments..... 390,817 1,376,802 Prepaid expenses...................... 428,727 534,322 Deferred income taxes................. 147,400 322,500 Other current assets.................. 100,845 308,216 ----------- ----------- Total current assets................ 15,997,045 27,738,124 Property and equipment, net............ 4,005,578 7,979,264 Other assets........................... 88,890 74,009 ----------- ----------- $20,091,513 $35,791,397 =========== =========== Liabilities and Stockholders' Equity Current liabilities: Accounts payable...................... $ 375,933 $ 733,769 Subscriber prepayments................ 6,002,250 6,942,570 Accrued compensation and related expenses............................. 8,614,294 19,359,530 Current portion of borrowings under bank financing arrangements.......... -- 588,910 ----------- ----------- Total current liabilities........... 14,992,477 27,624,779 Borrowings under bank financing arrangements.......................... -- 1,766,728 Deferred income taxes.................. 531,100 1,084,200 Commitments and contingencies Redeemable convertible preferred stock, 1,000,000 shares authorized: Series E, $40 stated value; 75,000 shares authorized; 12,500 shares issued and outstanding at December 31, 1998 and 1999, and none pro forma (aggregate liquidation preference of $500,000)............................ 500,000 500,000 $ -- Stockholders' equity: Common stock, no stated value; authorized: 50,000,000 shares; issued and outstanding: 6,316,675 shares at December 31, 1998, 6,385,394 shares at December 31, 1999 and 6,927,698 shares, pro forma.......... 5,026,754 6,619,545 7,119,545 Deferred compensation................. (356,542) (1,072,861) (1,072,861) Accumulated deficit................... (592,049) (725,182) (725,182) Accumulated other comprehensive loss.. (10,227) (5,812) (5,812) ----------- ----------- ----------- Total stockholders' equity.......... 4,067,936 4,815,690 $ 5,315,690 ----------- ----------- =========== $20,091,513 $35,791,397 =========== ===========
See accompanying notes. F-3 TriNet Group, Inc. Consolidated Statements of Operations
Years ended December 31, ------------------------------------ 1997 1998 1999 ---------- ----------- ----------- Service revenues......................... $7,748,608 $12,442,924 $19,127,780 (Net of direct costs billed and incurred of $241,917,033, $386,220,552, and $712,944,848, respectively) Operating expenses: Cost of providing services............. 4,119,822 6,378,814 10,101,829 Client acquisition costs............... 1,077,607 1,102,352 2,541,173 General and administrative............. 846,395 1,782,603 2,543,574 Research and development............... 488,475 718,692 2,353,295 Depreciation........................... 228,668 565,008 742,943 Stock-based compensation............... -- 146,458 650,681 ---------- ----------- ----------- Total operating expenses............. 6,760,967 10,693,927 18,933,495 ---------- ----------- ----------- Operating income......................... 987,641 1,748,997 194,285 Other income (expense): Interest income........................ 41,651 49,177 73,503 Interest expense....................... (22,981) (10,760) (9,340) Foreign exchange gain (loss)........... -- (25,584) 37,719 ---------- ----------- ----------- Income before provision for income taxes................................... 1,006,311 1,761,830 296,167 Provision for income taxes............... (246,800) (779,400) (399,300) ---------- ----------- ----------- Net income (loss)........................ $ 759,511 $ 982,430 $ (103,133) ========== =========== =========== Net income (loss) available to common stockholders............................ $ (347,640) $ 454,978 $ (133,133) ========== =========== =========== Basic net income (loss) per common share................................... $ (0.10) $ 0.07 $ (0.02) ========== =========== =========== Diluted net income (loss) per common share................................... $ (0.10) $ 0.07 $ (0.02) ========== =========== =========== Shares used to compute basic net income (loss) per common share................. 3,599,463 6,303,081 6,340,357 ========== =========== =========== Shares used to compute diluted net income (loss) per common share................. 3,599,463 6,593,448 6,340,357 ========== =========== =========== Pro forma basic and diluted net loss per common share (unaudited)................ $ (0.01) =========== Shares used to compute pro forma basic and diluted net income per common stock share (unaudited)....................... 6,882,661 ===========
See accompanying notes. F-4 TriNet Group, Inc. Consolidated Statements of Stockholders' Equity For the years ended December 31, 1999, 1998 and 1997
Accumulated Common Stock Note Other --------------------- Receivable Deferred Accumulated Comprehensive Shares Amount for Stock Compensation Deficit Loss Total --------- ---------- ---------- ------------ ----------- ------------- ----------- Balance at December 31, 1996.................... 3,597,125 $ 537,632 $(250,000) $ -- $ (699,387) $ -- $ (411,755) Repurchase of common stock.................. (848) (3,876) -- -- -- -- (3,876) Discount on issuance of preferred stock........ -- 1,000,000 -- -- -- -- 1,000,000 Accretion of preferred stock discount......... -- -- -- -- (1,000,000) -- (1,000,000) Payment of note receivable............. -- -- 250,000 -- -- -- 250,000 Exercise of stock options................ 5,525 1,509 -- -- -- -- 1,509 Conversion of redeemable preferred shares into common stock.................. 2,678,773 2,454,764 -- -- -- -- 2,454,764 Dividend payable....... -- -- -- -- (107,151) -- (107,151) Net income and comprehensive income... -- -- -- -- 759,511 -- 759,511 --------- ---------- --------- ----------- ----------- -------- ----------- Balance at December 31, 1997.................... 6,280,575 3,990,029 -- -- (1,047,027) -- 2,943,002 Repurchase of common stock.................. (5,005) (9,309) -- -- -- -- (9,309) Discount on issuance of redeemable preferred stock.................. -- 500,000 -- -- -- -- 500,000 Accretion of preferred stock discount......... -- -- -- -- (500,000) -- (500,000) Exercise of stock options................ 41,105 43,034 -- -- -- -- 43,034 Deferred compensation related to grant of stock options.......... -- 503,000 -- (503,000) -- -- -- Amortization of deferred compensation.. -- -- -- 146,458 -- -- 146,458 Dividend payable....... -- -- -- -- (27,452) -- (27,452) Net income............. -- -- -- -- 982,430 -- 982,430 Foreign currency translation adjustment............. -- -- -- -- -- (10,227) (10,227) ----------- Comprehensive income... -- -- -- -- -- -- 972,203 --------- ---------- --------- ----------- ----------- -------- ----------- Balance at December 31, 1998.................... 6,316,675 5,026,754 -- (356,542) (592,049) (10,227) 4,067,936 Repurchase of common stock.................. (1,493) (10,780) -- -- -- -- (10,780) Exercise of stock options................ 70,212 196,367 -- -- -- -- 196,367 Deferred compensation related to grant of stock options.......... -- 1,367,000 -- (1,367,000) -- -- -- Amortization of deferred compensation.. -- -- -- 650,681 -- -- 650,681 Income tax benefit of stock option exercises.............. -- 40,204 -- -- -- -- 40,204 Dividend payable....... -- -- -- -- (30,000) -- (30,000) Net loss............... -- -- -- -- (103,133) -- (103,133) Foreign currency translation adjustment............. -- -- -- -- -- 4,415 4,415 ----------- Comprehensive loss..... -- -- -- -- -- -- (98,718) --------- ---------- --------- ----------- ----------- -------- ----------- Balance at December 31, 1999.................... 6,385,394 $6,619,545 $ -- $(1,072,861) $ (725,182) $ (5,812) $ 4,815,690 ========= ========== ========= =========== =========== ======== ===========
See accompanying notes. F-5 TriNet Group, Inc. Consolidated Statements of Cash Flows
Years ended December 31, ------------------------------------- 1997 1998 1999 ----------- ----------- ----------- Operating activities Net income (loss)...................... $ 759,511 $ 982,430 $ (103,133) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation.......................... 228,668 565,008 742,943 Stock-based compensation.............. -- 146,458 694,411 Provision for doubtful accounts....... 7,157 29,510 236,053 Deferred income taxes................. 210,900 359,600 378,000 Changes in assets and liabilities: Accounts receivable.................. (1,646,832) 95,086 (2,196,645) Unbilled revenues.................... 137,157 (2,644,067) (113,764) Refundable income tax prepayments.... (108,739) (485,765) (945,781) Prepaid expenses..................... (232,991) (195,736) (105,595) Other current assets................. 120,728 (20,498) (207,371) Other noncurrent assets.............. -- (50,878) 14,881 Accounts payable..................... 267,962 (163,233) 1,472,288 Subscriber prepayments............... 2,482,831 1,652,151 940,320 Accrued compensation and related expenses............................ 1,935,959 1,887,516 10,745,236 ----------- ----------- ----------- Net cash provided by operating activities............................ 4,162,311 2,157,582 11,551,843 Investing activities Purchase of property and equipment..... (2,230,084) (1,916,402) (4,716,629) Financing activities Borrowings under bank financing arrangements.......................... -- -- 1,238,638 Dividends paid on preferred stock...... (60,000) (107,151) (27,452) Repurchase of common stock............. (3,876) (9,309) (10,780) Issuance of common stock............... 1,509 43,034 152,637 Issuance of preferred stock............ 1,000,000 500,000 -- Payment of note receivable............. 250,000 -- -- ----------- ----------- ----------- Net cash provided by financing activities............................ 1,187,633 426,574 1,353,043 ----------- ----------- ----------- Effect of exchange rate changes on cash.................................. -- (10,227) 4,415 ----------- ----------- ----------- Net increase in cash and cash equivalents........................... 3,119,860 657,527 8,192,672 Cash and cash equivalents at beginning of year............................... 4,807,176 7,927,036 8,584,563 ----------- ----------- ----------- Cash and cash equivalents at end of year.................................. $ 7,927,036 $ 8,584,563 $16,777,235 =========== =========== =========== Supplemental disclosures of cash flow information Interest paid.......................... $ 14,069 $ 10,760 $ 9,340 =========== =========== =========== Income taxes paid...................... $ 178,466 $ 853,500 $ 1,239,475 =========== =========== =========== Supplemental schedule of noncash financing activities Dividends declared but not paid........ $ 107,151 $ 27,452 $ 30,000 =========== =========== ===========
See accompanying notes. F-6 TriNet Group, Inc. Notes to Consolidated Financial Statements December 31, 1999 1. Description of Business and Significant Accounting Policies Description of Business TriNet Group, Inc. (the "Company") is a provider of web-enabled business process outsourcing of payroll, benefits and human resources support to technology companies in North America. The Company's systems and services enable customers to integrate human resources, benefits and payroll processes to a single information systems platform, as well as outsource related transaction processing functions to TriNet's consolidated back-office operation. Segment Reporting The Company operates in one reportable segment under FASB Statement No. 131, "Disclosure About Segments of an Enterprise and Related Information" ("FAS 131"). The Company uses a centralized structure to deliver web-enabled business process outsourcing of payroll, benefits and human resource transactions to its customers. The Company's management has determined the operating segment based upon how the business is managed and operated. Principles of Consolidation The consolidated financial statements include the accounts of TriNet Group, Inc. and its wholly owned subsidiary. Intercompany accounts and transactions have been eliminated. Revenue Recognition The Company's revenues consist primarily of service fees paid by its customers in consideration for the Company's payment of the customer's direct payroll costs including salaries, wages, employee benefits and payroll taxes. Service revenues, which are presented net of direct payroll costs incurred and billed, are recognized in the period in which the customer's serviced employees earn salaries and wages. Service revenues related to salaries and wages earned by serviced employees but not paid during the current period are recognized as unbilled revenues and the related direct payroll costs are accrued as a liability in the period in which the salaries and wages are earned by the employees. Subsequent to each period end, such accrued direct payroll costs are paid and the related service revenues are billed. Unbilled revenues at December 31, 1998 and 1999 are net of prepayments received prior to year end of $481,130 and $1,651,534, respectively. The Company also derives revenues from other services provided to its customers and this revenue is recognized when the related services are performed. The Company generally requires its payroll and benefits outsourcing customers to pay no later than one day prior to the applicable payroll date via electronic funds transfer. Interest earned on cash balances resulting from timing differences between the collection of payments from customers and the remittance of wages, taxes and payments to outside parties is included in service revenues in the accompanying consolidated statements of operations. Interest included in service revenues for the years ended December 31, 1997, 1998 and 1999 totaled $403,000, $490,000 and $650,000, respectively. F-7 TriNet Group, Inc. Notes to Consolidated Financial Statements (continued) 1. Description of Business and Significant Accounting Policies (continued) Concentrations of Credit Risk Financial instruments which subject the Company to concentrations of credit risk include cash and cash equivalents and accounts receivable. The Company maintains its cash in a domestic financial institution and performs periodic evaluations of the relative credit standing of this institution. The Company currently provides services primarily to early stage technology companies in Northern California and conducts ongoing credit evaluations of its customers. Under the terms of its customer agreements, the Company is required to pay its serviced employees' salaries and wages regardless of whether the customer makes timely payment to the Company. The Company has historically experienced insignificant credit losses. The Company generally requires payment from its customers no later than one day prior to the applicable payroll date. From certain of its customers, the Company requires a performance assurance payment ("PAP") in an amount equal to the total payroll and service fee for one average payroll period and such amounts are recorded as subscriber prepayments in the accompanying consolidated balance sheets. Should the PAP fall below the required amount, the customer is required to pay an amount sufficient to establish the required PAP level. In the event of a termination, the Company refunds remaining PAP amounts within 30 days, provided all obligations of the customer have been fulfilled. Cash and Cash Equivalents Cash and cash equivalents include bank demand deposits and short-term, highly liquid investments. Investments with original maturity dates of three months or less are considered cash equivalents. Since the Company generally requires its customers to pay no later than one day prior to the applicable payroll date, the Company's cash and cash equivalents can vary significantly based on the timing of funds transferred by customers and the timing of funds disbursed by the Company for applicable services. Property and Equipment, net Property and equipment are recorded at cost and depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally three to seven years. Leasehold improvements are depreciated over the shorter of the life of the asset or the remaining term of the lease. The cost of maintenance and repairs is expensed as incurred; renewals and betterments are capitalized. Impairment of Long-Lived Assets The Company evaluates its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets F-8 TriNet Group, Inc. Notes to Consolidated Financial Statements (continued) 1. Description of Business and Significant Accounting Policies (continued) exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Software Development and Enhancements Through the end of 1997, the Company expensed as incurred certain costs to develop and enhance its internal computer programs and software. Expenditures for vendor-provided software were capitalized and amortized using the straight- line method over estimated useful lives ranging from 3 to 5 years. In March 1998, the Accounting Standards Executive Committee issued Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." The SOP requires the capitalization of internal use computer software costs if certain criteria are met, including all external direct costs for materials and services and certain payroll and related fringe benefit costs. The Company early-adopted SOP 98-1 as of January 1, 1998. As a result, the Company capitalizes internal use software costs with an expected useful life over one year and expenses amounts not meeting the criteria of SOP 98-1. Capitalized software costs are amortized on the straight line basis over estimated useful lives ranging from 2 to 4 years. Fair Value of Financial Instruments The carrying value of accounts receivable, unbilled revenues, accounts payable, subscriber prepayments and accrued compensation and related expenses approximates fair value due to the short-term maturities of these assets and liabilities. The carrying value of borrowings under bank financing arrangements approximates fair value since the interest rate is variable and resets frequently. Advertising All advertising costs are expensed as incurred. Advertising costs, which are included in client acquisition costs, were approximately $130,000, $290,000 and $610,000 for the years ended December 31, 1997, 1998 and 1999, respectively. Income Taxes The Company accounts for income taxes in accordance with the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"), which requires the use of the liability method in accounting for income taxes. Under this method, deferred tax liabilities and assets are measured based upon differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes using enacted tax rates and laws that will be in effect when the differences are expected to reverse. Stock-Based Compensation The Company accounts for stock-based awards to employees under the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and has adopted the disclosure-only alternative of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("FAS 123"). F-9 TriNet Group, Inc. Notes to Consolidated Financial Statements (continued) 1. Description of Business and Significant Accounting Policies (continued) Translation of Foreign Currencies All assets and liabilities that are denominated in foreign currencies are translated into U.S. dollars at year-end exchange rates and all revenue and expense accounts are translated using the average monthly exchange rates. Translation adjustments are included in the Accumulated Other Comprehensive Loss component of stockholders' equity. Computation of Net Income (Loss) Per Common Share The Company computes net income (loss) per common share based on Financial Accounting Standards Board Statement No. 128, "Earnings Per Share" ("FAS 128"). In accordance with FAS 128, basic net income (loss) per common share is calculated as net income (loss) available to common stockholders divided by the weighted-average number of common shares outstanding. Diluted net income (loss) per common share is computed using the weighted-average number of common shares outstanding and dilutive common stock equivalents outstanding during the period unless the effect of including such shares is anti-dilutive. Common equivalent shares result from stock options (using the treasury stock method) and convertible preferred stock (using the as-if-converted method). Pro forma net income (loss) per common share has been computed as described above and also gives effect, under Securities and Exchange Commission guidance, to the conversion of preferred shares not included above that will automatically convert to common shares upon completion of the Company's initial public offering, using the if-converted method. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Recent Pronouncements In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No 133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS 133"). FAS 133 requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designed as part of a hedge transaction, and, if so, the type of hedge transaction. In June 1999, the FASB issued Statement of Financial Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging Activities-- Deferral of the Effective Date of FASB Statement No. 133" ("FAS 137"), which amends FAS 133 to be effective for all fiscal quarters or all fiscal years beginning after June 15, 2000, or January 1, 2001 for the Company. Management does not currently expect that adoption of FAS 137 will have a material impact on the Company's financial position or results of operations. F-10 TriNet Group, Inc. Notes to Consolidated Financial Statements (continued) 2. Property and Equipment, Net Property and equipment consist of the following:
December 31, ------------------------ 1998 1999 ----------- ----------- Software......................................... $ 2,266,960 $ 4,969,493 Office equipment including data processing equipment....................................... 1,729,900 2,977,038 Furniture, fixtures and equipment................ 637,036 955,142 Leasehold improvements........................... 536,299 986,686 ----------- ----------- 5,170,195 9,888,359 Accumulated depreciation......................... (1,164,617) (1,909,095) ----------- ----------- $ 4,005,578 $ 7,979,264 =========== ===========
3. Bank Financing Arrangements In September 1999, the Company entered into a non-revolving line of credit agreement with a bank to finance qualifying expenditures on computer systems projects. Under the terms of this agreement, the Company may borrow up to $4,000,000 through March 31, 2000. Interest accrues on outstanding borrowings at either LIBOR plus 3.6% (10.1% at December 31, 1999) or the bank's reference rate plus 1% (9.5% at December 31, 1999), and is payable monthly. Among other provisions, the agreement requires the Company to maintain certain net worth levels and financial ratios. Borrowings under the agreement are secured by substantially all of the Company's assets. At December 31, 1999, the Company had incurred and included in accounts payable $1,117,000 of costs eligible for financing under the agreement. Subsequent to December 31, 1999, the Company financed these costs under the agreement and accordingly has included such amounts in bank borrowings in the accompanying balance sheet. On March 31, 2000, any outstanding borrowings are to be converted to a note payable with a term of 36 months. At December 31, 1999, outstanding borrowings of $1,766,728 have been included in long term liabilities since repayment will occur after December 31, 2000. Outstanding borrowings at December 31, 1999 are due as follows:
Year ending December 31, ------------------------ 2000.......................................................... $ 588,910 2001.......................................................... 785,213 2002.......................................................... 785,213 2003.......................................................... 196,302 ---------- 2,355,638 Less: current portion............................................ 588,910 ---------- Long-term portion................................................ $1,766,728 ==========
F-11 TriNet Group, Inc. Notes to Consolidated Financial Statements (continued) 4. Redeemable Convertible Preferred Stock Pursuant to terms specified in the Amended Series E Preferred Stock Purchase Agreement (Preferred Stock Agreement) with an existing common stockholder and upon meeting certain financial milestones, the Company issued to the common stockholder, 25,000 shares of Series E redeemable convertible preferred stock (Series E) at $40 per share in 1997 and 12,500 shares of Series E at $40 per share in 1998. All shares of Series E covered under the Preferred Stock Agreement were issued as of December 31, 1998. Shares of Series E may, at the option of the holder, be converted at any time into common stock at a conversion price of $1.00 per common share, subject to adjustment based on anti-dilution provisions outlined in the Preferred Stock Agreement (conversion price of $0.921992 per common share at December 31, 1999). Upon issuance of Series E in 1997 and 1998, the aggregate fair value of the common stock the holder would receive upon conversion exceeded the proceeds to be received from conversion and such difference has been accounted for as a discount on preferred stock in both 1997 and 1998. Since the Series E is immediately convertible, the $1,000,000 and $500,000 discount related to the 1997 and 1998 issuance of Series E was accreted to retained earnings in 1997 and 1998, respectively. At December 31, 1997, all of the then outstanding shares of Series E were converted into 2,678,773 shares of common stock. In consideration for the December 1997 agreement to convert the Series E into common stock, the Company entered into an agreement to issue the holder of Series E the right to receive one share of common stock for each additional equity security issued by the Company, subject to certain conditions. On February 29, 2000, the Company issued 217,256 shares of common stock in full satisfaction of its obligations under this agreement. Shares of Series E accrue a 6% cumulative dividend, payable annually. Dividends of $107,151, $27,452 and $30,000 were accrued for the years ended December 31, 1997, 1998, and 1999, respectively. Subsequent to September 30, 2000, Series E is subject to redemption at any time at the option of the holder at the original issue price of $40 per share. In the event the Company is not able to redeem the Series E in accordance with a request for redemption from the holder, the dividend rate will increase from 6% to 12%. The holder of Series E has no voting rights but has the right to elect one member to the Company's Board of Directors. The holder of Series E is entitled to receive the stated liquidation value of $40 per share, plus accrued but unpaid dividends, in the event of any liquidation, dissolution or winding up of the Company. 5. Stockholders' Equity Pursuant to the July 1995 Shareholders Agreement, all existing common stockholders have retained a right of first refusal, on a pro rata basis, to purchase additional shares offered for sale by the Company. Issuances of shares from a specified pool of shares reserved for the issuance of stock options are excluded from this right. Proposed Public Offering of Common Stock On December 21, 1999, the Board authorized the Company to proceed with an initial public offering of its common stock. If the offering is consummated as presently anticipated, all of the F-12 TriNet Group, Inc. Notes to Consolidated Financial Statements (continued) 5. Stockholders' Equity (continued) outstanding redeemable convertible preferred stock will automatically convert to common stock. The unaudited pro forma stockholders' equity at December 31, 1999 gives effect to the conversion of all outstanding shares of redeemable convertible preferred stock at that date into 542,304 shares of common stock upon the completion of the offering. Stock Option Plan Pursuant to the Company's 1990 Stock Option Plan (the "Plan"), an aggregate of 965,033 shares of common stock has been reserved for issuance upon the exercise of options granted to qualified employees, directors, and consultants of the Company. The Board of Directors, directly or through committees, administers the Plan and establishes the terms of option grants. The exercise price per share of all incentive stock options granted under the Plan must be at least equal to the fair market value of the shares at the date of grant as determined by the Board. The options generally vest at a rate of 25% after each year and have a maximum term of five years. Stock option activity under the Plan is summarized as follows:
Outstanding options -------------------- Weighted Options Number average available of Price per exercise for grant shares share price --------- ------- ----------- -------- Balance at December 31, 1996....... 680,450 407,050 $0.08-1.60 $1.15 Granted........................... (109,398) 109,398 3.40-4.95 4.16 Exercised......................... -- (5,525) 0.08-1.00 0.27 Cancelled......................... 2,900 (2,900) 1.00 1.00 -------- ------- ----------- ----- Balance at December 31, 1997....... 573,952 508,023 $1.00-4.95 $1.81 Granted........................... (110,165) 110,165 3.69-5.83 5.43 Exercised......................... -- (41,105) 3.69-5.83 5.23 Cancelled......................... 60,612 (60,612) 1.00-5.83 2.33 -------- ------- ----------- ----- Balance at December 31, 1998....... 524,399 516,471 $1.00-5.83 $2.27 Granted........................... (261,286) 261,286 7.22-25.73 8.58 Exercised......................... -- (70,212) 3.69-25.73 8.23 Cancelled......................... 17,918 (17,918) 1.00-25.73 4.21 -------- ------- ----------- ----- Balance at December 31, 1999....... 281,031 689,627 $1.00-25.73 $4.82 ======== ======= =========== =====
The weighted-average remaining contractual life of all outstanding options at December 31, 1999 is 2.85 years. F-13 TriNet Group, Inc. Notes to Consolidated Financial Statements (continued) 5. Stockholders' Equity (continued) The following table summarizes information about stock options outstanding at December 31, 1999:
Options outstanding Options exercisable ----------------------------------------- ------------------------ Ranges of Weighted average exercise remaining Weighted average Weighted average prices Shares contractual life exercise price Shares exercise price -------- ------- ---------------- ---------------- ------- ---------------- $1.00 185,350 1.10 $ 1.00 133,476 $1.00 $1.60 75,000 1.77 1.60 59,270 1.60 $3.40- 3.81 60,105 2.55 3.52 41,720 3.53 $4.95- 5.83 114,222 3.24 5.40 42,222 5.35 $7.22 92,250 4.07 7.22 43,650 7.22 $9.03 159,400 4.49 9.03 -- -- $25.73 3,300 4.97 25.73 -- -- ------- ---- ------ ------- ----- $1.00- 25.73 689,627 2.85 $ 4.82 320,338 $2.86 ======= ==== ====== ======= =====
Shares Reserved for Future Issuance The Company has reserved shares of common stock for future issuance as follows:
Year ended December 31, ----------------------- 1997 1998 1999 ------- ------- ------- Redeemable convertible preferred stock............... -- 500,000 542,304 Stock options outstanding............................ 508,023 516,471 689,627 Stock options, available for grant................... 573,952 524,399 281,031
Deferred Compensation The Company has recorded deferred stock compensation charges of $503,000 and $1,367,000 during the years ending December 31, 1998 and 1999 respectively, representing the difference between the exercise price of the stock option and the fair value of common stock as of the date of grant. These amounts are being amortized by charges to operations, using the graded method, over the vesting periods of the individual stock options, which are 4 years. F-14 TriNet Group, Inc. Notes to Consolidated Financial Statements (continued) 5. Stockholders' Equity (continued) Pro Forma Disclosures of the Effect of Stock Based Compensation Pro forma information regarding net income and net income per common share is required by Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("FAS 123"), and has been determined as if the Company had accounted for its employee stock options under the fair value method of FAS 123. For purposes of pro forma disclosures, the estimated fair value of the stock option is amortized to expense over the option's vesting period. The fair value of these stock options was estimated at the date of grant using the Black-Scholes option pricing valuation model with the following weighted-average assumptions:
Year ended December 31, --------------------------- 1997 1998 1999 ------- ------- ------- Risk-free interest rate........................ 6 % 6 % 6 % Dividend yield................................. 0 % 0 % 0 % Volatility factor.............................. 0.5 0.5 0.5 Expected option term life in years............. 5 5 5
The weighted-average fair value of these options granted was $1.08, $1.41 and $4.26 for 1997, 1998 and 1999, respectively. Option valuation models were developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. Option valuation models require the input of highly subjective assumptions, including expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, subjective input assumptions can materially affect the fair value estimate. Had compensation costs for the Company's stock option plan been determined using the fair value at the grant dates for awards under that plan consistent with the method of FAS 123, the Company's historical net income (loss) applicable to common shareholders and basic and diluted net income (loss) per common share would have been decreased to the pro forma amounts indicated below:
Year ended December 31, ----------------------------- 1997 1998 1999 --------- -------- --------- Net income (loss) applicable to common shareholders: As reported............................... $(347,640) $454,978 $(133,133) Pro forma................................. $(389,408) $379,591 $(453,316) Basic net income (loss) per common share: As reported............................... $ (0.10) $ 0.07 $ (0.02) Pro forma................................. $ (0.11) $ 0.06 $ (0.07) Diluted net income (loss) per common share: As reported............................... $ (0.10) $ 0.07 $ (0.02) Pro forma................................. $ (0.11) $ 0.05 $ (0.07)
The pro forma impact of options on the results for the years ended December 31, 1997, 1998, and 1999 is not representative of the effects on results for future years, as future years will include the effects of additional years of stock option grants. F-15 TriNet Group, Inc. Notes to Consolidated Financial Statements (continued) 6. Net Income (Loss) Per Common Share The calculation of historical basic and diluted net income (loss) per common share is as follows:
Years ended December 31, ----------------------------------- 1997 1998 1999 ------------ ---------- ---------- Historical: Numerator: Net income (loss).................... $ 759,511 $ 982,430 $ (103,133) Less: preferred stock dividends and discount accretion.................. (1,107,151) (527,452) (30,000) ------------ ---------- ---------- Numerator for basic and dilutive net income (loss) per common share--net income available to common stockholders........................ $ (347,640) $ 454,978 $ (133,133) ============ ========== ========== Denominator: Denominator for basic net income (loss) per common share--weighted- average shares of common stock outstanding......................... 3,599,463 6,303,081 6,340,357 Effect of dilutive securities: Employee stock options.............. -- 290,367 -- ------------ ---------- ---------- Denominator for dilutive net income (loss) per common share--adjusted weighted-average shares and assumed conversions......................... 3,599,463 6,593,448 6,340,357 ============ ========== ========== Basic net income (loss) per common share............................... $ (0.10) $ 0.07 $ (0.02) ============ ========== ========== Diluted net income (loss) per common share............................... $ (0.10) $ 0.07 $ (0.02) ============ ========== ==========
For the years ended December 31, 1997 and 1999, if the Company had reported net income per common share, the calculation of historical diluted net income per common share would have included approximately an additional 200,000 and 330,000 common equivalent shares, respectively, related to outstanding stock options not included above (determined using the treasury stock method). In addition, if the Company had reported net income for the year ended December 31, 1999, the calculation of historical diluted net income per common share would have included approximately an additional 542,000 common equivalent shares, related to the conversion of preferred shares using the if-converted method. For the years ended December 31, 1997 and 1998, the effect of the convertible preferred stock is anti-dilutive. F-16 TriNet Group, Inc. Notes to Consolidated Financial Statements (continued) 6. Net Income (Loss) Per Common Share (continued) For the year ended December 31, 1999, the calculation of pro forma basic and diluted net loss per common share is as follows: Net loss....................................................... $ (103,133) ========== Weighted-average shares used in computing basic net income per common share.................................................. 6,340,357 Adjustment to reflect the effect of the assumed conversion of preferred stock from beginning of year........................ 542,304 ---------- Weighted-average shares used in computing pro forma basic and diluted net income per common share........................... 6,882,661 ========== Pro forma basic and dilutive net loss per common share (unaudited)................................................... $ (0.01) ==========
7. Income Taxes The components of the provision for income taxes are as follows:
Years ended December 31, ---------------------------- 1997 1998 1999 --------- -------- -------- Current: Federal....................................... $ 176,900 $331,200 $ 12,100 State......................................... 46,000 88,600 9,200 --------- -------- -------- 222,900 419,800 21,300 Deferred: Federal....................................... 165,900 276,500 297,800 State......................................... 45,000 83,100 80,200 --------- -------- -------- 210,900 359,600 378,000 --------- -------- -------- 433,800 779,400 399,300 Change in valuation allowance.................. (187,000) -- -- --------- -------- -------- $ 246,800 $779,400 $399,300 ========= ======== ========
F-17 TriNet Group, Inc. Notes to Consolidated Financial Statements (continued) 7. Income Taxes (continued) Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities as of December 31, 1998 and 1999 are as follows:
1998 1999 --------- ----------- Deferred tax assets: Accrued expenses................................... $ 69,000 $ 256,300 State income taxes................................. 61,700 62,000 Other.............................................. 17,700 4,600 --------- ----------- 148,400 322,900 Deferred tax liabilities: Depreciation and amortization...................... (127,500) (186,800) Software development costs......................... (404,600) (897,800) --------- ----------- Total deferred tax liabilities...................... (532,100) (1,084,600) --------- ----------- Net deferred tax liability.......................... $(383,700) $ (761,700) ========= =========== Net current deferred tax assets..................... $ 147,400 $ 322,500 Net noncurrent deferred tax liabilities............. (531,100) (1,084,200) --------- ----------- Net deferred tax liability.......................... $(383,700) $ (761,700) ========= ===========
The reconciliation of income tax computed at the United States federal statutory tax rates to the provision for income taxes is as follows:
Years ended December 31, ---------------- 1997 1998 1999 ---- ---- ---- Tax at U.S. statutory rate.................................. 34% 34% 34% State income taxes, net federal benefit..................... 6 6 20 Non-deductible stock-based compensation..................... -- 3 75 Meals and entertainment..................................... -- 1 4 Change in valuation allowance............................... (18) -- -- Other....................................................... 2 -- 2 --- --- --- 24% 44% 135% === === ===
F-18 TriNet Group, Inc. Notes to Consolidated Financial Statements (continued) 8. Commitments and Contingencies Leases The Company leases office facilities for its headquarters and other facilities under noncancelable operating leases which require the Company to pay certain maintenance and all insurance costs. As of December 31, 1999, minimum payments under all noncancelable lease agreements were as follows:
Year ending December 31, ------------------------ 2000.......................................................... $ 731,000 2001.......................................................... 737,000 2002.......................................................... 623,000 2003.......................................................... 269,000 2004.......................................................... 206,000 ---------- Total minimum lease payments..................................... $2,566,000 ==========
Rent expense for the years ended December 31, 1997, 1998, and 1999 was $201,000, $374,000 and $591,000, respectively. Contingencies While currently the Company is not aware of any significant pending litigation, the Company may from time to time become involved in various litigation arising in the ordinary course of business and the resolution of these matters could have a material effect on the Company's financial position or results of operations. Due to the nature of the Company's relationship with its serviced employees, the Company could be subject to liability for federal and state law violations even if the Company does not participate in such violations. While the agreements with customers contain indemnification provisions related to the conduct of the customers, the Company historically has not encountered situations requiring enforcement of these indemnification provisions. Beginning in 1998, the Company entered into a retroactively rated workers' compensation premium arrangement with an insurance carrier. At the end of each plan year, subject to minimum and maximum limits, the actual premium due is adjusted according to the period's claims experience. The Company records premium expense throughout the year based on projections from actual claims experience. Actual workers' compensation premiums may differ from the estimates recorded by the Company, and such differences could have a material effect on the Company's financial position or results of operations in a particular period. F-19 [Description of inside back cover graphics: Art to be depicted on the inside front cover shows five graphics explaining TriNet's position at the center of four trends, plus explanatory text.] Title: Strategically Positioned at the Center of Four Major Trends [In the center of the page is the TriNet logo with the caption: TriNet ePowered HR for Fast Companies] [One graphic has the following caption in a box with an arrow pointing to the TriNet logo: Growth in Business to Business eCommerce Three additional boxes contain the following captions with arrows pointing to the above described box: Hosted Enterprise Resource Planning Systems, Rapid Growth of Internet Usage, Digital Signatures] [Another graphic has the following caption in a box with an arrow pointing to the TriNet logo: Spread of Venture Capital Three additional boxes contain the following captions with arrows pointing to the above described box: Startups Seeking Financing, Substantial Increases in Venture Investment, Public Offerings and Acquisitions Result in Increased Liquidity] [Another graphic has the following caption in a box with an arrow pointing to the TriNet logo: Desire to Work at Fast-Growth Companies Three additional boxes contain the following captions with arrows pointing to the above described box: Availability for Competitive Benefit Packages, Desire for Fast Track Career, Potential Wealth Through Stock Options] [Another graphic has the following caption in a box with an arrow pointing to the TriNet logo: Demand for Outsourcing Three additional boxes contain the following captions with arrows pointing to the above described box: Web-based Transactions Provide Scalability, Pressure to Get to Market, Legal Compliance Requirements] TRINET LOGO PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. Other Expenses of Issuance and Distribution. The following table sets forth the costs and expenses to be paid by TriNet in connection with the sale of the shares of common stock being registered hereby. All amounts are estimates except for the Securities and Exchange Commission registration fee, the NASD filing fee and the Nasdaq National Market filing fee. Securities and Exchange Commission registration fee................. $15,180 NASD filing fee..................................................... 6,250 Nasdaq National Market filing fee................................... Accounting fees and expenses........................................ Legal fees and expenses............................................. Printing and engraving expenses..................................... Blue sky fees and expenses.......................................... 10,000 Transfer agent and registrar fees and expenses...................... 15,000 Miscellaneous....................................................... ------- Total............................................................. $ =======
ITEM 14. Indemnification of Directors and Officers. Section 145 of Delaware General Corporation Law provides for the indemnification of directors and officers. Our amended and restated certificate of incorporation contains provisions permitted under Delaware law relating to the liability of directors. These provisions eliminate a director's personal liability for monetary damages resulting from a breach of fiduciary duty, except in circumstances involving wrongful acts, such as: . any breach of the director's duty of loyalty; . acts or omissions which involve a lack of good faith, intentional misconduct or a knowing violation of the law; . any transaction from which the director derives an improper personal benefit; and . payment of dividends or approval of stock repurchases or redemptions that are unlawful under Delaware law. These provisions do not limit or eliminate our rights or any stockholder's rights to seek non-monetary relief, such as an injunction or rescission, in the event of a breach of director's fiduciary duty. These provisions will not alter a director's liability under federal securities laws. Our bylaws require us to indemnify our directors and executive officers to the fullest extent not prohibited by the Delaware law. We may limit the extent of such indemnification by individual contracts with our directors and executive officers. Further, we may decline to indemnify any director or executive officer in connection with any proceeding initiated by such person or any proceeding by such person against TriNet or its directors, officers, employees or other agents, unless such indemnification is expressly required to be made by law or the proceeding was authorized by our board of directors. II-1 We intend to enter into indemnity agreements with each of our current directors and certain of our executive officers to give these directors and officers additional contractual assurances regarding the scope of the indemnification set forth in our certificate of incorporation and bylaws and to provide additional procedural protections. At present, there is no pending litigation or proceeding involving a director, officer or employee of TriNet for which indemnification is sought, nor are we aware of any threatened litigation that may result in claims for indemnification. We have the power to indemnify our other officers, employees and other agents, as permitted by Delaware law, but we are not required to do so. TriNet plans to obtain directors' and officers' liability insurance. ITEM 15. Recent Sales of Unregistered Securities In the three fiscal years preceding the filing of this registration statement, the Registrant has issued the following securities that were not registered under the Securities Act: (1) From January 1997 to February 11, 2000, TriNet has granted stock options to purchase 697,488 shares of common stock, at a weighted average exercise price of $13.66, to employees, consultants and directors pursuant to its 1990 Stock Option Plan. Of these stock options, 81,080 have been cancelled, 122,467 shares have been exercised, 850 shares of which have been repurchased and 493,091 shares remain outstanding. (2) From February 1997 to January 1998, TriNet issued 25,000 shares of Series E preferred stock to one accredited investor at $40.00 per share. In December 1997, 62,500 shares of Series E preferred stock were converted into 2,678,773 shares of common stock. In consideration for the holder of the Series E preferred stock agreeing to elect such conversion, TriNet agreed to issue additional shares of common stock to such holder. In February 2000, in full satisfaction of its agreement, TriNet issued to such investor an aggregate of 217,256 shares of common stock. The remaining 12,500 shares of Series E preferred stock are convertible into an aggregate of 542,304 shares of common stock. (3) In February 2000, TriNet issued 150,263 shares of Series F preferred stock to three accredited investors at $26.62 per share for an aggregate purchase price of $4,000,001.06. Shares of Series F preferred stock are convertible into shares of common stock at the rate of one share of common stock for each share of Series F preferred stock outstanding. No underwriters were involved in the foregoing sales of securities. Except as noted, such sales were deemed to be exempt under the Securities Act in reliance upon Section 4(2) thereof relative to sales by an issuer not involving any public offering, or, in the case of options to purchase common stock, Rule 701 under the Securities Act. All of the foregoing securities are deemed restricted securities for purposes of the Securities Act. ITEM 16. Exhibits and Financial Statement Schedules. (a) The following exhibits are filed herewith:
Exhibit Number Exhibit Title ------- ------------- 1.01* Form of Underwriting Agreement. 3.01 Amended and Restated Articles of Incorporation, as amended. 3.02* Form of Amended and Restated Certificate of Incorporation to be in effect upon the closing of the offering. 3.03 Bylaws.
II-2
Exhibit Number Exhibit Title ------- ------------- 3.04* Form of Amended and Restated Bylaws to be in effect upon the closing of the offering. 4.01* Form of Specimen Stock Certificate. 5.01* Opinion of Cooley Godward llp. 10.01 1990 Stock Option Plan. 10.02* 2000 Equity Incentive Plan. 10.03* 2000 Employee Stock Purchase Plan. 10.04 Lease Agreement dated July 22, 1999 between Registrant and KBK Properties, Inc. 10.05 Lease Agreement dated July 9, 1999 between Registrant and Incline Capital Group, LLC. 10.06 Credit Agreement dated September 21, 1999 between Registrant and Sanwa Bank California. 10.07+ Volume License Agreement dated August 12, 1999 between Registrant and Concur Technologies, Inc. 10.08+ Software License and Services Agreement dated September 24, 1997 between Registrant and PeopleSoft, Inc. 10.09+ Software License Agreement dated October 6, 1999 between Registrant and Authoria, Inc. 10.10 Annual Support and Maintenance Agreement dated October 21, 1999 between Registrant and Authoria, Inc. 10.11+ Software License Agreement dated September 29, 1999 between Registrant and Brio Technology, Inc. 10.12+ Consulting Services Agreement dated November 11, 1999 between Registrant and Brio Technology, Inc. 10.13 Form of Steering Committee Employment Agreement. 10.14 Form of Executive Committee Employment Agreement. 10.15 Employment Agreement dated July 22, 1995 between Registrant and Martin Babinec. 23.01 Consent of Cooley Godward llp. Reference is made to Exhibit 5.01. 23.02 Consent of Ernst & Young LLP, independent auditors. 24.01 Powers of Attorney. 27.01 Financial Data Schedule.
- -------- +Confidential Treatment Requested *To be filed by amendment (b) No financial statement schedules are provided because the information called for is not required or is shown either in the consolidated financial statements or the 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 for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions described under Item 14 above, or otherwise, the Registrant has been advised that in the opinion of the Securities and II-3 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, 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. (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 that time shall be deemed to be the initial bona fide offering thereof. II-4 SIGNATURES Pursuant to the requirements of the Securities Act, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City and County of San Francisco, State of California, on the 2nd day of March, 2000. TriNet Group, Inc. By: /s/ Martin Babinec ------------------ Martin Babinec Chief Executive Officer POWER OF ATTORNEY Each individual whose signature appears below constitutes and appoints Martin Babinec and Douglas P. Devlin, and each of them, his or her true and lawful attorneys-in-fact and agents with full power of substitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, and to sign any registration statement for the same offering covered by the Registration Statement that is to be effective upon filing pursuant to Rule 462(b) promulgated under the Securities Act, and all post-effective amendments thereto, and to file the same, with all exhibits thereto and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or his, her or their substitute or substitutes, may lawfully do or cause to be done or by virtue hereof. 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/ Martin Babinec President, Chief Executive March 2, 2000 ______________________________________ Officer and Director Martin Babinec (Principal Executive Officer) /s/ Douglas P. Devlin Chief Financial Officer and March 2, 2000 ______________________________________ Director (Principal Douglas P. Devlin Financial and Accounting Officer) /s/ Anthony V. Martin Director March 2, 2000 ______________________________________ Anthony V. Martin /s/ H. Lynn Hazlett Director March 2, 2000 ______________________________________ H. Lynn Hazlett, Ph.D. /s/ T. Joe Willey Director March 2, 2000 ______________________________________ T. Joe Willey, Ph.D. /s/ James P. Hanson Director March 2, 2000 ______________________________________ James P. Hanson
II-5 EXHIBIT INDEX
Exhibit Number Exhibit Title ------- ------------- 1.01* Form of Underwriting Agreement. 3.01 Amended and Restated Articles of Incorporation, as amended. 3.02* Form of Amended and Restated Certificate of Incorporation to be in effect upon the closing of the offering. 3.03 Bylaws. 3.04* Form of Amended and Restated Bylaws to be in effect upon the closing of the offering. 4.01* Form of Specimen Stock Certificate. 5.01* Opinion of Cooley Godward llp. 10.01 1990 Stock Option Plan. 10.02* 2000 Equity Incentive Plan. 10.03* 2000 Employee Stock Purchase Plan. 10.04 Lease Agreement dated July 22, 1999 between Registrant and KBK Properties, Inc. 10.05 Lease Agreement dated July 9, 1999 between Registrant and Incline Capital Group, LLC. 10.06 Credit Agreement dated September 21, 1999 between Registrant and Sanwa Bank California. 10.07+ Volume License Agreement dated August 12, 1999 between Registrant and Concur Technologies, Inc. 10.08+ Software License and Services Agreement dated September 24, 1997 between Registrant and PeopleSoft, Inc. 10.09+ Software License Agreement dated October 6, 1999 between Registrant and Authoria, Inc. 10.10 Annual Support and Maintenance Agreement dated October 21, 1999 between Registrant and Authoria, Inc. 10.11+ Software License Agreement dated September 29, 1999 between Registrant and Brio Technology, Inc. 10.12+ Consulting Services Agreement dated November 11, 1999 between Registrant and Brio Technology, Inc. 10.13 Form of Steering Committee Employment Agreement. 10.14 Form of Executive Committee Employment Agreement. 10.15 Employment Agreement dated July 22, 1995 between Registrant and Martin Babinec. 23.01 Consent of Cooley Godward llp. Reference is made to Exhibit 5.01. 23.02 Consent of Ernst & Young LLP, independent auditors. 24.01 Powers of Attorney. 27.01 Financial Data Schedule.
- -------- +Confidential Treatment Requested *To be filed by amendment EX-3.01 2 AMENDED & RESTATED ARTICLES OF INCORPORATION EXHIBIT 3.1 AMENDED AND RESTATED ARTICLES OF INCORPORATION OF TRINET EMPLOYER GROUP, INC. Martin Babinec and Douglas P. Devlin hereby certify that: One: They are the duly elected and acting President and Secretary, respectively, of Trinet Employer Group, Inc., a California corporation (the "Corporation" or the "Company"). Two: The Articles of Incorporation of the Corporation are hereby amended and restated to read in their entirety as follows: ARTICLE I The name of the corporation is Trinet Employer Group, Inc. ARTICLE II The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code. ARTICLE III A. This Corporation is authorized to issue two classes of stock to be designated, respectively, "Common Stock" and "Preferred Stock." The total number of shares which the Corporation is authorized to issue is 51,000,000 shares, 50,000,000 shares of which shall be Common Stock (the "Common Stock") and 1,000,000 shares of which shall be Preferred Stock (the "Preferred Stock"). B. The Preferred Stock may be issued from time to time in one or more series. The Board of Directors is hereby authorized, within the limitations and restrictions stated in these Restated Articles, to fix or alter the dividend rights, dividend rate, conversion rights, voting rights, rights and terms of redemption (including sinking fund provisions), the redemption price or prices, the liquidation preferences of any wholly unissued series of Preferred Stock, and the number of shares constituting any such series and the designation thereof, or any of them; and to increase or decrease the number of shares of any series subsequent to the issue of shares of that series, but not below the number of shares of such series then outstanding. In case the number of shares of any series shall be so decreased, the shares constituting such decrease shall resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of such series. C. 75,000 shares of the authorized shares of Preferred Stock are hereby designated "Series E Preferred Stock" (the "Series E Preferred"). 150,200 shares of the authorized shares of 1. Preferred Stock are hereby designated "Series F Preferred Stock" (the "Series F Preferred" and, together with the "Series E Preferred," the "Preferred"). D. The rights, preferences, privileges, restrictions and other matters relating to the Series E Preferred and the Series F Preferred are as follows: 1. Dividend Rights. (a) Holders of Series E Preferred, in preference to the holders of any other stock of the Company except the Series F Preferred ("Junior Stock"), shall be paid when and as declared by the Board of Directors, but only out of funds that are legally available therefor, cash dividends at the rate of six percent (6%) of the "Series E Original Issue Price" per annum on each outstanding share of Series E Preferred (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares). The Series E Original Issue Price of the Series E Preferred shall be $40.00. Such dividends shall be payable on March 31 of each year beginning on March 31, 1997, but only when and as declared by the Board of Directors and shall be cumulative beginning on January 1, 1996 whether or not declared. Accrued but unpaid dividends shall not bear interest. In the event that the Company does not redeem the Series E Preferred under Section 5 after receipt of a request for redemption from the holders of at least sixty-six and two-thirds percent (66 2/3%) of the then outstanding shares of Series E Preferred subsequent to September 30, 2000, then the dividend rate shall be increased from six percent (6%) to twelve percent (12%). (b) Holders of Series F Preferred, in preference to the holders of any Junior Stock and the holders of the Series E Preferred, shall be paid when and as declared by the Board of Directors, but only out of funds that are legally available therefor, cash dividends at the rate of $1.61 per annum on each outstanding share of Series F Preferred (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares). The right to receive dividends on shares of Series F Preferred shall not be cumulative, and no right to such dividends shall accrue to holders of Series F Preferred by reason of the fact that dividends on said shares are not declared or paid in any year. (c) So long as any shares of Series E Preferred and Series F Preferred shall be outstanding, no dividend, whether in cash or property, shall be paid or declared, nor shall any other distribution be made, on any Junior Stock, nor shall any shares of any Junior Stock of the Company be purchased, redeemed, or otherwise acquired for value by the Company (except for acquisitions of Common Stock by the Company pursuant to agreements which permit the Company to repurchase such shares upon termination of services to the Company or in exercise of any right of first refusal upon a proposed transfer) until all dividends (set forth in Sections 1(a) and 1(b) above) on the Series E Preferred and the Series F Preferred shall have been declared and paid. The provisions of this Section 1(c) shall not, however, apply to (i) a dividend payable in Common Stock, or (ii) any repurchase of any outstanding securities of the Company that is approved by the Company's Board of Directors and at least one (1) director elected by holders of the shares of Series E Preferred. 2. Voting Rights. 2. (a) General Rights. Except as otherwise provided herein or as required by law, holders of Series E Preferred shall have no right to vote with respect to matters upon which the shareholders of the Company are entitled to vote. Except as otherwise provided herein or as required by law, holders of Series F Preferred shall have the number of votes equal to the number of shares of Common Stock into which each share of Series F Preferred could be converted at the record date for determination of the shareholders entitled to vote on such matters, or, if no such record date is established, at the date such vote is taken or any written consent of shareholders is solicited, such votes to be counted together with all other shares of stock of the Company having general voting power and not separately as a class. (b) Separate Vote of Series E Preferred. For so long as any shares of Series E Preferred remain outstanding, in addition to any other vote or consent required herein or by law, the vote or written consent of the holders of at least sixty-six and two-thirds percent (66 2/3%) of the outstanding Series E Preferred shall be necessary for effecting or validating the following actions: i. Any amendment, alteration, or repeal of any provision of the Restated Articles or the Bylaws of the Company that alters or affects the voting powers, preferences, or other special rights or privileges, qualifications, limitations, or restrictions of the Series E Preferred; ii. Any increase or decrease (other than by redemption or conversion) in the authorized number of shares of Common Stock or Preferred Stock, including shares of Series E Preferred and Series F Preferred; iii. Any creation, whether by reclassification or otherwise, of any class of shares or series of equity securities of the Company ranking on a parity with or senior to the Series E Preferred in right of redemption, liquidation preference, voting or dividends; iv. Any redemption, repurchase, payment of dividends or other distributions with respect to Junior Stock (except for acquisitions of Common Stock by the Company pursuant to agreements which permit the Company to repurchase such shares upon termination of services to the Company or in exercise of any right of first refusal upon a proposed transfer); v. Any sale, lease, assignment, transfer or other conveyance of all or substantially all of the assets of the Company or any consolidation or merger involving the Company or any reclassification or other change of any stock, or any recapitalization, or any dissolution, liquidation or winding up, of the Company, or any other Acquisition (as defined in Section 3(c)), or any agreement or obligation so to do; vi. Any action that results in the payment or declaration of a dividend on any shares of Common Stock or Preferred Stock; vii. Any increase or decrease in the authorized number of members of the Company's Board of Directors; or 3. viii. Any issuance of any equity security of the Company or any security convertible into any equity security of the Company or any right or option for the purchase of any equity security of the Company (other than the options and shares excluded from the definition of Additional Shares of Common Stock (as hereafter defined)). (c) Separate Vote of Series F Preferred. For so long as any shares of Series F Preferred remain outstanding, in addition to any other vote or consent required herein or by law, the vote or written consent of the holders of at least a majority of the outstanding Series F Preferred shall be necessary for effecting or validating the following actions: i. Any amendment, alteration, or repeal of any provision of the Restated Articles or the Bylaws of the Company that alters or affects the voting powers, preferences, or other special rights or privileges, qualifications, limitations, or restrictions of the Series F Preferred; ii. Any increase or decrease (other than by redemption or conversion) in the authorized number of shares of Common Stock or Preferred Stock, including shares of Series E Preferred and Series F Preferred; iii. Any creation, whether by reclassification or otherwise, of any class of shares or series of equity securities of the Company ranking senior to the Series F Preferred in right of redemption, liquidation preference, voting or dividends; or iv. Any sale, lease, assignment, transfer or other conveyance of all or substantially all of the assets of the Company or any consolidation or merger involving the Company or any reclassification or other change of any stock, or any recapitalization, or any dissolution, liquidation or winding up, of the Company, or any other Acquisition (as defined in Section 3(c)), or any agreement or obligation so to do. (d) Election of Board of Directors. So long as any shares of Series E Preferred remain outstanding, then the holders of Series E Preferred shall be entitled to elect one (1) member of the Board of Directors at each meeting or pursuant to each consent of the Company's shareholders for the election of directors, and to remove from office such director and to fill any vacancy caused by the resignation, death or removal of such director. 3. Liquidation Rights. (a) Upon any liquidation, dissolution, or winding up of the Company, whether voluntary or involuntary, before any distribution or payment shall be made to the holders of any other outstanding capital stock, (i) the holders of Series F Preferred shall be entitled to be paid out of the assets of the Company an amount per share of Series F Preferred equal to $26.64 (the "Series F Original Issue Price") plus all declared and unpaid dividends on such shares of Series F Preferred (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares) for each share of Series F Preferred held by them and (ii) the holders of Series E Preferred shall be entitled to be paid out of the assets of the Company an amount per share of Series E Preferred equal to the Series E Original Issue Price plus all accrued and unpaid, cumulated dividends, whether or not declared, on such 4. shares of Series E Preferred (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares) for each share of Series E Preferred held by them. If, upon any liquidation, distribution, or winding up, the assets of the Company shall be insufficient to make payment in full to all holders of Series F Preferred and Series E Preferred of the liquidation preferences set forth herein, then such assets shall be distributed among the holders of shares of Series F Preferred and Series E Preferred at the time outstanding, ratably in proportion to the full amounts to which they would otherwise be respectively entitled. (b) After the payment of the full liquidation preference of the Series F Preferred and the Series E Preferred as set forth in Section 3(a), the remaining assets of the Company legally available for distribution, if any, shall be distributed ratably to the holders of any Junior Stock. (c) Upon the election by the holders of at least a majority of the then outstanding Series F Preferred and at least sixty-six and two-thirds percent (66 2/3%) of the then outstanding Series E Preferred, the following events shall be considered a liquidation under this Section 3: i. any consolidation or merger of the Company with or into any other corporation or other entity or person, or any other corporate reorganization, in which the shareholders of the Company immediately prior to such consolidation, merger or reorganization, own less than 50% of the Company's voting power immediately after such consolidation, merger or reorganization, or any transaction or series of related transactions in which in excess of forty percent (40%) of the Company's voting power is transferred (an "Acquisition"); or ii. a sale, lease or other disposition of all or substantially all of the assets of the Company (an "Asset Transfer"). 4. Conversion Rights. The holders of the Series E Preferred and the Series F Preferred shall have the following rights with respect to the conversion of the Series E Preferred and the Series F Preferred, respectively, into shares of Common Stock (the "Series E Conversion Rights" and the "Series F Conversion Rights"): (a) Optional Conversion. Subject to and in compliance with the provisions of this Section 4, any shares of Series E Preferred and Series F Preferred may, at the option of the holder, be converted at any time into fully paid and nonassessable shares of Common Stock. The number of shares of Common Stock to which a holder of Series E Preferred shall be entitled upon conversion shall be the product obtained by multiplying the "Series E Conversion Rate" then in effect (determined as provided in Section 4(b)) by the number of shares of Series E Preferred being converted. The number of shares of Common Stock to which a holder of Series F Preferred shall be entitled upon conversion shall be the product obtained by multiplying the "Series F Conversion Rate" then in effect (determined as provided in Section 4(b)) by the number of shares of Series F Preferred being converted. 5. (b) Series E Conversion Rate; Series F Conversion Rate. The conversion rate in effect at any time for conversion of the Series E Preferred (the "Series E Conversion Rate") shall be the quotient obtained by dividing the Series E Original Issue Price of the Series E Preferred by the "Series E Conversion Price," calculated as provided in Section 4(c). The conversion rate in effect at any time for conversion of the Series F Preferred (the "Series F Conversion Rate") shall be the quotient obtained by dividing the Series F Original Issue Price of the Series F Preferred by the "Series F Conversion Price," calculated as provided in Section 4(c). (c) Conversion Price. The conversion price for the Series E Preferred shall initially be $25.00 (the "Series E Conversion Price"). The conversion price for the Series F Preferred shall initially be $26.64 (the "Series F Conversion Price"). Such initial Series E Conversion Price and Series F Conversion Price shall be adjusted from time to time in accordance with this Section 4. All references to the Series E Conversion Price and the Series F Conversion Price herein shall mean the applicable conversion price as so adjusted. (d) Mechanics of Conversion. Each holder of Series E Preferred or Series F Preferred who desires to convert the same into shares of Common Stock pursuant to this Section 4 shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Company or any transfer agent for the Preferred, and shall give written notice to the Company at such office that such holder elects to convert the same. Such notice shall state the number of shares of Series E Preferred or Series F Preferred being converted. Thereupon, the Company shall promptly issue and deliver at such office to such holder a certificate or certificates for the number of shares of Common Stock to which such holder is entitled and shall promptly pay in cash or, to the extent sufficient funds are not then legally available therefor, in Common Stock (at the Common Stock's fair market value determined by the Board of Directors in good faith as of the date of such conversion), with respect to the Series E Preferred, any accrued but unpaid cumulated dividends, whether or not declared, on the shares of Series E Preferred being converted and, with respect to the Series F Preferred, any declared but unpaid dividends on the shares of Series F Preferred being converted. Such conversion shall be deemed to have been made at the close of business on the date of such surrender of the certificates representing the shares of Series E Preferred or Series F Preferred to be converted, and the person entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder of such shares of Common Stock on such date. (e) Adjustment for Stock Splits and Combinations. As to the Series E Preferred, any reference herein to the "Original Issue Date" shall mean the date that the first share of Series E Preferred was issued, and as to the Series F Preferred, any reference herein to the "Original Issue Date" shall mean the date that the first share of Series F Preferred was issued. If the Company shall at any time or from time to time after the Original Issue Date effect a subdivision of the outstanding Common Stock, the Series E Conversion Price and the Series F Conversion Price in effect immediately before that subdivision shall be proportionately decreased. Conversely, if the Company shall at any time or from time to time after the Original Issue Date combine the outstanding shares of Common Stock into a smaller number of shares, the Series E Conversion Price and the Series F Conversion Price in effect immediately before the combination shall be proportionately increased. Any adjustment under this Section 4(e) shall become effective at the close of business on the date the subdivision or combination becomes effective. 6. (f) Adjustment for Common Stock Dividends and Distributions. If the Company at any time or from time to time after the Original Issue Date makes, or fixes a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in additional shares of Common Stock, in each such event the Series E Conversion Price and the Series F Conversion Price that is then in effect shall be decreased as of the time of such issuance or, in the event such record date is fixed, as of the close of business on such record date, by multiplying the applicable conversion price then in effect by a fraction (1) the numerator of which is the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date, and (2) the denominator of which is the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or distribution; provided, however, that if such record date is fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Series E Conversion Price and the Series F Conversion Price shall be recomputed accordingly as of the close of business on such record date and thereafter the Series E Conversion Price and the Series F Conversion Price shall be adjusted pursuant to this Section 4(f) to reflect the actual payment of such dividend or distribution. (g) Adjustments for Other Dividends and Distributions. If the Company at any time or from time to time after the Original Issue Date makes, or fixes a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in securities of the Company other than shares of Common Stock, in each such event provision shall be made so that the holders of the Preferred outstanding on such record date shall receive upon conversion thereof, in addition to the number of shares of Common Stock receivable thereupon, the amount of other securities of the Company which they would have received had their Preferred been converted into Common Stock on the date of such event and had they thereafter, during the period from the date of such event to and including the conversion date, retained such securities receivable by them as aforesaid during such period, subject to all other adjustments called for during such period under this Section 4 with respect to the rights of the holders of the Preferred or with respect to such other securities by their terms. (h) Adjustment for Reclassification, Exchange and Substitution. If at any time or from time to time after the Original Issue Date, the Common Stock issuable upon the conversion of the Preferred is changed into the same or a different number of shares of any class or classes of stock, whether by recapitalization, reclassification or otherwise (other than an Acquisition or Asset Transfer as defined in Section 3(c) above or a subdivision or combination of shares or stock dividend or a reorganization, merger, consolidation or sale of assets provided for elsewhere in this Section 4), in any such event each holder of Preferred outstanding on the effective date of such event shall have the right thereafter to convert such stock into the kind and amount of stock and other securities and property receivable upon such recapitalization, reclassification or other change by holders of the maximum number of shares of Common Stock into which such shares of Preferred could have been converted immediately prior to such recapitalization, reclassification or change, all subject to further adjustment as provided herein or with respect to such other securities or property by the terms thereof. 7. (i) Reorganizations, Mergers, Consolidations or Sales of Assets. If at any time or from time to time after the Original Issue Date, there is a capital reorganization of the Common Stock or a merger or a consolidation or a sale of assets involving the Company (other than an Acquisition or Asset Transfer as defined in Section 3(c) above or a recapitalization, subdivision, combination, reclassification, exchange or substitution of shares provided for elsewhere in this Section 4), as a part of such capital reorganization or merger or consolidation or sale of assets involving the Company, provision shall be made so that the holders of the Preferred outstanding on the effective date of such event shall thereafter be entitled to receive upon conversion of the Preferred the number of shares of stock or other securities or property of the Company to which a holder of the number of shares of Common Stock deliverable upon conversion would have been entitled on such capital reorganization, subject to adjustment in respect of such stock or securities by the terms thereof. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 4 with respect to the rights of the holders of Preferred after the capital reorganization or merger or consolidation or sale of assets involving the Company to the end that the provisions of this Section 4 (including adjustment of the Series E Conversion Price and the Series F Conversion Price then in effect and the number of shares issuable upon conversion of the Preferred) shall be applicable after that event and be as nearly equivalent as practicable. (j) Sale of Shares. i. If at any time or from time to time after the Original Issue Date of the Series E Preferred and before the Original Issue Date of the Series F Preferred, the Company issues or sells, or is deemed by the express provisions of this subsection (j) to have issued or sold, Additional Shares of Common Stock (as hereinafter defined), other than as a dividend or other distribution on any class of stock as provided in Section 4(f) above, and other than a subdivision or combination of shares of Common Stock as provided in Section 4(e) above, regardless of the price per share, then and in each such instance the then existing Series E Conversion Price shall be reduced, as of the opening of business on the date of such issue or sale, to a price equal to the product obtained by multiplying the existing Series E Preferred Conversion Price by the quotient obtained by dividing the number of shares of Common Stock deemed to be outstanding (as defined below) immediately prior to such issue or sale by the sum of the number of shares of Common Stock deemed to be outstanding (as defined below) immediately prior to such issue plus the number of Additional Shares of Common Stock. For the purposes of the preceding sentence, the number of shares of Common Stock deemed to be outstanding as of a given date shall be the sum of (A) the number of shares of Common Stock actually outstanding, (B) the number of shares of Common Stock into which the then outstanding shares of Preferred Stock other than the Series E Preferred could be converted if fully converted on the day immediately preceding the given date, and (C) the number of shares of Common Stock which could be obtained through the exercise or conversion of all other rights, options and convertible equity securities on the day immediately preceding the given date. ii. If at any time or from time to time after the Original Issue Date of the Series F Preferred, the Company issues or sells, or is deemed by the express provisions of this subsection (j) to have issued or sold, Additional Shares of Common Stock (as hereinafter defined), other than as a dividend or other distribution on any class of stock as provided in Section 4(f) above, and other than a subdivision or combination of shares of 8. Common Stock as provided in Section 4(e) above, at a price per share less than $18.50 (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares), then and in each such instance the then existing Series F Conversion Price shall be reduced, as of the opening of business on the date of such issue or sale, to a price equal to the product obtained by multiplying the existing Series F Preferred Conversion Price by the quotient obtained by dividing the number of shares of Common Stock deemed to be outstanding (as defined below) immediately prior to such issue or sale by the sum of the number of shares of Common Stock deemed to be outstanding (as defined below) immediately prior to such issue plus the number of Additional Shares of Common Stock. For the purposes of the preceding sentence, the number of shares of Common Stock deemed to be outstanding as of a given date shall be the sum of (A) the number of shares of Common Stock actually outstanding, (B) the number of shares of Common Stock into which the then outstanding shares of Preferred Stock could be converted if fully converted on the day immediately preceding the given date, (C) the number of shares of Common Stock which could be obtained through the exercise or conversion of all other rights, options and convertible equity securities on the day immediately preceding the given date and (D) the number of shares of Common Stock which the aggregate consideration received (as defined in (iv) below) by the Company for the total number of Additional Shares of Common Stock so issued would purchase at the Series F Conversion Price. If at any time or from time to time after the Original Issue Date of the Series F Preferred, the Company issues or sells, or is deemed by the express provisions of this subsection (j) to have issued or sold, Additional Shares of Common Stock, other than as a dividend or other distribution on any class of stock as provided in Section 4(f) above, and other than a subdivision or combination of shares of Common Stock as provided in Section 4(e) above, at a price per share at or between $18.50 and $26.64 (a "Dilution Price") (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares), then and in each such instance the then existing Series F Conversion Price shall be reduced, as of the opening of business on the date of such issue or sale, to a price equal to the Dilution Price; provided, however, that such adjustment shall be made only if such adjustment results in a Series F Conversion Price less than the Series F Conversion Price in effect immediately prior to the taking of such action. iii. For the purpose of making any adjustment required under the above Section D.4(j)(ii), the consideration received by the Company for any issue or sale of securities shall (A) to the extent it consists of cash, be computed at the gross amount of cash received by the Company before deduction of any underwriting or similar commissions, compensation or concessions paid or allowed by the Company in connection with such issue or sale and before deduction of any expenses payable by the Company, (B) to the extent it consists of property other than cash, be computed at the fair value of that property as determined in good faith by the Board of Directors, and (C) if Additional Shares of Common Stock, Convertible Securities (as defined in subsection (j)(iv) below) or rights or options to purchase either Additional Shares of Common Stock or Convertible Securities are issued or sold together with other stock or securities or other assets of the Company for a consideration which covers both, be computed as the portion of the consideration so received that may be reasonably determined in good faith by the Board of Directors to be allocable to such Additional Shares of Common Stock, Convertible Securities or rights or options 9. iv. For the purpose of the adjustment required under this Section 4(j), if the Company issues or sells any rights or options for the purchase of, or stock or other securities convertible into, Additional Shares of Common Stock (such convertible stock or securities being herein referred to as "Convertible Securities"), in each case the Company shall be deemed to have issued at the time of the issuance of such rights or options or Convertible Securities the maximum number of Additional Shares of Common Stock issuable upon exercise or conversion thereof. No further adjustment of the Series E Conversion Price or the Series F Conversion Price, as adjusted upon the issuance of such rights, options or Convertible Securities, shall be made as a result of the actual issuance of Additional Shares of Common Stock on the exercise of any such rights or options or the conversion of any such Convertible Securities. If any such rights or options or the conversion privilege represented by any such Convertible Securities shall expire without having been exercised, the Series E Conversion Price and the Series F Conversion Price as adjusted upon the issuance of such rights, options or Convertible Securities shall be readjusted to the Series E Conversion Price and the Series F Conversion Price which would have been in effect had an adjustment been made on the basis that the only Additional Shares of Common Stock so issued were the Additional Shares of Common Stock, if any, actually issued or sold on the exercise of such rights or options or rights of conversion of such Convertible Securities, provided that such readjustment shall not apply to prior conversions of Preferred. v. "Additional Shares of Common Stock" shall mean all shares of Common Stock issued by the Company or deemed to be issued pursuant to this Section 4(j), whether or not subsequently reacquired or retired by the Company other than (1) shares of Common Stock issued upon conversion of the Preferred; (2) with respect to the Series E Preferred, up to Thirty Thousand (30,000) shares of Common Stock and/or options, warrants or other Common Stock purchase rights, and the Common Stock issued pursuant to such options, warrants or other rights (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like) issued after the Original Issue Date of the Series E Preferred to employees, officers or directors of the Company or any subsidiary pursuant to stock purchase or stock option plans or other arrangements that are approved by the Board; (3) with respect to the Series F Preferred, up to Nine Hundred Sixty Five Thousand Thirty Three (965,033) shares of Common Stock and/or options, warrants or other Common Stock purchase rights, and the Common Stock issued pursuant to such options, warrants or other rights (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like) issued after the Original Issue Date of the Series F Preferred to employees, officers or directors of the Company or any subsidiary pursuant to stock purchase or stock option plans or other arrangements that are approved by the Board; (4) with respect to the Series E Preferred, shares of Common Stock issued pursuant to the exercise of options, warrants or convertible securities outstanding as of the Original Issue Date of the Series E Preferred; and (4) with respect to the Series F Preferred, shares of Common Stock issued pursuant to the exercise of options, warrants or convertible securities outstanding as of the Original Issue Date of the Series F Preferred. (k) No Impairment. Except as provided for in Section 2(b) and (c) above, the Company will not, by amendment of its Articles of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the 10. terms to be observed or performed hereunder by the Company but will at all times in good faith assist in the carrying out of all the provisions of this Section and in the taking of all such action as may be necessary or appropriate in order to protect the conversion rights of the holders of the Preferred against impairment. (l) Certificate of Adjustment. In each instance of an adjustment or readjustment of the Series E Conversion Price or the Series F Conversion Price or the number of shares of Common Stock or other securities issuable upon conversion of any series of the Preferred, if such Preferred is then convertible pursuant to this Section 4, the Company, at its expense, shall compute such adjustment or readjustment in accordance with the provisions hereof and prepare a certificate showing such adjustment or readjustment, and shall mail such certificate, by first class mail, postage prepaid, to each registered holder of such Preferred at the holder's address as shown in the Company's books. The certificate shall set forth such adjustment or readjustment, showing in detail the facts upon which such adjustment or readjustment is based, including a statement of (1) the Series E Conversion Price or the Series F Conversion Price, as applicable, at the time in effect, (2) the number of Additional Shares of Common Stock and (3) the type and amount, if any, of other property which at the time would be received upon conversion of such Preferred. (m) Notices of Record Date. Upon (i) any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution, or (ii) any Acquisition (as defined in Section 3(c)) or other capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company, any merger or consolidation of the Company with or into any other corporation, or any Asset Transfer (as defined in Section 3(c)), or any voluntary or involuntary dissolution, liquidation or winding up of the Company, the Company shall give notice to each holder of Preferred at least thirty (30) days prior to the record date specified therein specifying (1) the date on which any such record is to be taken for the purpose of such dividend or distribution and a description of such dividend or distribution, (2) the date on which any such Acquisition, reorganization, reclassification, transfer, consolidation, merger, Asset Transfer, dissolution, liquidation or winding up is expected to become effective, and (3) the date, if any, that is to be fixed as to when the holders of record of Common Stock (or other securities) shall be entitled to exchange their shares of Common Stock (or other securities) for securities or other property deliverable upon such Acquisition, reorganization, reclassification, transfer, consolidation, merger, Asset Transfer, dissolution, liquidation or winding up. (n) Automatic Conversion. i. Each share of Series E Preferred shall automatically be converted into shares of Common Stock, based on the then- effective Series E Conversion Price, (A) at any time upon the affirmative election of the holders of at least a majority of the outstanding shares of the Series E Preferred, or (B) immediately upon the closing of a firmly underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale of Common Stock for the account of the Company in which (i) the per share price of each existing share of Common Stock is valued at a 11. minimum of $50.00 (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like), and (ii) the gross cash proceeds to the Company (before underwriting discounts, commissions and fees) are at least $20,000,000. Upon such automatic conversion, any accrued but unpaid cumulated dividends, whether or not declared, shall be paid in accordance with the provisions of Section 4(d). ii. Each share of Series F Preferred shall automatically be converted into shares of Common Stock, based on the then- effective Series F Conversion Price, (A) at any time upon the affirmative election of the holders of at least a majority of the outstanding shares of the Series F Preferred, or (B) immediately upon the closing of a firmly underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale of Common Stock for the account of the Company in which (i) the per share price of each existing share of Common Stock is valued at a minimum of $26.64 (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like), and (ii) the gross cash proceeds to the Company (before underwriting discounts, commissions and fees) are at least $20,000,000. Upon such automatic conversion, any declared but unpaid dividends shall be paid in accordance with the provisions of Section 4(d). iii. Upon the occurrence of the event specified in paragraph (i) or (ii) above, the outstanding shares of the applicable series of Preferred shall be converted automatically without any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the Company or its transfer agent; provided, however, that the Company shall not be obligated to issue certificates evidencing the shares of Common Stock issuable upon such conversion unless the certificates evidencing such shares of Preferred are either delivered to the Company or its transfer agent as provided below, or the holder notifies the Company or its transfer agent that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the Company to indemnify the Company from any loss incurred by it in connection with such certificates. Upon the occurrence of such automatic conversion of the Preferred, the holders of the applicable series of Preferred shall surrender the certificates representing such shares at the office of the Company or any transfer agent for the Preferred. Thereupon, there shall be issued and delivered to such holder promptly at such office and in its name as shown on such surrendered certificate or certificates, a certificate or certificates for the number of shares of Common Stock into which the shares of Preferred surrendered were convertible on the date on which such automatic conversion occurred, and, with respect to the Series E Preferred, any accrued but unpaid cumulated dividends, whether or not declared, shall be paid in accordance with the provisions of Section 4(d) and, with respect to the Series F Preferred, any declared but unpaid dividends shall be paid in accordance with the provisions of Section 4(d). (o) Fractional Shares. No fractional shares of Common Stock shall be issued upon conversion of Preferred. All shares of Common Stock (including fractions thereof) issuable upon conversion of more than one share of Preferred by a holder thereof shall be aggregated for purposes of determining whether the conversion would result in the issuance of any fractional share. If, after the aforementioned aggregation, the conversion would result in the issuance of any fractional share, the Company shall, in lieu of issuing any fractional share, pay cash equal to the product of such fraction multiplied by the Common Stock's fair market value (as determined by the Board) on the date of conversion. 12. (p) Reservation of Stock Issuable Upon Conversion. The Company shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Preferred, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Preferred. If at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Preferred, the Company will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose. (q) Notices. Any notice required by the provisions of this Section 4 shall be in writing and shall be deemed effectively given: (i) upon personal delivery to the party to be notified, (ii) when sent by confirmed telex or facsimile if sent during normal business hours of the recipient; if not, then on the next business day, (iii) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (iv) one (1) day after deposit with an internationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All notices shall be addressed to each holder of record at the address of such holder appearing on the books of the Company. (r) Payment of Taxes. The Company will pay all taxes (other than taxes based upon income) and other governmental charges that may be imposed with respect to the issue or delivery of shares of Common Stock upon conversion of shares of Preferred, excluding any tax or other charge imposed in connection with any transfer involved in the issue and delivery of shares of Common Stock in a name other than that in which the shares of Preferred so converted were registered. 5. Redemption. (a) The Company shall be obligated to redeem the Series E Preferred as follows: i. At any time after September 30, 2000, the holders of at least sixty-six and two-thirds percent (66 2/3%) of the then outstanding shares of Series E Preferred, voting together as a separate class, may require the Company, to the extent it may lawfully do so, to redeem the Series E Preferred (beginning on the first calendar quarter commencing at least 30 days after such notice) (the "Redemption Date"). The Company shall effect such redemption on the Redemption Date by paying in cash in exchange for the shares of Series E Preferred to be redeemed a sum equal to the Original Issue Price per share of Series E Preferred (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like) plus accrued but unpaid cumulated dividends, whether or not declared, with respect to such shares. The total amount to be paid for the Series E Preferred is hereinafter referred to as the "Redemption Price." ii. At least thirty (30) days but no more than sixty (60) days prior to the Redemption Date, the Company shall send a notice (a "Redemption Notice") to all holders of Series E Preferred to be redeemed setting forth (a) the Redemption Price for the shares to be redeemed; and (b) the place at which such holders may obtain payment of the Redemption 13. Price upon surrender of their share certificates. If the Company does not have sufficient funds legally available to redeem all shares to be redeemed at the Redemption Date then it shall redeem such shares pro rata (based on the portion of the aggregate Redemption Price payable to them) to the extent possible and shall redeem the remaining shares to be redeemed as soon as sufficient funds are legally available. (b) On or after such Redemption Date, each holder of shares of Series E Preferred to be redeemed shall surrender such holder's certificates representing such shares to the Company in the manner and at the place designated in the Redemption Notice, and thereupon the Redemption Price of such shares shall be payable to the order of the person whose name appears on such certificate or certificates as the owner thereof and each surrendered certificate shall be canceled. In the event less than all the shares represented by such certificates are redeemed, a new certificate shall be issued representing the unredeemed shares. From and after such Redemption Date, unless there shall have been a default in payment of the Redemption Price or the Company is unable to pay the Redemption Price due to not having sufficient legally available funds, all dividends on the shares of Series E Preferred to be redeemed shall cease to accrue and all rights of the holders of such shares as holders of Series E Preferred (except the right to receive the Redemption Price without interest upon surrender of their certificates), shall cease and terminate with respect to such shares, provided that in the event that shares of Series E Preferred are not redeemed due to a default in payment by the Company or because the Company does not have sufficient legally available funds, such shares of Series E Preferred shall remain outstanding and shall be entitled to all of the rights and preferences provided herein. (c) In the event of a call for redemption of any shares of Series E Preferred, the Series E Conversion Rights (as defined in Section 4) for such Series E Preferred shall terminate as to the shares designed for redemption at the close of business on the second (2nd) day preceding the Redemption Date, unless default is made in payment of the Redemption Price. 6. No Reissuance of Series E Preferred. No share or shares of Series E Preferred acquired by the Company by reason of redemption, purchase, conversion or otherwise shall be reissued. 7. No Preemptive Rights. Shareholders shall have no preemptive rights except as granted by the Company pursuant to written agreements. 8. Status of Converted or Redeemed Stock. If any shares of Preferred are converted or redeemed pursuant to Section 4 or Section 5 above, then the shares so converted or redeemed shall resume the status of authorized but undesignated and unissued shares of Preferred Stock. ARTICLE IV A. The authorized number of members of the Board of Directors of the Company shall be as set forth in the Bylaws of this Company. So long as any shares of Series E Preferred remain outstanding, one (1) director shall be elected by the holders of shares of Series E Preferred outstanding voting together as a separate class. The remaining directors shall be 14. elected by the shares of Series F Preferred and Common Stock outstanding. In the case of any vacancy in the office of a director, the holders that previously elected a director to that office, at a duly held meeting or by written consent, may elect a successor to fill the vacancy. Any director may be removed either with or without cause by, and only by, the holders that elected that director at a duly held meeting or by unanimous written consent, and any vacancy thereby created may be filled by such holders in the same manner. The director previously elected by holders of shares of Series E Preferred shall continue as a director until the expiration of the term for which such director was elected and until a successor has been elected and qualified as if such director was elected by shares of Common Stock outstanding, except as otherwise provided in the Bylaws. B. In addition to any other vote or consent required herein or by law, the vote or written consent of the holders of at least sixty-six and two-thirds percent (66 2/3%) of the outstanding shares of Common Stock shall be necessary for effecting or validating any agreement by the Company or its shareholders regarding an Asset Transfer or Acquisition (each as defined in Article III.D.3(d)) ARTICLE V A. The liability of the directors of the Company for monetary damages shall be eliminated to the fullest extent permissible under California law. B. The Company is authorized to provide indemnification of agents (as defined in Section 317 of the California Corporations Code) for breach of duty to the Company and its shareholders through bylaw provisions or through agreements with agents, or both, in excess of the indemnification otherwise permitted by Section 317 of the General Corporation Law of California, subject to the limits on such excess indemnification set forth in Section 204 of the General Corporation Law of California. If, after the effective date of this Article, California law is amended in a manner which permits a corporation to limit the monetary or other liability of its directors or to authorize indemnification of, or advancement of such defense expenses to, its directors or other persons, in any such case to a greater extent than is permitted on such effective date, the references in this Article to "California law" shall to that extent be deemed to refer to California law as so amended. C. Any repeal or modification of this Article shall only be prospective and shall not effect the rights under this Article in effect at the time of the alleged occurrence of any action or omission to act giving rise to liability." THREE: The foregoing amendment and restatement of the Articles of Incorporation has been duly approved by the Board of Directors of the Company. FOUR: The foregoing amendment and restatement of the Articles of Incorporation has been duly approved by the required vote of shareholders in accordance with Sections 902 and 903 of the California Corporations Code. The total number of outstanding shares of Common Stock of the Company is Six Million Three Hundred Ninety Thousand Four Hundred Ninety Nine (6,390,499) and the total number of outstanding shares of E Preferred of the Company is (Twelve Thousand Five Hundred) 12,500. The number of shares voting in favor of the 15. amendment equaled or exceeded the vote required. The percentage vote required was more than fifty percent (50%) of the outstanding Common Stock and Series E Preferred voting together, more than sixty-six and two-thirds percent (66 2/3%) of the outstanding Series E Preferred voting separately as a class and more than fifty percent (50%) of the outstanding Common Stock voting separately as a class. 16. The undersigned further declare under penalty of perjury that the matters set forth in the foregoing certificate are true and correct of our own knowledge. Executed at San Leandro, California on February ___, 2000 By:_____________________________ Martin Babinec, President By:______________________________ Douglas P. Devlin, Secretary 17. EX-3.03 3 BYLAWS EXHIBIT 3.3 BYLAWS OF TriNet Employer Group, Inc. (A CALIFORNIA CORPORATION) Adopted June 27, 1990 Amended June ___, 1995 BYLAWS OF TriNet Employer Group, Inc. (A CALIFORNIA CORPORATION) ARTICLE I OFFICES Section 1. Principal Office. The principal executive office of the corporation shall be located at such place as the Board of Directors may from time to time authorize. If the principal executive office is located outside this state, and the corporation has one or more business offices in this state, the Board of Directors shall fix and designate a principal business office in the State of California. Section 2. Other Offices. Additional offices of the corporation shall be located at such place or places, within or outside the State of California, as the Board of Directors may from time to time authorize. ARTICLE II CORPORATE SEAL Section 3. Corporate Seal. If the Board of Directors adopts a corporate seal such seal shall have inscribed thereon the name of the corporation and the state and date of its incorporation. If and when a seal is adopted by the Board of Directors, such seal may be engraved, lithographed, printed, stamped, impressed upon, or affixed to any contract, conveyance, certificate for shares, or other instrument executed by the corporation. 1 ARTICLE III SHAREHOLDERS' MEETINGS AND VOTING RIGHTS Section 4. Place of Meetings. Meetings of shareholders shall be held at the principal executive office of the corporation, or at any other place, within or outside the State of California, which may be fixed either by the Board of Directors or by the written consent of all persons entitled to vote at such meeting, given either before or after the meeting and filed with the Secretary of the Corporation. Section 5. Annual Meeting. The annual meeting of the shareholders of the corporation shall be held on any date and time which may from time to time be designated by the Board of Directors. At such annual meeting, directors shall be elected and any other business may be transacted which may properly come before the meeting. Section 6. Postponement of Annual Meeting. The Board of Directors and the President shall each have authority to hold at an earlier date and/or time, or to postpone to a later date and/or time, the annual meeting of shareholders. Section 7. Special Meetings. (a) Special meetings of the shareholders, for any purpose or purposes, may be called by the Board of Directors, the Chairman of the Board of Directors, the President, or the holders of shares entitled to cast not less than ten percent (10%) of the votes at the meeting. (b) Upon written request to the Chairman of the Board of Directors, the President, any vice president or the Secretary of the corporation by any person or persons (other than the Board of Directors) entitled to call a special meeting of the shareholders, such officer forthwith shall cause notice to be given to the shareholders entitled to vote, that a meeting will be held at a time requested by the person or persons calling the meeting, such time to be not less than thirty-five (35) nor more than sixty (60) days after receipt of such request. If such notice is not given within twenty (20) days after receipt of such request, the person or persons calling the meeting may give notice thereof in the manner provided by law or in these bylaws. Nothing contained in this Section 7 shall be construed as limiting, fixing or affecting the time or date when a meeting of shareholders called by action of the Board of Directors may be held. Section 8. Notice of Meetings. Except as otherwise may be required by law and subject to subsection 7(b) above, written notice of each meeting of shareholders shall be given to each shareholder entitled to vote at that meeting (see Section 15 below), by the Secretary, assistant secretary or other person charged with that duty, not less than ten (10) (or, if sent by third class mail, thirty (30)) nor more than sixty (60) days before such meeting. Notice of any meeting of shareholders shall state the date, place and hour of the meeting and, (a) in the case of a special meeting, the general nature of the business to be transacted, and no other business may be transacted at such meeting; 2 (b) in the case of an annual meeting, the general nature of matters which the Board of Directors, at the time the notice is given, intends to present for action by the shareholders; (c) in the case of any meeting at which directors are to be elected, the names of the nominees intended at the time of the notice to be presented by management for election; and (d) in the case of any meeting, if action is to be taken on any of the following proposals, the general nature of such proposal: (1) a proposal to approve a transaction within the provisions of California Corporations Code, Section 310 (relating to certain transactions in which a director has a direct or indirect financial interest); (2) a proposal to approve a transaction within the provisions of California Corporations Code, Section 902 (relating to amending the Articles of Incorporation of the corporation); (3) a proposal to approve a transaction within the provisions of California Corporations Code, Sections 181 and 1201 (relating to reorganization); (4) a proposal to approve a transaction within the provisions of California Corporations Code, Section 1900 (winding up and dissolution); (5) a proposal to approve a plan of distribution within the provisions of California Corporations Code, Section 2007 (relating to certain plans providing for distribution not in accordance with the liquidation rights of preferred shares, if any). At a special meeting, notice of which has been given in accordance with this Section, action may not be taken with respect to business, the general nature of which has not been stated in such notice. At an annual meeting, action may be taken with respect to business stated in the notice of such meeting, given in accordance with this Section, and, subject to subsection 8(d) above, with respect to any other business as may properly come before the meeting. Section 9. Manner of Giving Notice. Notice of any meeting of shareholders shall be given either personally or by first-class mail, or, if the corporation has outstanding shares held of record by 500 or more persons (determined as provided in California Corporations Code Section 605) on the record date for such meeting, third-class mail, or telegraphic or other written communication, addressed to the shareholder at the address of that shareholder appearing on the books of the corporation or given by the shareholder to the corporation for the purpose of notice. If no such address appears on the corporation's books or is given, notice shall be deemed to have been given if sent to that shareholder by first-class mail or telegraphic or other written communication to the corporation's principal executive office, or if published at least once in a newspaper of general circulation in the county where that office is located. Notice shall be deemed to have been given at the time when delivered personally or deposited in the mail or sent by telegram or other means of written communication. 3 If any notice addressed to a shareholder at the address of that shareholder appearing on the books of the corporation is returned to the corporation by the United States Postal Service marked to indicate that the United States Postal Service is unable to deliver the notice to the shareholder at that address, all future notices shall be deemed to have been duly given without further mailing if these shall be available to the shareholder on written demand by the shareholder at the principal executive office of the corporation for a period of one year from the date of the giving of the notice. An affidavit of mailing of any notice or report in accordance with the provisions of this Section 9, executed by the Secretary, Assistant Secretary or any transfer agent, shall be prima facie evidence of the giving of the notice. Section 10. Quorum and Transaction of Business. (a) At any meeting of the shareholders, a majority of the shares entitled to vote, represented in person or by proxy, shall constitute a quorum. If a quorum is present, the affirmative vote of the majority of shares represented at the meeting and entitled to vote on any matter shall be the act of the shareholders, unless the vote of a greater number or voting by classes is required by law or by the Articles of Incorporation, and except as provided in subsection (b) below. (b) The shareholders present at a duly called or held meeting of the shareholders at which a quorum is present may continue to do business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum, provided that any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum. (c) In the absence of a quorum, no business other than adjournment may be transacted, except as described in subsection (b) above. Section 11. Adjournment and Notice of Adjourned Meetings. Any meeting of shareholders may be adjourned from time to time, whether or not a quorum is present, by the affirmative vote of a majority of shares represented at such meeting either in person or by proxy and entitled to vote at such meeting. In the event any meeting is adjourned, it shall not be necessary to give notice of the time and place of such adjourned meeting pursuant to Sections 8 and 9 of these bylaws; provided that if any of the following three events occur, such notice must be given: (a) announcement of the adjourned meeting's time and place is not made at the original meeting which it continues or (b) such meeting is adjourned for more than forty-five (45) days from the date set for the original meeting or (c) a new record date is fixed for the adjourned meeting. 4 At the adjourned meeting, the corporation may transact any business which might have been transacted at the original meeting. Section 12. Waiver of Notice, Consent to Meeting or Approval of Minutes. (a) Subject to subsection (b) of this Section, the transactions of any meeting of shareholders, however called and noticed, and wherever held, shall be as valid as though made at a meeting duly held after regular call and notice, if a quorum is present either in person or by proxy, and if, either before or after the meeting, each of the persons entitled to vote but not present in person or by proxy signs a written waiver of notice or a consent to holding of the meeting or an approval of the minutes thereof. (b) A waiver of notice, consent to the holding of a meeting or approval of the minutes thereof need not specify the business to be transacted or transacted at nor the purpose of the meeting; provided that in the case of proposals described in subsection (d) of Section 8 of these bylaws, the general nature of such proposals must be described in any such waiver of notice and such proposals can only be approved by waiver of notice, not by consent to holding of the meeting or approval of the minutes. (c) All waivers, consents and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. (d) A person's attendance at a meeting shall constitute waiver of notice of and presence at such meeting, except when such person objects at the beginning of the meeting to transaction of any business because the meeting is not lawfully called or convened and except that attendance at a meeting is not a waiver of any right to object to the consideration of matters which are required by law or these bylaws to be in such notice (including those matters described in subsection (d) of Section 8 of these bylaws), but are not so included if such person expressly objects to consideration of such matter or matters at any time during the meeting. Section 13. Action by Written Consent Without a Meeting. Any action which may be taken at any meeting of shareholders may be taken without a meeting and without prior notice if written consents setting forth the action so taken are signed by the holders of the outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Directors may not be elected by written consent except by unanimous written consent of all shares entitled to vote for the election of directors; provided that any vacancy on the Board of Directors (other than a vacancy created by removal) which has not been filled by the board of directors may be filled by the written consent of a majority of outstanding shares entitled to vote for the election of directors. Any written consent may be revoked pursuant to California Corporations Code Section 603(c) prior to the time that written consents of the number of shares required to authorize the proposed action have been filed with the Secretary. Such revocation must be in writing and will be effective upon its receipt by the Secretary. 5 If the consents of all shareholders entitled to vote have not been solicited in writing, and if the unanimous written consent of all such shareholders shall not have been received, the Secretary shall give prompt notice of any corporate action approved by the shareholders without a meeting to those shareholders entitled to vote on such matters who have not consented thereto in writing. This notice shall be given in the manner specified in Section 9 of these bylaws. In the case of approval of (i) a transaction within the provisions of California Corporations Code, Section 310 (relating to certain transactions in which a director has an interest), (ii) a transaction within the provisions of California Corporations Code, Section 317 (relating to indemnification of agents of the corporation), (iii) a transaction within the provisions of California Corporations Code, Sections 181 and 1201 (relating to reorganization), and (iv) a plan of distribution within the provisions of California Corporations Code, Section 2007 (relating to certain plans providing for distribution not in accordance with the liquidation rights of preferred shares, if any), the notice shall be given at least ten (10) days before the consummation of any action authorized by that approval. Section 14. Voting. The shareholders entitled to vote at any meeting of shareholders shall be determined in accordance with the provisions of Section 15 of these bylaws, subject to the provisions of Sections 702 through 704 of the California Corporations Code (relating to voting shares held by a fiduciary, in the name of a corporation, or in joint ownership). Voting at any meeting of shareholders need not be by ballot; provided, however, that elections for directors must be by ballot if balloting is demanded by a shareholder at the meeting and before the voting begins. Every person entitled to vote at an election for directors may cumulate the votes to which such person is entitled, i.e., such person may cast a total number of votes equal to the number of directors to be elected multiplied by the number of votes to which such person's shares are entitled, and may cast said total number of votes for one or more candidates in such proportions as such person thinks fit; provided, however, no shareholder shall be entitled to so cumulate such shareholder's votes unless the candidates for which such shareholder is voting have been placed in nomination prior to the voting and a shareholder has given notice at the meeting, prior to the vote, of an intention to cumulate votes. In any election of directors, the candidates receiving the highest number of votes, up to the number of directors to be elected, are elected. Except as may be otherwise provided in the Articles of Incorporation or by law, and subject to the foregoing provisions regarding the cumulation of votes, each shareholder shall be entitled to one vote for each share held. Any shareholder may vote part of such shareholder's shares in favor of a proposal and refrain from voting the remaining shares or vote them against the proposal, other than elections to office, but, if the shareholder fails to specify the number of shares such shareholder is voting affirmatively, it will be conclusively presumed that the shareholder's approving vote is with respect to all shares such shareholder is entitled to vote. No shareholder approval, other than unanimous approval of those entitled to vote, will be valid as to proposals described in subsection 8(d) of these bylaws unless the general nature of such business was stated in the notice of meeting or in any written waiver of notice. 6 Section 15. Persons Entitled to Vote or Consent. The Board of Directors may fix a record date pursuant to Section 60 of these bylaws to determine which shareholders are entitled to notice of and to vote at a meeting or consent to corporate actions, as provided in Sections 13 and 14 of these bylaws. Only persons in whose name shares otherwise entitled to vote stand on the stock records of the corporation on such date shall be entitled to vote or consent. If no record date is fixed: (a) The record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the business day next preceding the day notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held; (b) The record date for determining shareholders entitled to give consent to corporate action in writing without a meeting, when no prior action by the Board of Directors has been taken, shall be the day on which the first written consent is given; (c) The record date for determining shareholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto, or the sixtieth (60th) day prior to the date of such other action, whichever is later. A determination of shareholders of record entitled to notice of or to vote at a meeting of shareholders shall apply to any adjournment of the meeting unless the Board of Directors fixes a new record date for the adjourned meeting; provided, however, that the Board of Directors shall fix a new record date if the meeting is adjourned for more than forty-five (45) days from the date set for the original meeting. Shares of the corporation held by its subsidiary or subsidiaries (as defined in California Corporations Code, Section 189(b)) are not entitled to vote in any matter. Section 16. Proxies. Every person entitled to vote or execute consents may do so either in person or by one or more agents authorized to act by a written proxy executed by the person or such person's duly authorized agent and filed with the Secretary of the corporation; provided that no such proxy shall be valid after the expiration of eleven (11) months from the date of its execution unless otherwise provided in the proxy. The manner of execution, suspension, revocation, exercise and effect of proxies is governed by law. Section 17. Inspectors of Election. Before any meeting of shareholders, the Board of Directors may appoint any persons, other than nominees for office, to act as inspectors of election at the meeting or its adjournment. If no inspectors of election are so appointed, the chairman of the meeting may, and on the request of any shareholder or a shareholder's proxy shall, appoint inspectors of election at the meeting. The number of inspectors shall be either one (1) or three (3). If inspectors are appointed at a meeting on the request of one or more shareholders or proxies, the majority of shares represented in person or proxy shall determine whether one (1) or three (3) inspectors are to be appointed. If any person appointed as inspector fails to appear or fails or refuses to act, the chairman of the meeting may, and upon the request of any shareholder or a shareholder's proxy shall, appoint a person to fill that vacancy. 7 These inspectors shall: (a) Determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, and the authenticity, validity, and effect of proxies; (b) Receive votes, ballots, or consents; (c) Hear and determine all challenges and questions in any way arising in connection with the right to vote; (d) Count and tabulate all votes or consents; (e) Determine when the polls shall close; (f) Determine the result; and (g) Do any other acts that may be proper to conduct the election or vote with fairness to all shareholders. ARTICLE IV BOARD OF DIRECTORS Section 18. Powers. Subject to the provisions of law or any limitations in the Articles of Incorporation or these bylaws, as to action required to be approved by the shareholders or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised, by or under the direction of the Board of Directors. The Board of Directors may delegate the management of the day-to-day operation of the business of the corporation to a management company or other person, provided that the business and affairs of the corporation shall be managed and all corporate powers shall be exercised under the ultimate direction of the Board of Directors. Section 19. Number of Directors. The authorized number of directors of the corporation shall be six (6), until changed by a duly adopted amendment to these bylaws approved by the affirmative vote of a majority of the outstanding shares entitled to vote; provided, an amendment reducing the number of directors to less than five (5), cannot be adopted if votes cast against its adoption at a meeting or shares not consenting to it in the case of action by written consent are equal to more than 16-2/3 percent of the outstanding shares entitled to vote. No reduction of the authorized number of directors shall remove any director prior to the expiration of such director's term of office. Section 20. Election Of Directors, Term, Qualifications. The directors shall be elected at each annual meeting of shareholders to hold office until the next annual meeting. Each director, including a director elected or appointed to fill a vacancy, shall hold office either until the expiration of the term for which elected or appointed and until a successor has been elected and qualified, or until his death, resignation or removal. Directors need not be shareholders of the corporation. 8 Section 21. Resignations. Any director of the corporation may resign effective upon giving written notice to the Chairman of the Board, the President, the Secretary or the Board of Directors of the corporation, unless the notice specifies a later time for the effectiveness of such resignation. If the resignation specifies effectiveness at a future time, a successor may be elected pursuant to Section 23 of these bylaws to take office on the date that the resignation becomes effective. Section 22. Removal. The Board of Directors may declare vacant the office of a director who has been declared of unsound mind by an order of court or who has been convicted of a felony. The entire Board of Directors or any individual director may be removed from office without cause by the affirmative vote of a majority of the outstanding shares entitled to vote on such removal; provided, however, that unless the entire Board is removed, no individual director may be removed when the votes cast against such director's removal, or not consenting in writing to such removal, would be sufficient to elect that director if voted cumulatively at an election at which the same total number of votes cast were cast (or, if such action is taken by written consent, all shares entitled to vote were voted) and the entire number of directors authorized at the time of such director's most recent election were then being elected. Section 23. Vacancies. A vacancy or vacancies on the Board of Directors shall be deemed to exist in case of the death, resignation or removal of any director, or upon increase in the authorized number of directors or if shareholders fail to elect the full authorized number of directors at an annual meeting of shareholders or if, for whatever reason, there are fewer directors on the Board of Directors, than the full number authorized. Such vacancy or vacancies, other than a vacancy created by the removal of a director, may be filled by a majority of the remaining directors, though less than a quorum, or by a sole remaining director. A vacancy created by the removal of a director may be filled only by the affirmative vote of a majority of the shares represented and voting at a duly held meeting at which a quorum is present (which shares voting affirmatively also constitute at least a majority of the required quorum) or by the written consent of shareholders pursuant to Section 13 hereinabove. The shareholders may elect a director at any time to fill any vacancy not filled by the directors. Any such election by written consent, other than to fill a vacancy created by removal, requires the consent of a majority of the outstanding shares entitled to vote. Any such election by written consent to fill a vacancy created by removal requires the consent of all of the outstanding shares entitled to vote. If, after the filling of any vacancy by the directors, the directors then in office who have been elected by the shareholders constitute less than a majority of the directors then in office, any holder or holders of an aggregate of five percent (5%) or more of the shares outstanding at that time and having the right to vote for such directors may call a special meeting of shareholders to be held to elect the entire Board of Directors. The term of office of any director shall terminate upon such election of a successor. Section 24. Regular Meetings. Regular meetings of the Board of Directors shall be held at such times, places and dates as fixed in these bylaws or by the Board of Directors; provided, however, that if the date for such a meeting falls on a legal holiday, then the meeting 9 shall be held at the same time on the next succeeding full business day. Regular meetings of the Board of Directors held pursuant to this Section 24 may be held without notice. Section 25. Participation by Telephone. Members of the Board of Directors may participate in a meeting through use of conference telephone or similar communications equipment, so long as all members participating in such meeting can hear one another. Such participation constitutes presence in person at such meeting. Section 26. Special Meetings. Special meetings of the Board of Directors for any purpose may be called by the Chairman of the Board or the President or any vice president or the Secretary of the corporation or any two (2) directors. Section 27. Notice of Meetings. Notice of the date, time and place of all meetings of the Board of Directors, other than regular meetings held pursuant to Section 24 above shall be delivered personally, orally or in writing, or by telephone or telegraph to each director, at least forty-eight (48) hours before the meeting, or sent in writing to each director by first-class mail, charges prepaid, at least four (4) days before the meeting. Such notice may be given by the Secretary of the corporation or by the person or persons who called a meeting. Such notice need not specify the purpose of the meeting. Notice of any meeting of the Board of Directors need not be given to any director who signs a waiver of notice of such meeting, or a consent to holding the meeting or an approval of the minutes thereof, either before or after the meeting, or who attends the meeting without protesting prior thereto or at its commencement such director's lack of notice. All such waivers, consents and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Section 28. Place of Meetings. Meetings of the Board of Directors may be held at any place within or without the state which has been designated in the notice of the meeting or, if not stated in the notice or there is no notice, designated in the bylaws or by resolution of the Board of Directors. Section 29. Action by Written Consent Without a Meeting. Any action required or permitted to be taken by the Board of Directors may be taken without a meeting, if all members of the Board of Directors individually or collectively consent in writing to such action. Such written consent or consents shall be filed with the minutes of the proceedings of the Board of Directors. Such action by written consent shall have the same force and effect as a unanimous vote of such directors. Section 30. Quorum and Transaction of Business. A majority of the authorized number of directors shall constitute a quorum for the transaction of business. Every act or decision done or made by a majority of the authorized number of directors present at a meeting duly held at which a quorum is present shall be the act of the Board of Directors, unless the law, the Articles of Incorporation or these bylaws specifically require a greater number. A meeting at which a quorum is initially present may continue to transact business, notwithstanding withdrawal of directors, if any action taken is approved by at least a majority of the number of directors constituting a quorum for such meeting. In the absence of a quorum at any meeting of the Board of Directors, a majority of the directors present may adjourn the meeting, as provided in Section 31 of these bylaws. 10 Section 31. Adjournment. Any meeting of the Board of Directors, whether or not a quorum is present, may be adjourned to another time and place by the affirmative vote of a majority of the directors present. If the meeting is adjourned for more than twenty-four (24) hours, notice of such adjournment to another time or place shall be given prior to the time of the adjourned meeting to the directors who were not present at the time of the adjournment. Section 32. Organization. The Chairman of the Board shall preside at every meeting of the Board of Directors, if present. If there is no Chairman of the Board or if the Chairman is not present, a Chairman chosen by a majority of the directors present shall act as chairman. The Secretary of the corporation or, in the absence of the Secretary, any person appointed by the Chairman shall act as secretary of the meeting. Section 33. Compensation. Directors and members of committees may receive such compensation, if any, for their services, and such reimbursement for expenses, as may be fixed or determined by the Board of Directors. Section 34. Committees. The Board of Directors may, by resolution adopted by a majority of the authorized number of directors, designate one or more committees, each consisting of two (2) or more directors, to serve at the pleasure of the Board of Directors. The Board of Directors, by a vote of the majority of authorized directors, may designate one or more directors as alternate members of any committee, to replace any absent member at any meeting of such committee. Any such committee shall have authority to act in the manner and to the extent provided in the resolution of the Board of Directors, and may have all the authority of the Board of Directors in the management of the business and affairs of the corporation, except with respect to: (a) the approval of any action for which shareholders' approval or approval of the outstanding shares also is required by the California Corporations Code; (b) the filling of vacancies on the Board of Directors or any of its committees; (c) the fixing of compensation of directors for serving on the Board of Directors or any of its committees; (d) the adoption, amendment or repeal of these bylaws; (e) the amendment or repeal of any resolution of the Board of Directors which by its express terms is not so amendable or repealable; (f) a distribution to shareholders, except at a rate or in a periodic amount or within a price range determined by the Board of Directors; or (g) the appointment of other committees of the Board of Directors or the members thereof. Any committee may from time to time provide by resolution for regular meetings at specified times and places. If the date of such a meeting falls on a legal holiday, then the meeting shall be held at the same time on the next succeeding full business day. No notice of 11 such a meeting need be given. Such regular meetings need not be held if the committee shall so determine at any time before or after the time when such meeting would otherwise have taken place. Special meetings may be called at any time in the same manner and by the same persons as stated in Sections 26 and 27 of these bylaws for meetings of the Board of Directors. The provisions of Sections 25, 28, 29, 30, 31 and 32 of these bylaws shall apply to committees, committee members and committee meetings as if the words "committee" and "committee member" were substituted for the word "Board of Directors", and "director", respectively, throughout such sections. ARTICLE V OFFICERS Section 35. Officers. The corporation shall have a Chairman of the Board or a President or both, a Secretary, a Chief Financial Officer and such other officers with such titles and duties as the Board of Directors may determine. Any two or more offices may be held by the same person. Section 36. Appointment. All officers shall be chosen and appointed by the Board of Directors; provided, however, the Board of Directors may empower the chief executive officer of the corporation to appoint such officers, other than Chairman of the Board, President, Secretary or Chief Financial Officer, as the business of the corporation may require. All officers shall serve at the pleasure of the Board of Directors, subject to the rights, if any, of an officer under a contract of employment. Section 37. Inability to Act. In the case of absence or inability to act of any officer of the corporation or of any person authorized by these bylaws to act in such officer's place, the Board of Directors may from time to time delegate the powers or duties of such officer to any other officer, or any director or other person whom it may select, for such period of time as the Board of Directors deems necessary. Section 38. Resignations. Any officer may resign at any time upon written notice to the corporation, without prejudice to the rights, if any, of the corporation under any contract to which such officer is a party. Such resignation shall be effective upon its receipt by the Chairman of the Board, the President, the Secretary or the Board of Directors, unless a different time is specified in the notice for effectiveness of such resignation. The acceptance of any such resignation shall not be necessary to make it effective unless otherwise specified in such notice. Section 39. Removal. Any officer may be removed from office at any time, with or without cause, but subject to the rights, if any, of such officer under any contract of employment, by the Board of Directors or by any committee to whom such power of removal has been duly delegated, or, with regard to any officer who has been appointed by the chief executive officer pursuant to Section 36 above, by the chief executive officer or any other officer upon whom such power of removal may be conferred by the Board of Directors. 12 Section 40. Vacancies. A vacancy occurring in any office for any cause may be filled by the Board of Directors, in the manner prescribed by this Article of the bylaws for initial appointment to such office. Section 41. Chairman of the Board. The Chairman of the Board, if there be such an officer, shall, if present, preside at all meetings of the Board of Directors and shall exercise and perform such other powers and duties as may be assigned from time to time by the Board of Directors or prescribed by these bylaws. If no President is appointed, the Chairman of the Board is the general manager and chief executive officer of the corporation, and shall exercise all powers of the President described in Section 42 below. Section 42. President. Subject to such powers, if any, as may be given by the Board of Directors to the Chairman of the Board, if there be such an officer, the President shall be the general manager and chief executive officer of the corporation and shall have general supervision, direction, and control over the business and affairs of the corporation, subject to the control of the Board of Directors. The President may sign and execute, in the name of the corporation, any instrument authorized by the Board of Directors, except when the signing and execution thereof shall have been expressly delegated by the Board of Directors or by these bylaws to some other officer or agent of the corporation. The President shall have all the general powers and duties of management usually vested in the president of a corporation, and shall have such other powers and duties as may be prescribed from time to time by the Board of Directors or these bylaws. The President shall have discretion to prescribe the duties of other officers and employees of the corporation in a manner not inconsistent with the provisions of these bylaws and the directions of the Board of Directors. Section 43. Vice Presidents. In the absence or disability of the President, in the event of a vacancy in the office of President, or in the event such officer refuses to act, the Vice President shall perform all the duties of the President and, when so acting, shall have all the powers of, and be subject to all the restrictions on, the President. If at any such time the corporation has more than one vice president, the duties and powers of the President shall pass to each vice president in order of such vice president's rank as fixed by the Board of Directors or, if the vice presidents are not so ranked, to the vice president designated by the Board of Directors. The vice presidents shall have such other powers and perform such other duties as may be prescribed for them from time to time by the Board of Directors or pursuant to Sections 35 and 36 of these bylaws or otherwise pursuant to these bylaws. Section 44. Secretary. The Secretary shall: (a) Keep, or cause to be kept, minutes of all meetings of the corporation's shareholders, Board of Directors, and committees of the Board of Directors, if any. Such minutes shall be kept in written form. (b) Keep, or cause to be kept, at the principal executive office of the corporation, or at the office of its transfer agent or registrar, if any, a record of the corporation's shareholders, showing the names and addresses of all shareholders, and the number and classes of shares held by each. Such records shall be kept in written form or any other form capable of being converted into written form. 13 (c) Keep, or cause to be kept, at the principal executive office of the corporation, or if the principal executive office is not in California, at its principal business office in California, an original or copy of these bylaws, as amended. (d) Give, or cause to be given, notice of all meetings of shareholders, directors and committees of the Board of Directors, as required by law or by these bylaws. (e) Keep the seal of the corporation, if any, in safe custody. (f) Exercise such powers and perform such duties as are usually vested in the office of secretary of a corporation, and exercise such other powers and perform such other duties as may be prescribed from time to time by the Board of Directors or these bylaws. If any assistant secretaries are appointed, the assistant secretary, or one of the assistant secretaries in the order of their rank as fixed by the Board of Directors or, if they are not so ranked, the assistant secretary designated by the Board of Directors, in the absence or disability of the Secretary or in the event of such officer's refusal to act or if a vacancy exists in the office of Secretary, shall perform the duties and exercise the powers of the Secretary and discharge such duties as may be assigned from time to time pursuant to these bylaws or by the Board of Directors. Section 45. Chief Financial Officer. The Chief Financial Officer shall: (a) Be responsible for all functions and duties of the treasurer of the corporation. (b) Keep and maintain, or cause to be kept and maintained, adequate and correct books and records of account for the corporation. (c) Receive or be responsible for receipt of all monies due and payable to the corporation from any source whatsoever; have charge and custody of, and be responsible for, all monies and other valuables of the corporation and be responsible for deposit of all such monies in the name and to the credit of the corporation with such depositaries as may be designated by the Board of Directors or a duly appointed and authorized committee of the Board of Directors. (d) Disburse or be responsible for the disbursement of the funds of the corporation as may be ordered by the Board of Directors or a duly appointed and authorized committee of the Board of Directors. (e) Render to the chief executive officer and the Board of Directors a statement of the financial condition of the corporation if called upon to do so. (f) Exercise such powers and perform such duties as are usually vested in the office of chief financial officer of a corporation, and exercise such other powers and perform such other duties as may be prescribed by the Board of Directors or these bylaws. If any assistant financial officer is appointed, the assistant financial officer, or one of the assistant financial officers, if there are more than one, in the order of their rank as fixed by the 14 Board of Directors or, if they are not so ranked, the assistant financial officer designated by the Board of Directors, shall, in the absence or disability of the Chief Financial Officer or in the event of such officer's refusal to act, perform the duties and exercise the powers of the Chief Financial Officer, and shall have such powers and discharge such duties as may be assigned from time to time pursuant to these bylaws or by the Board of Directors. Section 46. Compensation. The compensation of the officers shall be fixed from time to time by the Board of Directors, and no officer shall be prevented from receiving such compensation by reason of the fact that such officer is also a director of the corporation. ARTICLE VI CONTRACTS, LOANS, BANK ACCOUNTS, CHECKS AND DRAFTS Section 47. Execution of Contracts and Other Instruments. Except as these bylaws may otherwise provide, the Board of Directors or its duly appointed and authorized committee may authorize any officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the corporation, and such authorization may be general or confined to specific instances. Except as so authorized or otherwise expressly provided in these bylaws, no officer, agent, or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or in any amount. Section 48. Loans. No loans shall be contracted on behalf of the corporation and no negotiable paper shall be issued in its name, unless and except as authorized by the Board of Directors or its duly appointed and authorized committee. When so authorized by the Board of Directors or such committee, any officer or agent of the corporation may effect loans and advances at any time for the corporation from any bank, trust company, or other institution, or from any firm, corporation or individual, and for such loans and advances may make, execute and deliver promissory notes, bonds or other evidences of indebtedness of the corporation and, when authorized as aforesaid, may mortgage, pledge, hypothecate or transfer any and all stocks, securities and other property, real or personal, at any time held by the corporation, and to that end endorse, assign and deliver the same as security for the payment of any and all loans, advances, indebtedness, and liabilities of the corporation. Such authorization may be general or confined to specific instances. Section 49. Bank Accounts. The Board of Directors or its duly appointed and authorized committee from time to time may authorize the opening and keeping of general and/or special bank accounts with such banks, trust companies, or other depositaries as may be selected by the Board of Directors, its duly appointed and authorized committee or by any officer or officers, agent or agents, of the corporation to whom such power may be delegated from time to time by the Board of Directors. The Board of Directors or its duly appointed and authorized committee may make such rules and regulations with respect to said bank accounts, not inconsistent with the provisions of these bylaws, as are deemed advisable. Section 50. Checks, Drafts, Etc. All checks, drafts or other orders for the payment of money, notes, acceptances or other evidences of indebtedness issued in the name of the 15 corporation shall be signed by such officer or officers, agent or agents, of the corporation, and in such manner, as shall be determined from time to time by resolution of the Board of Directors or its duly appointed and authorized committee. Endorsements for deposit to the credit of the corporation in any of its duly authorized depositaries may be made, without counter-signature, by the President or any vice president or the Chief Financial Officer or any assistant financial officer or by any other officer or agent of the corporation to whom the Board of Directors or its duly appointed and authorized committee, by resolution, shall have delegated such power or by hand-stamped impression in the name of the corporation. ARTICLE VII CERTIFICATES FOR SHARES AND THEIR TRANSFER Section 51. Certificate for Shares. Every holder of shares in the corporation shall be entitled to have a certificate signed in the name of the corporation by the Chairman or Vice Chairman of the Board or the President or a Vice President and by the Chief Financial Officer or an assistant financial officer or by the Secretary or an assistant secretary, certifying the number of shares and the class or series of shares owned by the shareholder. Any or all of the signatures on the certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if such person were an officer, transfer agent or registrar at the date of issue. In the event that the corporation shall issue any shares as only partly paid, the certificate issued to represent such partly paid shares shall have stated thereon the total consideration to be paid for such shares and the amount paid thereon. Section 52. Transfer on the Books. Upon surrender to the Secretary or transfer agent (if any) of the corporation of a certificate for shares of the corporation duly endorsed, with reasonable assurance that the endorsement is genuine and effective, or accompanied by proper evidence of succession, assignment or authority to transfer and upon compliance with applicable federal and state securities laws and if the corporation has no statutory duty to inquire into adverse claims or has discharged any such duty and if any applicable law relating to the collection of taxes has been complied with, it shall be the duty of the corporation, by its Secretary or transfer agent, to cancel the old certificate, to issue a new certificate to the person entitled thereto and to record the transaction on the books of the corporation. Section 53. Lost, Destroyed and Stolen Certificates. The holder of any certificate for shares of the corporation alleged to have been lost, destroyed or stolen shall notify the corporation by making a written affidavit or affirmation of such fact. Upon receipt of said affidavit or affirmation the Board of Directors, or its duly appointed and authorized committee or any officer or officers authorized by the Board so to do, may order the issuance of a new certificate for shares in the place of any certificate previously issued by the corporation and which is alleged to have been lost, destroyed or stolen. However, the Board of Directors or such authorized committee, officer or officers may require the owner of the allegedly lost, destroyed or stolen certificate, or such owner's legal representative, to give the corporation a bond or other 16 adequate security sufficient to indemnify the corporation and its transfer agent and/or registrar, if any, against any claim that may be made against it or them on account of such allegedly lost, destroyed or stolen certificate or the replacement thereof. Said bond or other security shall be in such amount, on such terms and conditions and, in the case of a bond, with such surety or sureties as may be acceptable to the Board of Directors or to its duly appointed and authorized committee or any officer or officers authorized by the Board of Directors to determine the sufficiency thereof. The requirement of a bond or other security may be waived in particular cases at the discretion of the Board of Directors or its duly appointed and authorized committee or any officer or officers authorized by the Board of Directors so to do. Section 54. Issuance, Transfer and Registration of Shares. The Board of Directors may make such rules and regulations, not inconsistent with law or with these bylaws, as it may deem advisable concerning the issuance, transfer and registration of certificates for shares of the capital stock of the corporation. The Board of Directors may appoint a transfer agent or registrar of transfers, or both, and may require all certificates for shares of the corporation to bear the signature of either or both. ARTICLE VIII INSPECTION OF CORPORATE RECORDS Section 55. Inspection by Directors. Every director shall have the absolute right at any reasonable time to inspect and copy all books, records, and documents of every kind of the corporation and any of its subsidiaries and to inspect the physical properties of the corporation and any of its subsidiaries. Such inspection may be made by the director in person or by agent or attorney, and the right of inspection includes the right to copy and make extracts. Section 56. Inspection by Shareholders. (a) Inspection of Corporate Records. (1) A shareholder or shareholders holding at least five (5%) percent in the aggregate of the outstanding voting shares of the corporation or who hold at least one percent of such voting shares and have filed a Schedule 14B with the United States Securities and Exchange Commission relating to the election of directors of the corporation shall have an absolute right to do either or both of the following: (i) Inspect and copy the record of shareholders' names and addresses and shareholdings during usual business hours upon five (5) business days' prior written demand upon the corporation; or (ii) Obtain from the transfer agent, if any, for the corporation, upon five business days' prior written demand and upon the tender of its usual charges for such a list (the amount of which charges shall be stated to the shareholder by the transfer agent upon request), a list of the shareholders' names and addresses who are entitled to vote for the election of directors and their shareholdings, as of the most recent record date for which it has been compiled or as of a date specified by the shareholder subsequent to the date of demand. 17 (2) The record of shareholders shall also be open to inspection and copying by any shareholder or holder of a voting trust certificate at any time during usual business hours upon written demand on the corporation, for a purpose reasonably related to such holder's interest as a shareholder or holder of a voting trust certificate. (3) The accounting books and records and minutes of proceedings of the shareholders and the Board of Directors and of any committees of the Board of Directors of the corporation and of each of its subsidiaries shall be open to inspection, copying and making extracts upon written demand on the corporation of any shareholder or holder of a voting trust certificate at any reasonable time during usual business hours, for a purpose reasonably related to such holder's interests as a shareholder or as a holder of such voting trust certificate. (4) Any inspection, copying, and making of extracts under this subsection (a) may be done in person or by agent or attorney. (b) Inspection of Bylaws. The original or a copy of these bylaws shall be kept as provided in Section 44 of these bylaws and shall be open to inspection by the shareholders at all reasonable times during office hours. If the principal executive office of the corporation is not in California, and the corporation has no principal business office in the state of California, a current copy of these bylaws shall be furnished to any shareholder upon written request. Section 57. Written Form. If any record subject to inspection pursuant to Section 56 above is not maintained in written form, a request for inspection is not complied with unless and until the corporation at its expense makes such record available in written form. ARTICLE IX MISCELLANEOUS Section 58. Fiscal Year. Unless otherwise fixed by resolution of the Board of Directors, the fiscal year of the corporation shall end on the 31st day of December in each calendar year. Section 59. Annual Report. (a) Subject to the provisions of Section 59(b) below, the Board of Directors shall cause an annual report to be sent to each shareholder of the corporation in the manner provided in Section 9 of these bylaws not later than one hundred twenty (120) days after the close of the corporation's fiscal year. Such report shall include a balance sheet as of the end of such fiscal year and an income statement and statement of changes in financial position for such fiscal year, accompanied by any report thereon of independent accountants or, if there is no such report, the certificate of an authorized officer of the corporation that such statements were prepared without audit from the books and records of the corporation. When there are more than 100 shareholders of record of the corporation's shares, as determined by Section 605 of the California Corporations Code, additional information as required by Section 1501(b) of the California Corporations Code shall also be contained in such report, provided that if the corporation has a class of securities registered under Section 12 of the United States Securities 18 Exchange Act of 1934, that Act shall take precedence. Such report shall be sent to shareholders at least fifteen (15) (or, if sent by third-class mail, thirty- five (35)) days prior to the next annual meeting of shareholders after the end of the fiscal year to which it relates. (b) If and so long as there are fewer than 100 holders of record of the corporation's shares, the requirement of sending of an annual report to the shareholders of the corporation is hereby expressly waived. Section 60. Record Date. The Board of Directors may fix a time in the future as a record date for the determination of the shareholders entitled to notice of or to vote at any meeting or entitled to receive payment of any dividend or other distribution or allotment of any rights or entitled to exercise any rights in respect of any change, conversion or exchange of shares or entitled to exercise any rights in respect of any other lawful action. The record date so fixed shall not be more than sixty (60) days nor less than ten (10) days prior to the date of the meeting nor more than sixty (60) days prior to any other action or event for the purpose of which it is fixed. If no record date is fixed, the provisions of Section 15 of these bylaws shall apply with respect to notice of meetings, votes, and consents and the record date for determining shareholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolutions relating thereto, or the sixtieth (60th) day prior to the date of such other action or event, whichever is later. Only shareholders of record at the close of business on the record date shall be entitled to notice and to vote or to receive the dividend, distribution or allotment of rights or to exercise the rights, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date, except as otherwise provided in the Articles of Incorporation, by agreement or by law. Section 61. Bylaw Amendments. Except as otherwise provided by law or Section 19 of these bylaws, these bylaws may be amended or repealed by the Board of Directors or by the affirmative vote of a majority of the outstanding shares entitled to vote, including, if applicable, the affirmative vote of a majority of the outstanding shares of each class or series entitled by law or the Articles of Incorporation to vote as a class or series on the amendment or repeal or adoption of any bylaw or bylaws; provided, however, after issuance of shares, a bylaw specifying or changing a fixed number of directors or the maximum or minimum number or changing from a fixed to a variable board or vice versa may only be adopted by approval of the outstanding shares as provided herein. Section 62. Construction and Definition. Unless the context requires otherwise, the general provisions, rules of construction, and definitions contained in the California Corporations Code shall govern the construction of these bylaws. Without limiting the foregoing, "shall" is mandatory and "may" is permissive. ARTICLE X INDEMNIFICATION Section 63. Indemnification of Directors, Officers, Employees And Other Agents. 19 (a) Directors and Executive Officers. The corporation shall indemnify its directors and executive officers to the fullest extent not prohibited by the California General Corporation Law; provided, however, that the corporation may limit the extent of such indemnification by individual contracts with its directors and executive officers; and, provided, further, that the corporation shall not be required to indemnify any director or executive officer in connection with any proceeding (or part thereof) initiated by such person or any proceeding by such person against the corporation or its directors, officers, employees or other agents unless (i) such indemnification is expressly required to be made by law, (ii) the proceeding was authorized by the board of directors of the corporation or (iii) such indemnification is provided by the corporation, in its sole discretion, pursuant to the powers vested in the corporation under the California General Corporation Law. (b) Other Officers, Employees and Other Agents. The corporation shall have the power to indemnify its other officers, employees and other agents as set forth in the California General Corporation Law. (c) Determination by the Corporation. Promptly after receipt of a request for indemnification hereunder (and in any event within 90 days thereof) a reasonable, good faith determination as to whether indemnification of the director or executive officer is proper under the circumstances because such director or executive officer has met the applicable standard of care shall be made by: (1) a majority vote of a quorum consisting of directors who are not parties to such proceeding; (2) if such quorum is not obtainable, by independent legal counsel in a written opinion; or (3) approval or ratification by the affirmative vote of a majority of the shares of this corporation represented and voting at a duly held meeting at which a quorum is present (which shares voting affirmatively also constitute at least a majority of the required quorum) or by written consent of a majority of the outstanding shares entitled to vote; where in each case the shares owned by the person to be indemnified shall not be considered entitled to vote thereon. (d) Good Faith. (1) For purposes of any determination under this bylaw, a director or executive officer shall be deemed to have acted in good faith and in a manner he reasonably believed to be in the best interests of the corporation and its shareholders, and, with respect to any criminal action or proceeding, to have had no reasonable cause to believe that his conduct was unlawful, if his action is based on information, opinions, reports and statements, including financial statements and other financial data, in each case prepared or presented by: (i) one or more officers or employees of the corporation whom the director or executive officer believed to be reliable and competent in the matters presented; 20 (ii) counsel, independent accountants or other persons as to matters which the director or executive officer believed to be within such person's professional competence; and (iii) with respect to a director, a committee of the Board upon which such director does not serve, as to matters within such committee's designated authority, which committee the director believes to merit confidence; so long as, in each case, the director or executive officer acts without knowledge that would cause such reliance to be unwarranted. (2) The termination of any proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in the best interests of the corporation and its shareholders or that he had reasonable cause to believe that his conduct was unlawful. (3) The provisions of this paragraph (d) shall not be deemed to be exclusive or to limit in any way the circumstances in which a person may be deemed to have met the applicable standard of conduct set forth by the California General Corporation Law. (e) Expenses. The corporation shall advance, prior to the final disposition of any proceeding, promptly following request therefor, all expenses incurred by any director or executive officer in connection with such proceeding upon receipt of an undertaking by or on behalf of such person to repay said amounts if it shall be determined ultimately that such person is not entitled to be indemnified under this bylaw or otherwise. Notwithstanding the foregoing, unless otherwise determined pursuant to paragraph (f) of this bylaw, no advance shall be made by the corporation if a determination is reasonably and promptly made by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to the proceeding (or, if no such quorum exists, by independent legal counsel in a written opinion) that the facts known to the decision making party at the time such determination is made demonstrate clearly and convincingly that such person acted in bad faith or in a manner that such person did not believe to be in the best interests of the corporation and its shareholders. (f) Enforcement. Without the necessity of entering into an express contract, all rights to indemnification and advances to directors and executive officers under this bylaw shall be deemed to be contractual rights and be effective to the same extent and as if provided for in a contract between the corporation and the director or executive officer. Any right to indemnification or advances granted by this bylaw to a director or executive officer shall be enforceable by or on behalf of the person holding such right in the forum in which the proceeding is or was pending or, if such forum is not available or a determination is made that such forum is not convenient, in any court of competent jurisdiction if (i) the claim for indemnification or advances is denied, in whole or in part, or (ii) no disposition of such claim is made within ninety (90) days of request therefor. The claimant in such enforcement action, if successful in whole or in part, shall be entitled to be paid also the expense of prosecuting his claim. The corporation shall be entitled to raise as a defense to any such action that the claimant has not met the standards of conduct that make it permissible under the California General 21 Corporation Law for the corporation to indemnify the claimant for the amount claimed. Neither the failure of the corporation (including its board of directors, independent legal counsel or its shareholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he has met the applicable standard of conduct set forth in the California General Corporation Law, nor an actual determination by the corporation (including its board of directors, independent legal counsel or its shareholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that claimant has not met the applicable standard of conduct. (g) Non-Exclusivity of Rights. To the fullest extent permitted by the corporation's Articles of Incorporation and the California General Corporation Law, the rights conferred on any person by this bylaw shall not be exclusive of any other right which such person may have or hereafter acquire under any statute, provision of the Articles of Incorporation, bylaws, agreement, vote of shareholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding office. The corporation is specifically authorized to enter into individual contracts with any or all of its directors, officers, employees or agents respecting indemnification and advances, to the fullest extent permitted by the California General Corporation Law and the corporation's Articles of Incorporation. (h) Survival of Rights. The rights conferred on any person by this bylaw shall continue as to a person who has ceased to be a director or executive officer and shall inure to the benefit of the heirs, executors and administrators of such a person. (i) Insurance. The corporation, upon approval by the board of directors, may purchase insurance on behalf of any person required or permitted to be indemnified pursuant to this bylaw. (j) Amendments. Any repeal or modification of this bylaw shall only be prospective and shall not affect the rights under this bylaw in effect at the time of the alleged occurrence of any action or omission to act that is the cause of any proceeding against any agent of the corporation. (k) Employee Benefit Plans. The corporation shall indemnify the directors and officers of the corporation who serve at the request of the corporation as trustees, investment managers or other fiduciaries of employee benefit plans to the fullest extent permitted by the California General Corporation Law. (l) Saving Clause. If this bylaw or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the corporation shall nevertheless indemnify each director and executive officer to the fullest extent permitted by any applicable portion of this bylaw that shall not have been invalidated, or by any other applicable law. (m) Certain Definitions. For the purposes of this bylaw, the following definitions shall apply: 22 (1) The term "proceeding" shall be broadly construed and shall include, without limitation, the investigation, preparation, prosecution, defense, settlement and appeal of any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, arbitrative or investigative. (2) The term "expenses" shall be broadly construed and shall include, without limitation, court costs, attorneys' fees, witness fees, fines, amounts paid in settlement or judgment and any other costs and expenses of any nature or kind incurred in connection with any proceeding, including expenses of establishing a right to indemnification under this bylaw or any applicable law. (3) The term the "corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this bylaw with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued. (4) References to a "director," "officer," "employee," or "agent" of the corporation shall include, without limitation, situations where such person is or was serving at the request of the corporation as a director, officer, employee, trustee or agent of another corporation, partnership, joint venture, trust or other enterprise. ARTICLE XI RIGHT OF FIRST REFUSAL Section 64. Right of First Refusal. No shareholder shall sell, assign, pledge, or in any manner transfer any of the shares of stock of the corporation or any right or interest therein, whether voluntarily or by operation of law, or by gift or otherwise, except by a transfer which meets the requirements hereinafter set forth in this bylaw: (a) If the shareholder desires to sell or otherwise transfer any of his shares of stock, then the shareholder shall first give written notice thereof to the corporation. The notice shall name the proposed transferee and state the number of shares to be transferred, the proposed consideration, and all other terms and conditions of the proposed transfer. (b) For thirty (30) days following receipt of such notice, the corporation shall have the option to purchase all (but not less than all) of the shares specified in the notice at the price and upon the terms set forth in such notice; provided, however, that, with the consent of the shareholder, the corporation shall have the option to purchase a lesser portion of the shares specified in said notice at the price and upon the terms set forth therein. In the event of a gift, property settlement or other transfer in which the proposed transferee is not paying the full price 23 for the shares, and that is not otherwise exempted from the provisions of this Section 64, the price shall be deemed to be the fair market value of the stock at such time as determined in good faith by the Board of Directors. In the event the corporation elects to purchase all of the shares or, with consent of the shareholder, a lesser portion of the shares, it shall give written notice to the transferring shareholder of its election and settlement for said shares shall be made as provided below in paragraph (d). (c) The corporation may assign its rights hereunder. (d) In the event the corporation and/or its assignee(s) elect to acquire any of the shares of the transferring shareholder as specified in said transferring shareholder's notice, the Secretary of the corporation shall so notify the transferring shareholder and settlement thereof shall be made in cash within thirty (30) days after the Secretary of the corporation receives said transferring shareholder's notice; provided that if the terms of payment set forth in said transferring shareholder's notice were other than cash against delivery, the corporation and/or its assignee(s) shall pay for said shares on the same terms and conditions set forth in said transferring shareholder's notice. (e) In the event the corporation and/or its assignees(s) do not elect to acquire all of the shares specified in the transferring shareholder's notice, said transferring shareholder may, within the sixty-day period following the expiration of the option rights granted to the corporation and/or its assignees(s) herein, transfer the shares specified in said transferring shareholder's notice which were not acquired by the corporation and/or its assignees(s) as specified in said transferring shareholder's notice. All shares so sold by said transferring shareholder shall continue to be subject to the provisions of this bylaw in the same manner as before said transfer. (f) Anything to the contrary contained herein notwithstanding, the following transactions shall be exempt from the provisions of this bylaw: (1) A shareholder's transfer of any or all shares held either during such shareholder's lifetime or on death by will or intestacy to such shareholder's immediate family or to any custodian or trustee for the account of such shareholder or such shareholder's immediate family. "Immediate family" as used herein shall mean spouse, lineal descendant, father, mother, brother, or sister of the shareholder making such transfer. (2) A shareholder's bona fide pledge or mortgage of any shares with a commercial lending institution, provided that any subsequent transfer of said shares by said institution shall be conducted in the manner set forth in this bylaw. (3) A shareholder's transfer of any or all of such shareholder's shares to the corporation or to any other shareholder of the corporation. (4) A shareholder's transfer of any or all of such shareholder's shares to a person who, at the time of such transfer, is an officer or director of the corporation. (5) A corporate shareholder's transfer of any or all of its shares pursuant to and in accordance with the terms of any merger, consolidation, reclassification of 24 shares or capital reorganization of the corporate shareholder, or pursuant to a sale of all or substantially all of the stock or assets of a corporate shareholder. (6) A corporate shareholder's transfer of any or all of its shares to any or all of its shareholders. (7) A transfer by a shareholder which is a limited or general partnership to any or all of its partners or former partners. In any such case, the transferee, assignee, or other recipient shall receive and hold such stock subject to the provisions of this bylaw, and there shall be no further transfer of such stock except in accord with this bylaw. (g) The provisions of this bylaw may be waived with respect to any transfer either by the corporation, upon duly authorized action of its Board of Directors, or by the shareholders, upon the express written consent of the owners of a majority of the voting power of the corporation (excluding the votes represented by those shares to be transferred by the transferring shareholder). This bylaw may be amended or repealed either by a duly authorized action of the Board of Directors or by the shareholders, upon the express written consent of the owners of a majority of the voting power of the corporation. (h) Any sale or transfer, or purported sale or transfer, of securities of the corporation shall be null and void unless the terms, conditions, and provisions of this bylaw are strictly observed and followed. (i) The foregoing right of first refusal shall terminate on either of the following dates, whichever shall first occur: (1) On __________, 19__; or (2) Upon the date securities of the corporation are first offered to the public pursuant to a registration statement filed with, and declared effective by, the United States Securities and Exchange Commission under the Securities Act of 1933, as amended. (j) The certificates representing shares of stock of the corporation shall bear on their face the following legend so long as the foregoing right of first refusal remains in effect: "the shares represented by this Certificate are subject to a right of first refusal option in favor of the Corporation and/or its Assignee(s), as provided in the Bylaws of the Corporation." ARTICLE XII LOANS OF OFFICERS AND OTHERS Section 65. Certain Corporate Loans and Guaranties. If the corporation has outstanding shares held of record by 100 or more persons on the date of approval by the Board of Directors, the corporation may make loans of money or property to, or guarantee the obligations 25 of, any officer of the corporation or its parent or any subsidiary, whether or not a director of the corporation or its parent or any subsidiary, or adopt an employee benefit plan or plans authorizing such loans or guaranties, upon the approval of the Board of Directors alone, by a vote sufficient without counting the vote of any interested director or directors, if the Board of Directors determines that such a loan or guaranty or plan may reasonably be expected to benefit the corporation. Notwithstanding the foregoing, the corporation shall have the power to make loans permitted by the California Corporations Code. 26
Table Of Contents Page ARTICLE I OFFICES................................................................. 1 Section 1. Principal Office..................................................... 1 Section 2. Other Offices........................................................ 1 ARTICLE II CORPORATE SEAL.......................................................... 1 Section 3. Corporate Seal....................................................... 1 ARTICLE III SHAREHOLDERS' MEETINGS AND VOTING RIGHTS................................ 2 Section 4. Place of Meetings.................................................... 2 Section 5. Annual Meeting....................................................... 2 Section 6. Postponement of Annual Meeting....................................... 2 Section 7. Special Meetings..................................................... 2 Section 8. Notice of Meetings................................................... 2 Section 9. Manner of Giving Notice.............................................. 3 Section 10. Quorum and Transaction of Business................................... 4 Section 11. Adjournment and Notice of Adjourned Meetings......................... 4 Section 12. Waiver of Notice, Consent to Meeting or Approval of Minutes.......... 5 Section 13. Action by Written Consent Without a Meeting.......................... 5 Section 14. Voting............................................................... 6 Section 15. Persons Entitled to Vote or Consent.................................. 7 Section 16. Proxies.............................................................. 7 Section 17. Inspectors of Election............................................... 7 ARTICLE IV BOARD OF DIRECTORS...................................................... 8 Section 18. Powers............................................................... 8 Section 19. Number of Directors.................................................. 8 Section 20. Election Of Directors, Term, Qualifications.......................... 8 Section 21. Resignations......................................................... 9 Section 22. Removal.............................................................. 9 Section 23. Vacancies............................................................ 9 Section 24. Regular Meetings..................................................... 9 Section 25. Participation by Telephone........................................... 10 Section 26. Special Meetings..................................................... 10
i Table Of Contents (continued)
Page Section 27. Notice of Meetings.......................................... 10 Section 28. Place of Meetings........................................... 10 Section 29. Action by Written Consent Without a Meeting................. 10 Section 30. Quorum and Transaction of Business.......................... 10 Section 31. Adjournment................................................. 11 Section 32. Organization................................................ 11 Section 33. Compensation................................................ 11 Section 34. Committees.................................................. 11 ARTICLE V OFFICERS...................................................... 12 Section 35. Officers.................................................... 12 Section 36. Appointment................................................. 12 Section 37. Inability to Act............................................ 12 Section 38. Resignations................................................ 12 Section 39. Removal..................................................... 12 Section 40. Vacancies................................................... 13 Section 41. Chairman of the Board....................................... 13 Section 42. President................................................... 13 Section 43. Vice Presidents............................................. 13 Section 44. Secretary................................................... 13 Section 45. Chief Financial Officer..................................... 14 Section 46. Compensation................................................ 15 ARTICLE VI CONTRACTS, LOANS, BANK ACCOUNTS, CHECKS AND DRAFTS........................................................ 15 Section 47. Execution of Contracts and Other Instruments................ 15 Section 48. Loans....................................................... 15 Section 49. Bank Accounts............................................... 15 Section 50. Checks, Drafts, Etc......................................... 15 ARTICLE VII CERTIFICATES FOR SHARES AND THEIR TRANSFER.................... 16 Section 51. Certificate for Shares...................................... 16 Section 52. Transfer on the Books....................................... 16
ii
PAGE Section 53. Lost, Destroyed and Stolen Certificates....................................................... 16 Section 54. Issuance, Transfer and Registration of Shares................................................. 17 ARTICLE VIII INSPECTION OF CORPORATE RECORDS..................................................................... 17 Section 55. Inspection by Directors....................................................................... 17 Section 56. Inspection by Shareholders.................................................................... 17 Section 57. Written Form.................................................................................. 18 ARTICLE IX MISCELLANEOUS....................................................................................... 18 Section 58. Fiscal Year................................................................................... 18 Section 59. Annual Report................................................................................. 18 Section 60. Record Date................................................................................... 19 Section 61. Bylaw Amendments.............................................................................. 19 Section 62. Construction and Definition................................................................... 19 ARTICLE X INDEMNIFICATION..................................................................................... 19 Section 63. Indemnification of Directors, Officers, Employees And Other Agents........................................................................................ 19 ARTICLE XI RIGHT OF FIRST REFUSAL.............................................................................. 23 Section 64. Right of First Refusal........................................................................ 23 ARTICLE XII LOANS OF OFFICERS AND OTHERS.................................................................. 25 Section 65. Certain Corporate Loans and Guaranties........................................................ 25
iii. EX-10.01 4 1990 STOCK OPTION PLAN EXHIBIT 10.1 TRINET EMPLOYER GROUP 1990 STOCK OPTION PLAN 1. Purposes of the Plan. The purposes of this Stock Option Plan are to -------------------- reward past service by, increase incentive for, and encourage stock ownership on the part of, selected key employees of the Company and of any other corporation that is a Parent or Subsidiary of the Company, to attract and retain the best available personnel for positions of substantial responsibility, and to promote the success of the Company's business. 2. Definitions. As used herein, the following definitions apply: ----------- 2.1 Board. "Board" means the Board of Directors of the Company. ----- 2.2 Code. "Code" means the Internal Revenue Code of 1986, as ---- amended. 2.3 Common Stock. "Common Stock" means common capital stock of the ------------ Company. 2.4 Company. "Company" means TRINET EMPLOYER GROUP, INC., a ------- California Corporation. 2.5 Committee. "Committee" means the Committee appointed by the --------- Board of Directors in accordance with Section 4.2 of the Plan, if one is appointed. 2.6 Employee. "Employee" means any person, including officers, and -------- officers and employees who are also directors, who is employed by the Company or any Parent or Subsidiary of the Company at a regular salary or rate of pay. The payment of a director's or consulting fee shall not be sufficient to cause a person to be an Employee. (No options to persons in co-employed relationship) 2.7 Incentive Stock Option. "Incentive Stock Option" means an Option ---------------------- qualifying as an incentive stock option within the meaning of Section 422 of the --- Code. To the extent that an Option does not qualify as an Incentive Stock Option, the Option shall be treated as a Non-Statutory Stock Option. 2.8 Non-Statutory Stock Option. "Non-Statutory Stock Option" means -------------------------- an Option other than an Incentive Stock Option. 2.9 Option. "Option" means an option to purchase Shares of the ------ Company granted pursuant to the Plan and a written agreement in form approved by the Board. An Option may be either an Incentive Stock Option or a Non-Statutory Stock Option, depending upon the terms of each individual option grant and option agreement. Each option grant and option agreement shall clearly identify any Option as to whether it is an Incentive Stock Option or a Non-Statutory Stock Option, and shall specify the number of Shares covered by the Option. A separate certificate or certificates shall be issued for Shares purchased on exercise of each type of Option. 2.10 Optioned Shares. "Optioned Shares" means Shares covered by an --------------- Option. 2.11 Optionee. "Optionee" means an Employee who receives an Option. -------- 2.12 Parent. "Parent" means a "parent corporation", whether now or ------ hereafter existing, as defined in Section 424(e) of the Code. --- 2.13 Plan. "Plan" means this 1990 Stock Option Plan. ---- 2.14 Share. "Share" means a share of Common Stock of the Company, as ----- adjusted in accordance with Section 11 of the Plan. 2.15 Subsidiary. "Subsidiary" means a "subsidiary corporation" ---------- whether now or hereafter existing, as defined in Section 424(f) of the Code. --- 3. Stock Subject to the Plan. ------------------------- 3.1 Shares Subject to Issuance of Options. Subject to the ------------------------------------- provisions of Section 11.3 of the Plan, the maximum aggregate number of Shares which may be issued under Options under the Plan is 350,000 Shares. Such Shares ------- may be authorized, but unissued, or reacquired Shares. 3.2 Expired and Unexercisable Options. If an Option should expire --------------------------------- or become unexercisable for any reason without having been exercised in full, the Optioned Shares covered by such Option shall become available for issue under other Options under the Plan. 4. Administration of the Plan. -------------------------- 4.1 Administration by the Board. The Plan shall be administered by --------------------------- the Board. 4.2 Committee. The Board may appoint a Committee consisting of one --------- or more members of the Board to exercise all powers of the Board with respect to administration of the Plan, subject to such terms and conditions as the Board may prescribe. The proceedings of the Committee shall be governed by the provisions of the bylaws of the Company pertaining to Committees appointed by the Board. Subject to such bylaws, the Board may increase the size of the Committee and appoint additional members thereof, remove members (with or without cause), and appoint new members in substitution therefor, fill vacancies however caused, or abolish the Committee. Notwithstanding the appointment of a Committee as provided herein, the Board shall have the final power to determine all questions of policy and procedure that may arise in the administration of the Plan. 4.3 Voting. Members of the Board who are either eligible for ------ Options or have been granted Options may vote on any matter affecting the administration of the Plan or the grant of any Options pursuant to the Plan. 4.4 Powers of the Board. Subject to the provisions of the Plan, ------------------- the Board shall have the authority, in its discretion: (1) to grant Incentive Stock Options, in accordance with Section 422 of --- the Code, and Non-Statutory Stock Options, separately or in conjunction, provided that each type of Option shall be set forth in a separate option agreement; (2) to determine, upon review of relevant information and in accordance with Section 8.3 of the Plan, the fair market value of Optioned Shares; (3) to determine the persons to whom, and the time or times at which, Options shall be granted and the number of Optioned Shares under such Options; (4) to determine all terms and provisions of each Option granted (which need not be identical) including, without limitation, the exercise price per Share of each Optioned Share in accordance with Section 8.1 of the Plan, the date or dates that the Option shall become exercisable, restrictions on transferability and/or the right to --------------------------------------------------- retain Optioned Shares received on exercise of the Option, ---------------------------------------------------------- restrictions required by applicable securities laws, and any --------------------------------------------------- performance criteria for exercise with respect to the Company and/or the Optionee; (5) with the consent of the Optionee and within the terms and conditions and limitations of this Plan, to modify, extend, renew, or amend each Option and option agreement, including to accelerate the date the Option may be exercised; (6) upon cancellation of previously granted Options, to regrant Options at a lower price, provided that, unless the Optionee consents, no such ------------- cancellation or regrant shall alter or impair any rights or obligations of any Option previously granted under the Plan; (7) to authorize any person to execute on behalf of the Company any instrument required to effectuate the grant of an Option previously granted by the Board; (8) to prescribe, amend and rescind rules and regulations relating to the Plan; (9) to correct any defect, omission or inconsistency in the Plan or any option agreement in a manner and to the extent the Board shall deem necessary to make the Plan fully effective; (10) to make all other determinations and take all other actions as the Board deems necessary in the best interests of the Company. 4.5 Delegation to the Committee. The Board may delegate the powers --------------------------- enumerated above to the Committee, provided that the Committee shall have no ------------- power to amend, suspend or terminate the Plan or to take any other action described in Section 13 of the Plan. All references to the Board in the Plan shall also mean the Committee, to the extent of the powers delegated to it. 4.6 Vesting of Options. Optioned Shares subject to an Option may, ------------------ but need not, be allotted in periodic installments (which may but need not be equal). From time to time during each of such installment periods, the Option may become exercisable ("vest") with respect to Optioned Shares allotted to that period, provided that the Option must vest at the rate of at least 20 percent --------------------------------------------------------------------- per year over 5 years from the date the Option is granted, (unless the optionee - ---------------------------------------------------------- is an officer, director or consultant). In the event that the Optionee is permitted or otherwise entitled to take a leave of absence which is not a termination of employment, the Board shall have the unilateral right to suspend or otherwise delay the time or times at which the Option would otherwise vest. 4.7 Effect of Board's Decision. All decisions, determinations and -------------------------- interpretations of the Board shall be final and binding on all Optionees and any other holders of any Options granted under the Plan. 4.8 Liability of the Board. No member of the Board shall be liable ---------------------- for any action, failure to act, determination or interpretation made in good faith with respect to the Plan or any transaction thereunder. 4.9 Effect of Registration of Company Equity Securities. --------------------------------------------------- Notwithstanding any provision in this Agreement, as of the date of the first registration of an equity security of the Company under Section 12 of the Securities Exchange Act of 1934, as amended ("Exchange Act"), the Plan shall be administered in such manner as the Board shall determine in order to assure that the Plan complies with Rule 16b-3 of the Securities and Exchange Commission ("Rule 16b-3") if the Board shall deem such compliance necessary or desirable. 5. Eligibility. Incentive Stock Options may be granted only to Employees. ----------- --------------------------------------------------------- Non-Statutory Stock Options may be granted to employees, directors and - ---------------------------------------------------------------------- consultants, (may want to define these terms), as determined by the Board. A - ----------------------------------------------------------------------------- person who has been granted an option may, if he or she is otherwise eligible, - ------------------------------------------------------------------------------ be granted an additional Option or Options. - -------------------------------------------- 6. Term of Plan. The Plan shall become effective upon the earlier to ------------ occur of its adoption by the Board or its approval by the Shareholders as provided in Section 19. The Plan shall continue in effect for a term of ten (10) years unless sooner terminated under Section 13. 7. Term of Option. The term of each Option granted under the Plan shall -------------- be as determined by the Board, provided that such term shall not exceed ten (10) ------------- years from the date of grant thereof, and provided further that, in the case of --------------------- an Incentive Stock Option granted to an Employee who, at the time the Incentive Stock Option is granted, owns stock representing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Incentive Stock Option shall not exceed five (5) years from the date of grant thereof (stock owned by an Employee to include stock owned by relatives and entities in which the Employee has an interest, as described in Section 424(d) of the Code). --- 8. Exercise Price and Consideration. -------------------------------- 8.1 Exercise Price. The per Share exercise price for the Shares to -------------- be issued pursuant to exercise of an Option shall be such price as is determined by the Board, but shall be subject to the following: 8.1.1 Incentive Stock Options. In the case of an Incentive ----------------------- Stock Option granted: (1) to an Employee who, at the time of the grant of such Incentive Stock Option, owns stock representing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be at least one hundred ten percent (110%) of the fair market value per Share at the time of grant (stock owned by an Employee to include stock owned by relatives and entities in which the Employee has an interest, as described in Section 424(d) of the Code); --- (2) to any other Employee, the per Share exercise price shall be no less than one hundred percent (100%) of the fair market value per Share at the time of grant, provided, however, notwithstanding the foregoing, an Option may be granted with an exercise price lower than that set forth in the preceding sentence if such Option is granted pursuant to an assumption or substitution for another option in a manner satisfying the provisions of Section 424(a) of the Code. 8.1.2 Non-Statutory Stock Option. In the case of a Non- -------------------------- -------------------- Statutory Stock Option granted: - ------------------------------- (1) to a person who, at the time of the grant of such Non-Statutory - ------------------------------------------------------------------------------ Stock Option, owns stock representing more than ten percent (10%) ----------------------------------------------------------------- of the total combined voting power of all classes of stock of the ----------------------------------------------------------------- Company or any Parent or Subsidiary, the per Share exercise price ----------------------------------------------------------------- shall be one hundred ten percent (110%) of the fair market value ---------------------------------------------------------------- per Share at the time of grant (stock owned by a person to ---------------------------------------------------------- include stock owned by relatives and entities in which the person ----------------------------------------------------------------- has an interest, as described in Section 424(d) of the Code); ------------------------------------------------------------- (2) to any other person, the per Share exercise price shall be no - ---------------------------------------------------------------------------- less than eighty-five percent (85%) of the fair market value per ---------------------------------------------------------------- Share at the time of grant. --------------------------- 8.1.2. Compliance With California Corporations Code. All -------------------------------------------- options granted under this Plan shall be subject to receipt by the Company on exercise of the option of adequate consideration in accordance with Section 409 of the California Corporations Code. 8.2 Method of Payment. To the extent provided by the terms of the ----------------- ------------------------------------------ option agreement, the method of payment for the Shares to be issued pursuant to - ----------------- the exercise of an Option shall be [determined by the Board at the time the --------------------------------------- Option is granted or exercised, and may consist of]: - --------------------------------------------------- (1) cash, ordinary check, or certified check; --------------- (2) note and security agreement of Optionee payable in U.S. dollars, bearing interest at a rate not less than the rate required to assure that there will be no imputed interest pursuant to the Code, (3) other Shares having a fair market value at the time of payment not less than the aggregate exercise price of the Optioned Shares as to which the Option is exercised, or (4) any combination of such methods of payment, to the extent permitted under Sections 408 and 409 of the California General Corporation Law. 8.3 Fair Market Value. The fair market value of Shares shall be ----------------- determined by the Board in good faith, provided that if a public market exists ------------- for Shares at the time of valuation, the fair market value shall be the average of the closing bid and asked prices of Shares at the close of business on the business day next preceding the date as of which fair market value is to be determined, or if both bid and asked prices are not quoted on such day, the average of such bid and asked prices on such preceding day that both bid and asked prices are quoted, as reported in the Wall Street Journal, or if not reported in the Wall Street Journal, such other reliable source as the Board may in good faith determine. 9. Exercise of Option. ------------------ 9.1 Time for Exercise. Any Option granted hereunder shall be ----------------- exercisable at such times and under such conditions as determined by the Board and as shall be permissible under the terms of the Plan; provided that no Option ------------- shall be exercisable unless and until a written option agreement, as provided in Section 16, has been executed by the Company and by the Optionee. 9.2 Fractional Shares. An Option may not be exercised for a ----------------- fraction of a Share. 9.3 Exercise Procedure. An Option shall be deemed to be exercised ------------------ when written notice of such exercise has been given to the Company in accordance with the terms of the Option by the person entitled to exercise the Option and full payment for the Optioned Shares with respect to which the Option is exercised has been received by the Company. Full payment may, as authorized by the Board, be made in accordance with any method of payment allowable under Section 8.2 of the Plan. Payment made by check shall not be deemed received -------------------------------------------------- until the check is paid by the drawee and the Company has received funds in - --------------------------------------------------------------------------- connection therewith. - -------------------- 9.4 Effect of Exercise. Exercise of an Option in any manner shall ------------------ result in a decrease in the number of Shares which thereafter may be available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. 9.5 Partial Exercise. If exercised in part, the unexercised portion ---------------- of an Option shall continue to be held by the Optionee and may thereafter be exercised as provided in the option agreement and in the Plan. 9.6 Termination of Employment. If an Optionee's employment as an ------------------------- Employee terminates other than by reason of disability as provided in Section 9.7 below, or death as provided in Section 9.8 below, the Option [may, but need ------------- not,] shall provide that the Optionee may exercise the Option at any time within - ---- -------------------------------------------------------------------------- three (3) months (or such lesser period of time, but not less than thirty (30) - ------------------------------------------------------------------------------ days, as is determined by the Board) after the date of termination but only to - ------------------------------------ the extent Optionee was entitled to exercise the Option on the date of termination. In the event that the Optionee is permitted or otherwise entitled to take a leave of absence, the Board shall have the unilateral right to determine whether the leave of absence constitutes termination of employment. 9.7 Disability of Optionee. If an Optionee's employment as an ---------------------- Employee terminates as a result of total and permanent disability (as defined in Section 422(c)(6) of the Code), the Option [may, but need not,] shall provide --- - ------------------ ------------- that Optionee may exercise the Option at any time within twelve (12) months - --------------------------------------------------------------------------- following the date of termination (or such lesser period of time, but not less - ------------------------------------------------------------------------------ than six (6) months as is determined by the Board), but only to the extent - -------------------------------------------------- Optionee was entitled to exercise the Option on the date of termination. 9.8 Death of Optionee. In the event of the death of Optionee: ----------------- (1) while Optionee is an Employee of the Company, the Option [may, but -------- need not,] shall provide that the Option may be exercised at any time --------- ----------------------------------------------------------- within twelve (12) months following the date of death (or such lesser --------------------------------------------------------------------- period of time, but not less than six (6) months as is determined by -------------------------------------------------------------------- the Board) by the Optionee's estate or by a person who acquired the ---------- right to exercise the Option by bequest or inheritance, but only to the extent Optionee was entitled to exercise the Option on the date of death; or (2) within thirty (30) days after the date of termination of Optionee's employment as an Employee, the Option [may, but need not,] shall ------------------ ------ provide that the Option may be exercised at any time within twelve ------------------------------------------------------------------ (12) months following the date of termination (or such lesser period -------------------------------------------------------------------- of time, but not less than six (6) months as is determined by the ------------------------------------------------------------- --- Board) by the Optionee's estate or by a person who acquired the right ----- to exercise the Option by bequest or inheritance, but only to the extent Optionee was entitled to exercise the Option on the date of termination. 9.9 Exercise Prior to Expiration. An Option must in any event be ---------------------------- exercised prior to its expiration. The Option may in no event be exercised after the expiration of the term of the Option. The Option shall terminate to the extent not exercised or entitled to be exercised as provided herein. 9.10 Tax Withholding. To the extent provided by the terms of the --------------- option agreement, the Optionee may satisfy federal, state and local tax withholding obligations relating to the exercise of the Option by any or a combination of the following means: (1) tendering payment in cash or cashier's check (2) authorizing the Company to withhold from the Shares issuable on exercise of the Option a number of Shares having a fair market value equal to the amount of the withholding obligation; (3) delivering to the Company owned and unencumbered Shares having a fair market value equal to the amount of the withholding obligation. 9.11 Market Value Limitation on Exercisability of Incentive Stock ------------------------------------------------------------ Options. The aggregate fair market value of Shares with respect to which - ------- Incentive Stock Options are exercisable for the first time by an Optionee during any calendar year (under all plans of the Company and its Parent and Subsidiary corporations) may not exceed $100,000.00. Fair market value is determined as of the time the Options are granted. To the extent that such aggregate fair market value exceeds $100,000.00, such Options shall be treated as Non-Statutory Stock Options, taking into account Options in the order in which they were granted. 10. Non-transferability of Options. An [Incentive Stock] Option may not ------------------------------ --------------- be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent and distribution and may be exercised, during the lifetime of the Opitonee, only by the Optionee. No transfer of an Option by will, or the laws of descent and distribution, or otherwise, shall be effective unless the Company shall have received written notice thereof, and such other evidence as the Board may deem necessary to establish the validity of the transfer and the acceptance by the transferee or transferees of the terms and conditions of the Option, and to establish compliance with any laws or regulations pertaining thereto. 11. Merger or Sale of Assets, Dissolution, Adjustments. -------------------------------------------------- 11.1 Merger or Consolidation of Company. In the event of the merger ----------------------------------- or consolidation of the Company with another company as a result of which the Shares of the Company are converted into securities of another company or other property, all unexercised Options shall, at the election of the Board: (1) terminate at such time as shall be determined by the Board prior to the effective date of such transaction, if the Company gives Optionees notice of the transaction, informs Optionees that their Options will terminate at that time to the extent not exercised, and permits exercise of the Options as to all or any part of the Optioned Shares prior to that time, including Shares as to which the Options would not otherwise be exercisable; or (Election could result in pooling of interest concerns) (2) pertain to securities of the other company or other property that the Optionees would be entitled to receive if the Optionees had exercised their Options immediately prior to the effective date of such transaction, in which event the Options, to the extent not previously exercised, will apply to such securities or other property on and after such date. 11.2 Dissolution of the Company. In the event of dissolution of the -------------------------- Company, all unexercised Options will terminate at such time prior to the effectiveness of final dissolution as shall be determined by the Board. The Company will give Optionees reasonable notice of ---------- the dissolution, inform Optionees that their Options will terminate at that time to the extent not exercised prior to that time, and permit the exercise of the Options as to all or any part of Optioned Shares prior to that time, including Shares as to which the Options would not otherwise be exercisable. 11.3 Adjustments. The Board, subject to the approval of shareholders ----------- to the extent required by law, may make or provide for such adjustments in the exercise price and/or the number of Shares covered by the Plan or Options granted hereunder as the Board in its sole discretion, exercised in good faith, may determine is legally or equitably required to prevent dilution or ---------- enlargement of the rights of Optionees that would otherwise result from any reclassification of shares, or any stock dividend, stock split, reverse stock - -------------------------- ------------- split, combination of shares, recapitalization, or any other subdivision or - ----- consolidation or other increase or decrease in the number of outstanding Shares effected without the receipt of consideration by the Company, provided that such ------------- an adjustment does not constitute the adoption of a new plan requiring shareholder approval under Section 422 of the Code and any regulation --- promulgated thereunder. The issuance of Shares upon conversion of convertible securities shall be treated as an issuance for which the Company receives consideration for the purpose of this Section. No fractional shares will be issued upon any exercise of an Option following an adjustment made pursuant to this Section, and the aggregate price paid shall be appropriately reduced on account of any fractional share not issued. Adjustments effected pursuant to this Section shall be final, binding and conclusive. 11.4 No restrictions On Powers of the Company. The grant of ---------------------------------------- Options pursuant to this Plan shall not limit in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes in its capital or business structure, to issue shares of its capital stock or other securities, or to merge, consolidate, liquidate, dissolve, or sell or transfer all or any part of its business or assets. 12. Time of Granting Options. The date of grant of an Option shall be: ------------------------ ---------------------------------------- (A) in the case of an Incentive Stock Option, the later of the date on which the - -------------------------------------------------------------------------------- Board makes the determination granting such Option or the date of employment of - ------------------------------------------------------------------------------- the Optionee as an Employee; and (B) in the case of a Non-Statutory Stock - ------------------------------------------------------------------------- Option, the date on which the Board makes the determination granting such - ------------------------------------------------------------------------- Option. - ------- 13. Amendment, Suspension and Termination. ------------------------------------- 13.1 Amendment of the Plan. The Board may amend the Plan from time --------------------- to time in such respects as the Board may deem advisable; provided that the ------------- following revisions or amendments shall require approval of the shareholders as provided in Section 19.3: (1) any increase in the number of Shares subject to the Plan, other than in connection with an adjustment under Section 11.3 of the Plan; (2) any change in the designation of the Employees or class of Employees -------------------------------------------------------------------- eligible to be granted Incentive Stock Options; ------------------------------------------------ (3) if the Company has a class of equity securities registered under Section 12 of the Exchange Act and if the Board shall deem compliance with Rule 16b-3 issued by the Securities and Exchange Commission pursuant to the Exchange Act necessary or desirable, any revisions or amendments that require shareholder approval under Rule 16b-3, all of which shall be in accordance with the provisions of Rule 16b-3; (4) any other amendment or modification as to which, in the opinion of counsel for the Company, shareholder approval is necessary for the Plan to satisfy the requirements of Section 422 of the Code or other --- provisions of law. 13.2 Suspension or Termination of Plan. The Board may suspend or --------------------------------- terminate the Plan at any time. 13.3 Effect of Amendment, Suspension or Termination. Any amendment, ---------------------------------------------- suspension or termination of the Plan shall not affect Options already granted and such Options shall remain in full force and effect as if this Plan had not been amended, suspended or terminated, unless mutually agreed otherwise between the Optionee and the Company, which agreement must be in writing and signed by the Optionee and the Company, or unless the amendment is necessary to enable Incentive Stock Options to qualify as such under the Code. 14. Conditions Upon Issuance of Shares. ---------------------------------- 14.1 Compliance With Securities And Other Regulations. Shares shall ------------------------------------------------ not be issued pursuant to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such Shares pursuant thereto shall comply with all relevant provisions of law, including without limitation, the Securities Act of 1933, as amended, the Exchange Act, any state securities law, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the Shares may then be listed. Inability of the Company to obtain authority from any regulatory body having jurisdiction, or inability to meet the requirements of any exemption from regulatory requirements, which authority or exemption is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell the Shares as to which such authority shall not have been obtained or exemption shall not have been met. Nothing herein shall be construed to require the Company to register or qualify the issuance of Shares under applicable federal or state securities laws. 14.2 Actions of Optionee. The Company may require at the time of ------------------- exercise of an Option, as a condition to the exercise of the Option, that the person exercising such Option make any representation and warranty and take any other action as may be required to assure compliance with any applicable law or regulation. 15. Reservation of Shares. The Company will reserve and keep available --------------------- such number of Shares as shall be sufficient to satisfy the requirements of the Plan. 16. Option Agreement. Each Option shall be evidenced by a written option ---------------- agreement setting forth the terms and provisions of the Option, and such other provisions, including without limitation restrictions on exercise of the Option, restrictions on transferability and/or the right to retain Shares on exercise of the Option, and restrictions required by applicable securities and other laws, as the Board shall deem advisable. An option agreement may incorporate any terms of the Plan by reference. 17. Use of Proceeds. Proceeds from the issuance and sale of Shares --------------- pursuant to the exercise of Options shall be used for general corporate purposes. 18. Rights as a Shareholder. An Optionee or the transferee of an ----------------------- Optionee shall have no rights as a shareholder with respect to any Optioned Shares until the date of exercise of that portion of the Option covering those Optioned Shares. As to such Shares, the Optionee will have no voting rights, rights as to dividends or distributions (whether ordinary or extraordinary, or in cash, securities or other property), or other rights, for which the record date is prior to the date of exercise. 19. Shareholder Approval. -------------------- 19.1 Approval for Continuance of the Plan. Continuance of the ------------------------------------ Plan shall be subject to approval by the shareholders of the Company within twelve months before or after the date the Plan is adopted. 19.2 Certain Amendments to the Plan. Certain amendments to the Plan, ------------------------------ as provided in Section 13.1, shall be subject to approval by the shareholders of the Company. 19.3 Procedures for Shareholder Approval. Shareholder approval may ----------------------------------- be obtained by written consent of all of the shareholders of the Company; or, subject to any provision in the articles or the bylaws of the Company requiring a larger vote, by the affirmative vote of the holders of a majority of each class of voting shares of the Company outstanding entitled to vote thereon present or represented at a meeting duly convened and held. 20. No Right to Continued Employment. The Plan shall not confer upon any -------------------------------- Optionee any right with respect to continuation of employment by the Company or any Parent or Subsidiary, nor shall it interfere in any way with Optionee's right or the Company's right to terminate Optionee's employment at any time for any or no reason, subject to such other written agreement that Optionee and the Company may enter. 21. Financial Information. Throughout the term of any Stock Award, the --------------------- Company shall deliver to the holder of such Stock Award, not later than one hundred twenty (120) days after the close of each of the Company's fiscal years during the term of such Stock Award, a balance sheet and an income statement. This subsection shall not apply (i) after the Listing Date, or (ii) when issuance is limited to key employees whose duties in connection with the Company assure them access to equivalent information. Additions underlined - --------------------- [Deletions underlined and in brackets] - -------------------------------------- EX-10.04 5 LEASE AGREEMENT 7/22/99 (KBK PROPERTIES) EXHIBIT 10.4 OFFICE BUILDING LEASE THIS LEASE is made and entered into this ____________day of July 1999 by and between KBK Properties, Inc., A California Corporation (hereinafter referred to as "Landlord") and TriNet Employer Group, Inc., a California Corporation (hereinafter referred to as "Tenant"). For and in consideration of the rental and of the covenants and agreements hereinafter set forth to be kept and performed by the Tenant, Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the Premises herein described for the term, at the rental and subject to and upon all of the terms, covenants and agreement hereafter set forth. 1. PREMISES 1.1 DESCRIPTION. Landlord hereby leases to Tenant and Tenant hereby rents from Landlord those certain Premises (hereinafter referred to as "Premises") crosshatched on Exhibit "A" containing approximately 2632 square feet on the 4th floor of that certain office building (hereinafter referred to as "Building") located in the City of San Leandro, County of Alameda, State of California, commonly known as TriNet Office Building and more particularly described as 101 Callan Ave., Suite 400. 1.2 WORK OF IMPROVEMENT. The obligations of Landlord and Tenant to perform the work and supply the necessary materials and labor to prepare the Premises for occupancy are set forth in detail in Exhibit "B". Tenant shall expend all funds and do all acts required of them in Exhibit "B" and shall have the work performed promptly and diligently in a first class workmanlike manner. Tenant shall make all improvements to the premises at it's sole cost and expense. 2. TERM 2.1 TERM. The term of this Lease shall be for three (3) years and one (1) month commencing September 1, 1999 and ending September 30, 2002 unless sooner terminated Pursuant to this Lease or delayed as described in Section 21 of this Lease. 2.2 DELAY IN COMMENCEMENT. Tenant agrees that in the event of the inability of Landlord for any reason to deliver possession of the Premises to Tenant on the commencement date set forth in Section 2.1, Landlord shall not be liable for any damage thereby nor shall such inability affect the validity of this Lease or the obligations of Tenant hereunder, but in such case Tenant shall not be obligated to pay rent or other monetary sums until possession of the Premises is tendered to Tenant; provided that if the delay in delivery of possession exceeds sixty (60) days, then the expiration date of the term of the Lease shall be extended by the period of time computed from the scheduled commencement date to the date possession is tendered. In the event Landlord shall not have delivered possession of the Premises within six (6) months from the scheduled commencement date, then Tenant at its option, to be exercised within thirty (30) days after the end of said six (6) month period, may terminate this Lease and upon Landlord's return of any monies previously deposited by Tenant, the parties shall have no further rights or liabilities toward each other. Office Lease Page 1 of 20 2.3 ACKNOWLEDGEMENT OF COMMENCEMENT DATE. In the event the commencement date of the term of the Lease is other than as provided in Section 2.1, then Landlord and Tenant shall execute a written acknowledgement of the date of commencement and shall attach it to the Lease as Exhibit "D". 3. RENT. Tenant shall pay to Landlord as rent for the Premises in advance on the first day of each calendar month of the term of this Lease without deduction, offset, prior notice of demand, in lawful money of the United States, the sum of Two thousand eight hundred and forty-two and 56/100 dollars. ($2842.56). If the commencement date is not the first day of a month, or if the Lease termination date is not the last day of a month, a prorated monthly installment shall be paid at the then current rate for the fractional month during which the Lease commences and/or terminates. 5. TAX AND BUILDING OPERATING COST INCREASES. 5.1 DEFINITIONS. For purposes of this Section, the following terms are herein defined: (a) Base Year: the later occurring of (1) the first calendar year in which the Building is assessed as a completed building for tax purposes; or (2) the calendar year in which this Lease commences. Office Lease Page 2 of 20 (b) Building Operating Costs: All costs and expenses of ownership, operation and maintenance of the Building (excluding depreciation on the Building, all amounts paid on loans of Landlord and expenses capitalized for federal income tax purposes) including by way of illustration but not limited to: real and personal property taxes and assessments and any tax in addition to or in lieu thereof, other than taxes covered by Section 5.4, whether assessed against Landlord or Tenant or collected by Landlord or both; utilities, supplies, insurance, license, permit and inspection fees, cost of services of independent contractors (including property management fees), cost of compensation (including employment taxes and fringe benefits) of all persons who perform regular and recurring duties connected with day to day operation, maintenance and repair of the Building, its equipment and the adjacent walks, malls and landscaped areas, including janitorial, scavenger, gardening, security, parking, operating engineer, elevator, painting, plumbing, electrical, carpentry, heating, ventilation, air conditioning, window washing, signing and advertising (but excluding persons performing services not uniformly available to or performed for substantially all Building tenants), and rental expense or a reasonable allowance for depreciation of personal property used in the maintenance, operation and repair of the Building. (c) Net Rentable Area: The rentable area computed by measuring to the inside finish of permanent outer building walls, to the Premises side of public corridors and/or other permanent partitions and to the center of partitions which separate the adjoining rentable areas with no deductions for column and projections necessary to the Building structure. On multi-tenant floors, common corridors and toilets, air conditioning rooms, fan rooms, janitorial closets, electrical and telephone closets and any other areas within and exclusively serving that floor are considered common area and for purposes of this Section shall be allocated prorata to the tenants on the floor. 5.2 TENANT'S SHARE. In the event the Building Operating Costs incurred by Landlord during any calendar year following the Base Year shall exceed Building Operating Costs incurred by Landlord during the Base Year, Tenant shall pay to Landlord an amount equal to six percent (6%) of such increases which share is computed on the basis of the ratio between Net Rentable Area in the Premises and Net Rentable Area in the Building. 5.3 PAYMENT. Within ninety (90) days after the end of each calendar year following the Base Year, Landlord shall furnish Tenant a written statement showing in reasonable detail Landlord's Building Operating Costs for the preceding calendar year and the Base Year, and showing the amount, if any, of any increase or decrease in the sums due from Tenant taking into account prior increase paid by Tenant (if any). Coincidentally with the monthly rent payment next due following Tenant's receipt of such statement, Tenant shall pay to Landlord (in the case of an increase), or Landlord shall credit against the next rent due from Tenant (in the case of a decrease), an amount equal to the sum of (1) the difference between Building Operating Costs for the preceding calendar year and the Base Year less increases paid by Tenant (if any) and (2) one-twelfth (1/12th) said increases for the current calendar year multiplied by the number of rent payments (including the current one) then elapsed in such calendar year. Thereafter the Office Lease Page 3 of 20 one twelfth (1/12th) shall be paid monthly with the rent until the adjustment the following year pursuant hereto. In no event shall the adjustment entitle Tenant to receive the benefit of a reduction in Building Operating Costs below the level of the initial Base Year during the term hereof. 5.4 NEW TAXES. In addition to rent and other charges to be paid by Tenant hereunder, Tenant shall reimburse to Landlord, within thirty (30) days of receipt of a demand therefore, any and all taxes payable by Landlord (other than net income taxes) whether or not now customary or within the contemplation of the parties hereto; (a) upon allocable to or measured by this area of the Premises or on the rent payable hereunder including without limitation any gross income tax or excise tax levied by this State, any political subdivision thereof, City or Federal Government with respect to the receipt of such rent; or (b) upon or with respect to the possession, leasing, operation, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises or any portion thereof, or (c) upon or measured by the value of Tenant's personal property, equipment or fixtures located in the Premises; or (d) upon this transaction or any document to which Tenant is a party creating or transferring an interest or an estate in the Premises, Tenant agrees to pay before delinquency, any and all taxes levied or assessed and which become payable during the term hereof upon Tenant's equipment, furniture, fixtures and other personal property located in the Premises. For the purpose of determining said amount, figures supplied by the County Assessor as to the amount as assessed shall be conclusive. Tenant shall comply with the provisions of any law, ordinance or rule of the taxing authorities which require Tenant to file a report of Tenant's property located in the Premises. 6. USE 6.1 USE. The Premises shall be used and occupied by Tenant for general office purposes and for no other purpose without the prior written consent of Landlord. 6.2 SUITABILITY. Tenant acknowledges that neither Landlord nor any agent of Landlord has made any representation or warranty with respect to the Premises or the Building or with respect to the suitability of either for the conduct of Tenant's business, nor has Landlord agreed to undertake any modification, alteration or improvement to the Premises except as provided in this Lease. The taking of possession of the Premises by Tenant shall conclusively establish that the Premises and the Building were at such time in satisfactory condition unless within fifteen (15) days after such date Tenant shall give Landlord written notice specifying in reasonable detail the respects in which the Premises or the Building were not in satisfactory condition. 6.3 USES PROHIBITED. (a) Tenant shall not do or permit anything to be done in or about the Premises nor bring or keep anything therein which will in any way increase the existing rate or affect any fire or other insurance upon the Building or any of its contents (unless Tenant shall pay any increased premium as a result of such use or acts), or cause a cancellation of any insurance policy covering said Building or any part thereof or any of its contents, nor shall Tenant sell or permit to be kept, used or sold in or about said Premises any articles which may be prohibited by a standard form policy of fire insurance. Office Lease Page 4 of 20 (b) 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 or use or allow the Premises to be used for any unlawful or objectionable purpose, nor shall Tenant cause, maintain or permit any nuisance in or about the Premises. Tenant shall not commit or suffer to be committed any waste in or upon the Premises. (c) 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, stature, ordinance or governmental rule or regulation or requirement of duly constituted public authorities now in force or which may hereafter be enacted or promulgated. 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 relating to or affecting the condition, use or occupancy of the Premises, or not related or afforded by Tenant's improvements or acts. The judgement of any court or competent jurisdiction or the admission of Tenant in any action against Tenant, whether Landlord be a party thereto or not, that Tenant has violated any law, statute, ordinance or governmental rule, regulation or requirement, shall be conclusive of the fact as between Landlord and Tenant. 7. SERVICE AND UTILITIES 7.1 LANDLORD'S OBLIGATIONS. Landlord agrees to furnish to the Premise during reasonable hours of generally recognized business days to be determined by Landlord, and subject to the Rules and Regulations of the Building, water, gas and electricity suitable for the intended use of the Premises, heat and air conditioning required in Landlord's judgement for the comfortable use and occupancy of the premises, scavenger, janitorial and window washing service and elevator service, customary in similar buildings in the competing geographical areas. Landlord shall also maintain and keep lighted the common stairs, entries and toilet rooms in the Building. 7.2 TENANT'S OBLIGATION. Tenant shall pay for, prior to delinquency, all telephone and all other materials and services, not expressly required to be paid by Landlord, which may be furnished to or used in, on or about the Premises during the term of this Lease. 7.3 TENANT'S ADDITIONAL REQUIREMENTS. (a) Tenant will not, without the written consent of Landlord, use any apparatus or device in the Premises, including but without limitation thereto, electronic data processing machines, punch card machines and machines using current in excess of 110 volts, which will in any way increase the amount of electricity or water usually furnished or supplied for use of the Premises as general office space; 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 electric current of water. Office Lease Page 5 of 20 (b) If Tenant shall require water or electric current in excess of that usually furnished or supplied for use of the Premises as general office space, Tenant shall first procure the consent of Landlord for the use thereof, which consent Landlord may refuse and Landlord may cause a water meter or electric current meter to be installed in the Premises, so as to measure the amount of water and electric current consumed for any such other use. The cost of such meters and of installation, maintenance and repair thereof shall be paid for by Tenant and Tenant agrees to pay Landlord promptly upon demand by Landlord for all such water and electric current consumed as shown by said meters, at the rates charged for such services by the City in which the Building is located or the local public utility, as the case may be, furnishing the same, plus any additional expenses incurred in keeping account of the water and electric current so consumed. (c) Wherever heat generating machines 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, operation and maintenance thereof, shall be paid by Tenant to Landlord upon demand by Landlord. 7.4 NON-LIABILITY. Landlord shall not be liable for, and Tenant shall not be entitled to, any abatement or reduction of rent by reason of Landlord's failure to furnish any of the foregoing when such failure is caused by accidents, breakage, repairs, strikes, lockouts or other labor disturbances or labor disputes of any character, or by any other cause similar or dissimilar, beyond the reasonable control of Landlord. Landlord shall not be liable under any circumstances for loss of or injury to property, however occurring, through or in connection with or incidental to failure to furnish any of the foregoing, except when caused by the Landlord's negligence or breach of this Lease Agreement. 8. MAINTENANCE AND REPAIRS; ALTERATIONS AND ADDITIONS 8.1 MAINTENANCE AND REPAIRS. (a) Landlord's Obligations. Landlord shall maintain in good order, condition and repair the Building and all other portions of the Premises not the obligation of Tenant or any other tenant in the Building. (b) Tenant's Obligations. (i) Tenant at Tenant's sole cost and expense, except for services furnished by Landlord pursuant to Section 7 hereof, shall maintain the Premises in good order, condition and repair including the interior surfaces of the ceilings, walls and floors, all doors, interior windows, exterior windows at or below street level, all plumbing pipes, electrical wiring, switches, fixtures and special items in excess of building standard furnishings, and equipment installed by or at the expense of Tenant. Tenant expressly waives the benefits of any statute now or hereafter in effect which would otherwise afford Tenant the right to make repairs at Landlord's expense or to terminate the Lease because of Landlord's failure to keep the Premises in good order, condition and repair. Office Lease Page 6 of 20 (ii) Upon the expiration or earlier termination of this Lease, Tenant shall surrender the Premises in the same condition as received, ordinary wear and tear and damage by fire, earthquake, act of God or the elements alone excepted, and shall promptly remove or cause to be removed at Tenant's expense from the Premises and the Building any signs, notices and displays placed by Tenant. (iii) Tenant agrees to repair any damage to the Premises or the Building caused by or in connection with the removal of any articles of personal property, business or trade fixtures, machinery, equipment, cabinetwork, furniture, movable partition or permanent improvements of additions, including without limitation thereto, repairing the floor and patching and painting the walls where required by Landlord to Landlord's reasonable satisfaction, all at Tenant's sole cost and expense. Tenant shall indemnify the Landlord against any loss or liability resulting from delay by Tenant in so surrendering the Premises, including without limitation any claims made by any succeeding tenant on such delay. (iv) In the event Tenant fails to maintain the Premises in good order, condition and repair, Landlord shall give Tenant notice to do such acts as are reasonably required to so maintain the Premises. In the event Tenant fails to promptly commence such work and diligently prosecute it to completion, then Landlord shall have the right to do such acts and expend such funds at the expense of Tenant as are reasonably required to perform such work. Any amount so expended by Landlord shall be paid by Tenant promptly after demand with interest at ten percent (10%) per annum from the date of such work. Landlord shall have no liability to Tenant for any damage, inconvenience or interference with the use of the Premises by Tenant as a result of performing any such work. (c) Compliance with Law. Landlord and Tenant shall each do all acts required to comply with all applicable laws, ordinances, regulations and rules of any public authority relating to their respective maintenance obligations as set forth herein. 8.2 ALTERATIONS AND ADDITIONS. (a) Tenant shall make no alterations, additions or improvements to the Premises or any part thereof without obtaining the prior written consent of Landlord. (b) Landlord may impose as a condition to the aforesaid consent such requirements as Landlord may deem necessary in its sole discretion, including without limitation thereto, the manner in which the work is done, a right of approval of the contractor by whom the work is to be performed, the times during which it is to be accomplished, and the requirement that upon written request of Landlord prior to the expiration or earlier termination of the Lease, Tenant will remove any and all permanent improvements or additions to the Premises installed at Tenant's expense and all movable partitions, counters, personal property, equipment, fixtures and furniture. Office Lease Page 7 of 20 (c) All such alterations, additions or improvements shall at the expiration or earlier termination of the Lease become the property of Landlord and remain upon and surrendered with the Premises, unless specified pursuant to Section 8.2(b) above. (d) All articles of personal property and all business and trade fixtures, machinery and equipment, cabinetwork, furniture and moveable partitions owned by Tenant or installed by Tenant at its expense in the Premises shall be and remain the property of Tenant and may be removed by Tenant at any time during the Lease term when Tenant is not in default hereunder. 9. ENTRY BY LANDLORD. Landlord reserves and shall at any and all times have the right to enter the Premises to inspect the same, to supply janitor service and any other service to be provided by Landlord to Tenant hereunder, to submit said Premises to prospective purchasers or tenants, to post notices of non- responsibility and "for lease" signs, and to alter, improve or repair the Premises and any portion of the Building without abatement of rent, and may for that purpose erect scaffolding and other necessary structures where reasonably required by the character of the work to be performed, always providing the entrance to the Premises shall not be blocked thereby, and further providing that the business of Tenant shall not be interfered with unreasonably. Tenant hereby waives any claim for damages for any injury or inconvenience to or interference with Tenant's business, any loss of occupancy or quiet enjoyment of the Premises, and any other loss occasioned thereby. For each of the aforesaid purposes, 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, and Landlord shall have the right to use any and all means which Landlord may deem proper to open said doors in an emergency, in order to obtain entry to the Premises, and any entry to the Premises obtained by Landlord by any of said means, or otherwise, shall not under any circumstances be construed or deemed to be a forcible or unlawful entry into, or a detainer of, the Premises, or an eviction of Tenant from the Premises or any portion thereof. 10. LIENS. Tenant shall keep the Premises and any Building of which the Premises are a part free from any liens arising out of work performed, material furnished, or obligations incurred by Tenant and shall indemnify, hold harmless and defend Landlord from any liens and encumbrances arising out of any work performed or materials furnished by or at the direction of Tenant. In the event that Tenant shall not, within twenty (20) days following the imposition of any such lien, cause such lien 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. All such sums paid by Landlord and all expenses incurred by it in connection therewith including attorney's fees and costs shall be payable to Landlord by Tenant on demand with interest at the rate of ten percent (10%) per annum. 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 and the Premises, and any other party having an interest therein, from mechanics' and materialmen's liens, Office Lease Page 8 of 20 and Tenant shall give to Landlord at least ten (10) days prior written notice of the expected date of commencement of any work relating to alterations or additions to the Premises. 11. INDEMNITY. 11.1 Tenant shall indemnify and hold Landlord harmless from and defend Landlord against any and all claims of liability for any injury or damage to any person or property whatsoever; (1) occurring in, on or about the Premises or any part thereof, and (2) occurring in, on or about any facilities (including, without prejudice to the generality of the term "facilities", elevators, stairways, passageways, hallways, and parking areas), the use of which Tenant may have in conjunction with other tenants of the Building, when such injury or damage is caused in part or in whole by the act, neglect, fault or omission of any duty with respect to the same by Tenant, its agents, contractors, employees or invitees. Tenant shall further indemnify and hold Landlord harmless from and against any and all claims arising from any breach or default in the performance of any obligation on Tenant's part to be performed under the terms of this Lease, or arising from any act or negligence of Tenant, or any of its agents, contractors, employees and from and against all costs, attorney's fees, expenses and liabilities incurred in the defense of any such claim or any action or proceeding brought thereon. In case any action or proceeding be brought against Landlord by reason of any such claim, Tenant upon notice from Landlord, shall defend the same at Tenant's expense by counsel reasonably satisfactory to Landlord, provided, however, that Tenant shall not be liable for damage or injury occasioned by the negligence or intentional acts of Landlord and its designated agents or employees unless covered by insurance Tenant is required to provide. Tenant, as a material part of the consideration to Landlord, hereby assumes all risk of damage to property or injury to persons in, upon or about the Premises from any cause and Tenant hereby waives all claims in respect thereof against Landlord. 11.2 EXEMPTION OF LANDLORD FROM LIABILITY. Landlord shall not be liable for injury or damage which may be sustained by the person, goods, wares, merchandise or property of Tenant, its employees, invitees or customers, or any other person in or about the Premises caused by or resulting from fire, steam, electricity, gas, water or rain, which may leak or flow from or into any part of the Premises, or from the breakage, leakage, obstruction or other defects of the pipes, sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures or the same, whether the damage or injury results from conditions arising upon the Premises or upon other portions of the Building of which the Premises are a part, or from other sources, unless caused by the Landlord's negligence or breach of this Agreement. Landlord shall not be liable for any damages arising from any act or neglect of any other tenant of the Building. 12. INSURANCE. 12.1 COVERAGE. Tenant shall, at all times during the term of this Lease, and at its own cost and expense procure and continue in force the following insurance coverage: (a)Bodily Injury and Property Damage Liability Insurance with a combined single limit for bodily injury and property damage of not less than $500,000.00 Office Lease Page 9 of 20 (b) Fire and Extended Coverage Insurance, including vandalism and malicious mischief coverage, in an amount equal to the full replacement value of all fixtures, furniture and improvements installed by or at the expense of Tenant. 12.2 INSURANCE POLICIES. The aforementioned minimum limits of policies shall in no event limit the liability of Tenant hereunder. The aforesaid insurance shall name Landlord as an additional insured. Said insurance shall be with companies having a rating of not less than AAA, in "Best's Insurance Guide". Tenant shall furnish from the insurance companies or cause the insurance companies to furnish certificates of coverage. No such policy shall be cancelable or subject to reduction of coverage or other modification or cancellation except after thirty (30) days prior written notice to Landlord by the insurer. All such policies shall be written as primary policies, not contributing with and not in excess of the coverage which Landlord may carry. Tenant shall, at least twenty (20) days prior to the expiration of such policies, furnish Landlord with renewals or binders. Tenant agrees that if Tenant does not take out and maintain such insurance, Landlord may (but shall not be required to) procure said insurance on Tenant's behalf and charge Tenant the premiums together with a twenty-five percent (25%) handling charge, payable upon demand. Tenant shall have the right to provide such insurance coverage pursuant to blanket policies obtained by Tenant provided such blanket policies expressly afford coverage to the Premises and to Tenant as required by the Lease. 12.3 WAIVER OF SUBROGATION. Landlord and Tenant each hereby waive any and all rights of recovery against the other or against the officers, employees, agents and representatives of the other, on account of loss or damage occasioned to such waiving party or its property or the property of others under its control to the extent that such loss or damage is insured against under any fire and extended coverage insurance policy which either may have in force at the time of such loss or damage. Tenant shall, upon obtaining the policies of insurance required under this Lease, give notice to the insurance carrier or carriers that the foregoing mutual waiver of subrogation is contained in this Lease. 13. DAMAGE OR DESTRUCTION 13.1 PARTIAL DAMAGE - INSURED. In the event the Premises or the Building are damaged by any casualty which is covered under fire and extended coverage insurance carried by Landlord, then Landlord shall restore such damage provided insurance proceeds are available to pay eighty percent (80%) or more of the cost of restoration and provided such restoration can be completed within ninety (90) days after the commencement of the work in the onion of a registered architect or engineer appointed by Landlord. In such event this Lease shall continue in full force and effect, except that Tenant shall be entitled to proportionate reduction of rent while such restoration takes place, such proportionate reduction to be based upon the extent to which the restoration efforts interfere and damage interfered with Tenant's business in the Premises. 13.2 PARTIAL DAMAGE - UNINSURED. In the event the Premises or the Building are damaged by a risk not covered by Landlord's insurance or the proceeds of available insurance are less than eighty percent (80%) of the cost of restoration, or if the restoration cannot be completed within ninety (90) days after the commencement of work in the opinion of the registered architect or engineer appointed by Landlord, then Landlord shall have the option either to (1) repair or restore such damage, this Lease continuing in Office Lease Page 10 of 20 full force and effect, but the rent to be proportionately abated as hereinabove provided, or (2) give notice to Tenant at any time within sixty (60) days after such damage terminating this Lease as of a date to be specified in such notice, which date shall be not less than thirty (30) nor more than sixty (60) days after giving such notice. In the event of the giving of such notice, this lease shall expire and all interest of Tenant in the Premises shall terminate on such date so specified in such notice and the rent, reduced by any proportionate reduction based upon the extent, if any, to which said damage interfered with the use and occupancy of Tenant, shall be paid to the date of such termination; Landlord agrees to refund to the Tenant any rent theretofore paid in advance for any period of time subsequent to such date. 13.3 TOTAL DESTRUCTION. In the event the Premises are totally destroyed or the Premises cannot be restored as required herein under applicable laws and regulations, notwithstanding the availability of insurance proceeds, this Lease shall be terminated effective the date of the damage. 13.4 DAMAGE NEAR END OF THE TERM. Notwithstanding anything to the contrary contained in this Section 13, Landlord shall not have any obligation whatsoever to repair, reconstruct or restore the Premises when the damage resulting from any casualty covered under this Section 13 occurs during the last twelve (12) months of the term of this Lease or any extension thereof. 13.5 LANDLORD'S OBLIGATIONS. The Landlord shall not be required to repair any injury or damage by fire or other causes, or to make any restoration or replacement of any paneling, decorations, partitions, railings, floor covering, office fixtures or any other improvements or property installed in the Premises by Tenant or at the direct or indirect expense of Tenant. Tenant shall be required to restore or replace same in the event of damage. Except for abatement of rent, if any, Tenant shall have no claim against Landlord for any damage suffered by reason of any such damage, destruction, repair or restoration; nor shall Tenant have the right to terminate this Lease as the result of any statutory provision now or hereafter in effect pertaining to the damage and destruction of the Premises or the Building, except as expressly provided herein. 14. CONDEMNATION. If all or any part of the Premises shall be taken or appropriated for public or quasi-public use by right of eminent domain with or without litigation or transferred by agreement in connection with such public or quasi-public use, either party hereto shall have the right at its option exercisable within thirty (30) days of receipt of notice of such taking to terminate this Lease as of the date possession is taken by the condemning authority, provided, however, that before Tenant may terminate this Lease by reason of taking or appropriation as provided hereinabove, such taking or appropriation shall be of such an extent and nature as to substantially handicap, impede or impair Tenant's use of the Premises. If any part of the Building other than the Premises shall be so taken or appropriated, Landlord shall have the right at its option to terminate this Lease. No award for any partial or entire taking shall be apportioned, and Tenant hereby assigns to Landlord any award which may be made in such taking or condemnation, together with any and all rights of Tenant now or hereafter arising in or to the same or any part thereof, provided, however, that nothing contained herein shall be deemed to give Landlord any interest in or to require Tenant to assign to Landlord any award made to Office Lease Page 11 of 20 Tenant for the taking of personal property and fixtures belonging to Tenant and/or for the interruption of or damage to Tenant's business and/or for Tenant's unamortized cost of leasehold improvements. In the event of a partial taking which does not result in a termination of this Lease, rent shall be abated in the proportion which the part of the Premises so made unusable bears to the rented area of the Premises immediately prior to the taking. No temporary taking of the Premises and/or of Tenant's rights therein or under this Lease shall terminate this Lease or give Tenant any right to any abatement of rent thereunder; any award made to Tenant by reason of any such temporary taking shall belong entirely to Tenant and Landlord shall not be entitled to share therein. 15. ASSIGNMENT AND SUBLETTING. 15.1 LANDLORD'S CONSENT REQUIRED. Tenant shall not assign, transfer, mortgage, pledge, hypothecate or encumber this Lease or any interest therein, and shall not sublet the Premises or any part thereof, without the prior written consent of Landlord and any attempt to do so without such consent being first had and obtained shall be wholly void and shall constitute a breach of this Lease. 15.2 REASONABLE CONSENT. If Tenant complies with the following conditions, Landlord shall not unreasonably withhold its consent to the subletting of the Premises or any portion thereof or the assignment of this Lease. Tenant shall submit in writing to Landlord (a) the name and legal composition of the proposed subtenant or assignee; (b) the nature of the business proposed to be carried on in the Premises; (c) the terms and provisions of the proposed sublease; (d) such reasonable financial information as Landlord may request concerning the proposed subtenant or assignee. 15.3 NO RELEASE OF TENANT. No consent by Landlord to any assignment or subletting by Tenant shall relieve Tenant of any obligation to be performed by Tenant under this Lease, whether occurring before or after such consent, assignment or subletting. The consent by Landlord to any assignment or subletting shall not relieve Tenant from the obligation to obtain Landlord's express written consent to any other assignment or subletting. The acceptance of rent by Landlord from any other person shall not be deemed to be a waiver by Landlord of any provision of this Lease or to be a consent to any assignment, subletting or other transfer. Consent to one assignment, subletting or other transfer shall not be deemed to constitute consent to any subsequent assignment, subletting or other transfer. 15.4 ATTORNEY'S FEES. In the event Landlord shall consent to a sublease or assignment under this Section 15, Tenant shall pay Landlord's reasonable attorney's fees not to exceed $1,000.00 incurred in connection with giving such consent. 16. SUBORDINATION. 16.1 SUBORDINATION. This Lease at Landlord's option shall be subject and subordinate to all ground or underlying leases which now exist or may hereafter be executed affecting the Premises or the land upon which the Premises are situated or both, and to the lien of any mortgages or deeds of trust in any amount of amounts whatsoever now or hereafter placed on or against the land or improvements or either thereof, of which the Premises are a part, or on or against Landlord's interest or estate therein, or on or against any ground or underlying lease without the necessity of the execution and delivery Office Lease Page 12 of 20 of any further instruments on the part of Tenant to effectuate such subordination. If any mortgagee, trustee or ground lessor shall elect to have this Lease prior to the lien on its mortgage, deed of trust or ground lease, and shall give written notice thereof to Tenant, this Lease shall be deemed prior to such mortgage, deed of trust or ground lease, whether this Lease is dated prior or subsequent to the date of said mortgage, deed of trust or ground lease or the date of the recording thereof. 16.2 SUBORDINATION AGREEMENTS. Tenant covenants and agrees to execute and deliver upon demand without charge therefore, such further instruments evidencing such subordination of this Lease to such ground or underlying leases and to the lien of any such mortgages or deeds of trust as any be required by Landlord. Tenant hereby appoints Landlord as Tenant's attorney-in-fact, irrevocably, to execute and deliver any such agreements, instruments, releases or other documents. 16.3 QUIET ENJOYMENT. Landlord covenants and agrees with Tenant that upon Tenant paying rent and other monetary sums due under the Lease, performing its covenants and conditions under the Lease and upon recognizing purchaser as Landlord pursuant hereto, Tenant shall and may peaceably and quietly have, hold and enjoy the Premises for the term, subject, however, to the terms of the Lease and of any of the aforesaid ground leases, mortgages or deed of trust described above. 16.4 ATTORNMENT. In the event any proceedings are brought for default under ground or any underlying lease or in the event of foreclosure or the exercise of the power of sale under any mortgage or deed of trust made by the Landlord covering the Premises, the Tenant shall attorn to the purchaser upon any such foreclosure or sale and recognize such purchaser as the Landlord under this Lease, provided said purchaser expressly agrees in writing to be bound by the terms of the Lease. 17. DEFAULT; REMEDIES 17.1 DEFAULT. The occurrence of any of the following shall constitute a material default and breach of this Lease by Tenant: (a) Any failure by Tenant to pay the rent or any other monetary sums required to be paid hereunder (where such failure continues for five (5) days after written notice by Landlord to Tenant); (b) The abandonment or vacating of the Premises by Tenant; (c) A failure by Tenant to observe and perform any other provision of this Lease to be observed or performed by Tenant, where such failure continues for twenty (20) days after written notice thereof by Landlord to Tenant; provided, however, that if the nature of the default is such that the same cannot reasonably be cured within said twenty (20) day period, Tenant shall not be deemed to be in default if Tenant shall within such period commence such cure and thereafter diligently prosecute the same to completion; (d) The making by Tenant of any general assignment or general arrangement for the benefit of creditors; the filing by or against Tenant of a petition to have Tenant adjudged a bankrupt or of a petition for reorganization or arrangement under any law relating to bankruptcy (unless, in the case of a petition filed against Tenant, the same is dismissed within sixty (60) days); the appointment of a trustee or receiver to take possession of substantially all of Tenant's assets Office Lease Page 13 of 20 located at the Premises or of Tenant's interest in this Lease, where possession is not restored to Tenant within thirty (30) days; or the attachment, execution or other judicial seizure of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease, where seizure is not discharged within thirty (30) days. 17.2 REMEDIES. In the event of any such material default or breach by Tenant, Landlord may, at any time thereafter without limiting Landlord in the exercise of any right or remedy at law or in equity which Landlord may have by reason of such default or breach: (a) Maintain this Lease in full force and effect and recover the rent and other monetary charges as they become due, without terminating Tenant's right to possession irrespective of whether Tenant shall have abandoned the Premises. In the event Landlord elects not to terminate the Lease, Landlord shall have the right to attempt to re-let the Premises at such rent and upon such conditions and for such a term, and to do all acts necessary to maintain or preserve the Premises as Landlord deems reasonable and necessary without being deemed to have elected to terminate the Lease, including removal of all persons and property from the Premises; such property may be removed and stored in a public warehouse or elsewhere at the cost of and for the account of Tenant. In the event any such re- letting occurs, this Lease shall terminate automatically upon the new Tenant taking possession of the Premises. Notwithstanding that Landlord fails to elect to terminate the Lease initially, Landlord at any time during the term of this Lease may elect to terminate this Lease by virtue of such previous default of Tenant. (b) Terminate Tenant's right to possession by any lawful means, in which case this Lease shall terminate and Tenant shall immediately surrender possession of the Premises to Landlord. In such event Landlord shall be entitled to recover from Tenant all damages incurred by Landlord by reason of Tenant's default, including without limitation thereto, the following: (i) the worth at the time of award of any unpaid rent which had been earned at the time of such termination; plus (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 rental loss that is proved could have been reasonably avoided; plus (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 rental loss that is proved could be reasonably avoided; plus (iv) any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant's failure to perform his obligations under this Lease or which in the ordinary course of events would be likely to result therefrom; plus (v) at Landlord's election, such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by applicable State law. Upon any such re-entry Landlord shall have the right to make any reasonable repairs, alterations or modifications to the Premises, which Office Lease Page 14 of 20 Landlord in its sole discretion deems reasonable and necessary. As used in (i) above the "worth at the time of award" is computed by allowing interest at the rate of ten percent (10%) per annum from the date of default. As used in (ii) and (iii) the "worth at the time of award" is computed by discounting such amount by Ten Percent (10%). The term "rent", as used in this Section 17, shall be deemed to be and to mean the rent to be paid pursuant to Section 3 and all other monetary sums required to be paid by Tenant pursuant to the terms of this Lease. 17.3 LATE CHARGES. Tenant hereby acknowledges that late payment by Tenant to Landlord of rent and other sums due hereunder will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed on Landlord by the terms of any mortgage or trust deed covering the Premises. Accordingly, if any installment of rent or any other sum due from Tenant shall not be received by Landlord or Landlord's designee within ten (10) days after such amount shall be due, Tenant shall pay to Landlord a late charge equal to ten percent (10%) of such overdue amount. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Landlord will incur by reason of late payment by Tenant. Acceptance of such late charge by Landlord shall in no event constitute a waiver of Tenant's default with respect to such overdue amount nor prevent Landlord from exercising any of the other rights and remedies granted hereunder. 17.4 DEFAULT BY LANDLORD. Landlord shall not be in default unless Landlord fails to perform obligations required to Landlord within a reasonable time, but in no event later than thirty (30) days after written notice by Tenant to Landlord and to the holder of any first mortgage or deed of trust covering the Premise whose name and address shall have theretofore been furnished to Tenant in writing, specifying wherein Landlord has failed to perform such obligations; provided, however, that if the nature of Landlord's obligation is such that more than thirty (30) days are required for performance, then Landlord shall not be in default if Landlord commences performance within such thirty-day period and thereafter diligently prosecutes the same to completion. 18. RELOCATION OF PREMISES 18.1 CONDITIONS. For the purpose of maintaining an economical and proper distribution of Tenants throughout the Building acceptable to Landlord, Landlord shall have the time to time during the term of this Lease to relocate the Premises in the Build following terms and conditions: (a) The rented and usable areas of the new location in the Building are of equal size to the existing location (subject to a variation of up to ten percent (10%) provided the amount of rent payable under this Lease is not increased; (b) If the then prevailing rental rate for the new location is less than the amount being paid for the existing location, the rent shall be reduced to equal the then prevailing rent for the new location; (c) Landlord shall pay the cost of providing tenant improvements in the new location comparable to the tenant improvements in the existing location; (d) Landlord shall pay the expenses reasonably incurred by Tenant in Office Lease Page 15 of 20 connection with such substitution of Premises, including but not limited to costs of moving, door lettering, telephone relocation and reasonable quantities of new stationary; 18.2 NOTICE. Landlord shall deliver to Tenant written notice of Landlord's election to relocate the Premises, specifying the new location and the amount of rent payable therefore at least thirty (30) days prior to the date the relocation is to be effective. If the relocation of the is not Premises is not acceptable to Tenant, Tenant for a period of ten (10) days after receipt of is notice to relocate shall have the right (by delivering written notice to Landlord) terminate this Lease effective thirty (30) days after delivery of written notice to Landlord. 19. This item omitted. 20. MISCELLANEOUS. 20.1 ESTOPPEL CERTIFICATE. (a) Tenant shall at any time upon not less than ten (10) days prior written notice from Landlord execute, acknowledge and deliver to Landlord a statement in writing (i) certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect) and the date to which the rent and other charges are paid in advance, if any, and (ii) acknowledging that there are not, to Tenant's knowledge, any uncured defaults on the part of Landlord hereunder, or specifying such defaults if any are claimed. Any such statement may be conclusively relied upon by any prospective purchase or encumbrancer of the Premises. (b) Tenant's failure to deliver such statement within such time shall be conclusive upon Tenant (i) that this Lease is in full force and effect, without modification except as may be represented by Landlord, (ii) that there are no uncured defaults in Landlord's performance, and (iii) that not more than one month's rent has been paid in advance. (c) If Landlord desires to finance or refinance the Building, or any part thereof, Tenant hereby agrees to deliver to any lender designated by Landlord such financial statements of Tenant as may be reasonably required by such lender. Such statements shall include the past three years financial statements of Tenant. All such financial statements shall be received by Landlord in confidence and shall be used only for the purposes herein set forth. Nor to delivering such financial statement to the Lender, the Landlord shall obtain the agreement of the Lender to keep such financial statements confidential and not to use such financial statements other than to evaluate the credit of Tenant for the purpose of financing or refinancing the Building. 20.2 TRANSFER OF LANDLORD'S INTEREST. In the event of a sale of conveyance by Landlord of Landlord's interest in the Premises or the Building other than a Office Lease Page 16 of 20 transfer for security purposes only, Landlord shall be relieved from and after the date specified in any such notice of transfer of all obligations and liabilities occurring thereafter on the part of Landlord, provided that any funds in the hands of Landlord at the time of transfer in which Tenant has an interest, shall be delivered to the successor of Landlord. This Lease shall not be affected by any such sale and Tenant agrees to attorn to the purchaser of assignee provided all Landlord's obligations hereunder are assumed in writing by the transferee. 20.3 CAPTIONS; ATTACHMENTS; DEFINED TERMS. (a) The captions of the paragraphs of this Lease are for convenience only and shall not be deemed to be relevant in resolving any question of interpretation or construction of any section of this Lease. (b) Exhibits attached hereto, and addendum and schedules initialed by the parties, are deemed by attachment to constitute part of this Lease and are incorporated herein. (c) The words "Landlord" and "Tenant", as used herein, shall include the plural as well as the singular. Words used in neuter gender include the masculine and feminine and words in the masculine or feminine gender include the neuter. If there be more than one Landlord or Tenant, the obligations hereunder imposed upon Landlord or Tenant shall be joint and several; as to a Tenant which consists of husband and wife, the obligations shall extend individually to their sole and separate property as well as community property. The term "Landlord" shall mean only the owner or owners at the time in question of the fee title or a tenant's interest in a ground Lease of the land underlying the Building, The obligations contained in this Lease to be performed by Landlord shall be binding on Landlord's successor's and assigns only during their respective periods of ownership. 20.4 ENTIRE AGREEMENT. This instrument along with any exhibits and attachments hereto constitutes the entire agreement between Landlord and Tenant relative to the premises and this Agreement and the exhibits and attachments may be altered, amended or revoked only by an instrument in writing signed by both Landlord and Tenant. Landlord and Tenant agree hereby that all-prior or contemporaneous oral agreements between and amount themselves and their agents or representatives relative to the leasing of the Premises are merged in or revoked by this Agreement. 20.5 SEVERABILITY. If any term or provision of this Lease shall, to any extent, be determined by a court of competent jurisdiction to be invalid or unenforceable, the remainder of this Lease shall not be affected thereby, and each term and provision of this Lease shall be valid and be enforceable to the fullest extent permitted by law. 20.6 COSTS OF SUIT. (a) If Tenant or Landlord shall bring any action for any relief against the other, declaratory or otherwise, arising out of this Lease, including any suit by Landlord for the recovery of rent or possession of the Premises, the losing party shall pay the successful party a reasonable sum for attorneys' fees which shall be deemed to have accrued on the commencement of such action and shall be paid whether or not such action is prosecuted to judgment. (b) Should Landlord, without fault on Landlord's part, be made a party to any litigation instituted by Tenant or by any third party against Tenant, or by or Office Lease Page 17 of 20 against any person holding under or using the Premises by license of Tenant, or for the foreclosure of any lien for labor or material furnished to or for Tenant or any such other person or otherwise arising out of or resulting from any act or transaction of Tenant or of any such other person, Tenant covenants to save and hold Landlord harmless from any judgment rendered against Landlord or the Premises or any part such thereof, and all costs and expenses, including reasonable attorneys' fees, incurred by Landlord in or in connection with such litigation. (c) If Tenant or Landlord or their successors or assigns shall bring an action against Broker or make Broker a party to litigation arising out of this Lease, Broker shall be entitled to recover reasonable attorney's fees and court costs from either Landlord or Tenant if Broker is adjudged by court of competent jurisdiction to be without fault in such matter. 20.7 TIME; JOINT AND SEVERAL LIABILITY. Time is of the essence of this Lease and each and every provision hereof, except as to the conditions relating to the delivery of possession of the Premises to Tenant. All the terms, covenants and conditions contained in this Lease to be performed by either party, if such party shall consist of more than one person or organization, shall be deemed to be joint and several, and all rights and remedies of the parties shall be cumulative and nonexclusive of any other remedy at law or in equity. 20.8 BINDING EFFECT; CHOICE OF LAW. The parties hereto agree that all provisions hereof are to be construed as both covenants and conditions as though the words importing such covenants and conditions were used in each separate paragraph hereof. Subject to any provisions hereof restricting assignment or subletting by Tenant and subject to Section 20.2, all of the provisions hereof shall bind and insure to the benefit of the parties hereto and their respective heirs, legal representative, successors and assigns. This Lease shall be governed by the laws of the State of California. 20.9 WAIVER. No covenant, term or condition or the breach thereof shall be deemed waived, except by written consent of the party against whom the waiver is claimed, and any waiver of the breach of any covenant, term or condition shall not be deemed to be a waiver of any preceding or succeeding breach of the same or any other covenant, term or condition. Acceptance by Landlord of any performance by Tenant after the time the same shall have become due shall not constitute a waiver by Landlord of the breach of any covenant, term or condition unless otherwise expressly agreed to by Landlord in writing. 20.10 SURRENDER OF PREMISES. 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 the 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. 20.11 HOLDING OVER. If Tenant remains in possession of all or any part of the Premises after the expiration of the term hereof, with or without the express or implied consent of Landlord, such tenancy shall be from month to month only, and not a renewal hereof or an extension for any further term, and in such case, rent and other monetary sums due hereunder shall be payable in the amount and at the time specified in this Lease and such month to month tenancy shall be subject to every other term, covenant and Office Lease Page 18 of 20 agreement contained herein. The rent during the holdover period shall be $3000.00 per month. 20.12 SIGNS (a) Tenant shall not place or permit to placed in or upon the Premises, where visible from outside the Premises, or outside the Premises or any part of the Building any signs, notices, drapes, shutters, blinds or displays or any type without the prior written consent of Landlord. (b) Landlord reserves the right in Landlord's sole discretion to place and locate on the roof, exterior of the Building, and in any area of the Building not leased to Tenant such signs, notices, displays and similar items as Landlord deems appropriate in the proper operation of the Building, 20.13 REASONABLE CONSENT. Except as limited elsewhere in this Lease, wherever in this Lease Landlord or Tenant is required to give its consent or approval to any action on the part of the other, such consent or approval shall not be unreasonably withheld. In the event of failure to give any such consent, the other party shall be entitled to specific performance at law and shall have such other remedies as are reserved to it under this Lease, but in no event shall Landlord or Tenant be responsible in monetary damages for failure to give consent unless said consent is withheld maliciously or in bad faith. 20.14 INTEREST ON PAST DUE OBLIGATIONS. Except as expressly provided, any amount due to Landlord not paid when due shall bear interest at ten percent (10%) per annum from the due date. Payment of such interest shall not excuse or cure any default by Tenant under this Lease. 20.15 RULES AND REGULATIONS; PARKING. (a) Tenant and Tenant's agents, servants, employees, visitors and licensees shall observe and comply fully and faithfully with all reasonable and non-discriminatory rules and regulations adopted by Landlord for the care, protection, cleanliness and operation of the Building and its Tenants including those annexed to this Lease as Exhibit C and any modification or addition thereto adopted by Landlord, provided Landlord shall give written notice thereof to Tenant. Landlord shall not be responsible to Tenant for the non-performance by any other tenant or occupant of the Building of any of said rules and regulations. 20.16 NOTICES. All Notices or Demands of any kind required or desired to be given by Landlord or Tenant hereunder shall be in writing and shall be deemed delivered forty-eight (48) hours after depositing the notice or demand in the United States mail, certified or registered, postage prepaid addressed to the Landlord or Tenant respectively at the address set forth after their signatures at the end of this Lease. 20.17 CORPORATE AUTHORITY. If Tenant is a corporation, each individual executing this Lease on behalf of said corporation represents and warrants that he is duly authorized to execute and deliver this Lease on behalf of said corporation in accordance with a duly adopted resolution of the Board of Directors of said corporation or in accordance with the By-laws of said corporation, and that this Lease is binding upon said corporation in accordance with its terms. If Tenant is a corporation Tenant shall, within thirty (30) days after execution of this Lease, deliver to Landlord a certified copy of a Office Lease Page 19 of 20 resolution, of the Board of Directors of said corporation authorizing or ratifying the execution of this Lease. 21. Landlord and Tenant hereby agree that Landlord upon receipt of a fully executed Lease shall deliver a thirty day notice to vacate premises to each of the three tenants (Willis Naphan, Harjeet Ghuman, and George Beckley) who now (as of 7/12/99), occupy the suites comprising the premises. Landlord and tenant shall mutually agree upon a reasonable term commencement date subject to the above mentioned tenants vacating the premises. In Witness Whereof, Landlord and Tenant have executed this Lease the date and year as first referenced above. Landlord: Tenant: KBK Properties, Inc. TriNet Employer Group, Inc. Lycette Properties, Inc. A California Corporation By: /s/ ROBERT LYCETTE By: /s/ DOUGLAS P. DEVLIN 7/22/99 --------------------------- ------------------------------ Mr. Robert Lycette Date Mr. Douglas Devlin Date Address: Address: 1600 El Camino Real, Suite D 101 Callan Avenue, 2nd Floor Belmont, CA 94002 San Leandro, CA 94577 Office Lease Page 20 of 20 EXHIBIT "A" OMITTED Exhibit A EXHIBIT "B" OMITTED Exhibit B EXHIBIT "C" Landlord shall furnish to the Tenant, during the term of the leasehold granted by this Agreement, at the Landlord's sole cost, the following services and supplies: A: Restrooms supplies, including soap, towels, seatcovers and toilet tissues. B: Hot and cold water in restrooms. C: Janitorial service, in accordance with following schedule: 5-day a week basis excluding Saturdays, Sundays and public holidays Daily: Dust all furniture, counters, cabinets and window sills; sweep all floors; empty all wastebaskets; dispose of all rubbish; clean and maintain in sanitary condition all restrooms and plumbing fixtures; sweep sidewalks, stairways and halls; replace light bulbs, tubes, ballasts and starters. Weekly: Mop all floors and dust all venetian blinds. Vacuum carpets. Bi-weekly: Clean all glass surfaces including glass walls and glass table tops. Semiannually: Wash all windows. Exhibit C EX-10.05 6 LEASE AGREEMENT 7/9/99 (INCLINE CAPITAL) EXHIBIT 10.5 OFFICE BUILDING LEASE This lease is made and entered into this 9th Day of July 1999, by and between Incline Capital Group, LLC A Nevada Corporation (hereinafter "Landlord") and TriNet Employer Group, Inc., A California Corporation (hereinafter "Tenant"). For and in consideration of the rental and of the covenants and agreements hereinafter set forth to be kept and performed by the Tenant, Landlord hereby leases to Tenant and Tenant hereby leases from Landlord, the Premises herein described for the term, at the stated rent and subject to and upon all of the terms, covenants and agreements hereinafter set forth. 1. PREMISES 1.1 Description. Landlord hereby leases to Tenant and Tenant hereby rents from Landlord those certain Premises (hereinafter "Premises") attached as part of Exhibit A containing approximately 6,364+ square feet of Rentable Area, on the - 2nd floor of that certain office building (hereinafter "Building") located in the City of Reno, County of Washoe, Nevada, commonly known as, Park Center West, and more particularly described as 9805 Double R Blvd., Suite 200, Reno, NV 89511. 1.2 Work of Improvement. The obligation of Landlord and Tenant to perform the work and supply the necessary materials and labor to prepare the Premises for occupancy are set forth in detail in Exhibit B. Landlord and Tenant shall expend all funds and do all acts required of them in Exhibit B and shall have the work performed promptly and diligently in a first class workmanlike manner for the amount not to exceed $25.00 per rentable square foot of Tenant's leased office space. Any amount exceeding $25.00 per square foot shall be paid by Tenant at completion of work. Landlord, Tenant and Broker (CB Richard Ellis, Inc.) shall split 1/3rd each of the cost of the HVAC VAV Box installation which is $15,598.00 in total cost and the VAV cost split three ways shall be $5,199.34 each. 2. TERM 2.1 Term. The Term of this Lease shall be for five (5) years commencing on October 1, 1999 and ending on September 30, 2004 unless sooner terminated pursuant to this Lease. 2.2 Delay in Commencement. Tenant agrees that in the event of the inability of Landlord for any reason, except reasons caused by Tenant's delay or change orders, to deliver possession of the Premises to Tenant on the commencement date set forth in Section 2.1, including failure for any reason to complete the work referred to in Exhibit B, Landlord shall not be liable for any damage thereby nor shall such inability affect the validity of this Lease or the obligations of Tenant hereunder, but in such case Tenant shall not be obligated to pay rent or other monetary sums until possession of the Premises is tendered to Tenant; provided that if the delay in delivery of possession exceeds sixty (60) days, then the expiration date of the term of the Lease shall be extended by the period of time computed from the scheduled commencement date to the date possession is tendered. Prior to October 1, 1999, tenant agrees to pay pro-rated rent in the event Premises is available for occupancy. 2.3 Acknowledgement of Commencement Date. In the event the Commencement Date of the term of the Lease is other than as provided in Section 2.1, then Landlord and Tenant shall execute a written acknowledgement of the date of commencement and shall attach it to the Lease as Exhibit D. 3. RENT Tenant shall pay to Landlord as Rent for the Premises in advance on the first day of each calendar month for the first year without deduction, offset, prior notice or demand, in lawful money of the United States, the sum of $1.65 per square foot of Rentable Area, modified gross full service, with Tenant being responsible to pay all janitorial expenses within the Tenant's Premises. If the commencement date is not the first day of a month, or if the Lease 1 termination date is not the last day of a month, a prorated monthly installment shall be paid at the then current rate for the fractional month during which the lease commences and/or terminates. 4. SECURITY DEPOSIT Concurrently with Tenant's execution of this Lease, Tenant shall deposit with Landlord the sum of $1.65 per square foot of Rentable Area as Security Deposit. Tenant agrees to deposit with Landlord the Security Deposit set forth in this Section upon execution of this Lease, as security for Tenant's faithful performance of its obligations under this Lease. Landlord and Tenant agree that the Security Deposit may be commingled with funds of Landlord and Landlord shall have no obligation or liability for payment of interest on such deposit. Tenant shall not mortgage, assign, transfer or encumber the Security Deposit without the prior written consent of Landlord and any attempt by Tenant to do so shall be void, without force or effect and shall not be binding upon Landlord. If Tenant fails to pay any rent or other amount when due and payable under this Lease, or fails to perform any of the terms hereof, Landlord may appropriate and apply or use all or any portion of the Security Deposit for Rent payments or any other amount then due and unpaid, for payment of any amount for which Landlord has become obligated as a result of Tenant's default or breach, and for any loss or damage sustained by Landlord as a result of Tenant's default or breach, and Landlord may so apply or use this deposit without prejudice to any other remedy Landlord may have as reason of Tenant's default or breach. If Landlord so uses any of the Security Deposit, Tenant shall, within ten (10) days after written demand therefor, restore the Security Deposit to the full amount originally deposited; Tenant's failure to do so shall constitute an act of default hereunder and Landlord shall have the right to exercise any remedy provided for at Article 17 hereof. Within fifteen (15) days after the Term (or any extension thereof) has expired or Tenant has vacated the Premises, whichever shall last occur, and provided Tenant is not then in default on any of its obligations hereunder, Landlord shall return the Security Deposit to Tenant, or, if Tenant has assigned its interest under this Lease, to the last assignee of Tenant. If Landlord sells its interest in the Premises, Landlord may deliver this deposit to the purchaser of Landlord's interest and thereupon be relieved of any further liability or obligation with respect to the Security Deposit. 5. TAX AND BUILDING OPERATING COSTS INCREASES. 5.1 Definitions. For purposes of this Section, the following terms are hereinafter defined: (a) Base Year: the calendar year from January 1, 2000 through December 31, 2000. (b) Building Operating Costs: All reasonable costs and expenses of ownership, operation and maintenance of the Building (excluding depreciation on the Building, all amounts paid an loans of Landlord and expenses capitalized for federal income tax purposes) including by way of illustration but not limited to: real and personal property taxes and assessments and any tax in addition to or in lieu thereof, other than taxes covered by Section 5.4 whether assessed against Landlord or Tenant or collected by Landlord or both; utilities; supplies; insurance; license, permit and inspection fees; cost of services of independent contractors (including property management fees); cost of compensation (including employment taxes and fringe benefits) of all person who perform regular and recurring duties connected with day-to-day operation, maintenance and repair of the Building, its equipment and the adjacent walks, malls and landscaped area, including janitorial, scavenger, gardening, security, engineer, elevator, painting, plumbing, electrical, carpentry, heating, ventilation, air conditioning, window washing, signing and advertising (but excluding persons performing services not uniformly available to or performed for substantially all Building tenants), and rental expense or a reasonable allowance for depreciation of personal property used in the maintenance, operation and repair of the Building. Building Operating Costs do not include capital costs, leasing commissions, or other tenants' improvement costs, or costs and expenses not shared pro rata by all other tenants. (c) Net Rentable Area: the rentable area computed by measuring to the inside finish of permanent outer building walls, to the Premises side of public corridors and/or other permanent partitions and to the center of partitions which separate the adjoining rentable areas with no deductions for columns and projections necessary to the Building structure. On multi-tenant floors, common corridors and toilets, air conditioning rooms, fan rooms, janitorial closets, electrical and telephone closets and any other areas within and exclusively serving that floor are considered common areas and for purposes of this Section shall be allocated pro rata to the tenants on the floor. 5.2 Tenant's Share. In the event the Building Operating Costs incurred by Landlord during any calendar year following the Base Year shall exceed Building Operating Costs incurred by Landlord during the Base Year, Tenant shall pay to Landlord an amount equal to Tenants rentable area divided by total rentable area of building of such 2 increases, which share is computed on the basis of the ratio between Net Rentable Area in the Premises and Net Rentable Area in the Building. 5.3 Payment. Within ninety (90) days after the end of each calendar year following the Base Year, Landlord shall furnish Tenant a written statement showing in reasonable detail Landlord's Building Operating Costs for the preceding calendar year and the Base Year, and showing the amount, if any, of any increase or decrease in the sums due from Tenant taking into account prior increases paid by Tenant (if any). Coincidentally with the monthly rent payment next due following Tenant's receipt of such statement, Tenant shall pay to Landlord (in the case of an increase), or Landlord shall credit against the next rent due from Tenant (in the case of a decrease), an amount equal to the sum of (1) the difference between Building Operating costs for the preceding calendar year and the Base Year less increases paid by Tenant (if any); and (2) one-twelfth (1/12th) said increases for the current calendar year multiplied by the number of rent payments (including the current one) then elapsed in such calendar year. Thereafter the one twelfth (1/12th) shall be paid monthly with the rent until the adjustment the following year pursuant hereto. In no event shall the adjustment entitle Tenant to receive the benefit of a reduction in Building Operating Costs below the level of the initial Base Year during the term hereof. 5.4 New Taxes. In addition to rent and other charges to be paid by Tenant hereunder, Tenant shall reimburse to Landlord within thirty (30) days of receipt of a demand herefore, any and all taxes payable by Landlord (other than net income taxes) whether or not now customary or within contemplation of the parties hereto; (a) upon, allocable to or measure by the area of the Premises or on the rent payable hereunder, including without limitation any gross income tax or excise tax levied by this State, any political subdivision thereof, City or Federal Government with respect to the receipt of such rent; or (b) upon or with respect to the possession, leasing, operation, management maintenance, alteration, repair, use or occupancy by Tenant of the Premises or any portion thereof; or (c) upon or measured by the value of Tenant's personal property, equipment or fixtures located in the Premises; or (d) upon this transaction or any document to which Tenant is a party creating or transferring interest or an estate in the Premises. Tenant agrees to pay, before delinquency, any and all taxes levied or assessed and which become payable during the term hereof, upon Tenant's equipment, furniture, fixtures and other personal property located in the Premises. For the purpose of determining said amount, figures supplied by County Assessor as to the amount so assessed shall be conclusive. Tenant shall comply with provisions of any law, ordinance or rule of the taxing authorities which require Tenant to file a report of Tenant's property located in the Premises. 6. USE 6.1 Use. The Premises shall be used and occupied by Tenant for general office purposes and for no other purpose without the prior written consent of Landlord. 6.2 Suitability. Tenant acknowledges that neither Landlord nor any agent of Landlord has made any representation or warranty with respect to the premises or the Building or with respect to the suitability of either for the conduct of Tenant's business, nor has Landlord agreed to undertake any modification, alteration or improvement to the Premises except as provided in this Lease. The taking of possession of the Premises by Tenant shall conclusively establish that the Premises and the Building were at such time in satisfactory condition unless within fifteen (15) days after such date Tenant shall give Landlord written notice specifying in reasonable detail the respects in which the Premises or the Building were not in satisfactory condition. 6.3 Uses Prohibited (a) Tenant shall not do or permit anything to be done in or about the Premises nor bring or keep anything therein which will in any way increase the existing rate or affect any fire or other insurance upon the Building or any of its contents (unless Tenant shall pay any increased premium as a result of such use or acts), or cause a cancellation of any insurance policy covering said Building or any part thereof or any of its contents, nor shall Tenant sell or permit to be kept, used or sold in or about said Premises any articles which may be prohibited by standard form policy of fire insurance. (b) 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 or use or 3 allow the premises to be used, for any unlawful or objectionable purpose, nor shall Tenant cause, maintain or permit any nuisance in or about the Premises. Tenant shall not commit or suffer to be committed any waste in or upon the Premises. (c) 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 government rule or regulation or requirement of duly constituted public authorities now in force or which may hereafter be enacted or promulgated. 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 similar body now, or hereafter, constituted relating to or affecting the condition, use or occupancy of the Premises, excluding structural changes not relating to or affecting the condition, use or occupancy of the Premises, or not related or afforded by Tenant's improvements or acts. The judgment of any court of competent jurisdiction or the admission of Tenant in any action against the Tenant, whether Landlord be a party thereto or not, that Tenant has violated any law, statute, ordinance or governmental rule, regulation or requirement, shall be conclusive of the fact as between the Landlord and Tenant. 7. SERVICE AND UTILITIES 7.1 Landlord's Obligations. Landlord agrees to furnish to the Premises during reasonable hours of generally recognized business days, and subject to the Rules and Regulations of the Building, water, gas and electricity suitable for the intended use of the Premises, heat and air conditioning required to be mutually acceptable to both the judgment of Landlord and Tenant for the comfortable use and occupancy of the Premises, scavenger, janitorial and window washing service and elevator service, and security customary in similar buildings in the competing geographical areas. Landlord shall also maintain and keep lighted the common stairs, entries and toilet rooms in the Building. 7.2 Tenant's Obligation. Tenant shall pay for, prior to delinquency, all telephone and all other materials and services, not expressly required to be paid by Landlord, which may be furnished to or used in, on or about the premises during the term of this Lease. 7.3 Tenant's Additional Requirements. (a) Tenant will not, without the written consent of Landlord use any apparatus or device in the Premises, including but without limitation thereto, electronic data processing machines, punch card machines and machines using current in excess of 220 volts, which will in any way increase the amount of electricity or water usually furnished or supplied for use of the Premises as general office space; nor connect with electric current, except through existing electrical outlets in the Premises, or water pipes, any apparatus or device for the purpose of using electric current or water. Tenant may at Tenant's sole expense, have space separately metered for electricity during construction of Tenant improvements. Tenant shall install, at Tenant's sole expense, a backup generator, enclosure and pad outside of building at a place to be mutually agreed upon by Landlord and Tenant. The generator shall be deemed the property of the Tenant and not permanently attached to Premises. Tenant will remove generator upon termination of this lease and will leave enclosure, pad and underground cabling in place. Tenant shall be responsible for the maintenance and repair of any such generator at its sole cost. (b) If Tenant shall require water or electric current in excess of that usually furnished or supplied for use of the Premises as general office space, Tenant shall first procure the consent of Landlord for the use thereof, which consent Landlord may refuse and Landlord may cause a water meter or electric current meter to be installed in the Premises, so as to measure the amount of water and electric current consumed for any such other use. The cost of such meters and of installation, maintenance and repair thereof shall be paid for by Tenant and Tenant agrees to pay Landlord promptly upon demand by Landlord for all such water and electric current consumed as shown by said meters, at the rates charged for such service by the City in which the Building is located or the local public utility, as the case may be, furnishing the same, plus any additional expense incurred in keeping account of the water and electric current so consumed. (c) Wherever heat generating machines 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, operation and maintenance thereof, shall be paid by Tenant to Landlord upon demand of Landlord. 4 7.4 Non-Liability. Landlord shall not be liable for, and Tenant shall not be entitled to, any abatement or reduction of rent by reason of Landlord's failure to furnish any of the foregoing when such failure is caused by accidents, breakage, repairs, strikes, lockouts or other labor disturbances or labor disputes of any character, or by any other cause similar or dissimilar, beyond the reasonable control of Landlord. Landlord shall not be liable under any circumstances for loss of, or injury to, property, however occurring, through or in connection with or incidental to failure to furnish any of the foregoing except when caused by the Landlord's negligence or breach of this Lease Agreement. If an interruption of utilities are caused by Landlord's negligence and the Premises cannot be used substantially for the purposes leased for a period of ten (10) consecutive days, the Tenant shall have the right to terminate this Lease Agreement by written notice to Landlord delivered within ten (10) days after the expiration of such ten (10) day period. 8. MAINTENANCE AND REPAIRS, ALTERATIONS AND ADDITIONS 8.1 Maintenance and Repairs (a) Landlord's Obligations. Landlord shall maintain in good order, condition and repair the Building and all other portions of the Premises not the obligation of Tenant or any other tenant in the Building and all common areas. Landlord will give reasonable notice, will coordinate with Tenant, and will use reasonable means to avoid interference with Tenant's use of the Premises in connection with repairs. If Landlord's failure to maintain or repair the building causes, or is reasonably likely to cause, material damage to Tenant's business, Tenant shall have the right, in addition to any other rights Tenant may have under law or this Agreement, either (1) to terminate this Lease Agreement upon ten (10) days written notice to the Landlord; or (2) to repair the Premises and charge the Landlord to the extent necessary to eliminate such material damage to Tenant's business. (b) Tenant's Obligations. (I) Tenant at Tenant's sole cost and expense, except for services furnished by Landlord pursuant to Section 7 hereof, shall maintain the Premises in good order, condition and repair including the interior surfaces of the ceilings, walls and floors, all doors, interior windows, exterior windows at or below street level, all plumbing pipes, electrical wiring, switches, fixtures and special items in excess of building standard finish's and equipment installed by or at the expense of Tenant. Tenant expressly waives the benefits of any statute now or hereafter in effect which would otherwise afford Tenant the right to make repairs at Landlord's expense or to terminate this Lease because of Landlord's failure to keep the Premises in good order, condition and repair. (II) Upon the expiration of earlier termination of this Lease, Tenant shall surrender the Premises in the same condition as received, ordinary wear and tear and damage by fire, earthquake, act of God or the elements alone excepted, and shall promptly remove or cause to be removed at Tenant's expense from the Premises and the Building any signs, notices and displays placed by Tenant. (III) Tenant agrees to repair any damage to the Premises or the Building caused by or in connection with the removal of any articles of personal property, business or trade fixtures, machinery, equipment, cabinetwork, furniture, movable partition or permanent improvements or additions, including without limitations thereto, repairing the floor and patching and painting the walls where required by Landlord's reasonable satisfaction, all at Tenant's sole cost and expense. Tenant shall indemnify the Landlord against any loss or liability resulting from delay by Tenant in so surrendering the Premises, including without limitation any claims made by any succeeding tenant founded on such delay. (IV) In the event Tenant fails to maintain the Premises in good order, condition and repair, Landlord shall give Tenant notice to do such acts as are reasonably required to so maintain the Premises. In the event Tenant fails to promptly commence such work and diligently prosecute it to such work, any amount so expended by Landlord shall be paid by Tenant promptly after demand with interest at ten percent (10%) per annum from the date of such work. (c) Compliance with Law. Landlord and Tenant shall each do all acts required to comply with all applicable laws, ordinances, regulations and rules of any public authority relating to their respective maintenance obligations as set forth herein. 8.2 Alterations and Additions (a) Tenant shall make no alterations, additions or improvements to the Premises or any part thereof without obtaining prior written consent of Landlord. (b) Landlord may impose as a condition to the aforesaid consent such requirements as Landlord may deem necessary in its sole discretion, including without limitation thereto, the manner in which the work is done, a right of approval of the contractor by whom the work is to be performed, not to be unreasonably withheld, the times during 5 which it is to be accomplished, and the requirement that upon written request of Landlord prior to the expiration or earlier termination of the Lease, Tenant will remove any and all permanent improvements or additions to the Premises installed at Tenant's expense and all movable partitions, counters, personal property, equipment, fixtures and furniture. (c) All such alterations, additions or improvements shall at the expiration or earlier termination of the Lease shall become the property of Landlord and remain upon and surrendered with the Premises, unless specified pursuant to Section 8.2(b) above. (d) All articles of personal property and all business and trade fixtures, machinery and equipment, cabinetwork, furniture and movable partitions owned by Tenant or installed by Tenant at its expense in the Premises shall be and remain the property of Tenant and may be removed by tenant at any time during the Lease term when Tenant is not in default hereunder. 9. ENTRY BY LANDLORD Landlord reserves and shall at any and all times have the right to enter the Premises to inspect the same, to supply janitor service and any other service to be provided by Landlord to Tenant hereunder, to submit said Premises to prospective purchasers or tenants, to post notices of non-responsibility and "for lease" signs, and to alter, improve or repair the premises and any portion of the Building without abatement of rent, and may for that purpose erect scaffolding and other necessary structures where reasonably required by the character of the work to be performed, always providing the entrance to the Premises shall not be blocked thereby, and further providing that the business of Tenant shall not be interfered with unreasonably. Tenant hereby waives any claim for damages for any injury or inconvenience to or interference with Tenant's business, any loss of occupancy or quiet enjoyment of the Premises, and any other loss occasioned thereby. For each of the aforesaid purposes, 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, and Landlord shall have the right to use any and all means which Landlord may deem proper to open said doors in an emergency, in order to obtain entry to the Premises, and any entry to the Premises obtained by Landlord by any of said means, or otherwise, shall not under any circumstances be construed or deemed to be forcible or unlawful entry into, or a detainer of, the Premises, or an eviction of Tenant from the premises or any portion thereof. 10. LIENS Tenant shall keep the Premises and any building of which the Premises are a part free from liens arising out of work performed, materials furnished, or obligations incurred by Tenant and shall indemnify, hold harmless and defend Landlord from any liens and encumbrances arising out of any work performed or materials furnished by or at the direction of Tenant. In the event that Tenant shall not, within twenty (20) days following the imposition of any such lien, cause such lien to be released or 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. All such sums paid by Landlord and all expense incurred by it in connection therewith including attorneys' fees and costs shall be payable to Landlord by Tenant on demand with interest at the rate of ten percent (10%) per annum. 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 and the Premises, and any other party having an interest therein, from mechanics' and materialmens' liens, and Tenant shall give to Landlord at least ten (10) business days prior written notice of the expected date of commencement of any work relating to alterations or additions to the Premises. 11. INDEMNITY 11.1 Indemnity. Tenant shall indemnify and hold Landlord harmless form and defend Landlord against any and all claims of liability for any injury or damage to any person or property whatsoever; (1) occurring in, on or about the Premises or any part thereof; and (2) occurring in, on or about any facilities (including, without prejudice to the generality of the term "facilities", elevators, stairways, passageways and parking areas), the use of which Tenant may have in conjunction with other tenants of the Building, when such injury or damage is caused in part or in whole by the act, neglect, fault or omission of any duty with respect to the same by Tenant, its agents, contractors, employees or invitees. Tenant shall further indemnify and hold Landlord harmless from and against any and all 6 claims arising from any breach or default in the performance of any obligation on Tenant's part to be performed under the terms of this Lease, or arising from any act of negligence of Tenant, or any of its agents, contractors, employees and from and against all costs, attorneys' fees, expenses and liabilities incurred in the defense of any such claim or any action or proceeding brought thereon. In case any action or proceeding be brought against Landlord by reason of any such claim, Tenant, upon notice from Landlord, shall defend the same at Tenant's expense by counsel reasonably satisfactory to Landlord, provided, however, that Tenant, shall not be liable for damage or injury occasioned by the negligence or intentional acts of Landlord and its designated agents or employees unless covered by insurance Tenant is required to provide. Tenant as a material part of the consideration to Landlord, hereby assumes all risk of damage to property or injury to persons in, upon or about the Premises from any cause and Tenant hereby waives all claims in respect thereof against Landlord. 11.2 Exemption of Landlord from Liability. Landlord shall not be liable for injury or damage which may be sustained by the person, goods, wares, merchandise or property of Tenant, its employees, invitees or customers, or any other person in or about the Premises caused by or resulting from fire, steam, electricity, gas, water or rain, which may leak or flow from or into any part of the Premises, or from the breakage, leakage, obstruction or other defects of the pipes, sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures of the same, whether the damage or injury results from conditions arising upon the Premises or upon other portions of the Building of which the Premises are a part, or from other sources, unless caused by the Landlord's negligence or breach of this Agreement. Landlord shall not be liable for damages arising from any act or neglect of any other tenant of the Building. 12. INSURANCE 12.1 Coverage. Tenant shall, at all times during the term of this Lease, and at its own cost and expense procure and continue in force the following insurance coverage: (a) Bodily Injury and Property Damage Liability Insurance with a combined single limit for bodily injury and property damage of not less than $1,000,000.00. (b) Fire and Extended Coverage Insurance, including vandalism and malicious mischief coverage, in an amount equal to the full replacement value of all fixtures, furniture and improvements installed by or at the expense of Tenant. 12.2 Insurance policies. The aforementioned minimum limits of policies shall in no event limit the liability of Tenant hereunder. The aforesaid insurance shall name Landlord as an additional insured. Said insurance shall be with companies having a rating of not less than AAA in "Best's Insurance Guide". Tenant shall furnish from the insurance companies or cause the insurance companies to furnish certificates of coverage. No such policy shall be cancelable or subject to reduction of coverage or other modifications or cancellations except after thirty (30) days prior written notice to Landlord by the insurer. All such policies shall be written as primary policies, not contributing with and not in excess of the coverage which Landlord may carry. Tenant shall, at least twenty (20) days prior to the expiration of such policies, furnish Landlord with renewals or binders. Tenant agrees that if Tenant does not take out and maintain such insurance, Landlord may (but shall not be required to) procure said insurance on Tenant's behalf and charge Tenant the premiums together with a twenty-five percent (25%) handling charge, payable upon demand. Tenant shall have the right to provide such insurance coverage pursuant to blanket policies obtained by Tenant provided such blanket policies expressly afford coverage to the Premises and to Tenant as required by this Lease. 12.3 Waiver of Subrogation. Landlord and Tenant each hereby waive any and all rights of recovery against the other or against the officers, employees, agents and representatives of the other, on account of loss or damage occasioned to such waiving party or its property or the property of other under its control to the extent that such loss or damage is insured against under any fire and extended coverage insurance policy which either may have in force at the time of such loss or damage. Tenant shall upon obtaining the policies of insurance required under this Lease, give notice to the insurance carrier or carriers that the foregoing mutual waiver of subrogation is contained in this Lease. 7 12.4 Landlord warrants that Landlord will maintain adequate insurance to cover any loss or damage to the Building. 13. DAMAGE OR DESTRUCTION 13.1 Partial Damage - Insured. In the event the Premises or the Building are damaged by any casualty which is covered under fire and extended coverage insurance carried by Landlord, then Landlord shall restore such damage provided insurance proceeds are available to pay eighty percent (80%) or more of the cost of restoration and provided such restoration can be completed within sixty (60) days after the commencement of the work in the opinion of a registered architect or engineer appointed by Landlord. In such event this Lease shall continue in full force and effect, except that Tenant shall be entitled to proportionate reduction of rent while such restoration takes place, such proportionate reduction to be based upon the extent to which the restoration efforts interfere said damage interfered with Tenant's business in the Premises. 13.2 Partial Damage - Uninsured. In the event the Premises or the Building are damaged by a risk not covered Landlord's insurance or the proceeds of available insurance are less than eighty percent (80%) of the cost of restoration, or if the restoration cannot be completed within sixty (60) days after the commencement of work in the opinion of the registered architect or engineer appointed by Landlord, then Landlord shall have the option either to; (1) repair or restore such damage, this Lease continuing in full force and effect, but the rent to be proportionately abated as hereinabove provided; or (2) give notice to Tenant at any time within thirty (30) days after such damage terminating this Lease as of a date to be specified in such notice, which date shall not be less than thirty (30) nor more than sixty (60) days after giving such notice. In the event of the giving of such notice, this Lease shall expire and all interest of Tenant in the Premises shall terminate on such date so specified in such notice and the rent, reduced by any proportionate reduction based upon the extent if any, to which said damage interfered with the use and occupancy of Tenant, shall be paid to the date of such termination; Landlord agrees to refund to the Tenant any rent theretofore paid in advance for any period of time subsequent to such date. 13.3 Total Destruction. In the event the Premises are totally destroyed or the Premises cannot be restored as required herein under applicable laws and regulations, notwithstanding the availability of insurance proceeds, this Lease shall be terminated effective the date of the damage. 13.4 Damage Near End of Term. Notwithstanding anything to the contrary contained in this Section 13, Landlord shall not have any obligation whatsoever to repair, reconstruct or restore the Premises when the damage resulting from any casualty covered under this Section 13 occurs during the last twelve (12) months of the term of this Lease or any extension thereof, provided that the Lease shall terminate as of the date of the damage if the reconstruction process has not begun within sixty (60) days. 13.5 Landlord's Obligations. The Landlord shall not be required to repair any injury or damage by fire or other cause, or to make any restoration or replacement of any panelings, decorations, partitions, railings, floor covering, office fixtures or any other improvements or property installed in the Premises by Tenant or at the direct or indirect expense of Tenant. Tenant shall be required to restore or replace same in the event of damage. Except for abatement of rent, if any, Tenant shall have no claim against Landlord for any damage suffered by reason of any such damage, destruction, repair, or restoration; nor shall Tenant have the right to terminate this Lease as a result of any statutory provision now or hereafter in effect pertaining to the damage and destruction of the Premises or the Building, except as expressly provided herein, unless caused by Landlord's negligence or breach of this Agreement. Landlord will give reasonable notice, will coordinate with Tenant, and will use reasonable means to avoid interference with Tenant's use of the Premises in connection with repairs. 13.6 If the reconstruction process for damages referred to in Section 13.1 and 13.2 has not begun within sixty (60) days after the date of the damage, Tenant shall have the right either; (1) to terminate this Lease Agreement upon ten (10) days written notice to the Landlord delivered within ten (10) days after the expiration of such sixty (60) day period; or (2) to repair the Premises and charge the Landlord. 14. CONDEMNATION 8 If all or any part of the Premises shall be taken or appropriated for public or quasi-public use by right of eminent domain with or without litigation or transferred by agreement in connection with such public or quasi-public use, either party hereto shall have the right at its option exercisable within thirty (30) days of receipt of notice of such taking to terminate this Lease as of the date possession is taken by the condemning authority, provided, however, that before Tenant may terminate this Lease by reason of taking or appropriation as provided hereinabove, such taking or appropriation shall be of such an extent and nature as to substantially handicap, impede or repair Tenant's use of the Premises. If any part of the Building other than the Premises shall be so taken or appropriated, Landlord shall have the right, at its option, to terminate this Lease. No award for any partial or entire taking shall be apportioned, and Tenant hereby assigns to Landlord any award which may be made in such taking or condemnation, together with any and all rights of Tenant now or hereafter arising in or to the same, or any part thereof; provided, however, that nothing contained herein shall be deemed to give Landlord any interest in or to require Tenant to assign to Landlord any award made to Tenant for the taking of personal property and fixtures belonging to Tenant and/or for the interruption of or damage to Tenant's business and/or for Tenant's unamortized cost of leasehold improvements. In the event of a partial taking which does not result in a termination of this Lease, rent shall be abated in the proportion which the part of the Premises so made unusable bears to the rented area of the Premises immediately prior to the taking. No temporary taking of the Premises and/or of Tenant's rights therein or under this Lease shall terminate this Lease or give Tenant any right to any abatement of rent thereunder; any award made to Tenant by reason of any such temporary taking shall belong entirely to Tenant and Landlord shall not be entitled to share therein. 15. ASSIGNMENT AND SUBLETTING 15.1 Landlord's Consent Required. Tenant shall not assign, transfer, mortgage, pledge, hypothecate or encumber this Lease or any interest therein and shall not sublet the Premises or any part thereof, without the prior written consent of Landlord and any attempt to do so without such consent being first had and obtained shall be wholly void and shall constitute a breach of this Lease. 15.2 Reasonable Consent. If Tenant complies with the following conditions, Landlord shall not unreasonably withhold its consent to the subletting of the Premises or any portion thereof or the assignment of this Lease. Tenant shall submit in writing to Landlord; (a) the name and legal composition of the proposed subtenant or assignee; (b) the nature of the business proposed to be carried on in the Premises; (c) the terms and provisions of the proposed sublease; (d) such reasonable financial information as Landlord may request concerning the proposed subtenant or assignee. 15.3 No Release of Tenant. No consent by Landlord of any assignment or subletting by Tenant shall relieve Tenant of any obligation to be performed by Tenant under this Lease, whether occurring before or after such consent, assignment or subletting. The consent by Landlord to any assignment or subletting shall not relieve Tenant from the obligation to obtain Landlord's express written consent to any other assignment or subletting. The acceptance of rent by Landlord from any other person shall not be deemed to be a waiver by Landlord of any provision of this Lease or to be a consent to any assignment, subletting or other transfer. Consent to one assignment, subletting or other transfer shall not be deemed to constitute consent to any subsequent assignment, subletting or other transfer. 15.4 Attorneys' Fees. In the event Landlord shall not consent to a sublease or assignment under this Section 15, Tenant shall pay Landlord's reasonable attorneys' fees not to exceed One Thousand Dollars ($1,000.00) incurred in connection with giving such consent. 16. SUBORDINATION 16.1 Subordination. This Lease at Landlord's option shall be subject and subordinate to all ground or underlying leases which now exist or may hereafter be executed affecting the Premises or the land upon which the Premises are situated or both, and to the lien of any mortgages or deeds of trust in any amount or amounts whatsoever now or hereafter placed on or against the land or improvements either thereof, of which the Premises are a part, or on or against Landlord's interest or estate therein, or on or against any ground or underlying lease without the necessity of the execution and delivery of any further instruments on the part of Tenant to effectuate such subordination. If any mortgages, trustee or ground lessor shall elect to have this lease prior to the lien of its mortgage, deed of trust or 9 ground lease, and shall give written notice thereof to Tenant, this Lease shall be deemed prior to such mortgage, deed of trust or ground lease, whether this Lease is dated prior or subsequent to the date of said mortgage, deed of trust, or ground lease or the date of the recording thereof. 16.2 Subordination Agreements. Tenant covenants and agrees to execute and deliver upon demand without charge therefore, such further instruments evidencing such subordination of this Lease to such ground or underlying leases and to the lien of any such mortgages or deeds of trust as may be required by Landlord. Tenant hereby appoints Landlord as Tenant's attorney-in-fact, irrevocably, to execute and deliver any such agreements, instruments, releases or other documents. 16.3 Quiet Enjoyment. Landlord covenants and agrees with Tenant that upon Tenant paying rent and other monetary sums due under the Lease, performing its covenants and conditions under the Lease Tenant shall and may peaceably and quietly have, hold and enjoy the Premises for the term, subject, however, to the terms of the lease and of any of the aforesaid ground leases, mortgages or deeds of trust described above. 16.4 Attornment. In the event any proceedings are brought for default under ground or any underlying lease or if the event of foreclosure or the exercise of the power of sale under any mortgage or deed of trust made by the Landlord covering the Premises, the Tenant shall attorn to the purchaser upon any such foreclosure or sale and recognize such purchaser as the Landlord under this Lease, provided said purchaser expressly agrees in writing to be bound by the terms of the Lease. 17. DEFAULT REMEDIES 17.1 Default. The occurrence of any of the following shall constitute a material default and breach of this Lease by Tenant: (a) Any failure by Tenant to pay the rent or any other monetary sums required to be paid hereunder (where such failure continues for five (5) days after written notice by Landlord to Tenant); (b) The abandonment or vacation of the Premises by Tenant; (c) A failure by tenant to observe and perform any other provision of this Lease to be observed or performed by Tenant, where such failure continuous for twenty (20) days after written notice thereof by Landlord to Tenant; provided, however that if the nature of the default is such that the same cannot be reasonably cured within said twenty (20) day period, Tenant shall not be deemed to be in default if Tenant shall within such period commence such cure and thereafter diligently prosecute the same to completion; (d) The making by Tenant of any general assignment or general arrangement for the benefit of creditors; the filing by or against Tenant of a petition to have Tenant adjudged bankrupt or of a petition for reorganization or arrangement under any law relating to bankruptcy (unless, in the case of a petition filed against Tenant, the same is dismissed within sixty (60) days); the appointment of a trustee or receiver to take possession of substantially all of tenant's assets located in the Premises or of Tenant's interest in this Lease, where possession is not restored to Tenant within thirty (30) days; or the attachment, execution or other judicial seizure of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease, where such seizure is not discharged within thirty (30) days. 17.2 Remedies. In the event of any such material default or breach by Tenant, Landlord may, at any time thereafter without limiting Landlord in the exercise of any right or remedy at law or in equity which Landlord may have by reason of such default breach; (a) Maintain this Lease in full force and effect and recover the rent and other monetary charges as they become due, without terminating Tenant's right to possession irrespective of whether Tenant shall have abandoned the Premises. In the event Landlord elects not to terminate the Lease, Landlord shall have the right to attempt to relet the Premises at such rent and upon such conditions and for such a term, and to do all acts necessary to maintain or preserve the Premises as Landlord deems reasonable and necessary without being deemed to have elected to terminate the Lease. Including removal of all persons and property from the Premises; such property may be removed and stored in a public warehouse or elsewhere at the cost of and for the account of the Tenant. In the event any such re-letting occurs, this Lease shall terminate automatically upon the new tenant taking possession of the Premises. Notwithstanding that Landlord fails to elect to terminate the Lease initially, landlord at any time during the term of this Lease may elect to terminate this Lease by virtue of such previous default of Tenant. 10 (b) Terminate Tenant's right to possession by any lawful means, in which case this Lease shall terminate and Tenant shall immediately surrender possession of the Premises to Landlord. In such event, Landlord shall be entitled to recover from Tenant all damages incurred by Landlord by reason of Tenant's default, including without limitation thereto, the following: (I) the worth at the time of award of any unpaid rent which had been earned at the time of such termination; plus (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 rental loss that is proved could have been reasonably avoided; plus (III) the worth at the time of award of the amount by which the unpaid rent for the balance of the term at the time of award exceeds the amount of such rental loss that is proved could be reasonably avoided; plus (IV) any other amount necessary to compensate Landlord of all the detriment proximately caused by Tenant's failure to perform his obligations under this Lease or which in the ordinary course of events would be likely to result therefrom; plus (V) at Landlord's election, such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by applicable State law. Upon any such re-entry Landlord shall have the right to make any reasonable repairs, alterations or modification to the Premises, which Landlord in its sole discretion deems reasonable and necessary. As used in (I) above, the "worth at the time of award" is computed by discounting such amount by ten percent (10%). The term "rent", used in this Section 17, shall be deemed to be, and to mean, the rent to be paid pursuant to Section 3 and all other monetary sums required to be paid by Tenant pursuant to the term of this Lease. 17.3 Late Charges. Tenant hereby acknowledges that late payment by Tenant to Landlord of rent and other sums due hereunder will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges and late charges which may be imposed on Landlord by the terms of any mortgage or trust deed covering the Premises. Accordingly, if any installment of rent or any other sum due from Tenant shall not be receive by Landlord or Landlord's designee within ten (10) days after such amount shall be due, Tenant shall pay to Landlord a late charge equal to ten percent (10%) of such overdue amount. The parties hereby agree that such late charge by Landlord shall in no event constitute a waiver of Tenant's default with respect to such overdue amount, nor prevent Landlord from exercising any of the rights and remedies granted hereunder. 17.4 Default by Landlord. Landlord shall not be in default unless Landlord fails to perform obligations required by Landlord within a reasonable time, but in no event later than thirty (30) days after written notice by Tenant to Landlord and to the holder of any first mortgage or deed of trust covering the Premises whose name and address shall have theretofore been furnished to Tenant in writing, specifying wherein Landlord has failed to perform such obligations; provided, however, that if the nature of Landlord's obligation is such that more than thirty (30) days are required for performance, then Landlord shall not be in default if Landlord commences performance within such thirty (30) day period and thereafter diligently prosecutes the same to completion. For the purpose of maintaining an economical and proper distribution of Tenants throughout the Building acceptable to Landlord, Landlord shall have the right from time to time during the term of the Lease to relocate the Premises in the Building on the following terms and conditions; (a) The rented usable areas of the new location in the Building are of equal size to the existing location (subject to a variation of up to ten percent (10%) provided the amount of rent payable under this Lease is not increased; (b) If the then prevailing rental rate for the new location is less than the amount being paid for the existing location, the rent shall be reduced to equal the then prevailing rent for the new location; (c) Landlord shall pay the cost of providing tenant improvements on the new location comparable to the tenant improvements in the existing location; (d) Landlord shall pay the expenses reasonably incurred by Tenant in connection with such substitution of Premises, including but not limited to, costs of moving, door lettering, telephone relocation and reasonable quantities of new stationary. Landlord shall deliver to Tenant written notice of Landlord's election to relocate the Premises, specifying the new location and the amount of rent payable therefore at least thirty (30) days prior to the date the relocation is to be effective. If the relocation of the Premises is not acceptable to Tenant, Tenant for a period of ten 11 (10) days after receipt of Landlord's notice to relocate shall have the right (by delivering written notice to Landlord) to terminate this Lease effective thirty (30) days after delivery of written notice. 19. OMIT 20. MISCELLANEOUS 20.1 Estoppel Certificate (a) Tenant shall at any time upon no less than ten (10) days prior written notice from Landlord, execute, acknowledge and deliver to Landlord a statement in writing; (I) certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect) and the date to which the rent and other charges are paid in advance, if any; and (II) acknowledging that there are not, to Tenant's knowledge, any uncured defaults on the part of Landlord hereunder, or specifying such defaults in any are claimed. Any such statement may be conclusively relied upon by any prospective purchaser or encumbrancer of the Premises. (b) Tenant's failure to deliver such statement within such time shall be conclusive upon Tenant; (I) that this Lease is in full force and affect, without modification except as may be represented by Landlord; (II) that there are no uncured defaults in Landlord's performance; and (III) that not more than one month's rent has been paid in advance. (c) If Landlord desires to finance or refinance the Building, or any part thereof, Tenant hereby agrees to deliver to any lender designated by Landlord such financial statements of Tenant as may be reasonably required by such lender. Such statements shall include the past three years' financial statements of Tenant. All such financial statements shall be received by Landlord in confidence and shall be used only for the purpose herein set forth. Prior to delivering such financial statements to the Lender, the Landlord shall obtain the agreement of the Lender to keep such financial statements confidential and not to use such financial statements other than to evaluate the credit of Tenant for the purpose of financing or refinancing the Building. 20.2 Transfer of Landlord's Interest. In the event of a sale or conveyance by Landlord of Landlord's interest in the Premises or the Building other than a transfer for security purposes only, Landlord shall be relieved from and after the date specified in any such notice of transfer of all obligations and liabilities accruing thereafter on the part of Landlord, provided that any funds in the hands of Landlord at the time of transfer in which Tenant has an interest, shall be delivered to the successor of Landlord, and provided further that all Landlord's obligations hereunder are assumed in writing by the transferee. This Lease shall not be affected by any such sale and Tenant agrees to attorn to the purchaser or assignee provided all Landlord's obligations hereunder are assumed in writing by the transferee. 20.3 Captions, Attachments, Defined Terms (a) The captions of the paragraph of this Lease are for convenience only and shall not be deemed to be the relevant in resolving any question of interpretation or construction of any section of this Lease. (b) Exhibits attached hereto, and addenda's and schedules initialed by the parties, are deemed by attachment to constitute part of this Lease and are incorporated herein. (c) The words "Landlord" and "Tenant", as used herein, shall include the plural as well as the singular. Words used in neuter gender include masculine and feminine and words in the masculine or feminine gender include the neuter. If there be more than one Landlord or Tenant, the obligations hereunder imposed upon Landlord or Tenant shall be joint and several; as to a Tenant which consists of husband and wife, the obligations shall extend individually to their sole and separate property as well as community property. The term "Landlord" shall mean only the owner or owners at the time in question of the fee title or a tenant's interest in a ground lease of the land underlying the Building. The obligations contained in this Lease to be performed by Landlord shall be binding on Landlord's successors and assigns only during their respective periods of ownership. 20.4 Entire Agreement. This instrument along with any exhibits and attachments hereto constitutes the entire agreement between Landlord and Tenant relative to the Premises and this Agreement and the exhibits and attachments may be altered, amended or revoked only by an instrument in writing signed by both Landlord and Tenant. Landlord and Tenant agree hereby that all prior or contemporaneous oral agreements between and among themselves and their agents or representatives relative to the leasing of the Premises are merged in or revoked by this Agreement. 12 20.5 Severability. If any term or provision of this Lease shall, to any extent, be determined by a court of competent jurisdiction to be invalid or unenforceable, the remainder of this Lease shall not be affected thereby, and each term and each term provision of this Lease shall be valid and be enforceable to the fullest extent permitted by law. 20.6 Costs of Suit (a) If Tenant or Landlord shall bring any action for any relief against the other, declaratory or otherwise, arising out of this Lease, including any suit by Landlord for the recovery of rent or possession of the Premises, the losing party shall pay the successful party a reasonable sum for attorneys' fees which shall be deemed to have accrued on the commencement of such action and shall be paid whether or not such action is prosecuted judgment. (b) Should Landlord, without fault on Landlord's part, be made a party to any litigation instituted by Tenant or by any third party against Tenant, or by or against any person holding under or using the premises by license of Tenant, or for the foreclosure of any lien for labor or material furnished to or for Tenant or any such other person or otherwise arising out of or resulting from any act or transaction of Tenant or of any such person, Tenant covenants to save and hold Landlord harmless form any judgment rendered against Landlord or the Premises or any part thereof, and all costs and expenses, including reasonable attorneys' fees, incurred by Landlord in or in connection with such litigation. (c) If Tenant or Landlord or their successors or assigns shall bring an action against Broker or make Broker a party to litigation arising out of this Lease, Broker shall be entitled to recover reasonable attorneys' fees and court costs from the party bringing the action if Broker is adjudged by a court of competent jurisdiction to be without fault in such matter. 20.7 Time, Joint and Several Liability. Time is of the essence of this Lease and each and every provision hereof, except as to the conditions relating to the delivery of possession of the Premises to Tenant. All the terms, covenants and conditions contained in this Lease to be performed by either party, if such party shall consist of more than one person or organization, shall be deemed to be joint and several, and all rights and remedies of the parties shall be cumulative and non-exclusive of any other remedy at law or in equity. 20.8 Binding Effect, Choice of Law. The parties hereto agree that all provisions hereof are to be construed as both covenants and conditions as though the words importing such covenants and conditions were used in each separate paragraph hereof. Subject to any provisions hereof restricting assignment or subletting by Tenant and subject to Section 20.2, all of the provisions hereof shall bind and insure to the benefit of the parties hereto and their respective heirs, legal representatives, successors and assigns. This Lease shall be governed by the laws of the State of Nevada. 20.9 Waiver. No covenant, term or condition or the breach thereof shall be deemed waived, except by written consent of the party against whom the waiver is claimed, and any waiver or the breach of any covenant, term or condition. Acceptance by Landlord of any performance by Tenant after the time the same shall have become due shall not constitute a waiver by Landlord of the breach or default of any covenant, term or condition unless otherwise expressly agreed to by Landlord in writing. 20.10 Surrender of Premises. The voluntary or other surrender of this Lease by Tenant, a mutual cancellation thereof, shall not work a merger, and shall at the option of the Landlord, terminate all or any existing subleases or subtenancies, or may, at the option of the Landlord, operate as an assignment to it of any or all such subleases or subtenancies. 20.11 Holding Over. If after expiration of the Term, Tenant remains in possession of the Premises with Landlord's permission (expressed or implied), Tenant shall become a tenant from month to month only, upon all the provisions of this Lease (except as to term and Base Rent), but the "Monthly Installments of Base Rent" payable by Tenant shall be increased to one hundred twenty percent (120 %) of the Monthly Installments of Base Rent payable by Tenant at the expiration of the Term. Such monthly rent shall be payable in advance on or before the first day of each month. If either party desires to terminate such month to month tenancy, it shall give the other party not less than thirty (30) days advance written notice of the date of termination. 20.12 Signs 13 (a) Tenant shall not place or permit to be placed in or upon the Premises, where visible from outside the Premises or any part of the Building, any signs, notices, drapes, shutters, blinds or displays of any type without prior written consent of Landlord. (b) Landlord reserves the right in Landlord's sole discretion to place and locate on the roof, exterior of the Building, and in any area of the Building not leased to Tenant such signs, notices, displays and similar items as Landlord deems appropriate in the proper operation of the Building. 20.13 Reasonable Consent. Except as limited elsewhere in this Lease, wherever in this Lease Landlord or Tenant is required to give its consent or approval to any action on the part of the other, such consent or approval shall not be unreasonably withheld. In the event of failure to give any such consent, the other party shall be entitled to specific performance at law and shall have such other remedies as are reserved to it under this Lease, but in no event shall landlord or Tenant be responsible in monetary damages for failure to give consent unless said consent is withheld maliciously or in bad faith. 20.14 Interest on Past Due Obligations. Except as expressly provided, any amount due to Landlord not paid when due shall bear interest at ten percent (10%) per annum from the due date. Payment of such interest shall not excuse or cure any default by Tenant under this Lease. 20.15 Rules and Regulations, Parking. Tenant and Tenant's agents, servants, employees, visitors and licensees shall observe and comply fully and faithfully with all reasonable and non- discriminatory rules and regulations adopted by Landlord for the care, protection, cleanliness and operation of the Building and its Tenants including those annexed to this Lease as Exhibit C and any modifications or additions thereto adopted by Landlord, provided Landlord shall give written notice thereof to Tenant. Landlord shall not be responsible to Tenant for the non-performance by any other tenant or occupant of the Building of any said rules and regulations. 20.16 Notices. All Notices of demands of any kind required or desired to be given by Landlord or Tenant hereunder shall be in writing and shall be deemed delivered forty-eight (48) hours after depositing the notice or demand in the United States mail, certified or registered, postage prepaid addressed to the Landlord or Tenant respectively at the addresses set forth after their signatures at the end of this Lease. 20.17 Corporate Authority. If Tenant is a corporation, each individual executing this Lease on behalf of said corporation represents and warrants that he is duly authorized to execute and deliver this Lease on behalf of said corporation in accordance with the duly adopted resolution of the Board of Directors of said corporation or in accordance with the By-laws of said corporation, and that this Lease is binding upon said corporation in accordance with its terms. If Tenant is a corporation, Tenant shall, within thirty (120) days after execution of this Lease, deliver to Landlord a certified copy of a resolution of the Board of Directors of said corporation authorizing or ratifying the execution of this Lease. 21. PARKING Landlord shall provide to tenant during the term of the Lease and any option period exercised, twenty-two (22) free, unreserved surface parking spaces. 22. TERM AND OPTIONS Provided Tenant is not then in default, Tenant shall have the option to renew this Lease upon the expiration of the term hereof for an additional term of Five (5) years, upon the same terms and conditions as are herein provided other than the rent, which shall be the rent at comparable office rent, not to be less than rent at the last month of the Lease. If Tenant desires to exercise such option, it shall do so by giving written notice to Landlord, not less than One Hundred Eighty (180) days prior to the expiration of the Term set forth above. 23. OPTION TO LEASE EXPANSION SPACE 14 Provided Tenant is not then in default, Tenant shall have the option to lease additional office space in the Building, as it becomes available. Landlord shall notify Tenant of any portion of the 2nd Floor not originally included in the Premises that is becoming available, including the market rent for such space and the terms of the lease of such additional space. The rent to Tenant for such available space shall be the Market rent of said space in the Building. If Tenant desires to exercise such option, it shall do so by giving written notice to Landlord within ten (10) days from delivery to Tenant of the notice of availability of such space. Upon exercise of the option, the parties shall exercise a Lease Amendment setting forth the terms and conditions of the Lease of the additional space. 24. RESTRICTIVE COVENANTS Throughout the Term, Landlord shall not lease any space in the building to a Payroll or Employment business without the written consent of the Tenant. Subject to the City of Reno's approval and Tenant leasing from Landlord in excess of 10,000 square feet, Tenant at Tenant's sole expense shall install an identification sign on the Building's monument sign. Landlord shall have the right to approve or disapprove specifications of the above mentioned sign, but consent shall not be unreasonably withheld. 26. NO LIENS Landlord warrants that during the term of the Lease and any renewals thereof, there will be no liens, encumbrances that will substantially impair Tenant's use and employment of the Premises for the purposes stated in the Lease. If Landlord does not cure any breach of this warranty within ten (10) days after written notice of breach delivered to the Landlord, Tenant may terminate this Lease immediately by written notice delivered to the Landlord within ten (10) days after the expiration of such ten (10) day period. Rent shall be abated during such impairment. 27. TAXES The Tenant shall have the right to contest any tax, assessment, condemnation or other law or government act that increases the cost or interference with the use and occupancy rights of the Tenant in connection with the Premises. 28. INSPECTION OF BOOKS AND RECORDS The Tenant shall have the right at any reasonable time on thirty (30) days written notice to inspect the books and records of the Landlord, and any other documents in the possession or control of the Landlord, to the extent that such books, records or documents reflect or form the basis of any obligation of the Tenant under this Lease Agreement. 29. QUIET POSSESSION Tenant shall have the right of quiet possession and enjoyment of the Premises free from any interference arising from any act or omission of the Landlord, its agent or tenants. Landlord will maintain the common areas and access to the Premises at all times in such manner as shall permit the Tenant to carry on its business in the normal manner without interference or interruption. IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease the date and year as first referenced above. Landlord: Tenant: Incline Capital Group, LLC TriNet Employer Group, Inc. a Nevada LLC a California Corporation 15 By: ___________________________ By:/s/ DOUGLAS P. DEVLIN --------------------- (signature) (signature) Paul Shirley Douglas P. Devlin Chief Financial Officer Address: Address: 875 Lakeshore Blvd. 101 Callan Avenue Incline Village, NV 89451 San Leandro, CA 94577 (510) 297-0221 16 FIRST AMENDMENT TO LEASE ------------------------ This First Amendment to Lease dated July 9th, 1999 is entered into this 19th day of July, 1999, by and between Incline Capital Group, LLC a Nevada Corporation ("Landlord") and TriNet Employer Group, Inc. ("Tenant"). The parties hereto wish to amend the Lease to add (i) the Adjusted Base Rent to the terms and conditions of the Lease as hereinafter set forth. NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. Adjusted Base Rent. As of the Effective Date, Section 2.1 of the Lease is ------------------- hereby amended so that the monthly Adjusted Base Rent shall be added for the premises and shall be as follows: Month 1 - 12: $1.65 per square foot of Rentable Area, modified gross full service with Tenant being responsible to pay all janitorial expenses. Month 13 - 24: $1.69 per square foot of Rentable Area, modified gross full service with Tenant being responsible to pay all janitorial expenses. Month 25 - 36: $1.73 per square foot of Rentable Area, modified gross full service with Tenant being responsible to pay all janitorial expenses. Month 37 - 48: $1.77 per square foot of Rentable Area, modified gross full service with Tenant being responsible to pay all janitorial expenses. Month 49 - 60: $1.82 per square foot of Rentable Area, modified gross full service with Tenant being responsible to pay all janitorial expenses. 2. No Change. Except as set forth herein, all of the terms and conditions ---------- of the Lease remain unchanged and in full force and effect. IN WITNESS WHEREOF, Landlord and Tenant have executed this First Amendment as of the day and date first written above. LANDLORD: TENANT: INCLINE CAPITAL GROUP, LLC. TRINET EMPLOYER GROUP, INC A Nevada LLC a California corporation By: /s/ [ILLEGIBLE] SHIRLEY By: /s/ DOUGLAS P. DEVLIN, CFO --------------------------- -------------------------- Its: Manager Its: Chief Financial Officer -------------------------- -------------------------- By:_________________________ Its:________________________ PAGE 1 SECOND AMENDMENT TO LEASE ------------------------- This Amendment to Lease dated July 9th, 1999 is entered into this 19th day of October, 1999, by and between INCLINE CAPITAL GROUP, LLC a Nevada Limited Liability Company ("Landlord") and TRINET EMPLOYER GROUP, INC. a California Corporation ("Tenant"). The parties hereto wish to amend the Lease to modify (i) the Premise to the terms and conditions of the Lease as hereinafter set forth. NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. PREMISES. --------- 1.1 Description. As of the Effective Date, Section 1.1 of the Lease is ----------- hereby amended so that the Premise size shall be as follows: The size of the Premises shall increase from 6,364+ square feet of - rentable area to 12,612+ square feet of rentable area. - 1.2 Work of Improvement. As of the Effective Date, Section 1.2 of the ------------------------ Lease is hereby amended to reflect the additional Tenant Improvement Allowance offered by Landlord caused by the increase in Premise size. Landlord and Tenant shall expend all funds and do all acts required of them in Exhibit B and shall have the work performed promptly and diligently in a first class workmanlike manner for the amount not to exceed $25.00 per 6,364 rentable square foot of Tenant's initial leased office space and an additional $25.00 per 5,534 usable square foot in the remainder of the expanded Premise. Any amount exceeding $25.00 per square foot shall be paid by Tenant at completion of work. Any amount less than $25.00 per square foot shall be to the benefit of the Landlord. The combined rentable and usable Tenant Improvement Allowance paid by Landlord shall not exceed $297,450.00. In addition, Landlord, Tenant and Broker shall split 1/3rd each of the partial cost of the HVAC VAV Box installation which is $15,598.00 and the VAV cost split three ways shall be $5,199.34 each. 2. RENT. ----- The Rent for the month of October, 1999 and November, 1999 shall be based on the original Lease square footage of 6,364 square feet and Rent for the month beginning December, 1999 through September 28, 2000 shall be based on the square footage of 12,612 square feet. Except as set forth herein, all of the terms and conditions of the Lease remain unchanged and in full force and effect. IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment as of the day and date first written above. LANDLORD: TENANT: Incline Capital Group, LLC. TriNet Employer Group, Inc. a Nevada Limited Liability Company a California Corporation By: /s/ [ILLEGIBLE] SHIRLEY By: /s/ DOUGLAS P. DEVLIN ------------------------------ ------------------------------ Its: Manager Its: CFO ----------------------------- ------------------------------ EX-10.06 7 CREDIT AGREEMENT 9/21/99 (SANWA BANK) [SANWA BANK LOGO] EXHIBIT 10.6 CREDIT AGREEMENT (LINE OF CREDIT) This Agreement is made and entered into as of Sept. 21, 1999, by and between SANWA BANK CALIFORNIA (the "Bank") and TRINET EMPLOYER GROUP, INC. (the "Borrower"), on the terms and conditions that follow: SECTION 1 DEFINITIONS 1.1 Certain Defined Terms: Unless elsewhere defined in this Agreement, the following terms shall have the following meanings (such meanings to be generally applicable to the singular and plural forms of the terms defined): 1.1.1 "ASP" or "Average Subscriber Payroll" shall mean the sum of payroll disbursements to Subscriber employees divided by the total Subscribers. 1.1.2 "Advance": shall mean an advance to the Borrower under the credit facility (ies) described in Section 2. 1.1.3 "Business Day": shall mean a day, other than a Saturday or Sunday, on which commercial banks are open for business in California. 1.1.4 "Cash Flow": shall mean the sum of net income after tax and exclusive of extraordinary gains plus interest expense, plus depreciation and amortization expense minus dividends and distributions. 1.1.5 "Collateral": shall mean the property described in Section 3, together with any other personal or real property in which the Bank may be granted a lien or security interest to secure payment of the Obligations. 1.1.6 "Current Assets": shall mean current assets as determined in accordance with generally accepted accounting principles, less all amounts due from affiliates, officers or employees. 1.1.7 "Current Liabilities": shall mean current liabilities as determined in accordance with generally accepted accounting principles, including any negative cash balance on the Borrower's financial statement and Indebtedness for borrowed money under lines of credit with the Bank used by the Borrower for working capital purposes. 1.1.8 "Debt": shall mean all interest bearing liabilities of the Borrower less Subordinated Debt, if any. -1- 1.1.9 "EBITDA": shall mean earnings exclusive of extraordinary gains and before deductions for interest expense, taxes, depreciation and amortization expense. 1.1.10 "Effective Tangible Net Worth": shall mean the Borrower's stated net worth plus Subordinated Debt but less all intangible assets of the Borrower (i.e., goodwill, trademarks, patents, copyrights, organization expense, and similar intangible items including, but not limited to, investments in and all amounts due from affiliates, officers or employees). 1.1.11 "Environmental Claims": shall mean all claims, however asserted, by any governmental authority or other person alleging potential liability or responsibility for violation of any Environmental Law or for release or injury to the environment or threat to public health, personal injury (including sickness, disease or death), property damage, natural resources damage, or otherwise alleging liability or responsibility for damages (punitive or otherwise), cleanup, removal, remedial or response costs, restitution, civil or criminal penalties, injunctive relief, or other type of relief, resulting from or based upon (a) the presence, placement, discharge, emission or release (including intentional and unintentional, negligent and non-negligent, sudden or non-sudden, accidental or non-accidental placement, spills, leaks, discharges, emissions or releases) of any Hazardous Material at, in, or from property, whether or not owned by the Borrower, or (b) any other circumstances forming the basis of any violation, or alleged violation, of any Environmental Law. 1.1.12 "Environmental Laws": shall mean all federal, state or local laws, statutes, common law duties, rules, regulations, ordinances and codes, together with all administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any governmental authorities, in each case relating to environmental, health, safety and land use matters; including the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), the Clean Air Act, the Federal Water Pollution Control Act of 1972, the Solid Waste Disposal Act, the Federal Resource Conservation and Recovery Act, the Toxic Substances Control Act, the Emergency Planning and Community Right- to-Know Act, the California Hazardous Waste Control Law, the California Solid Waste Management, Resource, Recovery and Recycling Act, the California Water Code and the California Health and Safety Code. 1.1.13 "Environmental Permits": shall have the meaning provided in Section 5.11 hereof. 1.1.14 "ERISA": shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, including (unless the context otherwise requires) any rules or regulations promulgated thereunder. 1.1.15 "Event of Default": shall have the meaning set forth in Section 7. 1.1.16 "Expiration Date": shall mean March 31, 2000, or the date of termination of the Bank's commitment to lend under this Agreement pursuant to Section 8, whichever shall occur first. 1.1.17 "Hazardous Materials": shall mean all those substances which are regulated by, or which may form the basis of liability under, any Environmental Law, including all substances identified under any Environmental Law as a pollutant, contaminant, hazardous waste, hazardous constituent, special waste, hazardous substance, hazardous material, or toxic substance, or petroleum or petroleum derived substance or waste. 1.1.18 "Indebtedness": shall mean, with respect to the Borrower, (i) all indebtedness for borrowed money or for the deferred purchase price of property or services in respect of which the Borrower is liable, contingently or otherwise, as obligor, guarantor or otherwise, or in respect of which the Borrower otherwise assures a creditor against loss and (ii) -2- obligations under leases which shall have been or should be, in accordance with generally accepted accounting principles, reported as capital leases in respect of which the Borrower is liable, contingently or otherwise, or in respect of which the Borrower otherwise assures a creditor against loss. 1.1.19 "LIBOR Rate Advance": shall have the meaning provided in Section 2.1.5. 1.1.20 "LIBOR Interest Period": shall have the meaning provided in Section 2.1.5. 1.1.21 "LIBOR Rate": shall have the respective meaning provided in Section 2.1.5. 1.1.22 "Line Account": shall have the meaning provided in Section 2.2 hereof. 1.1.23 "Line of Credit": shall mean the credit facility described as such in Section 2. 1.1.24 "Obligations": shall mean all amounts owing by the Borrower to the Bank pursuant to this Agreement including, but not limited to, the unpaid principal amount of Advances. 1.1.25 "Ordinary Course of Business": shall mean, with respect to any transaction involving the Borrower or any of its subsidiaries or affiliates, the ordinary course of the Borrower's business, as conducted by the Borrower in accordance with past practice and undertaken by the borrower in good faith and not for the purpose of evading any covenant or restriction in this Agreement or in any other document, instrument or agreement executed in connection herewith. 1.1.26 "PAP": shall mean Performance Assurance Payments or deposits which are made by Subscribers pursuant to a Subscriber Service Agreement between Borrower and its Subscribers and held in a trust account with Bank. 1.1.27 "Permitted Liens": shall mean: (i) liens and security interests securing indebtedness owed by the Borrower to the Bank; (ii) liens for taxes, assessments or similar charges not yet due; (iii) liens of materialmen, mechanics, warehousemen, or carriers or other like liens arising in the Ordinary Course of Business and securing obligations which are not yet delinquent; (iv) purchase money liens or purchase money security interests upon or in any property acquired or held by the Borrower in the Ordinary Course of Business to secure Indebtedness outstanding on the date hereof or permitted to be incurred under Section 5.7 hereof; (v) liens and security interests which, as of the date hereof, have been disclosed to and approved by the Bank in writing; and (vi) those liens and security interests which in the aggregate constitute an immaterial and insignificant monetary amount with respect to the net value of the Borrower's assets. 1.1.28 "Prior Agreement": means and refers to that certain Equipment Purchase Line of Credit Agreement dated as of September 29, 1998, between Bank and Borrower. 1.1.29 "Reference Rate": shall mean an index for a variable interest rate which is quoted, published or announced by Bank as its reference rate and as to which loans may be made by Bank at, above or below such rate. 1.1.30 "Subordinated Debt": shall mean such liabilities of the Borrower which have been subordinated to those owed to the Bank in a manner acceptable to the Bank. 1.1.31 "Subscriber": shall mean an individual or firm who has entered into a Subscriber Service Agreement with Borrower, whereby Borrower provides certain payroll and other services to the subscriber. -3- 1.1.32 "Term Loan": means and refers to the term loan described in Section 2.1.3. 1.1.33 "This Agreement": means and refers to this Agreement and all amendments, supplements, modifications and addenda hereto, 1.1.34 "Variable Rate Advance": shall have the respective meaning as it is defined for each facility under Section 2, hereof. 1.1.35 "Variable Rate": shall have the respective meaning as it is defined for each facility under Section 2, hereof. 1.2 Accounting Terms: All references to financial statements, assets, liabilities, and similar accounting items not specifically defined herein shall mean such financial statements or such items prepared or determined in accordance with generally accepted accounting principles consistently applied and, except where otherwise specified, all financial data submitted pursuant to this Agreement shall be prepared in accordance with such principles. 1.3 Other Terms: Other terms not otherwise defined shall have the meanings attributed to such terms in the California Uniform Commercial Code. SECTION 2 CREDIT FACILITIES 2.1 THE LINE OF CREDIT 2.1.1 The Line of Credit: On terms and conditions as set forth herein, the Bank agrees to make Advances to the Borrower from time to time from the date hereof to the Expiration Date, provided the aggregate amount of such Advances outstanding at any time does not exceed $4,000,000.00 (the "Line of Credit"). Any sums repaid under the Line of Credit may not be re-borrowed. Advances under the Line of Credit shall be used for the only for the purposes set forth in Exhibit 2.1.1, and in amounts not to exceed those specified for each such purpose. The amount of any and all Advance shall be subject to any further limitations set forth in Exhibit 2.1.1. Bank shall have no duty to make any requested Advance hereunder if Borrower has not provided Bank with such invoices and satisfactory supporting documentation (including, without limitation, an itemized list of allocated costs prior to such Advance) as Bank may require to evidence that the requested Advance has been or will be used by Borrower for the purposes and in the amounts specified in such exhibit. 2.1.2 Making Line Advances: Each Advance shall be conclusively deemed to have been made at the request of and for the benefit of the Borrower (i) when credited to any deposit account of the Borrower maintained with the Bank or (ii) when paid in accordance with the Borrower's written instructions. Subject to the requirements of Section 4 and provided such request is made in a timely manner as provided in Section 2.1.6 below, Advances shall be made by the Bank under the Line of Credit. 2.1.3 Repayment of Line of Credit: Unless sooner due in accordance with the terms of this Agreement or Bank has extended the Term Loan as contemplated herein, the Borrower hereby promises to pay in full on the Expiration Date, the aggregate unpaid principal amount of all Advances and then outstanding, together with all accrued and unpaid interest thereon. Bank agrees to lend to Borrower on the Expiration Date an amount equal to the -4- outstanding amount of all Advances (the "Term Loan") provided no ---------- Event of Default has occurred or is continuing on the Expiration Date, and provided such Term Loan is to be evidenced by and subject to a promissory note to be in form and content safisfactory to Bank and executed by Borrower. Interest shall accrue and be payable on the terms set forth in the promissory note. The proceeds of Term Loan shall be used solely to repay such Advances. 2.1.4 Repayment of the Term Loan. The Term Loan shall be repaid in 36 monthly installments, such payments to begin on the April 30, 2000, and continue thereafter on the last day of each succeeding month to and including February 28, 2003, with a final payment due on March 31, 2003, at which time all outstanding principal plus all accrued and unpaid interest on such loan shall be immediately due and payable. 2.1.5 Interest. Interest shall accrue from the date of each Advance at one of the following rates, as quoted by the Bank and as elected by the Borrower: (i) Variable Rate : A variable rate per annum equivalent to an index for a variable interest rate which is quoted, published or announced from time to time by the Bank as its reference rate (the "Reference Rate") and as to which loans -------------- may be made by the Bank at, below or above such Reference Rate plus one percent (the "Variable Rate"). Interest shall ------------- be adjusted concurrently with any change in the Reference Rate. Each Advance based upon the Variable Rate is hereinafter referred to as a "Variable Rate Advance." --------------------- (ii) LIBOR Rate. In addition to Variable Rate Advances, the Bank hereby agrees to make one or more Advances (in the minimum amount $250,000.00), which shall accrue interest at a fixed rate quoted by the Bank for a minimum of three months or for such other period of time that the Bank may elect to quote and offer (provided that any such period of time does not extend beyond the maturity date of the relevant Advance) [the "LIBOR Interest Period"]. Such interest rate (the --------------------- "LIBOR Rate") shall be a percentage approximately equivalent ---------- to 3.60% in excess of LIBOR as determined by Bank. LIBOR means, as of the date the same is to be determined, the U.S. dollar London Interbank Offered Rate as of such date for a U.S. dollar deposit in an amount approximately equal to the amount of the relevant advance or term loan and for a period of time approximately equal to the relevant LIBOR Interest Period, as appearing on page 3750 (or such other page as may replace page 3750 of the Telerate screen at or about 11:00 a.m. (London time) on the second Business Day prior to the first day of the relevant LIBOR Interest Period. Each Advance bearing interest at the LIBOR Rate is hereinafter referred to as a "LIBOR Rate Advance. " ------------------ (iii) Payment of Interest. On the Advances, Borrower hereby promises and agrees to pay interest monthly on the last day of each month beginning September 30, 1999, and continuing on the same date of each succeeding month thereafter. In addition, with respect to each LIBOR Rate Advance and/or advance bearing interest at the LIBOR Rate, Borrower promises to pay interest on the last day of the relevant LIBOR Interest Period pertaining thereto. Interest not paid when due shall be added to principal and become part thereof, and shall thereafter bear like interest. Interest shall be computed on the basis of 360 days per year, but charged on the actual number of days elapsed. 2.1.6 Notice of Borrowing: Upon written or telephonic notice which shall be received by the Bank at or before 2:00 p.m. (California time) on a Business Day, the Borrower may borrow under the Line of Credit by requesting: -5- (i) A Variable Rate Advance. A Variable Rate Advance may be made on the day notice is received by the Bank; provided, however, that if the Bank shall not have received notice at or before 2:00 p.m. on the day such Advance is requested to be made, such Variable Rate Advance may, at the Bank's option, be made on the next Business Day. (ii) A LIBOR Advance. Notice of any LIBOR Advance shall be received by the Bank no later than two Business Days prior to the day (which shall be a Business Day) on which the Borrower requests such LIBOR Advance to be made. 2.1.7 Notice of Election to Adjust Interest Rate. Upon telephonic notice which shall be received by the Bank at or before 2:00 p.m. (California time) on a business day, the Borrower may elect: (a) That interest on a Variable Rate Advance shall be adjusted to accrued at the LIBOR Rate; provided, however, that such notice shall be received by the Bank no later than two business days prior to the day (which shall be a business day) on which Borrower requests that interest be adjusted to accrue at the LIBOR Rate. (b) That interest on a LIBOR Rate Advance shall continue to accrue at a newly quoted LIBOR Rate as the case may be or shall be adjusted to commence to accrue at the Variable Rate; provided, --------- however, that such notice shall be received by the Bank no later --------- than two business days prior to the last day of the LIBOR Interest Period pertaining to such LIBOR Rate Advance, as applicable. If the Bank shall not have received notice as prescribed herein of Borrower's election that interest on any LIBOR Rate Advance shall continue to accrue at the LIBOR Rate, Borrower shall be deemed to have elected that interest thereon shall be adjusted to accrue at the Variable Rate upon the expiration of the LIBOR Interest Period pertaining thereto. 2.1.8 Prohibition Against Prepayment of LIBOR Rate Advances. Notwithstanding anything to the contrary, no prepayment shall be made on any LIBOR Rate Advance except on a day which is the last day of the LIBOR Interest Period pertaining thereto. If the whole or any part of any LIBOR Rate Advance is prepaid by reason of acceleration or otherwise, the Borrower shall, upon the Bank's request, promptly pay to the Bank a prepayment premium equal to (and shall and indemnify the Bank for) (i) all costs and expenses incurred by the Bank and (ii) any loss deemed sustained by the Bank as a consequence of such prepayment, including loss of future interest income resulting from the re-employment of funds). The Bank shall be entitled to fund all or any portion of its LIBOR Rate Advances in any manner it may determine in its sole discretion, but all calculations and transactions hereunder shall be conducted as though the Bank actually funded all such through the sale of U.S. Treasury securities in the amount of the relevant advance or the relevant LIBOR Rate Advance and in maturities corresponding to the then applicable LIBOR Interest Period. 2.1.9 Mandatory Conversion from LIBOR Rate to Variable Rate. In the event that the Bank, shall at any time determine that the accrual of interest on the basis of the LIBOR Rate (i) is unfeasible because the Bank is unable to determine such rate due to the unavailability of U.S. dollar deposits, contracts or certificates of deposit in an amount approximately equal to the amount of the relevant Advance and for a period of time approximately equal to the relevant LIBOR Interest Period pertaining thereto; or (ii) is or has become unlawful or unfeasible by reason of the Bank's compliance with any new law, rule, regulation, guideline or order, or any new interpretation of any present law, rule, regulation, guideline or order, -6- then the Bank shall give telephonic notice thereof (confirmed in writing) to the Borrower, in which event any such Advance as the case may be shall be deemed to be a Variable Advance and interest shall thereupon immediately accrue at the Variable Rate." 2.1.10 Indemnification for LIBOR Rate Costs. During any period of time in which interest on any Advance is accruing on the basis of the LIBOR Rate, the Borrower shall, upon the Bank's request, promptly pay to and reimburse the Bank for all costs incurred and payments made by the Bank by reason of any future assessment, reserve, deposit or similar requirements or any surcharge, tax or fee imposed upon the Bank or as a result of the Bank's compliance with any directive or requirement of any regulatory authority pertaining or relating to funds used by the Bank in quoting and determining the LIBOR Rate or at such fixed rate. 2.2 Line Account: 2.2.1 The Bank shall maintain on its books a record of account in which the Bank shall make entries for each Advance and such other debits and credits as shall be appropriate in connection with the credit facilities granted hereunder (the "Line Account"). The Bank shall provide the Borrower with a statement of the Borrower's Line Account, which statement shall be considered to be correct and conclusively binding on the Borrower unless the Borrower notifies the Bank to the contrary within 30 days after the Borrower's receipt of any such statement which it deems to be incorrect. 2.2.2 The Borrower hereby authorizes the Bank to charge, from time to time, against any or all of the Borrower's deposit accounts with the Bank any amount so due under this Agreement, including, but not limited to, account # 0560-53600 maintained with the Bank's Hayward Office (BBC). 2.2.3 If any payment required to be made by the Borrower hereunder becomes due and payable on a day other than a Business Day, the due date thereof shall be extended to the next succeeding Business Day and interest thereon shall be payable at the then applicable rate during such extension. All payments required to be made hereunder shall be made to the office of the Bank designated for the receipt of notices herein or such other office as Bank shall from time to time designate. 2.3 Late Payment: In addition to any other rights the Bank may have hereunder, if any payment of principal or interest or any portion thereof, under this Agreement is not paid within 5 days of when due, a late payment charge equal to five percent (5%) of such past due payment may be assessed and shall be immediately payable. 2.4 Prior Agreement. In consideration of the credit facility extended by Bank to Borrower hereunder, no further loans or advances will be made by Bank under the Prior Agreement, and the line of credit granted thereunder is hereby cancelled and terminated. SECTION 3 COLLATERAL 3.1 The Collateral: To secure payment and performance of all the Borrower's Obligations under this Agreement and all other liabilities, loans, guarantees, covenants and duties owed by the Borrower to the Bank, whether or not evidenced by this or by any other agreement, absolute or contingent, due or to become due, now existing or hereafter and howsoever created, the Borrower hereby grants the Bank a security interest in and to all of the following property ("Collateral"): -7- (i) Equipment All goods now owned or hereafter acquired by the Borrower or in which the Borrower now has or may hereafter acquire any interest, including, but not limited to, all machinery, equipment, furniture, furnishings, fixtures, tools, supplies and motor vehicles of every kind and description, and all additions, accessions, improvements, replacements and substitutions thereto and thereof (the "Equipment"). (ii) Inventory. All inventory now owned or hereafter acquired by the Borrower, including, but not limited to, all raw materials, work in process, finished goods, merchandise, parts and supplies of every kind and description, including inventory temporarily out of the Borrower's custody or possession, together with all returns on accounts (the "Inventory"). (iii) Accounts. All accounts, contract rights and general intangibles now owned or hereafter created or acquired by the Borrower, including, but not limited to, all receivables, goodwill, trademarks, trademark applications, trade styles, trade names, patents, patent applications, copyrights and copyright applications, customer lists, business records and computer programs, tapes, disks and related data processing software that at any time evidence or contain information relating to any of the Collateral. (iv) Documents. All documents, instruments and chattel paper now owned or hereafter acquired by the Borrower, including, but not limited to, warehouse and other receipts, bills of sale and bills of lading. (v) Monies. All monies, deposit accounts, certificates of deposit and securities of the Borrower now or hereafter in the Bank's or its agents' possession. The Bank's security interest in the Collateral shall be a continuing lien and shall include the proceeds and products of the Collateral including, but not limited to, the proceeds of any insurance thereon. The security interest granted to Bank in the Collateral shall not secure or be deemed to secure any Indebtedness of the Borrower to the bank which is, at the time of its creation, subject to the provisions of any state or federal consumer credit or truth-in-lending disclosure statutes. SECTION 4 CONDITIONS PRECEDENT 4.1 Conditions Precedent to the Initial Advance: The obligation of the Bank to make the initial Advance and the first extension of credit to or on account of the Borrower hereunder is subject to the conditions precedent that the Bank shall have received before the date of such initial Advance and such first extension of credit all of the following, in form and substance satisfactory to the Bank: (i) Authority to Borrow. Evidence that the execution, delivery and performance by the Borrower of this Agreement and any document, instrument or agreement required hereunder have been duly authorized. (ii) Fees. A loan fee of $10,000.00, such fee to be deemed to be fully earned upon payment. -8- (iii) Financing Statements. Executed UCC-1 financing statement(s) describing the Collateral, which have been filed with the Secretary of State or the county recorder as a lien of first priority. (iv) Audit. The Bank shall have conducted an audit of the Borrower's books, records and operations and the Bank shall be satisfied as to the condition thereof. (v) Miscellaneous. Such other evidence as the Bank may request to establish the consummation of the transaction contemplated hereunder and compliance with the conditions of this Agreement. (vi) Surepay Addendum. A new Addendum, in form and content satisfaction to the Bank, to Schedule A for Surepay Services under the Cash Management Service Master Agreement dated as of March 27, 1995, together with a documentation fee of $750.00, which fee shall be deemed fully earned upon payment. 4.2 Conditions Precedent to All Advances: The obligation of the Bank to make each Advance and each other extension of credit to or on account of the Borrower (including the initial Advance and the first extension of credit) shall be subject to the further conditions precedent that, on the date of each Advance or each extension of credit and after the making of such Advance or extension of credit. (i) Subsequent Approvals. The Bank shall have received such supplemental approvals, opinions or documents as the Bank may reasonably request. (ii) Representations and Warranties. The representations contained in Section 5 and in any other document, instrument or certificate delivered to the Bank hereunder are true, correct and complete. (iii) Event of Default. No event has occurred and is continuing which constitutes, or with the lapse of time or giving of notice or both, would constitute an Event of Default. (iv) Collateral. The security interest in the Collateral has been duly authorized, created and perfected with first priority and is in full force and effect. The Borrower's acceptance of the proceeds of any loan, advance or extension of credit or the Borrower's execution of any document or instrument evidencing or creating any Obligation hereunder shall be deemed to constitute the Borrower's representation and warranty that all of the above statements are true and correct. SECTION 5 REPRESENTATIONS AND WARRANTIES The Borrower hereby makes the following representations and warranties to the Bank, which representations and warranties are continuing: 5.1 Status: The Borrower is a corporation duly organized and validly existing under the laws of the state of California and is properly licensed and is qualified to do business and in good standing in, and, where necessary to maintain the Borrower's rights and privileges, has complied with the fictitious name statute of every jurisdiction in which the Borrower is doing business. -9- 5.2 Authoriy: The execution, delivery and performance by the Borrower of this Agreement and any instrument, document or agreement required hereunder have been duly authorized and do not and will not: (i) violate any provision of any law, rule, regulation, order, writ, judgment, injunction, decree, determination or award presently in effect having application to the Borrower; (ii) result in a breach of or constitute a default under any material indenture or loan or credit agreement or other material agreement, lease or instrument to which the Borrower is a party or by which it or its properties may be bound or affected; or (iii) require any consent or approval of its stockholders or violate any provision of its articles of incorporation or by-laws. 5.3 Legal Effect: This Agreement constitutes, and any instrument, document or agreement required hereunder when delivered hereunder will constitute, legal, valid and binding obligations of the Borrower enforceable against the Borrower in accordance with their respective terms. 5.4 Fictitious Trade Styles: There are no fictitious trade styles used by the Borrower in connection with its business operations. The Borrower shall notify the Bank not less than 30 days prior to effecting any change in the matters described herein or prior to using any other fictitious trade style at any future date, indicating the trade style and state(s) of its use. 5.5 Financial Statements: All financial statements, information and other data which may have been or which may hereafter be submitted by the Borrower to the Bank are true, accurate and correct and have been or will be prepared in accordance with generally accepted accounting principles consistently applied and accurately represent the financial condition or, as applicable, the other information disclosed therein. Since the most recent submission of such financial information or data to the Bank, the Borrower represents and warrants that no material adverse change in the Borrower's financial condition or operations has occurred which has not been fully disclosed to the Bank in writing. 5.6 Litigation: Except as have been disclosed to the Bank in writing, there are no actions, suits or proceedings pending or, to the knowledge of the Borrower, threatened against or affecting the Borrower or the Borrower's properties before any court or administrative agency which, if determined adversely to the Borrower, would have a material adverse effect on the Borrower's financial condition or operations or on the Collateral. 5.7 Title to Assets: The Borrower has good and marketable title to all of its assets (including, but not limited to, the Collateral) and the same are not subject to any security interest, encumbrance, lien or claim of any third person except for Permitted Liens. 5.8 ERISA: If the Borrower has a pension, profit sharing or retirement plan subject to ERISA, such plan has been and will continue to be funded in accordance with its terms and otherwise complies with and continues to comply with the requirements of ERISA. 5.9 Taxes: The Borrower has filed all tax returns required to be filed and paid all taxes shown thereon to be due, including interest and penalties, other than such taxes which are currently payable without penalty or interest or those which are being duly contested in good faith. 5.10 Margin Stock. The proceeds of any loan or advance hereunder will not be used to purchase or carry margin stock as such term is defined under Regulation U of the Board of Governors of the Federal Reserve System. 5.11 Environmental Compliance. The operations of the Borrower comply, and during the term of this Agreement will at all times comply, in all respects with all Environmental Laws; the Borrower has obtained all licenses, permits, authorizations and registrations required under any Environmental Law ("Environmental Permits") and necessary for its ordinary course --------------------- operations, all such Environmental Permits are in good standing, and the Borrower is in compliance with all material terms and conditions of such Environmental Permits; neither the Borrower nor any of its present -10- property or operations is subject to any outstanding written order from or agreement with any governmental authority nor subject to any judicial or docketed administrative proceeding, respecting any Environmental Law, Environmental Claim or Hazardous Material; there are no Hazardous Materials or other conditions or circumstances existing, or arising from operations prior to the date of this Agreement, with respect to any property of the Borrower that would reasonably be expected to give rise to Environmental Claims; provided, however, that with respect to property --------- leased from an unrelated third party, the foregoing representation is made to the best knowledge of the Borrower. In addition, (i) the Borrower does not have any underground storage tanks that are not properly registered or permitted under applicable Environmental Laws, or that are leaking or disposing of Hazardous Materials off-site, and (ii) the Borrower has notified all of their employees of the existence, if any, of any health hazard arising from the conditions of their employment and have met all notification requirements under Title III of CERCLA and all other Environmental Laws. 5.12 Inventory: (i) The Borrower keeps correct and accurate records. (itemizing and describing the kind, type, quality and quantity of inventory, the Borrower's cost therefor and selling price thereof, and the daily withdrawals therefrom and additions thereto). (ii) All inventory is of good and merchantable quality, free from defects. (iii) The inventory is not stored with a bailee, warehouseman or similar party. (iv) The Borrower is not a "retail merchant" as defined in the California Uniform Commercial Code. SECTION 6 COVENANTS The Borrower covenants and agrees that, during the term of this Agreement, and so long thereafter as the Borrower is indebted to the Bank under this Agreement, the Borrower will, unless the Bank shall otherwise consent in writing: 6.1 Reporting and Certification Requirements: Deliver or cause to be delivered to the Bank in form and detail satisfactory to the Bank: (i) Not later than 120 days after the end of each of the Borrower's fiscal years, a copy of the annual audited consolidated financial report of the Borrower for such year, prepared by a firm of certified public accountants acceptable to Bank and accompanied by an unqualified opinion of such firm. (ii) Not later than 45 days after the end of each quarter, the Borrower's financial statement as of the end of such period. (iii) Concurrently with the delivery of the financial reports required hereunder, a compliance certificate stating that the Borrower is in compliance with all covenants contained herein and that no Event of Default or potential Event of Default has occurred or is continuing, and certified to by the chief financial officer of the Borrower. (iv) Not later than 30 days after the end of each quarter, a report indicating the Average Subscriber Payroll listing Subscriber's names and average payroll per -11- Subscriber. (v) Not later than 30 days after the end of each fiscal quarter of the Borrower, a PAP report executed by the Borrower and detailing funds on deposit from its Subscribers. (vi) Promptly upon the Bank's request, such other information pertaining to the Borrower, the Collateral or any guarantor hereunder as the Bank may reasonably request, including evidence of Borrower's payment of payroll taxes. 6.2 Financial Condition: The Borrower promises and agrees, during the term of this Agreement and until payment in full of all of the Borrower's Obligations, the Borrower will maintain at all times: (i) A minimum Effective Tangible Net Worth of at least $5,000,000. (ii) A ratio of Current Assets to Current Liabilities of not less than .90 to 1 through December 31, 2000 and 1.0 to 1 thereafter. (iii) A ratio of Cash Flow to the current portion of long term Debt plus interest expense of not less than 1.50 to 1, measured at each fiscal year-end. (iv) A ratio of Debt to EBITDA of not more than 1.5 to 1 at the end of each fiscal quarter, with EBITDA based upon the immediately preceding three fiscal quarters and the current quarter just ended. 6.3 Preservation of Existence; Compliance with Applicable Laws: Maintain and preserve its existence and all rights and privileges now enjoyed; and conduct its business and operations in accordance with all applicable laws, rules and regulations. 6.4 Maintenance of Insurance: Keep and maintain the Collateral insured for not less than its full replacement value against all risks of loss and damage and maintain insurance in such amounts and covering such risks as is usually carried by companies engaged in similar businesses and owning similar properties in the same general areas in which the Borrower operates and maintain such other insurance and coverages as may be required by the Bank. All such insurance shall be in form and amount and with companies satisfactory to the Bank. With respect to insurance covering properties in which the Bank maintains a security interest or lien, such insurance shall name the Bank as loss payee pursuant to a loss payable endorsement satisfactory to the Bank and shall not be altered or canceled except upon 10 days' prior written notice to the Bank. Upon the Bank's request, the Borrower shall furnish the Bank with the original policy or binder of all such insurance. 6.5 Maintenance of Collateral and Other Properties: Except for Permitted Liens, keep and maintain the Collateral free and clear of all levies, liens, encumbrances and security interests (including, but not limited to, any lien of attachment, judgment or execution) and defend the Collateral against any such levy, lien, encumbrance or security interest; comply with all laws, statutes and regulations pertaining to the Collateral and its use and operation; execute, file and record such statements, notices and agreements, take such actions and obtain such certificates and other documents as necessary to perfect, evidence and continue the Bank's security interest in the Collateral and the priority thereof; maintain accurate and complete records of the Collateral which show all sales, claims and allowances; and property care for, house, store and maintain the Collateral in good condition, free of misuse, abuse and deterioration, other than normal wear and tear. The Borrower shall also maintain and preserve all its properties in good working order and condition in accordance with the general practice of other businesses of similar character and size, ordinary wear and tear excepted. -12- 6.6 Payment of Obligations and Taxes: Make timely payment of all assessments and taxes and all of its liabilities and obligations including, but not limited to, trade payables, unless the same are being contested in good faith by appropriate proceedings with the appropriate court or regulatory agency. For purposes hereof, the Borrower's issuance of a check, draft or similar instrument without delivery to the intended payee shall not constitute payment. Borrower agrees to pay all payroll taxes as they become due and upon the request of Bank, to provide Bank with evidence of such payments. 6.7 Inspection Rights and Accounting Records: The Borrower will maintain adequate books and records in accordance with generally accepted accounting principles consistently applied and in a manner otherwise acceptable to Bank, and, at any reasonable time and from time to time, permit the Bank or any representative thereof to examine and make copies of the records and visit the properties of the Borrower and discuss the business and operations of the Borrower with any employee or representative thereof. If the Borrower shall maintain any records (including, but not limited to, computer generated records or computer programs for the generation of such records) in the possession of a third party, the Borrower hereby agrees to notify such third party to permit the Bank free access to such records at all reasonable times and to provide the Bank with copies of any records which it may request, all at the Borrower's expense, the amount of which shall be payable immediately upon demand. 6.8 Redemption or Repurchase of Stock: Not redeem or repurchase any class of the Borrower's stock now or hereafter outstanding. 6.9 Additional Indebtedness: Not, after the date hereof, create, incur or assume, directly or indirectly, any additional Indebtedness other than (i) Indebtedness owed or to be owed to the Bank or (ii) Indebtedness to trade creditors incurred in the Ordinary Course of Business. 6.10 Liens and Encumbrances: Not create, assume or permit to exist any security interest, encumbrance, mortgage, dead of trust, or other lien (including, but not limited to, a lien of attachment, judgment or execution) affecting any of the Borrower's properties, or execute or allow to be filed any financing statement or continuation thereof affecting any of such properties except for Permitted Liens or as otherwise provided in this Agreement. 6.11 Transfer Assets: Not, after the date hereof, sell, contract for sale, convey, transfer, assign, lease or sublet, any of its assets (including, but not limited to, the Collateral) except in the Ordinary Course of Business and, then, only for full, fair and reasonable consideration. 6.12 Change in Nature of Business: Not make any material change in its financial structure or the nature of its business as existing or conducted as of the date hereof. 6.13 Compensation of Employees: Compensate its employees for services rendered at an hourly rate at least equal to the minimum hourly rate prescribed by any applicable federal or state law or regulation. 6.14 Notice: Give the Bank prompt written notice of any and all (i) Events of Default; (ii) litigation, arbitration or administrative proceedings to which the Borrower is a party and in which the claim or liability exceeds $50,000.00 or which affects the Collateral; (iii) other matters which have resulted in, or might result in a material adverse change in the Collateral or the financial condition or business operations of the Borrower, and (iv) any enforcement, cleanup, removal or other governmental or regulatory actions instituted, completed or threatened against the Borrower or any of its properties. 6.15 Environmental Compliance: The Borrower shall conduct its operations and keep and maintain all of its property in compliance with all Environmental Laws and, upon the written request of the Bank,the Borrower shall submit to the Bank, at the Borrower's sole cost and expense, at reasonable -13- intervals, a report providing the status of any environmental, health or safety compliance, hazard or liability. 6.16 Inventory: (i) Except as provided herein below, the Borrower's inventory shall, at all times, be in the Borrower's physical possession, shall not be held by others on consignment, sale on approval, or sale or return and shall be kept only at: 101 Callan Avenue, 3rd Floor, San Leandro, CA 94577 and ______________________________________________________________. (ii) The Borrower shall keep correct and accurate records. (iii) All inventory shall be of good and merchantable quality, free from defects. (iv) The inventory shall not at any time or times hereafter be stored with a bailee, warehouseman or similar party without the Bank's prior written consent and, in such event, the Borrower will concurrently therewith cause any such bailee, warehouseman or similar party to issue and deliver to the Bank, in form acceptable to the Bank, warehouse receipts in the Bank's name evidencing the storage of inventory. (v) At any reasonable time and from time to time, allow Bank to have the right, upon demand, to inspect and examine inventory and to check and test the same as to quality, quantity, value and condition and the Borrower agrees to reimburse the Bank for the Bank's reasonable costs and expenses in so doing. 6.17 Location and Maintenance of Equipment.: (i) The Equipment shall at all times be in the Borrower's physical possession, shall not be held for sale or lease, and shall be kept only at the following location(s): 101 Callan Avenue, 3rd Floor, San Leandro, CA 94577 and ______________________________________________________________. (ii) The Borrower shall not secrete, abandon or remove, or permit the removal of, the Equipment, or any part thereof, from the location(s) shown above or remove or permit to be removed any accessories now or hereafter placed upon, the Equipment. (iii) Upon the Bank's demand, the Borrower shall immediately provide the Bank with a complete and accurate description of the Equipment including, as applicable, the make, model, identification number and serial number of each item of Equipment. In addition, the Borrower shall immediately notify the Bank of the acquisition of any new or additional Equipment or the replacement of any existing Equipment and shall supply the Bank with a complete description of any such additional or replacement Equipment. (iv) The Borrower shall, at the Borrower's sole cost and expense, keep and maintain the Equipment in a good state of repair and shall not destroy, misuse, abuse, illegally use or be negligent in the care of the Equipment or any part thereof. The Borrower shall not remove, destroy, obliterate, change, cover, paint, deface or alter the name plates, serial numbers, labels or other distinguishing numbers or identification marks placed upon the Equipment or any part thereof by or on behalf of the manufacturer, any dealer or rebuilder thereof, or the Bank. The Borrower shall not be released from any liability to the Bank hereunder because of any injury -14- to or loss or destruction of the Equipment. The Borrower shall allow the Bank and its representatives free access to and the right to inspect the Equipment at all times and shall comply with the terms and conditions of any leases covering the real property on which the Equipment is located and any orders, ordinances, laws, regulations or rules of any federal, state or municipal agency or authority having jurisdiction of such real property or the conduct of the business of the persons having control or possession of the Equipment. (v) The Equipment is not now and shall not at any time hereafter be so affixed to the real property on which it is located as to become a fixture or a part thereof. The Equipment is now and shall at all times hereafter be and remain personal property of the Borrower. 6.18 Y2K Compliance. The Borrower shall perform all acts reasonably necessary to ensure that the Borrower becomes Year 2000 Compliant in a timely manner. Such acts shall include performing a review and assessment of all of Borrower's systems and adopting a plan with a budget for the remediation and testing of such systems. For the purposes hereof, "Year 2000 Compliant" shall mean that all software, hardware, firmware, equipment, goods or systems, utilized by and material to the business operations or financial condition of the Borrower, will properly perform date sensitive functions before, during and after the Year 2000. Borrower shall use its best efforts to remain informed as to whether its major customers, suppliers and vendors are Year 2000 Compliant. Borrower shall, upon the Bank's request, provide Bank with such certifications or other evidence of Borrower's compliance with the terms hereof as Bank may from time to time require. SECTION 7 EVENTS OF DEFAULT Any one or more of the following described events shall constitute an event of default (an "Event of Default") under this Agreement: 7.1 Non-Payment: Any Borrower shall fail to pay the principal amount of any Obligations when due or interest on the Obligations within 5 days of when due. 7.2 Performance Under This Agreement: The Borrower shall fail in any material respect to perform or observe any term, covenant or agreement contained in this Agreement or in any document, instrument or agreement relating to this Agreement or any other document or agreement executed by Borrower with or in favor of Bank and any such failure shall continue unremedied for more than 30 days after written notice from the Bank to the Borrower of the existence and character of such Event of Default. 7.3 Representations and Warranties; Financial Statements: Any representation or warranty made by the Borrower under or in connection with this Agreement or any financial statement given by the Borrower or any guarantor shall prove to have been incorrect in any material respect when made or given or when deemed to have been made or given. 7.4 Other Agreements: If there is a default under any other agreement with Bank or under an agreement to which Borrower is a party with Bank or with a third party or parties resulting in a right by the Bank or by such third party or parties, whether or not exercised, to accelerate the maturity of any Indebtedness. -15- 7.5 Insolvency: The Borrower or any guarantor shall: (i) become insolvent or be unable to pay its debts as they mature; (ii) make an assignment for the benefit of creditors or to an agent authorized to liquidate any substantial amount of its properties and assets; (iii) file a voluntary petition in bankruptcy or seeking reorganization or to effect a plan or other arrangement with creditors; (iv) file an answer admitting the material allegations of an involuntary petition relating to bankruptcy or reorganization or join in any such petition; (v) become or be adjudicated a bankrupt; (vi) apply for or consent to the appointment of, or consent that an order be made, appointing any receiver, custodian or trustee, for itself or any of its properties, assets or businesses; or (vii) in an involuntary proceeding, any receiver, custodian or trustee shall have been appointed for all or substantial part of the Borrower's or guarantor's properties, assets or businesses and shall not be discharged within 30 days after the date of such appointment. 7.6 Execution: Any writ of execution or attachment or any judgment lien shall be issued against any property of the Borrower and shall not be discharged or bonded against or released within 30 days after the issuance or attachment of such writ or lien. 7.7 Suspension: The Borrower shall voluntarily suspend the transaction of business or allow to be suspended, terminated, revoked or expired any permit, license or approval of any governmental body necessary to conduct the Borrower's business as now conducted. 7.8 Material Adverse Change: If there occurs a material adverse change in the Borrower's business or financial condition, or if there is a material impairment of the prospect of repayment of any portion of the Obligations or there is a material impairment of the value or priority of the Bank's security interest in the Collateral. 7.9 Change in Ownership: There shall occur a sale, transfer, disposition or encumbrance (whether voluntary or involuntary), or an agreement shall be entered into to do so, with respect to more than 10% of the issued and outstanding capital stock of the Borrower. 7.10 Impairment of Collateral. There shall occur any injury or damage to all or any part of the Collateral or all or any part of the Collateral shall be lost, stolen or destroyed. SECTION 8 REMEDIES ON DEFAULT Upon the occurrence of any Event of Default, the Bank may, at its sole and absolute election, without demand and only upon such notice as may be required by law: 8.1 Acceleration: Declare any or all of the Borrower's indebtedness owing to the Bank, whether under this Agreement or any other document, instrument or agreement, immediately due and payable, whether or not otherwise due and payable. 8.2 Cease Extending Credit: Cease making Advances or otherwise extending credit to or for the account of the Borrower under this Agreement or under any other agreement now existing or hereafter entered into between the Borrower and the Bank. 8.3 Termination: Terminate this Agreement as to any future obligation of the Bank without affecting the Borrower's obligations to the Bank or the Bank's rights and remedies under this Agreement or under any other document, instrument or agreement. 8.4 Protection of Security Interest: Make such payments and do such acts as the Bank, in its sole judgment, considers necessary and reasonable to protect its security interest or lien in the -16- Collateral. The Borrower hereby irrevocably authorizes the Bank to pay, purchase, contest or compromise any encumbrance, lien or claim which the Bank, in its sole judgment, deems to be prior or superior to its security interest. Further, the Borrower hereby agrees to pay to the Bank, upon demand therefor, all expenses and expenditures (including attorneys' fees) incurred in connection with the foregoing. 8.5 Foreclosure: Enforce any security interest or lien given or provided for under this Agreement or under any security agreement, mortgage, deed of trust or other document, in such manner and such order, as to all or any part of the properties subject to such security interest or lien, as the Bank, in its sole judgment, deems to be necessary or appropriate and the Borrower hereby waives any and all rights, obligations or defenses now or hereafter established by law relating to the foregoing. In the enforcement of its security interest or lien, the Bank is authorized to enter upon the premises where any Collateral is located and take possession of the Collateral or any part thereof, together with the Borrower's records pertaining thereto, or the Bank may require the Borrower to assemble the Collateral and records pertaining thereto and make such Collateral and records available to the Bank at a place designated by the Bank. The Bank may sell the Collateral or any portions thereof, together with all additions, accessions and accessories thereto, giving only such notices and following only such procedures as are required by law, at either a public or private sale, or both, with or without having the Collateral present at the time of the sale, which sale shall be on such terms and conditions and conducted in such manner as the Bank determines in its sole judgment to be commercially reasonable. Any deficiency which exists after the disposition or liquidation of the Collateral shall be a continuing liability of the Borrower to the Bank and shall be immediately paid by the Borrower to the Bank. 8.6 Non-Exclusivity of Remedies: Exercise one or more of the Bank's rights set forth herein or seek such other rights or pursue such other remedies as may be provided by law, in equity or in any other agreement now existing or hereafter entered into between the Borrower and the Bank, or otherwise. 8.7 Application of Proceeds: All amounts received by the Bank as proceeds from the disposition or liquidation of the Collateral shall be applied to the Borrower's indebtedness to the Bank as follows: first, to the costs and expenses of collection, enforcement, protection and preservation of the Bank's lien in the Collateral, including court costs and reasonable attorneys' fees, whether or not suit is commenced by the Bank; next, to those costs and expenses incurred by the Bank in protecting, preserving, enforcing, collecting, liquidating, selling or disposing of the Collateral; next, to the payment of accrued and unpaid interest on all of the Obligations; next, to the payment of the outstanding principal balance of the Obligations; and last, to the payment of any other indebtedness owed by the Borrower to the Bank. SECTION 9 MISCELLANEOUS 9.1 Amounts Payable on Demand: If the Borrower shall fail to pay on demand any amount so payable under this Agreement, the Bank may, at its option and without any obligation to do so and without waiving any default occasioned by the Borrower having so failed to pay such amount, create an Advance under this Agreement in an amount equal to the amount so payable, which Advance shall thereafter bear interest as provided hereunder. 9.2 Default Interest Rate: If an Event of Default, or an event which, with notice or passage of time could become an Event of Default, has occurred or is continuing, the Borrower shall pay to the Bank interest on any Indebtedness or amount payable under this Agreement at a rate which is 3% in excess of the rate or rates then in effect under this Agreement. -17- 9.3 Reliance and Further Assurances: Each warranty, representation, covenant, obligation and agreement contained in this Agreement shall be conclusively presumed to have been relied upon by the Bank regardless of any investigation made or information possessed by the Bank and shall be cumulative and in addition to any other warranties, representations, covenants and agreements which the Borrower now or hereafter shall give, or cause to be given, to the Bank. Borrower agrees to execute all documents and instruments and to perform such acts as the Bank may reasonably deem necessary to confirm and secure to the Bank all rights and remedies conferred upon the Bank by this agreement and all other documents related thereto. 9.4 Attorneys' Fees: Borrower shall pay to the Bank all costs and expenses, including but not limited to reasonable attorneys fees, incurred by Bank in connection with the administration, enforcement, including any bankruptcy, appeal or the enforcement of any judgment or any refinancing or restructuring of this Agreement or any document, instrument or agreement executed with respect to, evidencing or securing the indebtedness hereunder. 9.5 Notices: All notices, payments, requests, information and demands which either party hereto may desire, or may be required to give or make to the other party hereto, shall be given or made to such party by hand delivery or through deposit in the United States mail, postage prepaid, or by facsimile delivery, or to such other address as may be specified from time to time in writing by either party to the other. To the Borrower: To the Bank: TRINET EMPLOYER GROUP, INC. SANWA BANK CALIFORNIA 101 Callan Avenue, 3rd Floor Hayward Office (BBC) San Leandro, CA 94577 24299 Southland Drive Attn: Doug Devlin Hayward, CA 94545 Attn: Elizabeth Saffo FAX: (510) 352-6480 Assistant Vice President FAX: (510) 293-9365 9.6 Waiver: Neither the failure nor delay by the Bank in exercising any right hereunder or under any document, instrument or agreement mentioned herein shall operate as a waiver thereof, nor shall any single or partial exercise of any right hereunder or under any other document, instrument or agreement mentioned herein preclude other or further exercise thereof or the exercise of any other right; nor shall any waiver of any right or default hereunder, or under any other document, instrument or agreement mentioned herein, constitute a waiver of any other right or default or constitute a waiver of any other default of the same or any other term or provision. 9.7 Conflicting Provisions: To the extent the provisions contained in this Agreement are inconsistent with those contained in any other document, instrument or agreement executed pursuant hereto, the terms and provisions contained herein shall control. Otherwise, such provisions shall be considered cumulative. 9.8 Binding Effect; Assignment: This Agreement shall be binding upon and inure to the benefit of the Borrower and the Bank and their respective successors and assigns, except that the Borrower shall not have the right to assign its rights hereunder or any interest herein without the prior written consent of the Bank. The Bank may sell, assign or grant participation in all or any portion of its rights and benefits hereunder. The Borrower agrees that, in connection with any such sale, grant or assignment, the Bank may deliver to the prospective buyer, participant or assignee financial statements and other relevant information relating to the Borrower and any guarantor. 9.9 Jurisdiction: This Agreement, any notes issued hereunder, the rights of the parties hereunder to and concerning the Collateral, and any documents, instruments or agreements mentioned or referred to herein shall be governed by and construed according to the laws of the State of -18- California without regard to conflict of law principles, to the jurisdiction of whose courts the parties hereby submit. 9.10 Waiver of Jury Trial: THE BORROWER AND THE BANK EACH WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT. THE OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR PARTIES, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE BORROWER AND THE BANK EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. 9.11 Counterparts: This Agreement may be executed in any number of counterparts and all such counterparts taken together shall be deemed to constitute one and the same instrument. 9.12 Headings: The headings herein set forth are solely for the purpose of identification and have no legal significance. 9.13 Entire Agreement and Amendments: This Agreement and all documents, instruments and agreements mentioned herein constitute the entire and complete understanding of the parties with respect to the transactions contemplated hereunder. All previous conversations, memoranda and writings between the parties pertaining to the transactions contemplated hereunder not incorporated or referenced in this Agreement or in such documents, instruments and agreements are superseded hereby. This Agreement may be amended only by an instrument in writing signed by the Borrower and the Bank. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first hereinabove written. BANK: BORROWER: SANWA BANK CALIFORNIA TRINET EMPLOYER GROUP, INC. BY: /s/ ELIZABETH SAFFO BY: /s/ MARTIN BABINEC ----------------------------- -------------------------- Name: Elizabeth Saffo, Assistant Name: Martin Babinec, President Vice President BY: /s/ DOUGLAS DEVLIN --------------------------- Name: Douglas Devlin, Chief Financial Officer -19- Exhibit 2.1.1 Schedule of Purposes and Maximum Loan Amounts and Costs - ----------------------------------------------------------------------------- PROJECT NAME BUDGETED PROJECT COSTS - ----------------------------------------------------------------------------- Pay to Bill $ 216,000 - ----------------------------------------------------------------------------- Canadian PTB $ 247,200 - ----------------------------------------------------------------------------- Reno Facility $ 600,000 - ----------------------------------------------------------------------------- Web Deployment $1,453,800 - ----------------------------------------------------------------------------- Back Office Systems $ 981,000 - ----------------------------------------------------------------------------- Additional Web Self-Service $ 531,400 - ----------------------------------------------------------------------------- Additional Infrastructure $ 511,000 - ----------------------------------------------------------------------------- Supporting Capital Expenditures $1,338,646 - ----------------------------------------------------------------------------- Total $5,879,046 - ----------------------------------------------------------------------------- Notwithstanding anything contrary contained in the credit agreement dated September 21, 1999 Sanwa Bank is obligated to advance funds in an amount not to exceed 80% of individual budgeted project costs, as designated in the table above. The Bank, in its sole discretion, may advance funds in an amount not to exceed 100% of individual budgeted project costs. Under no circumstances shall the Bank's aggregate funding exceed $4,000,000.00. -20- CERTIFIED CORPORATE RESOLUTION TO BORROW WHEREAS, TRINET EMPLOYER GROUP, INC. (the "Corporation") has made application to SANWA BANK CALIFORNIA (the "Bank") for credit accommodations which may consist of but shall in no way be limited to the following: the renewal, continuation or extension of an existing obligation; the extension of a new loan, line of credit or commitment; the issuance of letters of credit or banker's acceptances; or the purchase or sale through Bank of foreign currencies. RESOLVED, that: any two, acting together, of the following officers: MARTIN BABINEC, as the PRESIDENT of the Corporation, or DOUGLAS DEVLIN, as the CHIEF FINANCIAL OFFICER of the Corporation, are authorized, in the name of and on behalf of the Corporation to: (a) Borrow money from the Bank in such amounts and upon such terms and conditions as are agreed upon by the officers of the Corporation and the Bank; and execute and deliver or endorse such evidences of indebtedness or renewals thereof or agreements therefor as may be required by the Bank, all in such form and content as the officers of the Corporation executing such documents shall approve (which approval shall be evidenced by the execution and delivery of such documents); provided, however, that the maximum amount of such indebtedness shall not exceed the principal sum of $30,000,000.00 exclusive of any interest, fees, attorneys' fees and other costs and expenses related to the indebtedness. (b) Execute such evidences of indebtedness, agreements, security instruments and other documents and to take such other actions as are herein authorized. (c) Sell to or discount or re-discount with the Bank any and all negotiable instruments, contracts or instruments or evidences of indebtedness at any time held by the Corporation; and endorse, transfer and deliver the same, together with guaranties of payment or repurchase thereof, to the Bank (for which the Bank is hereby authorized and directed to pay the proceeds of such sale, discount or re-discount as directed by such endorsement without inquiring into the circumstances of its issue or endorsement or the disposition of such proceeds). (d) Withdraw, receive and execute receipts for deposits and withdrawals on accounts of the Corporation maintained with the Bank. (e) Grant security interests and liens in any real, personal or other property belonging to or under the control of the Corporation as security for any indebtedness of the Corporation to the Bank; and execute and deliver to the Bank any and all security agreements, pledges, mortgages, deeds of trust and other security instruments and any other documents to effectuate the grant of such security interests and liens, which security instruments and other documents shall be in such form and content as the officers of the Corporation executing such security instruments and other documents shall approve and which approval shall be evidenced by the execution and delivery of such security instruments and other documents. (f) Apply for letters of credit or seek the issuance of banker's acceptances under which the Corporation shall be liable to the Bank for repayment. (g) Purchase and sell foreign currencies, on behalf of the Corporation, whether for immediate or future delivery, in such amounts and upon such terms and conditions as the officer(s) authorized herein may deem appropriate, and give any instructions for transfers or deposits of monies by check, drafts, cable, letter or otherwise for any purpose incidental to the foregoing, and authorize or direct charges to the depository account or accounts of the -1- Corporation for the cost of any foreign currencies so purchased through the Bank. (h) To designate in writing to the Bank in accordance with the terms of any agreement or other document executed by the above-named individuals one or more individuals who shall have the authority to as provided herein, to: (1) request advances under lines of credit extended by the Bank to the Corporation; (2) apply for letters of credit or seek the issuance of bankers acceptances under which the Corporation shall be liable to the Bank for repayment, (3) make deposits and receive and execute receipts for deposits on accounts of the Corporation maintained with the Bank; (4) make withdrawals and receive and execute receipts for withdrawals on account of the Corporation maintained with the Bank; (5) purchase and sell foreign currencies. (i) Transact any other business with the Bank incidental to the powers hereinabove stated. RESOLVED FURTHER, that all such evidences of indebtedness, agreements, security instruments and other documents executed in the name of and on behalf of the Corporation and all such actions taken on behalf of the Corporation in connection with the matters described herein are hereby ratified and approved. RESOLVED FURTHER, that the Bank is authorized to act upon these resolutions until written notice of their revocation is delivered to the Bank. RESOLVED FURTHER, that any resolution set forth herein is in addition to and does not supersede any resolutions previously given by the Corporation to the Bank. RESOLVED FURTHER, that the Secretary of the Corporation be, and hereby is, authorized and directed to prepare, execute and deliver to the Bank a certified copy of the foregoing resolutions. I do hereby certify that I am ____________________, the Secretary of TRINET EMPLOYER GROUP, INC., a California corporation, and I do hereby further certify that the foregoing is a true copy of the resolutions of the Board of Directors of the Corporation adopted and approved by unanimous written consent. I hereby further certify that such resolutions are presently in full force and effect and have not been amended or revoked. I do further certify that the following persons have been duly elected and qualified as and, this day are, officers of the Corporation, holding their respective offices appearing below their names, and that the signatures appearing opposite their names are the genuine signatures of such persons. NAME OF OFFICER: MARTIN BABINEC /s/ MARTIN BABINEC ------------------------------------ (SIGNATURE) TITLE: PRESIDENT NAME OF OFFICER: DOUGLAS DEVLIN /s/ DOUGLAS DEVLIN ------------------------------------ (SIGNATURE) TITLE: CHIEF FINANCIAL OFFICER -2- IN WITNESS WHEREOF, this document is executed as of the 21 day of September, NAME OF CORPORATION: TRINET EMPLOYER GROUP, INC. BY: /s/ DOUGLAS P. DEVLIN ------------------------------------ Name: Douglas P. Devlin, Secretary -3- [SANWA BANK LOGO] TRINET: Construction-Draw Sheet
Owner/Project: Employer Group Inc. Draw #: Date: - ------------------------------------------------------------------------------------------------------------------------------------ C D E F G H I - ------------------------------------------------------------------------------------------------------------------------------------ Description Original Previous Previously This Borrower's Net Request Total Line Budget Request Disbursed Request Equity This Draw Draw to Date - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ Project Name: D10*.80 F10*.20 F10-G10 E10+H10 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ Pay to Bill $216,000 $100,000 $ 80,000 $100,000 $20,000 $ 80,000 $ 160,000 - ----------------------------------------------------------------------------------------------------------------------------------- $ 0 $ 0 $ 0 $ 0 - ----------------------------------------------------------------------------------------------------------------------------------- Canadian PTB $200,000 $190,000 $152,000 $ 30,000 $ 6,000 $ 24,000 $ 176,000 - ----------------------------------------------------------------------------------------------------------------------------------- $ 0 $ 0 $ 0 $ 0 - ----------------------------------------------------------------------------------------------------------------------------------- Reno Facility $100,000 $ 80,000 $ 64,000 $ 50,000 $10,000 $ 40,000 $ 104,000 - ----------------------------------------------------------------------------------------------------------------------------------- $ 0 $ 0 $ 0 $ 0 - ----------------------------------------------------------------------------------------------------------------------------------- Web Deployment $150,000 $ 0 $ 0 $187,500 $37,500 $150,000 $ 150,000 - ----------------------------------------------------------------------------------------------------------------------------------- $ 0 $ 0 $ 0 $ 0 - ----------------------------------------------------------------------------------------------------------------------------------- Back Office Systems $ 0 $ 0 $ 0 $ 0 - ----------------------------------------------------------------------------------------------------------------------------------- $ 0 $ 0 $ 0 $ 0 - ----------------------------------------------------------------------------------------------------------------------------------- Additional Web Self-Service $ 0 $ 0 $ 0 $ 0 - ----------------------------------------------------------------------------------------------------------------------------------- $ 0 $ 0 $ 0 $ 0 - ----------------------------------------------------------------------------------------------------------------------------------- Additional Infrastructure $ 0 $ 0 $ 0 $ 0 - ----------------------------------------------------------------------------------------------------------------------------------- $ 0 $ 0 $ 0 $ 0 - ----------------------------------------------------------------------------------------------------------------------------------- Supporting Capex $ 0 $ 0 $ 0 $ 0 - ----------------------------------------------------------------------------------------------------------------------------------- $ 0 $ 0 $ 0 $ 0 - ----------------------------------------------------------------------------------------------------------------------------------- $ 0 $ 0 $ 0 - ----------------------------------------------------------------------------------------------------------------------------------- TOTAL COSTS $666,000 $370,000 $370,000 $367,500 $73,500 $294,000 $ 664,000 - ------------------------------------------------------------------------------------------------------------------------------------
TRINET: Construction-Draw Sheet
Owner/Project: Employer Group Inc. Draw #: Date: - ------------------------------------------------------------------------------------------------------------------------------------ J K L - ------------------------------------------------------------------------------------------------------------------------------------ Description Budget % Maximum To Date Drawn Funding - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ Project Name: D10+F10 110/J10 IF/(I10=C10*.8,"Y","N") - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ Pay to Bill $200,000 80.00% N - ----------------------------------------------------------------------------------------------------------------------------------- $0 #DIV/0! Y - ----------------------------------------------------------------------------------------------------------------------------------- Canadian PTB $220,000 80.00% Y - ----------------------------------------------------------------------------------------------------------------------------------- $0 #DIV/0! Y - ----------------------------------------------------------------------------------------------------------------------------------- Reno Facility $130,000 80.00% Y - ----------------------------------------------------------------------------------------------------------------------------------- $0 #DIV/0! Y - ----------------------------------------------------------------------------------------------------------------------------------- Web Deployment $187,500 80.00% Y - ----------------------------------------------------------------------------------------------------------------------------------- $0 #DIV/0! Y - ----------------------------------------------------------------------------------------------------------------------------------- Back Office Systems $0 #DIV/0! Y - ----------------------------------------------------------------------------------------------------------------------------------- $0 #DIV/0! Y - ----------------------------------------------------------------------------------------------------------------------------------- Additional Web Self-Service $0 #DIV/0! Y - ----------------------------------------------------------------------------------------------------------------------------------- $0 #DIV/0! Y - ----------------------------------------------------------------------------------------------------------------------------------- Additional Infrastructure $0 #DIV/0! Y - ----------------------------------------------------------------------------------------------------------------------------------- $0 #DIV/0! Y - ----------------------------------------------------------------------------------------------------------------------------------- Supporting Capex $0 #DIV/0! Y - ----------------------------------------------------------------------------------------------------------------------------------- $0 #DIV/0! Y - ----------------------------------------------------------------------------------------------------------------------------------- $0 #DIV/0! Y - ----------------------------------------------------------------------------------------------------------------------------------- TOTAL COSTS $737,500 Y - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL LINE AVAILABILITY $3,336,000 - ------------------------------------------------------------------------------------------------------------------------------------
***SBCL funds advanced in an amount equal to 80% of individual actual project costs (assumes no project variance). ***Aggregate funding not to exceed $4,000,000. ***Prior to draw request-borrower to provide bank with: 1. Individual project receipts/invoices. 2. General breakdown of draw requests for hard costs and soft/labor costs. 3. Signed copy of construction-draw sheet. --------------------------- Trinet Employer Group, Inc. [LOGO OF SANWA BANK CALIFORNIA] AUTHORIZATION TO CHARGE ACCOUNT Hayward BBC #2278 Office September______, 1999 ------------------ You are hereby authorized and instructed to charge $INVOICE AMOUNT to my/our (Checking/XXXXXX No. 0560-53600) account, (MONTHLY/XXXXXXXXXXXXX), beginning October 31, 1999, and credit a like amount to the following indicated account in the name of TriNet Employer Group, Inc. Checking Account____________ Savings Account No._____________ [_] [_] Loan No. 05224199670 ______________ [_] ----------- at SLOC Office [X] In the event there are not sufficient funds in my/our account ---- on the day of the charge, you may at any time thereafter deduct in addition to the amount indicated above, a late charge in accordance with the terms of the above referenced loan. This authority is to remain in full force and effect until revoked by me in writing, or, in case of credit on loan account, until the loan is paid in full. Present contract calls for final payment on September_______ , 1999 CHARGE MUST ORIGINATE TRINET EMPLOYER GROUP, INC. AT DEPOSITORY OFFICE _________________________________________ MIS-40 (03/90) Martin Babinec, President /s/ DOUGLAS DEVLIN ----------------------------------------- Douglas Devlin, Chief Financial Officer TO: Rochelle Dineen, Group Credit DATE: September 10, 1999 FROM: Elizabeth Saffo, Hayward BBC RE: The Commercial Credit Agreement dated September 1999, executed by Trinet Employer Group, Inc. ("Borrower") and Sanwa Bank California ("Bank"). Section 6 Covenants- 6.8 Redemption or Repurchase of Stock: prohibits the ---------------------------------- redemption or repurchase of any class of the Borrower's stock now or hereafter outstanding. Martin Babinec and Doug Devlin are requesting permission to repurchase "diminimus stock" from external company shareholders. Pursuant to Section 6.8 of the Commercial Credit Agreement, the BBC is recommending that the Borrower be permitted to repurchase company stock in an amount not to exceed $50,000 per annum. Recommended Approved /s/ELIZABETH SAFFO /s/ROCHELLE DINEEN 9/10/99 - ------------------ --------------------------------- Elizabeth Saffo, AVP Rochelle Dineen, VP Hayward BBC Group Credit, Northern Region [LOGO OF SANWA BANK CALIFORNIA] LOAN DISBURSEMENT INSTRUCTIONS Line of Credit Date:_____________________________,________________ The undersigned hereby instructs Sanwa Bank California to disburse the proceeds of this loan as shown below: DISBURSEMENT AMOUNT Credited to the following account: Any and all Advances will $_______ be deposited into checking account #0560-53600 upon the request of the Borrower. ======== TOTAL: $_______ -1- BORROWER: TRINET EMPLOYER GROUP, INC. BY: /s/ MARTIN BABINEC -------------------------------- NAME: Martin Babinec, President BY: /s/ DOUGLAS DEVLIN, CFO -------------------------------- NAME: Douglas Devlin, Chief Financial Officer -2- EX-10.07 8 VOLUME LICENSE AGREEMENT 8/12/99 CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAD BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. Exhibit 10.7 CONCUR AGREEMENT NUMBER___________ CONCUR TECHNOLOGIES, INC. VOLUME LICENSE AGREEMENT (Employee-Based Pricing) Volume License Agreement (the "Agreement") made this 12th day of August, 1999, ---- ------ (the "Agreement Date") by and between Concur Technologies, Inc. ("Concur") and TriNet VCO ("Customer"). - ---------- In consideration of the license fee paid by Customer to Concur and of the mutual covenants and conditions set forth herein, the parties agree as follows: DEFINITIONS: "CustomerOne Services" means the technical support and related services provided - --------------------- by Concur for the Licensed Programs as set forth in Section 5.1 and Exhibit B. "Documentation" means technical manuals and other documentation relating to the ------------- operation and use of the Licensed Programs which are delivered with the respective Licensed Programs. "Licensed Programs" means the Concur Software and the Third Party Software. ----------------- "Concur Software" means object code versions of the software programs developed --------------- by or for Concur and described in Exhibit A including any accompanying Documentation, and also including all Updates thereto which may be provided to Customer by Concur pursuant to the terms of Section 5. "Third Party Software" means the object code versions of the third party -------------------- software programs described in Exhibit A, including any accompanying Documentation, and including all Updates thereto which may be provided to Customer by Concur pursuant to the terms of Section 5. "Updates" means one (1) copy of all published revisions and corrections to the ------ Documentation and one (1) copy of corrections and new releases of the Licensed Programs that are generally made available at no additional cost to Concur's customers who have ordered CustomerOne Services for the relevant time period. Updates shall not include any options or future products which Concur or third party vendors license separately, including any specific applications within the EmployeeDesktop suite that have not been licensed by Customer under this Agreement, as referenced in Exhibit A hereto. For example, if Customer is licensing XMS with EmployeeDesktop, payment of CustomerOne fees for XMS does not entitle Customer to use CompanyStore without payment of additional license and CustomerOne fees. 1. LICENSE 1.1 Concur hereby grants to Customer, subject to the terms and conditions of this Agreement and payment of the license fees set forth in Exhibit A, a fully-paid, non-exclusive license without right of sublicense (the "License") to use the Licensed Programs solely for Customer's own internal data processing operations. The parties have agreed not to account for the actual number of users of the Licensed Programs within Customer's organization, but that the license and maintenance fees shall be proportionate to the total number of Customer employees, as published in Customer's annual report (or other reliable data source). Customer shall not permit any third party to use the Licensed Programs except as specifically authorized in writing by Concur. 1.2 Customer may not copy any Licensed Programs, or any portion thereof, except to (a) make one copy solely for backup or archival purposes; or (b) transfer the Licensed Programs to a single hard disk provided Customer keeps the original solely for backup or archival purposes. Customer agrees to reproduce on each copy the copyright and other proprietary notices provided on the Master Disk(s) and the Documentation. Customer may not market rent, lease, or relicense the Licensed Programs or use the Licensed Programs for third party training, commercial timesharing, or service bureau use. 1.3 Customer is authorized to use the Licensed Programs on a back-up computer, at no additional charge, when its primary computer is temporarily inoperable until operable status is restored and processing on the back-up computer is completed. In addition, Customer may install the Licensed Programs on a nonproduction test computer, at Customer's disaster recovery site, for a period not to exceed thirty (30) days per year, solely to recreate Customer's production environment for disaster recovery testing. Customer expressly agrees that it shall neither apply nor benefit from the functionality of the Licensed Programs under such disaster recovery testing, except in the case of disaster. 1.4 Customer agrees not to alter, merge, modify or adapt the Licensed Programs or the Documentation in any way or remove or obscure Concur's copyright or trademark notices. In particular, Customer agrees not to cause or permit the disassembly, decompilation, or reverse engineering of any Licensed Program. In jurisdictions where a right to reverse engineer is provided by law unless information is available about products in order to achieve interoperability, functional compatibility, or similar objectives, Customer agrees to submit a detailed written proposal to Concur concerning Customer's information needs before engaging in reverse engineering. - -------------------------------------------------------------------------------- REV 060399 CONCUR TECHNOLOGIES, INC. Page 1 - -------------------------------------------------------------------------------- 1.5 Other Concur products and/or run time versions of Third Party Software, may be embedded in or delivered with the Licensed Programs under this Agreement ("Embedded Programs"). Customer's right to use any Embedded Programs shall be limited to use necessary to implement the Licensed Programs it has licensed. Customer shall have no right to use such Embedded Programs other than as necessary for the licensed ordinary use of the Licensed Programs. 2. OWNERSHIP 2.1 Concur is the owner of, or has the rights to distribute, all of the software components of the Licensed Programs, all copies of the Licensed Programs, the forms generated by the Licensed Programs and the Documentation for the Licensed Programs. The Licensed Programs and the Documentation are also protected under applicable copyright laws and Customer's right to use the Licensed Programs and the Documentation is limited to the terms and conditions set forth in this Agreement. Any use of the Licensed Programs by the U.S. government is subject to "restricted rights" as that term is defined in FAR 52.227-19(c)(2) or DFAR 252.227.7013(c)(1) (if used in a defense related agency). Customer does not acquire any rights, express or implied, in the Licensed Programs, other than those specified in this Agreement 3. LIMITED WARRANTY AND LIMITATION OF REMEDIES 3.1 Warranties A. Licensed Programs Concur warrants that (i) each Licensed Program will perform in all material respects in accordance with the Documentation for a period of ninety (90) days from the date of delivery of such Licensed Program to Customer, and (ii) each Licensed Program will not, as a result of the date change from December 31, 1999 to January 1, 2000 fail to perform in all material respects in accordance with the Documentation in the year 2000 and beyond. Concur will not in any way be responsible for the Year 2000 Compliance of the email systems, database systems, operating systems, browsers or any other system or application (including any data extract files Concur may create for Customer based on specifications provided by Customer) with which the Licensed Programs interact, interface or exchange data but which are not delivered by Concur as part of the Licensed Programs ("Non-Concur Applications"); and (b) Concur is not responsible for any Year 2000-related problems or compatibility problems resulting from the use of any of the Licensed Programs (i) with any Non-Concur Applications that were not listed in the supported configurations for the specific version of our Licensed Programs licensed by Customer or (ii) that have been customized or altered without the written approval of Concur. In addition, it is not Concur's responsibility to ensure that Year 2000 Compliant versions of Customer's Non-Concur Applications are compatible with the Licensed Programs. Concur further warrants that the Licensed Programs do not contain any time bombs, usage authorization codes, or other codes or programming devices that may be used to access, modify, delete, damage, deactivate or disable the Licensed Programs. The foregoing will not be deemed to prohibit or limit Concur in any way from including features in the Licensed Programs which restrict unlicensed use. B. Media Concur warrants that the Master Disk provided by Concur will be free from defects in materials and workmanship under normal use for a period of ninety (90) days from the date of delivery of the Master Disk to Customer. C. Services Concur warrants that its CustomerOne Services and consulting services will be performed consistent with generally accepted industry standards. This warranty shall be valid for ninety (90) days from performance of service. 3.2 Limitations of Warranty The warranties above are the sole warranties provided by Concur. To be covered by these limited warranties, Customer must provide Concur with written notice of the breach of warranty within the applicable warranty period. Please do not return any defective Master Disks until you have called Concur's technical service support group and received a return authorization number ("RMA"). The warranties do not apply if a Master Disk has been damaged by misuse, or abuse or if a Licensed Program error is caused, in whole or in part by the failure of any hardware or other equipment to function in accordance with the specifications of the applicable manufacturer. CONCUR SPECIFICALLY DISCLAIMS ALL OTHER WARRANTIES AND CONDITIONS, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO, ANY IMPLIED WARRANTY OR CONDITION OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE LICENSED PROGRAMS, THE MEDIA, THE CUSTOMERONE SERVICES AND CONSULTING SERVICES. In no event does Concur warrant that the LICENSED PROGRAMS, related Documentation, or services will satisfy Customer's requirements, be without errors, or that all Licensed Program errors will be corrected, or that the operation of the LICENSED PROGRAMS will be uninterrupted. 3.3 Exclusive Remedies Customer's exclusive remedy, and Concur's entire liability for any breach of warranty, shall be: A. For Licensed Programs At the option of Concur, either correction of the error that caused the breach of warranty, or refund of the - -------------------------------------------------------------------------------- CONCUR TECHNOLOGIES, INC. Page 2 - -------------------------------------------------------------------------------- license fees paid to Concur for the non-performing Licensed Program. B. For Media Concur will replace the defective materials unless the Master Disks have been damaged by misuse or abuse. C. For Services At the option of Concur, either the reperformance of the services, or refund the fees paid to Concur for the unsatisfactory services. 4. LIMITATION OF LIABILITY AND DAMAGES 4.1 NEITHER PARTY (INCLUDING CONCUR'S THIRD PARTY SOFTWARE PROVIDERS) WILL BE LIABLE FOR ANY SPECIAL, INCIDENTAL, CONSEQUENTIAL, INDIRECT, OR THIRD PARTY DAMAGES (INCLUDING LOST PROFITS OR SAVINGS, BUSINESS INTERRUPTION, LOSS OF DATA, OR SIMILAR CLAIMS), WHETHER IN AN ACTION IN CONTRACT OR IN TORT, EVEN IF THE OTHER PARTY OR ANY OTHER PERSON HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. The limitation of liability set forth in this Section shall not be applicable to claims by Concur for Customer's breach of the scope of the license rights under Section 1. 4.2 To the maximum extent permitted by law, Concur's total liability under this Agreement, for whatever cause other than bodily injury, whether in an action in contract or in tort, will be limited to the actual license fees paid by Customer under this Agreement, and if such liability results from Customer's use of the Licensed Programs or from services provided by or on behalf of Concur, such liability will be limited to the actual fees paid by Customer for the relevant Licensed Program or services giving rise to the liability. The limitation of liability set forth in this Section shall not be applicable to claims of infringement under Section 9. 4.3 The parties acknowledge that this Agreement allocates the risks between Concur and Customer and that the fees reflect the limited warranties, limitation of liability, and allocation of risk under this Agreement. Customer further acknowledges that the pricing and terms of this Agreement would have been different had there been a different allocation of risk. 4.4 The parties acknowledge and agree that the limitations specified in this Section will survive and apply even if any remedy provided in this Agreement is determined to have failed of its essential purpose. 5. CUSTOMERONE, CONSULTING AND TRAINING SERVICES 5.1 CustomerOne Services will be provided to customer only under the terms of Concur's CustomerOne policies (including applicable fees) in effect on the date customer support is rendered. Concur's current policies for its CustomerOne Services are set forth in Exhibit B attached to this Agreement. Reinstatement of lapsed CustomerOne Services is subject to Concur's CustomerOne reinstatement fees in effect on the date CustomerOne Services are reordered. 5.2 Concur will provide consulting and training services agreed to by the Parties in writing under the terms of this Agreement. All consulting services shall be billed on a time and materials basis unless the parties expressly agree otherwise in writing. Any consulting or training services acquired from Concur shall be bid separately from the Licensed Programs and Customer may acquire either Licensed Programs or consulting services without acquiring the other. Any training services provided by Concur shall be subject to reasonable cancellation charges as follows: Written notice of cancellation of any scheduled training classes must be received at least fifteen (15) days prior to the first scheduled day of class or Customer will be responsible for the full amount that would have been charged to Customer for such class. For any on-site services requested in writing by Customer, Customer shall reimburse Concur for reasonable, actual travel and out-of-pocket expenses incurred. 5.3 Any ideas, know-how, or techniques which may be developed by Concur under this Agreement, including any enhancements or modifications made to Concur's Licensed Programs (collectively, "Developments"), shall be the property of Concur. Concur may in its sole discretion develop, use, market, and license any software or data processing material that is similar or related to that which was developed by Concur for Customer. Concur shall not be required to disclose information concerning any Developments which Concur deems to be proprietary or confidential. Concur hereby grants to Customer all rights to the Developments except for commercialization of the Developments. Such rights shall include, but not be limited to, the right to use, modify, adapt, copy and distribute (internally to Customer) such Developments. 5.4 Customer acknowledges that Concur has extensive expertise, experience, and proprietary products and tools in the area of operational cost (specifically, travel and entertainment expenses and costs associated with the procurement and human resources processes) management, processing and automation, and that Concur intends to utilize such expertise, experience, products and tools in providing consulting services and other services in such field to other clients. Subject to Concur's compliance with the confidentiality provisions stated herein, nothing in this Agreement shall restrict or limit Concur from performing such development. consulting or other services to any other entity in any industry. Customer agrees that, except as otherwise agreed in this Agreement, Concur and its employees may provide consulting services similar in nature to the services provided hereunder for any third parties both during and after the term of this Agreement. 5.5 Customer and Concur agree to cooperate in good faith to achieve completion of the Services in a timely and professional manner. Customer understands and agrees that Concur's provision of the consulting services may - ------------------------------------------------------------------------------------- REV060399 CONCUR TECHNOLOGIES, INC. Page 3 - -------------------------------------------------------------------------------------
depend on completion of certain Customer tasks or adherence to customer schedules within Customer's control; consequently, the schedule for completion of the consulting services or any portion thereof may require adjustments or changes in the event such Customer tasks or schedules change or are modified or are not completed as anticipated. Concur shall bear no liability or otherwise be responsible for delays in the provision of consulting services or any portion thereof occasioned by Customer's failure timely to complete a Customer task or adhere to a Customer schedule. 6. PAYMENT AND TAXES 6.1 Payment of license fees shall be due thirty (30) days after delivery of the Licensed Programs. All other fees, including fees for CustomerOne Services which are payable in advance of the applicable Support Period, shall be paid within thirty (30) days of Customer receipt of a proper invoice. Customer acknowledges and agrees that Concur may assign the right to receive payments due under this Agreement, to a third party for the purpose of financing and/or leasing such payments. If Customer's procedures require that an invoice be submitted against a purchase order before payments can be made, Customer will be responsible for issuing the purchase order at the time of order. Customer agrees to pay applicable media and shipping charges. Customer shall pay all applicable shipping charges and any federal, state, or local excise, sales, use or other taxes (except taxes based on Concur's net income) imposed in respect of the License granted hereunder or otherwise arising out of this Agreement. In the event that Concur is required to pay any such tax, Customer shall promptly reimburse Concur for the same. Customer shall reimburse Concur for all reasonable travel and out-of-pocket expenses incurred by Concur in rendering any services. Customer acknowledges that Concur will not commence implementation or consulting services until Customer's first scheduled license fee payment under this Agreement (whether such scheduled payment represents the total license fees set forth in Exhibit A or a portion thereof) has been paid by Customer. If past due amounts owing from Customer are not paid within thirty (30) days (i) the unpaid amount shall bear interest at the rate of 1% per month, and (ii) Concur will have the right to terminate this Agreement upon thirty (30) days written notice to Customer. Customer shall reimburse Concur for all reasonable costs incurred (including reasonable attorneys' fees) in collecting past due amounts. 7. EXPORT RESTRICTIONS 7.1 Customer agrees to comply fully with all relevant export laws and regulations of the United States ("Export Laws") to ensure that neither the Licensed Programs nor any direct product thereof are (i) exported directly or indirectly, in violation of Export Laws; or (ii) intended to be used for any purposes prohibited by the Export Laws, including without limitation, nuclear, chemical, or biological weapons proliferation. If a Licensed Program has been rightfully obtained by Customer outside of the United States, Customer agrees not to re-export such Licensed Program or any related technical information except as permitted by the laws and regulations of the United States and those of the jurisdiction in which Customer obtained such Licensed Programs. 8. TERM AND TERMINATION 8.1 This Agreement remains effective until terminated. Customer can terminate this Agreement at any other time upon returning the Master Disk to Concur and destroying all the copies of the Licensed Programs in any form in Customer's possession. This License will also terminate if Customer fails to comply with any material term or condition of this Agreement and such breach is not cured within thirty (30) days following written notice from Concur specifying such breach. This Agreement will terminate automatically upon any transfer of a copy of the Licensed Programs by Customer other than as permitted by this Agreement. The parties rights and obligations under Sections 2, 3.2, 4, 6, 7, 8.1, 9, 10, 11, and 12 shall survive termination of this Agreement. In the event of a termination of this Agreement for any reason, Customer shall be obligated to pay Concur for any authorized work performed and authorized expenses incurred through the date of the termination. 8.2 In the event of a termination of this Agreement, and in addition to any other rights or remedies available to Concur, Customer shall promptly return to Concur the Master Disk and destroy all copies of the Licensed Programs in any form in Customer's possession. Within two (2) weeks after any termination, Customer shall certify in writing to Concur that it has destroyed any and all copies of the Licensed Programs in Customer's possession. Except as provided in Section 3, Customer shall not be entitled to a refund of any portion of the license fee upon termination of this Agreement. 9. INDEMNIFICATION FOR INFRINGEMENT 9.1 Concur warrants to Customer that the Licensed Programs do not infringe any patent issued in the United States or a European Union country, or any trade secret, copyright, or other proprietary rights. As Customer's exclusive remedy for breach of this warranty and Concur's entire liability for infringement, Concur agrees to indemnify and hold Customer harmless with respect to any suit, claim, or proceeding brought against Customer alleging that Customer's permitted use of the Licensed Programs under this Agreement constitutes an infringement of any patent issued in the United States or a European Union country, or any trade secret, copyright or other proprietary right. Concur shall defend Customer against any such suit, claim, or proceeding, and pay all litigation costs and reasonable attorneys' fees incurred in connection with such suit, claim or proceeding, and all settlement payments and damages awarded therein, provided that Concur is notified in writing within thirty (30) days of any such suit, claim or proceeding, Customer tenders the control of any such claim or proceeding to Concur, and Customer cooperates with Concur in the defense or settlement of same. 9.2 Upon notice of alleged infringement or if in Concur's opinion such a claim is likely, Concur shall have the - -------------------------------------------------------------------------------- CONCUR TECHNOLOGIES, INC. Page 4 - -------------------------------------------------------------------------------- right, at its option and expense, either: (a) to procure for Customer the right to continue using the Licensed Programs; or (b) to replace or modify the Licensed Programs so that they provide substantially the same, or greater, functionality and performance than the infringing Licensed Program, but are no longer subject to a claim or infringement. If, in Concur's opinion, none of the options above are reasonably available, Customer's sole and exclusive remedy shall be to return the infringing Licensed Programs to Concur in exchange for a refund of the price that Customer paid to Concur for such Licensed Programs, less reasonable amortization pro-rated over a forty-eight (48) month term from the date the infringing Licensed Programs are shipped to Customer. Concur shall not have any obligation under this Section: (a) to the extent the claim arises from a modification of the Licensed Program other than by or on behalf of Concur or from Customer's use of the Licensed Program in combination with other non-Concur software, equipment or devices; (b) if Concur has provided Customer with a non-infringing version of the Licensed Programs (that provide substantially the same, or greater, functionality and performance than the infringing Licensed Program) and Customer does not promptly replace all copies of the infringing version of the Licensed Programs with the non-infringing version; or (c) the use of any version of a Licensed Program other than the most recent version of that Licensed Program, to the extent that Customer's liability for such infringement claim would have been avoided by the use of said most recent version. 10. CONFIDENTIALITY 10.1 By virtue of this Agreement, Concur and Customer may have access to information that is confidential to one another ("Confidential Information"). Confidential Information shall be limited to the Licensed Programs, the results of any benchmark testing of the Licensed Programs (both of the foregoing are trade secrets of Concur), the terms and pricing under this Agreement and all information clearly identified as confidential. A party's Confidential Information shall not include information that: (a) is or becomes a part of the public domain through no act or omission of the other party; (b) was rightfully in the possession of the other party or was known by it prior to its disclosure; (c) is independently developed by the receiving party without use of any Confidential Information of the other party; or (d) was or is provided by the disclosing party to third parties without restriction on disclosure. 10.2 The parties (including their respective employees and agents) agree to hold each other's Confidential Information in confidence during the term of this Agreement and for two (2) years thereafter. The parties further agree, unless required by law or by court order, not to disclose or make any Confidential Information of the other party available in any form to any third party or to use it for any purpose other than the implementation of this Agreement. Customer will not permit anyone except Authorized Users to have access to the Licensed Programs. 11. RIGHT TO AUDIT 11.1 Concur may from time to time request Customer to provide a certification signed by a duly authorized representative of Customer verifying the total number of persons employed by Customer. 12. GENERAL TERMS 12.1 This Agreement is governed by the laws of the State of Washington, excluding those laws that direct the application of the laws of another jurisdiction. The parties agree that this Agreement shall not be governed by the 1980 U.N. Convention on Contracts for the International Sale of Goods and that English is the governing language of this Agreement. The parties hereby irrevocably consent to the personal jurisdiction of the federal and state courts sitting in King County in the State of Washington, and to service of process within or without Washington by certified mail requiring a signed receipt, and the parties agree that any court action relating to the enforcement of any arbitration award or judgment or seeking injunctive or other equitable relief, shall be brought in such courts. 12.2 All controversies or claims arising out of or relating to this Agreement shall be resolved in accordance with the terms and conditions set forth in this Section. First, the parties will attempt in good faith to resolve each controversy or claim within sixty (60) days by negotiations between senior executives of the parties who have settlement authority and who do not have direct responsibility for the administration of this Agreement. The disputing party shall give the other party written notice of the controversy or claim in accordance with the notice provision of this Agreement. The other party shall submit a response within twenty (20) days after receiving said notice. The notice and response shall include (a) a summary of the party's position and a summary of the evidence and arguments supporting its position, and (b) the name of the executive who will represent the party. The executives shall meet at a mutually acceptable time and place within thirty (30) days of the disputing party's notice and thereafter as often as they deem reasonably necessary to resolve the controversy or claim. Concur and Customer agree that all negotiations conducted pursuant to this Section are confidential and shall be treated as compromise and settlement negotiations for purposes of the Federal Rules of Evidence and state rules of evidence. If the controversy or claim has not been resolved within sixty (60) days of the disputing party's notice, the controversy or claim will be resolved through binding arbitration conducted in accordance with the commercial arbitration rules of the American Arbitration Association ("AAA") then in effect. If Customer initiates arbitration, the arbitration proceeding will be held in King County in the State of Washington and if Concur initiates arbitration, the arbitration proceeding will be held in the city of the federal district courthouse closest to Customer's principal place of business. The parties agree that service of any notices in the course of such arbitration at their respective addresses as provided in Section 12.4 shall be valid and sufficient. All proceedings will be held and a transcribed record prepared in English. The parties will choose, by - -------------------------------------------------------------------------------- REV060399 CONCUR TECHNOLOGIES, INC. Page 5 - -------------------------------------------------------------------------------- mutual agreement, one arbitrator within thirty (30) days of receipt by a party of the other party's notice of its intent to arbitrate. If no arbitrator is appointed within the time provided in this Agreement or any extension of time which is mutually agreed upon, the AAA will make such appointment within thirty (30) days of such failure. The award rendered by the arbitrator shall include costs of arbitration, reasonable attorneys' fees and reasonable costs for expert and other witnesses, and judgment on such award may be entered in any court having jurisdiction thereof. Nothing in this Section shall be deemed to prohibit or restrict either party from seeking injunctive relief and such other rights and remedies as it may have at law or equity for any actual or threatened breach of any provision of this Agreement relating to a party's confidential information or proprietary rights. Except for actions for nonpayment or breach of proprietary rights in the Licensed Programs, no action, regardless of form, arising out of this Agreement may be brought more than one (1) year after the cause of action has accrued. 12.3 Except for Customer's obligation to pay Concur, neither party shall be liable for any delay or failure to perform due to external causes beyond its reasonable control. 12.4 All notices shall be in writing and shall be delivered personally (including overnight mail by private courier) or sent by first-class mail (return receipt requested) or facsimile transmission to the address listed in the signature page to this Agreement. Notice shall be deemed to have been given at the time of delivery, twelve (12) hours after confirmation of receipt if sent by facsimile, and three (3) business days after mailing if sent by first-class mail. If Customer has any questions concerning this Agreement, Customer can contact Concur at the following address: Concur Technologies, Inc. 6222 185th Avenue NE Redmond, WA 98052 Attention: Contract Administration 12.5 Customer acknowledges that it has read this Agreement, understands it and agrees to be bound by its terms and conditions. Customer further agrees that this Agreement (including the Exhibits attached to this Agreement) is the complete and exclusive statement of the agreement between Customer and Concur regarding its subject matter and supersedes and merges any earlier proposal or prior arrangement, whether oral or written, and any other communications between Customer and Concur relative to the subject matter of this Agreement. If any provision of this Agreement is found void or unenforceable, that provision will be enforced to the maximum extent possible, and the remaining provisions of this Agreement will remain in full force and effect. To expedite order processing, Customer agrees that Concur may treat documents faxed by Customer to Concur as original documents; nevertheless, either party may require the other to exchange original signed documents. No purchase order, other ordering document, or any handwritten or typewritten text which purports to modify or supplement the printed text of this Agreement shall add to or vary the terms of this Agreement. Customer consents to Concur identifying Customer as a customer of the Licensed Programs on Concur's customer list; provided, however, that Customer's name will not appear with greater prominence than any of Concur's other customers listed in like manner and that Customer's name will not be used in any manner suggesting any special endorsement of Concur by Customer. 12.6 The parties agree that, during the term of this Agreement and for a period of twelve (12) months thereafter, neither party will, except with the prior written consent of the other, offer employment to or employ any person who is employed by the other party (or any person who is a subcontractor to the other party or an employee thereof) and who has been introduced to the other party in connection with this Agreement. - -------------------------------------------------------------------------------- CONCUR TECHNOLOGIES, INC. Page 6 - -------------------------------------------------------------------------------- 12.7 Neither this Agreement nor the License granted herein may be assigned or transferred without the prior written permission of Concur, which permission shall not be unreasonably withheld. Any attempted assignment without such consent will be void. Notwithstanding the foregoing, Concur may assign this Agreement, without Customer's permission, in connection with any merger, consolidation, sale of all or substantially all of Concur's assets, or any other similar transaction. In addition, Customer agrees that Concur may subcontract the consulting services to be performed in connection with the implementation of the Licensed Programs provided that any such subcontracting arrangement shall not relieve Concur of any of its obligations hereunder. Concur: Concur Technologies, Inc. Customer: TriNet VCO -------------------------------------------- Name: Anne Kroger Name: Douglas P. Devlin ------------------------------------------- Title: Director of Finance Title: Chief Financial Officer ------------------------------------------- Signature: /s/ Anne Kroger Signature: /s/ DOUGLAS P. DEVLIN ---------------------- ------------------------------------------- Date: August 12, 1999 Date: August 12, 1999 ---------------------- ------------------------------------------- Volume License Administrator: ----------------------- Phone/Fax: (510) 352-5000 / (510) 352-6480 ------------------------------------------ Address: 101 Callan Avenue, San Leandro, CA 94577 ----------------------------------------- Customer Email Address: martyr@trinetgroup.com -----------------------------
- -------------------------------------------------------------------------------- CONCUR TECHNOLOGIES, INC. Page 7 - -------------------------------------------------------------------------------- EXHIBIT A During the first [ * ] years from the date of this Agreement, the parties agree that (a) [ * ] license fees, beyond those set forth below, shall be owed by Customer and (b) the annual CustomerOne Services fee rate will not increase more than [ * ] each year. For the period beginning [ * ] years after the date of this Agreement, if, due to the number of Customer employees in the database and Concur's license fees in effect at that time, additional license fees are due and they are in excess of [ * ], the Customer will pay [ * ] at that time and make annual payments not to exceed, in the aggregate, [ * ] until the additional fee has been paid in full. Licensed Programs
- ------------------------------------------------------------------------------------------------------------------------------- DATE SOFTWARE PRODUCTS LICENSED SPECIFIED # OF USERS/ EXTENDED COUNTRY EMPLOYEES PRICE ------------------------------------------------------------------------------------------------------------------------------- 7/99 EmployeeDesktop USA [ * ] [ * ] - ------------------------------------------------------------------------------------------------------------------------------- 7/99 Seeker Core and Payroll/PTO USA [ * ] [ * ] Seeker Benefits Enrollment & Modeling Seeker Events@Work Back-Office Interface (Peoplesoft) - -------------------------------------------------------------------------------------------------------------------------------
. Amounts above do not include applicable taxes and shipping charges. * Unlimited use during the initial 5-year term only. CustomerOne Services
- ------------------------------------------------------------------------------------------------------------------------------- COVERAGE DATES SOFTWARE PRODUCTS LICENSED SPECIFIED # OF USERS/ EXTENDED COUNTRY EMPLOYEES PRICE - ------------------------------------------------------------------------------------------------------------------------------- 8/1/99-7/31/2000 EmployeeDesktop USA [ * ] [ * ] - ------------------------------------------------------------------------------------------------------------------------------- 8/1/99-7/31/2000 Seeker Core and Payroll/PTO USA [ * ] [ * ] Seeker Benefits Enrollment & Modeling Seeker Events@Work Back-office Interface (Peoplesoft) - -------------------------------------------------------------------------------------------------------------------------------
. Amounts above do not include applicable taxes and shipping charges. * [ * ] during the initial [ * ] year term only. ** CustomerOne Maintenance will be billed annually at [ * ] of the license fees listed above beginning 8/1/1999. [ * ] Confidential Treatment Requested - -------------------------------------------------------------------------------- CONCUR TECHNOLOGIES, INC. Page 8 - -------------------------------------------------------------------------------- EXHIBIT B Summary of CustomerOne Services Service Description: - --------------------- During the one year period commencing on the Agreement Date, Concur will provide the CustomerOne Services described below for the fees indicated on Exhibit A. The period during which CustomerOne Services will be provided to and purchased by Customer will be automatically extended: (i) for an additional one-year period unless terminated in writing by Concur or Customer at least thirty (30) days before the end of the initial one-year period and; (ii) thereafter, for successive additional one-year periods unless terminated in writing at least thirty (30) days before the end of the then current one-year period by Concur or Customer (the initial end of any one-year period and each subsequent extension period are hereinafter each referred to as a "Support Period"). Concur reserves the right to change any term of its CustomerOne Services (including the fee), effective at the beginning of any Support Period, by giving Customer written notice at least sixty (60) days before the end of the prior Support Period. This Agreement may also be terminated during a Support Period as provided in Section 8 of the Agreement. Services: - ---------- Technical Support: The CustomerOne Services provide support for the then current version of the Licensed Program. The CustomerOne Services will include telephone support and access to Concur Technologies' electronic support services via the World Wide Web, including incident entry and review. An Incident is any call or electronic inquiry to Concur Technologies' Technical Support, whether it regards a product question, error message, or configuration issues, which generates a call ID or tracking number. Concur will provide to Customer telephone technical support for seven (7) days a week and twenty-four (24) hours per day, excluding holidays. During the hours of 6:00 p.m. to 6:00 am. (PST) Concur's technical support department is available via an emergency pager service. Customer will be given the emergency pager number. The emergency pager is exclusively for Priority 1 problems (as defined below) outside of normal business hours. Priority 1 problems are severe problems in a production environment. Usage of the emergency pager for problems other than Priority 1 will be billed at Concur's standard technical consulting rate. No support will be available from 6:00 p.m. (PST) on the day immediately preceding a holiday until 6:00 a.m. (PST) on the day immediately following a holiday. Concur currently observes the following holidays: New Year's Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, Day after Thanksgiving, and Christmas Day. These holidays are subject to change without prior notice to Customer. CustomerOne Enterprise Service: There is no Incident limit on CustomerOne Enterprise Service contracts. Service Delivery: All support services will be provided to Customer's designated Contacts. "Contact" is defined for these purposes as an individual listed on the Technical Support Contact List at the end of this Exhibit B and for whom all applicable CustomerOne Services fees for Contacts have been paid. Concur provides telephone support to Customer's information service help-desk. Two Contacts may be assigned for every Server database* covered under a CustomerOne Services Agreement. Upgrade/Updates: Concur will provide to Customer at no additional charge master copies of any Updates to the then-current version of the Licensed Program if and when each such Update is generally made available by Concur to its other customers current on CustomerOne Services. One master copy of the Update will be made available to each Contact. Customer acknowledges and agrees that each such Update shall be regarded as a Licensed Program under this Agreement, and Customer's use of the Updates shall be subject to all the terms and conditions of this Agreement regarding Licensed Programs. It is expressly understood and agreed by Customer that Concur is under no obligation to issue Updates under future products that Concur or a third party vendor licenses separately, including any specific applications within the EmployeeDesktop suite that have not been licensed by Customer under this Agreement, as referenced in Exhibit A hereto. For example, if Customer is licensing XMS with EmployeeDesktop, payment of CustomerOne fees for XMS does not entitle Customer to use CompanyStore without payment of additional license and CustomerOne fees. Error Corrections. Provided that the Licensed Programs are running under an operating environment that is supported by Concur (each, a "Supported Environment"), Concur shall use its reasonable efforts to correct any reproducible programming error in a Licensed Program which significantly degrades the use of the Licensed Program ("Error") with a level of effort commensurate with the severity of the Error, provided that Concur (i) shall have no obligation to correct all Errors in the Licensed Programs: and (ii) shall not be responsible for correcting any Errors not attributable to the Licensed Programs. Errors attributable to Concur shall be those that are reproducible by Concur on unmodified Licensed Programs. Errors attributable to Customer's modification or misuse of a Licensed Program, or to Customer's change in or of its Supported Environment, will be billed at Concur's standard consulting rates then in effect. Exclusions and Limitations. Concur is not required to provide any CustomerOne Services relating to problems arising out of (i) Customer's failure to implement all Updates issued under the Agreement: (ii) any alternations or additions to the Licensed Programs performed by parties other than Concur: (iii) interconnection of the Licensed Programs with other software products not supplied by Concur except as expressly prescribed in the Documentation; or (iv) use of the Licensed Programs on a system other than a Supported Environment. - -------------------------------------------------------------------------------- Concur reserves the right to terminate support (including Error correction services) of any Licensed Program or prior release that has been superseded by a new release anytime after six (6) months have elapsed since the shipment of a new release. - -------------------------------------------------------------------------------- Service Description & Procedure - -------------------------------- Procedures: - -------------------------------------------------------------------------------- CONCUR TECHNOLOGIES, INC. Page 9 - -------------------------------------------------------------------------------- Who Provides CustomerOne Services: CustomerOne Services are provided by specialists in the Concur Technologies Technical Assistance Center ("TAC") in response to a request from Customer. The TAC is the focal point of service delivery and service interaction with Customer. Both telephone support and electronic services are offered from the TAC. Only Customer's Contact(s) will communicate with the TAC specialists. Submitting a Service Request: To submit a request for service, Customer has two service options: (a) over the phone,Contact will dial Concur Technologies' service number as supplied to the Customer by Concur. When a TAC specialist answers the phone, Contact will be prepared to discuss the problem with the specialist. (b) electronically, Contact will enter the service request via a secure Web site. Contact will receive URL and login instructions in information package. In order to submit a service request, either telephonically or electronically, Contact will employ the following procedures as applicable: (a) provide a clear description that fully explains what the problem is, and when the problem occurs; (b) provide a diagnostic trace, sample code that causes the problem to occur or a file of the failure symptom that has been recorded on the end user's system; and (c) describe the steps taken to attempt to resolve the problem. Definitions of Priorities: Priority 1: (P1) This status is reserved for severe problems in a production environment. These problems occur when the Licensed Program is completely down, thereby halting transactions throughout the organization, and there is no work- around. Priority 2: (P2) Serious problem in a pilot, test or production environment. A major function is experiencing a reproducible problem which causes major inconvenience; common operations fail consistently or the application crashes readily. Priority 3. (P3) A fundamental function is experiencing an intermittent problem, or a common operation sometimes fails; a less common operation fails consistently. Priority 4: (P4) Minor problems: a less common operation fails occasionally; all other errors. Priority 5: (P5) Request for enhancements. Concur reserves the right to re-prioritize a problem report to render it consistent with these definitions Response Time: Upon receipt of a service request, a TAC specialist will reply to Contact to discuss the Problem within one (1) business hour on a P-1 request, within four (4) business hours on a P-2 request, within eight (8) hours on a P-3 request, and within twenty four (24) hours on a P4 or P- 5 request from the time of receipt of the service request. Note: Hours are standard business hours Server database is defined as either the XMS Server or Company Store Server that holds reports and other information required by the relevant Licensed Program. - -------------------------------------------------------------------------------- CONCUR TECHNOLOGIES, INC. Page 10 - -------------------------------------------------------------------------------- Technical Support Contact List Required Information: Please complete the required contact information below for: 1) The individual who should be contacted regarding sales and renewal issues, and 2) The individual(s) who will be designated Customer's Technical Support Contact(s).
1) Administrative/Renewal Contact 2) Technical Support Contact/Designator - --------------------------------- --------------------------------------- Company TriNet VCO Company TriNet VCO ---------------------------------- ------------------------------------------ Name: Marty Reese Name: Vincent Polite ---------------------------------- ------------------------------------------ Title: Director, E-business development Title: Team Lead - Internet & Systems Development ---------------------------------- ------------------------------------------ Address: 101 Callan Avenue Address: 101 Callan Avenue ---------------------------------- ------------------------------------------ City: San Leandro State: CA Zip: 94577 City: San Leandro State: CA Zip 94577 ----------- ---- ------ ----------- -- ----- Phone: (510) 297-0274 Fax: (510) 352-6480 Phone: (510) 297-0237 Fax: (510) 352-6480 -------------- -------------- -------------- -------------- Email: martyr@trinetgroup.com Email: vincentp@trinetgroup.com ---------------------- ---------------------------------------- 3) Technical Support Contact/Designator - --------------------------------------- Company TriNet VCO ---------------------------------- Name: Paul Sheirich ---------------------------------- Title: Peoplesoft Project Manager ---------------------------------- Address: 101 Callan Avenue ---------------------------------- City: San Leandro State: CA Zip 94577 ----------- -- ----- Phone: (510) 352-6400 Fax: (510) 352-6480 -------------- -------------- Email: pauls@trinetgroup.com ----------------------------------
- -------------------------------------------------------------------------------- CONCUR TECHNOLOGIES, INC. Page 11 - -------------------------------------------------------------------------------- EXHIBIT C As stated within this document, the Concur Technologies, Inc. Volume Licensing Agreement (the "Agreement", above), exceptions to the standard terms may be made and agreed to in writing by "Concur" and "Customer". This section, Exhibit C, will amend the standard terms as follows: Section 1. License Sub-section 1.1 Customer will be able to operate the licensed programs across multiple, networked servers (CPUs) that are under the control of the Customer in order to properly support the Customer's PEO and Enterprise ES clients. Customer's clients will, on occasion, behave as Users of the Licensed Programs (subject to the terms of Exhibit A to the Agreement) and not sub-licensees. Sub-section 1.2 Subject to Customer's confidentiality obligations under the Agreement, Customer may only train the Customer's clients in the use of the user interfaces of the Licensed Programs. Section 6. Payment and Taxes Sub-section 6.1 The payment of the licenses fees stated in Exhibit A will be due no later than 30 September 1999. An initial payment by Customer of 10% of the license fee will be made. The balance of the license fees will not be considered "past due" until after the agreed date above. - -------------------------------------------------------------------------------- CONCUR TECHNOLOGIES, INC. Page 12 - -------------------------------------------------------------------------------- EX-10.08 9 SOFTWARE LICENSE & SERVICE 9/24/99 CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAD BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. EXHIBIT 10.8 SOFTWARE LICENSE AND SERVICES AGREEMENT This Software License and Services Agreement ("Agreement") is made as of the Effective Date by and between PeopleSoft, Inc. ("PeopleSoft"), a Delaware corporation having an office at 4305 Hacienda Drive, P.O. Box 9085, Pleasanton, California 94566 and Licensee. TERMS AND CONDITIONS 1. LICENSE 1.1 PeopleSoft grants Licensee a perpetual, non-exclusive, non-transferable license to use the licensed Software, solely for Licensee's internal data processing operations for the size of entity specified in the Schedule(s), on Servers located at Sites within the Territory. Licensee shall use any third party software products or modules provided by PeopleSoft solely with PeopleSoft Software. 1.2 Licensee may: a. make a reasonable number of copies of the Software, solely for: (i) Production Use according to the terms of this Agreement; (ii) archive for emergency back-up purposes; and (iii) disaster recovery testing purposes; and b. modify or merge the Software with other software, with the understanding that any modifications, however extensive, shall not diminish PeopleSoft's title or interest in the Software. 1.3 PeopleSoft shall provide Licensee with the number of copies of the Software and Documentation only as specified in the applicable Schedule and workstation access as specified in the applicable Schedule. Licensee may make a reasonable number of copies of Documentation solely for Licensee's internal use with the Software provided all copyright notices are reproduced. 2. LICENSE EXCLUSIONS 2.1 Except as expressly authorized herein, Licensee shall not: a. Copy the Software; b. Cause or permit reverse compilation or reverse assembly of all or any portion of the Software; c. Distribute, disclose (except for disclosure to third parties under sections 4.2 and 14.2 of this Agreement), market, rent, lease or transfer to any third party any portion of the Software (including PeopleTools) or the Documentation, or use the Software or Documentation in any service bureau arrangement, facility management, or third party training; d. Disclose the results of Software performance benchmarks to any third party without PeopleSoft's prior written consent (except for disclosure to third parties under sections 4.2 and 14.2 of this Agreement); e. Transfer the Software to a different database platform without prior written notice to PeopleSoft and payment of any additional fees that may be due; f. Transfer to or use the Software outside the Territory without providing prior written notice to PeopleSoft and payment of additional fees; g. Export the Software in violation of U.S. Department of Commerce export administration regulations; and h. Use PeopleTools, except solely in conjunction with the licensed PeopleSoft applications. 2.2 No license, right, or interest in any PeopleSoft trademark, trade name, or service mark is granted hereunder. 3. FEES AND PAYMENT TERMS 3.1 Licensee shall pay PeopleSoft the fees as specified in each applicable Schedule. 3.2 Unless Licensee provides PeopleSoft with a valid tax exemption or direct pay certificate, Licensee is responsible for all taxes, duties and customs fees concerning the Software and/or services, excluding taxes based on PeopleSoft's income. Overdue payments shall bear interest at the lesser of twelve percent (12%) per annum or the maximum rate allowed under applicable law. 3.3 The license fee for the Software listed in the applicable Schedule is based upon Licensee's representations concerning pricing metrics of operation, as set forth in the Schedule(s). PeopleSoft reserves the right to assess additional license fees if the pricing metrics of operation are enlarged beyond the scope which formed the basis for the license fees. 3.4 On an annual basis, PeopleSoft shall provide Licensee with a statement listing the applicable pricing metrics for which the Software is licensed. Licensee shall provide PeopleSoft with a signed certification of such statement either (a) confirming that the Software is being used in conformance with the applicable license; or (b) providing PeopleSoft with corrected figures. If Licensee provides PeopleSoft with corrected figures, PeopleSoft shall invoice Licensee for the applicable fees for any increase beyond the applicable pricing metrics licensed. Should Licensee fail to pay the applicable fees for any increase, such failure shall be deemed a material breach of this Agreement. 3.5 PeopleSoft reserves the right to audit Licensee's use of the Software no more than once annually at PeopleSoft's expense. All audits shall be conducted during regular business hours at Licensee's site and shall not unreasonably interfere with Licensee's business activities. PeopleSoft shall schedule any audits at least fifteen (15) days in advance. 4. TITLE AND PROTECTION 4.1 PeopleSoft (or its third-party providers) retains title to all portions of the Software and any copies thereof. If Licensee creates a Software modification using PeopleTools, Licensee shall only have title in such modification that remains after PeopleTools has been separated from the modification. Licensee shall use modifications created by Licensee solely for internal use in accordance with this Agreement. Licensee may disclose Licensee- created modifications to other PeopleSoft customers through PeopleSoft Forum, subject to PeopleSoft's right to modify and monitor modifications distributed through PeopleSoft Forum. Except as stated above, Licensee shall have no right to market or distribute modifications. In the event Licensee provides Software modifications to PeopleSoft, PeopleSoft shall have a perpetual, royalty-free license from Licensee to use, enhance and incorporate such modifications into PeopleSoft's software products for general use and distribution. Licensee is not obligated to disclose modifications to PeopleSoft. 4.2 Title to the physical media for the Software vests in Licensee upon delivery. PeopleSoft represents that the Software contains valuable proprietary information. Licensee shall not disclose the Software to anyone other than those of its employees or consultants under nondisclosure obligation who have a need to access the Software for purposes consistent with this Agreement. Each full or partial copy of the Software made by Licensee shall have page 1 of 4 all copyright and proprietary information notices as provided in the original. 4.3 The Software was developed at private expense, is commercial, and is published and copyrighted. If Licensee is an agency of the United States Government or licensing the Software for operation on behalf of the United States Government, the Software is transferred to Licensee with rights no greater than those set forth in Federal Acquisition Regulation 52.227-19(c)(2) [or DFAR 252.227-7013(c)(1) if the transfer is to a defense-related agency] or subsequent citation. 4.4 The Software may be transferred to the U.S. government only with the separate prior written consent of PeopleSoft and solely with "Restricted Rights" as that term is defined in FAR 52.227- 19(c)(2) (or DFAR 252.227-7013(c)(1) if the transfer is to a defense- related agency) or subsequent citation. 5. PATENT AND COPYRIGHT INDEMNITY PeopleSoft shall indemnify and defend Licensee against any claims that the Software infringes any United States patent or copyright; provided that PeopleSoft is given prompt notice of such claim and is given information, reasonable assistance, and sole authority to defend or settle the claim. In the defense or settlement of the claim, PeopleSoft shall, in its reasonable judgment and at its option and expense: (i) obtain for Licensee the right to continue using the Software; (ii) replace or modify the Software so that it becomes noninfringing while giving equivalent performance; or (iii) if PeopleSoft cannot obtain the remedies in (i) or (ii) as its sole obligation, terminate the license for the infringing Software and upon receipt of the infringing Software, return only the license fees paid by Licensee for such Software, prorated over a five year term from the applicable Schedule Effective Date. PeopleSoft shall have no liability to indemnify or defend Licensee to the extent the alleged infringement is based on: (i) a modification of the Software by anyone other than PeopleSoft (ii) use of the Software other than in accordance with the Documentation, or (iii) use of the Software outside the Territory. 6. DEFAULT AND TERMINATION 6.1 An event of default is: (i) a failure by either party to comply with any material obligation under this Agreement; and (ii) such non-compliance remains uncured for more than thirty (30) days after receipt of written notice thereof 6.2 If an event of default occurs, the nondefaulting party, in addition to any other rights available to it under law or equity, may terminate this Agreement and all licenses granted hereunder by written notice to the defaulting party. Except as otherwise specifically stated herein, remedies shall be cumulative and there shall be no obligation to exercise a particular remedy. 6.3 Within fifteen (15) days after termination of this Agreement, Licensee shall certify in writing to PeopleSoft that all copies of the Software in any form, including partial copies within modified versions, have been destroyed or returned to PeopleSoft. 7. LIMITED WARRANTY PeopleSoft warrants that it has title to the Software and/or the authority to grant licenses to use the third party software. PeopleSoft warrants that the Software will perform substantially in accordance with the Documentation for a period of one (1) year from the date of initial installation and that the Software media is free from material defects. PeopleSoft does not warrant that the Software is error-free. PeopleSoft's sole obligation is limited to repair or replacement of the defective Software in a timely manner, provided Licensee notifies PeopleSoft of the deficiency within the one-year period and provided Licensee has installed all Software updates provided pursuant to PeopleSoft's Software Support Services. PEOPLESOFT DISCLAIMS ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO THE WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. 8. LIMITATION OF LIABILITY PEOPLESOFT SHALL NOT BE LIABLE FOR ANY INDIRECT, INCIDENTAL, SPECIAL, OR CONSEQUENTIAL DAMAGES, INCLUDING BUT NOT LIMITED TO LOST DATA OR LOST PROFITS, HOWEVER ARISING, EVEN IF IT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. EXCLUDING DAMAGES INCURRED BY LICENSEE UNDER THE ARTICLE ENTITLED, "PATENT AND COPYRIGHT INDEMNITY," PEOPLESOFT'S LIABILITY FOR DAMAGES UNDER THIS AGREEMENT (WHETHER IN CONTRACT OR TORT) SHALL IN NO EVENT EXCEED THE AMOUNT PAID BY LICENSEE TO PEOPLESOFT FOR THE SOFTWARE MODULE OR THE SERVICES FROM WHICH THE CLAIM AROSE. THE PARTIES AGREE TO THE ALLOCATION OF LIABILITY RISK SET FORTH IN THIS SECTION. 9. SINGLE SITE SOFTWARE SUPPORT SERVICES PeopleSoft shall provide Licensee with one (1) year of Software Support Services for a single Server at Licensee's single, central Site listed in the applicable Schedule according to PeopleSoft's standard Software Support Services Terms and Conditions. After the first year, Licensee may elect to acquire single Site Software Support Services pursuant to the then-current terms and conditions by paying PeopleSoft the fees stated in the applicable Schedule. Unless Licensee elects to purchase Software Support Services for more than one Site, Licensee shall support all copies of the Software licensed under this Agreement through Licensee's single, central Site. Licensee may acquire Support Services for additional Sites for an additional annual fee. 10. ON-SITE SUPPORT DAYS PeopleSoft shall use the installation support days listed in the Schedule(s) to install the Software listed in the Schedule(s) on a single Server at Licensee's single, central Site. Any additional installation support requested by Licensee shall be provided to Licensee at the then-current hourly rate. Licensee shall reimburse PeopleSoft for all reasonable travel and living expenses associated with any installation and support. 11. TRAINING PeopleSoft shall provide Licensee with the number of training units set forth in the Schedule for use at a PeopleSoft Training Facility. Licensee may use training units for training at Licensee's site only as the parties mutually agree in writing. Licensee must use these training units within one (1) year from the Schedule Effective Date. 12. NOTICES All notices shall be in writing and sent by registered mail, overnight mail, courier, or transmitted by facsimile (if confirmed by such mailing), to the addresses indicated in this Agreement or such other address as either party may indicate by at least ten (10) days prior written notice to the other party. Notices to PeopleSoft shall be sent to the attention of PeopleSoft Legal with a copy to Licensee's assigned account manager. page 2 of 4 13. ASSIGNMENT Licensee may not assign this Agreement (by operation of law or otherwise) or sublicense the Software without the prior written consent of PeopleSoft, and any prohibited assignment or sublicense shall be null and void. Software licensed under this Agreement is solely for the use of Licensee. Any merger or acquisition of or by Licensee shall require payment of additional license fees for the expanded scope of use of the licensed Software. 14. NONDISCLOSURE OBLIGATION 14.1 The terms, conditions, pricing and any other information clearly marked "confidential" under this Agreement are confidential and shall not be disclosed, orally or in writing by Licensee to any third party without the prior written consent of PeopleSoft. PeopleSoft shall not disclose to any third party any Licensee information provided to PeopleSoft which is clearly marked "confidential" without Licensee's prior written consent 14.2 Licensee shall protect the Software with at least the same degree of care and confidentiality, but not less than a reasonable standard of care, which Licensee utilizes for Licensee information that it does not wish disclosed to the public. Licensee may provide access to and use of the Software only to those third parties that: (i) provide services to Licensee concerning Licensee's use of the Software; (ii) have a need to use and access the Software; and (iii) have agreed to substantially similar non-disclosure obligations imposed by Licensee as those contained herein. This Agreement imposes no obligation upon Licensee with respect to PeopleSoft's confidential information which Licensee can establish by legally sufficient evidence: (a) was in the possession of, or was rightfully known by Licensee without an obligation to maintain its confidentiality prior to receipt from PeopleSoft; (b) is or becomes generally known to the public without violation of this Agreement; (c) is obtained by Licensee in good faith from a third party having the right to disclose it without an obligation of confidentiality; or (d) is independently developed by Licensee without the participation of individuals who have had access to PeopleSoft's confidential information. Licensee may disclose confidential information if required by law, provided that Licensee notifies PeopleSoft of such requirement prior to disclosure and gives PeopleSoft an opportunity to object to such disclosure. PeopleSoft may require Licensee to request that the appropriate governmental entity seal the record containing such confidential information and PeopleSoft shall have the right to assume responsibility for responding to and defending such requests for disclosure of the confidential information. 15. GENERAL This Agreement is made in and shall be governed by the laws of the State of California, without regard to its choice of law principles. Venue shall be in San Francisco, California. The section headings herein are provided for convenience only and have no substantive effect on the construction of this Agreement. No purchase order or other ordering document that purports to modify or supplement the printed text of this Agreement or any Schedule shall add to or vary the terms of this Agreement. All such proposed variations or additions (whether submitted by PeopleSoft or Licensee) are objected to and deemed material unless agreed to in writing. Except for Licensee's obligation to pay PeopleSoft, neither party shall be liable for any failure to perform due to causes beyond its reasonable control. If any provision of this Agreement is held to be unenforceable, this Agreement shall be construed without such provision. The failure by a party to exercise any right hereunder shall not operate as a waiver of such party's right to exercise such right or any other right in the future. Except for actions for non-payment or breach of PeopleSoft's proprietary rights in the Software, no action, regardless of form, arising out of this Agreement may be brought by either party more than one year after the cause of action has accrued. This Agreement may be amended only by a written document executed by a duly authorized representative of each of the parties. This Agreement may be executed in counterparts. To expedite order processing, Transmitted Copies are considered documents equivalent to original documents, however Licensee agrees to provide PeopleSoft with one fully executed original Agreement and applicable Schedule(s). This Agreement and the Schedule(s) constitute the entire agreement between the parties concerning Licensee's acquisition and use of the Software. This Agreement replaces and supersedes any prior verbal or written understandings, communications, and representations between the parties. This Agreement may be executed in counterparts, which taken together shall be considered original. Sections 3, 4, 5, 8, 14, 15 and 16 of this Agreement shall survive any termination of this Agreement. 16. DEFINITIONS "Documentation" means only technical Publications relating to the use of the Software, such as reference, user, installation, systems administrator and technical guides, delivered by PeopleSoft to Licensee. "PeopleTools" means the underlying architecture from which the Software is designed, and includes software application programming tools and code. "Production Use" means the use of the Software to perform real time transactions for Licensee's internal use using live data. "Schedule(s)" means the independent Software product schedule(s) executed by the parties and Support Services schedules referencing this Agreement. Each Schedule is a separate and independent contractual obligation from any other Schedule. Agreement Effective Date and Schedule Effective Date(s) may differ. "Server" means a single database or file server that may be accessed by a network of personal computers as set forth in the applicable Schedule. "Site" means a specific, physical location of Licensee's Server as set forth in the applicable Schedule. "Software" means all or any portion of the then commercially available U.S. functionality contained within the global version of the binary computer software programs and enhancements thereto, (including corresponding source code, unless specifically excluded elsewhere in this Agreement or the Schedule(s)) and Documentation delivered by PeopleSoft to Licensee (or subsequently made by Licensee with PeopleSoft's prior written consent), as listed in the applicable Schedule. Software includes the third-party software only as specified in the Schedule. Software does not include source code to PeopleTools. Unless specifically stated otherwise, all Software is delivered to Licensee only if and when generally commercially available. page 3 of 4 "Territory" means the territory designated in the applicable Schedule. "Transmitted Copies" means this Agreement, Schedules and other ordering documents that are (i) copied or reproduced and transmitted via photocopy, facsimile or process that accurately transmits the original documents; and (ii) accepted by PeopleSoft. The Effective Date is September 24, 1997 TRINET EMPLOYER GROUP, INC. - --------------------------- LICENSEE /s/ DOUGLAS P. DEVLIN - --------------------- (Authorized Signature) Douglas P. Devlin, CFO - ---------------------- (Name/Title) Licensee Address: 101 CALLAN AVENUE ------------------ SAN LEANDRO, CA 94577 ---------------------- PEOPLESOFT, INC. /s/ William E. Pollak - --------------------- (Authorized Signature) William E. Pollak, VP National Sales - ------------------------------------ (Name/Title) Approved As To Legal Form /s/ BM 9/97 - ------ ---- Initial Date page 4 of 4 SCHEDULE ONE TO THE SOFTWARE LICENSE AND SERVICES AGREEMENT This independent Schedule is made as of September 24, 1997 ("Schedule Effective Date") by and between PeopleSoft, Inc. ("PeopleSoft") and TriNet Employer Group, Inc. ("Licensee"). This Schedule is part of the Software License and Services Agreement between the parties dated September 24, 1997 ("Agreement"). PeopleSoft's standard Software Support Services Terms and Conditions shall be a part of this Schedule during the initial, non-chargeable year of Support Services, and thereafter only in the event Licensee elects to purchase Software Support Services. Capitalized terms used herein shall have the same meaning ascribed to them in the Agreement. Handwritten or typewritten text (other than information which is specifically called for in the spaces provided) which purports to modify or supplement the printed text of this Schedule shall have no effect and shall not add to or vary the terms of the Agreement. All such additions (whether submitted by Licensee or PeopleSoft) are objectionable and deemed material. Approved As To Legal Form BM 9/97 ------------- Initial Date ACCEPTED BY: ACCEPTED BY: LICENSEE PEOPLESOFT, INC. /s/ DOUGLAS P. DEVLIN /s/ WILLIAM E. POLLAK - -------------------------- ------------------------------------ Authorized Signature Authorized Signature Douglas P. Devlin, CFO William E. Pollak, VP National Sales - -------------------------- ------------------------------------ Printed Name and Title Printed Name and Title
Production Test & License ----------- ------ -------- Copies/1/ Development Fee --------- ----------- --- Copies/2/ --------- HRMS Software applications Human Resources 1 0 [ * ] Benefits Administration 1 0 [ * ] Payroll 1 0 [ * ] Financials Software applications General Ledger (incl. nVision) 1 0 [ * ] Asset Management 1 0 [ * ] Payables 1 0 [ * ] Billing 1 0 [ * ] Receivables 1 0 [ * ] ------- Subtotal from Page 1: [ * ] (less fee reduction) [ * ] ------- Subtotal from Page 2: [ * ] ------- TOTAL FEES: [ * ] -------
The pricing set forth in this Schedule remains valid until 9/24/97. - ------------------------------------------------------------------------------------------------------------- Database Version: Oracle Operating System: HP-UX Hardware Model: HP - -------------------------------------------------------------------------------------------------------------
- ---------------------- /1/ Indicates the number of physical copies to be shipped to Licensee. Licensee's license includes the right to make copies for production use on Servers at Licensee's Sites within the Territory. For the HRMS Software applications licensed in this Schedule, the Territory shall be United States, Canada and the United Kingdom. For the Financials Software applications licensed in this Schedule, the Territory shall be United States only. Licensee will not receive additional physical copies of the Software for this purpose. /2/ If test and development copies are indicated, Licensee's license includes the right to make test and development copies for use on Servers at Licensee's Sites within the Territory. Licensee will not receive additional physical copies of the Software for this purpose. Test and development copies may not be used for production purposes. [ * ] Confidential Treatment Requested PeopleSoft HRMS Page 1 of 3 Licensee receives the applicable items listed below: - ------------------------------------------------------------------------------ Qty: ---- PeopleTools - Restricted Development/(3)/ 1 Training Units/(4)/ 114 Installation Support Days/(5)/ 9 Documentation for third party software 1 Documentation for PeopleSoft Applications 2 - -------------------------------------------------------------------------------- ADDITIONAL SOFTWARE/SERVICES
Software/Service Manufacturer Quantity Fee - ---------------- ----------- -------- --- Workstation Access (includes PeopleSoft, Inc. [ * ] [ * ] base application Sybase, Inc./MITI access, Workstation Crystal Computer SQR, QueryLink, Services nVision, Crystal). Server SQR Sybase, Inc./MITI 1 included Subtotal of Page 2: $0 --
Payment terms: Licensee shall pay PeopleSoft ninety (90%) percent of the Total Fees on the Schedule Effective Date and ten (10%) percent upon the earlier of the Software installation date or sixty (60) days from the Schedule Effective Date. Unless otherwise stated in this Schedule, the license fees specified herein are non-cancelable and non-refundable. All fees are payable in U.S. dollars and sent to the attention of PeopleSoft's Accounts Receivable Department. Single Site Software Support Services Renewal Terms: One (1) year after the Schedule Effective Date, Licensee may elect to continue Software Support Services for Licensee's single, central Site for the following year by paying PeopleSoft an annual Support Services fee of seventeen (17%) percent of the license fee paid for the Software licensed in this Schedule (17% of $650,200). Thereafter, for a period of five (5) years, Licensee may elect to continue single Site Software Support Services on an annual basis by paying PeopleSoft an annual Software Support Services fee which shall not exceed 108% of the prior year's fee. Thereafter, Licensee may elect to continue single Site Software Support Services by paying PeopleSoft the then-current Support Services fee. Additional license fees due based upon Licensee's growth in terms of annual revenues and/or employees shall be added to the base fee for calculation of Support Services fees due. Increased HRMS License Fee Based Upon Increase in Employee Count: The pricing set forth for the HRMS Software licensed in this Schedule is based on a Licensee employee population of 3,500. Once Licensee grows to [ * ] employees and beyond [ * ] employees, Licensee shall pay PeopleSoft additional license fees for the licensed HRMS Software. Such additional license fees shall be as calculated in the table below for the HRMS Software licensed in this Schedule. Licensee's employee population shall be determined once annually in accordance with PeopleSoft's Support Services billing. Additional license fees due shall be added to the base fee for calculation of Support Services fees due. _______________________________ /(3)/ PeopleTools for Restricted Development shall be used by Licensee to develop interfaces and modifications only to the licensed PeopleSoft Software application modules. /(4)/ A Training Unit is equivalent to one person day of training in a PeopleSoft training class. /(5)/ One (1) Installation Support day is equivalent to an eight (8) hour work day. [ * ] Confidential Treatment Requested PeopleSoft HRMS Page 2 of 3
Employee Population Additional License Fees Due - ------------------- --------------------------- upon reaching 9,000 employees [ * ] each additional 1,000 employees beyond [ * ] per each [ * ] employee increase 9,000 (up to 14,000 employees) upon reaching 15,000 employees [ * ] each additional 1,000 employees beyond [ * ] per each [ * ] employee increase 15,000 (up to 24,000) upon reaching 25,000 employees [ * ] each additional 1,000 employees beyond [ * ] per each [ * ] employee increase 25,000 (up to 50,000) each additional 1,000 employees [ * ] per each [ * ] employee increase beyond 50,000
Increased Financials License Fee Based Upon Increase in Annual Revenue: Licensee's authorized use of the Financials Software licensed in this Schedule is based upon Licensee's current annual revenues of $250,000,000. Once Licensee's annual revenues reach and exceed $750,000,000, Licensee shall pay PeopleSoft additional license fees for the licensed Financials Software. Such additional license fees shall be as calculated in the table below for the Financials Software licensed in this Schedule. Licensee's annual revenues shall be determined once annually in accordance with PeopleSoft's Support Services billing. Additional license fees due shall be added to the base fee for calculation of Support Services fees due.
Annual Revenue Additional License Fees Due -------------- --------------------------- upon reaching $750 million [ * ] each $250 million increase beyond increase $750 million [ * ] per each [ * ] million
Additional Software Option: Through the period ending March 15, 1998, Licensee shall have the option to license one (1) production copy of the following Software applications for the following license fees:
Software application License Fee -------------------- ----------- Projects $56,000 Time and Labor $110,000
The license fees stated in this option include one year of Software Support Services commencing upon exercise of the pricing option. The pricing stated in this option shall only be valid if PeopleSoft is not subjected to a competitive sales process. A competitive sales process includes responding to an RFP, RFQ, RFI and more than one PeopleSoft product demonstration per product.
LICENSEE SITE ADDRESS BILL-TO ADDRESS SHIP-TO ADDRESS 101 Callan Avenue 101 Callan Avenue 101 Callan Avenue San Leandro, CA 94577 San Leandro, CA 94577 San Leandro, CA 94577 Contact Name: Doug Devlin Contact Name: Doug Devlin Contact Name: Doug Devlin Phone No. 510/297-0221 Phone No. 510/297-0221 Phone No. 510/297-0221 Fax No. 510/352-6480 Fax No. 510/352-6480 Fax No. 510/352-6480 P.O. Box No:
[ * ] Confidential Treatment Requested PeopleSoft HRMS Page 3 of 3 Software Support Services Terms and Conditions Software Support Services Terms and Conditions ("Support Services") are referenced in and incorporated into the License Agreement between PeopleSoft and Licensee. Upon reasonable notice, PeopleSoft reserves the right to modify the terms and conditions of Support Services on an annual basis to reflect current market conditions. 1. Coverage PeopleSoft provides Licensee with Support Services for the Software at Licensee's single, central Site in consideration for Licensee's payment of the applicable support services fees to PeopleSoft. Only employees from Licensee's single, central, supported Site may contact PeopleSoft in connection with the provision of Support Services. Licensee may acquire support services for additional Sites by paying an additional fee. 2. Software Maintenance The following technical and functional improvements will be issued periodically by PeopleSoft to improve Software operations: a. Fixes to Errors; b. Updates; and c. Enhancements contained within new releases. 3. Priority Level of Errors PeopleSoft shall reasonably determine the priority level of Error. PeopleSoft uses the following protocols: Priority A (Critical): PeopleSoft promptly initiates the following procedures: (1) assign PeopleSoft specialists to correct the Error; (2) provide ongoing communication on the status of the corrections; and (3) immediately commence to provide a Workaround or a Fix. Priority B (Urgent): PeopleSoft: (1) assigns a PeopleSoft specialist to commence correction of the Error and (2) Provides escalation procedures as reasonably determined by PeopleSoft support staff. PeopleSoft exercises all commercially reasonable efforts to include the Fix for the Error in the next Software maintenance release. Priority C (Standard): PeopleSoft may include the Fix for the Error in the next major Software release. 4. Telephone Support PeopleSoft provides telephone technical support concerning installation and use of the Software. Except for designated holidays, standard telephone support hours are Monday through Friday, 6:00 a.m. to 6:30 p.m. Pacific Time. Telephone Support is available 24-hour, 7-days a week for in- production customers who need to resolve critical production problems outside of normal support hours. 5. Account Manager PeopleSoft assigns an account manager to assist the on-going support relationship. A reasonable amount of account manager on-Site time is included in the annual Support Services fee. Licensee will reimburse PeopleSoft for the reasonable travel and living expenses of the account manager for on-Site activity. 6. PEOPLESOFT FORUM a. PeopleSoft Forum on-line bulletin board system features postings by PeopleSoft and PeopleSoft Software users regarding technical and non- technical topics of interest. Licensee may access PeopleSoft Forum via the Internet. At Licensee's own expense, Licensee shall acquire appropriate Internet access software. Page 1 of 3 b. All maintenance releases and program fixes to the Software may be delivered to Licensee through PeopleSoft Forum. All information specified in PeopleSoft Forum by PeopleSoft is confidential and proprietary to PeopleSoft and shall only be used in connection with Licensee's use of the Software and informational communications with other PeopleSoft Forum participants. PeopleSoft reserves the right to modify information posted to PeopleSoft Forum. PeopleSoft shall have the right to publish and distribute only through PeopleSoft Forum in all languages and in association with Licensee's name any material or software programs provided by Licensee to PeopleSoft Forum. Licensee shall not use PeopleSoft Forum for advertising or public relations purposes and shall only submit information to PeopleSoft Forum which is owned by Licensee or which Licensee has third party permission to submit to PeopleSoft Forum for use by all other PeopleSoft Forum users. c. In the interest of diminishing exposure to software viruses, PeopleSoft tests and scans for software viruses all information entered by PeopleSoft prior to submission of information to PeopleSoft Forum. Licensee shall also use a reliable virus detection system on any software or information posted to PeopleSoft Forum, utilize back-up procedures, monitor access to PeopleSoft Forum, promptly notify PeopleSoft of any virus detected within Licensee's systems associated with PeopleSoft Forum and generally exercise a reasonable degree of caution when utilizing information from PeopleSoft Forum. PeopleSoft does not warrant that PeopleSoft Forum will operate without interruption or without errors. PeopleSoft reserves the right to modify or suspend PeopleSoft Forum service in connection with PeopleSoft's provision for Support Services. 7. Fees The first year of Support Services is included in the Software license fees, thereafter, in the event Licensee elects to continue to receive Support Services, Licensee shall pay PeopleSoft the annual Support Services fee as set forth in the applicable Schedule. Support Services are billed on an annual basis, payable in advance. Licensee shall be responsible for all taxes associated with Support Services, other than taxes based on PeopleSoft's income. Licensee's payment shall be due within thirty (30) days of receipt of the PeopleSoft invoice. Should Licensee elect not to renew Support Services and subsequently request Support Services, PeopleSoft shall reinstate Support Services only after Licensee pays PeopleSoft the annual then-current fee plus all cumulative fees that would have been payable had Licensee not suspended Support Services. 8. Term and Termination Unless a shorter term is agreed to in writing by both parties, Support Services shall be provided for one (1) year from the Schedule Effective Date and shall be extended each additional year unless terminated by either party. Each one (1) year term shall commence on the anniversary of the Schedule Effective Date. Either party may terminate the Support Services provisions at the end of the original term or at the end of any renewal term by giving the other party written notice at least ninety (90) days prior to the end of any term. In the event Licensee fails to make payment pursuant to the section titled "Fees", or in the event Licensee breaches the Support Services provisions and such breach has not been cured within thirty (30) days of written receipt of notice of breach, PeopleSoft may suspend or cancel Support Services. 9. Exclusions PeopleSoft shall have no obligation to support: a. Altered, damaged or substantially modified Software; b. Software that is not the then-current or Previous Sequential Release; c. Errors caused by Licensee's negligence, hardware malfunction or other causes beyond the reasonable control of PeopleSoft; d. Software installed in a hardware or operating environment not supported by PeopleSoft; e. Third party software not licensed through PeopleSoft; and f. Software installed at more than one Site if Licensee has not paid for such Support Services. Page 2 of 3 10. General All Updates provided to Licensee are subject to the terms and conditions of the Agreement. PeopleSoft shall not be liable for any failure or delay in performance of the Support Services due to causes beyond its reasonable control. Any illegal or unenforceable provision shall be severed from these Terms and Conditions. Licensee agrees that any information received pursuant to these Terms and Conditions shall be deemed subject to the non-disclosure obligations set forth in the Agreement. The Support Services Terms and Conditions states the entire agreement of PeopleSoft's provision of Support Services to Licensee and may only be amended by a written amendment executed by both parties. 11. Definitions Unless otherwise defined herein, capitalized terms used herein shall have the same meaning as set forth in the Agreement and applicable Schedule. "Enhancement" means technical or functional additions to the Software to improve software functionality and/or operations. Enhancements are delivered with new releases of the Software. "Error" means a malfunction in the Software which degrades the use of the Software. "Fix" means the repair or replacement of source or object or executable code versions of the Software to remedy an Error. "Previous Sequential Release" means the release of Software for use in a particular operating environment which has been replaced by a subsequent release of the Software in the same operating environment. A Previous Sequential Release will be supported by PeopleSoft for a period of eighteen (18) months after release of the subsequent release. "Priority A" means an Error that: (1) renders the Software inoperative; or (2) causes the Software to fail catastrophically. "Priority B" means an Error that affects performance of the Software, but does not prohibit Licensee's use of the Software. "Priority C" means an Error that causes only a minor impact of the use of the Software. "Update" means all published revisions to the Documentation and one (1) copy of the new release of the Software which are not designated by PeopleSoft as new products for which it charges separately. "Workaround" means a change in the procedures followed or data supplied to avoid an Error without significantly impairing performance of the Software. Page 3 of 3 SCHEDULE TWO TO THE SOFTWARE LICENSE AND SERVICES AGREEMENT This independent Schedule to the Software License and Services Agreement ("Schedule") is made as of June 24, 1998 ("Schedule Effective Date") by and between PeopleSoft USA, Inc. ("PeopleSoft") and TriNet Employer Group, Inc. ("Licensee"). This Schedule is part of the Software License and Services Agreement between the parties dated September 24, 1997 ("Agreement"). PeopleSoft's Software Support Services Terms and Conditions shall be a part of this Schedule during the Initial Support Services Term and thereafter, provided Licensee elects to purchase Support Services. Capitalized terms used herein shall have the same meaning ascribed to them in the Agreement. SOFTWARE/SERVICES
- -------------------------------------------------------------------------------------------------------- Software Modules Mfr. Provided Copies Fee - -------------------------------------------------------------------------------------------------------- HRMS Software Modules - -------------------------------------------------------------------------------------------------------- FSA Administration PeopleSoft, Inc. 1 [ * ] - -------------------------------------------------------------------------------------------------------- Time & Labor/(1)/ PeopleSoft, Inc. 1 [ * ] - -------------------------------------------------------------------------------------------------------- Other Software - -------------------------------------------------------------------------------------------------------- PeopleTools - Restricted Development/(2)/ PeopleSoft, Inc. 1 [ * ] - -------------------------------------------------------------------------------------------------------- Workstation Access for "n"/(3)/ PeopleSoft, Inc. Sybase, 1 users (includes base application access, Inc./SQRIBE Technologies PeopleSoft Workflow, Workstation SQR, Seagate Software Information QueryLink, Crystal, nVision). Management Group, Inc. - -------------------------------------------------------------------------------------------------------- Server SQR for "n"/(4)/ servers Sybase, Inc./SQRIBE 1 Technologies. - -------------------------------------------------------------------------------------------------------- PowerPlay 5 user pack/(5)/ Cognos Corp. 1 [ * ] - -------------------------------------------------------------------------------------------------------- Other: ________ - -------------------------------------------------------------------------------------------------------- TOTAL FEES: [ * ] - -------------------------------------------------------------------------------------------------------- 1. Specific Licensed Use: Licensee's use of the Software is limited to each of the following restrictions. ------------------------------------------------------------------------------------------------------ Territory Software/(6)/ (indicate the country specific Employees global version or local version/(7)/ for each country within the Territory in which or for which the Software will be used) ------------------------------------------------------------------------------------------------------ [ * ] American English Global Version [ * ] ---------------------------------------------------------------------------------------------------------
- ------------------------------- /(1)/ The license for the Time and Labor Software module includes a limited use license for the Human Resources Software module. Such limited use license means that the Human Resources Software module shall only be used in order to access the features and functions of the Time and Labor Software module. /(2)/ PeopleTools for Restricted Development shall be used by Licensee to develop interfaces and modification only to the licensed PeopleSoft Software application modules. /(3)/ "n" is that number necessary to effect the purpose for which the Software is licensed in accordance with the Agreement. /(4)/ "n" is that number necessary to effect the purpose for which the Software is licensed in accordance with the Agreement. /(5)/ PowerPlay shall be licensed for each named user. /(6)/ PeopleSoft makes no representations regarding any functionality contained in the Software versions to which Licensee has rights as set forth in this table except as set forth in the Documentation. Except as otherwise explicitly set forth in this Schedule, Licensee shall not be entitled to: (i) local country Support Services, including without limitation, account management; or (ii) local country installation. /(7)/ Local support services must be purchased for each country in which or for which a local version of the Software will be used. [ * ] Confidential Treatment Requested Page 1 of 3
Technical Environment: ----------------------------------------------------------------------- Database Version Operating System Hardware Model ----------------------------------------------------------------------- Oracle Unix HP -----------------------------------------------------------------------
3. Licensee shall receive the applicable items listed below: ----------------------------------------------------------------------- Item Qty. ----------------------------------------------------------------------- Training Units/(8)/ 10 ----------------------------------------------------------------------- Installation Days/(9)/ 2 -----------------------------------------------------------------------
4. Payment Terms: Licensee shall pay PeopleSoft ninety percent (90%) of license fees on the Schedule Effective Date and ten percent (10%) upon the earlier of: (i) the Software installation date; or (ii) sixty (60) days after the Schedule Effective Date. Unless explicitly stated in this Schedule, all fees specified herein are non-cancelable and non-refundable. All fees are payable in U.S. dollars and shall be sent to the attention of PeopleSoft's Accounts Receivable Department. 5. Support Services Terms for One Single, Central Site: For a period of one year commencing on the Schedule Effective Date ("Initial Support Services Term"), Licensee shall receive Support Services at the Site for the Software version which meets the Technical Environment at no additional cost. Licensee may elect to continue Support Services for the following year, and shall pay in advance of the period an annual Support Services fee equal to eighteen percent (18%) of the license fee for the Software licensed pursuant to this Schedule. Thereafter, for a period of five (5) years, Licensee may elect to continue single Site Software Support Services on an annual basis by paying PeopleSoft an annual Software Support Services fee which shall not exceed one hundred and eight percent (108%) of the prior year's fee. Thereafter, Licensee may elect to continue Support Services by paying PeopleSoft the then-current Support Services fee. The applicable Support Services fee assessed prior to the commencement of each year of Support Services shall incorporate the then-current employee count and/or Reported Revenues. Additional license fees due pursuant to the section in this Schedule entitled Incremental License Fees shall be included in the calculation for Support Services fees. Incremental License Fees - HRMS Software: Licensee's licensed use of the HRMS Software licensed pursuant to this schedule is based on an employee count of 3500. Once Licensee grows to 9,000 employees and beyond 9,000 employees, Licensee shall pay PeopleSoft for the licensed Software additional license fees as calculated in the table below. Licensee's employee population shall be determined once annually in accordance with PeopleSoft's Support Services billing. Additional license fees due shall be added to the base fee for calculation of Support Services fees due.
Employee Population Additional License Fees Due - -------------------- --------------------------- upon reaching 9,000 employees [ * ] each additional 1,000 employees beyond [ * ] 9,000 (up to 14,000 employees) upon reaching 15,000 employees [ * ] each additional 1,000 employees beyond [ * ] 15,000 (up to 24,000 employees) upon reaching 25,000 employees [ * ] each additional 1,000 employees beyond [ * ] 25,000 (up to 50,000 employees) each additional 1,000 employees beyond [ * ] 50,000 employees
- -------------------------------- /(8)/ One (1) Training Unit is one training day for one person at a scheduled PeopleSoft Training Session. /(9)/ One (1) Installation day is equivalent to an eight (8) hour work day. [ * ] Confidential Treatment Requested Page 2 of 3
Miscellaneous Information: - ------------------------------------------------------------------------------------------------------------------------------- SHIPPING INFORMATION BILLING INFORMATION SITE INFORMATION TRAINING INFORMATION - ------------------------------------------------------------------------------------------------------------------------------- Contact: Steve Carlson Contact: Accounts Payable Contact: Steve Carlson Contact: Paul Sheirich - ------------------------------------------------------------------------------------------------------------------------------- Address: 101 Callan Avenue Address: 101 Callan Avenue Address: 101 Callan Avenue Address: 101 Callan Avenue - ------------------------------------------------------------------------------------------------------------------------------- San Leandro, CA 94577 San Leandro, CA 94577 San Leandro, CA 94577 San Leandro, CA 94577 - ------------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------- Phone: 510-297-0226 Phone: 510-297-0243 Phone: 510-297-0226 Phone: 510-297-0233 - ------------------------------------------------------------------------------------------------------------------------------- Fax: 510-352-6480 Fax: 510-352-6480 Fax: 510-352-6480 Fax: 510-352-6480 - -------------------------------------------------------------------------------------------------------------------------------
ACCEPTED BY: ACCEPTED BY: LICENSEE PEOPLESOFT USA, INC. /s/ DOUGLAS P. DEVLIN /s/ ROD WALTERS - ---------------------- ---------------------------- Authorized Signature Authorized Signature Douglas P. Devlin, CFO Rod Walters, General Manager - ---------------------- ---------------------------- Printed Name and Title Printed Name and Title Page 3 of 3 EX-10.09 10 SOFTWARE LICENSE AGREEMENT 10/6/99 (AUTHORIA) CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAD BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. EXHIBIT 10.09 Date: 10/06/99 AUTHORIA, INC. Agreement No: 06099901 Software License Agreement (Outsourcer) THIS AGREEMENT is by and between AUTHORIA, INC., a Delaware corporation with offices at 78 Fourth Avenue, Waltham, MA 02451 ("Authoria") and the following Licensee: Licensee Name: TriNet VCO Address: 101 Callan Avenue, San Leandro, CA 94577 Principal Contact: Martin Babinec This Agreement consists of the following terms and conditions and one or more Software and/or Services Schedule(s) (collectively referred to as the "Schedule(s)") to this Agreement which are adopted from time to time with reference to this Agreement. Each Software Schedule identifies the software products and related documentation licensed from Authoria under this Agreement (the "Software"), and sets forth the Scope of Use, Term of License, Designated Location(s), License Fees, Payment Terms, and Specifications for such Software. Each Services Schedule identifies the consulting services to be provided by Authoria under this Agreement (the "Services"), and sets forth the Services Fees and Payment Terms for such Services. Each Schedule will refer to this Agreement by Contract Number and will become effective as an integral part of this Agreement upon its execution by both Licensee and Authoria. 1. Software License Grant. Subject to the terms of this Agreement, Authoria ---------------------- grants to Licensee a nonexclusive license ("License") to use the Software identified in any Software Schedule attached to this Agreement at the Designated Location(s) during the Term. Licensee may transfer the Software to other locations owned or controlled by Licensee by providing prompt written notice to Authoria specifying the change in the Designated Location(s). The License shall extend to affiliates of Licensee to the extent provided in the Software Schedule, so long (and only so long) as Licensee owns or controls, directly or indirectly, stock or other interest in the affiliate representing more than fifty percent (50%) of the aggregate stock or other interest entitled to vote on decisions reserved to a vote by owners of such stock or other interest. Licensee's use of the Software shall be limited to Licensee's internal business purposes only, and, unless otherwise provided in the Software Schedule, Licensee may not use the Software to process accounts or records or to generate output data for the direct benefit of, or for purposes of rendering services to, any other business entities or organizations. In no event may Licensee allow timesharing, rental or use of the Software in service bureau. 2. Certain Restrictions. Licensee understands that the Software is a proprietary -------------------- product of Authoria that contains trade secrets and is protected by copyright law. Authoria shall have sole and exclusive ownership of all right, title, and interest in and to the Software and documentation, all copies thereof, and all modifications and enhancements thereto (including ownership of all copyrights and other intellectual property rights pertaining thereto), subject only to the right and license expressly granted to Licensee herein. This Agreement does not provide Licensee with title or ownership of the Software, but only a right of limited use. Licensee may not use, copy, modify, or distribute the Software (electronically or otherwise), or any copy, adaptation, transcription, or merged portion thereof, except as expressly authorized by Authoria, an applicable Software Schedule, or a separate written agreement signed by Authoria. Licensee shall ensure that the Software is not modified, translated, examined, tested, subjected to simulated input, reverse engineered or decompiled or disassembled by attempted recreation of source code in any manner, for any reason including but not limited determining the mechanism, algorithms, processes or characteristics of the Software, provided Licensee may examine or test the Software only for authorized maintenance and error correction. Licensee shall further ensure that no person with access to the Software otherwise attempts to obtain or derive the object or source code of the Software or create any derivative works based on the Software or any software product or other work based on the mechanism, algorithms, processes or characteristics of the Software. Licensee agrees to keep the source code, object code, generic code and content of the Software confidential and not to disclose such codes to any other person or entity or to allow any other person or entity to copy or view such codes. Licensee agrees that it will not cause or permit the use of the Software and related documentation, or the ideas or concepts contained therein, as the basis of the development of any computer software products. For purposes of this Agreement, it will be presumed that any works developed or created by Licensee which involve the development of computer software performing substantially similar functions to the licensed Software, and are reduced to practice within three (3) years following the date of termination or expiration of the License granted hereunder, are the result of the breach of this Section and/or Section 3, Confidentiality, unless Licensee is able to establish otherwise by clear and convincing evidence. Notwithstanding anything to the contrary contained herein, this presumption will not apply in the event that Licensee independently develops products performing similar functions to the Software, so long as Licensee can show by clear and convincing documentary evidence, that (i) such products are developed for the benefit of individual clients of Licensee as part of an overall business solution, and are not generally marketed for commercial resale, (ii) neither the Software, nor the ideas or concepts contained therein, are used as the basis for development of such products, and (iii) no employee(s) of Licensee having access to the Software are involved, directly, or indirectly, in the development or design of such products. Licensee authorizes Authoria upon three (3) days' prior written notice to enter Licensee's premises in order to inspect the Software during regular business hours to verify compliance with the terms of this Agreement, provided that Licensee agrees not to conceal or destroy any software, materials or information after receiving such notice, through the completion of such inspection. 3. Confidentiality. Any proprietary information, including the Software, --------------- which is identified as confidential and which is provided by one party to the other shall be considered "Confidential Information" under this Agreement. Each party shall take such measures to protect Confidential Information of the other party as it takes to protect its own similar proprietary and confidential information. This restriction shall not apply to any Confidential Information which is already known by the receiving party, is or becomes publicly available through no fault of the receiving party, or is required to be disclosed by government or judicial order. The terms of this Agreement shall be considered Confidential Information, and shall not be disclosed by either party without the prior written consent of the other. All Confidential Information provided to a party under this Agreement shall be returned to the disclosing party or destroyed promptly upon termination of this Agreement. 4. Authoria Services. Subject to the terms of this Agreement, Authoria will ----------------- provide Licensee with such Services as are described in any Services Schedule attached to this Agreement. Authoria may also make maintenance services available to Licensee under a separate maintenance agreement. In the event that Licensee requests consulting services that are beyond the scope of this Agreement and the maintenance agreement, Authoria may provide such services at is standard rates then in effect or recommend appropriate outside consultants. Any and all enhancements, modifications and corrections to the Software provided as part of any Authoria service will be considered part of the "Software" for purposes of this Agreement. 5. Licensee Responsibilities. Licensee is responsible for the following ------------------------- actions: (a) Determining whether the Software will achieve the results Licensee desires; (b) Procuring, installing, and operating computers and operating systems to run the Software in accordance with the Specifications; (c) Providing a proper environment and proper utilities for the computers on which the Software operate, including an uninterrupted power supply; (d) Selecting and training personnel that can operate computers and are familiar with the accounts and records that serve as input and output for the Software; and (e) Establishing adequate operational back-up provisions to protect against data loss and/or a defect or malfunction that renders the Software or the computer systems on which they run nonoperational. Authoria reserves the right to charge additional service fees if an operator seeks assistance with respect to such basic information or any other matters not directly relating to the operation of the Software. Authoria does not hold itself out as a professional expert and adviser regarding Licensee's computer or information needs. Authoria is not responsible for obsolescence of the Software that may result from changes in Licensee's requirements. 6. Publicity. Licensee agrees to make reasonable efforts to serve as a --------- reference account upon prior request by Licensor, to participate in case studies and other promotional activity, and to allow its name to be used in press releases, sales materials and user literature. 7. Data. Licensee acknowledges that data conversion is subject to the ---- likelihood of human and machine errors, omissions, delays, and losses, including inadvertent loss of data or damage to media, that may give rise to loss or damage. Authoria shall not be liable for any such errors, omissions, delays, or losses, unless caused by its willful misconduct. Licensee is responsible for adopting reasonable measures to ensure the accuracy and integrity of the data and knowledge content, including backing up data, and adopting procedures to ensure the accuracy of input data; examining and confirming results prior to use; and adopting procedures to identify and correct errors and omissions, replace lost or damaged media, and reconstruct data. Licensee is also responsible for complying with all local, state, and federal laws pertaining to its benefit programs and the use and disclosure of any data. 8. Fees/Payment. Licensee agrees to pay the fees specified in the attached ------------ Schedule(s) in accordance with the terms specified therein, plus any reasonable travel and living expenses incurred in connection with the provision of Software or Services under this Agreement. The fees specified in the Schedule(s) are exclusive of, and Licensee agrees to pay any sales, use or other tax related to this transaction, however designated (except taxes based on net income). Unless otherwise specified in a Schedule, invoices are payable upon receipt. Authoria reserves the right to charge a late fee of up to 1.5% per month (or, if less, the maximum rate allowable by law) on any balance remaining unpaid for more than thirty (30) days. 9. Limited Warranty. ---------------- (a) Authoria warrants that the Software shall not develop any faults due to the manipulation of data by the Software with dates prior to, through and including January 1, 2000. Notwithstanding the foregoing, Authoria makes no warranty whatsoever with respect to the Software's use or display of date related data, which may be read from third party systems. (b) Authoria warrants that, prior to delivery of any media containing Software, it will take reasonable steps to test such media to ensure that the Software is free of programming devices (e.g., viruses, key locks, backdoors, etc.) that are designed to disrupt the use of the Software or any system with which the Software operates, or destroy or damage data or make data inaccessible or delayed, except for file and purge routines necessary to the routine functioning of the Software. (c) Authoria warrants that for a period of ninety (90) days following delivery, the Software will function substantially in accordance with the Specifications. Authoria does not warrant that the Software will be error free in all circumstances. As Licensee's exclusive remedy for any breach of this warranty, Authoria will, at its expense, replace or repair any Software that fails to meet this limited warranty. In the event that Authoria is unable to repair or replace the Software during the warranty period, Licensee may terminate its License and return the defective Software, and Authoria will provide Licensee with a refund of the License Fees paid for the Software in question. However, Authoria is not responsible for any defect or error not reported during the warranty period or any defect or error in Software that Licensee has modified, misused, or damaged. 2 Authoria Confidential Authoria/TriNet License Agreement 100599 (d) EXCEPT AS EXPRESSLY SET FORTH IN THIS SECTION, AUTHORIA MAKES NO WARRANTIES, EXPRESS, IMPLIED, STATUTORY, OR IN ANY OTHER PROVISION OF THIS AGREEMENT OR ANY OTHER COMMUNICATION. AUTHORIA SPECIFICALLY DISCLAIMS ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. 10. Limitation of Liability. THE CUMULATIVE LIABILITY OF AUTHORIA TO LICENSEE ----------------------- FOR ALL CLAIMS ARISING UNDER OR RELATED TO THIS AGREEMENT, WHETHER IN CONTRACT, TORT OR OTHERWISE, SHALL NOT EXCEED THE TOTAL AMOUNT OF ALL LICENSE FEES PAID TO AUTHORIA FOR THE RELEVANT SOFTWARE WITHIN THE PRIOR YEAR. THIS LIMITATION SHALL NOT APPLY TO THE INDEMNIFICATION PROVIDED IN PARAGRAPH 11. IN NO EVENT WILL AUTHORIA OR ITS SUPPLIERS BE LIABLE TO LICENSEE FOR DAMAGES FOR LOSS OF DATA, LOST PROFITS, OR ANY INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF THIS AGREEMENT, EVEN IF AUTHORIA HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, OR FOR ANY CLAIM BY ANY THIRD PARTY. THE FOREGOING LIMITATION OF LIABILITY AND EXCLUSION OF CERTAIN DAMAGES SHALL APPLY REGARDLESS OF THE SUCCESS OR EFFECTIVENESS OF OTHER REMEDIES. 11. Indemnification. If a third party claims that the Software infringes any ---------------- U.S. patent, copyright, or trade secret, Authoria will (as long as Licensee is not in default under this Agreement or any other agreement with Authoria) defend Licensee against such claim at Authoria's expense and pay all damages that a court finally awards, provided that Licensee promptly notifies Authoria in writing of the claim, allows Authoria to control, and cooperates with Authoria in, the defense or settlement of such action. If such a claim is made or appears possible, Authoria may, at its option, secure for Licensee the right to continue to use the Software, modify or replace the Software so they are noninfringing, or, if neither of the foregoing options is available in Authoria's judgment, require Licensee to return the Software for a credit equal to the portion of previously paid License fees allocable to the remaining term of the License. (If the License is perpetual, the License Fee will be amortized over a five-year useful life.) However, Authoria has no obligation for any claim based on a modified version of the Software or their combination, operation, or use with any product, data, or apparatus not provided by Authoria. THIS PARAGRAPH STATES AUTHORIA'S ENTIRE OBLIGATION TO LICENSEE WITH RESPECT TO ANY CLAIM OF INFRINGEMENT. 12. Default/Termination. Should Licensee fail to pay any fees or charges due ------------------- hereunder or fail to carry out any other obligation under this Agreement or any other agreement with Authoria, Authoria may, at its option, in addition to other available remedies, terminate the Software License granted under this Agreement and/or disable the Software, provided that it first gives Licensee fifteen (15) days' prior notice in order to permit Licensee to cure its default. Upon expiration or termination of any License, Licensee will promptly return or certify the destruction of all copies of the Software and all other materials pertaining to the Software, which are in Licensee's possession. 13. U.S. Government Restricted Rights. If the Software is acquired under the --------------------------------- terms of a proposal or agreement with the United States Government or any contractor therefor, the Software is subject to the following: the Software is provided with RESTRICTED RIGHTS. Use, duplication, or disclosure by the U.S. Government is subject to restrictions as set forth in subparagraph (c)(1)(ii) of the Rights in Technical Data and Computer Software clause at DFARS 252.227-7013, FAR 52.227-17 Alternate III (g)(3), or subparagraphs (c)(1) and (2) of the Commercial Computer Software - Restricted Rights at 48 CFR 52.227-19, as applicable, and their successor provisions. Contractor/Manufacturer is Authoria, Inc. 78 Fourth Avenue, Waltham, MA 02451. 14. General. ------- (a) This Agreement, including any Schedule(s) attached hereto which have been signed by both parties, is the complete and exclusive statement of the agreement between the parties and supersedes all proposals or prior agreements, oral or written, and all other communications between the parties relating to the subject matter hereof. Any waiver or modification of the provisions of this Agreement will be effective only if in writing and signed by the party against whom it is to be enforced. In the event of a conflict with the provisions of any other document, the provisions of this Agreement will control. (b) Persons and entities who have licensed software to Authoria for inclusion in the Software are third party beneficiaries to this Agreement as it applies to their respective software products included in the Software. (c) Except for actions for nonpayment or breach of Authoria's proprietary rights in the Software, a delay or failure by either party to exercise any right or bring any action, within one (1) year of the event giving rise to such right or such cause of action, shall waive any and all rights relating to that action. (d) All notices or other communications required to be given hereunder shall be in writing and delivered either personally or by U.S. mail, certified, return receipt requested, postage prepaid, and addressed as provided in this Agreement or as otherwise requested by the receiving party. Notices delivered personally shall be effective upon delivery and notices delivered by mail shall be effective upon their receipt by the party to whom they are addressed. (e) This Agreement and the associated License may not be assigned by Licensee without Authoria's written consent, which shall not be unreasonably withheld. Licensee agrees that it shall not be considered unreasonable for Authoria to withhold Authoria's consent to an assignment to a party that is, or is likely to become, in Authoria's reasonable opinion, a competitor of Authoria. (f) Licensee will be responsible for compliance with all legal requirements related to its use of the Software, including those related to the disclosure of data, and to any exports of Software made by Licensee. (g) This Agreement shall be considered an agreement made in Massachusetts and shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts. 3 Executed by the parties hereto as an instrument under seal effective as of the date first written above. AUTHORIA, INC. TRINET VCO /s/ TOD LOOFBOURROW 10/29/99 /s/ DOUGLAS P. DEVLIN 10/21/99 - ----------------------------- -------------------------------- Signature Date Signature Date Tod Loofbourrow President & CEO Douglas P. Devlin CFO - ------------------------------------ --------------------------------- Name Title Name Title 4 Authoria Confidential Authoria/TriNet License Agreement 100599 Software Schedule (Outsourcer) to Authoria Software License Agreement #: 06099901 Licensee Name: Tri-Net VCO Designated Location: 101 Callan Avenue San Leandro, CA 94577 Licensed Software: Authoria HR Software including: Health and Welfare, HRIS Bridge Term of License: Five years, beginning on October 22, 1999 (the "Effective Date"). Following expiration of the five year Term, the License will automatically renew from year to year unless either party provides the other with written notice of its intention not to renew at least ninety (90) days prior to the expiration of the initial term or any renewal thereof. Scope of Use: Unlimited workstations for use for the benefit of [ * ] covered individuals.** The Authoria Software may be used by the Licensee for generating output data for the direct benefit of, or for purposes of rendering services to, any other business entities or organizations (a "Third Party Licensee Organization"), subject to the payment of the License Fee below with respect to all covered lives of individuals in each such Third Party Licensee Organization, and subject to the other terms and conditions of the Agreement. Notwithstanding the foregoing, Licensee may not install the Software on any workstation, server or other computer other than a computer at the Designated Location operated by an employee or contractor directly responsible to Licensee and not to any Third Party Licensee Organization. License Fees: The License Fee for the Licensed Software shall be [ * ]. Such License Fee shall be payable as described below, in "Payment Terms". Additional License Fees, based on the addition of covered individuals as described below, shall be payable as described below. * *The Software License Fee is based on the number of covered individuals. If the number of covered individuals increases beyond the [ * ] provided in this Software Schedule above, Licensee will be responsible for payment of an additional license fee, in accordance with the following schedule: (The fees in the schedule are valid for 60 months from execution of the Agreement) Licensee will pay Authoria such fee within thirty (30) days following the increase in covered lives.
Lives Additional License Fee ----- ---------------------- 20,001 - 49,999 [ * ] 50,000 - 74,999 [ * ] 75,000 - 99,999 [ * ] 100,000 - 124,999 [ * ] 125,000 > [ * ] per life per year in [ * ] life increments
Optional Products: Licensee has the option to purchase additional modules at [ * ] off of the list price stated below if purchased by 12/31/99 and at [ * ] off of the list price if purchased by 3/31/00.
Module List Price --------------------------------------------------------------------------------------- Defined Contributions [ * ] Compensation [ * ] Employment [ * ] Time Off [ * ] Employee Relations [ * ] Employee Services [ * ] Payroll [ * ] Transaction Bridge [ * ]
[ * ] Confidential Treatment Requested Authoria Confidential Authoria/TriNet License Agreement 100599 Payment Terms: An initial deposit of 75% of the initial License Fee is payable upon execution of this Schedule. The remaining 25% balance will be payable net 30 days from shipment of the Software. Approved: Accepted: Authoria, Inc. TriNet VCO Authoria Licensee By: /s/ TOD LOOFBOURROW 10/29/99 By: /s/ DOUGLAS P. DEVLIN 10/21/99 -------------------------------- ------------------------------- Authorized Representative Date Authorized Representative Date Authoria Confidential Authoria/TriNet License Agreement 100599 EX-10.10 11 ANNUAL SUPPORT & MAINTENANCE AGREEMENT 10/21/99 (AUTHORIA) Date: October 21, 1999 Exhibit 10.10 AUTHORIA, INC. Annual Support and Maintenance Agreement (Outsourcer) for Software Licensed Under Software License Agreement #: 06099901 THIS AGREEMENT is by and between AUTHORIA, INC., a Delaware corporation with offices at 78 Fourth Avenue, Waltham, MA 02451 ("Authoria") and the following Licensee: Licensee Name: TriNet VCO Address: 101 Callan Avenue San Leandro, CA 94577 Principal Contact: Martin Babinec 1. Maintenance Services. Subject to the following terms and conditions, -------------------- Authoria agrees to provide the above-named Licensee with, and, during the term of the License Agreement (defined below), Licensee agrees to subscribe to, the maintenance services described on the Maintenance Services Schedule attached hereto ("Maintenance Services"), with respect to Authoria Software licensed under the Software License Agreement reference above (the "License Agreement"). All terms contained herein and not otherwise defined shall have the meaning set forth in the License Agreement. 2. Term; Termination. The initial term of this Agreement is five years, ----------------- beginning on the effective date of the License Agreement. Thereafter, this Agreement shall automatically renew from year to year, provided that Authoria may terminate this Agreement upon ninety (90) days prior written notice to Licensee. This Agreement will automatically terminate: (i) upon expiration or termination of the License Agreement; or (ii) in the event that Licensee fails to pay the Maintenance Fee when due. Either party may terminate this Agreement if the other party commits a material breach of its terms which is not cured within thirty (30) days after written notice of such breach. 3. Fees. Maintenance Fees are set forth on the Maintenance Services ---- Schedule attached hereto, and are exclusive of, and Licensee agrees to pay, any reasonable travel and living expenses incurred in connection with the provision of Maintenance Services under this Agreement. The first Annual Maintenance Fee is payable upon execution of this Agreement. Subsequent Annual Maintenance Fees shall be payable thereafter annually in advance on or before the anniversary date of this Agreement. The Annual Maintenance Fees following the initial 60 month term shall not exceed 108% of the rates provided in this Agreement for the modules licensed for the then current life count. 4. Limited Warranty. Authoria WARRANTS THAT THE MAINTENANCE SERVICES ---------------- WILL BE PERFORMED IN A WORKMANLIKE MANNER IN ACCORDANCE WITH INDUSTRY STANDARDS. Authoria MAKES NO OTHER WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO THE SUBJECT MATTER OF THIS AGREEMENT, INCLUDING, BUT NOT LIMITED TO, ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR ANY OTHER WARRANTY OF ANY KIND RESPECTING AND MAINTENANCE SERVICES PERFORMED HEREUNDER OR ANY MATERIALS FURNISHED HEREUNDER. 5. Limitation of Liability. THE CUMULATIVE LIABILITY OF Authoria TO ----------------------- LICENSEE FOR ALL CLAIMS ARISING UNDER OR RELATED TO THIS AGREEMENT, WHETHER IN CONTRACT, TORT OR OTHERWISE, SHALL NOT EXCEED THE MAINTENANCE FEES PAID TO Authoria WITHIN THE PRIOR YEAR. IN NO EVENT WILL Authoria BE LIABLE TO LICENSEE FOR DAMAGES FOR LOSS OF DATA, LOST PROFITS, OR OTHER INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF THIS AGREEMENT, EVEN IF Authoria HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, OR FOR ANY CLAIM BY ANY THIRD PARTY. THE FOREGOING LIMITATION OF LIABILITY AND EXCLUSION OF CERTAIN DAMAGES SHALL APPLY REGARDLESS OF THE SUCCESS OR EFFECTIVENESS OF OTHER REMEDIES. 6. Source Code Availability. Authoria has placed a copy of the source ------------------------ code for the Software in escrow with a third party escrow agent. In the event that Authoria ceases to do business in the ordinary course (other than a cessation of business due to a sale of Authoria or its business, or any other transaction where the maintenance of the Software is carried on by a successor), voluntarily files for bankruptcy, or is adjudicated bankrupt, while this Agreement is in effect, Authoria agrees to furnish to Licensee, upon request and without charge, a single copy of Authoria's proprietary source code for the current version of the Software then installed at Licensee's site. Upon taking possession of the source code, Licensee may use the source code only to perform warranty or maintenance obligations, and such use of the source code by Licensee will be limited to the correction of errors and maintaining the Software so that it operates in accordance with its specified documentation. Under no circumstances does a release of the source code authorize Licensee to expand the use of the Software beyond the scope of the License. Authoria Confidential 1 Authoria/TriNet Maint Agmt 100599 7. General. ------- (a) This Agreement, including the Maintenance Services Schedule and any other attachments hereto which have been signed by both parties, is the complete and exclusive statement of the agreement between the parties and supersedes all proposals or prior agreements, oral or written, and all other communications between the parties relating to the subject matter hereof. Any waiver or modification of the provisions of this Agreement will be effective only if in writing and signed by the party against whom it is to be enforced. In the event of a conflict with the provisions of any other document, the provisions of this Agreement will control. (b) All notices or other communications required to be given hereunder shall be in writing and delivered either personally or by U.S. mail, certified, return receipt requested, postage prepaid, and addressed as provided in this Agreement or as otherwise requested by the receiving party. Notices delivered personally shall be effective upon delivery and notices delivered by mail shall be effective upon their receipt by the party to whom they are addressed. (c) A delay or failure by either party to exercise any right or bring any action, within one (1) year of the event giving rise to such right or such cause of action, shall waive any and all rights relating to that action. (d) Licensee's rights hereunder may not be transferred by assignment, operation of law or otherwise, except in connection with a permitted transfer of the License. (e) All provisions regarding warranty, liability and limits thereon shall survive indefinitely. (f) This Agreement shall be considered an agreement made in Massachusetts and shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts. Executed by the parties hereto as an instrument under seal as of the date first written above. AUTHORIA, INC. /s/ TOD LOOFBOURROW 10/29/99 /s/ DOUGLAS P. DEVLIN 10/21/99 - -------------------------------- ---------------------------------- Signature Date Signature Date Tod Loofbourrow President & CEO Douglas P. Devlin CFO - ----------------------------------- ---------------------------------- Name Title Name Title Authoria Confidential 2 Authoria/TriNet Maint Agmt 100599 Maintenance Services Schedule for Software Licensed Under Authoria Software License Agreement #: 06099901 Licensee Name: TriNet VCO Designated Location: 101 Callan Avenue San Leandro, CA 94577 Licensee Key Contact & Phone#: Martin Babinec Authoria Telephone Support Number: 781-530-2000 Maintenance Services Elected: Software Maintenance Including Core Content Maintenance Annual Maintenance Fee: $27,000 per year based upon 20,000 covered individuals. If the number of covered individuals for which Licensee is licensed to use the Software increases beyond the 20,000 provided in the Software Schedule, Licensee will promptly notify Authoria and will pay Authoria, within thirty (30) days following such increase. The additional Maintenance Fee will be equal to 18% per year of the additional license fees stated in the Software Schedule. 1. Telephone Support. Telephone Support consists of unlimited telephone support ------------------- during Authoria's normal business hours, from 9:00 a.m. through 6:00 p.m., Monday through Friday, Eastern Standard Time, excluding Authoria holidays. Such support will include the opportunity to consult with a member of Authoria's technical support staff who will assist Licensee with the Software capabilities, functionality and characteristics as described in the Software Specifications and provide basic problem resolution assistance as required. 2. Maintenance Releases and New Versions. Authoria will make available to --------------------------------------- Licensee such point releases, updates and/or enhancements to the Software which Authoria makes generally available to its Licensees at no additional charge ("Maintenance Releases"). New versions and major releases of the Software ("New Versions") will be made available to Licensees for an additional charge. In the event that Authoria Services are required in connection with Licensee's implementation of a Maintenance Release or New Version, Licensee will be billed for such Services at Authoria's standard rates then in effect. As Authoria makes available Maintenance Releases and New Versions of the Software, Authoria reserves the right to discontinue or modify the terms and conditions of support for non-current releases and versions. Authoria shall provide at least 90 days notice of such discontinuance or modification; provided, however, that Authoria will continue to support non-current releases and versions of the Software for the remainder of Licensee's then current Maintenance Services term. 3. Content Maintenance. Core Content Maintenance consists of such updates to the --------------------- core content as are authored into the Software on an ongoing basis by Authoria, including legislative changes and enhancements to existing topics in the subjects licensed by Licensee. In the event that Licensee also elects to purchase Customized Content Maintenance, Authoria will perform complete maintenance of all of Licensee's benefits and human resources policy content, both core and as customized to Licensee, and such Customized Content Maintenance will be billed at normal Authoria service rates based on the level of maintenance required. 4. Excluded Services. Excluded from the coverage of this Agreement are services ----------------- resulting from misuse or modification of the Software by Licensee, failure or interruption of any electrical power, or any accident or other cause external to the Software, including, but not limited to problems or malfunctions related to Licensee's network, database, third party software products, and/or workstation configurations or Licensee's hardware. Such excluded services, and additional consulting services such as lntranet consulting, training, content setup and technical integration may be contracted for separately at Authoria's then current labor rates, subject to Authoria's agreement. 5. Licensee's Responsibilities. Licensee will have sole responsibility to notify ----------------------------- Authoria promptly of all problems, to allow, if necessary, unrestricted and free access to the Software, and to ensure that the a qualified Licensee representative is available to provide assistance as necessary to perform Maintenance Services hereunder. Approved: Accepted: Authoria, Inc. TriNet VCO Authoria Licensee By: /s/ TOD LOOFBOURROW 10/29/99 By: /s/ DOUGLAS P. DEVLIN 10/21/99 -------------------------------- --------------------------------- Authorized Representative Date Authorized Representative Date Authoria Confidential 3 Authoria/TriNet Maint Agmt 100599 EX-10.11 12 SOFTWARE LICENSE AGREEMENT 9/29/99 (BRIO) CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAD BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. Exhibit 10.11 [Logo Goes Here] BRIO SOFTWARE LICENSE AGREEMENT This Software License Agreement, ("Agreement") is made effective as of September 29, 1999 (the "Effective Date"), by and between Brio Technology Inc., a Delaware corporation with its principal place of business at 3460 W. Bayshore Road, Palo Alto, CA 94303 ("Brio"), and TriNet VCO a California corporation with an office at 101 Callan Avenue San Leandro, CA 94577 ("Licensee"). 1. DEFINITIONS 1.1. Licensed Program Materials shall mean the Licensed Programs in machine -------------------------- readable object code only, and associated User Documentation, provided to Licensee by Brio and specified in Exhibit A. The Licensed Program Materials shall also be deemed to include any Updates of Licensed Program Materials made generally available by Brio to its licensees, provided Licensee has made payment for Support and Maintenance under the terms of any Exhibit B (Support and Maintenance) attached hereto. 1.2. Designated Locations shall mean the particular location(s), if applicable, -------------------- set forth in Exhibit A where Licensed Program Materials are permitted to be used pursuant to the license grant defined in Exhibit A. 2. LICENSE GRANTS License Grant. Licensee shall be granted the license grants set forth in - ------------- Exhibit A. The foregoing license grants shall be subject to the terms and conditions of this Agreement. Brio reserves all rights in the Licensed Program Materials, which are not expressly granted herein. 3. ADDITIONAL LICENSE CONDITIONS 3.1 Reverse Engineering. Licensee shall not decompile, reverse engineer or ------------------- otherwise attempt to derive or modify the source code of the Licensed Programs Materials unless expressly licensed to do so by Brio in writing. Licensee shall not merge the Licensed Program Materials with another program. 3.2 Proprietary Notices. Licensee agrees to reproduce and include any ------------------- copyright or other proprietary rights notices of Brio on all copies, in whole or in part, in any form, including partial copies, of the Licensed Program Materials made hereunder. Licensee further agrees to permit Brio to enter any of Licensee's premises during regular business hours, upon five (5) days written notice, to inspect the Licensed Program Materials, and Licensee's use thereof, in any reasonable manner. 3.3 No Licensee Modification or Translation. Licensee shall not modify, --------------------------------------- translate or create derivative works of the Licensed Program Materials. 3.4 Sublicensing, Rental, Lease or Resale. Licensee shall not sublicense, ------------------------------------- rent, lease, resell for profit, or distribute, the Licensed Program Materials or derivative works thereof. 3.5 Export. Licensee shall not export or re-export, directly or indirectly, ------ the Licensed Program Materials or any part thereof in a manner prohibited by the United States Export Administration Act or the regulations thereunder. 3.6 Brio Modifications. Brio reserves the right to modify the Licensed Program ------------------ Materials in order to reflect changes in support requirements or to improve then-existing Licensed Program Materials. 4. RECORDS AND AUDITS Licensee shall maintain complete and accurate records of the number of copies of Licensed Programs Materials it has made, and the location of such copies, and the Designated Computer upon which the Licensed Program Materials have been loaded. Brio shall, at any time during the term of this Agreement, be entitled to audit such records, upon seven (7) prior days written notice to Licensee, in order to confirm the accuracy of Licensee's records and Licensee's conformance with the terms and conditions of this Agreement; provided, that no more than one (1) such audit may be conducted in any one hundred and eighty (180) day period. Any such audit shall be performed at Brio's expense during Licensee's normal business hours. If an audit reveals that Licensee has underpaid fees and/or charges to Brio in excess of five percent (5%), then Licensee will pay Brio's reasonable costs of conducting the audit, in addition to the underpaid amounts, plus interest as provided in Section 6.1 below. 5. TITLE Ownership of all right, title and interest in and to the originals and any copies, in whole or in part, of the Licensed Program Materials, including translations, compilations, partial copies, modifications and updated works, and ownership of all patents, trade secrets, copyrights and other intellectual property rights pertaining thereto, shall be and shall remain the sole property of Brio. Licensee acknowledges that the license granted pursuant to this Agreement does not provide Licensee with title or ownership of the Licensed Program Materials. Licensee shall keep the Licensed Program Materials free and clear of all claims, liens and encumbrances. 6. PAYMENTS 6.1 License Fees. The fees for the license, maintenance, and other services ------------ granted under this Agreement are set forth in Exhibit A. All fees and charges will be invoiced by Brio to Licensee and must be paid in full within thirty (30) days after the date of invoice or as otherwise specified on Exhibit A to this agreement. All payments are due in United States dollars. Brio reserves the right to apply a service charge to any unpaid balance at the rate of 1.5% per month (but in no event more than the maximum rate allowed by law) for any fee or charge not paid within thirty (30) days after the date of invoice. If Licensee fails to pay any invoice when due, Brio will have the right to institute collection procedures to recover same, and Licensee will be responsible for all reasonable costs of collection incurred by Brio, including without limitation litigation costs, reasonable attorneys' fees and court costs. Brio also reserves the right to discontinue or suspend any services, with written notice thereof to Licensee, including the termination of this Agreement for Licensee's failure to make timely payment of applicable fees or charges, without penalty to Brio. MAIL TO: Brio Technology, Inc. Dept. CH 10866 Palantine, IL 60055-0866 6.2 Taxes. Licensee shall pay or reimburse Brio for all taxes, duties and ----- assessments imposed on Licensee or Brio in connection with the license or use of Licensed Program Materials under this Agreement or any services provided hereunder, including without limitation all sales, use, excise and other taxes and duties, excluding only taxes based upon Brio's net income. Licensee shall hold Brio harmless from all claims and liability arising from Licensee's failure to report or pay any such taxes, duties and assessments. 7. DELIVERY AND ACCEPTANCE 7.1 Delivery. Brio shall deliver the copies of Licensed Program Materials -------- specified in Exhibit A to Licensee within fifteen (15) business from the Effective Date of this Agreement. Shipment shall be F.O.B. Brio's facilities. 7.2 Acceptance. (1) In the event that the Licensed Program Materials were ---------- evaluated by Licensee prior to the Effective Date under an evaluation or trial license agreement between Brio and Licensee, for purposes of this Agreement, the Licensed Program Materials shall be deemed accepted by Licensee upon the later of the Effective Date or delivery to Licensee, (2) In the event that the Licensed Program Materials were not evaluated by Licensee prior to the Effective Date under an evaluation or trial license agreement between Brio and Licensee, the following terms shall apply: Following delivery of the Licensed Program Materials, Licensee shall have a period of ten (10) business days to undertake inspection and testing of the Licensed Program Materials to determine conformance with applicable User Documentation. Licensees failure to notify Brio in writing of any defects within the ten (10) business day inspection period, in the Licensed Program Materials shall be deemed acceptance thereof. 8. BRIO PROPRIETARY RIGHTS AND CONFIDENTIAL INFORMATION. Licensee agrees not to provide or otherwise make available any Licensed Program Materials to any competitor of Brio or to any person other than employees, consultants, contractors or agents of Licensee who are not competitors of Brio and who have a need to use such Licensed Program Materials. Licensee acknowledges that the Licensed Program Materials, as well as other information concerning Brio's business, products, proposed new products, licensees and related information constitute Brio's confidential and proprietary information ("Confidential Information"). Licensee agrees that Licensee will take appropriate action by instruction, agreement, or otherwise with Licensee's employees to satisfy Licensee's obligations under this Agreement with respect to use, copying, modification, protection and security of Confidential Information. Licensee shall promptly return all Confidential Information to Brio (i) after termination of this Agreement, or (ii) upon receipt by the Licensee of written notice from Brio requesting return of such Confidential Information. 9. LIMITED WARRANTY 9.1 Limited Warranty. Brio warrants that for a period of thirty (30) days from ---------------- receipt of Licensed Program Materials by Licensee, (i) the media on which the Licensed Program Materials are recorded will be free from defects in materials and workmanship, and (ii) the Licensed Programs Materials will perform substantially in accordance with their then-current User Documentation, provided that such Licensed Program Materials are property used by Licensee. Brio makes no warranty as to the Licensed Program Materials after said thirty (30) day period. Brio does not warrant that the Licensed Program Materials will meet Licensee's requirements or will operate in combination with other software which may be selected for use by Licensee, or that the operation of the Licensed Program Materials will be uninterrupted or error-free. Brio's sole and exclusive liability and Licensee's sole and exclusive remedy under this Limited Warranty shall be, at Brio's election, either (i) replacement of the disk if defective, or (ii) Brio's reasonable effort to make the Licensed Program materials perform substantially in accordance with the accompanying User Documentation, if the Licensed Program Materials initially delivered are defective. The above remedies are available only if Brio is promptly notified in writing within the thirty (30) day warranty period. This limited warranty is VOID if failure of the Licensed Programs is due to accident, abuse or misapplication. Any replacement Licensed Program will be warranted for the remainder of the original warranty period, or for thirty (30) days, whichever is longer. 9.2 Warranty of Title. Each party warrants that it has all necessary right, ----------------- power and authority to enter into this Agreement. 9.3. Warranty of Year 2000 compliancy. Brio warrants that the Licensed Program - ---- -------------------------------- Materials will be "year 2000 compliant" in that when used in accordance with its associated User Documentation they will correctly process, provide and/or receive date data within and between the twentieth and twenty-first centuries, provided that all hardware, software and firmware used (including but not limited to Databases and API's) in association with the Licensed Program Materials exchange accurate date data. "Year 2000 compliant" includes, but is not limited to, date and century recognition before and after 1/1/2000, calculations to accommodate same century, and multi-century formulas end date values, and date data interface values that reflect the century. Leap year calculations are accommodated. 9.4. Disclaimer. EXCEPT FOR THE LIMTED WARRANTY SET FORTH HEREIN, BRIO MAKES ---------- NO PROMISES, REPRESENATIONS OR WARRANTIES, EITHER EXPRESS, IMPLIED, STATUTORY, OR OTHERWISE, WITH RESPECT TO ANY LICENSED PROGRAM MATERIALS, INCLUDING THEIR CONDITION, THEIR CONFORMITY TO ANY REPRESENTATION OR DESCRIPTION, OR THE EXISTENCE OF ANY LATENT OR PATENT DEFECTS, AND BRIO SPECIFICALLY EXCLUDES ALL IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND NONINFRINGEMENT. 10. SUPPORT MAINTENANCE AND TRAINING 10.1 Support. Licensee shall have the right, upon payment of the support fees ------- set forth in any Exhibit A attached hereto, to the support services outlined in Exhibit B hereto. The names of specified Licensee contact persons shall be added to such Exhibit B. Such contact persons shall attend the classes specified in such Exhibit A, and after attending such training may obtain support from Brio as set forth in such Exhibit B. 10.2 Maintenance. Upon payment of maintenance fees as set forth in any Exhibit ----------- A attached hereto, Licensee shall have the right to receive maintenance from Brio as set forth in such Exhibit B. 10.3 Training. Brio shall provide any training set forth in Exhibit A attached -------- hereto. 11. INTELLECTUAL PROPERTY RIGHTS INDEMNIFICATION Indemnity. Brio will defend, at its expense, any action brought against - --------- Licensee based upon a claim that the Licensed Program Materials used within the scope of any license granted hereunder directly infringe a U.S. patent or copyright. Brio further agrees to pay all damages and costs finally awarded against Licensee attributable to such claim; provided that Brio shall have sole control of any such action or settlement negotiations, and provided that Licensee notifies Brio promptly in writing of such claim and gives Brio all authority, information and assistance, at Brio's expense, reasonably necessary to settle or defend such claim. Brio shall not be liable for any costs or expenses incurred without its prior written authorization. If the Licensed Program Materials become, or in the opinion of Brio may become, the subject of a claim of infringement of any United States patent or copyright, Brio may, at its option: (1) procure for Licensee the right to use the Licensed Program Materials free of any liability; (ii) replace or modify the Licensed Program Materials to make them non-infringing; or (iii) remove the Licensed Program Materials, or part thereof, and refund the aggregate payments paid therefor by Licensee, less an amount equal to 20% of the purchase price of the license for such Licensed Program Materials for each year of use. Brio assumes no liability hereunder for: (i) any method or process in which the Licensed Program Materials may be used; or (ii) any compliance with Licensee's specifications. Brio shall have no obligation to defend Licensee or to pay costs, damages or attorney's fees for any claim based upon: (A) use of other than a current unaltered release of the Licensed Program Materials; or (B) the combination, operation or use of any Licensed Program Materials furnished hereunder with non-Brio programs or data if such infringement would have been avoided but for the combination, operation or use of the Licensed Program Materials with such programs or data. THIS SECTION 11.1 SETS FORTH THE SOLE AND EXCLUSIVE LIABILITY OF BRIO FOR INFRINGEMENT OF THIRD PARTY INTELLECTUAL PROPERTY RIGHTS. 12. UNITED STATES RESTRICTED RIGHTS AND EXPORT LAWS AND REGULATIONS If Licensee is an agency, department or entity of the United States Government ("Government"), then use, reproduction, release, modification or disclosure of the Licensed Program Materials, or any part thereof, including technical data, is restricted in accordance with Federal Acquisition Regulation ("FAR") 12.212 for civilian agencies and Defense Federal Acquisition Regulation Supplement ("DFARS") 227.7202 for military agencies. The Licensed Program Materials are a commercial product, which was developed at private expense. The use of the Licensed Program Materials by any Government agency, department or other agency of the Government is further restricted as set forth in this Agreement. Any obligation of Licensor to provide Products under this Agreement shall be subject in all respects to all United States laws and regulations governing the license and delivery of technology and products abroad by persons subject to the jurisdiction of the United States. Licensee shall not export, directly or indirectly, any Products or related information without first obtaining all required licenses and approvals from the appropriate government agencies. 13. LIMITATION OF LIABILITY Other than its liability under 11 above, Licensee agrees that Brio's liability hereunder for damages arising from use, performance or nonperformance of the Licensed Program Materials, including but not limited to liability for patent and copyright infringement, shall be as set forth above in Sections 9 and 11, and shall in no event exceed the amount paid by Licensee pursuant to this Agreement. Licensee further agrees that BRIO WILL NOT BE LIABLE FOR ANY LOST PROFITS, FOR COSTS OF PROCUREMENT OF SUBSTITUTE GOODS OR SERVICES OR FOR ANY CLAIM OR DEMAND AGAINST LICENSEE BY ANY OTHER PARTY. IN NO EVENT WILL BRIO BE LIABLE FOR CONSEQUENTIAL, INCIDENTAL, SPECIAL, INDIRECT, OR EXEMPLARY DAMAGES ARISING OUT OF THIS AGREEMENT, EVEN IF BRIO HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, AND UNDER ANY CAUSE OF ACTION, INCLUDING NEGLIGENCE. THESE LIMITATIONS SHALL APPLY NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY. No action may be brought or arbitration demanded by Licensee for any dispute arising out of or in connection with this Agreement at any time more than twelve (12) months after the facts occurred giving rise to the cause of action or dispute. Licensee is responsible for the selection of software products to satisfy its requirements, and for the data and other results obtained from operation of the Licensed Program Materials. Brio will have no liability to Licensee or third parties in connection with such data and other results. 14. TERM AND TERMINATION 14.1 Term. The term of this Agreement and the license granted hereunder shall ---- commence on the date set forth at the beginning of this Agreement and shall continue until terminated in accordance with this Section 14. 14.2 Termination. Either party may, at its option, terminate this Agreement upon ----------- written notice to the other party if the other party materially fails to comply with any of the terms and conditions of this Agreement and if such default has not been cured within thirty (30) days after written notice to the defaulting party. 14.3 Surviving Terms. Sections 3, 4, 5, 8, 9.2, 9.3, 11, 12, 13, 14.3 and 15, --------------- and all payment obligations incurred prior to termination of this Agreement, shall survive termination of this Agreement. Within thirty (30) days after termination of this Agreement, Licensee shall return to Brio, at Licensee's expense, and shall make no further use of, any property, materials or other items of Brio, and shall certify in writing to Brio, that the originals and all copies, in whole or in part, in any form, of the Licensed Program Materials have been destroyed or returned to Brio. 15. GENERAL PROVISIONS 15.1 Assignment. All the terms and provisions of this Agreement shall be ---------- binding upon and inure to the benefit of the parties to this Agreement and to their respective heirs, successors, assigns and legal representatives. Licensee may not assign this Agreement in whole or in part, except with Brio's written consent, which shall not be unreasonably withheld. Any assignment by Licensee shall not result in an increase in the scope of the license granted pursuant to this Agreement. Brio shall be entitled to assign this Agreement to a successor to all or substantially all of its relevant assets without restriction. 15.2 Entire Agreement. This Agreement represents the entire agreement between ---------------- the parties, and supersedes all prior agreements and understandings with respect to the matters covered by this Agreement. Licensee agrees that it has not entered into this Agreement based on any representations other than those contained herein. This Agreement may only be amended by a written agreement signed by both parties. 15.3 Delays. Brio is not responsible for failure to fulfill its obligations ------ under this Agreement due to causes beyond its control. 15.4 Governing Law. This Agreement shall in all respects be governed by the laws ------------- of the State of California without reference to its principles of conflicts of laws. The parties hereby agree that all disputes arising out of this Agreement shall be subject to the exclusive jurisdiction of and venue in the federal and state courts within Santa Clara County, California. Licensee hereby consents to the personal and exclusive jurisdiction and venue of these courts. 15.5 Arbitration. Any claim, dispute, or controversy arising out of or in ----------- connection with or relating to this Agreement, including the breach or alleged breach thereof, will be submitted by the parties to binding arbitration by the American Arbitration Association in the City of San Jose, California, under the commercial rules then in effect for that Association, except as provided herein. The parties will agree on one (1) arbitrator within thirty (30) days of receipt of the notice of intent to arbitrate. If no arbitrator is appointed within the time herein provided, or any extension of time which is mutually agreed upon, the Association will make such appointment within thirty (30) days of such failure. Such Association-appointed arbitrator will have a minimum of ten (10) years experience with development software for computers, internet applications, and knowledge of wide area networks. The awarded rendered by the arbitrator will include costs of arbitration, reasonable costs for expert and other witnesses, and reasonable attorney's fees to the prevailing party. Licensee acknowledges that any breach of its obligations with respect to the proprietary rights of Brio and its licensors or third party suppliers will cause Licensee irreparable injury for which there are inadequate remedies at law and, therefore, the arbitrator may award Brio and its licensors equitable relief in addition to all other remedies available to them. Judgment on the arbitration award may be entered in any court having Jurisdiction thereof. Nothing in this Agreement will be deemed as preventing either party from seeking injunctive relief (or any other provisional remedy) from any court having jurisdiction over the parties and the subject matter of this dispute as is necessary to protect either party's name, proprietary information, trade secret, know-how, or any other intellectual property rights. Because both parties to this Agreement have had the opportunity to negotiate individual provisions of this Agreement, the parties agree that any arbitrator or court shall not construe any ambiguity that may exist in the Agreement against a party on the basis of that party having drafted the Agreement. 15.6 Waiver. The waiver of any particular breach or default or any delay in ------ exercising any rights shall not constitute a waiver of any subsequent breach or default. 15.7 Notices. All notices permitted or required under this Agreement shall be in ------- writing and shall be delivered in person or mailed by first class, registered or certified mail, postage prepaid, to the address of the party specified in this Agreement or such other address as either party may specify in writing. Such notice shall be deemed to have been given upon receipt. 15.8 Headings. The headings of the several sections of this Agreement are -------- intended for convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. 15.9 Force Majeure. Neither party shall be responsible for any failure to ------------- perform its obligations (other than payment obligations) under this Agreement due to reasons beyond its reasonable control, including without limitation acts of God, war, riot, embargoes, acts of civil or military authorities, fire, floods or accidents. 15.10 Counterparts. This Agreement may be executed in counterparts, each of ------------ which shall be deemed an original and all of which together shall constitute one instrument. IN WITNESS WHEREOF, the parties have executed this Agreement and any Exhibits hereto as of the date first set forth above. BRIO TECHNOLOGY, INC. TriNet VCO ("LICENSEE") /s/ LORI L. HARMON /s/ DOUGLAS P. DEVLIN ------------------ --------------------- (Signature) (Signature) Lori L. Harmon Douglas P. Devlin ------------------ --------------------- (Print Name) (Print Name) Vice President Chief Financial Officer ------------------ ----------------------- (Title) (Title) EXHIBIT A - --------- LICENSE GRANTS, LICENSE AND SUPPORT AND MAINTENANCE FEES, AND TRAINING - ---------------------------------------------------------------------- 1. License Grants. -------------- Licensee is granted a nonexclusive non-transferable license to install the number of copies of the Licensed Programs outlined below in this Exhibit. Licensee shall have a nonexclusive license to use the Licensed Documentation solely for the Licensee's internal purposes and solely in connection with Licensee's use of the Licensed Program Materials. Licensee's use of Licensed Program Materials shall be solely for Licensee's internal business or administrative purposes. 2. Products, License Fees, Support and Maintenance Fees. ---------------------------------------------------- PRODUCT QUANTITY UNIT PRICE EXTENDED PRICE 1ST YEAR MAINTENANCE - ------- -------- ---------- -------------- -------------------- Brio.Portal* 1 [*] [*] [*] GRAND TOTAL [*] *Includes: [*] [*] [*] [*] [*] **Plus applicable sales taxes [*] Confidential Treatment Requested EXHIBIT B - ---------- SUPPLEMENTAL TERMS AND CONDITIONS FOR SUPPORT AND MAINTENANCE ONLY In the event Licensee has initialed this Exhibit, then the following terms and conditions will apply solely for yearly Support and Maintenance services for Licensed Program Materials and Updates therto. The obligation of Licensee to make payment to BRIO for Support and Maintenance fees commences upon the Effective Date of this Agreement. This Agreement for Support and Maintenance will renew automatically at the end of the first calendar year after the Effective Date hereof, and sixty (60) days prior to such anniversary, BRIO will Invoice Licensee for the following years Support and Maintenance fees at the then prevailing BRIO rates for such Support and Maintenance, not to exceed a 10% increase over the prior year's Support and Maintenance Fees. Licensee may elect to terminate this Support and Maintenance Agreement by giving BRIO written notice of its intent to so terminate, no later than thirty (30) days prior to the anniversary date. Failure of Licensee to so notify BRIO will constitute Licensees agreement to make payment to BRIO for a further year of Support and Maintenance fees as invoiced by BRIO. In the event that BRIO does not receive further Maintenance Fees for one or more annual maintenance periods, Maintenance can be reactivated by mutual agreement upon payment by Licensee of all Maintenance Fees due for the period in which Maintenance was not provided. The fees for the initial term of Support and Maintenance are outlined in Exhibit A of this Agreement. This Exhibit does not apply to Support or Maintenance services for any modifications of the Licensed Program Materials, which my be quoted to Licensee by Brio. 1. DEFINITIONS The following defined terms, and other capitalized terms defined herein, shall govern the interpretation of this Exhibit. Capitalized terms that are used and not otherwise defined shall have the meaning set forth in the Software License Agreement. 1.1 Error. Error means a material failure of the Licensed Program Materials to ----- conform as described in the applicable User Documentation, which failure is demonstrable in the environment for which the Licensed Program Materials was designed and causes it to be inoperable, to operate improperly in the environment for which it was designed, or produces results different from those described in the applicable User Documentation. Failures resulting from Licensee's negligence or improper use of the Licensed Program Materials, modifications or damage to the Licensed Program Materials by Licensee, and Licensee's use of the Licensed Program Materials on third party hardware or software not identified and certified to Licensee as compatible by BRIO, are not considered Errors. 1.2 Error Correction. Error correction means either a modification or addition ---------------- that, when made or added to the Licensed Program Materials, brings the Licensed Program Materials into material conformity with its User Documentation or a procedure or routine that, when observed in the regular operation of the Licensed Program Materials, avoids the practical adverse effect of such nonconformity. 1.3 Update. Update means an updated revision of the Licensed Program ------ Materials that includes Error Corrections. Provided Licensee has initialed this Exhibit B, and continue to make yearly maintenance payments, under this Agreement, Updates are normally provided to Licensee on diskette, CD ROMs, tapes or made available via the BRIO Homepage. Updates are any Updates of Licensed Program Material identified by Brio by incrementing the numeral to the left or right of the decimal point in the version number. SECTION 2 - SUPPORT AND MAINTENANCE SERVICES - -------------------------------------------- 2.1 Error Correction ---------------- Call Priorities Call priorities are established with the level of urgency or impact on the customers business. Each priority level has a Response Time, Issue Resolution and Defect Resolution Objective associated with it as shown below:/1/
Priority Description Response Time Issue Defect Objective Resolution Resolution Objective Objective - ----------------------------------------------------------------------------------------------------------------- 1 Critical: Application Down, Unable to 1 Hour /8/ Hours To Next Available use or severely impaired. No work resolve or Patch. around available. provide work around. - ----------------------------------------------------------------------------------------------------------------- 2 Serious: Important feature not 2 Hours /2/ Days To Future Patch or available, work around not available. resolve or next Minor provide work Release. around. - ----------------------------------------------------------------------------------------------------------------- 3 Intermediate: Question, Important 8 Hours /2/ Weeks To Future Patch or feature not available, but there is a resolve or next Major reasonable work around, or a less provide work Release. significant feature is not available around. with no reasonable work around. - ----------------------------------------------------------------------------------------------------------------- 4 Minor: Enhancement or minor problem 24 Hours /4/ Weeks To Future scheduled that doesn't cause a disruption of resolve or release work. provide work determined by around. Brio. - -----------------------------------------------------------------------------------------------------------------
If Brio is unable to correct the Error(s) as described above for Priority 1 and 2 Errors, within 8 hours or two (2) business days as applicable, Brio will provide Licensee with the then existing diagnosis of the problem and outline Brio's then existing plan and timetable for resolving the Error. Brio will report its progress in correcting the Error to Licensee in accordance with the table for resolving the Error. Brio shall work continuously on such Errors until such Errors are remedied. SECTION 2 ("SERVICES PROVIDED") AND 3 ("RESPONSE TIMES") STATE BRIO'S ENTIRE LIABILITY AND LICENSEES SOLE AND EXCLUSIVE REMEDY CONCERNING BRIO'S OBLIGATION TO CORRECT ANY ERRORS IN THE LICENSED PRODUCT. 2.2. Licensee Responsibilities. Licensee agrees to notify BRIO in writing or ------------------------- by phone promptly following the discovery of any Error. Further, upon discovery of an Error, Licensee agrees, if requested by BRIO, to submit to BRIO a listing of output and any other data that BRIO may require in order to reproduce the Error and the operating conditions under which the Error occurred or was discovered. In addition, Licensee is responsible for procuring, installing, and ________________ /1/ All response times are based on Brio's standard support hours from 5 a.m. to 5 p.m. Pacific Time. maintaining all equipment, telephone lines, communications interfaces, and other hardware necessary for BRIO to provide maintenance services to Licensee. 2.3. Telephone Support. BRIO will make a member of its maintenance staff ----------------- available by telephone to Licensee's designated support coordinator (Licensee's named employee responsible for liaison with BRIO relating to the Software Support and Maintenance requested hereunder) to assist Licensee's use of the Licensed Program Materials. Licensee's System Administrator will be responsible for daily Support and Maintenance of the Licensed Program Materials per the applicable Documentation. Additional extended service plans are available from BRIO at Licensee's request. 2.4 Field Maintenance. Upon request, BRIO will provide field support and ----------------- maintenance services at any Licensee field site(s) at BRIO's then current hourly field maintenance rates, together with reimbursement of applicable travel and related expenditures, at BRIO's cost plus a 10% administrative charge. 2.5 Exclusions from Support and Maintenance Services. Support and Maintenance ------------------------------------------------ services under this Exhibit do not include, system administration training, operations training, network management setup for the licensed Program Materials, travel and living expenses for installation and training, file conversion costs, optional products and services, directories, consulting services, shipping charges, or the costs of any recommended hardware. This Exhibit also does not cover support or maintenance services for any failure or defect in the Licensed Program Materials caused by any of the following: (a) the improper use, alteration, or damage of the Licensed Program Materials by Licensee or persons other than BRIO employees; (b) modifications to the Licensed Program Materials not made or authorized by BRIO; (c) software other than the Licensed Program Materials; (d) application interfacing between the Licensed Program Materials and other software, that has not be approved or certified by Brio as being compatible with the Licensed Program Materials. (e) Use of Licensed Program Materials (l) with hardware, or third party software that has not been approved and certified by BRIO. SECTION 3 UPDATES 3.1 During each annual support and maintenance period in which Brio is providing support and maintenance, Brio shall provide licensee with updates of the licensed program materials at such time as such updates are made generally available by Brio to it customer of the licensed program materials. 3.2 Update Support Policy: --------------------- BRIO will support the current Update. The previous version will be supported for twelve (12) months after the effective date of the current Update. Support will be for Critical Errors (i.e., Priority 1 bugs) only, on a best-efforts basis and subject to availability of support staff. 3.3 Travel and per diem expenses. Licensee will pay, within fifteen (15) days ---------------------------- of invoice, all reasonable travel and per diem expenses of BRIO personnel related to any on-site support and maintenance of the Licensed Program Materials. For all expenses incident to the performance of this Exhibit, Licensee will pay BRIO's costs, plus a 10% administrative charge. BRIO LICENSEE By: /s/ Lori L. Harmon By: /s/ Douglas P. Devlin ------------------ --------------------- Name: Lori L. Harmon Name: Douglas P. Devlin ------------------ -------------------- Date: September 29, 1999 Date: September 28, 1999 --------------------- -------------------- EX-10.12 13 CONSULTING SERVICE AGREEMENT 11/11/99 (BRIO) Exhibit 10.12 CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAD BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. [LETTERHEAD BRIO TECHNOLOGY] Consulting Services Agreement - -------------------------------------------------------------------------------- This Agreement is made by and between Brio Technology, Inc. with headquarters at 3430 West Bayshore, Palo Alto, CA 94303-4605 (hereinafter, "Brio"), and Name: TriNet VCO ---------------------- Address: 101 Callan Ave. ---------------------- San Leandro, CA 94577 ---------------------- Phone: (510) 352-5000 -------------- Fax: (510) 352-6480 -------------- (hereinafter, "Customer"). By signing this agreement the parties agree to the terms and conditions set forth on this page and on the attached pages. The Effective Date of this Agreement shall be the latter of the dates on which it is signed. Executed by Customer Executed by BRIO Technology, Inc. /s/ Steve Carlson /s/ Tamara MacDuff - -------------------- -------------------------- Authorized Signature Authorized Signature Name: Steve Carlson Name: Tamara MacDuff ------------- -------------- Title: Chief Information Officer Title: Vice President Finance ------------------------- ---------------------- Date: November 9, 1999 Date: November 29, 1999 ---------------- ----------------- Michelle Hoppe Associate Corporate Counsel Brio Professional Services Agreement 1 of 4 In consideration of the promises contained in this Agreement, BRIO agrees to perform certain services subject to the terms and conditions set forth below and in the Statement of Work attached as an exhibit and incorporated into this Agreement by reference. 1. Statement of Work. The services which BRIO is to provide under this Agreement are outlined in the Statement of Work (Exhibit A-1 et. seq.). ------- Persons performing the services hereunder will observe any specified Customer facility rules and regulations. 2. Fees. The compensation to be paid BRIO pursuant to this Agreement shall be in consideration for all services rendered. BRIO will be paid as specified in the software agreement. 3. Term. The term of this Agreement will begin on the Effective Date and continue until terminated. Either party may terminate a Statement of Work under this Agreement or the Agreement itself with or without cause at any time by giving the other party 30 days' written notice of termination. Upon the termination of a Statement of Work or of this Agreement for any or for no reason, neither party will be liable to the other because of such termination for damages on account of the loss of prospective profits, good will, or on account of expenditures, leases or commitments in connection with the business of Customer or of BRIO, or for any other reason whatsoever flowing from such expiration or termination. The following obligations will survive termination of this Agreement for any reason: (a) obligations relating to nonuse and nondisclosure of confidential information; (b) provisions relating to ownership and nonsolicitation; and (c) obligations to make payments of amounts that are due under this Agreement. 4. Ownership. Customer shall have an unlimited non-exclusive license, in perpetuity, to use the work defined in Exhibit A for Customer under this Agreement. Nothing in this Agreement, however, shall be deemed to limit BRIO's ability to develop and market functionally comparable products or work deliverables based on the same general concepts, techniques and routines. Nothing in this Agreement, shall be construed to convey to Customer any rights of ownership in and to BRIO's software products, training materials, or consulting methods. All right, title, and interest therein shall at all times remain the property of BRIO or of BRIO's licensor. 5. Nondisclosure. BRIO agrees that any specifications, information or data furnished to BRIO under this Agreement will remain Customer's property and, if labeled "confidential" or "proprietary," BRIO agrees to treat such materials as confidential information, both during and after the term of this Agreement. As a result of this Agreement, BRIO may also provide Customer with similar confidential information. For convenience, such nonpublic information will be referred to as "Confidential Information." Each party agrees that it will not use or duplicate any Confidential Information provided hereunder unless such use or duplication is necessary to implement this Agreement. Each party it will use all reasonable efforts to ensure against disclosure or distribution of any Confidential Information to any third party, except as specifically authorized by the owner in writing. Confidential Information shall not include information which (a) is or becomes publicly available through no act or omission of the receiving party; (b) was in the receiving party's lawful possession prior to the disclosure and had not been obtained either directly or indirectly from that party; (c) is lawfully disclosed to the receiving party by a third party without restriction on disclosure; (d) is furnished by the owning party to a third party without restrictions on disclosure; or (e) is independently developed by the receiving party. Brio Professional Services Agreement 2 of 4 6. Independent Contractor. Both parties agree that BRIO is an independent contractor and, as such, neither BRIO not its personnel shall be considered employee(s) of Customer. As a consequence, Customer is neither liable nor responsible for withholding or deducting any sums for federal or state income taxes, social security, health, workers compensation, and disability insurance coverage, pension or retirement plan, or the like. 7. Nonsolicitation. During the term of this Agreement and for a period of one year thereafter, Customer agrees that it will not solicit for hire, on behalf of Customer or any other organization, any employee of BRIO, unless Customer has first obtained BRIO's written consent. 8. Reference. BRIO may use Customer's company name as a reference. 9. Warranty and Disclaimer of Warranties. BRIO warrants that its services will be of a professional quality conforming to generally accepted industry standards and practices. THE WARRANTY AND CONDITION INDICATED ABOVE IS EXCLUSIVE AND IN LIEU OF ALL OTHER WARRANTIES AND CONDITIONS, WHETHER EXPRESS OR IMPLIED, INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. 10. Limitation of Liability. NEITHER PARTY SHALL BE LIABLE FOR INDIRECT, SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGES (INCLUDING LOSS OF ANTICIPATED REVENUE OR LOSS RESULTING FROM BUSINESS DISRUPTION), OR DAMAGE TO SYSTEMS, DATA, OR PROGRAMS, RELATED TO, RESULTING FROM, OR ARISING AS A RESULT OF ITS OBLIGATIONS UNDER THIS AGREEMENT, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. In no case will BRIO's liability to Customer exceed the amounts paid by Customer to BRIO hereunder. 11. Taxes. Customer agrees to pay any and all federal, state, or local sales, use, or property taxes, but excluding income taxes, that may become due in connection with the services rendered by BRIO, unless Customer certifies an exemption. Customer shall have the right to contest the amount or validity of any imposition of taxes by appropriate legal proceedings; however, upon the termination of such proceedings, Customer shall pay the contested items and any interest or penalties in the event they are held valid. 12. Insurance. BRIO is responsible for maintaining insurance to protect itself from the following: (a) claims and/or workers compensation or state disability acts; (b) claims for damages because of bodily injury, sickness, or death of any of its employees or any other person which arise out of any negligent act or omission of BRIO, its employees or agents, if any; and (c) claims for damages because of injury to or destruction of tangible property, including loss of use resulting therefrom, which arise from any negligent act or omission of BRIO, its employees or agents, if any. 13. Equal Employment Opportunity. BRIO agrees that it does not and will not discriminate against any employee or applicant for employment because of race, color, religion, age, sex, disability, national origin, or sexual orientation. 14. Governing Law. This Agreement shall be construed according to the substantive laws of California, USA, excluding provisions relating to conflicts of law. 15. Changes. If Customer wishes BRIO to perform additional items, or to make changes to the Statement of Work attached hereto, Customer will notify BRIO in writing. BRIO shall, upon Customer's written request, provide an estimate of the cost and schedule impact of performing changing or delivering the Statement of Work, which estimate will be provided within a mutually agreed time frame. BRIO will take no further action with respect to any addition or change to the Statement of Work until BRIO receives written authorization from Customer and the parties execute an appropriate amendment to the relevant Statement of Work. Brio shall be under no obligation to carry out such work, at its sole discretion. If Customer fails to meet any Customer Responsibilities as defined in the Statement of Work, and such failure affects BRIO's costs or schedule or precludes further work by BRIO on the Project until the Customer Responsibilities are met, then BRIO will notify Customer in writing and thereafter, BRIO and Customer will promptly cooperate to make an appropriate written amendment to the Statement of Work. Brio Professional Services Agreement 3 of 4 16. General Terms. This Agreement is intended to be the complete agreement between the parties concerning the services to be performed. It may be modified only in writing by both parties. In the event that any provision of this Agreement is found to be invalid or unenforceable, it will be enforced to the extent permissible and the remainder of this Agreement will remain in full force and effect. Any notices required hereunder will be in writing and delivered personally, by prepaid U.S. certified mail (return receipt requested), or by prepaid express courier. Any terms and conditions which are included on Customer's purchase order in connection with this Agreement shall be void and of no force and effect unless expressly accepted in writing. Brio Professional Services Agreement 4 of 4 [LETTERHEAD OF BRIO TECHNOLOGY] Exhibit A-1 Statement of Work This Statement of Work is made a part of the Consulting Services Agreement dated________(the "Agreement") by and between Brio Technology, Inc. ("BRIO") and TriNet VCO ("Customer"). This Statement of Work describes the consulting services to be provided by BRIO to Customer.
Project Description - -------------------- 1. Consulting Services to be performed: Brio will provide to customer consulting services to develop, test and rollout the first phase of the Self Service Report System initiative. A detailed description of this project and the requirements is provided in the proposal for Brio Professional Services dated October 28, 1999. 2. Consulting Rate: . Customer will pay BRIO the following rates for consulting services: . Brio.Portal Specialist - rate of US [ * ] per hour . Brio.Report Specialist - rate of US [ * ] per hour Rates do not include travel and living expenses which will be billed separately. 3. Approximate Engagement Schedule: . Consultants commencing on or about November 15, 1999 and ending on or about December 14, 1999. 4. Number of Hours: Not to exceed [ * ] hours for the Brio.Portal Specialist. Not to exceed [ * ] hours for the Brio.Report Specialist. 5. Consulting Fee: US [ * ], plus actual and reasonable expenses
In the event that BRIO ceases to provide services to Customer for any reason, this Statement of Work will be terminated. In such event, any remaining consulting hours under the maximum number above will not be used and work will cease. CUSTOMER BRIO TECHNOLOGY Signed: /s/ Steve Carlson Signed: /s/ Tamara MacDuff ----------------- ------------------ Name: Steve Carlson Name: Tamara MacDuff ------------- -------------- Title: Chief Information Officer Title: Vice President Finance ------------------------- ---------------------- Date: November 9, 1999 Date: November 29, 1999 ---------------- ----------------- Agreement No. _______ Michelle Hoppe Associate Corporate Counsel - ------------------------------------------------------------------------------------------------------------
[ * ] Confidential Treatement Requested Trinet SOW 10-28 1 of 1 EX-10.13 14 FORM OF STEERING COMMITTEE EMPLOYMENT AGREEMENT EXHIBIT 10.13 July 23, 1999 TriNet VCO 101 Callan Avenue San Leandro, California 94577 Dear _____: It is my pleasure to offer you the enhanced terms and conditions associated with your current position at TriNet VCO of ______________, reporting to the President and Chief Executive Officer, Martin Babinec. In this position you will continue to play a key role in the development of TriNet's business. This letter and accompanying contract of employment will summarize important details of matters pertaining to your employment. Implementation of the new terms and conditions of your employment requires execution of, and acceptance by the Company, of this contract. The terms of the attached contract, once executed will supercede any terms and conditions of your heretofore operative employment arrangement. Upon the acceptance and execution and acceptance of the attached contract, the new terms and conditions of employment will become effective May 19, 1999. We are all excited about the opportunity to continue our rewarding relationship. Sincerely, Martin Babinec President & CEO Attachments: Terms and Conditions of Employment ExecEmplAgrmnt.DPD.990706 July 23, 1999 Page 1 of 13 CONFIDENTIAL TriNet VCO GENERAL EMPLOYMENT TERMS & CONDITIONS Name: Position: Date of Offer: July 23, 1999 Scheduled Commencement Date: May 19, 1999 1. Compensation: Your base salary is $_______ per year, payable semi-monthly, which represents an increase over your prior salary level, and constitutes adequate consideration for the execution of this contract. As further incentive, you will be granted an additional ______ qualified options to purchase TriNet VCO's (the "Company") common stock subject to the vesting schedule, terms and conditions of TriNet VCO's Stock Option Plan, option agreement, and subject to approval of the Company's Board of Directors. Further, the Company will supply you with additional life insurance in a face value amount not less than $500,000. In addition to these compensation components, it is anticipated that you will be eligible for annual bonus payments, subject to the Company's profitability, its anticipated performance, your contribution to that performance, the discretion of your manager, and the approval of the Board of Directors. The current budget calls for such bonus to be in the range of $25,000, but your signature on this document constitutes your acknowledgement that there is no guarantee of payment. 2. Expenses. The company will reimburse you for reasonable and necessary expenses incurred by you in furtherance of TriNet VCO's business. All expenses claimed are subject to the review and approval of your supervisor. Records must be maintained and submitted for any expenses to be reimbursed - including destination for auto mileage totals and receipts for all other items. Use of personal automobile for Company business will be reimbursed at the rate of the prevailing Internal Revenue Service rate per mile, currently. 3. Trade Secrets. During and after your employment, you will hold all Trade Secrets of TriNet VCO in confidence; you will not disclose these Trade Secrets to any one. This does not apply to information disclosed in the ordinary course of business to other persons who are employees of TriNet VCO at the time. "Trade Secrets" means the information described in the Description of Trade Secrets (Exhibit A) and any other confidential and/or proprietary knowledge, data or information of TriNet VCO, whether embodied in memoranda, manuals, letters, or other documents, computer disks, tapes or other information storage devices, hardware, or other media or vehicles. Trade Secrets do not include information generally known or that is or becomes public domain information through no fault of yours. ExecEmplAgrmnt.DPD.990706 July 23, 1999 Page 2 of 13 You will also hold confidential any confidential information of any customer, prospective customer, vendor or other person, if you are told or if you know that the information is confidential. You will not use any Trade Secrets of TriNet VCO other than for the benefit of TriNet VCO, and you will not use any confidential information of any customer, prospective customer, vendor or other person other than for the benefit of such customer, vendor or other person if such disclosure is required in the performance of your normal work duties. These terms and conditions of this paragraph 3 are subject to further definition and requirements in the separate Proprietary Information & Inventions Agreement ("PIIA") which you may be required to execute. Your signature below constitutes your consent that the obligations herein may be expanded or otherwise modified by virtue of said PIIA. 4. Invention Assignment. In consideration of your employment with TriNet VCO, you hereby represent to, and agree with the Company as follows: a. Company Business. You understand that the Company is engaged in a continuous program of research, development, production and marketing in connection with its business and that, as an essential part of your employment with the Company, you may be expected to make new contributions to and create inventions, processes, or refinements of value for the Company. b. Disclosure of Inventions. From and after the date you become employed with the Company, you will promptly disclose in confidence to the Company all inventions, improvements, designs, techniques, original works of authorship, formulas, processes, compositions of matter, computer software programs, databases, mask works, and Trade Secrets ("Invention(s)"), whether or not patentable, copyrightable or protectable as trade secrets, that are made or conceived or first reduced to practice or created by you, either alone or jointly with others, during the period of your employment, whether or not in the course of your employment. c. Work for Hire; Assignment of Inventions. You acknowledge that copyrightable works prepared by you within the scope of your employment are "works for hire" under the Copyright Act and that the Company will be considered the author thereof. You agree that all Inventions that (a) are developed using equipment, supplies, facilities, or Trade Secrets of the Company, (b) result from work performed by you for the Company, or (c) relate to the Company's business or current or anticipated research and development, will be the sole and exclusive property of the Company and are hereby assigned by me to the Company. This assignment does not apply to an Invention that qualifies fully as a nonassignable Invention under Section 2870 of the California Labor Code. I have reviewed the notification on Exhibit B (Limited Exclusion Notification) and agree that my signature acknowledges receipt of notification. ExecEmplAgrmnt.DPD.990706 July 23, 1999 Page 3 of 13 d. Assignment of Other Rights. You hereby irrevocably transfer and assign to the Company: (a) all worldwide patents, patent applications, copyrights, mask works, trade secrets and other intellectual property rights in any Invention; and (b) any and all "Moral Rights" (as defined below) that you may have in or with respect to any Invention. You also hereby forever waive and agree never to assert any and all Moral Rights you have in or with respect to any Invention, even after termination of your work on behalf of the Company. "Moral Rights" mean any rights to claim authorship of an Invention, to object to or prevent the modification of any Invention, or to withdraw from circulation or control the publication or distribution of any Invention, and any similar right, existing under judicial or statutory law of any country in the world, or under any treaty, regardless of whether or not such right is denominated or generally referred to as a "moral right." e. Assistance. You agree to assist the Company in every proper way to obtain for the Company and enforce patents, copyrights, mask work rights, trade secret rights, and other legal protection for the company's Inventions in any and all countries. You will execute any documents that the Company may reasonably request for use in obtaining or enforcing such patents, copyrights, mask work rights, trade secrets and other legal protections. Your obligations under this paragraph will continue beyond the termination of your employment with the Company, provided that the Company will compensate you at a reasonable rate after such termination for time or expenses actually spent by you at the Company's request on such assistance. You appoint the Secretary of the Company as your attorney-in-fact, which appointment is coupled with an interest, to execute documents on your behalf for this purpose. f. Other Requirements. These terms and conditions of this paragraph 4 are subject to further definition and requirements in the separate Proprietary Information & Inventions Agreement ("PIIA") which you may be required to execute. Your signature below constitutes your consent that the obligations herein may be expanded or otherwise modified by virtue of said PIIA. 5. Proprietary Information. You understand that your employment by the Company creates a relationship of confidence and trust with respect to any information of a confidential or secret nature that may be disclosed to you by the Company or to the business of any parent, subsidiary, affiliate, customer or supplier of the Company or any other party with whom the Company agrees to hold information of such party in confidence ("Proprietary Information"). Such Proprietary Information includes but is not limited to Inventions, marketing plans, product plans, business strategies, financial information, forecasts, personnel information, and customer lists. These terms and conditions of this paragraph 5 are subject to further definition and requirements in the separate Proprietary Information & Inventions Agreement ("PIIA") which you may be required to execute. Your signature below constitutes your consent that the obligations herein may be expanded or otherwise modified by virtue of said PIIA. 6. Company Property. During and after your employment, you will not use any Company Property for any purpose other than for the benefit of TriNet VCO. Except for business ExecEmplAgrmnt.DPD.990706 July 23, 1999 Page 4 of 13 uses related to the performance of your job, you will not remove from TriNet VCO premises any Company Property without written consent of your manager. In the event of your termination of employment, or at any time at the request of the Company, you will return all Company Property. You will also return all copies of Company Property, and any work product derived from Company Property. "Company Property" means Trade Secrets of TriNet VCO, Work Product, customer lists, prospect lists, forms, manuals, records, correspondence, contracts, notes, memoranda, notebooks and other documents of TriNet VCO, software media, equipment, and other intangible and tangible property owned by TriNet VCO. 7. Confidentiality. At all times, both during you employment and after its termination, you will keep and hold all such Proprietary Information in strict confidence and trust, and you will not use or disclose any of such Proprietary Information without the prior written consent of the Company, except as may be necessary to perform your duties as an employee of the Company for the benefit of the Company. Upon termination of your employment with the Company, you will promptly deliver to the Company all documents and materials of any nature pertaining to you work with the Company and you will not take with you any documents or materials or copies thereof containing any Proprietary Information. 8. No Breach of Prior Agreement. You represent that your performance of all the terms of this Agreement and your duties as an employee of the Company will not breach any invention assignment, proprietary information or similar agreement with any former employer or other party. You represent that you will not bring with you to the Company or use in the performance of your duties for the Company any documents or materials of a former employer that are not generally available to the public or have not been legally transferred to the Company. 9. Duty not to Compete. You understand that your employment with the Company requires your undivided attention and effort. As a result, during your employment, you will not, without the Company's express written consent, engage in any employment or business other that for the Company, or invest in or assist in any manner any business which directly or indirectly competes with the business or future business plans of the Company. 10. Non-solicitation. During, and for a period of one (1) year after termination of your employment with the Company, you will not directly or indirectly solicit or take away suppliers, customers, employees or consultants of the Company for your own benefit or for the benefit of any other party. 11. Name, Likeness Rights, etc. You hereby authorize the Company to use, reuse, and to grant others the right to use and reuse your name, photograph, likeness (including caricature), voice, and biographical information, and any reproduction or simulation thereof, in any media now known or hereafter developed (including but not limited to ExecEmplAgrmnt.DPD.990706 July 23, 1999 Page 5 of 13 film, video, and digital, or other electronic media), both during and after my employment, for whatever purposes the Company deems necessary. 12. Injunctive Relief. You understand that in the event of a breach or threatened breach of this Agreement by you, the Company will suffer irreparable harm and will therefore be entitled to injunctive relief to enforce this Agreement. 13. Governing Law. This Agreement will be governed and interpreted in accordance with the internal laws of the State of California, without regard to or application of choice of law rules or principles. 14. Severability. In the event that any provision of this Agreement is found by a court, arbitrator, or other tribunal to be illegal, invalid, or unenforceable, then to the maximum extent permissible under applicable law, the remainder of this Agreement shall remain in full force and effect. 15. Termination of Employment. TriNet VCO retains the right to control and direct your work, its results, and the manner and means by which your work is accomplished. Your employment with TriNet VCO is at the pleasure of the Board, and may be terminated only upon the following terms: a. Employment may be terminated without Cause, for any reason whatsoever, upon written ninety (90) days' notice upon approval by the Board of Directors. b. In lieu of the notice in subparagraph (a), the Company may, upon the same procedures, elect to provide one hundred twenty (120) days of pay in lieu of notice. c. Notwithstanding the provisions of subparagraphs (a) and (b), if in the six months following a Change of Control, your employment is terminated due to an Involuntary Termination Without Cause or a Constructive Termination (a "Covered Termination"), the Company, and its successors and assigns, shall be obligated to provide you with a lump sum payment equal Two Million Dollars ($2,000,000.00) within one (1) month from the date of such Covered Termination, subject to applicable tax withholding. d. "Cause" means termination of your employment with the Company for any of the following reasons as determined in good faith by the Board of Directors: (1) an intentional act which materially injures the Company; (2) an intentional refusal or failure to follow lawful and reasonable directions of the Board of Directors or an individual to whom you reports (as appropriate); (3) a willful and habitual neglect of duties; or (4) a conviction of a ExecEmplAgrmnt.DPD.990706 July 23, 1999 Page 6 of 13 felony involving moral turpitude which is reasonably likely to inflict or has inflicted material injury on the Company. e. "Change of Control" means that the Company (a) merges or combines with any other company or entity and the Company is not the surviving corporation, or the stockholders of the Company immediately prior to the merger or consolidation do not hold a majority of the shares of the resulting corporation; (b) sells all or substantially all its assets to any other company or entity; or (c) has forty percent (40%) or more of its stock acquired by a person and/or affiliates of such person. f. "Constructive Termination" means that you voluntarily terminate employment after any of the following are undertaken without your express written consent: (1) the assignment to you of any duties or responsibilities which result in a diminution or adverse change of your position, status or circumstances of employment; provided, however, that a mere change in your title or reporting relationship shall not constitute a Constructive Termination; (2) a reduction by the Company in your base pay in effect at the time of the Change of Control; (3) a relocation of your business office to a location more than thirty (30) miles from the location at which you performs duties as of the date of this offer, except for required travel by you on the Company's business to an extent substantially consistent with your business travel obligations; (4) any breach by the Company of any provision of this Agreement or any other material agreement between you and the Company concerning your employment; or (5) any failure by the Company to obtain the assumption of the terms and conditions of this offer by any successor or assign of the Company. g. "Involuntary Termination Without Cause" means your dismissal or discharge other than for Cause. The termination of your employment as a result of your death or disability will not be deemed to be an Involuntary Termination Without Cause. Further, in the event of a Covered Termination, all stock options which you have been granted shall fully vest immediately upon the occurrence of such an event, and you shall have the right to compel the Company, and its successors and assigns, the re-purchase from you any stock which you own at the then prevailing market value of Company stock plus 25%. Notwithstanding the foregoing, if the Change of Control was a transaction that was accounted for as a pooling of interests for financial reporting purposes, then the unvested portion of such stock options shall not accelerate unless ExecEmplAgrmnt.DPD.990706 July 23, 1999 Page 7 of 13 the Company receives reasonable assurances from the Company's independent public accountants (and from the acquiring party's independent public accountants) that in their good faith judgment such acceleration will not adversely affect the pooling of interests accounting treatment of such Change of Control transaction. h. Further, in the event of such a termination, you shall be entitled to continue to participate in the those health and welfare plans in which you were participating immediately prior to the event, for a period of two (2) years thereafter at the expense of TriNet VCO, and its successors, and assigns. i. [Company right of first refusal on any shares offered to be sold by the Employee during the thirty days following any termination.] j. The Company shall withhold appropriate federal, state, local (and foreign, if applicable) income and employment taxes from any payments hereunder. You acknowledge that you have been advised by the Company to consult with a tax advisor or attorney with respect to the tax consequences, if any, of these benefits. k. You agree that upon receipt of the benefits specified herein, you shall execute a full and final release in favor of TriNet VCO, its officers, directors, employees, agents, and assigns. 16. Informing Subsequent Employers. If your employment is terminated, TriNet VCO has the right to inform any subsequent employer of your obligations under Sections 3 - 10 above, and can send a copy of these terms of employment to that employer. 18. Subsequent Periods Following Your Voluntary termination of Your Employment. As Vice President of TriNet VCO, you will be in possession, or have access to, custody of, or a fiduciary relationship to, all of Company's critical, sensitive, and competitive Confidential and Proprietary Information. Such information (as defined in PIIA or elsewhere) is extremely valuable and sensitive, and any use or disclosure would seriously damage the Company. Your knowledge of such information could be very valuable to any "Competitor" of Company (as defined below), and if known, very damaging to Company. Further, despite your best efforts to the contrary, it would impossible for any Competitor, working with you, to avoid using, either intentionally or unintentionally, such information to the Competitor's advantage and Company's detriment. Because of your position with Company, it is extremely likely that any subsequent work for a Competitor would inevitably result in a direct violation of your statutory and contractual obligations to Company. Accordingly, you specifically agree that for a period of six months after any termination of your employment with Company, you will not engage in any activity on behalf of a Competitor, and you will not assist any person or entity in competing or preparing to compete with Company. You specifically agree that this ExecEmplAgrmnt.DPD.990706 July 23, 1999 Page 8 of 13 modest restriction will not, in any way, interfere with your ability to earn a living wage, support your family, if any, and meet your routine financial obligations. During the term of this six-month non-competition period, the Company will pay you $3,000 per month as a non-employment contract fee for the withholding of your services from any such competitive effort.} For purposes of this Agreement, "Competitor" means any person or entity: (a) in the business of {Customer activity}; or (b) which develops, produces, prepares, sells, or distributes products or performs services then in competition with the products or methods developed, produced, prepared, sold or distributed, or services rendered by Company within (i) the geographic area and a radius of 200 miles of any production, sales, or warehouse facility of Company, and (ii) any county in any State of the United States of America wherein the Company has had, at any time during your employment, gross sales aggregating in excess of $10,000; or (c) {specific competitors}. 19. Mandatory Mediation & Arbitration. Unless otherwise prohibited by law or specified below, any legal action, whether brought in law or equity, arising from or relating to this Agreement or its enforcement, performance, breach, or interpretation shall be resolved solely and exclusively by final and binding arbitration held in San Francisco County, California through Judicial Arbitration & Mediation Services/Endispute ("JAMS") under the then-existing JAMS arbitration rules. However, nothing in this section is intended to prevent either party from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any such arbitration. Each party in any such arbitration shall be responsible for its own attorneys' fees, costs and necessary disbursement; provided, however, that in the event one party refuses to arbitrate and the other party seeks to compel arbitration by court order, if such other party prevails, it shall be entitled to recover reasonable attorneys' fees, costs and necessary disbursements. Pursuant to California Civil Code Section 1717, each party warrants that it was represented by counsel in the negotiation and execution of this Agreement, including the attorneys' fees provision herein. 20. Entire Agreement. This document and its related attachments and exhibits contain the entire agreement between you and TriNet VCO regarding the terms of your employment. Any amendment to these terms must be in writing and must be signed by you and TriNet VCO's President. I accept the above terms of employment as stated: __________________________ ____________________ Addressee's Signature Date Approved by TriNet VCO (Following receipt of signed acceptance by employee) ExecEmplAgrmnt.DPD.990706 July 23, 1999 Page 9 of 13 ___________________________ ___________________ Hiring Manager, Title Date ExecEmplAgrmnt.DPD.990706 July 23, 1999 Page 10 of 13 EMPLOYMENT LETTER EXHIBIT A DESCRIPTION OF TRADE SECRETS . Employee list and all information contained in employee records . Vendor list and all information contained in vendor records . Customer list and all information contained in customer/subscriber records . Prospective Customer list and all information contained in prospective customer/subscriber records . Stockholder list and all information contained in stockholder records . All information concerning the financial condition of the Company, including information contained in any income statement, balance sheet or other internal financial report. . Marketing plans and strategies of the Company, including information pertaining to prospective customers. . Financing plans and strategies of the Company . Staffing plans and strategies of the Company . Expansion plans and business strategies of Subscriber Name . Negotiations for financing, merger, acquisition, new customers, new vendors or otherwise . Technical research projects, methodologies and results . Other research and development projects . Drawings and specifications . Software and hardware documentation . Forms, manuals, handbooks and guidelines written for internal staff use ExecEmplAgrmnt.DPD.990706 July 23, 1999 Page 11 of 13 . Any materials for which the Company has copyright protection or are marked confidential . The Company's proprietary operating procedures and systems ExecEmplAgrmnt.DPD.990706 July 23, 1999 Page 12 of 13 EXHIBIT B LIMITED EXCLUSION NOTIFICATION This is to notify you in accordance with Section 2872 of the California Labor Code that the foregoing Agreement between you and the Company does not require you to assign or offer to assign to the Company any invention that you developed entirely on your own time without using the Company's equipment, supplies, facilities or trade secret information except for those inventions that either: 1. Relate at the time of conception or reduction to practice of the invention to the Company's business, or actual or demonstrably anticipated research or development of the Company; 2. Result from any work performed by you for the Company. To the extent a provision in the foregoing Agreement purports to require you to assign an invention otherwise excluded from the preceding paragraph, the provision is against the public policy of this state and is unenforceable. This limited exclusion does not apply to any patent or invention covered by a contract between the Company and the United States or any of its agencies requiring full title to such patent or invention to be in the United States. I acknowledge receipt of a copy of this notification. By: (Printed Name of Employee) Date: Witnessed by: (Printed Name of Representative) ExecEmplAgrmnt.DPD.990706 July 23, 1999 Page 13 of 13 EX-10.14 15 FORM OF EXECUTIVE COMMITTEE EMPLOYMENT AGREEMENT EXHIBIT 10.14 T R I N E T V C O September 10, 1999 TriNet VCO 101 Callan Avenue San Leandro, California 94577 Dear Tony: It is my pleasure to offer you the enhanced terms and conditions associated with your current position at TriNet VCO of ______________, reporting to Craig McGannon. In this position you will continue to play a key role in the development of TriNet's business. This letter and accompanying contract of employment will summarize important details of matters pertaining to your employment. Implementation of the new terms and conditions of your employment requires execution of, and acceptance by the Company, of this contract. The terms of the attached contract, once executed will supercede any terms and conditions of your heretofore operative employment arrangement. Upon the acceptance and execution and acceptance of the attached contract, the new terms and conditions of employment will become effective May 19, 1999. We are all excited about the opportunity to continue our rewarding relationship. Sincerely, Martin Babinec President & CEO Attachments: Terms and Conditions of Employment ExecEmplAgrmnt.TZ.990908 September 10, 1999 Page 1 of 13 CONFIDENTIAL TriNet VCO GENERAL EMPLOYMENT TERMS & CONDITIONS Name: Position: Date of Offer: September 10, 1999 Scheduled Commencement Date: ________ 1. Compensation: Your base salary is $_______ per year, payable semi-monthly, which represents an increase over your prior salary level, and constitutes adequate consideration for the execution of this contract. In addition to your compensation, it is anticipated that you will be eligible for annual bonus payments, subject to the Company's profitability, its anticipated performance, your contribution to that performance, the discretion of your manager, and the approval of the Board of Directors. 2. Expenses. The company will reimburse you for reasonable and necessary expenses incurred by you in furtherance of TriNet VCO's business. All expenses claimed are subject to the review and approval of your supervisor. Records must be maintained and submitted for any expenses to be reimbursed - including destination for auto mileage totals and receipts for all other items. Use of personal automobile for Company business will be reimbursed at the rate of the prevailing Internal Revenue Service rate per mile, currently. 3. Trade Secrets. During and after your employment, you will hold all Trade Secrets of TriNet VCO in confidence; you will not disclose these Trade Secrets to any one. This does not apply to information disclosed in the ordinary course of business to other persons who are employees of TriNet VCO at the time. "Trade Secrets" means the information described in the Description of Trade Secrets (Exhibit A) and any other confidential and/or proprietary knowledge, data or information of TriNet VCO, whether embodied in memoranda, manuals, letters, or other documents, computer disks, tapes or other information storage devices, hardware, or other media or vehicles. Trade Secrets do not include information generally known or that is or becomes public domain information through no fault of yours. You will also hold confidential any confidential information of any customer, prospective customer, vendor or other person, if you are told or if you know that the information is confidential. You will not use any Trade Secrets of TriNet VCO other than for the benefit of TriNet VCO, and you will not use any confidential information of any customer, prospective customer, vendor or other person other than for the benefit of such customer, vendor or other person if such disclosure is required in the performance of your normal work duties. ExecEmplAgrmnt.TZ.990908 September 10, 1999 Page 2 of 13 These terms and conditions of this paragraph 3 are subject to further definition and requirements in the separate Proprietary Information & Inventions Agreement ("PIIA") which you may be required to execute. Your signature below constitutes your consent that the obligations herein may be expanded or otherwise modified by virtue of said PIIA. 4. Invention Assignment. In consideration of your employment with TriNet VCO, you hereby represent to, and agree with the Company as follows: a. Company Business. You understand that the Company is engaged in a continuous program of research, development, production and marketing in connection with its business and that, as an essential part of your employment with the Company, you may be expected to make new contributions to and create inventions, processes, or refinements of value for the Company. b. Disclosure of Inventions. From and after the date you become employed with the Company, you will promptly disclose in confidence to the Company all inventions, improvements, designs, techniques, original works of authorship, formulas, processes, compositions of matter, computer software programs, databases, mask works, and Trade Secrets ("Invention(s)"), whether or not patentable, copyrightable or protectable as trade secrets, that are made or conceived or first reduced to practice or created by you, either alone or jointly with others, during the period of your employment, whether or not in the course of your employment. c. Work for Hire; Assignment of Inventions. You acknowledge that copyrightable works prepared by you within the scope of your employment are "works for hire" under the Copyright Act and that the Company will be considered the author thereof. You agree that all Inventions that (a) are developed using equipment, supplies, facilities, or Trade Secrets of the Company, (b) result from work performed by you for the Company, or (c) relate to the Company's business or current or anticipated research and development, will be the sole and exclusive property of the Company and are hereby assigned by me to the Company. This assignment does not apply to an Invention that qualifies fully as a nonassignable Invention under Section 2870 of the California Labor Code. I have reviewed the notification on Exhibit B (Limited Exclusion Notification) and agree that my signature acknowledges receipt of notification. d. Assignment of Other Rights. You hereby irrevocably transfer and assign to the Company: (a) all worldwide patents, patent applications, copyrights, mask works, trade secrets and other intellectual property rights in any Invention; and (b) any and all "Moral Rights" (as defined below) that you may have in or with respect to any Invention. You also hereby forever waive and agree never to assert any and all Moral Rights you have in or with respect to any Invention, even after termination of your work on behalf of the Company. "Moral Rights" mean any rights to claim authorship of an Invention, to object to or prevent the modification of any Invention, or to withdraw from circulation or control the publication or distribution of any Invention, and any similar right, existing ExecEmplAgrmnt.TZ.990908 September 10, 1999 Page 3 of 13 under judicial or statutory law of any country in the world, or under any treaty, regardless of whether or not such right is denominated or generally referred to as a "moral right." e. Assistance. You agree to assist the Company in every proper way to obtain for the Company and enforce patents, copyrights, mask work rights, trade secret rights, and other legal protection for the company's Inventions in any and all countries. You will execute any documents that the Company may reasonably request for use in obtaining or enforcing such patents, copyrights, mask work rights, trade secrets and other legal protections. Your obligations under this paragraph will continue beyond the termination of your employment with the Company, provided that the Company will compensate you at a reasonable rate after such termination for time or expenses actually spent by you at the Company's request on such assistance. You appoint the Secretary of the Company as your attorney-in-fact, which appointment is coupled with an interest, to execute documents on your behalf for this purpose. f. Other Requirements. These terms and conditions of this paragraph 4 are subject to further definition and requirements in the separate Proprietary Information & Inventions Agreement ("PIIA") which you may be required to execute. Your signature below constitutes your consent that the obligations herein may be expanded or otherwise modified by virtue of said PIIA. 5. Proprietary Information. You understand that your employment by the Company creates a relationship of confidence and trust with respect to any information of a confidential or secret nature that may be disclosed to you by the Company or to the business of any parent, subsidiary, affiliate, customer or supplier of the Company or any other party with whom the Company agrees to hold information of such party in confidence ("Proprietary Information"). Such Proprietary Information includes but is not limited to Inventions, marketing plans, product plans, business strategies, financial information, forecasts, personnel information, and customer lists. These terms and conditions of this paragraph 5 are subject to further definition and requirements in the separate Proprietary Information & Inventions Agreement ("PIIA") which you may be required to execute. Your signature below constitutes your consent that the obligations herein may be expanded or otherwise modified by virtue of said PIIA. 6. Company Property. During and after your employment, you will not use any Company Property for any purpose other than for the benefit of TriNet VCO. Except for business uses related to the performance of your job, you will not remove from TriNet VCO premises any Company Property without written consent of your manager. In the event of your termination of employment, or at any time at the request of the Company, you will return all Company Property. You will also return all copies of Company Property, and any work product derived from Company Property. "Company Property" means Trade Secrets of TriNet VCO, Work Product, customer lists, prospect lists, forms, manuals, records, correspondence, contracts, notes, memoranda, ExecEmplAgrmnt.TZ.990908 September 10, 1999 Page 4 of 13 notebooks and other documents of TriNet VCO, software media, equipment, and other intangible and tangible property owned by TriNet VCO . 7. Confidentiality. At all times, both during you employment and after its termination, you will keep and hold all such Proprietary Information in strict confidence and trust, and you will not use or disclose any of such Proprietary Information without the prior written consent of the Company, except as may be necessary to perform your duties as an employee of the Company for the benefit of the Company. Upon termination of your employment with the Company, you will promptly deliver to the Company all documents and materials of any nature pertaining to you work with the Company and you will not take with you any documents or materials or copies thereof containing any Proprietary Information. 8. No Breach of Prior Agreement. You represent that your performance of all the terms of this Agreement and your duties as an employee of the Company will not breach any invention assignment, proprietary information or similar agreement with any former employer or other party. You represent that you will not bring with you to the Company or use in the performance of your duties for the Company any documents or materials of a former employer that are not generally available to the public or have not been legally transferred to the Company. 9. Duty not to Compete. You understand that your employment with the Company requires your undivided attention and effort. As a result, during your employment, you will not, without the Company's express written consent, engage in any employment or business other that for the Company, or invest in or assist in any manner any business which directly or indirectly competes with the business or future business plans of the Company. 10. Non-solicitation. During, and for a period of one (1) year after termination of your employment with the Company, you will not directly or indirectly solicit or take away suppliers, customers, employees or consultants of the Company for your own benefit or for the benefit of any other party. 11. Name, Likeness Rights, etc. You hereby authorize the Company to use, reuse, and to grant others the right to use and reuse your name, photograph, likeness (including caricature), voice, and biographical information, and any reproduction or simulation thereof, in any media now known or hereafter developed (including but not limited to film, video, and digital, or other electronic media), both during and after my employment, for whatever purposes the Company deems necessary. 12. Injunctive Relief. You understand that in the event of a breach or threatened breach of this Agreement by you, the Company will suffer irreparable harm and will therefore be entitled to injunctive relief to enforce this Agreement. ExecEmplAgrmnt.TZ.990908 September 10, 1999 Page 5 of 13 13. Governing Law. This Agreement will be governed and interpreted in accordance with the internal laws of the State of California, without regard to or application of choice of law rules or principles. 14. Severability. In the event that any provision of this Agreement is found by a court, arbitrator, or other tribunal to be illegal, invalid, or unenforceable, then to the maximum extent permissible under applicable law, the remainder of this Agreement shall remain in full force and effect. 15. Termination of Employment. TriNet VCO retains the right to control and direct your work, its results, and the manner and means by which your work is accomplished. Your employment with TriNet VCO is at the pleasure of the Board, and may be terminated upon the following terms: a. Employment may be terminated without Cause, for any reason whatsoever, upon written sixty (60) days' notice upon approval by the Board of Directors, but may be terminated with Cause immediately. b. In lieu of the notice in subparagraph (a), the Company may, upon the same procedures, elect to provide ninety (90) days of pay in lieu of notice. c. "Cause" means termination of your employment with the Company for any of the following reasons as determined in good faith by the Board of Directors: (1) an intentional act which materially injures the Company; (2) an intentional refusal or failure to follow lawful and reasonable directions of the Board of Directors or an individual to whom you reports (as appropriate); (3) a willful and habitual neglect of duties; or (4) a conviction of a felony involving moral turpitude which is reasonably likely to inflict or has inflicted material injury on the Company. d. "Constructive Termination" means that you voluntarily terminate employment after any of the following are undertaken without your express written consent: (1) the assignment to you of any duties or responsibilities which result in a diminution or adverse change of your position, status or circumstances of employment; provided, however, that a mere change in your title or reporting relationship shall not constitute a Constructive Termination; (2) a reduction by the Company in your base pay in effect at the time of the Change of Control; (3) a relocation of your business office to a location more than thirty (30) miles from the location at which you performs duties as of the date of this offer, except for required travel by you on the Company's business to an extent substantially ExecEmplAgrmnt.TZ.990908 September 10, 1999 Page 6 of 13 consistent with your business travel obligations; (4) any breach by the Company of any provision of this Agreement or any other material agreement between you and the Company concerning your employment; or (5) any failure by the Company to obtain the assumption of the terms and conditions of this offer by any successor or assign of the Company. e. "Change of Control" means that the Company (a) merges or combines with any other company or entity and the Company is not the surviving corporation, or the stockholders of the Company immediately prior to the merger or consolidation do not hold a majority of the shares of the resulting corporation; (b) sells all or substantially all its assets to any other company or entity; or (c) has forty percent (40%) or more of its stock acquired by a person and/or affiliates of such person. f. "Constructive Termination" means that you voluntarily terminate employment after any of the following are undertaken without your express written consent: (1) the assignment to you of any duties or responsibilities which result in a diminution or adverse change of your position, status or circumstances of employment; provided, however, that a mere change in your title or reporting relationship shall not constitute a Constructive Termination; (2) a reduction by the Company in your base pay in effect at the time of the Change of Control; (3) a relocation of your business office to a location more than thirty (30) miles from the location at which you performs duties as of the date of this offer, except for required travel by you on the Company's business to an extent substantially consistent with your business travel obligations; (4) any breach by the Company of any provision of this Agreement or any other material agreement between you and the Company concerning your employment; or (5) any failure by the Company to obtain the assumption of the terms and conditions of this offer by any successor or assign of the Company. g. "Involuntary Termination Without Cause" means your dismissal or discharge other than for Cause. The termination of your employment as a result of your death or disability will not be deemed to be an Involuntary Termination Without Cause. h. Further, in the event of a Covered Termination, all stock options which you have been granted shall fully vest immediately upon the occurrence of such an event, and you shall have the right to compel the Company, and its successors and assigns, the re-purchase from you any stock which you own at the then prevailing market value ExecEmplAgrmnt.TZ.990908 September 10, 1999 Page 7 of 13 of Company stock plus 25%. Notwithstanding the foregoing, if the Change of Control was a transaction that was accounted for as a pooling of interests for financial reporting purposes, then the unvested portion of such stock options shall not accelerate unless the Company receives reasonable assurances from the Company's independent public accountants (and from the acquiring party's independent public accountants) that in their good faith judgment such acceleration will not adversely affect the pooling of interests accounting treatment of such Change of Control transaction. i. [Company right of first refusal on any shares offered to be sold by the Employee during the thirty days following any termination.] j. The Company shall withhold appropriate federal, state, local (and foreign, if applicable) income and employment taxes from any payments hereunder. You acknowledge that you have been advised by the Company to consult with a tax advisor or attorney with respect to the tax consequences, if any, of these benefits. k. You agree that upon receipt of the benefits specified herein, you shall execute a full and final release in favor of TriNet VCO, its officers, directors, employees, agents, and assigns. 16. Informing Subsequent Employers. If your employment is terminated, TriNet VCO has the right to inform any subsequent employer of your obligations under Sections 3 - 10 above, and can send a copy of these terms of employment to that employer. 18. Subsequent Periods Following Your Voluntary termination of Your Employment. As Vice President of TriNet VCO, you will be in possession, or have access to, custody of, or a fiduciary relationship to, all of Company's critical, sensitive, and competitive Confidential and Proprietary Information. Such information (as defined in PIIA or elsewhere) is extremely valuable and sensitive, and any use or disclosure would seriously damage the Company. Your knowledge of such information could be very valuable to any "Competitor" of Company (as defined below), and if known, very damaging to Company. Further, despite your best efforts to the contrary, it would impossible for any Competitor, working with you, to avoid using, either intentionally or unintentionally, such information to the Competitor's advantage and Company's detriment. Because of your position with Company, it is extremely likely that any subsequent work for a Competitor would inevitably result in a direct violation of your statutory and contractual obligations to Company. Accordingly, you specifically agree that for a period of six months after any termination of your employment with Company, you will not engage in any activity on behalf of a Competitor, and you will not assist any person or entity in competing or preparing to compete with Company. You specifically agree that this modest restriction will not, in any way, interfere with your ability to earn a living wage, support your family, if any, and meet your routine financial obligations. ExecEmplAgrmnt.TZ.990908 September 10, 1999 Page 8 of 13 During the term of this six-month non-competition period, the Company will pay you $3,000 per month as a non-employment contract fee for the withholding of your services from any such competitive effort.} For purposes of this Agreement, "Competitor" means any person or entity: (a) in the business of {Customer activity}; or (b) which develops, produces, prepares, sells, or distributes products or performs services then in competition with the products or methods developed, produced, prepared, sold or distributed, or services rendered by Company within (i) the geographic area and a radius of 200 miles of any production, sales, or warehouse facility of Company, and (ii) any county in any State of the United States of America wherein the Company has had, at any time during your employment, gross sales aggregating in excess of $10,000; or (c) {specific competitors}. 19. Mandatory Mediation & Arbitration. Unless otherwise prohibited by law or specified below, any legal action, whether brought in law or equity, arising from or relating to this Agreement or its enforcement, performance, breach, or interpretation shall be resolved solely and exclusively by final and binding arbitration held in San Francisco County, California through Judicial Arbitration & Mediation Services/Endispute ("JAMS") under the then-existing JAMS arbitration rules. However, nothing in this section is intended to prevent either party from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any such arbitration. Each party in any such arbitration shall be responsible for its own attorneys' fees, costs and necessary disbursement; provided, however, that in the event one party refuses to arbitrate and the other party seeks to compel arbitration by court order, if such other party prevails, it shall be entitled to recover reasonable attorneys' fees, costs and necessary disbursements. Pursuant to California Civil Code Section 1717, each party warrants that it was represented by counsel in the negotiation and execution of this Agreement, including the attorneys' fees provision herein. 20. Entire Agreement. This document and its related attachments and exhibits contain the entire agreement between you and TriNet VCO regarding the terms of your employment. Any amendment to these terms must be in writing and must be signed by you and TriNet VCO's President. I accept the above terms of employment as stated: _____________________________ _________________ Addressee's Signature Date Approved by TriNet VCO (Following receipt of signed acceptance by employee) ExecEmplAgrmnt.TZ.990908 September 10, 1999 Page 9 of 13 _____________________________ _________________ Hiring Manager, Title Date ExecEmplAgrmnt.TZ.990908 September 10, 1999 Page 10 of 13 EMPLOYMENT LETTER EXHIBIT A DESCRIPTION OF TRADE SECRETS . Employee list and all information contained in employee records . Vendor list and all information contained in vendor records . Customer list and all information contained in customer/subscriber records . Prospective Customer list and all information contained in prospective customer/subscriber records . Stockholder list and all information contained in stockholder records . All information concerning the financial condition of the Company, including information contained in any income statement, balance sheet or other internal financial report. . Marketing plans and strategies of the Company, including information pertaining to prospective customers. . Financing plans and strategies of the Company . Staffing plans and strategies of the Company . Expansion plans and business strategies of Subscriber Name . Negotiations for financing, merger, acquisition, new customers, new vendors or otherwise . Technical research projects, methodologies and results . Other research and development projects . Drawings and specifications . Software and hardware documentation . Forms, manuals, handbooks and guidelines written for internal staff use ExecEmplAgrmnt.TZ.990908 September 10, 1999 Page 11 of 13 . Any materials for which the Company has copyright protection or are marked confidential . The Company's proprietary operating procedures and systems ExecEmplAgrmnt.TZ.990908 September 10, 1999 Page 12 of 13 EXHIBIT B LIMITED EXCLUSION NOTIFICATION THIS IS TO NOTIFY you in accordance with Section 2872 of the California Labor Code that the foregoing Agreement between you and the Company does not require you to assign or offer to assign to the Company any invention that you developed entirely on your own time without using the Company's equipment, supplies, facilities or trade secret information except for those inventions that either: 1. Relate at the time of conception or reduction to practice of the invention to the Company's business, or actual or demonstrably anticipated research or development of the Company; 2. Result from any work performed by you for the Company. To the extent a provision in the foregoing Agreement purports to require you to assign an invention otherwise excluded from the preceding paragraph, the provision is against the public policy of this state and is unenforceable. This limited exclusion does not apply to any patent or invention covered by a contract between the Company and the United States or any of its agencies requiring full title to such patent or invention to be in the United States. I ACKNOWLEDGE RECEIPT of a copy of this notification. By: (PRINTED NAME OF EMPLOYEE) Date: WITNESSED BY: (PRINTED NAME OF REPRESENTATIVE) ExecEmplAgrmnt.TZ.990908 September 10, 1999 Page 13 of 13 EX-10.15 16 EMPLOYMENT AGREEMENT 7/22/99 (MARTIN BABINEC) EXHIBIT 10.15 EMPLOYMENT AGREEMENT This Employment Agreement (herein referred to as "Agreement") is made and entered into this 22nd day of July, 1995, by and among TriNet Employer Group, Inc. a California corporation (herein referred to as the "Company"), and Martin Babinec (herein referred to as "Employee"). Whereas, the Employee is presently the President and Chief Executive Officer of the Company, and Employee desires to continue such employment upon the terms and conditions herein set forth; and Whereas, this Agreement is being entered into in connection with the issuance and sale of the Company's Series E Preferred Stock and the execution of this Agreement is a condition of closing of such financing; Now, Therefore, in consideration of the premises and of the mutual covenants contained herein, the parties hereto agree as follows: 1. Employment. The Company hereby continues to employ Employee as the President and Chief Executive Officer of the Company, and Employee hereby agrees to continue such employment upon the terms and conditions herein set forth. 2. Term Of Agreement. This Agreement shall commence as of the date hereof and shall continue for an initial term through December 31, 1997 (unless terminated earlier as hereinafter provided) and thereafter on a year to year basis unless and until Employee's employment hereunder shall be terminated by either the Company or Employee giving to the other party one year's prior written notice of the termination of this Agreement after expiry of the initial term. 3. Duties Of Employee. (a) Duties. Employee is employed as the President and Chief Executive Officer of the Company. Employee's duties shall be such executive, managerial, administrative, and professional duties as are commensurate with a position as a President and Chief Executive Officer and as shall be reasonably assigned by the Board of Directors of the Company (such duties shall not, however, be inconsistent with Employee's duties as President and Chief Executive Officer), or if mutually agreed by the Board of Directors of the Company and Employee by the designee of the Board. Such duties shall include, without limitation, the following: (i) Preparing and submitting an annual budget for the Company to the Chairman or the designee of the Chairman for approval, to include the following: (1) Details of new office openings. 1. (2) Budget head-count by staff category. (3) Details of proposed salary increases and/or changes to commission or profit sharing arrangements. (4) Capital expenditures, with amounts over $5,000 itemized. (5) Monthly income statements detailing major categories of expenditures, with an explanation of variances from the prior year. (6) Monthly statements of cash flow. (ii) Providing, by the fifteenth (15th) day of each month, monthly financial statements for the prior month, which include a consolidated income statement, cash flow and balance sheet with analysis of variances from budget. (iii) Managing the Company with an objective of increasing profits. (iv) Managing the Company's costs. (v) Managing the Company's cash flow. (vi) Managing the development, maintenance, and implementation of recruiting policies and procedures. (vii) Managing the development, maintenance, and implementation of training policies and programs. (viii) Managing the development, maintenance, and implementation of a policy of periodic performance reviews. (xi) Managing the development, maintenance, and implementation of policies, systems and procedures that maintain high standards of candidate and client service. (x) Recommending the opening and closing of offices, as appropriate. (xi) Managing the development, maintenance, and implementation of other corporate policies as required from time to time. (b) Authority Levels. Employee is authorized as President and Chief Executive Officer of the Company to incur and approve expenditures on behalf of the Company as follows: (i) Expenditures within the budget set at the commencement of the year. Material expenditures in excess of the Company budget must be approved by the Board of Directors of the Company prior to incurring such expenditure. (ii) Employee shall have the authority to purchase, lease or rent additional fixed assets, as required, up to $25,000 before prior approval is necessary from the Chairman of the Board of the Company. 2. (c) Engaging in Other Employment. During the term of this Agreement, Employee shall during normal working hours (unless prevented by ill health or accident and except during vacations and holidays) devote the whole of his time, attention and abilities to carrying out his duties hereunder and Employee shall not directly or indirectly render any services of a business, commercial, or professional nature, to any other person or organization not designated by the Board of Directors of the Company, whether for compensation or otherwise, or have any financial interest in any other business or profession without the prior written consent of the Board of Directors of the Company. Nothing in this Section 3(c) shall preclude Employee from holding or acquiring less than five percent (5%) of the outstanding shares or other securities of any other company, which is publicly traded, by way of bona fide investment or prevent Employee from continuing to act as a volunteer for non-profit organizations and to pursue speaking engagements in areas associated with the Company's business, provided that such activities do not materially impact Employee's performance of his duties hereunder. (d) Loyal and Conscientious Performance. Employee agrees that to the best of his ability and experience he will at all times loyally and conscientiously perform all the duties and obligations required of him by the terms of this Agreement. Employee agrees he shall use his best efforts to promote the interests and reputation of the Company and not do anything which is to the detriment of the interests of the Company. (e) Uniqueness of Employee's Services. Because of Employee's expertise and his reputation in the industry, the services to be performed by Employee, under the terms of this Agreement, are of a special, unique, unusual, extraordinary, and intellectual character, which gives the services a peculiar value, the loss of which cannot be reasonably or adequately compensated in damages in an action at law. Employee therefore expressly agrees that the Company, in addition to any other rights or remedies which the Company may possess, shall be entitled to injunctive and other equitable relief to prevent a breach of this contract by Employee. 4. Compensation And Benefits. (a) Salary. For all the services to be rendered by Employee in any capacity hereunder, during the period through December 31, 1997, the Company shall pay Employee an annual base salary of $120,000, which amount may be increased but not decreased by the Chairman following Employee's annual performance review. Employee's annual base salary shall be subject to such social security, unemployment insurance, withholding taxes and other payroll deductions as are required to be made by law and shall be paid in equal installments consistent with the Company's practices for its employees. (b) Bonus. During the term of this Agreement, Employee shall be paid an annual performance related bonus (the "Bonus") as agreed in writing from time to time by Employee and the Board of Directors, including the affirmative approval of the member of the Board elected by the Series E Preferred Stock, which bonus shall not exceed 50% of Employee's annual salary. (c) Fringe Benefits. So long as Employee remains in the employ of the Company or an affiliate of the Company, Employee shall: 3. (i) Insurance. Continue to be provided with health insurance coverage consistent with the Company's existing policy and be provided with life and disability insurance as agreed in writing from time to time between Employee and the Company. In particular, the Company shall continue to pay the premiums for the two existing universal life insurance policies in the name of Employee at their current benefit levels, on behalf of the same named beneficiaries under such policies but in no event shall the Company be liable for premiums for such life insurance in excess of $15,000 per year. (ii) Vacation/Sick Days. Be provided with time off consistent with that provided to other employees of the Company, however, Employee shall be entitled to up to five weeks vacation annually (provided, that Employee's maximum ceiling of accrued unused vacation shall be seven weeks) and sick days in accordance with the standard policies of the Company. Upon termination of employment, Employee shall be paid for unused vacation but not for sick days. (iii) Car. Be provided with the use of a leased car by the Company (the annual cost of which to the Company, including maintenance and other costs, is not to exceed $12,000). (iv) Other Benefits. Be provided with other fringe benefits that are consistent with Company policy and that are more fully described on Exhibit A attached hereto, except to the extent that such fringe benefits are modified by this Agreement. 5. Noncompetition By Employee. (a) Noncompetition and Nonsolicitation. During the term of Employment and subject to the terms of this Section 5, for a period of two (2) years following the termination of Employee's employment with the Company and absent the Company's prior written approval following instruction by its Board including the Board representative elected by the holders of the Series E Preferred Stock, Employee will not: (i) directly or indirectly engage in activities (similar or reasonably related to those in which Employee has engaged in during his employment with the Company) nor render services (similar or reasonably related to those which Employee has rendered during his employment with the Company) in either case to any firm or business organization which directly or indirectly competes with the Company in any line of business engaged in (or planned to be engaged in as evidenced by any writing by the Board of Directors of the Company or any officers and/or employees of the Company; or any oral discussions by the Board of Directors of the Company or any officers and/or employees of the Company; or any minutes or writing regarding any Company meetings, including meetings of the Board; or any strategic or business plan of the Company) by the Company, whether now existing or hereafter established; and/or (ii) divert or attempt to divert from the Company any business of any kind in which it is engaged, including, without limitation, diversion through the solicitation of customers of the Company and interference with any of the Company's suppliers or customers; and/or (iii) solicit for employment any person employed by the Company at any time before or during the one year period following termination of this Agreement; and/or 4. (iv) engage in such activities nor render such services to any other person or entity engaged or about to become engaged in such activities to, for or on behalf of any such firm or business organization, and Employee agrees not to entice, induce or encourage any of the Company's other employees to engage in any activity which, were it done by Employee, would violate any provision of the Company's standard form of Proprietary Information Agreement; and/or (v) invest in any company or business engaging in any of the foregoing. (b) Breach of Non-Competition Covenant. In the event that Employee breaches the noncompetition or nonsolicitation covenant set forth in Section 5(a) above, the right to receive the termination benefits as set forth in Section 7(c) below shall immediately terminate. Except as otherwise provided by law, any and all benefits otherwise due to Employee pursuant to this Agreement shall cease. 6. Nondisclosure. Except as may be required pursuant to an order of a court or except as to information which is already in the public domain through no action, failure to act or fault of Employee, Employee shall not, at any time, make use of, other than in the ordinary course of fulfilling his duties as an employee of the Company, divulge or otherwise disclose, directly or indirectly, any trade secret (including, without limitation, any customer or prospect list, data, record or financial information concerning the business, policies or operations of the Company or its affiliates which Employee may have learned on or prior to the date hereof or during the term of Employee's employment by the Company (as an employee, officer, director, consultant or otherwise) as a shareholder, officer, controlling person, agent or otherwise. Employee's obligations under this Section 6 shall survive the termination of this Agreement. 7. Termination. (a) This Agreement may be terminated by the Company prior to the end of its initial term and thereafter without one year's prior notice, as follows: (i) due to the death of Employee; (ii) due to a disability which prevents Employee from performing his full duties for a period of 90 or more consecutive days, or 120 cumulative days during any 12 month period during the term of this Agreement; or (iii) for "cause" (as hereinafter defined). (b) For purposes of this Agreement, "cause" shall mean the occurrence of any of the following events during the term of this Agreement: (i) Employee's conviction for any felony or conviction or a plea of nolo contendre for fraud, embezzlement or misappropriation of money or other property of the Company; 5. (ii) Employee's failure or refusal to perform his duties on behalf of the Company which duties are consistent with the scope and nature of Employee's responsibilities as set forth in Sections 1 and 3 of this Agreement and with the other provisions of this Agreement and which are not remedied by Employee within a reasonable time period after receipt of written notice of such alleged violative activities from the Board of Directors of the Company; (iii) Any act of gross negligence or corporate waste by Employee to the Company which materially adversely affects the business of the Company; or (iv) Any material breach of this Agreement or any serious breach of Employee's fiduciary duties owed to the Company. (c) In the event of early termination of this Agreement pursuant to Section 7(a) as permitted herein, and subject to the limitation of such benefits pursuant to Section 5 (b) above, Employee shall be entitled only to his base salary, bonus and benefits provided for herein for one year following such early termination; provided, however, that if Employee is terminated due to a disability, the amount of base salary paid pursuant to this Section 7(c) shall be reduced by the amount of any disability payments made to Employee. (d) Upon the termination of his employment hereunder for any reason whatsoever Employee shall immediately deliver to the Company all documents, statistics, accounts records, programs and other items of whatever nature or description which may be in his possession or under his control which relate in any way to the business or affairs of the Company or of any affiliated company and no copies of any such documents or any part thereof shall be retained by him. 8. Misrepresentation. Employee shall not knowingly at any time make any untrue statement in relation to the Company, and in particular shall not after the termination of his employment hereunder wrongfully represent himself as being employed by or connected with the Company. 9. Reimbursement Of Expenses. The Company shall reimburse Employee for all ordinary and necessary out-of- pocket expenses reasonably incurred by Employee on behalf of the business of the Company. Employee agrees to keep such records and logs as may be required by the relevant taxing authorities for the substantiation of each such business expense as a deduction on the Company's income tax returns. 10. Indemnification. The Company agrees to indemnify, defend and hold Employee harmless from any and all actions, suits, proceedings, demands, judgments, liabilities, losses, costs and expenses (including, without limitation, all reasonable legal costs and disbursements) reasonably incurred by Employee in connection with any action brought against Employee based upon activities undertaken by Employee while acting as an employee or officer of the Company or any of its divisions or affiliates, in each case, while acting in good faith in connection therewith and in a 6. manner Employee reasonably believed to be in or not opposed to the best interests of the Company, its divisions or any of its affiliates. 11. Notice. Any notices to be given hereunder by either party to the other may be effectuated either by personal delivery in writing or by mail, postage prepaid, with return receipt requested. Notices shall be addressed to the parties as follows: If to the Company: TriNet Employer Group, Inc. 101 Callan, Third Floor San Leandro, CA 94577 Facsimile Number: (510) 352-6480 with a copy to: Select Appointments Inc. Ziggurat Grosvenor Road St. Albans, Hertfordshire United Kingdom AL13HW Facsimile Number: (011) 441-727-842-841 If to Employee: Martin Babinec 516 Beverly Avenue San Leandro, CA 94577 Facsimile Number: ____________ or to such other addresses as either the Company or Employee may designate by written notice to each other. Notices delivered personally shall be deemed duly given on the date of actual receipt; mailed notices shall be deemed duly given as of the fifth day after the date so mailed. Notices hereunder may be delivered by electronic facsimile transmission (fax) if confirmation by sender is made within three business days by mail or personal delivery. 12. Inventions. (a) It shall be part of the normal duties of Employee at all times to consider in what manner and by what new methods or devices the products, services, processes, equipment or systems of the Company or any associated company with which he is concerned and for which he is responsible might be improved, and promptly to give to the Board of Directors of the Company full details of any invention or improvement which he may from time to time make or discover in the course of his duties, and to use his best efforts to further the interests of the Company with regard thereto. Subject to any contrary provisions of the laws of the United States or the State of California, the Company shall be entitled free of charge to all of Employee's rights, title and interest, if any, in any such invention or improvement and, so far as the law permits, to the exclusive use thereof. (b) Employee shall, if and when required so to do by the Company, at the expense of the Company apply or join with the Company in applying for patents or other protection in any part of the world for any such discovery, invention or process as aforesaid and shall at the expense of the Company execute and do or procure to be executed or done all instruments and 7. things reasonably necessary for vesting the said patent or other protection when obtained and all right, title and interest to and in the same in the Company or in such other person as the Company may require. (c) For the purpose of this clause Employee HEREBY IRREVOCABLY AUTHORIZES the Company as his attorney in his name to execute and do any documents or things which are required in order to give effect to the provisions of this Section 12 and the Company is hereby empowered to appoint and remove at its pleasure any person as agent and substitute for and on behalf of the Company in respect of all or any of the matters aforesaid. 13. Waiver Of Breach. The waiver by any party to a breach of any provision in this Agreement cannot operate or be construed as a waiver of any subsequent breach by a party. 14. Severability. The invalidity or unenforceability of any particular provision in this Agreement shall not affect the other provisions hereof, and this Agreement shall be construed in all respects as if the invalid or unenforceable provision were omitted. 15. Entire Agreement. Except as otherwise provided herein, this Agreement covers the entire understanding of the parties as to the employment of Employee, superseding all prior understandings and agreements, and no modification or amendment of its terms and conditions shall be effective unless in writing and signed by the parties or their respective duly authorized agents. Any modification or amendment of this Agreement on behalf of the Company shall require the consent of the Series E Preferred Board representative. 16. Governing Law. This Agreement shall be interpreted, construed and governed according to the laws of the State of California. 17. Attorneys' Fees And Costs. The prevailing party in any proceeding brought to enforce or interpret any provision of this Agreement shall be entitled to recover its reasonable attorneys' fees, costs and disbursements incurred in connection with such proceeding, including but not limited to the costs of experts, accountants and consultants and all other costs and services reasonably related to the proceeding, including those incurred in any bankruptcy or appeal, jointly and severally, from the nonprevailing party or parties. 18. Successors And Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their successors, permitted assigns, legal representatives and heirs, but neither this Agreement 8. nor any rights hereunder shall be assignable by any of its parties except as permitted by this Section. Employee agrees that this Agreement may be assigned by the Company upon a sale, transfer or reorganization of the Company, and Employee shall perform all services required pursuant to this Agreement for any such assignee company. In Witness Whereof, the parties hereto have executed this Agreement as of the day and year first above written. TriNet Employer Group, Inc. By /s/ Martin Babinec ------------------------------------ Title President & CEO --------------------------------- Employee /s/ Martin Babinec --------------------------------------- Martin Babinec Exhibit A --------- YOUR BENEFITS AT TRINET EMPLOYER GROUP YOUR HEALTH TriNet's cash benefits supplement covers most of your employee premiums for group health and dental plans. A no coverage allowance is available to employees with other group health plans in force. Health Plan: You have a choice of four plans: . group health insurance from a nationwide insurance carrier (Travelers) with free choice of medical providers or a reduced cost PPO (preferred provider organization) option . Traveler's EPO, which works like an HMO but on a national basis . HealthNet, a Health Maintenance Organization (HMO) with many local clinics participating . Kaiser Permanente, a staff HMO Dental Plan included with any health plan enrollment, usable at any dentist. Our Flexible Benefits Plan lets you use pre-tax dollars for medical insurance premiums for your dependents and for out of pocket medical expenses. Free counseling to you or family members through our Employee Assistance Program. YOUR CONVENIENCE . Direct deposit to any bank * . Discounted checking and credit union * . Discount recreational coupons * . Pre-tax dependent care through our Flexible Benefits Plan * . LegalSaver for low cost legal assistance . An optional vision plan . Price/Costco membership * Available at no cost to you YOUR TIME OFF . A paid time off program in which you accrue time each year for vacation, illness, or personal time off. The number of days you accrue is based on your years with the company: Year Days Maximum* ----------------------------------------------------------------------- First year 15 days n/a 1-3 years 17 days 22 days 3+ years 20 days 25 days . Additional time off for jury duty or bereavement. . Six company paid holidays. . All employees are required to devote a minimum of 8 hours per quarter to their continuing professional development. Company paid courses and professional association memberships, when approved by your manager. YOUR FINANCIAL SECURITY Funded by TriNet: - ---------------- . A term life policy for $10,000 for all employees with an additional benefit for accidental death or dismemberment. . Group disability insurance, at no cost to you, which can replace up to 60% of your salary to age 65 for qualifying disabilities. Other options available at your expense: - --------------------------------------- . For you and your dependents, optional term life insurance up to ten times salary or $500,000. . Our private retirement account permits after tax savings through convenient payroll deduction. The benefits listed are available to full time regular employees as of January, 1994. Benefits are subject to change. This is an abbreviated listing only; for full details, please refer to benefit plan coverage booklets. EX-23.02 17 CONSENT OF ERNST & YOUNG EXHIBIT 23.2 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our report dated February 18, 2000, except for paragraph 2 of Note 4, as to which the date is February 29, 2000, in the Registration Statement (Form S-1) and related Prospectus of TriNet Group, Inc. for the registration of its common stock. Walnut Creek, California March 1, 2000 EX-27.01 18 FINANCIAL DATA SCHEDULE
5 YEAR YEAR DEC-31-1999 DEC-31-1998 JAN-1-1999 JAN-01-1998 DEC-31-1999 DEC-31-1998 16,777,235 8,584,563 0 0 3,637,345 1,676,753 100,000 7,157 0 0 27,738,124 15,997,045 7,979,264 4,005,578 1,909,095 1,164,617 35,791,397 20,091,513 27,624,779 14,992,477 0 0 0 0 500,000 500,000 255,416 252,667 4,560,274 3,815,269 35,791,397 20,091,513 19,127,780 12,442,924 19,127,780 12,442,924 10,101,829 6,378,814 18,933,495 10,693,927 (101,882) (12,833) 236,053 29,510 9,340 10,760 296,167 1,761,830 399,300 779,400 (103,133) 982,430 0 0 0 0 0 0 (103,133) 982,430 (0.02) (0.07) (0.02) (0.07)
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