<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 22, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ELOQUENT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7379 94-3221868
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE) IDENTIFICATION NUMBER)
</TABLE>
2000 ALAMEDA DE LAS PULGAS, SUITE 100
SAN MATEO, CA 94403
(650) 294-6500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
ABRAHAM KLEINFELD
CHIEF EXECUTIVE OFFICER
ELOQUENT, INC.
2000 ALAMEDA DE LAS PULGAS, SUITE 100
SAN MATEO, CA 94403
(650) 294-6500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
KENNETH L. GUERNSEY ROBERT P. LATTA
JODIE M. BOURDET CHRISTOPHER F. FENNELL
STEVEN R. HARMON CHRISTIAN E. MONTEGUT
DAVID J. PAUL PRIYA CHERIAN HUSKINS
COOLEY GODWARD LLP WILSON SONSINI GOODRICH & ROSATI,
ONE MARITIME PLAZA, 20TH FLOOR A PROFESSIONAL CORPORATION
SAN FRANCISCO, CA 94111 650 PAGE MILL ROAD
(415) 693-2000 PALO ALTO, CA 94304
(650) 493-9300
</TABLE>
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
<TABLE>
<S> <C> <C>
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TITLE OF EACH CLASS OF PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE(1) REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------------
Common Stock, $0.001 par value per share...... $57,500,000 $15,985
- ----------------------------------------------------------------------------------------------------------------------
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</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
Registration Fee in accordance with Rule 457(o) 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.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE SECURITIES AND EXCHANGE COMMISSION DECLARES
OUR REGISTRATION STATEMENT EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL
THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY
STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED , 1999
SHARES
ELOQUENT, INC. [ELOQUENT, INC. LOGO]
COMMON STOCK
$ PER SHARE
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<TABLE>
<S> <C>
- - Eloquent, Inc. is offering - This is our initial public offering and
shares. no public market currently exists for our
shares.
- - We anticipate that the initial public - Proposed trading symbol: Nasdaq National
offering price will be between Market -- ELOQ.
$ and $ per share.
</TABLE>
---------------------------------------------
THIS INVESTMENT INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 9.
<TABLE>
<CAPTION>
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PER SHARE TOTAL
--------- -------
<S> <C> <C>
Public offering price....................................... $ $
Underwriting discount....................................... $ $
Proceeds, before expenses, to Eloquent, Inc. ............... $ $
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</TABLE>
The underwriters have a 30-day option to purchase up to
additional shares of common stock from us to cover over-allotments, if any.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OF ANYONE'S INVESTMENT IN THESE SECURITIES OR DETERMINED
IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
U.S. BANCORP PIPER JAFFRAY
BANC OF AMERICA SECURITIES LLC
THOMAS WEISEL PARTNERS LLC
THE DATE OF THIS PROSPECTUS IS , 1999.
<PAGE> 3
GATEFOLD
GRAPHICS: GRAPHICAL DEPICTION OF PRODUCTION PROCESS AND USES OF
ELOQUENT SOLUTION
TEXT:
ELOQUENT OFFERS COMPLETE END-TO-END SOLUTIONS FOR WEB-BASED RICH MEDIA
BUSINESS-TO-BUSINESS COMMUNICATIONS
ELOQUENT APPLICATIONS SERVER SOFTWARE
Content aggregation
Personalized delivery
Usage reporting
Bandwidth management
Integration with enterprise systems
Open architecture
ELOQUENT PRESENTER!
Browser-based player
ELOQUENT CONTENT PRODUCTION
Full motion video and audio
Presentation materials
Electronic documents
FULLY INTEGRATED CD-ROM DELIVERY FOR OFFLINE USE
INTERNET/INTRANET
SALES CHANNEL COMMUNICATIONS
Customers use Eloquent solutions to educate their field personnel and
resellers about new products and marketing strategies. Eloquent's Web-based
rich media format enhances existing customer expertise and materials by
delivering complex information to large audiences more quickly,
consistently, and cost effectively than alternative methods. User have
continued on-demand access to the information for improved understanding and
retention.
EMPLOYEE COMMUNICATIONS
Eloquent solutions deliver senior management's messages to a globally
distributed workforce. Customers are able to deliver a consistent
message -- cost effectively -- to all employees, including those who joined
the company after the presentation was initially made.
SALES AND MARKETING PRESENTATIONS
Companies use Eloquent solutions on their Web sites to present corporate
information and to demonstrate their products to potential customers or
business partners. This provides an engaging, low-cost mechanism for
communicating to a large audience of potential buyers while shortening sales
cycles.
CUSTOMER SUPPORT
Business use Eloquent solutions to deliver technical and product support
information to their customers on an ongoing basis. Eloquent's search and
navigation capabilities allow quick access to needed information.
<PAGE> 4
INSIDE FRONT COVER
GRAPHIC: SCREEN SHOT OF ELOQUENT DESKTOP PLAYER SOFTWARE
TEXT:
THE ELOQUENT PRESENTER! PLAYER SOFTWARE IS DESIGNED SPECIFICALLY FOR RICH MEDIA
BUSINESS-TO-BUSINESS COMMUNICATIONS
1. FULL MOTION VIDEO OF PRESENTER
Eloquent's streaming media technology is optimized to deliver full motion video
of a speaker at typical dial-up Web bandwidths.
2. SYNCHRONIZED SLIDES/DEMONSTRATIONS
Virtually any kind of graphics can be included in the presentation, including
electronic slide presentations, product demonstrations and sophisticated 3-D
graphics.
3. SYNCHRONIZED TEXT TRANSCRIPT
A text transcript is precisely synchronized to the audio/video stream. Spoken
text is highlighted in a smoothly scrolling box, making it easy for viewers to
follow along.
4. HYPERLINKS TO OTHER WEB-BASED INFORMATION
Eloquent's open Web architecture allows users to hyperlink to other Web-based
information.
5. FULL-FEATURED NAVIGATION TOOLS
While streaming media for entertainment offers simple "play until finished"
controls, business-to-business communications require a higher degree of user
navigation and control:
- Speed control for efficiency and better comprehension
- Search capabilities enable users to find a word or phrase anywhere in a
presentation or throughout an on-line library of rich media content
- Bookmarks allow users quick access to important information
- Slide navigation tools provide precise presentation control
- Translated transcripts for international audiences
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary..................................................... 4
Risk Factors................................................ 9
Special Note on Forward-Looking Statements.................. 17
Use of Proceeds............................................. 18
Dividend Policy............................................. 18
Capitalization.............................................. 19
Dilution.................................................... 20
Selected Financial Data..................................... 22
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 23
Business.................................................... 32
Management.................................................. 43
Certain Transactions........................................ 56
Principal Stockholders...................................... 58
Description of Capital Stock................................ 60
Shares Eligible for Future Sale............................. 65
Underwriting................................................ 67
Legal Matters............................................... 69
Experts..................................................... 69
Where You Can Find More Information......................... 70
Index to Financial Statements............................... F-1
</TABLE>
---------------------------------------------
You should rely only on the information contained in this prospectus. We have
not, and the underwriters have not, authorized any other person to provide you
with different information. This prospectus is not an offer to sell, nor is it
seeking an offer to buy, these securities in any state where the offer or sale
is not permitted. The information in this prospectus is complete and accurate as
of the date on the front cover, but the information may have changed since that
date.
3
<PAGE> 6
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SUMMARY
The items in the following summary are described in more detail later in this
prospectus. This summary provides an overview of selected information and does
not contain all the information you should consider. Therefore, you should also
read the more detailed information contained in this prospectus, including the
financial statements and related notes.
ELOQUENT
Eloquent is the leading provider of rich media solutions for
business-to-business communications. "Rich media" is the combination of video,
audio, sophisticated graphics and text into a synchronized, interactive,
navigable and searchable format. We have developed a unique, proprietary
solutions platform consisting of software and services that we use to create and
deliver rich media presentations, or "events," on behalf of our customers. These
events can be delivered over Web-based channels, including the World Wide Web,
intranets and extranets, and CD-ROMs to be viewed by end users on their personal
computers.
Our customers include companies such as Lucent Technologies, Cisco Systems, Inc.
and Citibank. These customers use our solutions to communicate time-sensitive,
business-critical information to target audiences in an effective, consistent
and cost-efficient manner. Customers use our events for product launch briefings
to sales teams, strategic and corporate alignment presentations to employees,
sales pitches to potential customers, employee training seminars, business
partner education programs and complex customer support activities. Since our
inception in March 1995, we have produced over 700 rich media events consisting
of over 3,500 hours of content for more than 150 customers.
Business-to-business communications involve the dissemination of corporate
information to audiences both inside and outside an organization, including
employees, customers and business partners. The ability to communicate
effectively with these audiences represents an important competitive advantage
for companies under increasing pressure to operate more efficiently and to
better serve the needs of their customers. Companies disseminate information to
their target audiences through a variety of means and a number of different
technologies that, although useful, do not always provide the most efficient and
robust means of delivering communications.
The emergence of the Web as a global communications medium has enabled companies
to gather information, to communicate and to conduct business electronically
over Web-based channels. Furthermore, the development of streaming media
technologies and the proliferation of multimedia-capable computers has enabled
the delivery of continuous "streams" of video and audio content, including our
rich media events. Most streaming media applications, however, have been focused
on entertainment applications and do not provide for synchronization of multiple
media or sophisticated search and navigation capabilities. Additionally, a
number of technical challenges have limited the adoption of streaming media
technology for business-to-business communications. We believe our customers
recognize the benefits of outsourcing the production and delivery of rich media
events to Eloquent because we have specialized rich media expertise, the ability
to deliver a complete set of products and services and the ability to achieve
economies of scale in producing rich media events.
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4
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Our platform includes all of the software and services our customers need to
deliver rich media business-to-business communications to their target
audiences. We have developed what we believe to be the most effective,
comprehensive and robust platform available for producing and delivering rich
media events for business-to-business communications that are:
- easy to produce and deliver -- we have the capability to produce rich
media events for our clients from start to finish in a turnkey fashion.
In addition, by delivering rich media events through the Web, intranets,
extranets and CD-ROMs, we enable our customers to reach their entire
target audience easily.
- more effective -- our rich media events provide users with
business-critical information in an interactive, searchable and
navigable format that we believe makes them more engaging than other
forms of business-to-business communication, enhancing comprehension and
retention of the information.
- faster -- we enable our customers to disseminate critical information
rapidly due to our unique and efficient production process and Web-based
channel and CD-ROM delivery. Using our proprietary scheduling software
and production expertise, we can produce a typical four- to five-hour
rich media event in nine business days, compared to months for
alternative solutions.
- less expensive -- our solutions eliminate many of the costs associated
with traditional business presentations, including airline, hotel and
other travel expenses for event participants, facilities costs and the
opportunity costs associated with diverting employees from their work
schedules.
We believe that these benefits can result in a number of strategic and
competitive advantages for our customers, including accelerating the commercial
launch of new products, increasing employee productivity, strengthening
important relationships and enhancing sales and marketing efforts.
Our objective is to enhance our leadership position in rich media solutions for
business-to-business communications. Key elements of our strategy include:
- further penetration of our existing customer base of large corporate
accounts;
- expansion into additional industries;
- identification of new applications for our solutions;
- expansion and enhancement of our existing set of customer solutions by
broadening the functionality of our platform and adding value-added
services; and
- expansion into international markets.
OFFICE LOCATION
Our principal executive offices are located at 2000 Alameda de las Pulgas, Suite
100, San Mateo, California 94403 and our telephone number is (650) 294-6500. Our
primary Web site is located at www.eloquent.com. Information contained on our
Web site is not part of this prospectus.
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5
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THE OFFERING
Common stock offered...................... shares
Common stock outstanding after the
offering.................................. shares
Offering price............................ $ per share
Use of proceeds........................... We will receive net proceeds from
this offering of approximately
$ million. We intend to
use approximately $23.0 million of
these net proceeds for the
repayment of debt. We intend to
use the remaining proceeds for
increasing the size of our sales
and marketing organizations,
enhancing the functionality of our
platform, expanding
internationally, working capital
and general corporate purposes.
See "Use of Proceeds."
Proposed Nasdaq National Market symbol.... ELOQ
The number of shares of common stock to be outstanding after the offering set
forth above is based on the total number of shares outstanding on September 30,
1999 but includes 15,000 shares of common stock issued as partial payment of a
placement agent fee owed in connection with our sale of subordinated notes and
warrants in October 1999 and 22,500 shares of common stock issued upon exercise
of warrants issued in such financing. The number of shares set forth above
excludes:
- 2,683,525 shares of common stock issuable upon exercise of stock options
outstanding as of September 30, 1999;
- 2,905,799 shares of common stock reserved for issuance under our equity
incentive and stock purchase plans, based on stock options outstanding
as of September 30, 1999 and taking into account increases in share
reserves since that date;
- 207,887 shares of common stock issuable upon exercise of outstanding
warrants, 14,450 of which will expire upon the closing of this offering
if not exercised by that time; and
- 1,477,500 shares of common stock issuable upon exercise of warrants
issued in connection with our sale of subordinated notes in October
1999.
Unless otherwise specifically stated, information contained in this prospectus:
- does not take into account the exercise of the underwriters'
over-allotment option to purchase up to shares of our
common stock; and
- gives effect to the conversion of all of our outstanding preferred stock
into common stock upon the closing of this offering.
"Eloquent" and the Eloquent logo are trademarks of Eloquent, Inc. that are
registered in the United States and other jurisdictions. All other trademarks or
service marks appearing in this prospectus are trademarks or service marks of
the respective companies that use them.
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6
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SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
INCEPTION
(MARCH 29,
1995) NINE MONTHS ENDED
THROUGH YEAR ENDED DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, ------------------------------------------ ---------------------------
1995 1996 1997 1998 1998 1999
------------ ------------ ------------ ------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
Content production
services................ $ 55 $ 944 $ 3,519 $ 6,750 $ 5,134 $ 6,404
Software licenses and
maintenance............... -- -- 406 993 677 1,592
Professional services..... -- -- -- -- -- 379
-------- -------- -------- -------- -------- --------
Total revenues..... 55 944 3,925 7,743 5,811 8,375
Cost of revenues............ -- 405 3,767 6,175 4,596 5,097
-------- -------- -------- -------- -------- --------
Gross margin.............. 55 539 158 1,568 1,215 3,278
Operating expenses:
Sales and marketing....... 81 846 3,785 6,812 4,832 5,684
Research and
development............. 86 659 845 1,510 1,111 1,417
General and
administrative.......... 208 597 1,876 2,211 1,546 2,586
Stock-based
compensation............ -- -- -- 992 580 3,343
-------- -------- -------- -------- -------- --------
Total operating
expenses......... 375 2,102 6,506 11,525 8,069 13,030
-------- -------- -------- -------- -------- --------
Loss from
operations..... (320) (1,563) (6,348) (9,957) (6,854) (9,752)
Interest expense and other
charges................... 1 (21) (100) (259) (207) (418)
Interest income and other
income.................... -- 49 79 208 120 123
-------- -------- -------- -------- -------- --------
Net loss.................... $ (319) $ (1,535) $ (6,369) $(10,008) $ (6,941) $(10,047)
======== ======== ======== ======== ======== ========
Net loss per share, basic
and diluted............... $ (1.33) $ (1.97) $ (4.59) $ (4.74) $ (3.49) $ (3.06)
======== ======== ======== ======== ======== ========
Weighted average shares,
basic and diluted......... 240 781 1,388 2,111 1,990 3,286
======== ======== ======== ======== ======== ========
Pro forma net loss per
share, basic and
diluted................... $ (1.21) $ (0.96)
======== ========
Pro forma weighted average
shares, basic and
diluted................... 8,285 10,444
======== ========
</TABLE>
The following table summarizes our balance sheet as of September 30, 1999:
- on an actual basis;
- on a pro forma basis to reflect (1) the receipt of $18.8 million in
estimated aggregate net proceeds from the sale of $20.0 million of
subordinated notes and warrants to purchase 1,500,000 shares of common
stock in October 1999, (2) the issuance of 15,000 shares issued as
partial payment of a placement agent fee owed in connection with such
sale and the issuance of 22,500 shares upon exercise of a portion of
such warrants and (3) the application of $2.6 million of the net
proceeds from the notes to repay a portion of our existing line of
credit; and
- on a pro forma, as adjusted basis to reflect the shares of
common stock offered hereby at an assumed offering price of $ per
share, after deducting estimated underwriting discounts, commissions and
offering expenses, and the application of the net proceeds from the
offering.
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<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 3,431 $19,644
Working capital (deficit)................................... (2,688) 16,082
Total assets................................................ 9,689 26,764
Long term obligations and subordinated notes................ 889 8,389
Total stockholders' equity (deficit)........................ (832) 11,301
</TABLE>
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8
<PAGE> 11
RISK FACTORS
Investing in our common stock involves a high degree of risk. You should
carefully consider the risks described below as well as the other information in
this prospectus before investing in our common stock. Our business, financial
condition or operating results could be seriously harmed by any of the following
risks. In addition, the trading price of our common stock could decline due to
any of the following risks, and you may lose all or part of your investment.
RISKS RELATED TO OUR BUSINESS
BECAUSE WE HAVE A LIMITED OPERATING HISTORY, IT MAY BE DIFFICULT FOR YOU TO
EVALUATE OUR BUSINESS AND PROSPECTS.
Eloquent was formed in March 1995. Thus, we have a limited operating history,
which may make it difficult for you to evaluate our business. We are subject to
the risks, expenses and uncertainties frequently encountered by companies in new
and rapidly evolving technology and Web-related markets. The risks to which we
are subject as a new company include:
- we may not be able to maintain and expand our customer base;
- we may have difficulty identifying new applications for our existing
products;
- we may be unable to expand and enhance our customer solutions;
- our competitors may develop or may already have developed similar or
superior services or products;
- our current and potential future customers may reject the Web or CD-ROMs
as methods for business-to-business communication;
- market prices for our solutions may drop as a result of competition or
other factors;
- we may not effectively integrate the technology and operations of any
acquired businesses or technologies with our operations;
- the technologies we use in our operations may fail or operate poorly;
and
- we may be unable to identify, attract, retain and motivate qualified
personnel.
We may not be successful in addressing these risks or other risks we may face.
If we are unable to adequately address these risks, our business, financial
condition and operating results would suffer.
WE EXPECT TO CONTINUE TO INCUR LOSSES, AND AS A RESULT WE MAY NOT ACHIEVE
PROFITABILITY.
We have not achieved profitability on a quarterly or annual basis to date and we
anticipate that we will continue to incur net losses for the foreseeable future.
Our failure to achieve profitability could deplete our current capital resources
and reduce our ability to raise additional capital. We incurred net losses of
approximately $1.5 million for the year ended December 31, 1996, $6.4 million
for the year ended December 31, 1997, $10.0 million for the year ended December
31, 1998 and $10.0 million for the nine months ended September 30, 1999. As of
September 30, 1999, we had an accumulated deficit of approximately $28.3
million. We expect to increase our operating expenses significantly, expand our
sales and marketing operations and continue to develop and expand our service
offerings. If these increased expenses are not accompanied by increased
revenues, we will not achieve profitability.
In October 1999, we raised $20.0 million in gross proceeds from the sale of
subordinated notes and warrants to purchase common stock. Applicable accounting
rules require that we allocate the gross
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<PAGE> 12
proceeds among the notes, the beneficial conversion feature of the notes and the
warrants. As a result of that allocation, the subordinated notes will initially
be recorded on our balance sheet at a discounted value of approximately $7.5
million. The $7.5 million discount resulting from the issuance of warrants will
be amortized over the five-year term of the notes and the $5.0 million discount
resulting from the beneficial conversion feature will be amortized over the
one-year period during which the note may not be converted. If the notes are
repaid by us prior to the end of their term, the unamortized portion of the
discount resulting from the issuance of the warrants and debt issuance costs
will be recorded as an extraordinary loss on extinguishment of debt during the
period in which the notes are repaid. We are required to repay the notes upon
the completion of this offering. Accordingly, upon completion of this offering
we will have to recognize an extraordinary loss on extinguishment of debt of up
to $9.0 million.
OUR QUARTERLY OPERATING RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS, AND AN
UNANTICIPATED DECLINE IN REVENUES MAY CAUSE OUR STOCK PRICE TO FALL.
Our quarterly operating results may fluctuate significantly in the future
because of a variety of factors, many of which are outside our control. As a
result, operating results for any particular quarter may not be indicative of
future operating results. In some future quarter our operating results may be
below the expectations of public market analysts and investors, which would
cause the price of our common stock to fall. The factors that may cause our
quarterly operating results to fluctuate include:
- the amount and timing of large customer orders;
- changes in prices paid for our products and services resulting from
competition or other factors;
- our ability to successfully introduce new products and enhancements to
our existing solutions;
- new products and services introduced by us or our competitors;
- the amount and timing of costs related to our marketing efforts or other
initiatives;
- costs incurred as we expand operations;
- technical difficulties or system downtime affecting the Web generally or
the operation of our network or servers; and
- economic conditions specific to the Web.
WE DEPEND ON A LIMITED NUMBER OF LARGE CUSTOMERS FOR A MAJORITY OF OUR REVENUES,
SO THE LOSS OF OR DELAY IN PAYMENT FROM ONE OR A SMALL NUMBER OF CUSTOMERS COULD
HAVE A LARGE IMPACT ON OUR REVENUES AND OPERATING RESULTS.
A limited number of large customers have accounted for a majority of our
revenues and will continue to do so for the foreseeable future. For example, our
top 15 customers during the nine months ended September 30, 1999 accounted for
46% of our revenues during that period. Due to our limited number of large
customers, the cancellation or delay of a customer order during a given quarter
is likely to significantly reduce revenues for the quarter. If we were to lose a
key customer, our business, financial condition and operating results would
suffer. In addition, if a key customer fails to pay amounts it owes us, or does
not pay those amounts on time, our revenues and operating results would suffer.
THE LENGTH OF OUR SALES CYCLE IS UNCERTAIN AND THEREFORE COULD CAUSE SIGNIFICANT
VARIATIONS IN OUR OPERATING RESULTS.
Because our customers are typically large corporations, the length of our sales
cycle -- the time between an initial customer contact and completing a
sale -- can be unpredictable. The time between the date of our initial contact
with a potential new customer and the execution of a sales contract with that
customer
10
<PAGE> 13
ranges from less than two weeks to more than three months, depending on the size
of the customer, the application of our solution and other factors. Our sales
cycle is also subject to delays as a result of customer-specific factors over
which we have little or no control, including budgetary constraints and internal
acceptance procedures. During the sales cycle, we may expend substantial sales
and management resources without generating corresponding revenues. Our expense
levels are relatively fixed in the short term and are based in part on our
expectations of our future revenues. As a result, any delay in our sales cycle
could cause significant variations in our operating results, particularly
because a relatively small number of customer orders represents a large portion
of our revenues.
IF WE DO NOT SIGNIFICANTLY INCREASE SALES OF OUR PRODUCTS AND SERVICES, WE WILL
NOT REACH PROFITABILITY.
We will not reach profitability unless we significantly increase sales of our
products and services. We plan to pursue several strategies to achieve such
increased sales. We may not be able to implement these strategies. They involve
pursuing business activities with which we have little experience to date,
including:
- selling additional products and services to existing customers, and
selling our products and services to different divisions within existing
customers;
- identifying and successfully penetrating new industries;
- identifying and selling new applications for our solutions platform;
- acquiring and developing new functionality for our solutions platform;
and
- selling our products and services internationally.
Even if we implement these strategies, they may not result in increased sales.
Also, even if we increase sales, a decline in prices could prevent the sales
increase from increasing revenues sufficiently for us to achieve profitability.
WE MAY NOT BE ABLE TO INCREASE THE SIZE OF OUR SALES ORGANIZATION, WHICH WOULD
PREVENT US FROM ACHIEVING THE INCREASED SALES VOLUME NECESSARY FOR US TO ACHIEVE
PROFITABILITY.
In order to increase our revenues, we must recruit, train and retain a
significant number of sales personnel. If we do not do so, we will not be able
to increase our sales sufficiently to achieve profitability. In the past, we
have had difficulty recruiting and retaining qualified sales personnel. We
cannot guarantee that we will not encounter similar difficulties in the future.
Competition for personnel, particularly in the San Francisco Bay Area, where we
are located, is intense. Many of the companies competing with us for qualified
sales personnel are larger and more established than we are and have greater
financial resources than we do. This may make it even more difficult for us to
recruit and retain such personnel.
Our operational history suggests that the level of sales we achieve is generally
determined by the number of sales personnel we employ. In 1998 and early 1999,
we suffered a significant decline in sales to customers in the western United
States primarily due to attrition in our West Coast sales force. If we
experience turnover in our sales force in the future, our business, financial
condition and operating results will suffer. Newly hired sales personnel
generally do not become fully productive until they have worked for at least two
quarters. Because of the time required to recruit new sales personnel and for
them to become fully productive, an unanticipated loss of sales personnel could
result in an underproductive sales organization and reduced sales for a
significant period of time.
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<PAGE> 14
WE FACE INTENSE COMPETITION FOR PERSONNEL, WHICH COULD IMPAIR OUR ABILITY TO
RECRUIT AND RETAIN KEY PERSONNEL.
Our ability to develop, market and sell our solutions and to maintain our
competitive position depends on our ability to attract, retain and motivate
highly skilled technical, sales and marketing and other personnel. There is a
limited number of people with the necessary technical skills and understanding,
and competition for their services, particularly in the San Francisco Bay Area,
is intense. If we fail to recruit or retain these personnel, our ability to
develop, market and sell our solutions will suffer.
WE DEPEND ON TECHNOLOGY LICENSED FROM OTHER COMPANIES. SOME OF THESE LICENSES
MAY BE TERMINATED BY THE LICENSOR IN LESS THAN ONE YEAR. WE MAY NOT BE ABLE TO
REPLACE THE LICENSED TECHNOLOGY WITHOUT SIGNIFICANT EXPENSE OR ENGINEERING
EFFORTS, IF AT ALL.
Our desktop player software includes search technology that we license from
Verity, Inc. and compression technology that we license from Voxware, Inc. Our
license from Verity expires in May 2000, but automatically renews for successive
one-year terms if neither party gives 30 days' notice of nonrenewal prior to the
end of each term. Our license from Voxware expires in April 2000, but
automatically renews for successive one-year terms if neither party gives 90
days' notice of nonrenewal prior to the end of each term. If we are unable to
maintain or renew these licenses, we would be forced to remove such technologies
from our software and develop or license comparable technology. This could
require additional license fees or extensive engineering efforts, or
significantly decrease our software's functionality, either of which could harm
our business, financial condition and operating results.
In addition, we have developed our products to integrate well with the Microsoft
Windows NT operating system, the operating system used by most of our customers
to run our software. If the Windows NT operating system is changed by Microsoft
so that it no longer integrates well with our products, or if Windows NT
experiences technical problems, the operation of our software could be impaired.
In that event, our business, financial condition and operating results could be
harmed. Microsoft is not obligated to ensure that Windows NT integrates well
with our products.
We may be required to obtain licenses from third parties to refine, develop,
market and deliver new products. We may be unable to obtain any needed license
on commercially reasonable terms or at all and rights granted under any licenses
may not be valid and enforceable.
WE OPERATE IN MARKETS THAT WILL BECOME INCREASINGLY COMPETITIVE, WHICH COULD
LEAD TO DECREASING PRICES AND REDUCED PROFITABILITY.
The market for rich media business-to-business communications solutions is new
and rapidly evolving. We expect that competition will intensify. Increased
competition could lead to decreasing prices and profitability. We compete with
companies that offer components of a rich media business-to-business
communications solution, including:
- providers of rich media software tools;
- multimedia content production and delivery companies;
- content hosting companies; and
- traditional business-to-business communications and learning solution
companies that offer live meeting and seminar services.
In addition, our customers and potential customers represent a source of
competition to the extent they determine to develop in-house
business-to-business communications solutions.
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<PAGE> 15
Many of our current and potential competitors have longer operating histories,
significantly greater financial, technical and marketing resources, greater name
recognition and larger existing customer bases than we do. These competitors may
also be able to undertake more extensive marketing campaigns for their brands
and services, adopt more aggressive pricing policies and make more attractive
offers to potential employees and partners. We may be unable to compete
successfully against current or future competitors and competitive pressures may
cause our business to suffer.
MOST OF OUR MANAGEMENT TEAM HAS ONLY RECENTLY JOINED ELOQUENT AND HAS LITTLE
EXPERIENCE WORKING TOGETHER, WHICH COULD LIMIT THE TEAM'S EFFECTIVENESS IN
OPERATING OUR BUSINESS.
Most members of our management team have been employed by Eloquent for a short
period of time. Abraham Kleinfeld, our President and Chief Executive Officer,
joined Eloquent in January 1999. John Curson, our Chief Financial Officer,
joined Eloquent in June 1999. Four of our five Vice Presidents joined Eloquent
in the first half of 1999. Therefore, our management team does not have
significant experience working together at Eloquent. This could prevent or limit
our management team's ability to work together effectively. The failure of the
new management team to work together effectively could delay efficient
decision-making and execution of business objectives, which would negatively
impact our business, financial condition and operating results.
WE MAY NOT BE ABLE TO ADEQUATELY MANAGE OUR ANTICIPATED GROWTH, WHICH COULD
IMPAIR OUR EFFICIENCY AND NEGATIVELY IMPACT OUR OPERATIONS.
We have experienced rapid growth and plan to continue to expand our operations.
If we do not effectively manage this growth, we will not be able to operate
efficiently or maintain the quality of our products. Either outcome would harm
our operating results. This expansion is expensive and places a significant
strain on our personnel and other resources. To manage our expanded operations
effectively, we will need to further improve our operational, financial and
management systems and successfully hire, train, motivate and manage our
employees. We may not be able to manage our growth effectively, which could
impair our efficiency, reduce the quality of our solutions, impair further
growth and harm our business, financial condition and operating results.
WE PLAN TO EXPAND OUR BUSINESS INTO INTERNATIONAL MARKETS, IN WHICH WE HAVE NO
PRIOR EXPERIENCE. INTERNATIONAL EXPANSION WILL REQUIRE SIGNIFICANT RESOURCES AND
WILL SUBJECT US TO NEW RISKS THAT MAY LIMIT OUR RETURN FROM OUR INTERNATIONAL
SALES EFFORTS.
One of our strategies to increase our sales sufficiently to achieve
profitability is to add an international sales force and operations. Such
expansion will involve a significant use of management and financial resources,
particularly because we have no previous experience with international
operations. We may not be successful in creating international operations or
sales. In addition, international business activities are subject to a variety
of risks, including the adoption of laws, currency fluctuations, actions by
third parties and political and economic conditions, any of which could restrict
or eliminate our ability to do business in foreign jurisdictions.
WE WILL DEPEND ON REVENUES FROM OUR CONTENT HOSTING BUSINESS, WHICH WILL SUFFER
IF OUR HOSTING EQUIPMENT AND SOFTWARE EXPERIENCE SYSTEM FAILURES.
Our future success depends in part on our ability to successfully host our
customers' content on our servers. Our ability to host content will depend on
the efficient and uninterrupted operation of our computer and communications
hardware and software systems. All of our content hosting servers are located at
Concentric Network Corporation's facilities in Cupertino, California. These
systems and operations are vulnerable to damage or interruption from
earthquakes, floods, fires, power loss, telecommunication failures or similar
events. They are also subject to computer viruses, break-ins,
13
<PAGE> 16
sabotage, intentional acts of vandalism and similar misconduct. We do not have
fully redundant content hosting systems, a formal disaster recovery plan or
alternative providers of hosting services. We also may not have business
interruption insurance sufficient to compensate us for losses that may occur.
Despite any precautions we may take, the occurrence of a natural disaster or
other unanticipated problems at the Concentric Network facility could result in
interruptions in our content hosting service. In addition, the failure by
Concentric Network to provide the data communications capacity that we require
could result in interruptions in our content hosting service. Any damage to or
failure of our content hosting systems could result in interruptions in our
content hosting service. System interruptions will reduce our revenues and
profits, and our future revenues and profits will be harmed if our customers
believe that our content hosting system is unreliable.
POTENTIAL ERRORS IN OUR SOFTWARE COULD HARM OUR REPUTATION AND REDUCE OUR SALES
AND PROFITABILITY.
Our software has in the past contained, and may in the future contain, "bugs" or
errors. These defects can be detected at any point in a product's life cycle.
Software defects discovered after we release our software could result in loss
of revenues, delays in market acceptance and harm to our reputation. Although we
typically design our customer license agreements to contain provisions that
limit our exposure to potential product liability claims, we cannot guarantee
that contractual limitations of liability would be enforceable or would
otherwise protect us from liability for damages to a customer resulting from a
defect in our software. Even though we maintain insurance that covers damages
arising from the implementation and use of our software, we cannot assure you
that our insurance would cover or be sufficient to cover any product liability
claims against us. Any product liability claim against us, if successful and of
sufficient magnitude, could harm our profitability and future sales.
THE FAILURE OF OUR PRODUCTS AND COMPUTER SYSTEMS TO BE YEAR 2000 COMPLIANT WOULD
HURT OUR BUSINESS.
Our business would suffer if our products and the computer systems we use, as
well as the computer systems used by our customers, users and vendors, do not
correctly process the change in year from "99" to "00" on January 1, 2000. We
are working to avoid such problems and to obtain assurances from our vendors
that they are taking similar steps. We believe that our products and computer
systems will successfully handle the year 2000 issue, but there may be parts of
our products and computer systems and aspects of the year 2000 issue, including
the potential cost of addressing the year 2000 issue, that we have failed to
consider. If our efforts and the efforts of our vendors and customers to address
the year 2000 issue are not successful, our business, financial condition and
operating results would be harmed.
WE HAVE IN THE PAST EXPERIENCED RETURNS OF OUR PRODUCTS, AND AS OUR BUSINESS
GROWS WE MAY EXPERIENCE INCREASED RETURNS, WHICH COULD HARM OUR REPUTATION AND
NEGATIVELY IMPACT OUR OPERATING RESULTS.
In the past, some of our customers have returned our rich media events to us
because they felt that modifications were required for the product to meet
project specifications and the customer's requirements. It is likely that we
will experience some level of returns in the future and, as our business grows,
the amount of returns may increase despite our efforts to minimize returns.
Also, returns may adversely affect our relationship with affected customers and
may harm our reputation. This could cause us to lose potential customers and
business in the future. We maintain a reserve for future returns that we believe
is adequate given our historical level of returns. If returns increase, however,
our reserve may not be sufficient and our operating results would be negatively
affected.
THE FAILURE TO PROTECT OUR INTELLECTUAL PROPERTY MAY IMPAIR OUR COMPETITIVE
POSITION.
We regard our copyrights, service marks, trademarks, trade secrets, proprietary
technology and similar intellectual property as critical to our success, and we
rely on trademark and copyright law, trade secret protection and confidentiality
and license agreements with our employees and independent contractors to
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<PAGE> 17
protect our proprietary rights. We strategically pursue the registration of
trademarks and service marks in the United States and abroad. Effective
trademark, service mark, copyright and trade secret protection may not be
available in every country in which our products and services are made
available.
We have licensed in the past, and expect to license in the future, certain of
our proprietary rights to third parties. While we attempt to ensure that the
quality of our brand is maintained by these licensees, licensees may take
actions that may harm the value of our proprietary rights or reputation. The
steps taken by us to protect our proprietary rights may not be adequate.
WE MAY BECOME SUBJECT TO INTELLECTUAL PROPERTY LITIGATION IN THE FUTURE THAT
COULD CAUSE US TO INCUR SIGNIFICANT EXPENSE AND COULD REQUIRE US TO ALTER OUR
PRODUCTS.
We may be subject to legal proceedings and claims associated with our
intellectual property from time to time in the future. These claims, even if
without merit, could cause us to expend significant financial and managerial
resources. Further, if these claims are successful, we may be required to change
our trademarks, alter our copyrighted material or pay financial damages, any of
which could harm our business. Third parties may infringe or misappropriate our
copyrights, trademarks or similar proprietary rights in the future. In such
event, we may be forced to pursue infringement claims against such third
parties. These claims also could cause us to expend significant financial and
managerial resources.
RISKS RELATED TO THE INTERNET
OUR FUTURE SUCCESS DEPENDS ON CONTINUED GROWTH IN USE OF THE WORLD WIDE WEB FOR
BUSINESS-TO-BUSINESS COMMUNICATIONS.
Our business could suffer if Web usage does not continue to grow. Web usage may
be inhibited for a number of reasons, including:
- inadequate network infrastructure;
- security concerns;
- inconsistent quality of service;
- lack of availability of cost-effective and high-speed service; and
- changes in government regulation of the Web.
If Web usage grows, the Web infrastructure may not be able to support the
demands placed on it by this growth or its performance and reliability may
decline. In addition, future outages and other interruptions occurring
throughout the Web could lead to decreased use of our products and would
therefore harm our business.
IF WE ARE UNABLE TO KEEP UP WITH THE RAPID TECHNOLOGICAL CHANGES THAT
CHARACTERIZE THE WEB, OUR BUSINESS WOULD SUFFER.
Our future success will depend on our ability to continually improve our
solutions. To do so, we will need to continually enhance our solutions in
response to the rapid technological developments, evolving industry standards
and user demands, and frequent new product introductions and enhancements that
characterize the market for Web products and services. In the event new
multimedia-enabling technologies are developed and widely adopted, we may
required to make fundamental and costly changes in our technology. We may not be
able to make these enhancements or changes in a cost-effective manner, fast
enough to keep up with our competitors or at all. In such event, our business
would suffer.
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<PAGE> 18
RISKS RELATED TO THIS OFFERING
THERE MAY BE NO ACTIVE TRADING MARKET IN OUR COMMON STOCK AFTER THIS OFFERING,
WHICH MAY MAKE IT DIFFICULT FOR YOU TO RESELL YOUR SHARES.
There has been no public trading market for our common stock prior to this
offering. We cannot be sure that an active trading market will develop upon
completion of this offering or, if one does develop, that it will be sustained.
If no public trading market for our common stock develops, or if this market is
not active or sustained, it may be difficult for you to resell your shares at a
price at or above the initial public offering price.
OUR STOCK PRICE IS LIKELY TO BE EXTREMELY VOLATILE, WHICH COULD CAUSE YOU TO
LOSE ALL OR A PART OF YOUR INVESTMENT AND MAY RESULT IN COSTLY AND DISTRACTING
SECURITIES LITIGATION.
The market price of our common stock is likely to be extremely volatile. The
stocks of Web-related and technology companies have experienced extreme price
and volume fluctuations in recent months, many of which fluctuations appear
unrelated to the companies' business, financial condition or operating results.
Although the market price of our stock will in part be based on our business,
financial condition and operating results, we expect that it will also be
affected to a significant degree by these industry-wide price and volume
fluctuations. In the past, following periods of volatility in the market price
of a company's securities, securities class action litigation has often been
instituted against such a company. Securities litigation could result in
substantial costs and a diversion of our management's attention and resources.
OUR DIRECTORS AND EXECUTIVE OFFICERS OWN A SIGNIFICANT AMOUNT OF OUR COMMON
STOCK, WHICH MAY ENABLE THEM TO SIGNIFICANTLY INFLUENCE MATTERS DECIDED BY THE
STOCKHOLDERS.
After this offering, our directors and executive officers and their affiliates
will beneficially own approximately % of our outstanding common stock. As a
result of their beneficial ownership, our directors and executive officers,
acting alone or with others, will be able to significantly influence all matters
requiring stockholder approval, including the election of directors and approval
of significant transactions. This concentration of ownership may also have the
effect of delaying or preventing a change in control of Eloquent. This could
prevent our stockholders from realizing a premium over the market price for
their shares or from bringing about a change in management.
ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS AND THE DELAWARE GENERAL
CORPORATION LAW MAY INHIBIT A TAKEOVER OF ELOQUENT, EVEN IF SUCH TAKEOVER IS
BENEFICIAL TO ELOQUENT STOCKHOLDERS.
Provisions in our certificate of incorporation and bylaws and the Delaware
General Corporation Law could make it more difficult for a third party to
acquire us, even if a change in control would be beneficial to our stockholders.
These provisions include:
- the requirement that a special meeting of stockholder not be called by
stockholders, but instead may be called only by our board of directors,
Chairman of the Board, Chief Executive Officer or President; and
- the ability of our board of directors to issue preferred stock without
stockholder approval.
Furthermore, Section 203 of the Delaware General Corporation Law prohibits a
stockholder owning 15% or more of our outstanding shares from acquiring Eloquent
unless it receives board approval of the transaction or unless 66 2/3% of our
outstanding shares not owned by this stockholder approve the transaction. See
"Description of Capital Stock."
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<PAGE> 19
THE LARGE NUMBER OF SHARES THAT MAY BE RESOLD IN THE PUBLIC MARKET AFTER THIS
OFFERING COULD CAUSE OUR STOCK PRICE TO DECLINE.
The shares we will have outstanding or issuable upon exercise of options or
warrants after this offering will become eligible for public resale in the near
future. These shares consist of:
- the shares we are selling in this offering, which may be
resold in the public market immediately;
- 10,611,247 shares, based on common stock outstanding as of September 30,
1999, that may be resold in the public market 180 days after the closing
of this offering, subject in some cases to vesting restrictions;
- 2,683,525 shares subject to options, based on options outstanding as of
September 30, 1999, and 207,887 shares subject to warrants, all of which
shares may be resold in the public market 180 days after the closing of
this offering, subject in some cases to vesting restrictions; and
- 1,500,000 shares subject to warrants, all of which shares may be resold
in the public market beginning in October 2000.
As shares become eligible for public resale, the market price of our common
stock may drop if the holders of these shares sell them or are perceived by the
market as intending to sell them. See "Shares Eligible for Future Sale."
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. These statements relate to
our future plans, objectives and expectations and our current intentions. In
some cases, you can identify these statements by the use of the words such as
"anticipates," "believes," "may," "should," "will," "could," "plans," "expects,"
"future," "intends" and similar expressions. Each of these forward-looking
statements involves risks and uncertainties. In addition to forward-looking
statements made by us, this prospectus also contains forward-looking statements
attributed to certain third parties. Our actual results could differ materially
from those anticipated in these forward-looking statements for many reasons,
including the risks faced by us described above and elsewhere in this
prospectus.
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<PAGE> 20
USE OF PROCEEDS
We estimate that our net proceeds from the offering will be approximately $
million, at an assumed public offering price of $ per share and after
deducting the estimated underwriting discount and commissions and estimated
offering expenses. If the underwriters' over-allotment option is exercised in
full, we estimate that the net proceeds will be $ million.
We plan to use approximately $3.0 million of the net proceeds of this offering
to repay existing indebtedness owed pursuant to our existing secured credit
facility and $20.0 million of the proceeds to repay the subordinated notes we
issued in October 1999. The subordinated debt facility bears interest at prime
plus 3.5% per annum, compounded annually, and is due in January 2001. The
subordinated notes bear interest at 12% per annum, compounded quarterly, and are
due upon the closing of this offering. We plan to use the remaining net proceeds
from this offering to increase the size of our sales and marketing
organizations, to enhance the functionality of our platform and to expand
internationally, for working capital and for general corporate purposes. In
addition, we may use a portion of the net proceeds from this offering to make
strategic acquisitions of companies or technology. We are not currently a party
to any discussions with respect to any acquisitions. Other than the debt
repayment, we have not identified specific uses for all of such proceeds and
management will have discretion over their use and investment. We intend to
invest the net proceeds from this offering in short-term, interest-bearing,
investment grade securities until they are used.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We
intend to retain future earnings, if any, to finance the expansion of our
business and we do not expect to pay any cash dividends in the foreseeable
future. Any determination to pay dividends in the future will be at the
discretion of our board of directors and will depend upon our financial
condition, operating results and capital requirements.
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<PAGE> 21
CAPITALIZATION
The following table sets forth our total capitalization as of September 30,
1999:
- on an actual basis;
- on a pro forma basis to reflect (1) the receipt of $18.8 million in
estimated aggregate net proceeds from the sale of $20.0 million in
subordinated notes and warrants to purchase 1,500,000 shares of common
stock in October 1999, (2) the issuance of 15,000 shares issued as
partial payment of a placement agent fee owed in connection with such
sale and the issuance of 22,500 shares upon exercise of a portion of
such warrants, (3) the application of $2.6 million of the net proceeds
from the notes to repay a portion of our existing line of credit, (4) an
increase in the authorized number of shares of common and preferred
stock and (5) the conversion of all of our outstanding preferred stock
into common stock upon the closing of this offering; and
- on a pro forma, as adjusted basis to reflect the sale of the shares of
common stock offered hereby at an assumed initial offering price of
$ per share, after deducting estimated underwriting discounts,
commissions and offering expenses, and the application of $20.0 million
of the net proceeds from the offering to repay the subordinated notes.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term obligations and debt (net of debt discounts of
$12.5 million, pro forma)................................. $ 889 $ 8,389 $
-------- -------- --------
Preferred stock, $0.001 par value: 7,438,844 shares
authorized actual; 10,000,000 shares authorized pro forma
and pro forma, as adjusted; 7,159,009 shares outstanding
actual; no shares issued and outstanding, pro forma and
pro forma, as adjusted.................................... 7 -- --
Common stock, $0.001 par value: 17,000,000 shares authorized
actual; 40,000,000 shares authorized pro forma and pro
forma, as adjusted; 3,452,238 shares issued and
outstanding actual; 10,648,747 shares issued and
outstanding pro forma; shares issued and outstanding
pro forma, as adjusted.................................... 3 11
Additional paid-in capital.................................. 35,647 47,779
Unearned stock-based compensation........................... (8,210) (8,210)
Accumulated deficit......................................... (28,279) (28,279)
-------- -------- --------
Total stockholders' equity........................ (832) 11,301
-------- -------- --------
Total capitalization.............................. $ 57 $ 19,690 $
======== ======== ========
</TABLE>
The above information excludes:
- 2,683,525 shares of common stock issuable upon exercise of stock options
outstanding as of September 30, 1999 with a weighted average exercise
price of $0.93 per share;
- 2,905,799 shares of common stock reserved for issuance under our equity
incentive and stock purchase plans, based on stock options outstanding
as of September 30, 1999 and taking into account increases in share
reserves since that date; and
- 207,887 shares of common stock issuable upon exercise of warrants
outstanding with a weighted average exercise price of $2.86 per share,
14,450 of which will expire upon the closing of this offering if not
exercised by that time.
- 1,477,500 shares of common stock issuable upon exercise of warrants with
an exercise price of $0.01 per share issued in connection with our sale
of subordinated notes in October 1999.
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<PAGE> 22
DILUTION
Our pro forma net tangible book value at September 30, 1999 was approximately
$10.0 million, or $0.94 per share. Pro forma net tangible book value per share
is determined by dividing our pro forma tangible net worth (total tangible
assets less total liabilities) by the number of shares of outstanding common
stock, after giving effect to:
- the receipt of $18.8 million in estimated aggregate net proceeds from
the sale of $20.0 million in subordinated notes and warrants to purchase
1,500,000 shares of common stock in October 1999;
- the issuance of 15,000 shares issued as partial payment of a placement
agent fee owed in connection with such sale and the issuance of 22,500
shares upon exercise of a portion of such warrants;
- the application of $2.6 million of the net proceeds from the notes to
repay a portion of our existing line of credit;
- an increase in the authorized number of shares of common and preferred
stock; and
- the conversion of all of our outstanding preferred stock into common
stock upon the closing of this offering.
Assuming the sale of the shares of common stock offered hereby at
an assumed offering price of $ per share, after deducting estimated
underwriting discounts, commissions and offering expenses payable by us, and the
application of $20.0 million of net proceeds from this offering to repay the
subordinated notes, our pro forma, as adjusted net tangible book value as of
September 30, 1999 would have been approximately $ , or $ per
share. This represents an immediate increase in the pro forma net tangible book
value per share of $ per share to existing stockholders and an immediate
dilution of $ per share to new investors purchasing shares at the initial
public offering price. If the initial public offering price is higher or lower,
the dilution to new investors will be greater or less. The following table
illustrates this dilution per share:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share as of
September 30, 1999..................................... $ 0.94
Increase in pro forma net tangible book value per share
attributable to new investors..........................
-------
Pro forma, as adjusted net tangible book value per share
after the offering........................................
-------
Dilution per share to new investors......................... $
=======
</TABLE>
The following table summarizes, on a pro forma basis as of September 30, 1999,
the number of shares of common stock purchased from us, the total consideration
provided to us and the average price per share provided by existing stockholders
and new investors after giving effect to the events described in the pro forma
net tangible book value calculation noted above. The calculation is based on an
assumed initial public offering of $ per share, before deducting the
estimated underwriting discounts, commissions and offering expenses.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.............. 10,648,747 % $22,640,654 % $2.13
New investors......................
---------- ----- ----------- -----
Total.................... 100.0% $ 100.0%
========== ===== =========== =====
</TABLE>
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<PAGE> 23
The foregoing discussion and tables are based on the total number of shares
outstanding on September 30, 1999 and exclude:
- 2,683,525 shares of common stock issuable upon exercise of stock options
outstanding as of September 30, 1999 with a weighted average exercise
price of $0.93 per share;
- 2,905,799 shares of common stock reserved for issuance under our equity
incentive and stock purchase plans, based on options outstanding as of
September 30, 1999 and taking into account increases in share reserves
since that date;
- 207,887 shares of common stock issuable upon exercise of warrants
outstanding with a weighted average exercise price of $2.86 per share,
14,450 of which will expire upon the closing of this offering if not
exercised by that time; and
- 1,477,500 shares of common stock issuable upon exercise of warrants with
an exercise price of $0.01 per share issued in connection with our sale
of subordinated notes in October 1999.
To the extent that any of these options or warrants are exercised, new investors
will suffer additional dilution.
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<PAGE> 24
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following selected Eloquent statements of operations for the years ended
December 31, 1996, 1997 and 1998 and the balance sheet data at December 31, 1997
and 1998 are derived from the financial statements of Eloquent that have been
audited by PricewaterhouseCoopers LLP, independent accountants, and are included
in this prospectus. The Eloquent statement of operations for the period from
March 29, 1995 (date of inception) to December 31, 1995 and the balance sheet
data at December 31, 1995 and 1996 are derived from the financial statements of
Eloquent that have been audited by PricewaterhouseCoopers LLP, independent
accountants, and are not included in this prospectus. The statement of
operations for the nine months ended September 30, 1999 and 1998 and the balance
sheet data at September 30, 1999 are derived from our unaudited financial
statements that include, in our opinion, all adjustments, consisting of only
normal recurring adjustments, necessary for the fair presentation of the
financial condition and results of operations for such period. The results of
operations for the nine months ended September 30, 1999, or any other period are
not necessarily indicative of our future results. The selected financial data
should be read in conjunction with our financial statements and related notes
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus.
<TABLE>
<CAPTION>
INCEPTION
(MARCH 29, 1995) NINE MONTHS ENDED
THROUGH YEAR ENDED DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, ------------------------------ --------------------
1995 1996 1997 1998 1998 1999
---------------- ------- ------- ---------- ------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Content production services......... $ 55 $ 944 $ 3,519 $ 6,750 $ 5,134 $ 6,404
Software licenses and maintenance... -- -- 406 993 677 1,592
Professional services............... -- -- -- -- -- 379
------ ------- ------- ---------- ------- ----------
Total revenues............... 55 944 3,925 7,743 5,811 8,375
Cost of revenues...................... -- 405 3,767 6,175 4,596 5,097
------ ------- ------- ---------- ------- ----------
Gross margin........................ 55 539 158 1,568 1,215 3,278
Operating expenses:
Sales and marketing................. 81 846 3,785 6,812 4,832 5,684
Research and development............ 86 659 845 1,510 1,111 1,417
General and administrative.......... 208 597 1,876 2,211 1,546 2,586
Stock-based compensation............ -- -- -- 992 580 3,343
------ ------- ------- ---------- ------- ----------
Total operating expenses..... 375 2,102 6,506 11,525 8,069 13,030
------ ------- ------- ---------- ------- ----------
Loss from operations....... (320) (1,563) (6,348) (9,957) (6,854) (9,752)
Interest expense and other charges.... 1 (21) (100) (259) (207) (418)
Interest income and other income...... -- 49 79 208 120 123
------ ------- ------- ---------- ------- ----------
Net loss.............................. $ (319) $(1,535) $(6,369) $ (10,008) $(6,941) $ (10,047)
====== ======= ======= ========== ======= ==========
Net loss per share, basic and
diluted............................. $(1.33) $ (1.97) $ (4.59) $ (4.74) $ (3.49) $ (3.06)
====== ======= ======= ========== ======= ==========
Weighted average shares, basic and
diluted............................. 240 781 1,388 2,111 1,990 3,286
====== ======= ======= ========== ======= ==========
Pro forma net loss per share, basic
and diluted......................... $ (1.21) $ (0.96)
========== ==========
Pro forma weighted average shares,
basic and diluted................... 8,285 10,944
========== ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------- SEPTEMBER 30,
1995 1996 1997 1998 1999
---- ------ ------ ------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $216 $2,280 $4,016 $ 6,661 $ 3,431
Working capital (deficit)................................... 120 2,124 2,551 4,164 (2,688)
Total assets................................................ 390 3,124 8,073 11,461 9,689
Long-term obligations....................................... 61 189 1,271 1,254 889
Total stockholders' equity (deficit)........................ 184 2,455 3,589 5,356 (832)
</TABLE>
22
<PAGE> 25
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 accompanying notes appearing elsewhere in this prospectus.
The following discussion contains forward-looking statements that involve risks
and uncertainties. These statements relate to our future plans, objectives,
beliefs, expectations and intentions. These statements may be identified by the
use of words such as "expects," "anticipates," "believes," "intends," "plans"
and similar expressions. Our actual results may differ significantly from those
projected in the forward-looking statements. Factors that may cause future
results to differ materially from those projected in the forward-looking
statements include, but are not limited to, those discussed in "Risk Factors"
and elsewhere in this prospectus.
OVERVIEW
Eloquent is the leading provider of rich media solutions for
business-to-business communications. "Rich media" is the combination of video,
audio, sophisticated graphics and text into a synchronized, interactive,
navigable and searchable format. Our customers, which are primarily large
companies, use our solutions to communicate time-sensitive, business-critical
information to target audiences, primarily customers, employees and business
partners, in an effective, consistent and cost-efficient manner. Since our
inception in March 1995, we have produced over 700 rich media events consisting
of over 3,500 hours of content for more than 150 customers.
We incorporated in Delaware in March 1995. In February 1996, we launched Version
1.0 of our solutions platform, which included the essential elements of content
production (synchronized video, audio, graphics and text) and navigation
(searchable transcripts) for delivery on CD-ROM only. In July 1996, we launched
Version 2.0 which expanded delivery from CD-ROM to intranets, included
searchable slides and added variable speed playback. In November 1997, we
launched Version 3.0. It further expanded delivery to the Web (at 28.8 Kbps) and
added tracking and reporting and software demonstrations. In April 1998, we
introduced our content hosting service and software. In January 1999, we
launched our professional services organization to provide integration services
and professional media development services. In April 1999, we launched Version
4.0 of our solutions platform, which includes our publishing tools and added
support for high-resolution video open interfaces for application developers.
We generate revenues through content production services, software licenses and
maintenance and professional services. For each content production transaction,
we charge our customers a fixed project set-up fee plus a fee for each hour of
finished content. Our software licenses revenues consist of one-time fees
charged for the use of our desktop player and applications server software and
monthly fees for content hosting. Our maintenance revenues consist of prepaid
contracts related to software, which are recognized over the contract term,
usually one year. Our professional services revenues are from contracted
services to customize the content and software for our customers. Most of our
revenues to date have been from our content production services. We expect
content production services to produce the largest portion of our revenues for
the foreseeable future, but we intend to increase sales of our applications
server software and content hosting so that software license revenues constitute
an increasing percentage of our revenues. The gross margins attributable to
software license revenues are significantly higher than those for our content
production services. We cannot assure you that we will be able to increase the
proportion of software license revenues and, therefore, we cannot assure you
that we will be able to proportionally improve our gross margins.
We generally recognize content production revenues upon shipment of the final
rich media event to the customer and software license revenues upon delivery of
software to the customer. Included within content production services are
revenues for CD-ROM duplication. We recognize these revenues upon shipment of
the duplicated CD-ROMs. The revenues for software licenses are recognized upon
shipment, or upon notification by the customer, dependent on the delivery
medium. We recognize revenues for maintenance
23
<PAGE> 26
and content hosting ratably over the period of the maintenance or content
hosting contract. We recognize professional services revenues on a percentage of
completion basis correlated with projected costs at completion.
A limited number of large customers have accounted for a majority of our
revenues, and will continue to do so for the foreseeable future. Cisco Systems
accounted for more than 10% of our total revenues in 1998. Cisco Systems, Inc.
and Tandem Computers Incorporated (now part of Compaq Computer Corporation) each
accounted for more than 10% of our total revenues in 1997 and 1996. To date,
most of our customers have been in the telecommunications, software,
high-technology manufacturing, financial services and pharmaceuticals
industries.
Stock-based compensation charges consist primarily of charges related to the
difference between employee option exercise prices and deemed fair market values
on the date of grant amortized over the vesting period of the options. Through
September 30, 1999, we recorded a total of $12.5 million in stock-based
compensation charges in connection with stock option grants to our employees and
consultants, which is being amortized using an accelerated method of
amortization as described in Financial Accounting Standards Board Interpretation
No. 28., over the vesting periods of the options, generally four to five years.
Through September 30, 1999 we have recognized stock based-compensation expense
of $4.3 million.
In October 1999, we raised $20.0 million in gross proceeds from the sale of
subordinated notes and warrants to purchase common stock. Applicable accounting
rules require that we allocate the gross proceeds among the notes, the
beneficial conversion feature of the notes and the warrants. As a result of that
allocation, the subordinated notes will initially be recorded on our balance
sheet at a discounted value of approximately $7.5 million. The $7.5 million
discount resulting from the issuance of warrants will be amortized over the
five-year term of the notes and the $5.0 million discount resulting from the
beneficial conversion feature will be amortized over the one-year period during
which the note may not be converted. If the notes are repaid by us prior to the
end of their term, the unamortized portion of the discount resulting from the
issuance of the warrants and debt issuance costs will be recorded as an
extraordinary loss on extinguishment of debt during the period in which the
notes are repaid. We are required to repay the notes upon the completion of this
offering. Accordingly, upon completion of this offering we will have to
recognize an extraordinary loss on extinguishment of debt of up to $9.0 million.
Upon repayment of the notes, the unamortized beneficial conversion feature will
be reversed by a charge to additional paid in capital.
No costs for our internal software development efforts have been capitalized as
of September 30, 1999 because Eloquent's products have generally reached
technological feasibility and have been released for sale at substantially the
same time. However, costs incurred for outside contractors to develop aspects of
our internal production management system were capitalized as an asset on our
balance sheet.
We have not achieved profitability on a quarterly or annual basis to date and we
anticipate that we will continue to incur net losses for the foreseeable future.
As of September 30, 1999, we had an accumulated deficit of $28.3 million. We
expect to increase our operating expenses significantly, expand our sales and
marketing operations and continue to develop and expand our solutions platform.
If these increased expenses are not accompanied by increased revenues, our
business, financial condition and operating results would suffer.
As of December 31, 1998, we had available net operating loss carryforwards of
$15.6 million that expire beginning in 2003. These carryforwards have not been
recorded on our balance sheet as an asset because they have been fully reserved
against due to uncertainty about our ability to utilize such carryforwards. In
addition, the Tax Reform Act of 1986 imposes limitations on the use of net
operating loss carryforwards if certain stock ownership changes occur in the
future.
24
<PAGE> 27
RESULTS OF OPERATIONS
The following table sets forth certain statement of operations data for the
periods indicated as a percentage of total revenues.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
-------------------- --------------
1996 1997 1998 1998 1999
---- ---- ---- ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Content production services......................... 100% 90% 87% 88% 76%
Software licenses and maintenance................... -- 10 13 12 19
Professional services............................... -- -- -- -- 5
---- ---- ---- ---- ----
Total revenues.............................. 100 100 100 100 100
Cost of revenues...................................... 43 96 80 79 61
---- ---- ---- ---- ----
Gross margin..................................... 57 4 20 21 39
---- ---- ---- ---- ----
Operating expenses:
Sales and marketing................................. 90 96 88 83 68
Research and development............................ 70 22 20 19 17
General and administrative.......................... 63 48 28 27 31
Stock-based compensation............................ -- -- 13 10 40
---- ---- ---- ---- ----
Total operating expenses.................... 223 166 149 139 156
---- ---- ---- ---- ----
Loss from operations...................... (166) (162) (129) (118) (117)
Interest expenses and other charges................... (2) (3) (3) (4) (5)
Interest income and other income...................... 5 2 3 2 1
---- ---- ---- ---- ----
Net loss.............................................. (163)% (163)% (129)% (120)% (121)%
==== ==== ==== ==== ====
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999
REVENUES. Total revenues were $8.4 million in the nine months ended September
30, 1999, an increase of $2.6 million, or 44%, from the same period in 1998. The
increase in revenues is attributable to an increase in the number and average
size of sales of our products and services generated by a larger sales force in
the 1999 period and, to a lesser extent, higher prices in the 1999 period.
Content production services. Content production services revenues were $6.4
million in the nine months ended September 30, 1999, an increase of $1.3 million
or 25%, from the same period in 1998. The increase was due primarily to an
increase in the number of rich media events produced by Eloquent to 250 events
in the 1999 period from 224 events in the 1998 period.
Software licenses and maintenance. Revenues from software licenses and
maintenance were $1.6 million in the nine months ended September 30, 1999, an
increase of $915,000, or 135%, from the same period in 1998. The increase was
due primarily to the introduction of a new server product, the Enterprise
Communications Portal server, which added functionality and was offered at a
substantially higher price than our previously available server products. The
list price of the Enterprise Communications Portal server is $125,000, compared
to the list price of $30,000 for the previously available server products.
Professional services. We launched our professional services organization in the
first quarter of 1999. Professional services revenues were $379,000 in the nine
months ended September 30, 1999.
COST OF REVENUES. Cost of revenues consists primarily of event production costs
and direct personnel expenses associated with event production, with some fixed
overhead components for facilities and
25
<PAGE> 28
infrastructure support charges. Direct labor costs associated with content
production and professional services in progress are deferred until revenues are
recognized, at which time they are expensed as cost of revenues. Cost of
revenues was $5.1 million in the nine months ended September 30, 1999, an
increase of $501,000, or 11%, from the same period in 1998. The increase was due
to a higher fixed and variable cost structure in the 1998 period, which we
addressed in early 1999 through a restructuring of our production facility and
processes. This restructuring yielded higher production efficiency, including
faster content production times and higher production capacity. Labor costs
associated with content production are variable according to transaction volume.
To the extent we are successful in increasing revenues, we expect the cost of
revenues to increase in absolute dollars, but to decrease as a percentage of
total revenues.
OPERATING EXPENSES. Operating expenses were $13.0 million in the nine months
ended September 30, 1999, an increase of $5.0 million, or 61%, from the same
period in 1998. Without the effect of stock-based compensation charges,
operating expenses for the 1999 period would have been $9.7 million, an increase
of $2.2 million, or 29%, from the same period in 1998.
Sales and marketing. Sales and marketing expenses consist primarily of personnel
expenses associated with the sale of our products and services, personnel and
marketing materials and expenses associated with the marketing of our products
and services. Sales and marketing expenses were $5.7 million in the nine months
ended September 30, 1999, an increase of $852,000, or 18%, from the same period
in 1998. The increase was due primarily to growth in our sales force and
marketing staff and increased direct marketing expenses. We expect sales and
marketing expenses to increase in absolute dollars and as a percentage of total
revenues in the near future as we seek to build our sales organization.
Research and development. Research and development expenses consist primarily of
personnel expenses associated with software development. Research and
development expenses were $1.4 million in the nine months ended September 30,
1999, an increase of $306,000, or 28%, from the same period in 1998. The
increase was due primarily to growth in our engineering staff. We expect
research and development expenses to increase in absolute dollars as we seek to
increase the functionality of our solutions platform.
General and administrative. General and administrative expenses consist
primarily of administrative personnel expenses, professional fees and facilities
costs. General and administrative expenses were $2.6 million in the nine months
ended September 30, 1999, an increase of $1.0 million, or 67%, from the same
period in 1998. The increase was due primarily to increased personnel expenses
and professional fees necessary to support our growth. We expect general and
administrative expenses to increase in absolute dollars but to decrease as a
percentage of total revenues.
INTEREST EXPENSE AND OTHER CHARGES. Interest expense and other charges consist
primarily of interest payments on equipment leases and bank lines of credit.
Interest expense and other charges were $418,000 in the nine months ended
September 30, 1999, an increase of $211,000, or 102%, from the same period in
1998. The increase was due to additional borrowings in the 1999 period.
INTEREST INCOME AND OTHER INCOME. Interest income and other income consists
primarily of interest earnings on our cash and cash equivalents. Interest income
and other income was $123,000 in the nine months ended September 30, 1999, an
increase of $3,000, or 3%, from the same period in 1998. The increase was due to
higher average cash balances in the 1999 period.
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
REVENUES. Total revenues were $7.7 million, $3.9 million and $944,000 in 1998,
1997 and 1996. The increase in revenues is attributable to an increase in the
number of sales of our products and services. The primary reason for the
increase in number of sales was a growing sales force and increased market
acceptance of our solutions.
26
<PAGE> 29
Content production services. Content production services revenues were $6.8
million, $3.5 million and $944,000 in 1998, 1997 and 1996. The increases were
due primarily to increases in the number of rich media events we produced, to
265 events in 1998 from 155 events in 1997 and 46 events in 1996.
Software licenses and maintenance. Revenues from software licenses and
maintenance were $993,000 in 1998 and $406,000 in 1997. We did not recognize
software license revenues in 1996. The increase from 1997 to 1998 was due
primarily to the increased number of CD-ROMs shipped to customers, for which we
were paid a software license fee of approximately $2 per CD-ROM, to an increased
number of server licenses sold and to the introduction of content hosting in
1998.
COST OF REVENUES. Cost of revenues was $6.2 million, $3.8 million and $405,000
in 1998, 1997 and 1996. The increase was primarily due to personnel costs
required for the production of additional rich media events.
OPERATING EXPENSES. Operating expenses were $11.5 million, $6.5 million and $2.1
million in 1998, 1997 and 1996. Without the effect of stock-based compensation
charges, operating expenses for 1998 would have been $10.5 million.
Sales and marketing. Sales and marketing expenses were $6.8 million, $3.8
million and $846,000 in 1998, 1997 and 1996. The increases were due primarily to
growth in our sales force and marketing staff.
Research and development. Research and development expenses were $1.5 million,
$845,000 and $659,000 in 1998, 1997 and 1996. The increases were due primarily
to growth in our engineering staff.
General and administrative. General and administrative expenses were $2.2
million, $1.9 million and $597,000 in 1998, 1997 and 1996. The increases were
due primarily to increased personnel expenses, professional fees and building
expenses necessary to support our growth.
INTEREST EXPENSE AND OTHER CHARGES. Interest expense and other charges were
$259,000, $100,000 and $21,000 in 1998, 1997 and 1996. The increases were due to
increased borrowings in the later periods.
INTEREST INCOME AND OTHER INCOME. Interest income and other income was $208,000,
$79,000 and $49,000 in 1998, 1997 and 1996. The increases were due to higher
average cash balances in the later periods.
27
<PAGE> 30
QUARTERLY RESULTS OF OPERATIONS
The following tables contain statement of operations data for each of the six
quarters ended September 30, 1999, as well as the percentage of revenues
represented by such items. All data is unaudited. The data have been prepared on
the same basis as the audited financial statements contained elsewhere in this
prospectus and, in the opinion of management, include all adjustments,
consisting only of normal recurring adjustments, considered necessary for a fair
presentation of such information. Historical results are not necessarily
indicative of the results to be expected in the future and the results of
interim periods are not necessarily indicative of results for the entire year.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------------------
JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1998 1998 1998 1999 1999 1999
-------- ------------- ------------ --------- -------- -------------
(IN THOUSANDS, EXCEPT PERCENTAGE DATA)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Content production services........... $ 1,664 $ 2,083 $ 1,616 $ 1,602 $ 2,042 $ 2,760
Software licenses and maintenance..... 251 229 316 340 540 712
Professional services................. -- -- -- 5 218 156
------- ------- ------- ------- ------- -------
Total revenues................ 1,915 2,312 1,932 1,947 2,800 3,628
Cost of revenues........................ 1,683 1,472 1,579 1,359 1,735 2,003
------- ------- ------- ------- ------- -------
Gross margin....................... 232 840 353 588 1,065 1,625
------- ------- ------- ------- ------- -------
Operating expenses:
Sales and marketing................... 1,633 1,710 1,980 1,806 1,862 2,016
Research and development.............. 401 408 399 466 484 467
General and administrative............ 453 665 665 855 816 915
Stock-based compensation.............. 225 305 412 1,129 913 1,301
------- ------- ------- ------- ------- -------
Total operating expenses...... 2,712 3,088 3,456 4,256 4,075 4,699
------- ------- ------- ------- ------- -------
Loss from operations.......... (2,480) (2,248) (3,103) (3,668) (3,010) (3,074)
Interest expense and other charges...... (89) (53) (52) (94) (103) (221)
Interest income and other income........ 15 71 88 50 38 35
------- ------- ------- ------- ------- -------
Net loss................................ $(2,554) $(2,230) $(3,067) $(3,712) $(3,075) $(3,260)
======= ======= ======= ======= ======= =======
AS A PERCENTAGE OF TOTAL REVENUES:
Revenues:
Content production services........... 87% 90% 84% 83% 73% 76%
Software licenses and maintenance..... 13 10 16 17 19 20
Professional services................. -- -- -- -- 8 4
------- ------- ------- ------- ------- -------
Total revenues................ 100 100 100 100 100 100
Cost of revenues........................ 87 63 82 69 62 55
------- ------- ------- ------- ------- -------
Gross margin....................... 13 37 18 31 38 45
------- ------- ------- ------- ------- -------
Operating expenses:
Sales and marketing................... 85 74 102 93 67 56
Research and development.............. 21 18 21 24 17 13
General and administrative............ 24 29 35 44 29 25
Stock-based compensation.............. 12 13 21 58 33 36
------- ------- ------- ------- ------- -------
Total operating expenses...... 142 134 179 219 146 130
------- ------- ------- ------- ------- -------
Loss from operations.......... (129) (97) (161) (188) (108) (85)
Interest expense and other charges...... (5) (2) (3) (5) (3) (6)
Interest income and other income........ 1 3 5 3 1 1
------- ------- ------- ------- ------- -------
Net loss................................ (133)% (96)% (159)% (191)% (110)% (90)%
======= ======= ======= ======= ======= =======
</TABLE>
28
<PAGE> 31
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have financed our operations through private sales of
preferred stock and, to a lesser extent, borrowings under lines of credit. Net
proceeds from sales of preferred stock from inception to September 30, 1999 have
totaled approximately $22.4 million. In addition, we raised $18.8 million in net
proceeds through the sale of exchangeable subordinated notes and warrants in
October 1999. At September 30, 1999, we had approximately $3.4 million of cash
and cash equivalents. We have entered into capital lease arrangements that
provide for up to $4.2 million for equipment purchases, of which we have
utilized approximately $2.9 million as of September 30, 1999. Our capital
expenditure budget for the 12 months ending September 30, 2000 is approximately
$1.0 million. In addition, we have a revolving line of credit and debt facility
that provides for borrowings up to $6.0 million for working capital requirements
and equipment purchases.
As of September 30, 1999, we had borrowed $2.5 million against the revolving
line of credit outstanding and $3.0 million under the debt facility. The line of
credit bears interest at prime plus 2% per annum, compounded annually, and the
debt facility bears interest at prime plus 3.5% per annum, compounded annually.
All borrowing under the line of credit and debt facility is due in January 2001.
The revolving line of credit was repaid in its entirety using the proceeds from
our sale of subordinated notes. The subordinated notes bear interest at 12.0%
per annum, compounded quarterly, and are due upon the closing of this offering.
We intend to repay the debt facility and the subordinated notes in their
entirety using proceeds from this offering.
Net cash used in operating activities was $8.8 million, $5.5 million and $1.6
million in 1998, 1997 and 1996. For the nine months ended September 30, 1999,
net cash used in operating activities was $6.4 million. Net cash used in
operating activities in all such periods was primarily attributable to net
losses.
Net cash provided by investing activities was $925,000 in 1997. Net cash used in
investing activities was $146,000 in 1998 and $1.2 million in 1996. For the nine
months ended September 30, 1999, net cash used in investing activities was
$337,000. Net cash used in investing activities in 1996 was primarily related to
purchases of short-term investments and, to a lesser extent, purchases of
property and equipment. Net cash provided by investing activities in 1997 was
primarily related to the maturity of short-term investments, offset in part by
purchases of property and equipment. Net cash used in investing activities in
1998 and the 1999 period was primarily related to purchases of property and
equipment.
Net cash provided by financing activities was $11.6 million, $7.5 million and
$3.7 million in 1998, 1997 and 1996. For the nine months ended September 30,
1999, net cash provided by financing activities was $3.6 million. Net cash
provided by financing activities resulted primarily from the sale of preferred
stock and borrowings under our bank lines of credit.
We believe that the net proceeds from this offering, together with our current
cash and cash equivalents, will be sufficient to meet our anticipated cash needs
for working capital and capital expenditures for at least the next 12 months. We
may need to raise additional funds thereafter through public or private
financings, or other arrangements. There can be no assurance that such
additional financings, if needed, will be available on terms attractive to us,
if at all. Our failure to raise capital when needed could have a material
adverse effect on our business, financial condition and operating results. If
additional funds are raised through the issuance of equity securities, the
percentage ownership of our then-current stockholders would be reduced.
Furthermore, such equity securities may have rights, preferences or privileges
senior to those of our common stock.
YEAR 2000 READINESS
There are issues associated with the programming code in existing computer
systems as the year 2000 approaches. The "year 2000 problem" is pervasive and
complex, as virtually every computer operation will
29
<PAGE> 32
be affected in some way by the rollover of the two-digit year value to 00. The
issue is whether computer systems will properly recognize date-sensitive
information when the year changes to 2000. Systems that do not properly
recognize such information could generate erroneous data or cause a system to
fail. We are in the process of working with our software vendors to assure that
we are prepared for the year 2000. We have not verified that companies that we
do business with are year 2000 compliant. We do not anticipate that we will
incur significant operating expenses or be required to invest heavily in
computer systems improvements to be year 2000 compliant. However, significant
uncertainty exists concerning the potential costs and effects associated with
year 2000 compliance. Any year 2000 compliance problem experienced by us, our
vendors, users or customers could harm our business, financial condition and
operating results. We believe our product offerings are year 2000 compliant.
STATE OF READINESS. Beginning in early 1999, we began assessing the ability of
our software and systems to operate properly in the year 2000. Our efforts have
included contacting our vendors, purchasing software inventory tools and
scheduling upgrades of some internal systems. We expect to complete our
assessment and remediation efforts in the fourth quarter of 1999.
COST. We do not expect to spend more than $100,000 on the direct costs of
assessing and remediating year 2000 problems. This expectation is based on the
size of our operation, the percentage of our vendors that are standard to our
industry, and the lack of dependency on older legacy software in our internal
systems. The indirect costs, including business disruptions described in "Risks"
below, could be greater.
RISKS. We may be exposed to a loss of revenues and our operating expenses could
increase if the systems on which we are dependent to conduct our operations are
not year 2000 compliant. Our potential areas of exposure include products
purchased from third parties, information technology, including computers and
software, and non-information technology, including telephone systems and other
equipment used internally. The reasonably likely worst case scenario for year
2000 issues would be if a significant defect exists in key hardware or software
and if a solution for such a problem were not immediately available.
We believe that it is not possible to determine with complete certainty that all
year 2000 problems affecting us have been identified or corrected. The number of
devices and systems that could be affected and the interactions among these
devices and systems are too numerous to address. As a result, we believe that
the following consequences are possible:
- a significant number of operational inconveniences and inefficiencies
for us and our customers that would divert management's time and
attention as well as financial and human resources from ordinary
business activities;
- possible minor business disputes and claims, including claims under
product warranties, due to year 2000 problems experienced by our
customers and incorrectly attributed to our products or performance; and
- possible serious business disputes alleging that we failed to comply
with the terms of contracts or industry standards, some of which could
result in litigation or contract termination.
In the event that our production and operational facilities that support our Web
sites (internal, external, and operated for customers), are not year 2000
compliant, portions of our Web sites may become inaccessible. A prolonged
disruption in our operations could cause our business clients and network
participants to stop doing business with us. In the event that our Web-hosting
facilities are not year 2000 compliant, our Web sites would be unavailable and
we would not be able to deliver services to our users.
If our present efforts to address the year 2000 compliance issues are not
successful, or if distributors, suppliers, and other third parties with whom we
conduct business do not successfully address such issues, our business could be
significantly disrupted.
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CONTINGENCY PLAN. We are currently developing contingency plans to be
implemented if our efforts to identify and correct year 2000 problems affecting
our internal systems are not effective. We expect to complete our contingency
plans by the end of 1999. Depending on the systems affected, these plans could
include:
- accelerated replacement of affected equipment or software;
- short to medium-term use of back-up equipment and software or other
redundant systems;
- increased work hours for our personnel or the hiring of additional
information technology staff; and
- the use of contract personnel to correct, on an accelerated basis, any
year 2000 problems that arise or to provide interim alternate solutions
for information system deficiencies.
The discussion of our efforts and expectations relating to year 2000 compliance
are forward-looking statements. Our ability to achieve year 2000 compliance, and
the level of incremental costs associated with compliance, could be adversely
affected by, among other things, the availability and cost of contract personnel
and external resources, third party suppliers' ability to modify proprietary
software, and unanticipated problems not identified in our ongoing review.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
Our exposure to market risk is limited to interest income sensitivity, which is
affected by changes in the general level of U.S. interest rates, particularly
because the majority of our investments are in short-term debt securities issued
by corporations. We place our investments with high-quality issuers and limit
the amount of credit exposure to any one issuer. Due to the nature of our
short-term investments, we believe that we are not subject to any material
market risk exposure. We do not have any foreign currency or other derivative
financial instruments.
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BUSINESS
OVERVIEW
Eloquent is the leading provider of rich media solutions for
business-to-business communications. "Rich media" is the combination of video,
audio, sophisticated graphics and text into a synchronized, interactive,
navigable and searchable format. We have developed a unique, proprietary
solutions platform consisting of software and services that we use to create and
deliver rich media presentations, or "events," on behalf of our customers. Our
customers, which are primarily large companies, use our solutions to communicate
time-sensitive, business-critical information to target audiences, primarily
customers, employees and business partners, in an effective, consistent and
cost-efficient manner. Our rich media events can be delivered over Web-based
channels, including the World Wide Web, intranets and extranets, and CD-ROMs to
be viewed by end users on their personal computers. Since our inception in March
1995, we have produced over 700 rich media events consisting of over 3,500 hours
of content for more than 150 customers.
INDUSTRY BACKGROUND
NEED FOR MORE EFFECTIVE BUSINESS-TO-BUSINESS COMMUNICATIONS. As companies face
increasing pressure to operate more efficiently and to better serve customer
needs, effective business-to-business communications represent a key competitive
advantage. Business-to-business communications are the production and
dissemination of corporate information to audiences both inside and outside an
organization, including employees, customers and business partners. Examples of
business-to-business communications include product launch briefings to sales
teams, strategic and corporate alignment presentations to employees, sales
pitches to potential customers, employee training seminars, business partner
education programs and complex customer support activities. These communications
are essential to a company's ability to unify its work force and strengthen its
relationships with customers and partners.
In order to increase the effectiveness of business-to-business communications,
companies need to deliver information in a timely, economical and attractive
way -- a requirement that is even more critical given today's increasingly
dispersed work force, accelerated product cycles and complex products and
services. Companies disseminate information to their constituents through a
variety of means and using a number of different technologies that, although
useful, do not always provide the most efficient and robust means of delivering
business-to-business communications. For example:
- in-person presentations using audio/visual equipment provide rich
presentations, but are often inconvenient and time-consuming for both
the presenter and the audience, and often involve costly travel
expenses.
- teleconferencing is a relatively inexpensive and fast means of
communication, but provides for limited use of visual aids, does not
easily accommodate large audiences and requires everyone to participate
at the same time.
- Web and satellite broadcasts, although convenient and useful for large
audiences, do not provide personalization and interactivity with
different constituencies in the audience.
GROWTH OF THE WEB. The Web has emerged as a global communications medium,
enabling millions of people to gather information, communicate and conduct
business electronically. The broad acceptance of the Internet Protocol standard
has also led to the emergence of corporate intranets and extranets and the
development of new ways to access the Web, intranets and extranets, such as
through the television. International Data Corporation estimates that there were
approximately 142 million users of the Web at the end of 1998 and that the
number of users will grow to over 500 million by the end of 2003.
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EMERGENCE OF STREAMING MEDIA TECHNOLOGY. The Web has recently evolved from a
mass of static, text-oriented pages to a much richer environment, capable of
delivering graphical, interactive and multimedia content. Prior to the
development of streaming media technologies, accessing video and audio files
over the Web was impractical because users could not experience the content
until the time-consuming process of downloading the files was complete. Today,
streaming media technologies and the proliferation of multimedia-capable
computers allow almost immediate playback of continuous "streams" of video and
audio content over the Web, intranets and extranets. The emergence of streaming
media technology has enabled highly interactive, rich media applications to be
effectively delivered over the Web and Web-based channels such as corporate
intranets and extranets.
OPPORTUNITY FOR RICH MEDIA BUSINESS-TO-BUSINESS COMMUNICATIONS SOLUTIONS
PROVIDERS. Companies now have the ability to deliver business-to-business
communications over Web-based channels using streaming media technology.
However, existing streaming media technology by itself does not give companies
the ability to deliver compelling business-to-business communications that
include multiple media, such as video, audio, sophisticated graphics and text,
in a synchronized, easy-to-use format. Most streaming media applications have
been focused on the delivery of films, videos or news to consumers. They do not
provide for synchronization of multiple media or sophisticated search and
navigation capabilities required by business users. While companies can obtain
each of the component technologies required to produce and deliver their own
rich media events, they face a variety of challenges in doing so, particularly
in a timely manner. These challenges include:
- Producing engaging rich media events is complicated and, for companies
lacking particular expertise in producing such events, very difficult.
- Enhancing existing streaming media technology to deliver high-quality
rich media events is technologically complicated.
- Producing rich media events for internal use generally cannot result in
the economies of scale of producing dozens of rich media events per
month, without which production is inefficient, expensive and
time-consuming.
- Integrating rich media products into existing enterprise applications,
such as sales force automation systems, is expensive and difficult.
Despite the compelling benefits of streaming media technology, we believe these
challenges have limited its adoption for business-to-business communications. We
believe most companies recognize that it is easier and more cost-effective to
outsource the production and delivery of rich media events to a company that has
specialized rich media expertise, the ability to deliver a complete solution and
the ability to achieve economies of scale in producing rich media events.
THE ELOQUENT RICH MEDIA SOLUTIONS PLATFORM
Eloquent is the leading provider of rich media solutions for
business-to-business communications. We design, produce and deliver, over the
Web, intranets, extranets or CD-ROM, rich media events that feature video,
audio, sophisticated graphics and text in a synchronized, interactive, navigable
and searchable format. Companies use our rich media events as an effective means
of communicating time-sensitive, business-critical information for a variety of
activities, including new product launches, sales and marketing events,
employee, customer and sales force education and senior management speeches.
ELEMENTS OF THE PLATFORM. We use our unique, proprietary rich media solutions
platform to create rich media events for our customers in a complete turnkey
process. Our platform includes all of the software
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and services our customers need to deliver custom rich media
business-to-business communications to their target audiences. The following
diagram illustrates the components of our platform:
[GRAPHICS: GRAPHICAL DEPICTION OF THE SOLUTIONS PLATFORM]
Production Solution. We provide all of the necessary software and services for
producing rich media events from videotapes of speakers and their slides.
Elements of our production solution include:
- Content Production Services. We quickly produce and deliver rich media
events in a complete turnkey process. We can produce events for delivery
over the Web, intranets, extranets or CD-ROM, or a combination of them,
enabling our customers to provide their business-to-business
communications to their entire target audience.
- Professional Media Services. Our professional services organization
enables us to offer our customers advanced content development services.
These services are used by our customers to add elements of visual
interest and interactivity to their rich media events.
- Content Production Software. We also license our suite of internally
used publishing tools, excluding our proprietary workflow management
software, to our customers. Customers can use these tools to assemble
their own Eloquent events from digital video and electronic slides.
Delivery Solution. We provide all of the necessary software and services for
delivering rich media events to end users and allowing those users to interact
with the rich media events. To enable our customers to reach their entire target
audience, we provide multiple methods of delivery: over the Web using the
customer's own network connections, over the Web using our network connections
and by CD-ROM. The CD-ROM option gives customers the ability to reach users who
do not have ready access to the Web, such as constituents in less-developed
countries or who are traveling. Elements of our delivery solution include:
- Applications Server Software. Our applications server software enables
customers to load Eloquent-produced events onto their own servers and
deliver the events to their target audience over their network
connections. It allows users with Eloquent desktop player software to
navigate through the Eloquent content and access related content in
other, non-Eloquent formats, such as HTML documents or Macromedia
Authorware pieces.
Our server software helps users find their way through large collections
of content by personalizing the content for each user based on a profile
of the user's interests. It keeps track of which users watched which
Eloquent content and can produce reports detailing the exact usage of
each event. Our software can also record the results of users answering
quizzes and produce "report cards." Our customers can either license our
application server software and run it on their internal hardware, or
they can have us run the software for them as part of our content
hosting service. The applications server software delivers the same
content over the Web that the desktop player
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delivers to the user from CD-ROM. Eloquent content can be produced in
Eloquent's standard Microsoft format, or reformatted into the
RealNetworks SMIL format.
- Desktop Player Software. Our user-friendly desktop player software
enables users to view rich media events on their computers. The desktop
player software is included with the event on the CD-ROM or stored on a
customer's network and delivered using our applications server software.
The player includes search and navigation capabilities that allow users
to interact with the content at their own pace in their preferred
sequence. Users may navigate through the content by speeding up or
slowing down playback of the video and audio without distortion of the
speaker's voice, scrolling through the transcript, stepping through the
slides and searching for key words in the transcript and slides.
- Content Hosting. Our optional content hosting service enables customers
to deliver rich media events to their target audience over the Web on
our servers utilizing our content hosting software, which relieves our
customers of the need to manage the servers and solve integration
issues.
- Professional Integration Services. Our professional services
organization enables us to offer our customers custom application
development and integration services. For example, we will integrate our
customers' rich media sales applications with their sales force
automation systems.
BENEFITS OF THE ELOQUENT SOLUTIONS PLATFORM. We believe that we have developed
the most effective, comprehensive and robust platform available for producing
and delivering rich media events for business-to-business communications. We
believe that our platform provides our customers with business-to-business
communications that are:
- Complete Outsource Solutions. We have the capability to produce rich
media events for our clients from start to finish in a turnkey fashion.
For event production, the customer's input is needed only for
information content and guidance on the general tone, look and feel of
the presentations. In addition, by delivering rich media events through
the Web, intranets, extranets and CD-ROM, or a combination of them, we
enable our customers to reach their entire target audience. The CD-ROM
alternative is particularly important to customers with traveling or
international target audiences, such as a global sales force, who may
not have easy access to Web-based channels. Through our translation
service, we ensure that our rich media events can be used by a
customer's international audience. Furthermore, companies can use our
solutions to build a central Web site, or "portal," for employees,
customers and business partners around the world to obtain information
on a multitude of topics, delivered on demand through Eloquent rich
media events.
- More Effective. Our rich media events provide users with
business-critical information in an interactive, searchable, navigable
format. We believe this format, combined with our delivery of multiple
media -- video, audio, text and graphics -- makes our rich media events
more engaging than other forms of business-to-business communication. We
also believe that users comprehend and retain the information contained
in a rich media event better than that contained in other methods of
business-to-business communications. Our applications server and content
hosting software automatically keeps track of the interactions each user
has had with particular rich media events. Customers can view a set of
reports that show how much of each rich media event is used, how often
each rich media event is used and the persons using each rich media
event. By adding optional testing capabilities, our customers can ensure
that members of their target audience have understood the presentation.
In addition, by delivering the same business-to-business communication
to each member of the target audience, our customers can ensure that
consistent information is delivered to the entire enterprise.
- Faster. Getting critical information to employees, customers and
business partners rapidly is a significant competitive advantage for our
customers. We enable our customers to disseminate
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critical information contained in a rich media event rapidly due to our
unique and efficient production process and Web and CD-ROM delivery.
Using our proprietary scheduling software and production expertise, we
quickly produce and deliver rich media events to our customers in a
complete turnkey process. We can produce a typical four- to five-hour
rich media event within nine business days after obtaining the raw video
and audio material, compared to months for alternative solutions. By
delivering our rich media events through the Web, intranets, extranets
and CD-ROM, the critical information contained in the events can be
disseminated quickly to each member of the target audience regardless of
location. Our rapid production and delivery of rich media events can
accelerate dissemination of information by weeks or even months by
eliminating the need for the presenter to travel to multiple locations
to deliver the presentation. This is particularly significant for
customers with a geographically dispersed target audience, such as a
worldwide employee base. In addition, users can get the information they
need from our events quickly because they can search and navigate the
event so that they only view exactly what they need.
- Less Expensive. Our solutions eliminate many of the costs associated
with traditional business presentations, including airline, hotel and
other travel expenses for event participants, facilities costs and the
opportunity costs associated with diverting employees from their work
schedules. In addition, we believe our technology and expertise enable
us to charge fees to create a rich media event that are lower than the
cost our typical customer would incur producing the event in-house.
We believe that these benefits can result in a number of strategic and
competitive advantages for our customers. For example:
- Faster Time to Market. By using an Eloquent rich media event to educate
its sales force about a new product introduction instead of having the
product manager travel to each sales office to do so in person, our
customers can commercially launch new products more quickly.
- Increased Employee Productivity. Using our solutions means that a key
business presentation only needs to be made once, thereby freeing the
presenter to focus on his or her work instead of traveling to different
offices to make the presentation. Work interruptions can be minimized
because employees view the presentation at a time and place convenient
to them instead of when the presenter is available. In addition, we
believe our interactive, searchable, navigable format and engaging
multimedia presentation enables employees to comprehend and retain
information in a rich media event better than that contained in
traditional forms of business presentation.
- Stronger Relationships with Important Constituencies. By keeping their
employees, customers and business partners well-informed on a timely
basis about topics that are important to them, our customers can
strengthen their relationships with these constituencies. For example, a
company can bolster employee morale by having its chief executive
officer speak to employees about recent business developments. This is
often difficult to accomplish when the company has a large or
geographically dispersed workforce. Our solutions enable our customers
to keep their constituencies up-to-date by providing rapid delivery of
consistent information to large and widely dispersed audiences. Using
our example, a rich media event containing the chief executive officer's
speech could be deployed on the company's Web site, allowing every
employee to view the same speech at his or her desk on demand.
- Enhanced Sales and Marketing Efforts. Some of our customers are using
our solutions to make company presentations and product demonstrations
on their Web sites. Potential consumers or business partners can visit
the company's Web site and view a carefully produced sales pitch without
using sales force resources. Our customers may also use this type of
event to educate their third-party distribution channel partners and to
provide customer support.
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STRATEGY
Our objective is to enhance our leadership position in rich media solutions for
business-to-business communications. The key elements of our strategy are:
FURTHER PENETRATE LARGE CORPORATE ACCOUNTS. We believe that our existing
customer base of large corporations presents a significant opportunity for
additional revenues. Historically, over 90% of our customers have purchased
additional Eloquent products or services within 12 months after their initial
orders. We believe we have an opportunity to deepen our relationships with these
customers by selling additional products and services and by selling to
different divisions of the same company. For example, as our customers
increasingly adopt Web-based methods of communication with their constituencies,
we believe there is a significant opportunity to sell our applications server
software and content hosting to our existing customers.
EXPAND INTO ADDITIONAL INDUSTRIES. Because the format and delivery of a business
presentation is virtually the same in every industry, our solutions do not
require modification for use by any particular industry. As a result, we believe
that there is a significant opportunity to increase revenues by identifying and
selling our solutions into many new industries. We have found that our most
effective sales and marketing efforts have been those that are
industry-specific. We have generated most of our revenues by selling into
industries that we believed would be "early adopters" of our solutions,
including telecommunications, software, high-technology manufacturing, financial
services and pharmaceuticals. New industries that we have targeted include
manufacturing, automotive, consumer products, health care and energy. We intend
to continue industry-specific sales and marketing efforts in order to maximize
our penetration of new and existing industries.
IDENTIFY NEW APPLICATIONS FOR OUR SOLUTIONS. Our flexible rich media solutions
platform allows us to develop specific applications designed to capture
strategic revenue opportunities. Current applications of our solutions include
sales channel communications and employee communications. Emerging applications
include sales and marketing presentations and customer support. We continually
seek to identify new applications, within existing markets and within new
industries, that can benefit from our solutions.
EXPAND AND ENHANCE CUSTOMER SOLUTIONS. Our goal is to provide our customers with
the most comprehensive portfolio of rich media business-to-business
communications products and services. We intend to increase revenues by
continually broadening the functionality of our rich media solutions platform
and adding value-added services to our offerings, through both in-house
development efforts and strategic acquisitions. For example, through our
applications server and content hosting software, we are now assisting customers
in building Web "portals" using Eloquent rich media events. We intend to add
live broadcast capabilities, which will allow instant, simultaneous and
interactive delivery of business-to-business communications, to our platform. We
plan for these broadcasts to be viewed by users live from their computers. These
products will then be available on demand for later viewing in our synchronized,
navigable, searchable format. In addition, we plan to explore
business-to-customer communications applications.
EXPAND INTERNATIONALLY. We currently sell our solutions within the United
States. Many of our customers have international operations and use our rich
media events around the world. As a result, we believe there is a significant
opportunity to increase revenues by selling our products and services
internationally. To exploit this opportunity, we intend to increase our sales
and marketing efforts abroad, beginning with Europe and Japan.
RICH MEDIA EVENT PRODUCTION AND DELIVERY
We have developed significant expertise and proprietary technology in order to
produce rich media events for our customers in a fast, turnkey process and
enable our customers to deliver those rich media events to their constituencies
in an engaging, interactive manner.
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PRODUCTION OF RICH MEDIA CONTENT. Our customers generally use Eloquent to
produce the rich media content for use with our software. The production steps
and the technologies used in the production process are summarized below:
- Video and Audio. We videotape live speakers, using local video crews and
simple lighting. We convert the video into digital format and divide
long segments into short talks and remove outtakes. We then "compress"
the digital video and audio tracks using our proprietary compression
technology and other compression technologies. One of the features of
our software is the ability to play back an event at different speeds
without a change in the speaker's pitch. To enable this, we index the
audio track for variable speed playback using our proprietary pitch
compression technology.
- Transcription. We transcribe the audio track to create a transcript,
utilizing a proprietary transcription tool that automatically
synchronizes the text to the audio track, and proofread it carefully in
conjunction with the customer. If desired by the customer, we will have
the transcript translated into different languages.
- Graphics. We obtain electronic copies of the speaker's slides or we
electronically capture the speaker's software demonstration. If the
presentation contains slides, we transform the slides into a format
suitable for delivery over a low-bandwidth network. If the event
contains a software demonstration, we compress the demonstration using
our proprietary video compression technology.
- Assembly. We assemble the video, audio, graphics and text using our
proprietary synchronization technology. To enable full navigation and
search capabilities, we create a table of contents and electronic links
and index the text and slides so that the user may search for a chosen
portion of the event using an embedded search engine. At the request of
a customer, we will incorporate user tests in our standard format and
add other features developed by our professional services staff.
Our proprietary Event Management System, which we refer to as "EMS," enables our
production staff to organize, track and simultaneously produce high volumes of
projects. The EMS enables us to efficiently allocate staff to tasks that ensures
on-time completion.
CONTENT DELIVERY. We provide our customers with three ways to deliver an
Eloquent event:
- Web, Intranets and Extranets -- Using Applications Server
Software. Customers can run our desktop player using our applications
server software on their own Microsoft Windows NT servers. Our
professional services organization can integrate the Eloquent
applications servers with existing enterprise applications, such as
sales force automation systems.
- Web -- Using Content Hosting. In addition, we allow our customers to
store their rich media events and the Eloquent desktop player on our
server hardware running our content hosting software. Users can then
download the Eloquent desktop player to their desktop PC and interact
with the customer's rich media events. Our content-hosting servers are
located at Concentric Network Corporation's facilities in Cupertino,
California.
- CD-ROM. We will duplicate and ship CD-ROMs containing the event to our
customers. The CD-ROM contains the Eloquent desktop player software as
well as the event. We have found that our customers need the CD-ROM
alternative because many of their constituents do not have ready access
to the Web. This is particularly true for customers with international
target audiences or that seek to educate their traveling sales forces.
Customers may order rich media events on CD-ROM alone or in conjunction
with Web, intranet or extranet delivery.
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CUSTOMERS
Our customers use our solutions for a number of applications, including:
SALES CHANNEL COMMUNICATIONS. Some of our customers use our solutions to educate
their sales forces and resellers about newly-launched products. We can create
rich media events out of traditional sales force presentations about new
products and deliver these events to our customers' sales forces. Through our
events, our customers are able to educate their sales forces faster and more
economically than by flying speakers around the country or world to deliver the
presentation. Our solutions also enable our customers to provide consistent,
controlled information to their sales representatives in a format that is more
appealing and interactive than a teleconference presentation or videotape.
EMPLOYEE COMMUNICATIONS. Some of our customers use our solutions to deliver
senior management messages to a globally distributed workforce. We create a rich
media event out of, for example, a chief executive officer's presentation to
employees about the customer's strategic direction or a pending merger or
acquisition, which is then delivered to employees. By doing so, our customer is
able to economically deliver a consistent message to all of its employees,
including those who joined the company after the presentation was made.
SALES AND MARKETING PRESENTATIONS. Some of our customers use our solutions on
their Web sites to present company information or demonstrate their products to
potential consumers or business partners. These events provide an engaging,
low-cost mechanism for offering consistent company or product demonstrations to
a large audience of potential buyers.
CUSTOMER SUPPORT. Some of our customers use our solutions to deliver technical
product support information to their end users. The Eloquent event format gives
end users the needed information in the "user-friendly" format of an in-person
presentation instead of through a technical manual. Eloquent's search and
navigation capabilities allow end users to quickly find the information they
need.
Our ten largest customers for the nine months ended September 30, 1999, and
applications for which they have used our solutions, are:
<TABLE>
<CAPTION>
CUSTOMER APPLICATIONS
- -----------------------------------------------------------------------------------------------------------
<S> <C>
Ascend Communications Inc. (a wholly-owned Sales force education
subsidiary of Lucent Technologies) Customer product education
- -----------------------------------------------------------------------------------------------------------
AT&T Corporation Marketing strategy rollouts
Technical conferences
Software system rollouts
- -----------------------------------------------------------------------------------------------------------
Cisco Systems, Inc. New product launches
Channel certification
Technical updates
- -----------------------------------------------------------------------------------------------------------
Citibank Technical expertise dissemination
Employee certification
Sales force product cross-training
- -----------------------------------------------------------------------------------------------------------
Compaq Computer Corporation Sales force and partner product rollouts
Sales force and partner technical education
Account management education
- -----------------------------------------------------------------------------------------------------------
FileNET Corporation New product rollouts
Product updates
- -----------------------------------------------------------------------------------------------------------
IBM Corporation Field employee updates
Partner program rollouts
- -----------------------------------------------------------------------------------------------------------
Lucent Technologies Sales force product education
Sales force technical updates
National marketing communications
Marketing program tool rollouts
Executive sales presentation tool education
- -----------------------------------------------------------------------------------------------------------
Microsoft Corporation OEM product education
Sales force product rollouts
Customer support product education
- -----------------------------------------------------------------------------------------------------------
Storage Tek NSG New product rollouts
Strategy rollouts
New hire orientation
</TABLE>
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SALES AND MARKETING
We sell our solutions in the United States through a direct sales force. Our
sales organization consisted of 38 employees as of September 30, 1999, two of
whom were located at our San Mateo, California headquarters. We also have sales
representatives in Los Angeles, Chicago, Dallas, Boston, New York City, New
Jersey and Washington, D.C. Our sales strategy is to pursue opportunities with
large accounts and industry leaders and to penetrate various targeted vertical
market segments. To implement this strategy, each customer has a dedicated sales
representative who is responsible for maintaining the customer relationship. To
assist our customers in maximizing the benefits of our solutions, we have built
an experienced professional services organization to facilitate the successful
production and utilization of rich media events. We intend to expand our sales
and professional services organizations and to establish additional sales
offices domestically and internationally.
We market our solutions through an in-house marketing staff and an outside
public relations firm. Our in-house marketing organization consisted of five
employees as of September 30, 1999, all of whom were located in our San Mateo,
California headquarters. We conduct a variety of marketing programs nationwide
to educate our target market, create awareness and generate leads for our
solutions. To achieve these goals, we have engaged in activities such as direct
mail campaigns, seminars, print advertising and trade shows. These programs are
targeted at key executives within identified vertical markets. In addition, we
conduct comprehensive public relations efforts that include establishing and
maintaining relationships with key trade press, business press and industry
analysts as well as an active executive speakers' bureau. We intend to expand
our marketing activities in conjunction with the planned expansion of our sales
force.
COMPETITION
The market for rich media business-to-business communications solutions is new
and rapidly evolving. We expect that competition will intensify. Increased
competition could lead to decreasing prices and profitability. We compete with
companies that offer components of a rich media business-to-business
communications solution, including:
- providers of rich media software tools;
- multimedia content production and delivery companies;
- content hosting companies; and
- traditional business-to-business communications and learning solution
companies that offer live meeting and seminar services.
In addition, our customers and potential customers represent a source of
competition, to the extent they determine to develop in-house
business-to-business communications solutions.
We believe that none of these competitors offers the broad range of software and
services for rich media production and delivery that we offer our customers. We
believe the principal competitive factors in attracting customers to our rich
media business-to-business communications solutions are:
- quality, price and timeliness of content production services and
associated professional services;
- quality of the end-user experience provided by the desktop player
software;
- ease of use of our applications and tools;
- amount and quality of customer support; and
- brand recognition.
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Many of our current and potential competitors have longer operating histories,
significantly greater financial, technical and marketing resources, greater name
recognition and larger existing customer bases than we do. These competitors may
also be able to undertake more extensive marketing campaigns for their brands
and services, adopt more aggressive pricing policies and make more attractive
offers to potential employees and partners. We may be unable to compete
successfully against current or future competitors and competitive pressures may
cause our business to suffer.
INTELLECTUAL PROPERTY
We regard our copyrights, service marks, trademarks, trade secrets, proprietary
technology and similar intellectual property as critical to our success, and we
rely on trademark and copyright law, trade secret protection and confidentiality
and license agreements with our employees and independent contractors to protect
our proprietary rights. We strategically pursue the registration of trademarks
and service marks in the United States and abroad. Effective trademark, service
mark, copyright and trade secret protection may not be available in every
country in which our products and services are made available.
We have licensed in the past, and expect to license in the future, certain of
our proprietary rights to third parties. While we attempt to ensure that the
quality of our brand is maintained by these licensees, licensees may take
actions that may harm the value of our proprietary rights or reputation. The
steps taken by us to protect our proprietary rights may not be adequate and
third parties may infringe or misappropriate our copyrights, trademarks or
similar proprietary rights. In addition, other parties may assert claims of
infringement of intellectual property rights against us.
We may be subject to legal proceedings and claims associated with our
intellectual property from time to time in the future. These claims, even if
without merit, could cause us to expend significant financial and managerial
resources. Further, if these claims are successful, we may be required to change
our trademarks, alter our copyrighted material or pay financial damages, any of
which could harm our business.
Our desktop player software includes search technology that we license from
Verity, Inc. and compression technology that we license from Voxware, Inc. Our
license from Verity expires in May 2000, but automatically renews for successive
one-year terms if neither party gives 30 days' notice of nonrenewal prior to the
end of each term. Our license from Voxware expires in April 2000, but
automatically renews for successive one-year terms if neither party gives 90
days' notice of nonrenewal prior to the end of each term. If we are unable to
maintain or renew such licenses, we would be forced to remove such technologies
from our software and develop or license comparable technology. This could
require additional license fees or extensive engineering efforts, or
significantly decrease our software's functionality, either of which could harm
our business, financial condition and operating results.
In addition, we have developed our products to integrate well with the Microsoft
Windows NT operating system, the operating system used by most of our customers
to run our software. If the Windows NT operating system is changed by Microsoft
so that it no longer integrates well with our products, or if Windows NT
experiences technical problems, the operation of our software could be impaired.
In such event, our business, financial condition and operating results could be
harmed. Microsoft is not obligated to ensure that Windows NT integrates well
with our products.
We may be required to obtain licenses from third parties to refine, develop,
market and deliver new products. We may be unable to obtain any needed license
on commercially reasonable terms or at all and rights granted under any licenses
may not be valid and enforceable.
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<PAGE> 44
EMPLOYEES
As of September 30, 1999, we had a total of 114 full-time employees, all of whom
were located in the United States. Of the total, 34 were in content production
services, 43 were in sales and marketing, 8 were in research and development, 4
were in professional services, 21 were in general and administrative and 4 were
in customer service and software support. None of our employees is represented
by a labor union. We have not experienced any work stoppages, and we consider
our relations with our employees to be good.
FACILITIES
Our principal offices currently occupy approximately 25,000 square feet in San
Mateo, California under two leases, one of which expires in May 2002 and the
other of which expires in July 2002. In addition, we also lease sales and
support offices in Washington, D.C., Boston, Chicago and Dallas. We anticipate
that we will require additional space within the next 12 months and that
suitable additional space will be available on commercially reasonable terms.
LEGAL PROCEEDINGS
We are not currently subject to any material legal proceedings.
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<PAGE> 45
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND OTHER MANAGEMENT EMPLOYEES
The following table sets forth certain information regarding our executive
officers, directors and other management employees, including their ages as of
September 30, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Abraham Kleinfeld........................... 41 Chief Executive Officer, President and Director
Clifford A. Reid, Ph.D...................... 40 Chairman of the Board and Director
R. John Curson.............................. 56 Chief Financial Officer, Secretary and Treasurer
David Glazer................................ 38 Chief Technical Officer
Anthony P. Brenner.......................... 42 Director
David F. Millet............................. 55 Director
Kathryn C. Gould............................ 49 Director
Terry L. Opdendyk........................... 51 Director
Marc A. Schnabolk........................... 42 Vice President, Sales
Jane Beule.................................. 48 Vice President, Marketing
Alan Atlas.................................. 47 Vice President, Engineering
Deborah L. Miller........................... 46 Vice President, Production
Robert A. Kliger............................ 46 Vice President, Professional Services
</TABLE>
Abraham Kleinfeld has served as our Chief Executive Officer and President and as
a director since January 1999. From October 1995 to October 1998, Mr. Kleinfeld
worked at Open Text Corporation, a knowledge management software products
company, where he was the Vice President of North American Sales from October
1995 to June 1997 and the Senior Vice President of Marketing from April 1997 to
October 1998. From January 1991 to October 1995, Mr. Kleinfeld served as Vice
President of Sales at Odesta Systems, a document management software products
company that he co-founded and that was acquired by Open Text in 1995. From 1989
to 1991, Mr. Kleinfeld worked at Oracle Corporation, where he was the Business
Development Manager for Office Automation Products. Mr. Kleinfeld holds a B.A.
in computer science from the State University of New York-Oswego.
Clifford A. Reid, Ph.D. co-founded Eloquent in March 1995 and has served as our
Chairman of the Board since Eloquent's inception. From March 1995 to January
1999, he also served as our Chief Executive Officer and President. In April
1988, Dr. Reid co-founded Verity, Inc., a search software products company,
where he was Vice President of Engineering from 1988 to 1992 and Executive Vice
President from 1992 to 1993. Dr. Reid holds an S.B. in physics from the
Massachusetts Institute of Technology, an M.B.A from Harvard University and a
Ph.D. in engineering-economic systems from Stanford University.
R. John Curson has served as our Chief Financial Officer, Secretary and
Treasurer since June 1999. From December 1993 to March 1999, Mr. Curson served
as Chief Financial Officer for Truevision, Inc. (formerly RasterOps), a digital
imaging and video products company acquired by Pinnacle Systems, Inc. in March
1999. From 1992 to 1993, Mr. Curson served as Chief Financial Officer of LH
Research Inc., a power-supply developer and manufacturer. From 1989 to 1992, Mr.
Curson served as Chief Financial Officer for Martec Controls, a high-tech
surveillance and remote tracking products company. From 1987 to 1989, Mr. Curson
served as Vice President of Finance for Xidex Inc./Dysan International, a memory
media products company. From 1976 to 1987, Mr. Curson worked at Dataproducts
Corporation, a computer printer company, where he held a variety of financial
positions. Mr. Curson holds a B.S.C. in mechanical engineering and an M.B.A.
from the University of Leeds and an M.B.A from the University of California, Los
Angeles.
David Glazer co-founded Eloquent in March 1995 and has served as our Chief
Technical Officer since Eloquent's inception. From November 1994 to March 1995,
he was an independent Web information
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<PAGE> 46
delivery systems consultant to clients including Netscape Communications
Corporation, Adobe Systems Incorporated and Tandem Computers Incorporated (now a
division of Compaq Computer Corporation). In April 1988, Mr. Glazer co-founded
Verity, Inc., a search software products company, where he served as Senior
Software Architect from June 1988 to November 1994 . From 1984 to 1988, Mr.
Glazer worked as an independent contractor for Lotus Development Corporation, a
software products company. Mr. Glazer holds an S.B. in physics from the
Massachusetts Institute of Technology.
Anthony P. Brenner has served as a director of Eloquent since July 1998. Mr.
Brenner has been a managing director and partner at Crosslink Capital, Inc.
(formerly the Omega Ventures arm of Robertson, Stephens & Company), a venture
capital firm, since January 1998, prior to which he was a independent consultant
to Omega Ventures from September 1997 to December 1997. Since January 1989, Mr.
Brenner has served as President of Cedar Point Partners, L.P., a private equity
investment partnership. From May 1994 to September 1996, Mr. Brenner was Senior
Managing Director of Advanta Partners, a venture capital firm affiliated with
Advanta Corporation, a financial services company. Mr. Brenner also served as a
member of the board of directors of Advanta Corporation from May 1992 to August
1996. Mr. Brenner holds a B.A. in economics from Yale University and an M.B.A.
from Stanford University.
Kathryn C. Gould has served as a director of Eloquent since July 1996. Ms. Gould
has been a member of Foundation Capital Management, LLC, since December 1995.
Foundation Capital Management is the general partner of the Foundation Capital
venture capital funds that have invested in Eloquent. From September 1989 to
December 1995, Ms. Gould was a partner of Merrill, Pickard, Anderson & Eyre, a
venture capital firm. Ms. Gould also serves on the boards of directors of
Documentum, Inc. and Interwoven, Inc. Ms. Gould holds a B.S. in physics from the
University of Toronto and an M.B.A. from the University of Chicago.
David F. Millet is a founding member of Gemini Investors LLC, a venture capital
firm, and has served as its Managing Director since 1997. Prior to joining
Gemini Investors, Mr. Millet spent the preceding ten years as Vice President and
President of Chatham Venture Corp., a venture capital firm. From 1983 to 1988,
Mr. Millet served as Chief Executive Officer of Continuing Care Associates, a
provider of home healthcare products and services. Prior to 1983, Mr. Millet
served in various management roles in NEC Electronics, USA, the U.S. subsidiary
of NEC Corp. of Tokyo, Japan. From 1966 to 1975, Mr. Millet was a member of the
Senior Staff of Arthur D. Little, Inc., an international consulting firm. Mr.
Millet is on the Board of Directors of Wall Data Incorporated and View Tech,
Inc. Mr. Millet holds a B.A. in physical sciences from Harvard University.
Terry L. Opdendyk has served as a director of Eloquent since October 1995. Mr.
Opdendyk has been a partner of ONSET Ventures since 1984. He currently serves as
Chairman of ONSET Venture Services Corporation; General Partner of OEA
Management, L.P., the General Partner of ONSET Enterprise Associates, L.P.;
General Partner of OEA II Management, L.P., the General Partner of ONSET
Enterprise Associates II, L.P.; and Managing Director of OEA III Management,
LLC, the General Partner of ONSET Enterprise Associates III, L.P. Mr. Opdendyk
holds a B.S. in computer science from Michigan State University and a M.S. in
computer science from Stanford University.
Marc A. Schnabolk joined Eloquent in July 1999 as our Vice President, Sales.
Prior to joining Eloquent, Mr. Schnabolk worked at Open Text Corporation, a
knowledge management software products company, where he was Director of Eastern
Regional Sales from September 1996 to June 1997 and Vice President of North
American Sales from July 1997 to June 1999. From January 1995 to September 1996,
Mr. Schnabolk served as Regional Sales Manager, New Media Sales, at Oracle
Corporation, a database manufacturer. From November 1992 to December 1994, Mr.
Schnabolk served as Regional Sales Manager of Interleaf, Inc., a content
management and publishing software company. From 1985 to 1992, Mr. Schnabolk
held various technical, sales and sales management positions at Oracle. Mr.
Schnabolk holds a B.S. in mathematics from Bates College and an M.B.A. from
Fairleigh Dickinson University.
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<PAGE> 47
Jane Beule joined Eloquent in March 1999 as our Vice President, Marketing. From
September 1998 to March 1999, Ms. Beule was a freelance marketing consultant.
From February 1998 to September 1998, Ms. Beule was Vice President of Marketing
at MarketFirst Software, Inc., a marketing automation software products company.
From November 1997 to February 1998, Ms. Beule was a marketing consultant to
ProBusiness Services, Inc., a provider of employee services and software to
large employers. Prior to that, she served as ProBusiness' Vice President of
Marketing from October 1994 to November 1997. Ms. Beule holds a B.A. in
linguistics from the University of Wisconsin-Madison and an M.B.A. from Harvard
University.
Alan Atlas joined Eloquent in February 1999 as our Vice President, Engineering.
From May 1996 to February 1999, Mr. Atlas was Director of Newsroom System
Engineering at Avid Technology, Inc., a digital video editing tools company.
From February 1994 to April 1996, Mr. Atlas was Vice President of Engineering at
Sarrus Software, a NextStep groupware company. Mr. Atlas holds a B.A. in
Psychology from Brown University, a B.S. in electrical engineering from the
University of Massachusetts and an M.S. in electrical engineering from Georgia
Institute of Technology.
Deborah L. Miller joined Eloquent in July 1998 as our Vice President,
Production. From September 1996 to June 1998, Ms. Miller was Director, Materials
at Electronic Arts, a multimedia games production company. From March 1994 to
August 1996, Ms. Miller was Business Development Manager and Global Program
Manager at Solectron, Inc., a contract manufacturer. From June 1982 to February
1994, Ms. Miller held various positions in finance and manufacturing at Amdahl
Corporation, a manufacturer of mainframe computers. Ms. Miller holds a B.A. in
business from San Francisco State University and an M.B.A. from the University
of Washington.
Robert A. Kliger joined Eloquent in March 1999 as our Vice President,
Professional Services. From January 1998 to June 1998, Mr. Kliger was Western
Regional Manager at Documentum, Inc., a document management software products
company. From 1990 to January 1998, Mr. Kliger was President and Chief Executive
Officer of Workgroup Management, Inc., a professional services firm founded by
Mr. Kliger that specialized in document management applications development and
was acquired by Documentum in 1998. Mr. Kliger holds a B.A. in music from Mercy
College and an M.B.A. from the University of Illinois.
BOARD COMPOSITION
Eloquent has authorized seven directors. In accordance with the terms of our
amended and restated certificate of incorporation and amended and restated
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 three-year terms. Upon
the completion of this offering, the members of classes will be divided as
follows:
- Class I: David Millet and Abraham Kleinfeld
- Class II: Clifford Reid and Kathryn Gould
- Class III: Anthony Brenner and Terry Opdendyk
The Class I directors will stand for re-election or election at the 2000 annual
meeting of stockholders. The Class II directors will stand for re-election or
election at the 2001 annual meeting of stockholders. The Class III directors
will stand for re-election or election at the 2002 annual meeting of
stockholders. 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.
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<PAGE> 48
The amended and restated certificate of incorporation provides that the
authorized number of directors may be changed only by resolution of the board of
directors. Any additional directorships resulting from an increase in the number
of directors will be distributed between the three classes so that, as nearly as
possible, each class will consist of one third of the directors. This
classification of the board of directors may have the effect of delaying or
preventing changes in the control or management of Eloquent. However, if
Eloquent is subject to Section 2115 of the California General Corporation Law,
all directors will be designated of the same class, and such directors will be
elected by cumulative voting if any stockholder requests cumulative voting. See
"Description of Capital Stock -- Section 2115."
Our directors may be removed for cause by the affirmative vote of the holders of
a majority of our voting stock, and directors may be removed without cause by
the affirmative vote of the holders of at least two-thirds of our voting stock.
However, if we are subject to 2115 of the California General Corporation Law,
unless the entire board is removed, no single director may be removed without
cause when the votes cast against such director's removal would be sufficient to
elect that director if voted cumulatively. See "Description of Capital
Stock -- Section 2115."
BOARD COMMITTEES
The Audit Committee of our board of directors consists of Messrs. Brenner and
Opdendyk. The Audit Committee reviews our financial statements and accounting
practices, makes recommendations to the board regarding the selection of
independent auditors and reviews the results and scope of the audit and other
services provided by our independent auditors. The Compensation Committee of our
board of directors consists of Mr. Opdendyk, Ms. Gould and Mr. Millet. The
Compensation Committee makes recommendations to the board concerning salaries
and incentive compensation for our officers and employees and administers our
employee benefit plans.
DIRECTOR COMPENSATION
We have not provided cash compensation to non-employee directors for their
services as directors or members of committees of the board of directors.
Following the completion of this offering, all directors will be eligible to
participate in our 1999 Equity Incentive Plan. Employee directors also will be
eligible to participate in our 1999 Employee Stock Purchase Plan. See
"-- Employee Benefit Plans."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the Compensation Committee was at any time since the
formation of Eloquent 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.
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<PAGE> 49
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table sets forth cash and certain
other compensation earned during 1998 by our Chief Executive Officer and our
only other executive officers who earned more than $100,000 in 1998. These
people are referred to as the named executive officers. The information in the
table includes salaries, bonuses, stock options granted and other miscellaneous
compensation. We have not granted stock appreciation rights or restricted stock
awards and provide no long-term compensation benefits other than stock options.
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 of our salaried employees and perquisites and other
personal benefits received by the named executive officers that do not exceed
$50,000 or 10% of any such officer's salary and bonus disclosed in this table,
whichever is less.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------- ------------
SECURITIES
UNDERLYING
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) OPTIONS(#)
--------------------------- --------- -------- ------------
<S> <C> <C> <C>
Clifford A. Reid, Ph.D.(1)................................. 140,000 25,049 --
Chairman of the Board and Former Chief
Executive Officer and President
David Glazer............................................... 145,000 24,351 --
Chief Technical Officer
Susan Dickerson(2)......................................... 127,199 20,286 --
Former Vice President, Sales
Bruce A. Forgrieve(3)...................................... 181,281 14,851 --
Former Chief Financial Officer and Secretary
William Glazier(2)......................................... 151,794 15,893 --
Former Vice President, Marketing
Gloria M. Purdy(4)......................................... 128,780 7,280 225,000
Former Chief Financial Officer, Secretary
and Treasurer
</TABLE>
- ---------------------------------------------
(1) Mr. Reid served as our Chief Executive Officer and President from our
inception until January 1999, at which time Mr. Kleinfeld became our Chief
Executive Officer and President.
(2) Ms. Dickerson left Eloquent in January 1999 and Mr. Glazier left Eloquent in
October 1998.
(3) Mr. Forgrieve resigned as our Chief Financial Officer and Secretary in June
1998.
(4) Ms. Purdy joined Eloquent as our Chief Financial Officer, Secretary and
Treasurer in April 1998, resigned from these positions in January 1999 and
ceased to be an employee of Eloquent in August 1999. She exercised the
above-referenced option as to 60,000 shares, constituting the vested portion
at the time she ceased to be an employee. The unvested remaining shares
subject to the option were cancelled. Mr. Curson joined Eloquent as our
Chief Financial Officer, Secretary and Treasurer in June 1999.
OPTION GRANTS DURING 1998. Options granted in the year ended December 31, 1998
to the named executive officers were granted under the 1997 Equity Incentive
Plan. The exercise price per share of each option granted was equal to the fair
market value of the common stock as determined by the board of directors on the
date of the grant. In determining the fair market value of the stock granted on
the grant date, the board of directors considered, among other things, our
absolute and relative levels of revenues and other operating results. All
options granted to the named executive officers were immediately exercisable and
were intended to qualify as incentive stock options, to the extent permissible
under
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<PAGE> 50
applicable IRS regulations. Generally, options granted prior to September 1998
vest as to 20% of the shares subject to the option one year after the vesting
commencement date and 1/48 of the remaining shares subject to the option vest on
each of the 48 monthly anniversaries thereafter. Generally, options granted in
September 1998 and thereafter vest as to 25% of the shares subject to the option
one year after the vesting commencement date and 1/36 of the remaining shares
subject to the option vest on each of the 36 monthly anniversaries thereafter.
Unvested shares are subject to Eloquent's right of repurchase upon termination
of employment. Options expire ten years from the date of grant.
We granted options covering an aggregate of 956,700 shares to our employees
during 1998, including named executive officers.
The following table sets forth each grant of stock options made during 1998 to
each of the named executive officers.
1998 STOCK OPTION GRANTS
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
PERCENTAGE ANNUAL RATES OF
NUMBER OF OF TOTAL STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERM(1)
OPTIONS EMPLOYEES EXERCISE PRICE EXPIRATION ---------------------
NAME GRANTED IN 1998 ($/SHARE) DATE 5%($) 10%($)
---- ---------- ------------- -------------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Clifford A. Reid, Ph.D..................... -- -- -- -- -- --
David Glazer............................... -- -- -- -- -- --
Susan Dickerson............................ -- -- -- -- -- --
Bruce A. Forgrieve......................... -- -- -- -- -- --
William Glazier............................ -- -- -- -- -- --
Gloria M. Purdy(2)......................... 225,000 23.5% $0.39 4/22/08 $ $
</TABLE>
- ---------------------------------------------
(1) Potential realizable values are computed by (a) multiplying the number of
shares of common stock subject to a given option by the fair market price of
a share of our common stock at the time of the grant, (b) assuming that the
aggregate stock value derived from that calculation compounds at the annual
5% or 10% rate shown in the table for the entire ten-year term of the option
and (c) subtracting from that result the aggregate option exercise price.
The 5% and 10% assumed annual rates of stock price appreciation are mandated
by the rules of the SEC and do not represent our estimate or projection of
future common stock prices.
(2) Ms. Purdy resigned as our Chief Financial Officer, Secretary and Treasurer
in January 1999 and ceased to be an employee of Eloquent in August 1999. She
exercised the above-referenced option as to 60,000 shares, constituting the
vested portion at the time she ceased to be an employee. The unvested
remaining shares subject to the option were cancelled.
AGGREGATE OPTION VALUES AT DECEMBER 31, 1998. Options granted to named executive
officers may be exercised immediately (i.e., prior to vesting) pursuant to early
exercise provisions contained in option agreements. Any unvested shares issued
pursuant to any such early exercise are subject to a repurchase option in favor
of Eloquent at the original exercise price paid per share upon the optionee's
cessation of service as an employee, director or consultant prior to the vesting
of such shares. Such repurchase option lapses at a rate reflecting the vesting
schedule of the underlying option.
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<PAGE> 51
The following table sets forth the number of shares of common stock subject to
exercisable and unexercisable stock options held as of December 31, 1998 by each
of the named executive officers. Value at fiscal year end is measured as the
difference between the exercise price per share and the initial public offering
price per share of $ . No options to acquire shares of our common stock
were exercised by the named executive officers during 1998.
AGGREGATE OPTION VALUES AT DECEMBER 31, 1998
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
DECEMBER 31, 1998 DECEMBER 31, 1998
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Clifford A. Reid, Ph.D..................... -- -- $-- $--
David Glazer............................... -- -- -- --
Susan Dickerson............................ -- -- -- --
Bruce A. Forgrieve......................... -- -- -- --
William Glazier............................ -- -- -- --
Gloria M. Purdy(1)......................... 225,000 -- $ --
</TABLE>
- ---------------------------------------------
(1) In August 1999, Ms. Purdy exercised options to acquire 60,000 shares of our
common stock at $0.39 per share, constituting the vested portion of an
option exercisable for 225,000 shares granted to her in April 1998. Had such
exercise occurred during 1998, all of such shares would have been unvested
and subject to Eloquent's right of repurchase and the value realized would
have been $ , based on the assumed initial public offering price per
share of $ , minus the per share exercise price, multiplied by the
number of shares issued upon exercise of the option.
EMPLOYEE BENEFIT PLANS
Since 1995, we have established three equity incentive plans under which we may
offer incentive stock options, nonstatutory stock options, restricted stock and
stock bonuses to employees, officers, non-employee directors and consultants.
The plans are intended to help us retain the services of individuals who can
operate and grow our business and align their interests with those of our
stockholders.
EQUITY INCENTIVE PLAN. In December 1995, the board of directors adopted, and the
stockholders approved, the Equity Incentive Plan. The incentive plan was amended
in August 1996. The incentive plan will terminate in December 2005 unless it is
terminated earlier by the board of directors. The incentive plan provides for
the grant of stock awards, which are:
- incentive stock options, as defined under the Internal Revenue Code of
1986, as amended, which may be granted solely to employees (including
officers); and
- nonstatutory stock options, restricted stock purchase awards, and stock
bonuses, which may be granted to employees (including officers),
non-employee directors and consultants.
Plan administration. The incentive plan is administered by the board of
directors. The board of directors may delegate authority to administer the
incentive plan to a committee. Subject to the terms of the plan, the board of
directors or its authorized committee determines recipients, the numbers and
types of stock awards to be granted, and the terms and conditions of the stock
awards including the period of their exercisability and vesting. Subject to the
plan limitations set forth below, the board of directors or its authorized
committee also determines the exercise price of options granted and the right to
purchase restricted stock.
Stock options. Stock options are granted pursuant to stock option agreements.
The exercise price for an incentive stock option cannot be less than 100% of the
fair market value of the common stock on the date
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<PAGE> 52
of grant. The exercise price for a nonstatutory stock option cannot be less than
85% of the fair market value of the common stock on the date of grant. Options
granted under the incentive plan vest at the rate specified in the option
agreement.
The term of stock options granted under the incentive plan may not exceed 10
years. Unless the terms of an optionee's stock option agreement provide for
earlier termination, in the event an optionee's service relationship with us, or
any affiliate or ours, ceases due to disability or death, the optionee (or his
or her beneficiary) may exercise any vested options up to 12 months (18 months
in the event of death) after the date such service relationship ends. If an
optionee's relationship with us, or any affiliate of ours, ceases for any reason
other than disability or death, the optionee may (unless the terms of the stock
option agreement provide for earlier termination) exercise any vested options up
to three months from cessation of service. However, an option may not be
exercised after the expiration of its term.
Acceptable consideration for the purchase of common stock issued under the
equity incentive plan is determined by the board of directors and may include
cash, common stock previously owned by the optionee, a deferred payment
arrangement and other legal consideration approved by the board of directors.
An optionee may not transfer a stock option other than by will or the laws of
descent or distribution. However, an optionee may designate a beneficiary who
may exercise the option following the optionee's death.
Tax limitations on stock option grants. Under current tax laws, incentive stock
options may be granted only to our employees. Only the first $100,000 worth of
stock options exercisable for the first time in one calendar year can be treated
as an incentive stock option. For this purpose, the value of the stock option
grant is the fair market value of the underlying stock at the date of grant. No
incentive stock option may be granted to any person who, at the time of the
grant, owns or is deemed to own stock possessing more than 10% of the total
combined voting power of Eloquent or any affiliate unless the following
conditions are satisfied:
- the option exercise price must be at least 110% of the fair market value
of the stock subject to the option on the date of grant; and
- the term of any incentive stock option award must not exceed five years
from the date of grant.
Restricted stock and stock bonus awards. The purchase price for each restricted
stock award granted must be at least 85% of the fair market value of the stock
on the date of the award or at the time the purchase is consummated. Rights to
acquire shares under a stock bonus or restricted stock bonus agreement may not
be transferred other than by will or by the laws of descent and distribution and
are exercisable during the life of the optionee only by the optionee.
Changes in control. In the event of certain changes in control, all outstanding
stock awards under the incentive plan either will be assumed, continued or
substituted for by any surviving entity. If the surviving entity refuses to
assume, continue or substitute for outstanding stock awards, they will be
terminated upon the change in control if not previously exercised.
Authorized shares. An aggregate of 1,070,000 shares of common stock currently
are authorized for issuance under the incentive plan. As of September 30, 1999,
options to purchase a total of 198,600 shares of our common stock were held by
all participants under the incentive plan. After the date of the offering, no
further stock awards will be made under the incentive plan. Shares subject to
stock options that have expired or otherwise terminated without having been
exercised in full again become available for the grant of awards under the
incentive plan. Shares issued under the incentive plan may be previously
unissued shares or reacquired shares bought on the market or otherwise.
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<PAGE> 53
1997 EQUITY INCENTIVE PLAN. In July 1997, the board of directors adopted, and
the stockholders approved, the 1997 Equity Incentive Plan. The 1997 incentive
plan was most recently amended in January 1999. The 1997 incentive plan will
terminate in July 2007 unless it is terminated earlier by the board of
directors. The 1997 incentive plan provides for the grant of stock awards, which
are:
- incentive stock options, as defined under the Internal Revenue Code of
1986, as amended, which may be granted solely to employees (including
officers); and
- nonstatutory stock options, restricted stock purchase awards, and stock
bonuses which may be granted to employees (including officers),
non-employee directors and consultants.
Plan administration. The 1997 incentive plan is administered by the board of
directors. The board of directors may delegate authority to administer the 1997
incentive plan to a committee. Subject to the terms of the plan, the board of
directors or its authorized committee determines recipients, the numbers and
types of stock awards to be granted, and the terms and conditions of the stock
awards including the period of their exercisability and vesting. Subject to the
plan limitations set forth below, the board of directors or its authorized
committee also determines the exercise price of options granted and the right to
purchase restricted stock.
Stock options. Stock options are granted pursuant to stock option agreements.
The exercise price for an incentive stock option cannot be less than 100% of the
fair market value of the common stock on the date of grant. The exercise price
for a nonstatutory stock option cannot be less than 85% of the fair market value
of the common stock on the date of grant. Options granted under the 1997
incentive plan vest at the rate specified in the option agreement.
The term of stock options granted under the 1997 incentive plan may not exceed
10 years. Unless the terms of an optionee's stock option agreement provide for
earlier termination, in the event an optionee's service relationship with us, or
any affiliate or ours, ceases due to disability or death, the optionee (or his
or her beneficiary) may exercise any vested options up to 12 months (18 months
in the event of death) after the date such service relationship ends. If an
optionee's relationship with us, or any affiliate of ours, ceases for any reason
other than disability or death, the optionee may (unless the terms of the stock
option agreement provide for earlier termination) exercise any vested options up
to three months from cessation of service. However, an option may not be
exercised after the expiration of its term.
Acceptable consideration for the purchase of common stock issued under the 1997
incentive plan is determined by the board of directors and may include cash,
common stock previously owned by the optionee, a deferred payment arrangement
and other legal consideration approved by the board of directors.
An optionee may not transfer a stock option other than by will or the laws of
descent or distribution. However, an optionee may designate a beneficiary who
may exercise the option following the optionee's death.
Tax limitations on stock option grants. Under current tax laws, incentive stock
options may be granted only to our employees. Only the first $100,000 worth of
stock options exercisable for the first time in one calendar year can be treated
as an incentive stock option. For this purpose, the value of the stock option
grant is the fair market value of the underlying stock at the date of grant. No
incentive stock option may be granted to any person who, at the time of the
grant, owns or is deemed to own stock possessing
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<PAGE> 54
more than 10% of the total combined voting power of Eloquent or any affiliate
unless the following conditions are satisfied:
- the option exercise price must be at least 110% of the fair market value
of the stock subject to the option on the date of grant; and
- the term of any incentive stock option award must not exceed five years
from the date of grant.
Restricted stock and stock bonus awards. The purchase price for each restricted
stock award granted must be at least 85% of the fair market value of the stock
on the date of the award or at the time the purchase is consummated. Rights to
acquire shares under a stock bonus or restricted stock bonus agreement may not
be transferred other than by will or by the laws of descent and distribution and
are exercisable during the life of the optionee only by the optionee.
Changes in control. In the event of certain changes in control, all outstanding
stock awards under the 1997 incentive plan either will be assumed, continued or
substituted for by any surviving entity. If the surviving entity refuses to
assume, continue or substitute for outstanding stock awards, they will be
terminated upon the change in control if not previously exercised.
Authorized shares. An aggregate of 2,934,500 shares of common stock currently
are authorized for issuance under the 1997 incentive plan. As of September 30,
1999, options to purchase a total of 2,484,925 shares of our common stock were
held by all participants under the 1997 incentive plan. After the date of this
offering, no further stock awards will be made under the 1997 incentive plan.
Shares subject to stock options that have expired or otherwise terminated
without having been exercised in full again become available for the grant of
awards under the 1997 incentive plan. Shares issued under the 1997 incentive
plan may be previously unissued shares or reacquired shares bought on the market
or otherwise.
1999 EQUITY INCENTIVE PLAN. In October 1999, the board of directors adopted,
subject to stockholder approval, the 1999 Equity Incentive Plan. The 1999
incentive plan will terminate in October 2009 unless it is terminated earlier by
the board of directors. The 1999 incentive plan provides for the grant of stock
awards, which are:
- incentive stock options, as defined under the Internal Revenue Code of
1986, as amended, which may be granted solely to employees (including
officers); and
- nonstatutory stock options, restricted stock purchase awards, and stock
bonuses which may be granted to employees (including officers),
non-employee directors and consultants.
Plan administration. The 1999 incentive plan is administered by the board of
directors. The board of directors may delegate authority to administer the 1999
incentive plan to a committee. Subject to the terms of the plan, the board of
directors or its authorized committee determines recipients, the numbers and
types of stock awards to be granted, and the terms and conditions of the stock
awards including the period of their exercisability and vesting. Subject to the
plan limitations set forth below, the board of directors or its authorized
committee also determines the exercise price of options granted and the right to
purchase restricted stock.
Stock options. Stock options are granted pursuant to stock option agreements.
The exercise price for an incentive stock option cannot be less than 100% of the
fair market value of the common stock on the date of grant. The exercise price
for a nonstatutory stock option cannot be less than 85% of the fair market value
of the common stock on the date of grant. Options granted under the 1999
incentive plan vest at the rate specified in the option agreement.
The term of incentive stock options granted under the 1999 incentive plan may
not exceed 10 years. Unless the terms of an optionee's stock option agreement
provide for earlier termination, in the event an optionee's service relationship
with us, or any affiliate or ours, ceases due to disability or death, the
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<PAGE> 55
optionee (or his or her beneficiary) may exercise any vested options up to 12
months (18 months in the event of death) after the date such service
relationship ends. If an optionee's relationship with us, or any affiliate of
ours, ceases for any reason other than disability or death, the optionee may
(unless the terms of the stock option agreement provide for earlier termination)
exercise any vested options up to three months from cessation of service.
However, an option may not be exercised after the expiration of its term.
Acceptable consideration for the purchase of common stock issued under the 1999
incentive plan is determined by the board of directors and may include cash,
common stock previously owned by the optionee, a deferred payment arrangement
and other legal consideration approved by the board of directors.
An optionee may not transfer a stock option other than by will or the laws of
descent or distribution unless the optionee holds a nonstatutory stock option
that provides otherwise. However, an optionee may designate a beneficiary who
may exercise the option following the optionee's death.
Tax limitations on stock option grants. Under current tax laws, incentive stock
options may be granted only to our employees. Only the first $100,000 worth of
stock options exercisable for the first time in one calendar year can be treated
as an incentive stock option. For this purpose, the value of the stock option
grant is the fair market value of the underlying stock at the date of grant. No
incentive stock option may be granted to any person who, at the time of the
grant, owns or is deemed to own stock possessing more than 10% of the total
combined voting power of Eloquent or any affiliate unless the following
conditions are satisfied:
- the option exercise price must be at least 110% of the fair market value
of the stock subject to the option on the date of grant; and
- the term of any incentive stock option award must not exceed five years
from the date of grant.
Section 162(m). Section 162(m) of the Internal Revenue Code of 1986 denies an
income tax deduction to publicly held corporations for certain compensation paid
to specified employees in a taxable year to the extent that the compensation
exceeds $1 million, unless the compensation constitutes "performance-based
compensation." In order to ensure that option grants under the 1999 incentive
plan constitute "performance-based compensation," no person may be granted
options under the 1999 incentive plan covering more than 2,500,000 shares of
common stock in any calendar year. Under its general authority to grant options,
the board of directors has the implicit authority to reprice outstanding options
or to offer optionees the opportunity to replace outstanding options with new
options for the same or a different number of shares. Both the original and new
options will count toward the Section 162(m) limitation.
Restricted stock and stock bonus awards. The purchase price for each restricted
stock award granted must be at least 85% of the fair market value of the stock
on the date of the award or at the time the purchase is consummated. Rights to
acquire shares under a stock bonus or restricted stock bonus agreement may not
be transferred other than by will or by the laws of descent and distribution and
are exercisable during the life of the optionee only by the optionee. Certain
restricted stock awards made following the completion of this offering may be
otherwise transferable if the stock bonus agreement so provides.
Changes in control. In the event of certain changes in control, all outstanding
stock awards under the 1999 incentive plan either will be assumed, continued or
substituted for by any surviving entity. If the surviving entity refuses to
assume, continue or substitute for such awards, the vesting provisions of
outstanding stock awards held by persons whose service relationship with us has
not terminated at the time of the change in control will be accelerated. These
stock awards will be terminated upon the change in control if not previously
exercised.
Authorized shares. Upon the effectiveness of the 1999 incentive plan, shares
available for issuance under the two pre-existing incentive plans (2,205,799
shares based on options outstanding at September 30, 1999 and taking into
account increases in share reserves after that date) will become authorized for
issuance
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<PAGE> 56
under the 1999 incentive plan. Beginning January 1, 2001, the number of shares
of common stock authorized for issuance under the 1999 incentive plan will be
increased on each January 1 by 4% of the number of shares of common stock
outstanding on that date. However, the board of directors has the authority to
designate a smaller number of shares by which the authorized number of shares of
common stock will be increased on that date. As of the date hereof, no stock
awards have been granted under the 1999 incentive plan.
Shares subject to stock options that have expired or otherwise terminated (or
restricted stock that has not become fully vested in the case of restricted
stock awards) under the incentive plan, the 1997 incentive plan and the 1999
incentive plan without having been exercised in full (or vested with respect to
restricted stock awards) again become available for the grant of awards under
the 1999 incentive plan. Shares issued under the 1999 incentive plan may be
previously unissued shares or reacquired shares bought on the market or
otherwise.
STOCK OPTION GRANTS TO NON-EMPLOYEE DIRECTORS. The 1999 incentive plan provides
for the automatic grant of nonstatutory stock options to purchase shares of
common stock to our non-employee directors.
Administration and terms. The board of directors administers automatic option
grants to non-employee directors, unless and until it delegates administration
to a committee. Options granted to non-employee directors are generally subject
to the following terms:
- the exercise price of options granted will be equal to the fair market
value of the common stock on the date of grant;
- no option granted may be exercised after the expiration of 10 years from
the date it was granted;
- options granted are not transferable other than by will or by the laws
of descent and distribution and are exercisable during the life of the
optionee only by the optionee;
- an optionee may designate a beneficiary who may exercise the option
following the optionee's death; and
- an optionee whose service relationship with Eloquent or any affiliate
(whether as a non-employee director of Eloquent or subsequently as an
employee, director or consultant of either Eloquent or an affiliate)
ceases for any reason may exercise vested options for the term provided
in the option agreement (12 months generally, 18 months in the event of
death). However, an option may not be exercised after the expiration of
its term.
Automatic grants. Upon the tenth business day after the completion of this
offering, subject to certain exceptions, each non-employee director will
automatically be granted an option to purchase 25,000 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. Each year, on the day after our annual stockholders' meeting,
commencing in 2000, any person who is then a non-employee director will
automatically be granted an option to purchase 5,000 shares of common stock,
provided that if any non-employee director that had not served in that capacity
for the entire period since the preceding annual stockholders' meeting, then the
number of shares subject to the annual grant shall be reduced, pro rata, for
each full quarter the person did not serve during the previous period. Initial
grants vest over a three-year period, and annual grants vest one year from the
date of grant. All automatic director grants become immediately exercisable upon
grant.
1999 EMPLOYEE STOCK PURCHASE PLAN. In October 1999, the board of directors
adopted, subject to stockholder approval, the 1999 Employee Stock Purchase Plan,
authorizing the issuance of shares of common stock pursuant to
purchase rights granted to our employees or to employees of any of our
affiliates. The purchase plan is intended to qualify as an employee stock
purchase plan within the meaning of Section 423 of the Code. The purchase plan
provides a means by which employees may purchase our common stock through
payroll deductions. As of the date hereof, no shares of common stock have been
purchased under the purchase plan.
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<PAGE> 57
Administration. The purchase plan is administered by the board of directors. The
board of directors may delegate authority to administer the purchase plan to a
committee. Subject to the terms of the plan, the board of directors or its
authorized committee determines when and how rights to purchase shares will be
granted and the provisions of each offering of rights. Under the plan, we may
specify offerings with a duration of not more than 27 months, and may specify
shorter purchase periods within each offering. The first offering will begin on
the effective date of this offering and be approximately 25 months in duration,
with purchases occurring every six months. Unless otherwise determined by the
board of directors, common stock is purchased for accounts of employees
participating in the purchase plan at a price per share equal to the lower of:
- 85% of the fair market value of a share of our common stock on the date
of commencement of participation in the offering; or
- 85% of the fair market value of a share of our common stock on the date
of purchase.
Eligibility. The purchase plan is implemented by offerings of rights to eligible
employees. Generally, all regular employees, including executive officers, who
work at least 20 hours per week and are customarily employed by Eloquent or by
an affiliate of Eloquent for at least five months per calendar year may
participate in the purchase plan and may authorize payroll deductions of up to
15% of their earnings for the purchase of stock under the purchase plan.
Eligible employees may be granted rights only if the rights, together with any
other rights granted under employee stock purchase plans, do not permit such
employee's rights to purchase our stock to accrue at a rate which exceeds
$25,000 of the fair market value of such stock for each calendar year in which
such rights are outstanding. No employee shall be eligible for the grant of any
rights under the purchase plan if immediately after such rights are granted,
such employee has voting power over 5% or more of our outstanding capital stock
measured by vote or value.
Changes in control. In the event of changes in control described in the plan,
the surviving entity may assume or substitute for rights outstanding under the
purchase plan. If the surviving entity does not assume or substitute for
outstanding rights, then the board of directors has discretion to cause:
- the rights to continue in full force and effect; or
- a participant's accumulated payroll deductions to be used to purchase
shares, immediately prior to the change in control, and their
outstanding rights thereafter to be terminated.
Authorized shares. The purchase plan authorizes the issuance of 700,000 shares
of common stock under the purchase plan which amount is increased each January
1, beginning January 1, 2001, by 1.0% of the number of shares of common stock
outstanding on that date. However, the board of directors has the authority to
designate a smaller number of shares by which the authorized number of shares of
common stock will be increased on that date.
EMPLOYMENT AGREEMENTS
In December 1998, we entered into an employment agreement with Mr. Kleinfeld,
under which Mr. Kleinfeld is compensated at a rate of $215,000 per year and is
eligible to receive a 1999 cash bonus of up to $100,000, subject to fulfillment
of objectives established by the board of directors. In addition, pursuant to
this agreement, Mr. Kleinfeld received options to purchase 1,160,000 shares of
our common stock at an exercise price of $1.00 per share in January 1999 and
options to purchase 65,000 shares of our common stock at an exercise price of
$2.00 per share in October 1999. These options vest over four years. To the
extent permissible under applicable IRS rules, these options will be incentive
stock options. In the event Mr. Kleinfeld is terminated without "cause," he is
entitled to receive from us continued payment of his base salary for a period of
six months and continued vesting of outstanding stock options during such
period. In addition, in the event of a change in control of Eloquent, one-half
of the then-unvested shares subject to the options will immediately vest.
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CERTAIN TRANSACTIONS
In March 1995, we issued and sold an aggregate of 3,300,000 shares of our common
stock at $0.001 per share. In October 1995, we issued and sold an aggregate of
1,250,000 shares of our Series A preferred stock at $0.80 per share. From August
to September 1996, we issued and sold an aggregate of 1,907,513 shares of our
Series B preferred stock at $1.73 per share. From August 1997 to October 1997,
we issued and sold an aggregate of 1,912,233 shares of Series C preferred stock
at $3.90 per share. In June 1998, we issued and sold an aggregate of 2,089,263
shares of Series D preferred stock at $5.10 per share. In October 1999, we
issued and sold subordinated notes with an aggregate initial principal amount of
$20.0 million and warrants to purchase 1,500,000 shares of common stock with an
exercise price of $0.01 per share.
The following table identifies the directors, executive officers and five
percent stockholders who have purchased shares of our preferred stock or common
stock, or purchased our subordinated notes and warrants. See "Principal
Stockholders" for additional information relating to the beneficial ownership of
these stockholders.
<TABLE>
<CAPTION>
SHARES OF COMMON
STOCK SUBJECT
TO WARRANTS
SHARES OF COMMON SHARES OF PREFERRED PRINCIPAL AMOUNT OF ASSOCIATED
INVESTOR STOCK PURCHASED STOCK PURCHASED NOTES PURCHASED WITH NOTES
-------- ---------------- ------------------- ------------------- ----------------
<S> <C> <C> <C> <C>
Clifford A. Reid, Ph.D.(1).... 2,100,000 -- -- --
Bruce A. Forgrieve(2)......... 600,000 -- -- --
David Glazer.................. 600,000 -- -- --
Entities associated with ONSET
Ventures.................... -- 2,768,151 $2,000,000 150,000
Entities associated with
Foundation Capital.......... -- 1,604,096 $1,000,000 75,000
Entities associated with
Crosslink Capital, Inc...... -- 1,372,548 $1,000,000 75,000
Entities associated with Menlo
Ventures.................... -- 1,305,129 $1,000,000 75,000
GMN Investors II, L.P......... -- -- $5,000,000 375,000
</TABLE>
- ---------------------------------------------
(1) Dr. Reid contributed 420,000 of such shares to Eloquent in October 1995 and
sold 96,000 of such shares to Mr. Forgrieve in November 1995.
(2) Mr. Forgrieve purchased an additional 96,000 shares from Dr. Reid in
November 1995. In June 1998, Eloquent repurchased 140,000 of the shares
listed above at cost in connection with Mr. Forgrieve's termination of
employment.
In July 1996, we entered into a Note and Warrant Purchase Agreement with ONSET
Enterprise Associates II, L.P., a holder of more than five percent of our
outstanding capital stock and an entity affiliated with Mr. Opdendyk, a director
of Eloquent. Pursuant to this agreement, we borrowed $250,000 from ONSET and
issued and sold to ONSET a warrant to purchase 14,450 shares of our common stock
at an exercise price of $0.173 per share that will expire upon the closing of
this offering. The loan was evidenced by a promissory note in the amount of
$250,000, bearing interest at an annual rate of six percent, with principal and
accrued interest due and payable in October 1996. The note provided that ONSET
had the option to convert outstanding principal and interest on the loan into
shares of Eloquent stock upon a subsequent sale of stock to institutional
venture investors with proceeds to Eloquent of at least $2,000,000. The
principal and interest amount was paid to ONSET in August 1996.
Pursuant to an agreement dated October 20, 1999, between Eloquent and certain
investors, the investors have certain registration rights for the shares of
common stock held by them, or subject to acquisition upon exercise of certain
warrants. See "Description of Capital Stock -- Registration Rights" for a
description of these registration rights.
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<PAGE> 59
In December 1998, we entered into our standard Player Package Agreement with
eCicero Corporation pursuant to which we agreed to produce rich media events for
eCicero from time to time and we granted eCicero a license to distribute our
desktop player software together with the events. Bruce A. Forgrieve, a former
executive officer and director of Eloquent, founded eCicero and serves as its
President and Chief Executive Officer and a member of its board of directors. In
addition, in March 1999, we entered into a Software and Services Agreement with
eCicero. Pursuant to this agreement, we licensed to eCicero certain of our
content production software and our applications server software, and eCicero
agreed to use our content production services to produce at least forty hours of
content over a two-year period. The agreement permits eCicero to produce
standardized events presented by subject matter experts, using our platform (or
have us produce the events) and to resell the events to its own customers.
eCicero is required to pay Eloquent a one-time software site license fee of
$100,000, an annual software maintenance fee of $15,000 and content production
fees of $2,000 per finished hour of content for an event.
In January 1999, we entered into a Confidential Agreement and General Release
with Gloria M. Purdy, providing for her resignation, effective as of February 1,
1999, from the positions of Chief Financial Officer, Secretary and Treasurer.
The agreement further provided for Ms. Purdy's continued service as a consultant
to Eloquent through August 1, 1999. In exchange for her release of all claims
against Eloquent and in consideration for her services as a consultant, Ms.
Purdy continued to receive her base pay and certain health, vacation, executive
bonus and reimbursement benefits through August 1, 1999. The aggregate value of
such benefits provided to Ms. Purdy under the agreement was approximately
$113,000. Additionally, Ms. Purdy's grant of options to purchase 225,000 shares
of our common stock, originally granted in April 1998, continued to vest at a
rate of 3,750 shares per month during the six-month period that she served as a
consultant. For additional information relating to Ms. Purdy's compensation see
"Management -- Executive Compensation."
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<PAGE> 60
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to us with respect to
beneficial ownership of our common stock as of September 30, 1999 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 current executive officers and directors as a group.
Unless otherwise indicated below, the persons and entities named in the table
have sole voting and sole investment power with respect to all shares
beneficially owned, subject to community property laws where applicable.
Percentage ownership is based on 10,611,247 shares of common stock outstanding
as of September 30, 1999 and shares outstanding immediately
following the completion of this offering, assuming no exercise by the
underwriters of their over-allotment option to purchase additional shares of our
common stock. Shares of common stock subject to options and warrants that are
currently exercisable or exercisable within 60 days of September 30, 1999 are
deemed to be outstanding and to be beneficially owned by the person holding such
options for the purpose of computing the percentage ownership of that person but
are not treated as outstanding for the purpose of computing the percentage
ownership of any other person. The following table is presented on a pro forma
basis to reflect the issuance of warrants to purchase 1,500,000 shares of common
stock in October 1999 as if such issuance occurred on September 30, 1999.
Unless otherwise noted, the address for the individuals listed below is: c/o
Eloquent, Inc., 2000 Alameda de las Pulgas, Suite 100, San Mateo, California
94403.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED
--------------------
NUMBER OF BEFORE AFTER
NAME OF BENEFICIAL OWNER SHARES OFFERING OFFERING
------------------------ ---------- -------- --------
<S> <C> <C> <C>
Entities associated with ONSET Ventures(1).................. 2,932,601 27.2%
2490 Sand Hill Road
Menlo Park, CA 94025
Entities associated with Foundation Capital(2).............. 1,679,096 15.7%
70 Willow Road, Suite 200
Menlo Park, CA 94025
Clifford A. Reid, Ph.D.(3).................................. 1,584,000 14.9%
Entities associated with Crosslink Capital, Inc.(4)......... 1,447,548 13.5%
555 California Street
Suite 2350
San Francisco, CA 94104
Entities associated with Menlo Ventures(5).................. 1,380,129 12.9%
3000 Sand Hill Road
Building 4, Suite 100
Menlo Park, CA 94025
Abraham Kleinfeld(6)........................................ 1,225,000 10.3%
David Glazer................................................ 600,000 5.7%
Bruce A. Forgrieve(7)....................................... 556,000 5.2%
2720 Wakefield Drive
Belmont, CA 94002
</TABLE>
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<PAGE> 61
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED
--------------------
NUMBER OF BEFORE AFTER
NAME OF BENEFICIAL OWNER SHARES OFFERING OFFERING
------------------------ ---------- -------- --------
<S> <C> <C> <C>
Anthony P. Brenner(4)....................................... 1,447,548 13.5%
c/o Crosslink Capital, Inc.
555 California Street
Suite 2350
San Francisco, CA 94104
Kathryn C. Gould(2)......................................... 1,679,096 15.7%
c/o Foundation Capital
70 Willow Road, Suite 200
Menlo Park, CA 94025
David F. Millet(8).......................................... 375,000 3.4%
Terry L. Opdendyk(1)........................................ 2,932,601 27.2%
c/o ONSET Ventures
2490 Sand Hill Road
Menlo Park, CA 94025
Susan Dickerson............................................. 79,333 *
William Glazier............................................. 31,500 *
Gloria M. Purdy............................................. 60,000 *
All directors and current executive officers
As a group (10 persons)(9)................................ 10,407,445 80.1%
</TABLE>
- ---------------------------------------------
* Less than one percent.
(1) Includes 2,413,700 shares, a warrant to purchase 14,450 shares and a
warrant to purchase 75,000 shares held by ONSET Enterprise Associates II,
L.P. and 354,451 shares and a warrant to purchase 75,000 shares, held by
ONSET Enterprise Associates III, L.P. (collectively, the "ONSET Funds").
Mr. Opdendyk, a director of Eloquent, is a general partner of each of the
ONSET Funds. Mr. Opdendyk disclaims beneficial ownership of these shares
within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934.
(2) Includes 1,470,022 shares and a warrant to purchase 67,500 shares held by
Foundation Capital, L.P. and 134,074 shares held and a warrant to purchase
7,500 shares by Foundation Capital Entrepreneurs Fund, LLC (collectively,
the "Foundation Funds"). Ms. Gould, a director of Eloquent, is a general
partner of each of the Foundation Funds. Ms. Gould disclaims beneficial
ownership of these shares within the meaning of Rule 13d-3 under the
Securities Exchange Act of 1934.
(3) Darlene K. Mann, Mr. Reid's domestic partner, is a general partner of each
of the ONSET Funds. Mr. Reid disclaims beneficial ownership of any of the
shares held by the ONSET Funds.
(4) Includes 63,747 shares and a warrant to purchase 3,487 shares held by Omega
Bayview, L.L.C., 118,982 shares held by Crosslink Crossover Fund II, L.P.,
a warrant to purchase 6,502 shares held by Crosslink Crossover Fund III,
L.P., 464,984 shares and a warrant to purchase 25,407 shares held by
Crosslink Omega Ventures III, L.L.C., and 724,835 shares and a warrant to
purchase 39,604 shares held by Crosslink Offshore Omega Ventures III, A
Cayman Islands Trust (collectively, the "Crosslink Funds"). Mr. Brenner, a
director of Eloquent, is a member of Omega Bayview, L.L.C. and is a member
of the general partner of each of the other Crosslink Funds. Mr. Brenner
disclaims beneficial ownership of these shares within the meaning of Rule
13d-3 under the Securities Exchange Act of 1934.
(5) Includes 55,559 shares and a warrant to purchase 3,000 shares held by Menlo
Entrepreneurs Fund VII, L.P. and 1,249,570 shares and a warrant to purchase
72,000 shares held by Menlo Ventures VII, L.P. (collectively, the "Menlo
Funds").
(6) Includes 1,225,000 shares underlying currently exercisable stock options
granted to Mr. Kleinfeld under our 1997 Equity Incentive Plan. If these
options were exercised in full within 60 days of September 30, 1999,
741,667 shares would be subject to a repurchase right in favor of Eloquent.
(7) Includes 556,000 shares held in the Bruce A. Forgrieve Living Trust, for
which Mr. Forgrieve, a former executive officer of Eloquent, serves as a
trustee.
(8) Includes a warrant to purchase 375,000 shares held by GMN Investors II,
L.P. Mr. Millet is an officer of the general partner of such fund. Mr.
Millet disclaims beneficial ownership of those shares within the meaning of
Rule 13d-3 under the Securities Exchange Act of 1934.
(9) Includes 1,689,200 shares underlying currently exercisable stock options
granted to seven of our executive officers (one of whom is also a director)
under our 1997 Equity Incentive Plan. If these options were exercised in
full within 60 days of September 30, 1999, 1,140,877 shares would be
subject to a repurchase right in favor of Eloquent.
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<PAGE> 62
DESCRIPTION OF CAPITAL STOCK
The following description of the capital stock of Eloquent and certain
provisions of our certificate of incorporation and bylaws, each of 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 our certificate of
incorporation and bylaws, which have been filed as exhibits to the registration
statement, of which this prospectus is a part.
Upon the closing of this offering, the authorized capital stock of Eloquent will
consist of 40,000,000 shares of common stock, $0.001 par value per share, and
10,000,000 shares of preferred stock, $0.001 par value per share.
COMMON STOCK
As of September 30, 1999, there were 3,452,238 shares of our common stock
outstanding, held of record by 61 stockholders. Subject to preferences that
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 General Corporation Law
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. The common stock is not entitled to preemptive rights and is not
subject to redemption. Upon a liquidation, dissolution or winding-up of
Eloquent, 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
As of September 30, 1999, there were 7,159,009 shares of our Series A, Series B,
Series C and Series D preferred stock outstanding, held of record by 16
stockholders. Upon the closing of this offering, all outstanding shares of
Series A, Series B, Series C and Series D preferred stock will be converted into
7,159,009 shares of common stock. Following the conversion, the shares converted
will be retired from the number of authorized shares of preferred stock. In
connection with our subordinated note and warrant financing in October 1999, we
authorized the issuance of 2,500,000 shares of Series E preferred stock. The
subordinated notes are convertible into Series E preferred stock after December
31, 2000, but must be repaid with proceeds from this offering, so we do not
expect any shares of Series E preferred stock to be issued.
Upon the closing of this offering, the board of directors will have the
authority, without further action by the stockholders, to issue up to 10,000,000
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
Eloquent and may adversely affect the market price of the common stock and the
voting and other rights of the holders of common stock.
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WARRANTS
Between November 1995 and March 1998, we issued warrants to purchase an
aggregate of 108,986 shares of our common stock at a weighted average exercise
price of $2.15 per share to Lighthouse Capital Partners, L.P. and Lighthouse
Capital Partners II, L.P. In July 1996, we issued and sold a warrant to purchase
up to 14,450 shares of our common stock at an exercise price of $0.173 per share
to ONSET Enterprise Associates II, L.P.
In May 1997, we issued a warrant to purchase up to 14,451 shares of our Series B
preferred stock at an exercise price of $1.73 per share to Imperial Bank. In
July 1999, we issued a warrant to purchase up to 70,000 shares of our common
stock at an exercise price of $5.10 per share to an affiliate of Transamerica
Business Credit Corporation, TBCC Funding Trust II.
In October 1999, we issued warrants to purchase an aggregate of 1,500,000 shares
of our common stock with an exercise price of $0.01 per share to purchasers of
our subordinated notes.
All warrants are subject to the provisions of an investors' rights agreement.
See "-- Registration Rights" for additional information relating to this
agreement.
REGISTRATION RIGHTS
Pursuant to an investors' rights agreement dated October 20, 1999, between
Eloquent and some of our investors and warrantholders, the investors and
warrantholders have registration rights for the 8,659,009 shares of common stock
held by them, or issuable upon exercise of their warrants. Under the rights
agreement, investors holding more than 50% of the then outstanding registrable
securities may demand that we file a registration statement under the Securities
Act covering all or a portion of the investors' registrable securities. A
registration demand must cover at least 20% of the investors' then outstanding
registrable securities or any lesser percentage of such securities if the
registration has an aggregate offering price to the public of at least $2
million. These registration rights are subject to our right to delay the filing
of a registration statement for a period not to exceed 180 days after receiving
the registration demand, although we cannot delay more than once in a 12-month
period. The managing underwriter, if any, of any such offering has the right to
limit the number of the registrable securities proposed to be included in such
registration.
If we are eligible to effect a registration on Form S-3, the investors holding
more than 25% of the then outstanding registrable securities may demand, that we
file a registration statement on Form S-3 covering all or a portion of the
investors' registrable securities, provided that the registration has an
aggregate offering price to the public of more than $500,000. These registration
rights are subject to our right to delay the filing of a registration statement
for a period not to exceed 90 days after receiving the registration demand,
although we cannot delay more than twice in a 12-month period.
In addition, the investors have "piggyback" registration rights. If we propose
to register any of our securities under the Securities Act (other than pursuant
to the investors' demand registration rights noted above), the investors may
require us to include all or a portion of their registrable securities in the
registration. The managing underwriter, if any, of any such offering will have
the right to limit the number of the registrable securities to no less than
one-third of the total number of securities proposed to be included in such
registration.
All registration expenses incurred in connection with the first three
registrations requested pursuant to each of the three foregoing paragraphs, will
be borne by us. Thereafter, all registration expenses will be paid by the
selling investors pro rata in proportion to the number of securities sold. In
any registration, including the first three, each selling investor will pay all
underwriting discounts and selling commissions applicable to the sale of his or
its registrable securities.
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<PAGE> 64
All registration rights described above will terminate seven years after this
offering. Following the closing of this offering, the rights of each investor
holding less than 1% of our outstanding common stock under the rights agreement
will terminate when that investor may sell all of its shares during any 90-day
period under Rule 144 of the Securities Act.
SECTION 2115
We are currently subject to Section 2115 of the California General Corporation
Law. Section 2115 provides that, regardless of a company's legal domicile,
certain provisions of California corporate law will apply to that company if
more than 50% of its outstanding voting securities are held of record by persons
having addresses in California and the majority of the company's operations
occur in California. For example, while we are subject to Section 2115,
stockholders may cumulate votes in electing directors. This means that each
stockholder may vote the number of votes equal to the number of candidates
multiplied by the number of votes to which the stockholder's shares are normally
entitled in favor of one candidate. This potentially allows minority
stockholders to elect some members of the board of directors. When we are no
longer subject to Section 2115, cumulative voting will not be allowed and a
holder of 50% or more of our voting stock will be able to control the election
of all directors. In addition to this difference, Section 2115 has the following
additional effects:
- enables removal of directors with or without cause with majority
stockholder approval;
- places limitations on the distribution of dividends;
- extends additional rights to dissenting stockholders in any
reorganization, including a merger, sale of assets or exchange of
shares; and
- provides for information rights and required filings in the event we
effect a sale of assets or complete a merger.
We anticipate that our common stock will be qualified for trading as a national
market security on the Nasdaq National Market and that we will have at least 800
stockholders of record by the record date for our 2000 annual meeting of
stockholders. If these two conditions occur, then we will no longer be subject
to Section 2115 as of the record date for our 2000 annual meeting of
stockholders. See "-- Common Stock" and "Management -- Board Composition" for
additional information relating to the effects of Section 2115 on Eloquent.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS
DELAWARE LAW. We are subject to Section 203 of the Delaware General Corporation
Law regulating corporate takeovers. Section 203, subject to exceptions,
prohibits a 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 of the corporation 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's
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 employee stock plans in which
employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer; or
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<PAGE> 65
- on or subsequent to that date, the business combination is approved by
the board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least two-thirds of the outstanding voting stock that is 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 involving
the interested stockholder;
- 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;
- any transaction that has the effect of increasing the proportionate
share of the stock of any class or series beneficially owned by the
interested stockholder; or
- 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.
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.
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 Section 203. The statute could prohibit or
delay mergers or other takeover or change-in-control attempts with respect to
Eloquent and, accordingly, may discourage attempts to acquire Eloquent.
CHARTER PROVISIONS. Our bylaws, which will become effective upon the closing of
this offering, divide the board of directors into three classes as nearly equal
in size as possible with staggered three-year terms. The classification of the
board of directors could have the effect of making it more difficult for a third
party to acquire, or of discouraging a third party from acquiring, control of
Eloquent. In addition, the bylaws provide that any action required or permitted
to be taken by our stockholders at an annual meeting or a special meeting of the
stockholders may be taken only if it is properly brought before such meeting and
may not be taken by written action in lieu of a meeting. The Bylaws also provide
that special meetings of the stockholders may be called only by the board of
directors, the chairman of the board or the chief executive officer. See
"Management -- Board Composition" for additional information relating to the
classification of the board of directors.
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LIMITATION OF LIABILITY AND INDEMNIFICATION
Our amended and restated 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.
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 modify 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, unless such
indemnification is expressly required to be made by law or the proceeding was
authorized by our board of directors.
We have entered into indemnity agreements with each of our current directors and
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 our common stock is ChaseMellon Shareholder
Services, LLC.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have outstanding shares
of common stock (based on common stock outstanding as of September 30, 1999),
assuming no exercise of the underwriters' over-allotment option and no exercise
of outstanding options. Of these shares, the shares sold in this
offering will be freely tradable without restriction under the Securities Act
unless purchased by "affiliates" of Eloquent as that term is defined in Rule 144
under the Securities Act.
All of the remaining shares are subject to lock-up agreements generally
providing that the stockholder will not:
- offer, pledge, sell, offer to sell, contract to sell, sell any option or
contract to purchase, purchase any option to sell, grant any option,
right or warrant to purchase, or otherwise transfer or dispose of,
directly or indirectly, any common stock or any securities convertible
into, or exercisable or exchangeable for, common stock; or
- enter into any swap or other agreement that transfers, in whole or in
part, any of the economic consequences of ownership of the common stock
or any securities convertible into, or exercisable or exchangeable for,
common stock,
whether any such transaction above is to be settled by delivery of common stock
or other securities, in cash or otherwise, without the prior written consent of
U.S. Bancorp Piper Jaffray Inc. on behalf of the underwriters, for a period of
180 days after the date of this prospectus.
The table below indicates approximately when the restricted stock and stock
issuable upon exercise of options and warrants outstanding as of September 30,
1999 as well as warrants issued in our October 1999 subordinated note and
warrant financing will be eligible for sale in the public market as a result of
the lock-up agreements described above, the operation of Rules 144, 144(k) and
701 and vesting restrictions. Some of the shares that will be eligible for sale
in the public market will be subject to volume and other resale restrictions as
a result of Rule 144 because the holders are affiliates of Eloquent.
ELIGIBILITY OF RESTRICTED SHARES FOR SALE IN THE PUBLIC MARKET
<TABLE>
<CAPTION>
OUTSTANDING OUTSTANDING OUTSTANDING
SHARES OPTIONS WARRANTS
----------- ----------- -----------
<S> <C> <C> <C>
On the effective date of the offering....................... 0 0 0
90 days after the effective date............................ 0 0 0
181 days after the effective date........................... 10,611,247 1,310,832 137,887
After 181 days after the effective date..................... 0 1,372,693 1,569,990
</TABLE>
In general, under Rule 144 as currently in effect, a person (or persons whose
shares are aggregated) who has beneficially owned restricted shares for at least
one year (including the holding period of any prior owner except an affiliate)
would be entitled to sell within any three-month period a number of shares that
does not exceed the greater of:
- 1% 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 filing of a Form 144 with respect to such
sale.
Sales under Rule 144 are also subject to certain manner of sale provisions and
notice requirements and to the availability of current public information about
Eloquent. Under Rule 144(k), a person who is not deemed to have been an
affiliate of Eloquent at any time during the three months preceding a sale, and
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<PAGE> 68
who has beneficially owned the shares proposed to be sold for at least two years
(including the holding period of any prior owner except an affiliate), is
entitled to sell such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.
Rule 701 permits resales of shares in reliance upon Rule 144 but without
compliance with certain restrictions, including the holding period requirement,
of Rule 144. Any of our employees, officers, directors or consultants who
purchased his or her shares pursuant to a written compensatory plan or contract
may be entitled to rely on Rule 701's resale provisions 90 days after the
effective date of this offering. Rule 701 permits affiliates to sell their Rule
701 shares under Rule 144 without complying with the holding period requirements
of Rule 144. Rule 701 further provides that non-affiliates may sell such shares
in reliance on Rule 144 without having to comply with the holding period, public
information, volume limitation or notice provisions of Rule 144.
Certain holders of shares of common stock are also entitled to certain rights
with respect to registration of such shares of common stock for offer and sale
to the public. See "Description of Capital Stock -- Registration Rights."
We intend to file, within 180 days after the effective date of the offering, a
Form S-8 registration statement under the Securities Act to register shares
issued in connection with option exercises and shares reserved for issuance
under our equity incentive plans. Common stock issued upon exercise of options
after the effective date of the Form S-8 will be available for sale in the
public market, subject to Rule 144 volume limitations applicable to affiliates
and to lock-up agreements.
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UNDERWRITING
The underwriters named below, for whom U.S. Bancorp Piper Jaffray Inc., Banc of
America Securities LLC and Thomas Weisel Partners LLC are acting as
representatives, have agreed to buy, subject to the terms and conditions of the
purchase agreement, the number of shares listed opposite their names below. The
underwriters are committed to purchase and pay for all of the shares if any are
purchased, other than those shares covered by the over-allotment option
described below.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
------------ ---------
<S> <C>
U.S. Bancorp Piper Jaffray Inc.......................
Banc of America Securities LLC.......................
Thomas Weisel Partners LLC...........................
--------
Total.......................................
========
</TABLE>
The underwriters have advised us that they propose to offer the shares to the
public at $ per share. The underwriters propose to offer the shares to
certain dealers at the same price less a concession of not more than $ per
share. The underwriters may allow and the dealers may reallow a concession of
not more than $ per share on sales to certain other brokers and dealers.
After this offering, these amounts may be changed by the underwriters.
We have granted to the underwriters an option to purchase up to an additional
shares of common stock from us at the same price to the public,
and with the same underwriting discount, as set forth in the prior paragraph.
The underwriters may exercise this option any time during the 30-day period
after the date of this prospectus, but only to cover over-allotments, if any. To
the extent the underwriters exercise the option, each underwriter will become
obligated, subject to certain conditions, to purchase approximately the same
percentage of the additional shares as it was obligated to purchase under the
purchase agreement.
The following table shows the per share and total underwriting discount to be
paid to the underwriters in connection with this offering. These amounts are
shown assuming both no exercise and full exercise of the over-allotment option.
<TABLE>
<CAPTION>
NO EXERCISE FULL EXERCISE
----------- -------------
<S> <C> <C>
Per share.............................. $ $
Total.................................. $ $
</TABLE>
The underwriting discount is an amount equal to the offering price per share to
the public of the common stock, less the amount paid by the underwriters to
Eloquent per share of common stock. The underwriting discount is %.
We have agreed to indemnify the underwriters against certain liabilities,
including civil liabilities under the Securities Act of 1933, as amended, or to
contribute to payments that the underwriters may be required to make in respect
of those liabilities.
The expenses of the offering, exclusive of the underwriting discount, include
the Securities and Exchange Commission registration fee, the National
Association of Securities Dealers filing fee, the Nasdaq National
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Market listing fee, printing expenses, legal fees and expenses, accounting fees
and expenses, road show expenses, Blue Sky fees and expenses, transfer agent and
registrar fees and other miscellaneous fees. We estimate that these fees and
expenses will be an aggregate of approximately $ . These fees and
expenses are payable entirely by us.
We and each of our directors, executive officers and certain stockholders have
agreed to restrictions on our ability to sell additional shares of our common
stock for a period of 180 days after the date of this prospectus. We have agreed
not to directly or indirectly offer for sale, sell, contract to sell, grant any
option for the sale of, or otherwise issue or dispose of, any shares of common
stock, options or warrants to acquire shares of common stock, or any related
security or instrument, without the prior written consent of U.S. Bancorp Piper
Jaffray. The agreements provide exceptions for:
- sales to underwriters pursuant to the purchase agreement;
- our sales in connection with the exercise of options granted and the
granting of options to purchase shares under our existing stock option
plans; and
- certain other exceptions specified in the purchase agreement and lock-up
agreements.
Of the shares of common stock offered by us,
shares will be reserved for sale to persons designated by us.
Total shares reserved for sale to persons designated by us will not exceed 5% of
the total shares offered. Shares not sold to these persons will be reoffered
immediately by the underwriters to the public at the initial public offering
price.
Thomas Weisel Partners LLC, one of the representatives of the underwriters, was
organized and registered as a broker-dealer in December 1998. Since December
1998, Thomas Weisel Partners has been named as a lead or co-manager of 76 filed
public offerings of equity securities, of which 53 have been completed, and has
acted as a syndicate member in an additional 38 public offerings of equity
securities. Thomas Weisel Partners does not have any material relationship with
Eloquent or any of our officers, directors or other controlling persons, except
for its contractual relationship with Eloquent under the terms of the
underwriting agreement entered into in connection with this offering.
Prior to the offering, there has been no established trading market for our
common stock. The initial public offering price will be negotiated by us and the
underwriters. The factors considered in determining the initial public offering
price will include:
- the history of and the prospects for the industry in which we compete;
- our past and present operations;
- our historical results of operations;
- our prospects for future earnings;
- the recent market prices of securities of generally comparable
companies;
- the general condition of the securities markets at the time of the
offering; and
- other relevant factors.
We cannot assure you that the initial public offering price of the common stock
will correspond to the price at which the common stock will trade in the public
market subsequent to this offering or that an active public market for the
common stock will develop and continue after this offering.
To facilitate the offering, the underwriters may engage in transactions that
stabilize, maintain or otherwise affect the price of the common stock during and
after the offering. Specifically, the underwriters may over-allot or otherwise
create a short position in the common stock for their own account by selling
more shares
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of common stock than have been sold to them by us. The underwriters may elect to
cover any such short position by purchasing shares of common stock in the open
market or by exercising the over-allotment option granted to the underwriters.
In addition, the underwriters may stabilize or maintain the price of the common
stock by bidding for or purchasing shares of common stock in the open market and
may impose penalty bids. If penalty bids are imposed, selling concessions
allowed to syndicate members or other broker-dealers participating in the
offering are reclaimed if shares of common stock previously distributed in the
offering are repurchased, whether in connection with stabilization transactions
or otherwise. The effect of these transactions may be to stabilize or maintain
the market price of the common stock at a level above that which might otherwise
prevail in the open market. The imposition of a penalty bid may also affect the
price of the common stock to the extent that it discourages resales of the
common stock. The magnitude or effect of any stabilization or other transactions
is uncertain. These transactions may be effected on the Nasdaq National Market
or otherwise and, if commenced, may be discontinued at any time.
U.S. Bancorp Piper Jaffray acted as placement agent in connection with our sale
of exchangeable subordinated notes and warrants to purchase common stock in
October 1999. As compensation for those services, we paid U.S. Bancorp Piper
Jaffray a cash fee of $1,000,100 and issued to U.S. Bancorp Piper Jaffray 15,000
shares of our common stock. In addition, three individuals affiliated with U.S.
Bancorp Piper Jaffray and one individual affiliated with Banc of America
Securities LLC participated in our subordinated notes and warrant financing in
October 1999. These individuals purchased notes with an aggregate principal
amount of $300,000 and acquired warrants to purchase a total of 22,500 shares of
common stock. These warrants were exercised in full immediately after they were
issued. Rule 2710(c)(7) of the National Association of Securities Dealers'
conduct rules prohibits the sale or transfer of the shares for one year from the
date of the closing of this offering.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed upon
for Eloquent by Cooley Godward LLP, San Francisco, California. Certain legal
matters will be passed upon for the underwriters by Wilson Sonsini Goodrich &
Rosati, Professional Corporation, Palo Alto, California.
EXPERTS
The financial statements of Eloquent, Inc., as of December 31, 1998 and 1997 and
for each of the three years in the period ended December 31, 1998 included in
this prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
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WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-1 with the SEC for the stock we
are offering by this prospectus. This prospectus does not include all of the
information contained in the registration statement. You should refer to the
registration statement and its exhibits for additional information. Whenever we
make reference in this prospectus to any of our contracts, agreements or other
documents, the references are not necessarily complete and you should refer to
the exhibits attached to the registration statement for copies of the actual
contract, agreement or other document. When we complete this offering, we will
also be required to file annual, quarterly and special reports, proxy statements
and other information with the SEC.
You can read our SEC filings, including the registration statement, over the
Internet at the SEC's web site at http://www.sec.gov. You may also read and copy
any document we file with the SEC at its public reference facilities at 450
Fifth Street, NW, Washington, DC 20549, 7 World Trade Center, Suite 1300, New
York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. You may also obtain copies of the documents at
prescribed rates by writing to the Public Reference Section of the SEC at 450
Fifth Street, NW, Washington, DC 20549. Please call the SEC at 1-800-SEC-0330
for further information on the operation of the public reference facilities. Our
SEC filings are also available at the office of the Nasdaq National Market. For
further information on obtaining copies of our public filings at the Nasdaq
National Market, you should call (212) 656-5060.
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ELOQUENT, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AUDITED FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED
DECEMBER 31, 1998, DECEMBER 31, 1997 AND DECEMBER 31,
1996:
Report of Independent Accountants........................... F-2
Balance Sheets.............................................. F-3
Statements of Operations.................................... F-4
Statements of Stockholders' Equity.......................... F-5
Statements of Cash Flows.................................... F-6
Notes to Financial Statements............................... F-7
UNAUDITED CONDENSED FINANCIAL STATEMENTS AS OF AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1999:
Unaudited Condensed Balance Sheets.......................... F-23
Unaudited Condensed Statements of Operations................ F-24
Unaudited Condensed Statements of Cash Flows................ F-25
Notes to Unaudited Condensed Financial Statements........... F-26
</TABLE>
F-1
<PAGE> 74
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Eloquent, Inc:
In our opinion, the accompanying balance sheets and the related statements of
operations, of stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of Eloquent, Inc. at December 31, 1997
and 1998, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
San Jose, California
August 30, 1999, except
as to Note 11 for which
the date is October 21, 1999
F-2
<PAGE> 75
ELOQUENT, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1997 1998
----------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 4,016,103 $ 6,660,939
Accounts receivable, net of allowances for doubtful
accounts of $115,075 and $104,950 in 1997 and 1998,
respectively........................................... 1,454,556 1,981,827
Deferred production costs................................. 199,763 263,573
Prepaid expenses.......................................... 93,847 109,210
----------- ------------
Total current assets.............................. 5,764,269 9,015,549
Property and equipment, net............................... 2,070,459 2,187,815
Other assets.............................................. 238,275 258,011
----------- ------------
Total assets...................................... $ 8,073,003 $ 11,461,375
=========== ============
LIABILITIES
Current liabilities:
Bank line of credit....................................... $ 200,000 $ 1,500,000
Accounts payable and other liabilities.................... 2,111,378 1,955,375
Capital lease obligation -- current portion............... 486,132 689,891
Deferred revenue.......................................... 415,778 706,422
----------- ------------
Total current liabilities......................... 3,213,288 4,851,688
Capital lease obligation, net of current portion............ 1,270,585 1,253,883
----------- ------------
Total liabilities................................. 4,483,873 6,105,571
----------- ------------
Commitments and contingencies (Note 6)
STOCKHOLDERS' EQUITY
Convertible preferred stock, $0.001 par value:
Authorized shares; 7,500,000 shares in 1997 and 7,438,844
shares
in 1998................................................
Issued and outstanding; 5,069,746 shares in 1997 and
7,159,009 shares
in 1998................................................ 5,070 7,159
(Liquidation value of $22,412,948)........................
Common stock, $0.001 par value:
Authorized shares; 15,000,000 shares in 1997 and
17,000,000 shares
in 1998................................................
Issued and outstanding; 3,187,900 shares in 1997 and
3,471,316 shares
in 1998................................................ 3,188 3,472
Unearned stock-based compensation........................... -- (2,344,042)
Additional paid-in capital.................................. 11,805,321 25,921,704
Accumulated deficit......................................... (8,224,449) (18,232,489)
----------- ------------
Total stockholders' equity........................ 3,589,130 5,355,804
----------- ------------
Total liabilities and stockholders' equity........ $ 8,073,003 $ 11,461,375
=========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 76
ELOQUENT, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1996 1997 1998
----------- ----------- ------------
<S> <C> <C> <C>
Revenues:
Content production services...................... $ 943,700 $ 3,518,600 $ 6,750,200
Software licenses and maintenance................ -- 405,595 993,293
----------- ----------- ------------
Total revenues........................... 943,700 3,924,195 7,743,493
Cost of revenues................................... 405,299 3,766,350 6,175,032
----------- ----------- ------------
Gross margin..................................... 538,401 157,845 1,568,461
----------- ----------- ------------
Costs and expenses:
Sales and marketing.............................. 846,269 3,784,703 6,812,416
Research and development......................... 659,036 845,104 1,509,846
General and administrative....................... 596,494 1,876,228 2,210,907
Stock-based compensation......................... -- -- 991,533
----------- ----------- ------------
Total operating expenses................. 2,101,799 6,506,035 11,524,702
----------- ----------- ------------
Loss from operations..................... (1,563,398) (6,348,190) (9,956,241)
Interest expense and other charges................. (21,080) (100,211) (259,343)
Interest income and other income................... 48,800 79,103 207,544
----------- ----------- ------------
Net loss................................. $(1,535,678) $(6,369,298) $(10,008,040)
----------- ----------- ------------
Net loss per share:
Basic and diluted................................ $ (1.97) $ (4.59) $ (4.74)
=========== =========== ============
Weighted average shares -- basic and diluted....... 780,661 1,388,023 2,110,982
=========== =========== ============
Pro forma net loss per share:
Basic and diluted................................ (1.21)
Pro forma weighted average shares -- basic and
diluted....................................... 8,285,462
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 77
ELOQUENT, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED
STOCK COMMON STOCK ADDITIONAL UNEARNED
------------------ ------------------ PAID-IN STOCK-BASED ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION DEFICIT TOTAL
--------- ------ --------- ------ ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES, JANUARY 1, 1996... 625,000 $ 625 2,880,000 $2,880 $ 499,795 $ -- $ (319,473) $ 183,827
Issuance of common stock
warrants in exchange for
services................ -- -- -- -- 2,375 -- -- 2,375
Issuance of Series A
convertible preferred
stock................... 625,000 625 -- -- 499,375 -- -- 500,000
Exercise of stock
options................. -- -- 75,000 75 5,925 -- -- 6,000
Issuance of Series B
convertible preferred
stock................... 1,907,513 1,908 -- -- 3,298,090 -- -- 3,299,998
Net loss.................. -- -- -- -- -- -- (1,535,678) (1,535,678)
--------- ------ --------- ------ ----------- ----------- ------------ ------------
BALANCES, DECEMBER 31,
1996...................... 3,157,513 3,158 2,955,000 2,955 4,305,560 -- (1,855,151) 2,456,522
Issuance of Series C
convertible preferred
stock................... 1,912,233 1,912 -- -- 7,455,796 -- -- 7,457,708
Exercise of stock
options................. -- -- 232,900 233 37,750 -- -- 37,983
Issuance of common and
preferred stock warrants
in exchange for
services................ -- -- -- -- 6,215 -- -- 6,215
Net loss.................. -- -- -- -- -- -- (6,369,298) (6,369,298)
--------- ------ --------- ------ ----------- ----------- ------------ ------------
BALANCES, DECEMBER 31,
1997...................... 5,069,746 5,070 3,187,900 3,188 11,805,321 -- (8,224,449) 3,589,130
Issuance of Series D
convertible preferred
stock................... 2,089,263 2,089 -- -- 10,653,147 -- -- 10,655,236
Exercise of stock
options................. -- -- 483,766 484 100,962 -- -- 101,446
Repurchase of unvested
common stock............ -- -- (200,350) (200) (13,301) -- -- (13,501)
Unearned stock-based
compensation............ -- -- -- -- 3,335,575 (3,335,575) -- --
Amortization of
stock-based
compensation............ -- -- -- -- -- 991,533 -- 991,533
Issuance of common stock
warrants in exchange for
services................ -- -- -- -- 40,000 -- -- 40,000
Net loss.................. -- -- -- -- -- -- (10,008,040) (10,008,040)
--------- ------ --------- ------ ----------- ----------- ------------ ------------
BALANCES, DECEMBER 31,
1998...................... 7,159,009 $7,159 3,471,316 $3,472 $25,921,704 $(2,344,042) $(18,232,489) $ 5,355,804
========= ====== ========= ====== =========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 78
ELOQUENT, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1996 1997 1998
----------- ----------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................................. $(1,535,678) $(6,369,298) $(10,008,040)
Adjustment to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization..................... 60,036 222,532 707,402
Issuance of warrants in exchange for services..... 2,375 6,215 40,000
Amortization of stock-based compensation.......... -- -- 991,533
Changes in operating assets and liabilities:
Accounts receivable............................. (227,966) (1,180,820) (527,271)
Deferred production costs....................... (23,156) (176,607) (63,810)
Prepaid expenses................................ (24,381) (66,605) (15,363)
Other assets.................................... (153,393) (59,663) (19,736)
Accounts payable and other liabilities.......... 156,418 1,871,232 (156,003)
Deferred revenue................................ 108,230 267,548 290,644
----------- ----------- ------------
Net cash used in operating activities........ (1,637,515) (5,485,466) (8,760,644)
----------- ----------- ------------
Cash flows from investing activities:
Acquisition of property and equipment................ (45,603) (253,026) (146,315)
Acquisition and maturity of short-term investments... (1,178,176) 1,178,176 --
----------- ----------- ------------
Net cash provided by (used in) investing
activities................................. (1,223,779) 925,150 (146,315)
----------- ----------- ------------
Cash flows from financing activities:
Proceeds from borrowings under line of credit........ -- 1,400,000 3,300,000
Repayments of borrowings under line of credit........ -- (1,200,000) (2,000,000)
Proceeds from issuance of convertible preferred
stock............................................. 3,799,998 7,457,708 10,655,236
Proceeds from issuance of common stock............... 6,000 37,983 101,446
Repurchases of unvested common stock................. -- -- (13,501)
Proceeds from working capital line of credit from
a related party................................... 250,000 -- --
Repayment of working capital line of credit to
a related party................................... (250,000) -- --
Payment of principal of capital lease obligations.... (58,595) (221,283) (491,386)
----------- ----------- ------------
Net cash provided by financing activities.... 3,747,403 7,474,408 11,551,795
----------- ----------- ------------
Net increase in cash and cash equivalents.............. 886,109 2,914,092 2,644,836
Cash and cash equivalents, beginning of period......... 215,902 1,102,011 4,016,103
----------- ----------- ------------
Cash and cash equivalents, end of period............... $ 1,102,011 $ 4,016,103 $ 6,660,939
=========== =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 79
ELOQUENT, INC.
NOTES TO FINANCIAL STATEMENTS
1. FORMATION AND BUSINESS
Eloquent, Inc. was incorporated in Delaware in March 1995. Eloquent produces
rich media solutions for business communications. These rich media solutions are
used to communicate to target audiences through the combination of video, audio,
graphics and text in a synchronized, searchable and navigable format. These rich
media presentations can be delivered via the Web, intranets, extranets and
CD-ROMs.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Eloquent considers all highly liquid investments, purchased with an original or
remaining maturity of three months or less, as of the date of purchase, to be
cash equivalents and those with an original or remaining maturity, as of the
date of purchase, of greater than three months to be short-term investments. At
December 31, 1997 and 1998 Eloquent did not hold any securities with an original
or remaining maturity, as of the date of purchase, of three months or more.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Carrying amounts of Eloquent's financial instruments including cash and cash
equivalents, accounts receivable, accounts payable and accrued liabilities
approximate fair value due to their short maturities. Based on borrowing rates
currently available to Eloquent for loans with similar terms, the carrying value
of the bank line of credit and capital lease obligations approximate fair value.
CERTAIN RISKS AND CONCENTRATIONS
Financial instruments which potentially subject Eloquent to concentrations of
credit risk consist principally of trade accounts receivable and cash and cash
equivalents.
Substantially all of Eloquent's cash and cash equivalents as of December 31,
1998 are on deposit with two major U.S. financial institutions. Deposits at any
point in time may exceed the federally insured limits.
Eloquent supplies a variety of customers and generally does not require
collateral against orders. Although Eloquent maintains an allowance for
potential credit losses it believes to be adequate, a payment default on a
significant sale could materially and adversely affect its operating results and
financial condition. At December 31, 1997 four customers accounted for
approximately 51% of accounts receivable. At December 31, 1998 no customer
accounted for greater than 10% of accounts receivable. For fiscal year 1998, one
customer accounted for approximately 13% of revenues.
Eloquent operates in a single business segment that is characterized by rapid
technological advances, changes in customer requirements and evolving industry
standards. Any failure by Eloquent to anticipate or respond to changes in demand
could have a material adverse effect on its business and operating results.
F-7
<PAGE> 80
ELOQUENT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Eloquent relies on a number of third party suppliers for various services. While
management believes Eloquent could obtain these services from other qualified
suppliers on similar terms and conditions, a disruption in the supply of these
services by the current suppliers could have an adverse impact on the business
and operating results.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is provided using the straight-line method over the
estimated useful lives of the assets.
<TABLE>
<S> <C>
Furniture and equipment..................................... 5 years
Computers and software...................................... 3 years
</TABLE>
Leasehold improvements are amortized on a straight-line basis over their
estimated useful life or their lease term, whichever is less. Assets acquired
under capital lease are amortized over the shorter of the estimated useful
economic life or the length of the lease. Repairs and maintenance costs are
expensed as incurred.
Eloquent periodically evaluates the carrying value of equipment and leasehold
improvements held when events and circumstances warrant such a review. When the
carrying value of equipment and leasehold improvements is considered impaired, a
loss is recognized based on the amount by which the carrying value exceeds the
fair value of the asset.
DEFERRED PRODUCTION COSTS
Costs that relate to uncompleted event production are included in the financial
statements as deferred production costs. The deferred production costs at
December 31, 1998 are expected to be entirely billed and collected in 1999.
REVENUE RECOGNITION
Eloquent adopted the provisions of Statement of Position 97-2, or SOP 97-2,
Software Revenue Recognition, as amended by Statement of Position 98-4, Deferral
of Effective Date of Certain Provisions of SOP 97-2, effective January 1, 1998.
SOP 97-2 supersedes Statement of Position 91-1, Software Revenue Recognition,
and delineates the accounting for software products, products including software
that is not incidental to the product and maintenance revenues. Under SOP 97-2,
Eloquent recognizes content production revenues upon shipment of the master copy
if evidence of an arrangement exists, the fee is fixed and determinable and
collection of resulting receivables is probable.
For contracts with multiple obligations, (e.g., undelivered content production
events, compact disc duplication, maintenance, end user usage fees, content
hosting and other services) revenue is allocated to each component of the
contract based on objective evidence of its fair value, which is specific to
Eloquent. Eloquent recognizes revenue allocated to undelivered content
production events when the criteria for content production revenue set forth
above are met. Eloquent recognizes revenue for compact disc duplication upon
shipment of the duplicated compact discs.
Software licenses and maintenance include revenues in relation to end user usage
fees, software maintenance and content hosting. The revenues for end usage fees
are recognized upon shipment, or upon notification by the customer, dependent on
the delivery medium. Eloquent recognizes revenues for maintenance and content
hosting ratably over the period of the maintenance or content hosting contract.
F-8
<PAGE> 81
ELOQUENT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Prior to the adoption of SOP 97-2, effective January 1, 1998, Eloquent
recognized revenues from the sale of content production upon delivery of the
master copy if remaining obligations were insignificant and collection of the
resulting accounts receivable was probable. Revenues from the duplication of
compact disc was recognized upon shipment to the customer. Eloquent recognized
revenues from end user usage fees upon shipment, or notification of shipment, to
the customer. Revenues from content hosting and maintenance were deferred and
recognized ratably over the period of the contract.
ADVERTISING EXPENSE
Eloquent expenses advertising costs as they are incurred. Advertising expenses
for fiscal years 1996, 1997 and 1998 were not significant.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred. To date, products have
generally reached technological feasibility and have been released for sale at
substantially the same time. Accordingly, no software development costs have
been capitalized as of December 31, 1998.
STOCK-BASED COMPENSATION
Eloquent accounts for stock-based compensation issued to employees in accordance
with the provisions of Accounting Principles Board Opinion ("APB") No. 25,
Accounting for Stock Issued to Employees, and complies with the disclosure
provisions of Statement of Financial Accounting Standards ("SFAS") No. 123,
Accounting for Stock-Based Compensation. Under APB No. 25, expense is based on
the difference, if any, on the date of grant, between the fair value of common
stock and the exercise price. Stock issued to non-employees has been accounted
for in accordance with SFAS No. 123 and valued using the Black-Scholes option
pricing model.
INCOME TAXES
Eloquent accounts for income taxes using the liability method under which,
deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to affect taxable income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amounts expected to be realized.
NET LOSS PER SHARE
Eloquent computes net loss per share in accordance with SFAS No. 128 Earnings
Per Share. Under the provisions of SFAS No. 128 basic net loss per share is
computed by dividing the net loss for the period by the weighted average number
of vested common shares outstanding during the period. Diluted net loss per
share is computed by dividing the net loss for the period by the weighted
average number of common and common stock equivalent shares outstanding during
the period. Common equivalent shares are composed of common shares issuable upon
conversion of convertible preferred stock (using the if-converted method) and
shares issuable upon the exercise of stock options and warrants and are included
in the diluted net loss per share to the extent that they are dilutive.
F-9
<PAGE> 82
ELOQUENT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the computation of basic and diluted net loss per
share for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1996 1997 1998
----------- ----------- ------------
<S> <C> <C> <C>
NUMERATOR:
Net loss......................................... $(1,535,678) $(6,369,298) $(10,008,040)
----------- ----------- ------------
DENOMINATOR:
Weighted average common stock outstanding........ 2,909,521 3,052,759 3,431,042
Weighted average unvested common stock subject to
repurchase.................................... (2,128,859) (1,664,736) (1,320,060)
----------- ----------- ------------
Denominator for basic and diluted calculation...... 780,662 1,388,023 2,110,982
----------- ----------- ------------
Basic and diluted net loss per share............... $ (1.97) $ (4.59) $ (4.74)
----------- ----------- ------------
ANTIDILUTIVE SECURITIES:
Options to purchase common stock................. 482,000 1,010,061 1,318,712
Warrants......................................... 51,637 115,771 137,886
Convertible preferred stock...................... 3,157,513 5,069,746 7,159,009
----------- ----------- ------------
3,691,150 6,195,578 8,615,607
=========== =========== ============
</TABLE>
Pro forma net loss per share for the year ended December 31, 1998 is computed
using the weighted average number of common shares outstanding, including the
pro forma effects of the conversion of preferred stock into common stock
effective upon the closing of Eloquent's initial public offering on an as-if
converted basis. Pro forma diluted net loss per share is computed using the pro
forma weighted average number of common and common equivalent shares
outstanding. Common equivalent shares, composed of common shares issuable upon
the decrease of stock options and warrants, are not included in diluted net loss
per share so such shares are antidulutive.
Pro forma basic and diluted net loss per share is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1998
-----------------
(UNAUDITED)
<S> <C>
Net loss.................................................... $(10,008,040)
============
Shares used in computing basic and diluted net loss per
share..................................................... 2,110,982
Adjusted to reflect the effect of the assumed conversion of
all convertible preferred stock from the date of
issuance.................................................. 6,174,480
------------
Weighted average shares used in computing pro forma basic
and diluted net loss per share............................ 8,285,462
============
Pro forma basic and diluted net loss per share.............. $ (1.21)
============
</TABLE>
COMPREHENSIVE INCOME (LOSS)
Effective January 1, 1998 Eloquent adopted the provisions of SFAS No. 130,
Reporting of Comprehensive Income. This statement requires companies to classify
items of other comprehensive income by their components in the financial
statements and display the accumulated balance of other comprehensive income
separately in the equity section of a statement of financial position. To date,
Eloquent has not had any transactions that are required to be reported as other
comprehensive income (loss).
F-10
<PAGE> 83
ELOQUENT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No.
131, Disclosures about Segments of an Enterprise and Related Information. This
statement established standards for reporting information about operating
segments in annual financial statements. It also established standards for
related disclosures about products and services, geographic areas and major
customers. The disclosures prescribed by SFAS No. 131 are effective for fiscal
years beginning after December 15, 1997. Eloquent has determined that it does
not have any separately reportable business segments as of December 31, 1998.
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1 Accounting for Costs of Computer Software Developed
or Obtained for Internal Use. This standard requires companies to capitalize
qualifying computer software costs which are incurred during the application
development stage and amortize them over the software's estimated useful life.
SOP 98-1 is effective for fiscal years beginning after December 15, 1998.
Eloquent will adopt SOP 98-1 for the 1999 fiscal year, but does not expect such
adoption to have a material effect on its reported financial results.
In April 1998, AcSEC issued SOP 98-5, Reporting on the Costs of Start-Up
Activities. This SOP provides guidance on the financial reporting of start-up
costs. It requires the costs of start-up activities and organization costs to be
expensed as incurred. The SOP is effective for financial statements for fiscal
years beginning after December 15, 1998. The adoption of SOP 98-5 is not
expected to have a material impact on the financial statements of Eloquent.
In June 1998, the FASB Issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes methods of
accounting for derivative financial instruments and hedging activities related
to those instruments as well as other hedging activities, and is effective for
fiscal years beginning after June 15, 1999. In June 1999, the FASB issued SFAS
No. 137, Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of FASB Statement No. 133 an
amendment of FASB Statement No. 133." SFAS No. 137 defers the application of
SFAS No. 133 to be effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000, however, early application is encouraged.
Eloquent will adopt SFAS No. 133 for the 2001 fiscal year, but does not expect
such adoption to materially affect the financial statement presentation.
In December 1998, AcSEC released Statement of Position 98-9, Modification of SOP
97-2, Software Revenue Recognition. SOP 98-9 amends SOP 97-2 to require that an
entity recognize revenue for multiple element arrangements by means of the
"residual method" when (1) there is no vendor-specific objective evidence
("VSOE") of the fair values of all the undelivered elements that are not
accounted for by means of long-term contract accounting, (2) VSOE of fair value
does not exist for one or more of the delivered elements, and (3) all revenue
recognition criteria of SOP 97-2 (other than the requirement for VSOE of the
fair value of each delivered element) are satisfied. The provisions of SOP 98-9
that extend the deferral of certain paragraphs of SOP 97-2 and SOP 98-9 will be
effective for transactions that are entered into in fiscal years beginning after
March 15, 1999. Retroactive application is prohibited. Eloquent is currently
evaluating the impact of the requirements of SOP 98-9 and the effects, if any,
on its current revenue recognition policies.
F-11
<PAGE> 84
ELOQUENT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Computer equipment and software..................... $ 262,281 $ 286,683
Furniture and fixtures.............................. 54,032 66,065
Computer equipment acquired under capital lease
obligations....................................... 1,588,032 2,330,354
Leasehold improvements under capital lease
obligations....................................... 450,000 496,000
---------- ----------
2,354,345 3,179,102
Less accumulated depreciation and amortization...... (283,886) (991,287)
---------- ----------
$2,070,459 $2,187,815
========== ==========
</TABLE>
Accumulated amortization on equipment acquired under capital lease obligations
was $777,622 and $202,254 as of December 31, 1998 and 1997, respectively.
4. ACCOUNTS PAYABLE AND OTHER LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1998
---------- ----------
<S> <C> <C>
Accounts payable.................................... $ 741,036 $ 783,720
Accrued compensation and related expenses........... 458,195 539,008
Accrued sales and property taxes.................... 263,169 414,768
Accrued liabilities................................. 648,978 217,879
---------- ----------
$2,111,378 $1,955,375
========== ==========
</TABLE>
5. BANK LINE OF CREDIT AND CAPITAL LEASE OBLIGATIONS
BANK LINE OF CREDIT
At December 31, 1998, Eloquent had a revolving line of credit agreement which
provided the ability to borrow a maximum of $3 million. Of the revolving line of
credit, $2.5 million was limited to 80% of eligible accounts receivable, as
defined, and 60% of backlog. The line of credit, which is collateralized by the
assets of Eloquent, matured on July 19, 1999 and required Eloquent to maintain
certain financial covenants, including among others, specified levels of net
worth and financial ratios. At December 31, 1998, Eloquent was in compliance
with all of the financial covenants. Subsequent to December 31, 1998, Eloquent
refinanced the revolving line of credit agreement. (See Note 11: Subsequent
Events.) Borrowings under the line of credit bears interest at a rate equal to
the lender's prime rate. At December 31, 1997 and 1998, the outstanding
borrowings under the line of credit totaled $200,000 and $1,500,000,
respectively.
CAPITAL LEASE OBLIGATIONS
Eloquent has available a lease line of credit facility which allows for
borrowings up to $2,150,000 to finance equipment purchases. Leases bear interest
at rates ranging from 9.95% to 10.54%, are collateralized by the underlying
equipment, and are payable over the equipment lease term.
F-12
<PAGE> 85
ELOQUENT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Future annual minimum lease payments due under the lease agreements at December
31, 1998 are as follows:
<TABLE>
<S> <C>
1999................................................... $ 854,981
2000................................................... 776,073
2001................................................... 529,768
2002................................................... 82,368
----------
Total minimum lease payments................. 2,243,190
Less interest.......................................... (299,416)
----------
Principal minimum lease payments....................... 1,943,774
Less current portion................................... (689,891)
----------
Long-term obligations under capital leases............. $1,253,883
==========
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
OPERATING LEASE OBLIGATIONS
Eloquent leases certain office facilities under noncancelable operating lease
arrangements expiring between 2001 and 2002. As of December 31, 1998, future
minimum lease commitments under noncancelable operating leases are as follows:
<TABLE>
<S> <C>
1999................................................... $1,074,457
2000................................................... 1,102,223
2001................................................... 1,132,064
2002................................................... 324,058
----------
$3,632,802
==========
</TABLE>
Rental expense for the years ended December 31, 1996, 1997 and 1998 was $32,951,
$427,742 and $1,127,125, respectively.
LITIGATION
From time to time Eloquent is subject to legal proceedings and claims in the
ordinary course of business. Eloquent is not currently aware of any legal
proceedings or claims which it believes will have, individually or in the
aggregate, a material adverse effect on its financial position or results of
operations.
F-13
<PAGE> 86
ELOQUENT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. STOCKHOLDERS' EQUITY
CONVERTIBLE PREFERRED STOCK
The convertible preferred stock as of December 31, 1998 comprises:
<TABLE>
<CAPTION>
NUMBER OF COMMON
NUMBER OF SHARES SHARES
SHARES ISSUED AND RESERVED FOR LIQUIDATION
AUTHORIZED OUTSTANDING CONVERSION VALUE
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Series A................................... 1,250,000 1,250,000 1,250,000 $ 1,000,000
Series B................................... 1,921,964 1,907,513 1,907,513 3,299,998
Series C................................... 1,912,233 1,912,233 1,912,233 7,457,709
Series D................................... 2,354,647 2,089,263 2,089,263 10,655,241
--------- --------- --------- -----------
7,438,844 7,159,009 7,159,009 $22,412,948
========= ========= ========= ===========
</TABLE>
The preferred stock authorized by Eloquent 's Articles of Incorporation may be
issued in one or more series.
The rights, preferences and privileges of the Series A, Series B, Series C and
Series D preferred stockholders are as follows:
Conversion
Each share of the Series A, Series B, Series C and Series D preferred stock
shall be convertible at the option of the holder, at any time after the
date of issuance, into one fully paid and nonassessable share of common
stock.
Conversion is automatic upon either the closing of a public offering of the
Eloquent's common stock at a purchase price of not less than $5.10 per
share and total proceeds of at least $15,000,000 or, for each series, at
the election of two-thirds of the outstanding preferred stockholders of
that series.
Dividends
Series A, Series B, Series C and Series D preferred stockholders are
entitled to noncumulative dividends at a rate of ten percent of the
original issue price per share per annum when and if declared by the Board
of Directors. The Series A, Series B, Series C and Series D preferred
stockholders are entitled to participate in all dividends paid to common
stockholders in equal amount per share, on an as-if-converted basis, to the
amount paid for each common share. As of December 31, 1998, no dividends
have been declared.
Voting Rights and Liquidation Preference
Series A, B, C and D preferred stock have voting rights equal to the number
of shares of common stock into which the preferred stock will convert.
The Series A, Series B, Series C and Series D preferred stock have a
liquidation preference of $0.80, $1.73, $3.90 and $5.10, respectively,
subject to adjustment for splits and other recapitalizations, plus all
declared but unpaid dividends. If funds are insufficient for full payment
of these amounts, all assets and funds of Eloquent legally available will
be distributed ratably among the holders of preferred stock. If funds are
sufficient for full payment of these amounts, the holders of each share of
preferred
F-14
<PAGE> 87
ELOQUENT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
stock will receive, from legally available funds, additional payment to a
maximum of $4.75 per share. Thereafter, should any funds be available for
distribution, these shall be distributed ratably amongst the common
stockholders.
CONVERTIBLE PREFERRED STOCK WARRANTS
In May 1997, in conjunction with a short-term financing arrangement, Eloquent
issued fully exercisable warrants to purchase 14,451 shares of Series B
convertible preferred stock at a price of $1.73 per share which expire May 12,
2002. The fair value of these warrants was recorded as an expense in the year
ended December 31, 1997.
COMMON STOCK
Each share of common stock has the right to one vote. The holders of common
stock are also entitled to receive dividends whenever funds are legally
available and when declared by the Board of Directors, subject to the prior
rights of the holders of all classes of stock outstanding having priority rights
as to dividends.
At December 31, 1998, Eloquent had reserved shares of common stock for future
issuance as follows:
<TABLE>
<S> <C>
Convertible preferred stock............................... 7,159,009
Warrants.................................................. 137,886
Stock option plan......................................... 2,113,724
---------
9,410,619
=========
</TABLE>
FOUNDERS COMMON STOCK
Certain common stock was issued to the founders and is subject to repurchase
should the founders cease to be employed for any reason. Shares vest ratably
over a five year period. At December 31, 1997 and 1998, approximately 1,075,100
and 4,389,000 shares, respectively, were subject to repurchase at the original
purchase price of $0.01.
COMMON STOCK WARRANTS
In 1995, Eloquent issued fully exercisable warrants to purchase 37,187 shares of
common stock for $0.80 per share in connection with a capital lease facility.
The warrants expire November 30, 2002. The fair value of these warrants was
recorded as an expense in the year ended December 31, 1995.
In 1996, Eloquent issued fully exercisable warrants to purchase 14,450 shares of
common stock for $0.173 per share in connection with working capital obtained
from a related party. The warrants expire July 10, 2001 or upon an initial
public offering. The fair value of these warrants was recorded as an expense in
the year ended December 31, 1996.
In 1997, Eloquent issued fully exercisable warrants to purchase 34,683 and
15,000 shares of common stock for $1.73 and $3.60 per share, respectively, in
connection with capital lease arrangements. The warrants expire March 31, 2004.
The fair value of these warrants was recorded as an expense in the year ended
December 31, 1997.
F-15
<PAGE> 88
ELOQUENT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
In 1998, Eloquent issued fully exercisable warrants to purchase 22,115 shares of
common stock for $3.90 per share in connection with a capital lease arrangement.
The warrants expire March 2005. The fair value was recorded as an expense in the
year ended December 31, 1998.
The aforementioned common stock warrants were valued by Eloquent using the
Black-Scholes option pricing model.
Warrant activity is as follows:
<TABLE>
<CAPTION>
WARRANTS OUTSTANDING
--------------------------
PRICE
DESCRIPTION SHARES PER SHARE
----------- ------- ---------------
<S> <C> <C>
Balance, December 31, 1995.................................. 37,187 $ 0.80
Warrants granted............................................ 14,450 $ 0.173
------- ---------------
Balance, December 31, 1996.................................. 51,637 $ 0.173 - $0.80
Warrants granted............................................ 49,683 $ 1.73 - $3.90
------- ---------------
December 31, 1997........................................... 101,320 $ 0.173 - $3.90
Warrants granted............................................ 22,115 $ 3.90
------- ---------------
Balance, December 31, 1998.................................. 123,435 $ 0.173 - $3.90
======= ===============
</TABLE>
At December 31, 1998, none of the warrants had been exercised.
COMMON STOCK OPTION PLAN
Eloquent has two stock option plans (collectively, "the Plans") under which
2,844,500 shares of common stock have been authorized for issuance of stock
options to employees, directors, or consultants. Both Plans are constituted and
operated under similar terms and conditions. Under the terms of the Plans,
incentive options may be granted to employees, and nonstatutory options may be
granted to employees, directors and consultants, at prices no less than 100% and
85%, respectively, of the fair market value of Eloquent's common stock at the
date of grant, as determined by the Board of Directors. For 10% stockholders,
options may be granted at prices not less than 110% of the fair market value of
the common stock on the date of grant.
Options granted under the Plans prior to November 1998 generally become
exercisable immediately and vest at 20% upon completion of one year from the
vesting commencement date and ratably 1/60 each month thereafter. The options
expire ten years from the date of grant, and Eloquent holds the right to
repurchase unvested shares issued pursuant to their exercise at the original
exercise price. In November 1998, Eloquent adjusted the terms of prospective
option grants under the Plans. Grants after November 1998 generally vest at 25%
upon completion of one year from the vesting commencement date and ratably 1/48
each month thereafter and become exercisable immediately.
F-16
<PAGE> 89
ELOQUENT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Stock option activity under the Plans is summarized as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------------------------------
SHARES AVAILABLE SHARES WEIGHTED AVERAGE
FOR GRANT UNDER OPTION EXERCISE PRICE
---------------- ------------ ----------------
<S> <C> <C> <C>
Shares reserved............................. 1,070,000
Options granted............................. (569,000) 569,000 $0.13
Options exercised........................... -- (75,000) $0.08
Options canceled............................ 12,000 (12,000) $0.08
---------- ----------
Balance, December 31, 1996.................. 513,000 482,000 $0.14
Additional shares reserved.................. 619,500
Options granted............................. (884,561) 884,561 $0.25
Options exercised........................... -- (232,900) $0.16
Options canceled............................ 123,600 (123,600) $0.13
---------- ----------
Balance, December 31, 1997.................. 371,539 1,010,061 $0.23
Additional shares reserved.................. 1,155,000
Options granted............................. (1,061,934) 1,061,934 $0.59
Options exercised........................... -- (483,766) $0.21
Options canceled............................ 269,517 (269,517) $0.23
---------- ----------
Balance, December 31, 1998.................. 734,122 1,318,712 $0.49
========== ==========
</TABLE>
The options outstanding and currently vested by exercise price at December 31,
1998 were as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------------
WEIGHTED VESTED OPTIONS
AVERAGE ------------------
REMAINING WEIGHTED WEIGHTED
EXERCISE CONTRACTUAL AVERAGE AVERAGE
PRICE SHARES LIFE PRICE SHARES PRICE
- -------- --------- ----------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
$0.08 16,600 7.12 $0.08 11,100 $0.08
$0.17 307,902 8.20 $0.17 105,434 $0.17
$0.39 655,479 9.08 $0.39 122,295 $0.39
$1.00 338,731 9.68 $1.00 25,853 $1.00
--------- -------
1,318,712 264,682
========= =======
</TABLE>
FAIR VALUE DISCLOSURES
Eloquent calculated the minimum fair value of each option grant on the date of
grant using the minimum value option pricing model as prescribed by SFAS No. 123
using the following assumptions:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Risk-free interest rate................................ 6.27% 6.21% 5.21%
Expected life.......................................... 5 5 5
Dividend yield......................................... -- -- --
</TABLE>
The weighted average fair value of the options granted in 1996, 1997 and 1998
are $0.13, $0.25 and $3.69.
F-17
<PAGE> 90
ELOQUENT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the option's vesting period. Eloquent's pro forma
information follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1996 1997 1998
----------- ----------- ------------
<S> <C> <C> <C>
Net loss........................... $(1,535,678) $(6,369,298) $(10,008,040)
=========== =========== ============
Net loss -- FAS 123 adjusted....... $(1,539,731) $(6,389,860) $(10,066,083)
=========== =========== ============
Net loss per share as reported
Basic and diluted.................. $ (1.97) $ (4.59) $ (4.74)
=========== =========== ============
Net loss per share -- FAS 123
adjusted
Basic and diluted.................. $ (1.97) $ (4.60) $ (4.76)
=========== =========== ============
</TABLE>
The effects of applying SFAS 123 in this pro forma disclosure may not be
indicative of future amounts. Additional rewards in future years are
anticipated.
STOCK-BASED COMPENSATION
In connection with certain stock option grants during the year ended December
31, 1998, Eloquent recorded unearned stock-based compensation totaling
$3,335,575, which is being amortized over the vesting periods of the related
options which is generally four to five years. Amortization of this stock-based
compensation recognized during the year ended December 31, 1998 totaled
$991,533. No stock-based compensation was recorded in fiscal years 1996 and
1997.
If the stock-based compensation for year ended December 31, 1998 had been
allocated across the relevant functional expense categories within operating
expenses, it would be allocated as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1998
------------
<S> <C>
Cost of revenues............................................ $149,555
Sales and marketing......................................... 242,134
Research and development.................................... 239,161
General and administrative.................................. 360,683
--------
$991,533
========
</TABLE>
8. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1996 1997 1998
--------- ----------- ----------
<S> <C> <C> <C>
Supplemental Cash Flow Information:
Cash paid for interest.............................. $ (19,932) $ (99,809) $ (259,720)
========= =========== ==========
Noncash investing and financing activities:
Assets acquired under capital leases................ $(255,859) $(1,698,954) $ (678,443)
========= =========== ==========
Stock-based compensation............................ $ -- $ -- $3,335,575
========= =========== ==========
</TABLE>
F-18
<PAGE> 91
ELOQUENT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
9. INCOME TAXES
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 amount used for income tax purposes. Significant components of
deferred tax assets for federal and state income taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1998
----------- -----------
<S> <C> <C>
State taxes................................................. $ 272 $ 1,663
Depreciation and amortization............................... (64,620) (44,244)
Other....................................................... 312,157 529,739
Research and development credits............................ 86,057 102,663
Net operating losses........................................ 2,730,911 6,192,132
----------- -----------
Net deferred tax asset...................................... 3,064,777 6,781,953
Less valuation allowance.................................... (3,064,777) (6,781,953)
----------- -----------
$ -- $ --
=========== ===========
</TABLE>
Eloquent has established a valuation allowance against its deferred tax assets
due to the uncertainty surrounding the realization of such assets. Management
evaluates on an annual basis the recoverability of the deferred tax assets and
the level of the valuation allowance. At such time as it is determined that it
is more likely than not that the deferred tax assets are realizable, the
valuation allowance will be reduced.
Eloquent's effective tax rate differs from the statutory federal income tax rate
as shown in the following schedule:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1997 1998
---- ----
<S> <C> <C>
Statutory federal income tax rate........................... (34)% (34)%
Valuation allowance on deferred tax assets.................. 34 34
--- ---
Effective tax rate................................ --% --%
=== ===
</TABLE>
At December 31, 1998, Eloquent had federal and state net operating loss
carryforwards of approximately $15,618,977 and $15,111,744, respectively, and a
total of federal and state research and development tax credit carryforwards of
$301,950. Eloquent's net operating loss carryforwards, as well as credit
carryforwards, expire between the years 2003 and 2018, if not utilized.
The Tax Reform Act of 1986 limits the use of net operating loss and tax credit
carryforwards in certain situations where changes occur in the stock ownership
of a company. If Eloquent should have an ownership change, as defined,
utilization of the carryforwards would be restricted.
10. 401(k) SAVINGS PLAN
Eloquent has a savings plan (the "Savings Plan") that qualifies as a deferred
salary arrangement under Section 401(k) of the Internal Revenue Code, under
which, participating employees may defer a percentage (not to exceed 15%) of
their eligible pretax earnings up to the Internal Revenue Service's annual
contribution limit. All employees of Eloquent are eligible to participate in the
Savings Plan. Eloquent is not required to contribute to the Savings Plan and has
made no contributions since the inception of the Savings Plan.
F-19
<PAGE> 92
ELOQUENT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
11. SUBSEQUENT EVENTS
LINE OF CREDIT AGREEMENT
On July 14, 1999, Eloquent entered into a revolving line of credit agreement
with a financial institution. The line of credit allows for borrowings up to the
lesser of $5,000,000 or 85% of eligible receivables, as defined, plus 75% of the
unbilled receivables, as defined, plus $3,000,000 at any time outstanding. The
interest rate is the highest prime rate, as defined, plus 2% per annum for
formula loans and 3.5% per annum for non-formula loans. The interest rate shall
not exceed 9% per annum. In conjunction with the revolving line of credit,
Eloquent provided the lender with warrants to purchase 70,000 shares of common
stock at $5.10 per share. The warrants expire July 2006. Eloquent valued the
warrants using the Black-Scholes option pricing models at $402,570. This was
estimated using the following assumptions: dividend yield of 0%; volatility of
55%; risk free interest rate of 5.94% and a term of 7 years. The value will be
amortized over the term of the facility.
SALE OF $20.0 MILLION OF CONVERTIBLE NOTES AND DETACHABLE WARRANTS TO PURCHASE
1,500,000 SHARES OF COMMON STOCK
On October 20, 1999, Eloquent sold convertible notes and detachable warrants to
purchase 1,500,000 shares of common stock for aggregate gross consideration of
$20.0 million. In conjunction with the sale of the notes Eloquent incurred $1.4
million in debt issuance costs.
The notes mature on October 20, 2004 and bear interest at 12% per annum. The
notes are required to be automatically repaid when certain conditions are met,
including (i) a 50 percent change in ownership, (ii) sale of all, or
substantially all, of Eloquent's assets, (iii) merger or consolidation of
Eloquent with a third party, or (iv) the completion of an initial public
offering of common stock.
After December 31, 2000, the investors, at their option, may convert the notes
to Series E preferred stock at an initial conversion rate of $8 per share,
subject to certain anti-dilutive provisions. This gives rise to a beneficial
conversion feature of $5.0 million, based on the fair value of common stock at
the date of the sale of the notes and detachable warrants.
In conjunction with the sale of the notes, Eloquent issued to the investors
detachable warrants to purchase 1,500,000 shares of common stock with an
exercise price of $0.01 per share. The warrants expire the earlier of 5 years
after the repayment of the notes or October 20, 2006.
The gross consideration received from the notes will be allocated between the
notes and the warrants in accordance with Accounting Principles Board Opinion
No. 14 "Accounting for Convertible Debt and Debt Issued with Stock Purchase
Warrants." as follows:
<TABLE>
<S> <C>
Long term notes payable..................................... $12,500,000
Warrants.................................................... 7,500,000
-----------
Gross consideration......................................... $20,000,000
===========
</TABLE>
The beneficial conversion feature valued at $5,000,000 will be recorded as a
further discount on the sale of the notes.
The debt issuance costs and the discount resulting from the issuance of the
warrants will be amortized to interest expense over the life of the notes. The
beneficial conversion feature will be amortized over the one year period up to
the earliest conversion date.
F-20
<PAGE> 93
ELOQUENT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
EMPLOYEE STOCK PURCHASE PLAN
In October 1999, the Board approved the Employee Stock Purchase Plan covering an
aggregate of 700,000 shares of common stock. The Employee Stock Purchase Plan
will become effective on the effective date of the initial public offering and
is intended to qualify as an "employee stock purchase plan" within the meaning
of Section 423 of the Internal Revenue Code of 1986, as amended.
EQUITY INCENTIVE PLAN
In October 1999, the Board approved Eloquent's 1999 Equity Incentive Plan. The
1999 Equity Incentive Plan will become effective on the effective date of the
initial public offering and will terminate in October 2009, unless terminated
earlier by the Board of Directors. The plan provides for the grant of incentive
stock options, nonstatutory stock options and other equity instruments. Upon the
effectiveness of the plan, shares available under existing incentive plans will
become authorized for issuance under the plan.
F-21
<PAGE> 94
[INTENTIONALLY LEFT BLANK]
F-22
<PAGE> 95
ELOQUENT, INC.
CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1998 1999 1999
------------ ------------- -------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................... $ 6,660,939 $ 3,431,202 $19,644,308
Accounts receivable, net allowance for doubtful
accounts of $104,950 and $343,528,
respectively................................. 1,981,827 3,163,752 3,163,752
Deferred production costs....................... 263,573 111,802 111,802
Prepaid expenses................................ 109,210 236,789 236,789
------------ ------------ -----------
Total current assets.................... 9,015,549 6,943,545 23,156,651
Property and equipment, net..................... 2,187,815 2,025,540 2,025,540
Deferred charges................................ -- 421,457 1,283,676
Deposits........................................ 258,011 298,180 298,180
------------ ------------ -----------
Total assets............................ $ 11,461,375 $ 9,688,722 $26,764,047
============ ============ ===========
LIABILITIES
Current liabilities:
Bank line of credit............................. $ 1,500,000 $ 5,520,656 $ 2,963,087
Accounts payable and other liabilities.......... 1,955,375 2,867,479 2,867,479
Capital lease obligation -- current portion..... 689,891 690,629 690,629
Deferred revenue................................ 706,422 553,150 553,150
------------ ------------ -----------
Total current liabilities............... 4,851,688 9,631,914 7,074,345
Capital lease obligation, net of current
portion......................................... 1,253,883 888,774 888,774
Long term notes payable........................... -- -- 7,500,000
------------ ------------ -----------
Total liabilities....................... 6,105,571 10,520,688 15,463,119
------------ ------------ -----------
STOCKHOLDERS' EQUITY (DEFICIT)
Convertible preferred stock, $0.001 par value:
Authorized shares; 7,438,844 shares (actual) at
December 31, 1998 and September 30, 1999 and
10,000,000 shares (pro forma) at September
30, 1999
Issued and outstanding $7,159,009 shares
(actual) at December 31, 1998 and September
30, 1999 and no shares (pro forma) at
September 30, 1999........................... 7,159 7,159 --
Common stock, $0.001 par value:
Authorized shares; 17,000,000 shares (actual) at
December 31, 1999 and September 30, 1999
17,000,000 shares (pro forma) at September
30, 1999
Issued and outstanding 3,471,316 shares at
December 31, 1998 and 3,452,238 shares
(actual) 10,648,747 shares (pro forma) at
September 30, 1999........................... 3,472 3,452 10,649
Unearned stock-based compensation................. (2,344,042) (8,209,918) (8,209,918)
Additional paid-in capital........................ 25,921,704 35,645,885 47,778,741
Accumulated deficit............................... (18,232,489) (28,278,544) (28,278,544)
------------ ------------ -----------
Total stockholders' equity (deficit).... 5,355,804 (831,966) 11,300,928
------------ ------------ -----------
Total liabilities and stockholders'
equity
(deficit)............................. $ 11,461,375 $ 9,688,722 $26,764,047
============ ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE> 96
ELOQUENT, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1998 1999
------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Revenues:
Content production services............................... $ 5,134,577 $ 6,404,774
Software licenses and maintenance......................... 676,632 1,591,034
Professional services..................................... -- 379,482
----------- ------------
Total............................................. 5,811,209 8,375,290
Cost of revenues............................................ 4,596,089 5,097,130
----------- ------------
Gross margin.............................................. 1,215,120 3,278,160
----------- ------------
Costs and expenses:
Sales and marketing....................................... 4,832,501 5,683,805
Research and development.................................. 1,110,847 1,416,367
General and administrative................................ 1,546,381 2,586,594
Stock-based compensation.................................. 579,931 3,342,146
----------- ------------
Total operating expenses.......................... 8,069,660 13,028,912
----------- ------------
Loss from operations.............................. (6,854,540) (9,750,752)
Interest expense and other charges.......................... (207,270) (418,594)
Interest income and other income............................ 119,839 123,291
----------- ------------
Net loss.......................................... $(6,941,971) $(10,046,055)
=========== ============
Net loss per share:
Basic and diluted......................................... $ (3.49) $ (3.06)
Weighted average shares -- basic and diluted................ 1,989,998 3,285,615
Pro forma net loss per share:
Basic and diluted......................................... $ (0.96)
Pro forma weighted average shares -- basic and diluted...... 10,444,624
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-24
<PAGE> 97
ELOQUENT, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1998 1999
------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(6,941,971) $(10,046,055)
Adjustment to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.......................... 513,094 697,411
Amortization of stock-based compensation............... 579,931 3,342,146
Changes in operating assets and liabilities:
Accounts receivable.................................. (415,654) (1,152,045)
Deferred production costs............................ (36,037) 151,771
Prepaid expenses..................................... (167,178) (157,459)
Other................................................ (19,737) (40,169)
Accounts payable and other liabilities............... (317,501) 912,104
Deferred revenue..................................... 32,263 (153,272)
----------- ------------
Net cash used in operating activities............. (6,772,790) (6,445,568)
----------- ------------
Cash flows from investing activities:
Acquisition of property and equipment..................... (163,526) (336,828)
----------- ------------
Net cash used in investing activities............. (163,526) (336,828)
----------- ------------
Cash flows from financing activities:
Proceeds from borrowings under line of credit............. (200,000) 7,119,673
Repayments of borrowings under line of credit............. -- (3,099,017)
Debt issue costs.......................................... -- (70,550)
Proceeds from issuance of redeemable convertible preferred
stock, net of issuance costs........................... 10,655,236 --
Proceeds from issuance of common stock.................... 91,893 215,882
Repurchase of common stock................................ -- (102,313)
Capital lease payment..................................... (322,380) (511,016)
----------- ------------
Net cash provided by financing activities......... 10,224,749 3,552,659
----------- ------------
Net increase in cash and cash equivalents................... 3,288,433 (3,229,737)
Cash and cash equivalents, beginning of period.............. 4,016,103 6,660,939
----------- ------------
Cash and cash equivalents, end of period.................... $ 7,304,536 $ 3,431,202
=========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-25
<PAGE> 98
ELOQUENT, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. FORMATION AND BUSINESS
Eloquent, Inc. was incorporated in Delaware in March 1995. Eloquent produces
rich media solutions for business communications. These rich media solutions are
used to communicate to target audiences through the combination of video, audio,
graphics and text in a synchronized, searchable and navigable format. These rich
media presentations can be delivered via the Web, intranets, extranets and
CD-ROMs.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
BASIS OF PREPARATION
In the opinion of management, the accompanying unaudited condensed financial
statements included herein have been prepared on a consistent basis with prior
periods reported financial statements and include all material adjustments,
consisting of normal recurring adjustments, considered necessary for a fair
presentation of Eloquent's financial position as of September 30, 1999 and its
results of operations and cash flows for the nine months ended September 30,
1999 and 1998. The results of operations and cash flows for the nine months
ended September 30, 1999 and 1998 are not necessarily indicative of the results
that may be expected for the year ending December 31, 1999 and 1998. These
condensed unaudited financial statements should be read in conjunction with
Eloquent's audited financial statements for the year ended December 31, 1998.
Certain information and footnote disclosures normally included in the financial
statements have been condensed or omitted pursuant to rules and regulations of
the Securities and Exchange Commission, although Eloquent believes that the
disclosures in the unaudited interim financial results are adequate to ensure
that the information presented is not misleading.
NET LOSS PER SHARE
Eloquent computes net loss per share in accordance with SFAS No. 128 Earnings
Per Share. Under the provisions of SFAS No. 128 basic net loss per share is
computed by dividing the net loss for the period by the weighted average number
of common shares outstanding during the period. Diluted net loss per share is
computed by dividing the net loss for the period by the weighted average number
of common and common stock equivalent shares outstanding during the period.
Common equivalent shares, are composed of common shares issuable upon conversion
of convertible preferred stock (using the if-converted method) and shares
issuable upon the exercise of stock options and warrants are included in the
diluted net loss per share to the extent that such shares are dilutive.
F-26
<PAGE> 99
ELOQUENT, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
The following table sets forth the computation of basic and diluted net loss per
share for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1998 1999
------------- -------------
<S> <C> <C>
NUMERATOR:
Net loss.................................................. $(6,941,971) $(10,046,055)
=========== ============
DENOMINATOR:
Weighted average common shares outstanding................ 3,373,422 3,760,289
Weighted average unvested common shares subject to
repurchase............................................. (1,383,424) (474,674)
----------- ------------
Denominator for basic and diluted calculation............... 1,989,998 3,285,615
=========== ============
Basic and diluted net loss per share........................ $ (3.49) $ (3.06)
----------- ------------
ANTIDILUTIVE SECURITIES:
Options to purchase common stock.......................... 1,297,231 2,678,525
Warrants.................................................. 137,886 207,886
Convertible preferred stock............................... 7,159,009 7,159,009
----------- ------------
8,594,126 10,045,420
=========== ============
</TABLE>
Pro forma net loss per share for the nine months ended September 30, 1999 is
computed using the weighted average number of common shares outstanding,
including the pro forma effects of the automatic conversion of preferred stock
into common stock effective upon the closing of Eloquent's initial public
offering on an as-if converted basis. Pro forma diluted net loss per share is
computed using the pro forma weighted average number of common and common
equivalent shares outstanding. Common equivalent shares, composed of common
shares issuable upon the decrease of stock options and warrants, are not
included in diluted net loss per share so such shares are antidulutive.
Pro forma basic and diluted net loss per share is as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1999
------------------
<S> <C>
Net loss.................................................... $(10,046,055)
============
Shares used in computing basic and diluted net loss per
share..................................................... 3,285,615
Adjusted to reflect the effect of the assumed conversion of
all convertible preferred stock from the date of
issuance.................................................. 7,159,009
------------
Weighted average shares used in computing pro forma basic
and diluted net loss per share............................ 10,444,624
============
Pro forma basic and diluted net loss per share.............. $ (0.96)
============
</TABLE>
F-27
<PAGE> 100
ELOQUENT, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
PRO FORMA SEPTEMBER 30, 1999
Effective upon the closing of Eloquent's initial public offering all outstanding
shares of preferred stock will convert into 7,159,009 shares of common stock.
On October 20, 1999, Eloquent sold $20.0 million of subordinated notes and
1,500,000 detachable warrants (See Note 8 "Subsequent Events"). In connection
with the sale of the notes, Eloquent issued 15,000 shares of common stock as
partial payment of a placement agent fee. Of the 1,500,000 detachable warrants,
22,500 will be exercised upon the closing of Eloquent's initial public offering.
Eloquent is required to use $2.6 million of the expected $18.8 million in net
proceeds from the initial sale of the notes to repay a portion of their existing
bank line of credit.
The pro forma effect of these events has been presented as a separate column in
the company's balance sheet, assuming the sale of the subordinated notes and
related events, as noted above had occurred as of September 30, 1999.
COMPREHENSIVE INCOME (LOSS)
Effective January 1, 1998 Eloquent adopted the provisions of SFAS No. 130,
Reporting of Comprehensive Income. This statement requires companies to classify
items of other comprehensive income by their components in the financial
statements and display the accumulated balance of other comprehensive income
separately in the equity section of a statement of financial position. To date,
Eloquent has not had any transactions that are required to be reported as other
comprehensive income (loss).
RECENT ACCOUNTING PRONOUNCEMENTS
In April 1998, AcSEC issued Statement of Position No. 98-5, Reporting on the
Costs of Start-Up Activities. This SOP provides guidance on the financial
reporting of start-up costs. It requires the costs of start-up activities and
organization costs to be expensed as incurred. The SOP is effective for
financial statements for fiscal years beginning after December 15, 1998. The
adoption of SOP No. 98-5 will not have a material impact on the financial
statements of Eloquent.
In June 1998, the FASB Issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes methods of
accounting for derivative financial instruments and hedging activities related
to those instruments as well as other hedging activities, and is effective for
fiscal years beginning after June 15, 1999. In June 1999, the FASB issued SFAS
No. 137, Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of FASB Statement No. 133 an
amendment of FASB Statement No. 133." SFAS No. 137 defers the application of
SFAS No. 133 to be effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000, however, early application is encouraged.
Eloquent will adopt SFAS No. 133 for the 2001 fiscal year, but does not expect
such adoption to materially affect financial statement presentations.
In December 1998, AcSEC released Statement of Position 98-9. Modification of SOP
97-2, "Software Revenue Recognition." SOP 98-9 amends SOP 97-2 to require that
an entity recognize revenue for multiple element arrangements by means of the
"residual method" when (1) there is no vendor-specific objective evidence
("VSOE") of the fair value of all the undelivered elements that are not
accounted for by means of long-term contract accounting, (2) VSOE of fair value
does not exist for one or more of the delivered elements, and (3) all revenue
recognition criteria of SOP 97-2 (*other than the requirement for VSOE of the
fair value of each delivered element) are satisfied. The provisions of SOP 98-9
that extend
F-28
<PAGE> 101
ELOQUENT, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
the deferral of certain paragraphs of SOP 97-2 became effective December 15.
1998. These paragraphs of SOP 97-2 and SOP 98-9 will be effective to
transactions that are entered into in fiscal years beginning after March 15,
1999. Retroactive application is prohibited. The Company is currently evaluating
the impact of the requirements of SOP 98-9 and the effects, if any, on its
current revenue recognition policies.
3. DEFERRED CHARGES
In conjunction with the revolving line of credit, Eloquent issued to the lender
warrants to purchase 70,000 shares of common stock at $5.10 per share. The
warrants expire July 2006. Eloquent valued the warrants using the Black-Scholes
option pricing models at $402,570, and has recorded the value of the warrants as
debt issuance costs. Debt issue costs are being amortized over the life of the
revolving credit facility which is 18 months. This was estimated using the
following assumptions: dividend yield of 0%; volatility of 55%; risk free
interest rate of 5.94% and the expected life of 7 years.
In connection with the issuance of $20.0 million of convertible notes (see Note
8, "Subsequent Events") Eloquent has incurred costs of $70,550. These costs have
been recorded as debt issue costs and will be amortized over the life of the
notes.
4. BANK LINE OF CREDIT AND CAPITAL LEASE OBLIGATIONS
BANK LINE OF CREDIT
On July 14, 1999, Eloquent entered into a revolving line of credit agreement
with a financial institution. The line of credit allows for borrowings up to the
lesser of $5,000,000 or 85% of the company's eligible receivables, as defined,
plus 75% of the unbilled receivables, as defined, plus $3,000,000 at any time
outstanding. This line of credit replaces a $2.5 million credit agreement that
expired as of July 19, 1999. The interest rate is the highest prime rate, as
defined, plus 2% per annum for formula loans and 3.5% per annum for non-formula
loans. The interest rate shall not exceed 9% per annum. At December 31, 1998 and
September 30, 1999, the outstanding borrowings under the respective lines of
credit totaled $1,500,000 and $5,520,656, respectively.
CAPITAL LEASE OBLIGATIONS
On August 5, 1999, Eloquent entered into a lease line of credit agreement with a
financial intermediary. The line of credit allows for principal borrowings of up
to $1,500,000. The ability to finance principal expires on the earlier of
reaching the $1,500,000 limit or July 31, 2000. The agreement replaces
Eloquent's previous lease line of credit agreement that expired in the third
quarter of 1999. Leases bear interest at rates ranging from 9.95% to 10.54%, are
collateralized by the underlying equipment, and are payable over the equipment
lease term.
5. COMMITMENTS AND CONTINGENCIES
LITIGATION
From time to time Eloquent is subject to legal proceedings and claims in the
ordinary course of business. Eloquent is not currently aware of any legal
proceedings or claims which Eloquent believes will have, individually or in the
aggregate, a material adverse effect on Eloquent's financial position or results
of operations.
F-29
<PAGE> 102
ELOQUENT, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
6. STOCKHOLDERS' EQUITY
Stock option activity under the Eloquent's stock option plans, is summarized as
follows:
<TABLE>
<CAPTION>
OPTION OUTSTANDING
--------------------------------------------------
SHARES AVAILABLE SHARES AVERAGE WEIGHTED
FOR GRANT UNDER OPTION EXERCISE PRICE
---------------- ------------ ----------------
<S> <C> <C> <C>
Balance, December 31, 1997.................. 371,539 1,010,061 $0.23
Additional shares reserved.................. 1,155,000 -- $ --
Options granted............................. (1,061,934) 1,061,934 $0.59
Options exercised........................... -- (483,766) $0.29
Options canceled............................ 269,517 (269,517) $0.23
---------- ---------
Balance, December 31, 1998.................. 734,122 1,318,712 $0.49
---------- ---------
Additional shares reserved.................. 1,760,000 -- $ --
Options granted............................. (2,268,300) 2,268,300 $1.04
Options exercised........................... -- (323,510) $0.67
Options canceled............................ 579,977 (579,977) $0.45
---------- ---------
Balance, September 30, 1999................. 805,799 2,683,525 $0.93
========== =========
</TABLE>
STOCK BASED COMPENSATION
In connection with certain stock option grants during the nine months ended
September 30, 1998 and 1999, Eloquent recorded unearned stock-based compensation
totaling $2,528,671 and $9,208,022, respectively, which is being amortized over
the vesting periods of the related options which is generally four to five
years. Amortization of this stock-based compensation recognized during the nine
months ended September 30, 1998 and 1999 totaled approximately $579,931 and
$3,342,126, respectively.
Stock option grants during the nine months ended September 30, 1999 included
1,370,000 of common stock option granted to executive officers of Eloquent.
If the stock-based compensation for the nine months ended September 30, 1999 and
1998 had been allocated across the relevant functional expense categories within
operating expenses, it would be allocated as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1998 1999
-------- ----------
<S> <C> <C>
Cost of revenues........................................... $105,886 $ 152,147
Sales and marketing........................................ 139,305 717,874
Research and development................................... 138,172 11,994
General and administrative................................. 196,568 2,460,131
-------- ----------
$579,931 $3,342,146
======== ==========
</TABLE>
F-30
<PAGE> 103
ELOQUENT, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
7. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1998 1999
---------- ----------
<S> <C> <C>
Noncash investing and financing activities:
Assets acquired under capital leases...................... $ 519,968 $ 146,645
========== ==========
Stock based compensation.................................. $2,528,671 $9,208,022
</TABLE>
8. SUBSEQUENT EVENTS
SALE OF $20.0 MILLION OF CONVERTIBLE NOTES AND DETACHABLE WARRANTS TO PURCHASE
1,500,000 SHARES OF COMMON STOCK
On October 20, 1999, Eloquent sold convertible notes and detachable warrants to
purchase 1,500,000 shares of common stock for aggregate gross consideration of
$20.0 million. In conjunction with the sale of the notes Eloquent incurred $1.4
million in debt issuance costs.
The notes mature on October 20, 2004 and bear interest at 12% per annum. The
notes are required to be automatically repaid when certain conditions are met,
including (i) a 50 percent change in ownership, (ii) sale of all, or
substantially all, of Eloquent's assets, (iii) merger or consolidation of
Eloquent with a third party, or (iv) the completion of an initial public
offering of common stock.
After December 31, 2000, the investors, at their option, may convert the notes
to Series E preferred stock at an initial conversion rate of $8 per share,
subject to certain anti-dilutive provisions. This gives rise to a beneficial
conversion feature of $5.0 million, based on the fair value of common stock on
the date of the sale of the notes and detachable warrants.
In conjunction with the sale of the notes, Eloquent issued to the investors
detachable warrants to purchase 1,500,000 shares of common stock with an
exercise price of $0.01 per share. The warrants expire on the earlier of 5 years
after the repayment of the notes or October 20, 2006.
The gross consideration received from the notes will be allocated between the
notes and the warrants in accordance with Accounting Principles Board Opinion
No. 14 "Accounting for Convertible Debt and Debt Issued with Stock Purchase
Warrants," as follows:
<TABLE>
<S> <C>
Long term notes payable..................................... $12,500,000
Warrants.................................................... 7,500,000
-----------
Gross consideration......................................... $20,000,000
===========
</TABLE>
The beneficial conversion feature valued at $5,000,000 will be recorded as a
further discount on the sale of the notes.
The debt issuance costs and the discount resulting from the issuance of the
warrants will be amortized to interest expense over the life of the notes. The
beneficial conversion feature will be amortized over the one year period up to
the earliest conversion date.
EMPLOYEE STOCK PURCHASE PLAN
In October 1999, the Board approved the Employee Stock Purchase Plan covering an
aggregate of 700,000 shares of common stock. The Employee Stock Purchase Plan
will become effective on the effective date of the initial public offering and
is intended to qualify as an "employee stock purchase plan" within the meaning
of Section 423 of the Internal Revenue Code of 1986, as amended. the initial
public offering and
F-31
<PAGE> 104
ELOQUENT, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
is intended to qualify as an "employee stock purchase plan" within the meaning
of Section 423 of the Internal Revenue Code of 1986, as amended.
EQUITY INCENTIVE PLAN
In October 1999, the Board approved Eloquent's 1999 Equity Incentive Plan. The
1999 Equity Incentive Plan will become effective on the effective date of the
initial public offering and will terminate in October 2009, unless terminated
earlier by the Board of Directors. The plan provides for the grant of incentive
stock options, nonstatutory stock options and other equity instruments. Upon the
effectiveness of the plan, shares available under existing incentive plans will
become authorized for issuance under the plan.
F-32
<PAGE> 105
INSIDE BACK COVER
TEXT: ELOQUENT'S RICH-MEDIA BUSINESS-TO-BUSINESS COMMUNICATIONS SOLUTIONS
HELP LEADING COMPANIES IN MAJOR INDUSTRIES INCREASE REVENUES
AND LOWER COSTS. OUR LARGEST CUSTOMERS IN EACH OF OUR MAJOR MARKETS SINCE
INCEPTION ARE:
HIGH TECHNOLOGY-HARDWARE & TELECOMMUNICATIONS
- Cisco Systems, Inc.
- Compaq Computer Corporation
- IBM Corporation
- Lucent Technologies, Inc.
- Sun Microsystems, Inc.
HIGH TECHNOLOGY-SOFTWARE
- FileNET Corporation
- Lotus Development Corporation (IBM)
- Microsoft Corporation
- Oracle Corporation
- PeopleSoft, Inc.
FINANCIAL SERVICES
- Citibank
- First USA Bank
- GE Capital
PROFESSIONAL SERVICES
- Bain & Company
- Hill Associates, Inc.
- Telcordia Technologies, Inc. (Bellcore)
<PAGE> 106
SHARES
[ELOQUENT LOGO]
COMMON STOCK
---------------------------
PROSPECTUS
---------------------------
Until , 1999, all dealers that effect transactions in these
securities, 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.
U.S. BANCORP PIPER JAFFRAY
BANC OF AMERICA SECURITIES LLC
THOMAS WEISEL PARTNERS LLC
, 1999
<PAGE> 107
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 Eloquent 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.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 15,985
NASD filing fee............................................. 6,250
Nasdaq National Market filing fee........................... 85,000
Accounting fees and expenses................................ 350,000
Legal fees and expenses..................................... 300,000
Printing and engraving expenses............................. 250,000
Blue sky fees and expenses.................................. 5,000
Transfer agent and registrar fees and expenses.............. 5,000
Miscellaneous............................................... 482,765
----------
Total............................................. $1,500,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our amended and restated 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.
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 modify 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, unless such
indemnification is expressly required to be made by law or the proceeding was
authorized by our board of directors.
We have entered into indemnity agreements with each of our current directors and
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
II-1
<PAGE> 108
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.
Reference is made to the following documents filed or incorporated by reference
as exhibits to this Registration Statement regarding relevant indemnification
provisions described above and elsewhere herein:
<TABLE>
<CAPTION>
EXHIBIT DOCUMENT NUMBER
---------------- ------
<S> <C>
Form of Underwriting Agreement.............................. 1.01
Amended and Restated Certificate of Incorporation........... 3.03
Amended and Restated Bylaws................................. 3.04
Fourth Amended and Restated Investors' Rights Agreement
dated October 20, 1999.................................... 4.02
Form of Indemnity Agreement................................. 10.01
</TABLE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following table sets forth information regarding all securities sold by the
Registrant since its inception on March 29, 1995.
1. In March 1995, Eloquent issued and sold and aggregate of 3,300,000
shares of its common stock at $0.001 per share to three investors,
2,100,000 of which were sold to a 5% stockholder of Eloquent and
2,700,000 of which were sold to two executive officers and directors of
Eloquent.
2. In October 1995, Eloquent issued and sold an aggregate of 1,250,000
shares of Series A Preferred Stock at $0.80 per share to an investor
that is both a 5% stockholder of Eloquent and an entity affiliated with
a director of Eloquent.
3. In November 1995, Eloquent issued a warrant to purchase up to 37,188
shares of common stock at an exercise price of $0.80 per share to an
entity that is not a 5% stockholder of Eloquent or an executive officer
or director (or related entity) of Eloquent.
4. In July 1996, Eloquent issued and sold a warrant to purchase up to
14,450 shares of common stock at an exercise price of $0.173 per share
to an investor that is both a 5% stockholder of Eloquent and an entity
affiliated with a director of Eloquent.
5. From August to September 1996, Eloquent issued and sold an aggregate of
1,907,513 shares of Series B Preferred Stock at $1.73 per share to four
investors, 1,849,711 of which were sold to two 5% stockholders and
1,849,711 of which were sold to two directors (and related entities) of
Eloquent.
6. In March 1997, Eloquent issued a warrant to purchase up to 34,683 shares
of common stock at an exercise price of $1.73 per share to an entity
that is not a 5% stockholder of Eloquent or an executive officer or
director (or related entity) of Eloquent.
7. In May 1997, Eloquent issued a warrant to purchase up to 14,451 shares
of Series B Preferred Stock at an exercise price of $1.73 per share to
an entity that is not a 5% stockholder of Eloquent or an executive
officer or director (or related entity) of Eloquent.
8. From August 1997 to October 1997, Eloquent issued and sold an aggregate
of 1,912,233 shares of Series C Preferred Stock at $3.90 per share to
eight investors, 1,860,950 of which were sold to
II-2
<PAGE> 109
three 5% stockholders and 1,860,950 of which were sold to three
directors (and related entities) of Eloquent.
9. In October 1997, Eloquent issued a warrant to purchase up to 15,000
shares of common stock at an exercise price of $3.90 per share to an
entity that is not a 5% stockholder of Eloquent or an executive officer
or director (or related entity) of Eloquent.
10. In March 1998, Eloquent issued a warrant to purchase up to 22,115
shares of common stock at an exercise price of $3.90 per share to an
entity that is not a 5% stockholder of Eloquent or an executive officer
or director (or related entity) of Eloquent.
11. In June 1998, Eloquent issued and sold an aggregate of 2,089,263 shares
of Series D Preferred Stock at $5.10 per share to four investors, all
of which were sold to entities that are both 5% stockholders and
affiliated with directors of Eloquent.
12. In July 1999, Eloquent issued and sold a warrant to purchase up to
70,000 shares of common stock at an exercise price of $5.10 per share
to an entity that is not a 5% stockholder of Eloquent or an executive
officer or director (or related entity) of Eloquent.
13. In October 1999, Eloquent issued $20.0 million in principal amount of
subordinated notes and warrants to purchase 1,500,000 shares of common
stock with an exercise price of $0.01 per share to 15 investors, 25% of
which were sold to 5% stockholders of Eloquent. In addition, Eloquent
issued 15,000 shares of common stock in U.S. Bancorp Piper Jaffray as
placement agent.
14. Since inception, Eloquent has granted stock options under its Equity
Incentive Plan and 1997 Equity Incentive Plan, covering an aggregate of
3,798,701 shares of common stock (net of expirations and cancellations)
at exercise prices ranging from $0.08 to $2.00 per share.
15. Since inception, options to purchase an aggregate of 1,115,176 shares
of common stock under Eloquent's Equity Incentive Plan and 1997 Equity
Incentive Plan were exercised for an aggregate purchase price of
$393,944 with a weighted average exercise price of $0.35 per share.
All sales of common stock made pursuant to the exercise of stock options granted
under the Equity Incentive Plan and 1997 Equity Incentive Plan to Eloquent's
officers, directors, employees and consultants were made in reliance on Rule 701
under the Securities Act or on Section 4(2) of the Securities Act.
All other sales were made in reliance on Section 4(2) of the Securities Act
and/or Regulation D promulgated under the Securities Act. These sales were made
without general solicitation or advertising. Each purchaser was a sophisticated
investor with access to all relevant information necessary to evaluate the
investment and represented to Eloquent that the shares were being acquired for
investment.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed herewith:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------- -------------
<C> <S>
1.01* Form of Underwriting Agreement.
3.01 Amended and Restated Certificate of Incorporation.
3.02 Amended and Restated Bylaws.
3.03 Form of Amended and Restated Certificate of Incorporation to
be filed upon completion of this offering.
3.04 Form of Amended and Restated Bylaws to be effective upon
completion of this offering.
</TABLE>
II-3
<PAGE> 110
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------- -------------
<C> <S>
4.01 Form of Specimen Stock Certificate.
4.02 Fourth Amended and Restated Investors' Rights Agreement,
dated October 20, 1999, among Eloquent and certain investors
named therein.
4.03 Securities Purchase Agreement, dated October 20, 1999, by
and among Eloquent and certain investors named therein.
5.01* Opinion of Cooley Godward LLP regarding legality of the
securities being registered.
10.01 Form of Indemnity Agreement entered into by Eloquent with
each of its directors and executive officers.
10.02 Equity Incentive Plan.
10.03 Form of Stock Option Agreement under the Equity Incentive
Plan.
10.04 1997 Equity Incentive Plan.
10.05 Form of Stock Option Agreement under the 1997 Equity
Incentive Plan.
10.06 1999 Equity Incentive Plan.
10.07 Form of Stock Option Agreement under the 1999 Equity
Incentive Plan.
10.08 Form of Nonstatutory Stock Option Agreement for Non-Employee
Director Grants under the 1999 Equity Incentive Plan.
10.09 1999 Employee Stock Purchase Plan.
10.10 Form of 1999 Employee Stock Purchase Plan Offering.
10.11 Employment Agreement, dated December 23, 1998, between
Eloquent and Abraham Kleinfeld.
10.12 Office Lease, dated November 19, 1996, between Eloquent and
California Casualty Indemnity Exchange, as amended.
10.13 OEM Agreement, dated May 30, 1997, between Eloquent and
Verity, Inc.
10.14 Software License Agreement, dated June 30, 1997, between
Eloquent and Voxware, Inc.
10.15 Co-location Service Agreement, dated March 30, 1998 between
Eloquent and Concentric Network Corporation.
10.16 Sublease Agreement, dated June 1, 1999, between Eloquent and
California Casualty Indemnity Exchange.
23.01* Consent of Cooley Godward LLP(included in Exhibit 5.01).
23.02 Consent of PricewaterhouseCoopers LLP, independent
accountants.
24.01 Power of Attorney. Reference is made to page III-6.
27.01 Financial Data Schedule.
</TABLE>
- ---------------------------------------------
* To be filed by amendment.
(b) FINANCIAL STATEMENT SCHEDULES.
II-4
<PAGE> 111
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Stockholders of Eloquent, Inc.
In connection with our audits of the financial statements of Eloquent, Inc. as
of December 31, 1997 and 1998, and for each of the three years in the period
ended December 31, 1998, which financial statements are included in the
Prospectus, we have also audited the financial statement schedule listed in Item
16(b) herein. In our opinion, this financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly,
in all material respects, the information required to be included therein.
PricewaterhouseCoopers LLP
San Jose, California
August 30, 1999
ELOQUENT, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT
BEGINNING ADDITIONS BALANCE AT
OF YEAR (REDUCTIONS) WRITE-OFFS END OF YEAR
---------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1996.............. $ -- $ -- $ -- $ --
Year ended December 31, 1997.............. -- 122,483 (7,408) 115,075
Year ended December 31, 1998.............. 115,075 9,754 (19,879) 104,950
Valuation allowance for deferred tax assets:
Year ended December 31, 1996.............. 127,747 592,750 -- 720,497
Year ended December 31, 1997.............. 720,497 2,344,280 -- 3,064,777
Year ended December 31, 1998.............. 3,064,777 3,717,176 -- 6,781,953
</TABLE>
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 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.
II-5
<PAGE> 112
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-6
<PAGE> 113
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 of San Mateo, State of
California, on the 21st day of October, 1999.
ELOQUENT, INC.
By: /s/ ABRAHAM KLEINFELD
------------------------------------
Abraham Kleinfeld
President and Chief Executive
Officer
POWER OF ATTORNEY
Each individual whose signature appears below constitutes and appoints Abraham
Kleinfeld and Clifford A. Reid, Ph.D., 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.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
Chief Executive Officer, President October 21, 1999
/s/ ABRAHAM KLEINFELD and Director (Principal Executive
- ------------------------------------ Officer)
Abraham Kleinfeld
/s/ CLIFFORD A. REID, PH.D. Chairman of the Board October 21, 1999
- ------------------------------------
Clifford A. Reid, Ph.D.
/s/ R. JOHN CURSON Chief Financial Officer, Secretary October 21, 1999
- ------------------------------------ and Treasurer (Principal Financial
R. John Curson and Accounting Officer)
/s/ TERRY L. OPDENDYK Director October 21, 1999
- ------------------------------------
Terry L. Opdendyk
</TABLE>
II-7
<PAGE> 114
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
Director October 21, 1999
/s/ KATHRYN C. GOULD
- ------------------------------------
Kathryn C. Gould
/s/ ANTHONY P. BRENNER Director October 21, 1999
- ------------------------------------
Anthony P. Brenner
Director
- ------------------------------------
David F. Millet
</TABLE>
II-8
<PAGE> 115
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------- -------------
<C> <S>
1.01* Form of Underwriting Agreement.
3.01 Amended and Restated Certificate of Incorporation.
3.02 Amended and Restated Bylaws.
3.03 Form of Amended and Restated Certificate of Incorporation to
be filed upon completion of this offering.
3.04 Form of Amended and Restated Bylaws to be effective upon
completion of this offering.
4.01 Form of Specimen Stock Certificate.
4.02 Fourth Amended and Restated Investors' Rights Agreement,
dated October 20, 1999, among Eloquent and certain investors
named therein.
4.03 Securities Purchase Agreement, dated October 20, 1999, by
and among Eloquent and certain investors named therein.
5.01* Opinion of Cooley Godward LLP regarding legality of the
securities being registered.
10.01 Form of Indemnity Agreement entered into by Eloquent with
each of its directors and executive officers.
10.02 Equity Incentive Plan.
10.03 Form of Stock Option Agreement under the Equity Incentive
Plan.
10.04 1997 Equity Incentive Plan.
10.05 Form of Stock Option Agreement under the 1997 Equity
Incentive Plan.
10.06 1999 Equity Incentive Plan.
10.07 Form of Stock Option Agreement under the 1999 Equity
Incentive Plan.
10.08 Form of Nonstatutory Stock Option Agreement for Non-Employee
Director Grants under the 1999 Equity Incentive Plan.
10.09 1999 Employee Stock Purchase Plan.
10.10 Form of 1999 Employee Stock Purchase Plan Offering.
10.11 Employment Agreement, dated December 23, 1998, between
Eloquent and Abraham Kleinfeld.
10.12 Office Lease, dated November 19, 1996, between Eloquent and
California Casualty Indemnity Exchange, as amended.
10.13 OEM Agreement, dated May 30, 1997, between Eloquent and
Verity, Inc.
10.14 Software License Agreement, dated June 30, 1997, between
Eloquent and Voxware, Inc.
10.15 Co-location Service Agreement, dated March 30, 1998 between
Eloquent and Concentric Network Corporation.
10.16 Sublease Agreement, dated June 1, 1999, between Eloquent and
California Casualty Indemnity Exchange.
23.01* Consent of Cooley Godward LLP(included in Exhibit 5.01).
23.02 Consent of PricewaterhouseCoopers LLP, independent
accountants.
24.01 Power of Attorney. Reference is made to page III-6.
27.01 Financial Data Schedule.
</TABLE>
- ---------------------------------------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 3.01
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF ELOQUENT, INC.
Abraham Kleinfeld hereby certifies that:
ONE: The date of filing the original Certificate of Incorporation of
this corporation with the Secretary of State of the State of Delaware is March
29, 1995.
TWO: He is the duly elected and acting Chief Executive Officer of
Eloquent, Inc., a Delaware corporation.
THREE: The Certificate of Incorporation of this corporation is hereby
amended and restated to read as follows:
I.
The name of the corporation is Eloquent, Inc. (the "Company").
II.
The address of the registered office of the Company in the State of
Delaware is:
The Prentice-Hall Corporation System, Inc.
1013 Centre Road
Wilmington, DE 19805
New Castle County
The name of the Company's registered agent at said address is The
Prentice-Hall Corporation System, Inc.
III.
The purpose of the Company is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
the State of Delaware.
IV.
A. The Company is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total number
of shares that the Company is authorized to issue is 39,938,844 shares,
30,000,000 of which shall be Common Stock (the "Common Stock") and 9,938,844
shares of which shall be Preferred Stock (the "Preferred Stock"). The Preferred
Stock shall have a par value of $.001 per share and the Common Stock shall have
a par value of $.001 per share.
B. 1,250,000 of the authorized shares of Preferred Stock are hereby
designated "Series A Preferred Stock" (the "Series A Preferred").
1.
<PAGE> 2
C. 1,921,964 of the authorized shares of Preferred Stock are hereby
designated "Series B Preferred Stock" (the "Series B Preferred").
D. 1,912,233 of the authorized shares of Preferred Stock are hereby
designated "Series C Preferred Stock" (the "Series C Preferred").
E. 2,354,647 of the authorized shares of Preferred Stock are hereby
designated "Series D Preferred Stock" (the "Series D Preferred").
F. 2,500,000 of the authorized shares of Preferred Stock are hereby
designated "Series E Preferred Stock" (the "Series E Preferred"). References
hereinafter to the "Preferred Stock" shall mean, collectively, the Series A
Preferred, the Series B Preferred, the Series C Preferred, the Series D
Preferred and the Series E Preferred.
G. The rights, preferences, privileges, restrictions and other matters
relating to the Preferred Stock are as follows:
1. DIVIDEND RIGHTS.
(a) Holders of Preferred Stock, in preference to the holders of
any other stock of the Company ("Junior Stock"), shall be entitled to receive,
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 10% of the "Original
Issue Price" per annum on each outstanding share of Preferred Stock (as adjusted
for any stock dividends, combinations, splits, recapitalizations and the like
with respect to such shares). The Original Issue Price of the Series A Preferred
shall be $0.80. The Original Issue Price of the Series B Preferred shall be
$1.73. The Original Issue Price of the Series C Preferred shall be $3.90. The
Original Issue Price of the Series D Preferred shall be $5.10. The Original
Issue Price of the Series E Preferred shall be $8.00. Such dividends shall be
payable to the holders of the Preferred Stock only when, as and if declared by
the Board of Directors and shall be non-cumulative from the "Original Issue
Date" of each series of Preferred Stock. The Original Issue Date of each series
of Preferred Stock shall be the date that the first share of such series of
Preferred Stock is issued.
(b) So long as any shares of Preferred Stock 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 that permit the Company to
repurchase such shares upon termination of services to the Company or in
exercise of the Company's right of first refusal upon a proposed transfer) until
all dividends (set forth in Section 1(a) above) on Preferred Stock shall have
been paid or declared and set apart. In the event dividends are paid on any
share of Common Stock, an additional dividend shall be paid with respect to all
outstanding shares of Preferred Stock in an amount equal per share (on an
as-if-converted to Common Stock basis) to the amount paid or set aside for each
share of Common Stock. The provisions of this Section 1(b) shall not, however,
apply to (i) a dividend payable in Common Stock for which adjustment is made
pursuant to Section 4(f), (ii) the acquisition of shares of any Junior Stock in
exchange for shares of any other Junior Stock, or (iii) any
2.
<PAGE> 3
repurchase of any outstanding securities of the Company that is unanimously
approved by the Company's Board of Directors.
2. VOTING RIGHTS.
(a) GENERAL RIGHTS. Except as otherwise provided herein or as
required by law, shares of Preferred Stock shall be voted equally with the
shares of the Common Stock of the Company and not as a separate class, at any
annual or special meeting of stockholders of the Company, and may act by written
consent in the same manner as the Common Stock, in either case upon the
following basis: each holder of shares of Preferred Stock shall be entitled to
such number of votes as shall be equal to the whole number of shares of Common
Stock into which such holder's aggregate number of shares of Preferred Stock are
convertible (pursuant to Section 4 hereof) immediately after the close of
business on the record date fixed for such meeting or the effective date of such
written consent.
(b) SEPARATE VOTE OF PREFERRED STOCK. For so long as at least
2,500,000 shares of Preferred Stock (subject to adjustment for any stock split,
reverse stock split or other similar event affecting the Preferred Stock) 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 66-2/3% of the
outstanding Preferred Stock (on an as-if-converted basis) shall be necessary for
effecting or validating the following actions:
(i) Any amendment, alteration or repeal of any provision
of the Restated Certificate or the Bylaws of the Company (including any filing
of a Certificate of Designation) that affects materially and adversely the
voting powers, preferences or other special rights or privileges,
qualifications, limitations or restrictions of Preferred Stock;
(ii) Any increase or decrease (other than by redemption or
conversion) in the authorized number of shares of Common Stock or Preferred
Stock;
(iii) Any authorization or designation, whether by
reclassification or otherwise, of any new class of shares or series of equity
securities or any other securities convertible into equity securities of the
Company ranking on a parity with or senior to one or more series of Preferred
Stock in rights of redemption, liquidation preference, voting or dividends or
any increase in the authorized or designated number of any such new class or
series;
(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 that permit the Company to
repurchase such shares upon termination of services to the Company or in
exercise of the Company's right of first refusal upon a proposed transfer);
(v) Any agreement by the Company regarding an Asset
Transfer or Acquisition (each as defined in Section 3(c));
(vi) A sale, lease or other disposition by the Company
outside its ordinary course of business of a substantial portion of its assets
that are material to the Company's core business;
3.
<PAGE> 4
(vii) Any increase in the authorized number of directors
of the Company;
(viii) Any voluntary dissolution or liquidation of the
Company; or
(ix) Any action that results in the payment or declaration
of any dividend on any shares of Common Stock or Preferred Stock.
In addition, for so long as at least 625,000 shares of Series E Preferred
(subject to adjustment for any stock split, reverse stock split or other similar
event affecting the Preferred Stock) 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 66-2/3% of the outstanding Series E Preferred shall be
necessary for effecting or validating any amendment, alteration or repeal of any
provision of the Restated Certificate or the Bylaws of the Company (including
any filing of a Certificate of Designation) that affects materially and
adversely the voting powers, preferences or other special rights or privileges,
qualifications, limitations or restrictions of the Series E Preferred.
(c) ELECTION OF BOARD OF DIRECTORS. For so long as at least
2,500,000 shares of Preferred Stock (subject to adjustment for any stock split,
reverse stock split or other similar event affecting the Preferred Stock) remain
outstanding, but subject to that certain Voting Agreement to be entered into
among the Company and certain investors in the Company in connection with the
sale of Subordinated Notes (the "Investor Notes") and Detachable Warrants (the
"Investors Warrants") in October 1999, and that certain Voting Agreement, dated
as of June 22, 1998, among the Company and certain investors in the Company, (i)
the holders of Preferred Stock, voting together as a separate class on an
as-if-converted to Common Stock basis, shall be entitled to elect one member of
the Company's Board of Directors (the "Preferred Stock Director") at each
meeting or pursuant to each consent of the Company's stockholders 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; (ii) the
holders of Common Stock, voting as a separate class, shall be entitled to elect
one member of the Board of Directors (the "Common Stock Director") at each
meeting or pursuant to each consent of the Company's stockholders 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; and (iii)
the holders of Common Stock and Preferred Stock, voting together as a class on
an as-if-converted to Common Stock basis, shall be entitled to elect all
remaining members of the Board of Directors (the "Remaining Directors"). If at
any time less than 2,500,000 shares of Preferred Stock (subject to adjustment
for any stock split, reverse stock split or other similar event affecting the
Preferred Stock) remain outstanding, all of the members of the Board of
Directors shall be elected by all of the holders of Preferred Stock and the
Common Stock, voting together as a class on an as-if-converted to Common Stock
basis.
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 Junior Stock, the holders of Preferred Stock
shall be entitled to be paid out of the
4.
<PAGE> 5
assets of the Company an amount per share of Preferred Stock equal to the
Original Issue Price of such share plus all declared and unpaid dividends on
such shares of Preferred Stock (as adjusted for any stock dividends,
combinations, splits, recapitalizations and the like with respect to such
shares) for each share of Preferred Stock held by them.
(b) After the payment of the full liquidation preference of the
Preferred Stock as set forth in Section 3(a) above, the assets of the Company
legally available for distribution, if any, shall be distributed ratably to the
holders of the Common Stock and the Preferred Stock on an as-if-converted to
Common Stock basis until such time as (1) the holders of Series A Preferred,
Series B Preferred and Series C Preferred have received an amount per share of
Preferred Stock equal to $4.75 per share (as adjusted for any stock dividends,
combinations, splits, recapitalizations and the like with respect to such
shares) and (2) the holders of Series E Preferred have received an amount per
share of Series E Preferred, in addition to the amount received pursuant to
Section 3(a) above, equal to $8.00 (as adjusted for any stock dividends,
combinations, splits, recapitalizations and the like with respect to such
shares). The remaining assets of the Company legally available for distribution,
if any, shall be distributed ratably to the holders of the Common Stock.
(c) The following events shall be considered a liquidation under
this Section:
(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 stockholders 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 50% 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").
(d) 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 Preferred Stock of the liquidation preference set forth in Section
3(a), then such assets shall be distributed among the holders of Preferred Stock
at the time outstanding, ratably in proportion to the full amounts to which they
would otherwise be respectively entitled.
4. CONVERSION RIGHTS.
The holders of Preferred Stock shall have the following rights
with respect to the conversion of Preferred Stock into shares of Common Stock
(the "Conversion Rights"):
(a) OPTIONAL CONVERSION. Subject to and in compliance with the
provisions of this Section 4, any shares of Preferred Stock 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
Preferred Stock shall be entitled upon conversion shall be the product obtained
by multiplying the "Conversion Rate" of each series of
5.
<PAGE> 6
Preferred Stock then in effect (determined as provided in Section 4(b)) by the
number of shares of Preferred Stock being converted.
(b) CONVERSION RATE. The conversion rate in effect at any time
for conversion of each series of Preferred Stock shall be the quotient obtained
by dividing the Original Issue Price of such series of Preferred Stock by the
"Conversion Price" of such series of Preferred Stock, calculated as provided in
Section 4(c).
(c) CONVERSION PRICES. The conversion price for each series of
Preferred Stock initially shall be the Original Issue Price of such series of
Preferred Stock (the "Conversion Price"). Such initial Conversion Price of each
series of Preferred Stock shall be adjusted from time to time in accordance with
this Section 4. All references to the Conversion Price herein shall mean the
Conversion Price of each series of Preferred Stock as so adjusted.
(d) MECHANICS OF CONVERSION. Each holder of Preferred Stock 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 Stock, 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 Preferred
Stock 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 as of the date of such conversion), any declared and
unpaid dividends on the shares of Preferred Stock 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 Preferred
Stock 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. If the Company
shall at any time or from time to time effect a subdivision of the outstanding
Common Stock, the Conversion Price of each series of Preferred Stock in effect
immediately before that subdivision shall be proportionately decreased.
Conversely, if the Company shall at any time or from time to time combine the
outstanding shares of Common Stock into a smaller number of shares, the
Conversion Price of each series of Preferred Stock 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.
(f) ADJUSTMENT FOR COMMON STOCK DIVIDENDS AND DISTRIBUTIONS. If
the Company at any time or from time to time 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 Conversion Price of each series of Preferred Stock 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 Conversion Price of each series of Preferred Stock then in
effect by a fraction
6.
<PAGE> 7
(i) 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 (ii) 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 Conversion Price of each series of Preferred Stock shall be
recomputed accordingly as of the close of business on such record date and
thereafter the Conversion Price of each series of Preferred Stock 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 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
Preferred Stock 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 that they would have received had their Preferred Stock 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 Preferred Stock 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, the Common Stock issuable upon the
conversion of Preferred Stock 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) 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
Stock 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 Stock 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.
(i) REORGANIZATIONS, MERGERS, CONSOLIDATIONS OR SALES OF ASSETS.
If at any time or from time to time, there is a capital reorganization of the
Common Stock (other than an Acquisition or Asset Transfer as defined in Section
3(c) 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, provision shall be made so that the holders of
Preferred Stock shall thereafter be entitled to receive upon conversion of
Preferred Stock 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
7.
<PAGE> 8
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 Stock
after the capital reorganization to the end that the provisions of this Section
4 (including adjustment of the Conversion Price of each series of Preferred
Stock then in effect and the number of shares issuable upon conversion of
Preferred Stock) shall be applicable after that event and be as nearly
equivalent as practicable.
(j) SALE OF ADDITIONAL SHARES OF COMMON STOCK.
(i) If at any time or from time to time, 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 the Company's
outstanding capital stock as provided in Section 4(f) above, and other than a
subdivision or combination of the Company's outstanding capital stock as
provided in Section 4(e) above, then and in each such case the then existing
Conversion Price of each series of Preferred Stock shall be adjusted to a new
Conversion Price of each series of Preferred Stock (calculated to the nearest
cent) equal to the quotient of
A. an amount equal to (i) the total number of
shares of Common Stock Outstanding (as hereinafter defined) at the close of
business on the Original Issue Date of such series of Preferred Stock,
multiplied by the respective Original Issue Price of such series of Preferred
Stock, plus (ii) the aggregate of the amount of all consideration, if any,
received by the Company for the issuance or sale of Additional Shares of Common
Stock, divided by
B. the total number of shares of Common Stock
Outstanding immediately prior to such issuance or sale plus the Additional
Shares of Common Stock issued or deemed to be issued;
provided, however, that the Conversion Price of each series of Preferred Stock
shall at no time exceed the respective Original Issue Price of such series of
Preferred Stock, as adjusted for stock splits, combinations and similar events
(the "Maximum Conversion Price"). For the purposes of this subsection (j)(i),
"Common Stock Outstanding" shall mean all outstanding shares of Common Stock and
all shares of Common Stock issuable upon conversion of Preferred Stock (assuming
a Conversion Price of each series of Preferred Stock equal to the respective
Maximum Conversion Price of such series of Preferred Stock) or other convertible
instruments or upon exercise of options or warrants or other rights to acquire
Common Stock that are outstanding as of the close of business on any applicable
date; provided, however, that the Option Pool Shares (as hereinafter defined)
and the Financing Shares (as hereinafter defined) excluded from the definition
of Additional Shares of Common Stock in subsection (j)(iv) below shall be
excluded from the definition of Common Stock Outstanding.
(ii) For the purpose of making any adjustment required
under this Section 4(j), 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 net amount of cash received by the Company after deduction of any
underwriting or similar commissions, compensation or
8.
<PAGE> 9
concessions paid or allowed by the Company in connection with such issue or sale
but without 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 hereinafter
defined) 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 that 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.
(iii) 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 and to have received as consideration for the
issuance of such shares an amount equal to the total amount of the
consideration, if any, received by the Company for the issuance of such rights
or options or Convertible Securities, plus, in the case of such rights or
options, the minimum amounts of consideration, if any, payable to the Company
upon the exercise of such rights or options, plus, in the case of Convertible
Securities, the minimum amounts of consideration, if any, payable to the Company
(other than by cancellation of liabilities or obligations evidenced by such
Convertible Securities) upon the conversion thereof; provided that if in the
case of Convertible Securities the minimum amounts of such consideration cannot
be ascertained, but are a function of antidilution or similar protective
clauses, the Company shall be deemed to have received the minimum amounts of
consideration without reference to such clauses; provided further that if the
minimum amount of consideration payable to the Company upon the exercise or
conversion of rights, options or Convertible Securities is reduced over time or
on the occurrence or non-occurrence of specified events other than by reason of
antidilution adjustments, the amount of consideration deemed to be received by
the Company shall be recalculated using the figure to which such minimum amount
of consideration is reduced; provided further that if the minimum amount of
consideration payable to the Company upon the exercise or conversion of such
rights, options or Convertible Securities is subsequently increased, the amount
of consideration deemed to be received by the Company shall be again
recalculated using the increased minimum amount of consideration payable to the
Company upon the exercise or conversion of such rights, options or Convertible
Securities. No further adjustment of the Conversion Price of each series of
Preferred Stock, 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 Conversion Price of
each series of Preferred Stock, as adjusted upon the issuance of such rights,
options or Convertible Securities shall be readjusted to such conversion price
that 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
9.
<PAGE> 10
such Convertible Securities, and such Additional Shares of Common Stock, if any,
were issued or sold for the consideration actually received by the Company upon
such exercise, plus the consideration, if any, actually received by the Company
for the granting of all such rights or options, whether or not exercised, plus
the consideration received for issuing or selling the Convertible Securities
actually converted, plus the consideration, if any, actually received by the
Company (other than by cancellation of liabilities or obligations evidenced by
such Convertible Securities) on the conversion of such Convertible Securities,
provided that such readjustment shall not apply to prior conversions of shares
of a particular series of Preferred Stock.
(iv) "ADDITIONAL SHARES OF COMMON STOCK" shall mean all
shares of Common Stock issued, or deemed issued pursuant to this Section 4(j),
by the Company after the Original Issue Date, whether or not subsequently
reacquired or retired by the Company, other than (A) shares of Common Stock
issued upon conversion of the Preferred Stock, (B) up to 6,004,500 shares (net
of repurchases and option cancellations, and subject to adjustments for stock
splits, reverse stock splits, combinations and similar events) 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) issued or to be
issued to employees, officers or directors of, or consultants or advisors to the
Company or any subsidiary pursuant to stock purchase or stock option plans or
other arrangements that are approved by the Board of Directors (the "Option Pool
Shares"), (C) shares of Common Stock or Preferred Stock (and/or options,
warrants or other rights) issued pursuant to any equipment leasing arrangement
or bank financing approved by the Board of Directors (the "Financing Shares")
and (D) shares of Common Stock or Preferred Stock issuable upon conversion or
exercise of the Investor Notes and the Investor Warrants.
(k) ACCOUNTANTS' CERTIFICATE OF ADJUSTMENT. In each case of an
adjustment or readjustment of the Conversion Price of any series of Preferred
Stock or the number of shares of Common Stock or other securities issuable upon
conversion of any series of Preferred Stock, if the series of Preferred Stock 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 series of the Preferred Stock 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 (i) the consideration received
or deemed to be received by the Company for any Additional Shares of Common
Stock issued or sold or deemed to have been issued or sold, (ii) the Conversion
Price of such series of Preferred Stock at the time in effect, (i) the number of
Additional Shares of Common Stock and (ii) the type and amount, if any, of other
property that at the time would be received upon conversion of the shares of
such series of Preferred Stock.
(l) 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)),
10.
<PAGE> 11
or any voluntary or involuntary dissolution, liquidation or winding up of the
Company, the Company shall mail to each holder of Preferred Stock at least 20
days prior to the record date specified therein a notice specifying (A) 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, (B) 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 (C) 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.
(m) AUTOMATIC CONVERSION.
(i) Each share of Preferred Stock shall
automatically be converted into shares of Common Stock, based on the
then-effective Conversion Price of each series of Preferred Stock, (A) at any
time upon the affirmative vote of the holders of at least 66-2/3% of the
outstanding shares of the Preferred Stock, 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 the per share price
is at least 150% of the Original Issue Price of the Series E Preferred and the
gross cash proceeds to the Company (before underwriting discounts, commissions
and fees) are at least $30,000,000. Upon such automatic conversion, any declared
and unpaid dividends shall be paid in accordance with the provisions of Section
4(d).
(ii) Upon the occurrence of the event specified in
subparagraph (i) above, the outstanding shares of Preferred Stock shall be
converted automatically without any further action by the holders of such shares
and whether or not the certificates representing such shares are surrendered to
the 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 Stock 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 Preferred Stock, the holders of Preferred Stock shall surrender
the certificates representing such shares at the office of the Company or any
transfer agent for the Preferred Stock. 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 Stock
surrendered were convertible on the date on which such automatic conversion
occurred, and any declared and unpaid dividends shall be paid in accordance with
the provisions of Section 4(d).
(n) FRACTIONAL SHARES. No fractional shares of Common
Stock shall be issued upon conversion of the Preferred Stock. All shares of
Common Stock (including fractions thereof) issuable upon conversion of more than
one share of Preferred Stock 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
11.
<PAGE> 12
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
of Directors) on the date of conversion.
(o) 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 Preferred Stock, 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 Preferred Stock. 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 Preferred Stock, 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.
(p) 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 days after having been sent by registered
or certified mail, return receipt requested, postage prepaid, or (iv) one day
after deposit with a nationally 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.
(q) 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 Stock, 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 Stock so converted were registered.
(r) NO DILUTION OR IMPAIRMENT. Without the consent of the
holders of at least 66-2/3% of the then outstanding Preferred Stock, the Company
shall not amend its Restated Certificate of Incorporation or participate in any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, for the purpose of avoiding or
seeking to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but shall at all times in good
faith assist in carrying out all such action as may be reasonably necessary or
appropriate in order to protect the conversion rights of the holders of the
Preferred Stock against dilution or other impairment.
5. REDEMPTION. The Preferred Stock shall not be redeemable by the
Company.
6. NO REISSUANCE OF PREFERRED. No share or shares of the
Preferred Stock acquired by the Company by reason of redemption, purchase,
conversion or otherwise shall be reissued.
12.
<PAGE> 13
7. NO PREEMPTIVE RIGHTS. Stockholders shall have no preemptive
rights except as granted by the Company pursuant to written agreements.
V.
A. ELECTION OF DIRECTORS.
1. Directors shall be elected at each annual meeting of
stockholders to hold office until the next meeting. Each director 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 such director's
death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
2. No stockholder entitled to vote at an election for directors
may cumulate votes (i.e., cast for any candidate or candidates a number of votes
greater than the number of votes that such stockholder normally is entitled to
cast) unless (a) at the time of such election, the Company is subject to Section
2115(b) of the California General Corporations Law ("CGCL"), (b) such candidate
or candidates' names have been placed in nomination prior to the voting and (c)
such stockholder has given notice at the meeting prior to the voting of the
stockholder's intention to cumulate the stockholder's votes.
3. If stockholders are entitled to cumulate votes pursuant to
Section A.2. above, then:
(a) Each holder of Preferred Stock may give one candidate
for Preferred Stock Director a number of votes equal to the number of Preferred
Stock Directors to be elected multiplied by the number of shares of Common Stock
issuable upon conversion of the Preferred Stock held by such holder, or
distribute such stockholder's votes on the same principle among as many
candidates for Preferred Stock Director as the stockholder thinks fit. The
candidates for Preferred Stock Director receiving the highest number of
affirmative votes of the shares entitled to be voted for them, up to the number
of Preferred Stock Directors to be elected by such shares, are elected.
(b) Each holder of Common Stock may give one candidate for
Common Stock Director a number of votes equal to the number of Common Stock
Directors to be elected multiplied by the number of shares of Common Stock held
by such holder, or distribute such stockholder's votes on the same principle
among as many candidates for Common Stock Director as the stockholder thinks
fit. The candidates for Common Stock Director receiving the highest number of
affirmative votes of the shares entitled to be voted for them, up to the number
of Common Stock Directors to be elected by such shares, are elected.
(c) Each holder of Common Stock and Preferred Stock may
give one candidate for Remaining Director a number of votes equal to the number
of Remaining Directors to be elected multiplied by the number of shares of
Common Stock held by such holder or issuable upon conversion of the Preferred
Stock held by such holder, or distribute such stockholder's votes on the same
principle among as many candidates for Remaining Director as the stockholder
thinks fit. The candidates for Remaining Director receiving the highest number
13.
<PAGE> 14
of affirmative votes of the shares entitled to be voted for them, up to the
number of Remaining Directors to be elected by such shares, are elected.
B. REMOVAL.
1. During such time or times that the Company is subject to
Section 2115(b) of the CGCL, the Board of Directors or any individual director
may be removed from office at any time without cause by the affirmative vote of
the holders of a majority of the outstanding shares entitled to vote on such
removal pursuant to Article IV., Section G.2.(c) of this Amended and Restated
Certificate of Incorporation; provided, however, that unless the entire Board of
Directors 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 pursuant to
Article V, Section A.3. of this Amended and Restated Certificate of
Incorporation at an election at which the same total number of votes 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.
2. Following any date on which the Company is no longer subject
to Section 2115(b) of the CGCL and subject to any limitations imposed by law,
Section B.1. above shall no longer apply and the Board of Directors or any
director may be removed from office at any time (i) with cause by the
affirmative vote of the holders of a majority of all then outstanding shares of
voting stock of the Company entitled to vote at an election of directors for
such director or (ii) without cause by the affirmative vote of the holders of a
majority of all then outstanding shares of voting stock of the Company entitled
to vote at an election of directors for such director.
VI.
A. A director of the Company shall not be personally liable to the
Company or its stockholders for monetary damages for any breach of fiduciary
duty as a director, except for liability (1) for any breach of the director's
duty of loyalty to the Company or its stockholders, (2) for acts or omissions
not in good faith or that involve intentional misconduct or a knowing violation
of law, (3) under Section 174 of the Delaware General Corporation Law, or (4)
for any transaction from which the director derived an improper personal
benefit. If the Delaware General Corporation Law is amended after approval by
the stockholders of this Article V to authorize corporate action further
eliminating or limiting the personal liability of directors, then the liability
of a director shall be eliminated or limited to the fullest extent permitted by
the Delaware General Corporation Law, as so amended.
B. During such time or times that the Company is subject to Section
2115(b) of the CGCL, the Company is authorized to provide indemnification of
agents (as defined in Section 317 of the CGCL) for breach of duty to the Company
and its stockholders through bylaw provisions or through agreements with the
agents, or through stockholder resolutions, or otherwise, in excess of the
indemnification otherwise permitted by Section 317 of the CGCL, subject to the
limits on such excess indemnification set forth in Section 204 of the CGCL.
14.
<PAGE> 15
C. Any repeal or modification of this Article VI shall only be
prospective and shall not effect the rights under this Article VI in effect at
the time of the alleged occurrence of any action or omission to act giving rise
to liability.
VII.
For the management of the business and for the conduct of the affairs of
the Company, and in further definition, limitation and regulation of the powers
of the Company, of its directors and of its stockholders or any class thereof,
as the case may be, it is further provided that:
A. The management of the business and the conduct of the affairs of the
Company shall be vested in its Board of Directors. The number of directors that
shall constitute the whole Board of Directors shall be fixed by the Board of
Directors in the manner provided in the Bylaws and this Amended and Restated
Certificate of Incorporation.
B. The Board of Directors may from time to time make, amend, supplement
or repeal the Bylaws; provided, however, that the stockholders may change or
repeal any Bylaw adopted by the Board of Directors by the affirmative vote of
the holders of a majority of the voting power of all of the then outstanding
shares of the capital stock of the Company; and, provided further, that no
amendment or supplement to the Bylaws adopted by the Board of Directors shall
vary or conflict with any amendment or supplement thus adopted by the
stockholders.
C. The directors of the Company need not be elected by written ballot
unless the Bylaws so provide.
VIII.
Except as set forth in Article IV., Section G.2., the Company reserves
the right to amend, alter, change or repeal any provision contained in this
Certificate of Incorporation, in the manner now or hereafter prescribed by
statute, and all rights conferred upon the stockholders herein are granted
subject to this right."
* * * *
FOUR: This Amended and Restated Certificate of Incorporation has been
duly approved by the Board of Directors of this corporation.
FIVE: This Amended and Restated Certificate of Incorporation has been
duly adopted in accordance with the provisions of Sections 228 and 245 of the
General Corporation Law of the State of Delaware by the Board of Directors and
the stockholders of this corporation. The total number of outstanding shares
entitled to vote or act by written consent was 3,511,888 shares of Common Stock,
1,250,000 shares of Series A Preferred, 1,907,513 shares of Series B Preferred,
1,912,233 shares of Series C Preferred and 2,089,263 shares of Series D
Preferred. A majority of the outstanding shares of Common Stock, Series A
Preferred, Series B Preferred, Series C Preferred and Series D Preferred
approved this Amended and Restated Certificate of Incorporation by written
consent in accordance with Section 228 of the General Corporation Law
15.
<PAGE> 16
of the State of Delaware and written notice of such was given by this
corporation in accordance with said Section 228 and Section 242.
IN WITNESS WHEREOF, Eloquent, Inc. has caused this Amended and Restated
Certificate of Incorporation to be signed by its Chief Executive Officer in San
Mateo, California this 19th day of October, 1999.
ELOQUENT, INC.
By: /s/ Abraham Kleinfeld
------------------------------------
ABRAHAM KLEINFELD
Chief Executive Officer and President
16.
<PAGE> 1
EXHIBIT 3.02
BYLAWS
OF
ELOQUENT, INC.
(A DELAWARE CORPORATION)
AS AMENDED AND RESTATED JUNE 22, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Article I Offices.......................................................................1
Section 1. Registered Office......................................................1
Section 2. Other Offices..........................................................1
Article II Corporate Seal................................................................1
Section 3. Corporate Seal.........................................................1
Article III Stockholders' Meetings........................................................1
Section 4. Place of Meetings......................................................1
Section 5. Annual Meeting.........................................................1
Section 6. Special Meetings.......................................................3
Section 7. Notice Of Meetings.....................................................4
Section 8. Quorum.................................................................4
Section 9. Adjournment And Notice Of Adjourned Meetings...........................4
Section 10. Voting Rights..........................................................5
Section 11. Beneficial Owners Of Stock.............................................5
Section 12. List Of Stockholders...................................................5
Section 13. Action Without Meeting.................................................6
Section 14. Organization...........................................................6
Article IV Directors.....................................................................7
Section 15. Number And Term Of Office..............................................7
Section 16. Powers.................................................................7
Section 16A. Term of Directors......................................................7
Section 17. Vacancies..............................................................8
Section 18. Resignation............................................................8
Section 19. Removal................................................................9
Section 20. Meetings...............................................................9
(a) Annual Meetings........................................................9
(b) Regular Meetings.......................................................9
(c) Special Meetings.......................................................9
(d) Telephone Meetings.....................................................9
(e) Notice Of Meetings....................................................10
</TABLE>
1.
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
(f) Waiver Of Notice......................................................10
Section 21. Quorum And Voting.....................................................10
Section 22. Action Without Meeting................................................10
Section 23. Fees And Compensation.................................................11
Section 24. Committees............................................................11
(a) Executive Committee...................................................11
(b) Other Committees......................................................11
(c) Term..................................................................11
(d) Meetings..............................................................12
Section 25. Organization..........................................................12
Article V Officers.....................................................................12
Section 26. Officers Designated...................................................12
Section 27. Tenure And Duties Of Officers.........................................12
(a) General...............................................................12
(b) Duties Of Chairman Of The Board Of Directors..........................13
(c) Duties Of President...................................................13
(d) Duties Of Vice Presidents.............................................13
(e) Duties Of Secretary...................................................13
(f) Duties Of Chief Financial Officer Or Treasurer........................13
Section 28. Delegation Of Authority...............................................14
Section 29. Resignations..........................................................14
Section 30. Removal...............................................................14
Article VI Execution Of Corporate Instruments And Voting Of Securities Owned By
The Corporation..............................................................14
Section 31. Execution Of Corporate Instruments....................................14
Section 32. Voting Of Securities Owned By The Corporation.........................15
Article VII Shares Of Stock..............................................................15
Section 33. Form And Execution Of Certificates....................................15
Section 34. Lost Certificates.....................................................15
Section 35. Transfers.............................................................16
</TABLE>
2.
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TABLE OF CONTENTS
(CONTINUED)
<TABLE>
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<S> <C>
Section 36. Fixing Record Dates...................................................16
Section 37. Registered Stockholders...............................................17
Article VIII Other Securities Of The Corporation..........................................17
Section 38. Execution Of Other Securities.........................................17
Article IX Dividends....................................................................18
Section 39. Declaration Of Dividends..............................................18
Section 40. Dividend Reserve......................................................18
Article X Fiscal Year..................................................................18
Section 41. Fiscal Year...........................................................18
Article XI Indemnification..............................................................18
Section 42. Indemnification Of Directors, Officers, Employees And Other
Agents................................................................18
(a) Directors And Executive Officers......................................18
(b) Other Officers, Employees And Other Agents............................18
(c) Good Faith............................................................19
(d) Expenses..............................................................19
(e) Enforcement...........................................................20
(f) Non-Exclusivity Of Rights.............................................20
(g) Survival Of Rights....................................................20
(h) Insurance.............................................................20
(i) Amendments............................................................20
(j) Saving Clause.........................................................20
(k) Certain Definitions...................................................21
Article XII Notices......................................................................22
Section 43. Notices...............................................................22
(a) Notice To Stockholders................................................22
(b) Notice To Directors...................................................22
(c) Address Unknown.......................................................22
(d) Affidavit Of Mailing..................................................22
(e) Time Notices Deemed Given.............................................22
</TABLE>
3.
<PAGE> 5
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
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(f) Methods Of Notice.....................................................22
(g) Failure To Receive Notice.............................................22
(h) Notice To Person With Whom Communication Is Unlawful..................22
(i) Notice To Person With Undeliverable Address...........................23
Article XIII Amendments...................................................................23
Section 44. Amendments............................................................23
Article XIV Right Of First Refusal.......................................................23
Section 45. Right Of First Refusal................................................23
Article XV Loans To Officers............................................................26
Section 46. Loans To Officers.....................................................26
Article XVI Miscellaneous................................................................27
Section 47. Annual Report.........................................................27
</TABLE>
4.
<PAGE> 6
BYLAWS
OF
ELOQUENT, INC.
(A DELAWARE CORPORATION)
AS AMENDED AND RESTATED JUNE 22, 1998
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the corporation
in the State of Delaware shall be in the City of Wilmington, County of New
Castle. (Del. Code Ann., tit. 8, Section 131)
SECTION 2. OTHER OFFICES. The corporation shall also have and maintain
an office or principal place of business, at such place as may be fixed by the
Board of Directors, and may also have offices at such other places, both within
and without the State of Delaware as the Board of Directors may from time to
time determine or the business of the corporation may require. (Del. Code Ann.,
tit. 8, Section 122(8))
ARTICLE II
CORPORATE SEAL
SECTION 3. CORPORATE SEAL. The corporate seal shall consist of a die
bearing the name of the corporation and the inscription, "Corporate
Seal-Delaware." Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise. (Del. Code Ann., tit. 8,
Section 122(3))
ARTICLE III
STOCKHOLDERS' MEETINGS
SECTION 4. PLACE OF MEETINGS. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State of
Delaware, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the office of the corporation required to be
maintained pursuant to Section 2 hereof. (Del. Code Ann., tit. 8, Section
211(a))
SECTION 5. ANNUAL MEETING.
(a) The annual meeting of the stockholders of the corporation,
for the purpose of election of Directors and for such other business as may
lawfully come before it, shall be held
1.
<PAGE> 7
on such date and at such time as may be designated from time to time by the
Board of Directors. (Del. Code Ann., tit. 8, Section 211(b))
(b) At an annual meeting of the stockholders, only such business
shall be conducted as shall have been properly brought before the meeting. To be
properly brought before an annual meeting, business must be: (A) specified in
the notice of meeting (or any supplement thereto) given by or at the direction
of the Board of Directors, (B) otherwise properly brought before the meeting by
or at the direction of the Board of Directors, or (C) otherwise properly brought
before the meeting by a stockholder. For business to be properly brought before
an annual meeting by a stockholder, the stockholder must have given timely
notice thereof in writing to the Secretary of the corporation. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the corporation not less than one hundred twenty
(120) calendar days in advance of the date of the corporation's proxy statement
released to stockholders in connection with the previous year's annual meeting
of stockholders; provided, however, that in the event that no annual meeting was
held in the previous year or the date of the annual meeting has been changed by
more than thirty (30) days from the date contemplated at the time of the
previous year's proxy statement, notice by the stockholder to be timely must be
so received a reasonable time before the solicitation is made. A stockholder's
notice to the Secretary shall set forth as to each matter the stockholder
proposes to bring before the annual meeting: (i) a brief description of the
business desired to be brought before the annual meeting and the reasons for
conducting such business at the annual meeting, (ii) the name and address, as
they appear on the corporation's books, of the stockholder proposing such
business, (iii) the class and number of shares of the corporation which are
beneficially owned by the stockholder, (iv) any material interest of the
stockholder in such business and (v) any other information that is required to
be provided by the stockholder pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended, in his capacity as a proponent to a
stockholder proposal. Notwithstanding the foregoing, in order to include
information with respect to a stockholder proposal in the proxy statement and
form of proxy for a stockholder's meeting, stockholders must provide notice as
required by the regulations promulgated under the Securities and Exchange Act of
1934, as amended. Notwithstanding anything in these Bylaws to the contrary, no
business shall be conducted at any annual meeting except in accordance with the
procedures set forth in this paragraph (b). The chairman of the annual meeting
shall, if the facts warrant, determine and declare at the meeting that business
was not properly brought before the meeting and in accordance with the
provisions of this paragraph (b), and, if he should so determine, he shall so
declare at the meeting that any such business not properly brought before the
meeting shall not be transacted. (Del. Code Ann., tit. 8, Section 211(b))
(c) Only persons who are nominated in accordance with the
procedures set forth in this paragraph (c) shall be eligible for election as
Directors. Nominations of persons for election to the Board of Directors of the
corporation may be made at a meeting of stockholders by or at the direction of
the Board of Directors or by any stockholder of the corporation entitled to vote
in the election of Directors at the meeting who complies with the notice
procedures set forth in this paragraph (c). Such nominations, other than those
made by or at the direction of the Board of Directors, shall be made pursuant to
timely notice in writing to the Secretary of the corporation in accordance with
the provisions of paragraph (b) of this Section 5. Such stockholder's notice
shall set forth (i) as to each person, if any, whom the stockholder proposes
2.
<PAGE> 8
to nominate for election or re-election as a Director: (A) the name, age,
business address and residence address of such person, (B) the principal
occupation or employment of such person, (C) the class and number of shares of
the corporation which are beneficially owned by such person, (D) a description
of all arrangements or understandings between the stockholder and each nominee
and any other person or persons (naming such person or persons) pursuant to
which the nominations are to be made by the stockholder, and (E) any other
information relating to such person that is required to be disclosed in
solicitations of proxies for election of Directors, or is otherwise required, in
each case pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended (including without limitation such person's written consent to being
named in the proxy statement, if any, as a nominee and to serving as a Director
if elected); and (ii) as to such stockholder giving notice, the information
required to be provided pursuant to paragraph (b) of this Section 5. At the
request of the Board of Directors, any person nominated by a stockholder for
election as a Director shall furnish to the Secretary of the corporation that
information required to be set forth in the stockholder's notice of nomination
which pertains to the nominee. No person shall be eligible for election as a
Director of the corporation unless nominated in accordance with the procedures
set forth in this paragraph (c). The chairman of the meeting shall, if the facts
warrant, determine and declare at the meeting that a nomination was not made in
accordance with the procedures prescribed by these Bylaws, and if he should so
determine, he shall so declare at the meeting and the defective nomination shall
be disregarded. (Del. Code Ann., tit. 8, Sections 212, 214)
SECTION 6. SPECIAL MEETINGS.
(a) Special meetings of the stockholders of the corporation may
be called, for any purpose or purposes, by (i) the Chairman of the Board, (ii)
the President, (iii) the Board of Directors pursuant to a resolution adopted by
a majority of the total number of authorized directors (whether or not there
exist any vacancies in previously authorized directorships at the time any such
resolution is presented to the Board for adoption) or (iv) by the holders of
shares entitled to cast not less than ten percent (10%) of the votes at the
meeting, and shall be held at such place, on such date, and at such time as they
or he shall fix. At any time or times that the corporation is subject to Section
2115(b) of the California General Corporation Law ("CGCL"), stockholders holding
five percent (5%) or more of the outstanding shares shall have the right to call
a special meeting of stockholders as set forth in Section 18(c) herein.
(b) If a special meeting is called by any person or persons other
than the Board of Directors, the request shall be in writing, specifying the
time of such meeting and the general nature of the business proposed to be
transacted, and shall be delivered personally or sent by registered mail or by
telegraphic or other facsimile transmission to the Chairman of the Board, the
President, any Vice President, or the Secretary of the corporation. No business
may be transacted at such special meeting otherwise than specified in such
notice. The officer receiving the request shall cause notice to be promptly
given to the stockholders entitled to vote, in accordance with the provisions of
Section 7 of these Bylaws, that a meeting will be held not less than thirty-five
(35) nor more than sixty (60) days after the receipt of the request. If the
notice is not given within twenty (20) days after the receipt of the request,
the person or persons requesting the meeting may give the notice. Nothing
contained in this paragraph (b) shall be construed as limiting, fixing, or
affecting the time when a meeting of stockholders called by action of the Board
of Directors may be held.
3.
<PAGE> 9
SECTION 7. NOTICE OF MEETINGS. Except as otherwise provided by law or
the Certificate of Incorporation, written notice of each meeting of stockholders
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder entitled to vote at such meeting, such
notice to specify the place, date and hour and purpose or purposes of the
meeting. Notice of the time, place and purpose of any meeting of stockholders
may be waived in writing, signed by the person entitled to notice thereof,
either before or after such meeting, and will be waived by any stockholder by
his attendance thereat in person or by proxy, except when the stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Any stockholder so waiving notice of such meeting shall be
bound by the proceedings of any such meeting in all respects as if due notice
thereof had been given. (Del. Code Ann., tit. 8, Sections 222, 229)
SECTION 8. QUORUM. At all meetings of stockholders, except where
otherwise provided by statute or by the Certificate of Incorporation, or by
these Bylaws, the presence, in person or by proxy duly authorized, of the
holders of a majority of the outstanding shares of stock entitled to vote shall
constitute a quorum for the transaction of business. Any shares, the voting of
which at said meeting has been enjoined, or which for any reason cannot be
lawfully voted at such meeting, shall not be counted to determine a quorum at
such meeting. In the absence of a quorum any meeting of stockholders may be
adjourned, from time to time, either by the chairman of the meeting or by vote
of the holders of a majority of the shares represented thereat, but no other
business shall be transacted at such meeting. The stockholders present at a duly
called or convened meeting, at which a quorum is present, may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum. Except as otherwise provided by law,
the Certificate of Incorporation or these Bylaws, all action taken by the
holders of a majority of the voting power represented at any meeting at which a
quorum is present shall be valid and binding upon the corporation; provided,
however, that Directors shall be elected by a plurality of the votes of the
shares present in person or represented by proxy at the meeting and entitled to
vote on the election of Directors. Where a separate vote by a class or classes
is required, a majority of the outstanding shares of such class or classes,
present in person or represented by proxy, shall constitute a quorum entitled to
take action with respect to that vote on that matter and the affirmative vote of
the majority (plurality, in the case of the election of Directors) of shares of
such class or classes present in person or represented by proxy at the meeting
shall be the act of such class. (Del. Code Ann., tit. 8, Section 216)
SECTION 9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting of
stockholders, whether annual or special, may be adjourned from time to time
either by the chairman of the meeting or by the vote of a majority of the shares
represented thereat. When a meeting is adjourned to another time or place,
notice need not be given of the adjourned meeting if the time and place thereof
are announced at the meeting at which the adjournment is taken. At the adjourned
meeting the corporation may transact any business which might have been
transacted at the original meeting. If the adjournment is for more than thirty
(30) days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting. (Del. Code Ann., tit. 8,
Section 222(c))
4.
<PAGE> 10
SECTION 10. VOTING RIGHTS.
(a) For the purpose of determining those stockholders entitled to
vote at any meeting of the stockholders, except as otherwise provided by law,
only persons in whose names shares stand on the stock records of the corporation
on the record date, as provided in Section 12 of these Bylaws, shall be entitled
to vote at any meeting of stockholders. Except as may be otherwise provided in
the Certificate of Incorporation or these Bylaws, each stockholder shall be
entitled to one vote for each share of capital stock held by such stockholder.
Every person entitled to vote or execute consents shall have the right to do so
either in person or by an agent or agents authorized by a written proxy executed
by such person or his duly authorized agent, which proxy shall be filed with the
Secretary at or before the meeting at which it is to be used. An agent so
appointed need not be a stockholder. No proxy shall be voted after three (3)
years from its date of creation unless the proxy provides for a longer period.
All elections of Directors shall be by written ballot, unless otherwise provided
in the Certificate of Incorporation. (Del. Code Ann., tit. 8, Sections 211(e),
212(b))
SECTION 11. BENEFICIAL OWNERS OF STOCK.
(a) If shares or other securities having voting power stand of
record in the names of two (2) or more persons, whether fiduciaries, members of
a partnership, joint tenants, tenants in common, tenants by the entirety, or
otherwise, or if two (2) or more persons have the same fiduciary relationship
respecting the same shares, unless the Secretary is given written notice to the
contrary and is furnished with a copy of the instrument or order appointing them
or creating the relationship wherein it is so provided, their acts with respect
to voting shall have the following effect: (a) if only one (1) votes, his act
binds all; (b) if more than one (1) votes, the act of the majority so voting
binds all; (c) if more than one (1) votes, but the vote is evenly split on any
particular matter, each faction may vote the securities in question
proportionally, or may apply to the Delaware Court of Chancery for relief as
provided in the General Corporation Law of Delaware, Section 217(b). If the
instrument filed with the Secretary shows that any such tenancy is held in
unequal interests, a majority or even-split for the purpose of this subsection
(c) shall be a majority or even-split in interest. (Del. Code Ann., tit. 8,
Section 217(b))
(b) Persons holding stock in a fiduciary capacity shall be
entitled to vote the shares so held. Persons whose stock is pledged shall be
entitled to vote, unless in the transfer by the pledgor on the books of the
corporation he has expressly empowered the pledgee to vote thereon, in which
case only the pledgee, or his proxy, may represent such stock and vote thereon.
(Del. Code Ann., tit. 8, Section 217(a))
SECTION 12. LIST OF STOCKHOLDERS. The Secretary shall prepare and make,
at least ten (10) days before every meeting of stockholders, a complete list of
the stockholders entitled to vote at said meeting, arranged in alphabetical
order, showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not
specified, at the place where the meeting is to be held. The list shall be
5.
<PAGE> 11
produced and kept at the time and place of meeting during the whole time
thereof, and may be inspected by any stockholder who is present. (Del. Code
Ann., tit. 8, Section 219(a))
SECTION 13. ACTION WITHOUT MEETING.
(a) Any action required by statute to be taken at any annual or
special meeting of the stockholders, or any action which may be taken at any
annual or special meeting of the stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent or consents in writing,
setting forth the action so taken, are signed by the holders of outstanding
stock 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.
(b) Every written consent shall bear the date of signature of
each stockholder who signs the consent, and no written consent shall be
effective to take the corporate action referred to therein unless, within sixty
(60) days of the earliest dated consent delivered to the Corporation in the
manner herein required, written consents signed by a sufficient number of
stockholders to take action are delivered to the corporation by delivery to its
registered office in the State of Delaware, its principal place of business or
an officer or agent of the corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Delivery made to a
corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested. (Del. Code Ann., tit. 8, Section 228)
(c) Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing. If the action which is consented
to is such as would have required the filing of a certificate under any section
of the General corporation Law of Delaware if such action had been voted on by
stockholders at a meeting thereof, then the certificate filed under such section
shall state, in lieu of any statement required by such section concerning any
vote of stockholders, that written notice and written consent have been given as
provided in Section 228 of the General Corporation Law of Delaware.
SECTION 14. ORGANIZATION.
(a) At every meeting of stockholders, the Chairman of the Board
of Directors, or, if a Chairman has not been appointed or is absent, the
President, or, if the President is absent, the most senior Vice President
present, or in the absence of any such officer, a chairman of the meeting chosen
by a majority in interest of the stockholders entitled to vote, present in
person or by proxy, shall act as chairman. The Secretary, or, in his absence, an
Assistant Secretary directed to do so by the President, shall act as secretary
of the meeting.
(b) The Board of Directors of the corporation shall be entitled
to make such rules or regulations for the conduct of meetings of stockholders as
it shall deem necessary, appropriate or convenient. Subject to such rules and
regulations of the Board of Directors, if any, the chairman of the meeting shall
have the right and authority to prescribe such rules, regulations and procedures
and to do all such acts as, in the judgment of such chairman, are necessary,
appropriate or convenient for the proper conduct of the meeting, including,
without
6.
<PAGE> 12
limitation, establishing an agenda or order of business for the meeting, rules
and procedures for maintaining order at the meeting and the safety of those
present, limitations on participation in such meeting to stockholders of record
of the corporation and their duly authorized and constituted proxies, and such
other persons as the chairman shall permit, restrictions on entry to the meeting
after the time fixed for the commencement thereof, limitations on the time
allotted to questions or comments by participants and regulation of the opening
and closing of the polls for balloting on matters which are to be voted on by
ballot. Unless, and to the extent determined by the Board of Directors or the
chairman of the meeting, meetings of stockholders shall not be required to be
held in accordance with rules of parliamentary procedure.
ARTICLE IV
DIRECTORS
SECTION 15. NUMBER AND TERM OF OFFICE. The authorized directors of the
corporation shall be not less than six nor more than eight. The exact number of
directors shall be set within these limits from time to time by the Board of
Directors. The number of authorized Directors may be modified from time to time
by amendment of this Section 15 in accordance with the provisions of Section 44
hereof. Except as provided in Section 17, the Directors shall be elected by the
stockholders at their annual meeting in each year and shall hold office until
the next annual meeting and until their successors shall be duly elected and
qualified. Directors need not be stockholders unless so required by the
Certificate of Incorporation. If for any cause, the Directors shall not have
been elected at an annual meeting, they may be elected as soon thereafter as
convenient at a special meeting of the stockholders called for that purpose in
the manner provided in these Bylaws. (Del. Code Ann., tit. 8, Sections 141(b),
211(b), (c))
SECTION 16. POWERS. The powers of the corporation shall be exercised,
its business conducted and its property controlled by the Board of Directors,
except as may be otherwise provided by statute or by the Certificate of
Incorporation. (Del. Code Ann., tit. 8, Section 141(a))
SECTION 16A. TERM OF DIRECTORS.
(a) Subject to the rights of the holders of any series of
Preferred Stock to elect additional directors under specified circumstances,
directors shall be elected at each annual meeting of stockholders for a term of
one year. Each director shall serve until his successor is duly elected and
qualified or until his death, resignation or removal. No decrease in the number
of directors constituting the Board of Directors shall shorten the term of any
incumbent director.
(b) No person entitled to vote at an election for directors may
cumulate votes to which such person is entitled, unless, at the time of such
election, the corporation is subject to Section 2115(b) of the CGCL. During such
time or times that the corporation is subject to Section 2115(b) of the CGCL:
(i) Every stockholder entitled to vote at an election for
directors may cumulate such stockholder's votes and give one candidate a number
of votes equal to the number of directors to be elected multiplied by the number
of votes to which such stockholder's shares are otherwise entitled, or
distribute the stockholders votes on the same principal among as many
7.
<PAGE> 13
candidates as such stockholder thinks fit. No stockholder, however, shall be
entitled to so cumulate such stockholder's votes unless (a) the names of such
candidate or candidates have been placed in nomination prior to the voting and
(b) the stockholder has given notice at the meeting, prior to the voting, of
such stockholder's intention to cumulate such stockholder's votes. If any
stockholder has given proper notice, all stockholders may cumulate their votes
for any candidates who have been properly placed in nomination. The candidates
receiving the highest number of votes, up to the number of directors to be
elected, are elected.
SECTION 17. VACANCIES.
(a) Unless otherwise provided in the Certificate of
Incorporation, vacancies and newly created directorships resulting from any
increase in the authorized number of Directors may be filled by a majority of
the Directors then in office, although less than a quorum, or by a sole
remaining Director, and each Director so elected shall hold office for the
unexpired portion of the term of the Director whose place shall be vacant and
until his successor shall have been duly elected and qualified. A vacancy in the
Board of Directors shall be deemed to exist under this Section 17 in the case of
the death, removal or resignation of any Director. (Del. Code Ann., tit. 8,
Section 223(a), (b))
(b) If at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a majority
of the whole board (as constituted immediately prior to any such increase), the
Delaware Court of Chancery may, upon application of any stockholder holding at
least ten percent (10%) of the total number of the shares at the time
outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by the directors then in offices as
aforesaid, which election shall be governed by Section 211 of the Delaware
General Corporation Law. (Del. Code Ann. tit. 8, Section 223(c))
(c) At any time or times that the corporation is subject to
Section 2115(b) of the CGCL, if, after the filling of any vacancy, the directors
then in office who have been elected by stockholders shall constitute less than
a majority of the directors then in office, then
(i) any holder or holders of an aggregate of five percent
(5%) or more of the total number of shares at the time outstanding having the
right to vote for those directors may call a special meeting of stockholders; or
(ii) the Superior Court of the proper county shall, upon
application of such stockholder or stockholders, summarily order a special
meeting of the stockholders, to be held to elect the entire board, all in
accordance with Section 305(c) of the CGCL, and the term of office of any
director shall terminate upon that election of a successor. (CGCL Section
305(c))
SECTION 18. RESIGNATION. Any Director may resign at any time by
delivering his written resignation to the Secretary, such resignation to specify
whether it will be effective at a particular time, upon receipt by the Secretary
or at the pleasure of the Board of Directors. If no such specification is made,
it shall be deemed effective at the pleasure of the Board of Directors. When one
or more Directors shall resign from the Board of Directors, effective at a
future date, a majority of the Directors then in office, including those who
have so resigned, shall have power
8.
<PAGE> 14
to fill such vacancy or vacancies, the vote thereon to take effect when such
resignation or resignations shall become effective, and each Director so chosen
shall hold office for the unexpired portion of the term of the Director whose
place shall be vacated and until his successor shall have been duly elected and
qualified. (Del. Code Ann., tit. 8, Sections 141(b), 223(d))
SECTION 19. REMOVAL.
(a) At a special meeting of stockholders called for the purpose
in the manner hereinabove provided, subject to any limitations imposed by law or
the Certificate of Incorporation (and assuming the corporation is not subject to
Section 2115 of the CGCL), the Board of Directors, or any individual Director,
may be removed from office, with or without cause, and a new Director or
Directors elected by a vote of stockholders holding a majority of the
outstanding shares entitled to vote at an election of Directors. (Del. Code
Ann., tit. 8, Section 141(k))
(b) During such time or times that the corporation is subject to
Section 2115(b) of the CGCL, the Board of Directors or any individual director
may be removed from office at any time without cause by the affirmative vote of
the holders of at least 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 which the same total
number of votes 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 20. MEETINGS.
(a) ANNUAL MEETINGS. The annual meeting of the Board of Directors
shall be held immediately after the annual meeting of stockholders and at the
place where such meeting is held. No notice of an annual meeting of the Board of
Directors shall be necessary and such meeting shall be held for the purpose of
electing officers and transacting such other business as may lawfully come
before it.
(b) REGULAR MEETINGS. Except as hereinafter otherwise provided,
regular meetings of the Board of Directors shall be held in the office of the
corporation required to be maintained pursuant to Section 2 hereof. Unless
otherwise restricted by the Certificate of Incorporation, regular meetings of
the Board of Directors may also be held at any place within or without the State
of Delaware which has been determined by the Board of Directors. (Del. Code
Ann., tit. 8, Section 141(g))
(c) SPECIAL MEETINGS. Unless otherwise restricted by the
Certificate of Incorporation, special meetings of the Board of Directors may be
held at any time and place within or without the State of Delaware whenever
called by the President, at least two (2) members of the Board of Directors, or
holders of at least twenty-five percent (25%) of the corporation's Preferred
Stock. (Del. Code Ann., tit. 8, Section 141(g))
(d) TELEPHONE MEETINGS. Any member of the Board of Directors, or
of any committee thereof, may participate in a meeting by means of conference
telephone or similar
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communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting by such means shall
constitute presence in person at such meeting. (Del. Code Ann., tit. 8, Section
141(i))
(e) NOTICE OF MEETINGS. Written notice of the time and place of
all special meetings of the Board of Directors shall be given at least one (1)
day before the date of the meeting. Notice of any meeting may be waived in
writing at any time before or after the meeting and will be waived by any
Director by attendance thereat, except when the Director attends the meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. (Del. Code Ann., tit. 8, Section 229)
(f) WAIVER OF NOTICE. The transaction of all business at any
meeting of the Board of Directors, or any committee thereof, however called or
noticed, or wherever held, shall be as valid as though had at a meeting duly
held after regular call and notice, if a quorum be present and if, either before
or after the meeting, each of the Directors not present shall sign a written
waiver of notice, or a consent to holding such meeting, or an approval of the
minutes thereof. Neither the business to be transacted at, nor the purpose of,
any regular or special meeting of the Board of Directors need be specified in
any written waiver of notice or consent unless so required by the Certificate of
Incorporation or these Bylaws. All such waivers, consents or approvals shall be
filed with the corporate records or made a part of the minutes of the meeting.
(Del. Code Ann., tit. 8, Section 229)
SECTION 21. QUORUM AND VOTING.
(a) Unless the Certificate of Incorporation requires a greater
number and except with respect to indemnification questions arising under
Section 42 hereof, for which a quorum shall be one-third of the exact number of
Directors fixed from time to time in accordance with Section 15 hereof, but not
less than one (1), a quorum of the Board of Directors shall consist of a
majority of the exact number of Directors fixed from time to time in accordance
with Section 15 of these Bylaws, but not less than one (1); provided, however,
at any meeting whether a quorum be present or otherwise, a majority of the
Directors present may adjourn from time to time until the time fixed for the
next regular meeting of the Board of Directors, without notice other than by
announcement at the meeting. (Del. Code Ann., tit. 8, Section 141(b))
(b) At each meeting of the Board of Directors at which a quorum
is present all questions and business shall be determined by a vote of a
majority of the Directors present, unless a different vote be required by law,
the Certificate of Incorporation or these Bylaws. (Del. Code Ann., tit. 8,
Section 141(b))
SECTION 22. ACTION WITHOUT MEETING. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and such writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee. (Del. Code Ann., tit. 8, Section 141(f))
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SECTION 23. FEES AND COMPENSATION. Directors shall be entitled to such
compensation for their services as may be approved by the Board of Directors,
including, if so approved, by resolution of the Board of Directors, a fixed sum
and expenses of attendance, if any, for attendance at each regular or special
meeting of the Board of Directors and at any meeting of a committee of the Board
of Directors. Nothing herein contained shall be construed to preclude any
Director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise and receiving compensation therefor. (Del. Code
Ann., tit. 8, Section 141(h))
SECTION 24. COMMITTEES.
(a) EXECUTIVE COMMITTEE. The Board of Directors may by resolution
passed by a majority of the whole Board of Directors, appoint an Executive
Committee to consist of one (1) or more members of the Board of Directors. The
Executive Committee, to the extent permitted by law and specifically granted by
the Board of Directors, shall have and may exercise when the Board of Directors
is not in session all powers of the Board of Directors in the management of the
business and affairs of the corporation, including, without limitation, the
power and authority to declare a dividend or to authorize the issuance of stock,
except such committee shall not have the power or authority to amend the
Certificate of Incorporation, to adopt an agreement of merger or consolidation,
to recommend to the stockholders the sale, lease or exchange of all or
substantially all of the corporation's property and assets, to recommend to the
stockholders of the corporation a dissolution of the corporation or a revocation
of a dissolution or to amend these Bylaws. (Del. Code Ann., tit. 8, Section
141(c))
(b) OTHER COMMITTEES. The Board of Directors may, by resolution
passed by a majority of the whole Board of Directors, from time to time appoint
such other committees as may be permitted by law. Such other committees
appointed by the Board of Directors shall consist of one (1) or more members of
the Board of Directors, and shall have such powers and perform such duties as
may be prescribed by the resolution or resolutions creating such committees, but
in no event shall such committee have the powers denied to the Executive
Committee in these Bylaws. (Del. Code Ann., tit. 8, Section 141(c))
(c) TERM. The members of all committees of the Board of Directors
shall serve a term coexistent with that of the Board of Directors which shall
have appointed such committee. The Board of Directors, subject to the provisions
of subsections (a) or (b) of this Section 24, may at any time increase or
decrease the number of members of a committee or terminate the existence of a
committee. The membership of a committee member shall terminate on the date of
his death or voluntary resignation from the committee or from the Board of
Directors. The Board of Directors may at any time for any reason remove any
individual committee member and the Board of Directors may fill any committee
vacancy created by death, resignation, removal or increase in the number of
members of the committee. The Board of Directors may designate one or more
Directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee, and, in addition, in the
absence or disqualification of any member of a committee, the member or members
thereof present at any meeting and not disqualified from voting, whether or not
he or they constitute a quorum, may unanimously appoint another member of the
Board of Directors to act at the meeting in the place of any such absent or
disqualified member. (Del. Code Ann., tit. 8, Section 141(c))
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(d) MEETINGS. Unless the Board of Directors shall otherwise
provide, regular meetings of the Executive Committee or any other committee
appointed pursuant to this Section 24 shall be held at such times and places as
are determined by the Board of Directors, or by any such committee, and when
notice thereof has been given to each member of such committee, no further
notice of such regular meetings need be given thereafter. Special meetings of
any such committee may be held at any place which has been determined from time
to time by such committee, and may be called by any Director who is a member of
such committee, upon written notice to the members of such committee of the time
and place of such special meeting given in the manner provided for the giving of
written notice to members of the Board of Directors of the time and place of
special meetings of the Board of Directors. Notice of any special meeting of any
committee may be waived in writing at any time before or after the meeting and
will be waived by any Director by attendance thereat, except when the Director
attends such special meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. A majority of the authorized number of
members of any such committee shall constitute a quorum for the transaction of
business, and the act of a majority of those present at any meeting at which a
quorum is present shall be the act of such committee. (Del. Code Ann., tit. 8,
Sections 141(c), 229)
SECTION 25. ORGANIZATION. At every meeting of the Directors, the
Chairman of the Board of Directors, or, if a Chairman has not been appointed or
is absent, the President, or if the President is absent, the most senior Vice
President, or, in the absence of any such officer, a chairman of the meeting
chosen by a majority of the Directors present, shall preside over the meeting.
The Secretary, or in his absence, an Assistant Secretary directed to do so by
the President, shall act as secretary of the meeting.
ARTICLE V
OFFICERS
SECTION 26. OFFICERS DESIGNATED. The officers of the corporation shall
be the Chairman of the Board of Directors, the President, one or more Vice
Presidents, the Secretary and the Chief Financial Officer or Treasurer, all of
whom shall be elected at the annual organizational meeting of the Board of
Directors. The order of the seniority of the Vice Presidents shall be in the
order of their nomination, unless otherwise determined by the Board of
Directors. The Board of Directors may also appoint one or more Assistant
Secretaries, Assistant Treasurers, and such other officers and agents with such
powers and duties as it shall deem necessary. The Board of Directors may assign
such additional titles to one or more of the officers as it shall deem
appropriate. Any one person may hold any number of offices of the corporation at
any one time unless specifically prohibited therefrom by law. The salaries and
other compensation of the officers of the corporation shall be fixed by or in
the manner designated by the Board of Directors. (Del. Code Ann., tit. 8,
Sections 122(5), 142(a), (b))
SECTION 27. TENURE AND DUTIES OF OFFICERS.
(a) GENERAL. All officers shall hold office at the pleasure of
the Board of Directors and until their successors shall have been duly elected
and qualified, unless sooner
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removed. Any officer elected or appointed by the Board of Directors may be
removed at any time by the Board of Directors. If the office of any officer
becomes vacant for any reason, the vacancy may be filled by the Board of
Directors. (Del. Code Ann., tit. 8, Section 141(b), (e))
(b) DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of
the Board of Directors, when present, shall preside at all meetings of the
stockholders and the Board of Directors. The Chairman of the Board of Directors
shall perform other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. If there is no President, then the Chairman
of the Board of Directors shall also serve as the Chief Executive Officer of the
corporation and shall have the powers and duties prescribed in paragraph (c) of
this Section 27. (Del. Code Ann., tit. 8, Section 142(a))
(c) DUTIES OF PRESIDENT. The President shall preside at all
meetings of the stockholders and at all meetings of the Board of Directors,
unless the Chairman of the Board of Directors has been appointed and is present.
The President shall be the Chief Executive Officer of the corporation and shall,
subject to the control of the Board of Directors, have general supervision,
direction and control of the business and officers of the corporation. The
President shall perform other duties commonly incident to his office and shall
also perform such other duties and have such other powers as the Board of
Directors shall designate from time to time. (Del. Code Ann., tit. 8, Section
142(a))
(d) DUTIES OF VICE PRESIDENTS. The Vice Presidents, in the order
of their seniority, may assume and perform the duties of the President in the
absence or disability of the President or whenever the office of President is
vacant. The Vice Presidents shall perform other duties commonly incident to
their office and shall also perform such other duties and have such other powers
as the Board of Directors or the President shall designate from time to time.
(Del. Code Ann., tit. 8, Section 142(a))
(e) DUTIES OF SECRETARY. The Secretary shall attend all meetings
of the stockholders and of the Board of Directors, and shall record all acts and
proceedings thereof in the minute book of the corporation. The Secretary shall
give notice in conformity with these Bylaws of all meetings of the stockholders,
and of all meetings of the Board of Directors and any committee thereof
requiring notice. The Secretary shall perform all other duties given him in
these Bylaws and other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. The President may direct any Assistant
Secretary to assume and perform the duties of the Secretary in the absence or
disability of the Secretary, and each Assistant Secretary shall perform other
duties commonly incident to his office and shall also perform such other duties
and have such other powers as the Board of Directors or the President shall
designate from time to time. (Del. Code Ann., tit. 8, Section 142(a))
(f) DUTIES OF CHIEF FINANCIAL OFFICER OR TREASURER. The Chief
Financial Officer or Treasurer shall keep or cause to be kept the books of
account of the corporation in a thorough and proper manner, and shall render
statements of the financial affairs of the corporation in such form and as often
as required by the Board of Directors or the President. The Chief Financial
Officer or Treasurer, subject to the order of the Board of Directors, shall have
the
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custody of all funds and securities of the corporation. The Chief Financial
Officer or Treasurer shall perform other duties commonly incident to his office
and shall also perform such other duties and have such other powers as the Board
of Directors or the President shall designate from time to time. The President
may direct any Assistant Treasurer to assume and perform the duties of the Chief
Financial Officer or Treasurer in the absence or disability of the Chief
Financial Officer or Treasurer, and each Assistant Treasurer shall perform other
duties commonly incident to his office and shall also perform such other duties
and have such other powers as the Board of Directors or the President shall
designate from time to time. (Del. Code Ann., tit. 8, Section 142(a))
SECTION 28. DELEGATION OF AUTHORITY. The Board of Directors may from
time to time delegate the powers or duties of any officer to any other officer
or agent, notwithstanding any provision hereof.
SECTION 29. RESIGNATIONS. Any officer may resign at any time by giving
written notice to the Board of Directors or to the President or to the
Secretary. Any such resignation shall be effective when received by the person
or persons to whom such notice is given, unless a later time is specified
therein, in which event the resignation shall become effective at such later
time. Unless otherwise specified in such notice, the acceptance of any such
resignation shall not be necessary to make it effective. Any resignation shall
be without prejudice to the rights, if any, of the corporation under any
contract with the resigning officer. (Del. Code Ann., tit. 8, Section 142(b))
SECTION 30. REMOVAL. Any officer may be removed from office at any time,
either with or without cause, by the vote or written consent of a majority of
the Directors in office at the time, or by any committee or superior officers
upon whom such power of removal may have been conferred by the Board of
Directors.
ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND
VOTING OF SECURITIES OWNED BY THE CORPORATION
SECTION 31. EXECUTION OF CORPORATE INSTRUMENTS. The Board of Directors
may, in its discretion, determine the method and designate the signatory officer
or officers, or other person or persons, to execute on behalf of the corporation
any corporate instrument or document, or to sign on behalf of the corporation
the corporate name without limitation, or to enter into contracts on behalf of
the corporation, except where otherwise provided by law or these Bylaws, and
such execution or signature shall be binding upon the corporation. (Del. Code
Ann., tit. 8, Sections 103(a), 142(a), 158)
Unless otherwise specifically determined by the Board of Directors or
otherwise required by law, promissory notes, deeds of trust, mortgages and other
evidences of indebtedness of the corporation, and other corporate instruments or
documents requiring the corporate seal, and certificates of shares of stock
owned by the corporation, shall be executed, signed or endorsed by the Chairman
of the Board of Directors, or the President or any Vice President, and by the
Secretary or Chief Financial Officer or Treasurer or any Assistant Secretary or
Assistant
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Treasurer. All other instruments and documents requiring the corporate
signature, but not requiring the corporate seal, may be executed as aforesaid or
in such other manner as may be directed by the Board of Directors. (Del. Code
Ann., tit. 8, Sections 103(a), 142(a), 158)
All checks and drafts drawn on banks or other depositaries on funds to
the credit of the corporation or in special accounts of the corporation shall be
signed by such person or persons as the Board of Directors shall authorize so to
do.
Unless authorized or ratified by the Board of Directors or within the
agency power of an officer, no officer, agent or employee shall have any power
or authority to bind the corporation by any contract or engagement or to pledge
its credit or to render it liable for any purpose or for any amount. (Del. Code
Ann., tit. 8, Sections 103(a), 142(a), 158)
SECTION 32. VOTING OF SECURITIES OWNED BY THE CORPORATION. All stock and
other securities of other corporations owned or held by the corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors, or, in the absence of such authorization,
by the Chairman of the Board of Directors, the President, or any Vice President.
(Del. Code Ann., tit. 8, Section 123)
ARTICLE VII
SHARES OF STOCK
SECTION 33. FORM AND EXECUTION OF CERTIFICATES. Certificates for the
shares of stock of the corporation shall be in such form as is consistent with
the Certificate of Incorporation and applicable law. Every holder of stock in
the corporation shall be entitled to have a certificate signed by or in the name
of the corporation by the Chairman of the Board of Directors, or the President
or any Vice President and by the Treasurer or Assistant Treasurer or the
Secretary or Assistant Secretary, certifying the number of shares owned by him
in the corporation. Where such certificate is countersigned by a transfer agent
other than the corporation or its employee, or by a registrar other than the
corporation or its employee, any other signature on the certificate may be a
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 with the same effect as if he were such officer,
transfer agent, or registrar at the date of issue. Each certificate shall state
upon the face or back thereof, in full or in summary, all of the designations,
preferences, limitations, restrictions on transfer and relative rights of the
shares authorized to be issued. (Del. Code Ann., tit. 8, Section 158)
SECTION 34. LOST CERTIFICATES. A new certificate or certificates shall
be issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. The corporation may require, as a condition
precedent to the issuance of a new certificate or certificates, the owner of
such lost, stolen, or destroyed certificate or certificates, or his legal
representative, to advertise the same in such manner as it shall require or to
give the corporation a surety bond in such form and amount as it
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may direct as indemnity against any claim that may be made against the
corporation with respect to the certificate alleged to have been lost, stolen,
or destroyed. (Del. Code Ann., tit. 8, Section 167)
SECTION 35. TRANSFERS.
(a) Transfers of record of shares of stock of the corporation
shall be made only upon its books by the holders thereof, in person or by
attorney duly authorized, and upon the surrender of a properly endorsed
certificate or certificates for a like number of shares. (Del. Code Ann., tit.
8, Section 201, tit. 6, Section 8-401(1))
(b) The corporation shall have power to enter into and perform
any agreement with any number of stockholders of any one or more classes of
stock of the corporation to restrict the transfer of shares of stock of the
corporation of any one or more classes owned by such stockholders in any manner
not prohibited by the General Corporation Law of Delaware. (Del. Code Ann., tit.
8, Section 160 (a))
SECTION 36. FIXING RECORD DATES.
(a) In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of Directors may fix, in advance, a record date,
which record date shall not precede the date upon which the resolution fixing
the record date is adopted by the Board of Directors, and which record date
shall not be more than sixty (60) nor less than ten (10) days before the date of
such meeting. If no record date is fixed by the Board of Directors, the record
date for determining stockholders entitled to notice of or to vote at a meeting
of stockholders shall be at the close of business on the day next preceding the
day on which notice is given, or if notice is waived, at the close of business
on the day next preceding the day on which the meeting is held. A determination
of stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
(b) In order that the Corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the Board
of Directors may fix, in advance, a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted by
the Board of Directors, and which date shall not be more than ten (10) days
after the date upon which the resolution fixing the record date is adopted by
the Board of Directors. If no record date has been fixed by the Board of
Directors, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting, when no prior action by the Board
of Directors is required by law, shall be the first date on which a signed
written consent setting forth the action taken or proposed to be taken is
delivered to the Corporation by delivery to its registered office in the State
of Delaware, its principal place of business or an officer or agent of the
Corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to a Corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
If no record date has been fixed by the Board of Directors and prior action by
the Board of Directors is required by law, the record date for determining
stockholders entitled to
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consent to corporate action in writing without a meeting shall be at the close
of business on the day on which the Board of Directors adopts the resolution
taking such prior action.
(c) In order that the corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix, in advance, a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted, and which record date shall be not more than sixty (60)
days prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto. (Del. Code Ann., tit. 8, Section 213)
SECTION 37. REGISTERED STOCKHOLDERS. The corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and shall not
be bound to recognize any equitable or other claim to or interest in such share
or shares on the part of any other person whether or not it shall have express
or other notice thereof, except as otherwise provided by the laws of Delaware.
(Del. Code Ann., tit. 8, Sections 213(a), 219)
ARTICLE VIII
OTHER SECURITIES OF THE CORPORATION
SECTION 38. EXECUTION OF OTHER SECURITIES. All bonds, debentures and
other corporate securities of the corporation, other than stock certificates
(covered in Section 33), may be signed by the Chairman of the Board of
Directors, the President or any Vice President, or such other person as may be
authorized by the Board of Directors, and the corporate seal impressed thereon
or a facsimile of such seal imprinted thereon and attested by the signature of
the Secretary or an Assistant Secretary, or the Chief Financial Officer or
Treasurer or an Assistant Treasurer; provided, however, that where any such
bond, debenture or other corporate security shall be authenticated by the manual
signature of a trustee under an indenture pursuant to which such bond, debenture
or other corporate security shall be issued, the signatures of the persons
signing and attesting the corporate seal on such bond, debenture or other
corporate security may be the imprinted facsimile of the signatures of such
persons. Interest coupons appertaining to any such bond, debenture or other
corporate security, authenticated by a trustee as aforesaid, shall be signed by
the Treasurer or an Assistant Treasurer of the corporation or such other person
as may be authorized by the Board of Directors, or bear imprinted thereon the
facsimile signature of such person. In case any officer who shall have signed or
attested any bond, debenture or other corporate security, or whose facsimile
signature shall appear thereon or on any such interest coupon, shall have ceased
to be such officer before the bond, debenture or other corporate security so
signed or attested shall have been delivered, such bond, debenture or other
corporate security nevertheless may be adopted by the corporation and issued and
delivered as though the person who signed the same or whose facsimile signature
shall have been used thereon had not ceased to be such officer of the
corporation.
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ARTICLE IX
DIVIDENDS
SECTION 39. DECLARATION OF DIVIDENDS. Dividends upon the capital stock
of the corporation, subject to the provisions of the Certificate of
Incorporation, if any, may be declared by the Board of Directors pursuant to law
at any regular or special meeting. Dividends may be paid in cash, in property,
or in shares of the capital stock, subject to the provisions of the Certificate
of Incorporation. (Del. Code Ann., tit. 8, Sections 170, 173)
SECTION 40. DIVIDEND RESERVE. Before payment of any dividend, there may
be set aside out of any funds of the corporation available for dividends such
sum or sums as the Board of Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the Board of Directors shall think
conducive to the interests of the corporation, and the Board of Directors may
modify or abolish any such reserve in the manner in which it was created. (Del.
Code Ann., tit. 8, Section 171)
ARTICLE X
FISCAL YEAR
SECTION 41. FISCAL YEAR. The fiscal year of the corporation shall be
fixed by resolution of the Board of Directors.
ARTICLE XI
INDEMNIFICATION
SECTION 42. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER
AGENTS.
(a) DIRECTORS AND EXECUTIVE OFFICERS. The corporation shall
indemnify its Directors and executive officers to the fullest extent not
prohibited by the Delaware 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 Delaware General Corporation Law.
(b) OTHER OFFICERS, EMPLOYEES AND OTHER AGENTS. The corporation
shall have power to indemnify its other officers, employees and other agents as
set forth in the Delaware General Corporation Law.
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(c) 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 or not opposed to the best interests of
the corporation, 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;
(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 or not opposed to the best
interests of the corporation, and, with respect to any criminal proceeding, that
he had reasonable cause to believe that his conduct was unlawful.
(3) The provisions of this paragraph (c) 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 Delaware General Corporation Law.
(d) 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 should 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 (e) of this Bylaw, no advance shall be made by the corporation if a
determination is reasonably and promptly made (1) by the Board of Directors by a
majority vote of a quorum consisting of Directors who were not parties to the
proceeding, or (2) if such quorum is not obtainable, or, even if obtainable, a
quorum of disinterested directors so directs, 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 or
not opposed to the best interests of the corporation.
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(e) 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 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 Delaware General Corporation Law for
the corporation to indemnify the claimant for the amount claimed. Neither the
failure of the corporation (including its Board of Directors, independent legal
counsel or its stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he has met the applicable standard of conduct set
forth in the Delaware General Corporation Law, nor an actual determination by
the corporation (including its Board of Directors, independent legal counsel or
its stockholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that claimant
has not met the applicable standard of conduct.
(f) NON-EXCLUSIVITY OF RIGHTS. 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 Certificate of
Incorporation, Bylaws, agreement, vote of stockholders 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 not prohibited by the Delaware General Corporation Law.
(g) 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,
officer, employee or other agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(h) INSURANCE. To the fullest extent permitted by the Delaware
General Corporation Law, 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.
(i) 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.
(j) 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
20.
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indemnify each Director and executive officer to the full extent not prohibited
by any applicable portion of this Bylaw that shall not have been invalidated, or
by any other applicable law.
(k) CERTAIN DEFINITIONS. For the purposes of this Bylaw, the
following definitions shall apply:
(1) The term "PROCEEDING" shall be broadly construed and
shall include, without limitation, the investigation, preparation, prosecution,
defense, settlement, arbitration and appeal of, and the giving of testimony in,
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative 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.
(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 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.
(5) References to "other enterprises" shall include
employee benefit plans; references to "fines" shall include any excise taxes
assessed on a person with respect to an employee benefit plan; and references to
"serving at the request of the corporation" shall include any service as a
director, officer, employee or agent of the corporation which imposes duties on,
or involves services by, such director, officer, employee, or agent with respect
to an employee benefit plan, its participants, or beneficiaries; and a person
who acted in good faith and in a manner he reasonably believed to be in the
interest of the participants and beneficiaries of an employee benefit plan shall
be deemed to have acted in a manner "not opposed to the best interests of the
corporation" as referred to in this Bylaw.
21.
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ARTICLE XII
NOTICES
SECTION 43. NOTICES.
(a) NOTICE TO STOCKHOLDERS. Whenever, under any provisions of
these Bylaws, notice is required to be given to any stockholder, it shall be
given in writing, timely and duly deposited in the United States mail, postage
prepaid, and addressed to his last known post office address as shown by the
stock record of the corporation or its transfer agent. (Del. Code Ann., tit. 8,
Section 222)
(b) NOTICE TO DIRECTORS. Any notice required to be given to any
Director may be given by the method stated in subsection (a), or by facsimile,
telex or telegram, except that such notice other than one which is delivered
personally shall be sent to such address as such Director shall have filed in
writing with the Secretary, or, in the absence of such filing, to the last known
post office address of such Director.
(c) ADDRESS UNKNOWN. If no address of a stockholder or Director
be known, notice may be sent to the office of the corporation required to be
maintained pursuant to Section 2 hereof.
(d) AFFIDAVIT OF MAILING. An affidavit of mailing, executed by a
duly authorized and competent employee of the corporation or its transfer agent
appointed with respect to the class of stock affected, specifying the name and
address or the names and addresses of the stockholder or stockholders, or
Director or Directors, to whom any such notice or notices was or were given, and
the time and method of giving the same, shall be conclusive evidence of the
statements therein contained. (Del. Code Ann., tit. 8, Section 222)
(e) TIME NOTICES DEEMED GIVEN. All notices given by mail, as
above provided, shall be deemed to have been given as at the time of mailing and
all notices given by facsimile, telex or telegram shall be deemed to have been
given as of the sending time recorded at time of transmission.
(f) METHODS OF NOTICE. It shall not be necessary that the same
method of giving notice be employed in respect of all Directors, but one
permissible method may be employed in respect of any one or more, and any other
permissible method or methods may be employed in respect of any other or others.
(g) FAILURE TO RECEIVE NOTICE. The period or limitation of time
within which any stockholder may exercise any option or right, or enjoy any
privilege or benefit, or be required to act, or within which any Director may
exercise any power or right, or enjoy any privilege, pursuant to any notice sent
him in the manner above provided, shall not be affected or extended in any
manner by the failure of such stockholder or such Director to receive such
notice.
(h) NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL.
Whenever notice is required to be given, under any provision of law or of the
Certificate of
22.
<PAGE> 28
Incorporation or Bylaws of the corporation, to any person with whom
communication is unlawful, the giving of such notice to such person shall not be
required and there shall be no duty to apply to any governmental authority or
agency for a license or permit to give such notice to such person. Any action or
meeting which shall be taken or held without notice to any such person with whom
communication is unlawful shall have the same force and effect as if such notice
had been duly given. In the event that the action taken by the corporation is
such as to require the filing of a certificate under any provision of the
Delaware General Corporation Law, the certificate shall state, if such is the
fact and if notice is required, that notice was given to all persons entitled to
receive notice except such persons with whom communication is unlawful.
(i) NOTICE TO PERSON WITH UNDELIVERABLE ADDRESS. Whenever notice
is required to be given, under any provision of law or the Certificate of
Incorporation or Bylaws of the corporation, to any stockholder to whom (i)
notice of two consecutive annual meetings, and all notices of meetings or of the
taking of action by written consent without a meeting to such person during the
period between such two consecutive annual meetings, or (ii) all, and at least
two, payments (if sent by first class mail) of dividends or interest on
securities during a twelve month period, have been mailed addressed to such
person at his address as shown on the records of the Corporation and have been
returned undeliverable, the giving of such notice to such person shall not be
required. Any action or meeting which shall be taken or held without notice to
such person shall have the same force and effect as if such notice had been duly
given. If any such person shall deliver to the corporation a written notice
setting forth his then current address, the requirement that notice be given to
such person shall be reinstated. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate need not
state that notice was not given to persons to whom notice was not required to be
given pursuant to this paragraph. (Del. Code Ann, tit. 8, Section 230)
ARTICLE XIII
AMENDMENTS
SECTION 44. AMENDMENTS. Except as otherwise set forth in paragraph (i)
of Section 42 of these Bylaws, these Bylaws may be amended or repealed and new
Bylaws adopted by the stockholders entitled to vote. The Board of Directors
shall also have the power if, and to the extent, such power is conferred upon
the Board of Directors by the Certificate of Incorporation, to adopt, amend or
repeal Bylaws (including, without limitation, the amendment of any Bylaw setting
forth the number of Directors who shall constitute the whole Board of
Directors). (Del. Code Ann., tit. 8, Sections 109(a), 122(6))
ARTICLE XIV
RIGHT OF FIRST REFUSAL
SECTION 45. RIGHT OF FIRST REFUSAL. No holder of Common Stock shall
sell, assign, pledge, or in any manner transfer any of the shares of Common
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:
23.
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(a) If such stockholder receives from anyone a bona fide offer
acceptable to such stockholder to purchase any of his shares of stock, then such
stockholder 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 price per share and all other terms and conditions of the
offer.
(b) For fifteen (15) 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
bona fide offer; provided, however, that, with the consent of the selling
stockholder, the corporation shall have the option to purchase a lesser portion
of the shares specified in such notice at the price and upon the terms set forth
therein. In the event the corporation elects to purchase all the shares or, with
the consent of the selling stockholder, a lesser portion of the shares, it shall
give written notice to the selling stockholder of its election and settlement
for said shares shall be made as provided below in paragraph (d).
(c) In the event the corporation does not elect to acquire all of
the shares specified in the selling stockholder's notice, the Secretary of the
corporation shall, within fifteen (15) days of receipt of said selling
stockholder's notice, give written notice thereof to the holders of the
corporation's Preferred Stock. Said written notice shall state the number of
shares that the corporation has elected to purchase and the number of shares
remaining available for purchase (which shall be the same as the number
contained in said selling stockholder's notice, less any such shares that the
corporation has elected to purchase). Each of the holders of the corporation's
Preferred Stock shall have the option to purchase that proportion of the shares
available for purchase as the number of shares owned by each of said holders of
the corporation's Preferred Stock (on an as-if-converted to common stock basis)
bears to the total issued and outstanding shares of the corporation's Preferred
Stock. A holder of the corporation's Preferred Stock electing to exercise such
option shall, within ten (10) days after mailing of the corporation's notice,
give notice to the corporation specifying the number of shares such holder will
purchase. Within such ten-day period, each of said holders of the corporation's
Preferred Stock shall give written notice stating how many additional shares
such holder will purchase if additional shares are made available. Failure to
respond in writing within said ten-day period to the notice given by the
Secretary of the corporation shall be deemed a rejection of such holder's right
to acquire a proportionate part of the shares of the selling stockholder. In the
event one or more holders of the corporation's Preferred Stock do not elect to
acquire the shares available to them, said shares shall be allocated on a pro
rata basis to the holders of the corporation's Preferred Stock who requested
shares in addition to their pro rata allotment. Notwithstanding anything in this
paragraph (c) to the contrary, the holders of the corporation's Preferred Stock,
upon exercise of the option to purchase any of the shares available to them,
must purchase an aggregate of all (but not less than all, unless the selling
stockholder consents otherwise) of the shares remaining available for purchase.
(d) In the event the corporation and/or holders of the
corporation's Preferred Stock elect to acquire any of the shares of the selling
stockholder as specified in said selling stockholder's notice, the Secretary of
the corporation shall so notify the selling stockholder and settlement thereof
shall be made in cash within thirty (30) days after the Secretary of the
corporation receives said selling stockholder's notice; provided that if the
terms of payment set forth in said selling stockholder's notice were other than
cash against delivery, the corporation
24.
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and/or holders of the corporation's Preferred Stock shall pay for said shares on
the same terms and conditions set forth in said selling stockholder's notice.
(e) In the event the corporation and/or holders of the
corporation's Preferred Stock do not elect to acquire all of the shares
specified in the selling stockholder's notice, said selling stockholder may,
within the sixty-day period following the expiration of the option rights
granted to the corporation and other stockholders herein, sell elsewhere the
shares specified in said selling stockholder's notice which were not acquired by
the corporation and/or holders of the corporation's Preferred Stock in
accordance with the provisions of paragraph (d) of this bylaw, provided that
said sale shall not be on terms and conditions more favorable to the purchaser
than those contained in the bona fide offer set forth in said selling
stockholder's notice. All shares so sold by said selling stockholder 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 stockholder's transfer of any or all shares held
either during such stockholder's lifetime or on death by will or intestacy to
such stockholder's immediate family. "Immediate family" as used herein shall
mean spouse, lineal descendant, father, mother, brother, or sister of the
stockholder making such transfer and shall include any trust established
primarily for the benefit of the stockholder or his immediate family.
(2) A stockholder'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 Section 45.
(3) A stockholder's transfer of any or all of such
stockholder's shares to the corporation or to any other stockholder of the
corporation.
(4) A stockholder's transfer of any or all of such
stockholder's shares to a person who, at the time of such transfer, is an
officer or director of the corporation.
(5) A corporate stockholder's transfer of any or all of
its shares pursuant to and in accordance with the terms of any merger,
consolidation, reclassification of shares or capital reorganization of the
corporate stockholder, or pursuant to a sale of all or substantially all of the
stock or assets of a corporate stockholder.
(6) A corporate stockholder's transfer of any or all of
its shares to any or all of its stockholders.
(7) A transfer by a stockholder which is a limited or
general partnership to any or all of its 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 accordance with this Bylaw.
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(g) Subject to the last sentence of this paragraph (g): (i) the
provisions of this Section 45 may be waived with respect to any transfer either
by the corporation, upon duly authorized action of its Board of Directors, or by
the stockholders, 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 sold by the selling stockholder); and (ii) this Section 45 may be
amended or repealed either by a duly authorized action of the Board of Directors
or by the stockholders, upon the express vote or written consent of the owners
of a majority of the voting power of the corporation. Notwithstanding the
foregoing, the rights granted to the holders of the corporation's Preferred
Stock pursuant to paragraph (c) above may not be waived or modified without the
approval (by vote or written consent) of the holders of a majority of the
corporation's Preferred Stock (on an as-if-converted to common stock basis).
(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 March 31, 2005; 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
holders of the corporation's Series A Preferred Stock as
provided in the bylaws of the corporation."
(Del. Code Ann., tit. 8, Section 160(a))
ARTICLE XV
LOANS TO OFFICERS
SECTION 46. LOANS TO OFFICERS. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation or of its subsidiaries, including any officer or employee who
is a Director of the corporation or its subsidiaries, whenever, in the judgment
of the Board of Directors, such loan, guarantee or assistance may reasonably be
expected to benefit the corporation. The loan, guarantee or other assistance may
be with or without interest and may be unsecured, or secured in such manner as
the Board of Directors shall approve, including, without limitation, a pledge of
shares of stock of the corporation. Nothing in this Section 46 shall be deemed
to deny, limit or restrict the powers
26.
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of guaranty or warranty of the corporation at common law or under any statute.
(Del. Code Ann., tit. 8, Section 143)
ARTICLE XVI
MISCELLANEOUS
SECTION 47. ANNUAL REPORT.
(a) Subject to the provisions of paragraph (b) of this Bylaw, the
Board of Directors shall cause an annual report to be sent to each stockholder
of the corporation 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 accounts, 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 stockholders of record of the corporation's shares, as determined by Section
605 of the CGCL, additional information as required by Section 1501(b) of the
CGCL shall also be contained in such report, provided that if the corporation
has a class of securities registered under Section 12 of the 1934 Act, that Act
shall take precedence. Such report shall be sent to stockholders at least
fifteen (15) days prior to the next annual meeting of stockholders 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 stockholders of the corporation is hereby expressly waived.
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Exhibit 3.03
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF
ELOQUENT, INC.
Abraham Kleinfeld hereby certifies that:
ONE: The name of this corporation is Eloquent, Inc.
TWO: The date of filing the original Certificate of Incorporation of
this corporation with the Secretary of State of the State of Delaware is March
29, 1995.
THREE: He is the duly elected and acting President and Chief Executive
Officer of this corporation.
FOUR: The Amended and Restated Certificate of Incorporation of this
corporation is hereby amended and restated to read as follows:
I.
The name of the Corporation is Eloquent, Inc. (the "Corporation").
II.
The address of the registered office of the Corporation in the State of
Delaware is:
The Prentice-Hall Corporation System, Inc.
1013 Centre Road
Wilmington, DE 19805
New Castle County
The name of the Corporation's registered agent at said address is The
Prentice-Hall Corporation System, Inc.
III.
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 the State of Delaware.
IV.
A. The Corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total number
of shares which the corporation is authorized to issue is 50,000,000 shares,
40,000,000 of which shall be
<PAGE> 2
Common Stock, each having a par value of one-tenth of one cent ($.001) and
10,000,000 of which shall be Preferred Stock, each having a par value of
one-tenth of one cent ($.001).
B. The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, by filing a certificate (a
"Preferred Stock Designation") pursuant to the Delaware General Corporation Law
("DGCL"), to fix or alter from time to time the designation, powers, preferences
and rights of the shares of each such series and the qualifications, limitations
or restrictions of any wholly unissued series of Preferred Stock, and to
establish from time to time the number of shares constituting any such series or
any of them; and to increase or decrease the number of shares of any series
subsequent to the issuance 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 decreased in accordance with the foregoing sentence, the shares
constituting such decrease shall resume the status that they had prior to the
adoption of the resolution originally fixing the number of shares of such
series.
V.
For the management of the business and for the conduct of the affairs of
the Corporation, and in further definition, limitation and regulation of the
powers of the Corporation, of its directors and of its stockholders or any class
thereof, as the case may be, it is further provided that:
1. The management of the business and the conduct of the affairs of
the corporation shall be vested in its Board of Directors. The number of
directors which shall constitute the whole Board of Directors shall be fixed
exclusively by one or more resolutions adopted by the Board of Directors.
2. a. Subject to the rights of the holders of any series of
Preferred Stock to elect additional directors under specified circumstances,
following the closing of the initial public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the "1993
Act"), covering the offer and sale of Common Stock to the public (the "Initial
Public Offering"), the directors shall be divided into three classes designated
as Class I, Class II and Class III, respectively. Directors shall be assigned to
each class in accordance with a resolution or resolutions adopted by the Board
of Directors. At the first annual meeting of stockholders following the closing
of the Initial Public Offering, the term of office of the Class I directors
shall expire and Class I directors shall be elected for a full term of three
years. At the second annual meeting of stockholders following the Initial Public
Offering, the term of office of the Class II directors shall expire and Class II
directors shall be elected for a full term of three years. At the third annual
meeting of stockholders following the Initial Public Offering, the term of
office of the Class III directors shall expire and Class III directors shall be
elected for a full term of three years. At each succeeding annual meeting of
stockholders, directors shall be elected for a full term of three years to
succeed the directors of the class whose terms expire at such annual meeting.
During such time or times that the corporation is subject to Section 2115(b) of
the California General Corporation Law ("CGCL"), this Section 2.a of this
Article V
2
<PAGE> 3
shall become effective and be applicable only when the corporation is a "listed"
corporation within the meaning of Section 301.5 of the CGCL.
b. In the event that the corporation (i) is subject to Section
2115(b) of the CGCL AND (ii) is not a "listed" corporation or ceases to be a
"listed" corporation under Section 301.5 of the CGCL, Section 2.a. of this
Article V shall not apply and all directors shall be shall be elected at each
annual meeting of stockholders to hold office until the next annual meeting.
c. No person entitled to vote at an election for directors may
cumulate votes to which such person is entitled, unless, at the time of such
election, the corporation (i) is subject to Section 2115(b) of the CGCL AND (ii)
is not a "listed" corporation or ceases to be a "listed" corporation under
Section 301.5 of the CGCL. During this time, every stockholder entitled to vote
at an election for directors may cumulate such stockholder's votes and give one
candidate a number of votes equal to the number of directors to be elected
multiplied by the number of votes to which such stockholder's shares are
otherwise entitled, or distribute the stockholder's votes on the same principle
among as many candidates as such stockholder thinks fit. No stockholder,
however, shall be entitled to so cumulate such stockholder's votes unless (i)
the names of such candidate or candidates have been placed in nomination prior
to the voting and (ii) the stockholder has given notice at the meeting, prior to
the voting, of such stockholder's intention to cumulate such stockholder's
votes. If any stockholder has given proper notice to cumulate votes, all
stockholders may cumulate their votes for any candidates who have been properly
placed in nomination. Under cumulative voting, the candidates receiving the
highest number of votes, up to the number of directors to be elected, are
elected.
Notwithstanding the foregoing provisions of this section, each director shall
serve until his successor is duly elected and qualified or until his death,
resignation or removal. No decrease in the number of directors constituting the
Board of Directors shall shorten the term of any incumbent director.
3. a. During such time or times that the corporation is subject to
Section 2115(b) of the CGCL, the Board of Directors or any individual director
may be removed from office at any time without cause by the affirmative vote of
the holders of at least 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 which the same total
number of votes 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.
b. At any time or times that the corporation is not subject to
Section 2115(b) of the CGCL and subject to any limitations imposed by law,
Section 3.a. above shall no longer apply and subject to the rights of the
holders of any series of Preferred Stock, the Board of Directors or any
individual director may be removed from office at any time (i) with cause by the
3
<PAGE> 4
affirmative vote of the holders of a majority of the voting power of all the
then-outstanding shares of voting stock of the Corporation, entitled to vote at
an election of directors (the "Voting Stock") or (ii) without cause by the
affirmative vote of the holders of at least sixty-six and two-thirds percent
(66 2/3%) of the voting power of all the then-outstanding shares of the Voting
Stock.
4. a. Subject to the rights of the holders of any series of
Preferred Stock, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors, shall,
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by the stockholders, except as
otherwise provided by law, be filled only by the affirmative vote of a majority
of the directors then in office, even though less than a quorum of the Board of
Directors, and not by the stockholders. Any director elected in accordance with
the preceding sentence shall hold office for the remainder of the full term of
the director for which the vacancy was created or occurred and until such
director's successor shall have been elected and qualified.
b. If at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a majority
of the whole board (as constituted immediately prior to any such increase), the
Delaware Court of Chancery may, upon application of any stockholder or
stockholders holding at least ten percent (10%) of the total number of the
shares at the time outstanding having the right to vote for such directors,
summarily order an election to be held to fill any such vacancies or newly
created directorships, or to replace the directors chosen by the directors then
in offices as aforesaid, which election shall be governed by Section 211 of the
DGCL.
c. At any time or times that the corporation is subject to
Section 2115(b) of the CGCL, if, after the filling of any vacancy by the
directors, the directors then in office who have been elected by stockholders
shall constitute less than a majority of the directors then in office, then
(i) Any holder or holders of an aggregate of five percent (5%)
or more of the total number of shares at the time outstanding having the right
to vote for those directors may call a special meeting of stockholders; or
(ii) The Superior Court of the proper county shall, upon
application of such stockholder or stockholders, summarily order a special
meeting of stockholders, to be held to elect the entire board, all in accordance
with Section 305(c) of the CGCL. The term of office of any director shall
terminate upon that election of a successor.
5. Subject to paragraph (h) of Section 43 of the Bylaws, the Bylaws
may be altered or amended or new Bylaws adopted by the affirmative vote of at
least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of
the then-outstanding shares of the Voting Stock. The Board of Directors shall
also have the power to adopt, amend, or repeal Bylaws.
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6. The directors of the corporation need not be elected by written
ballot unless the Bylaws so provide.
7. No action shall be taken by the stockholders of the corporation
except at an annual or special meeting of stockholders called in accordance with
the Bylaws, and following the closing of the Initial Public Offering, no action
shall be taken by the stockholders by written consent.
8. Advance notice of stockholder nominations for the election of
directors and of business to be brought by stockholders before any meeting of
the stockholders of the corporation shall be given in the manner provided in the
Bylaws of the Corporation.
VI.
A. A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for any breach of fiduciary
duty as a director, except for liability (1) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (2) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (3) under Section 174 of the DGCL, or (4) for any transaction
from which the director derived an improper personal benefit. If the DGCL is
amended after approval by the stockholders of this Article VI to authorize
corporate action further eliminating or limiting the personal liability of
directors, then the liability of a director shall be eliminated or limited to
the fullest extent permitted by the DGCL, as so amended.
B. The Corporation is authorized to provide indemnification of agents
(as defined in Section 317 of the CGCL) for breach of duty to the corporation
and its shareholders through bylaw provisions or through agreements with the
agents, or through shareholder resolutions, or otherwise, in excess of the
indemnification otherwise permitted by Section 317 of the CGCL, subject, at any
time or times the corporation is subject to Section 2115(b) to the limits on
such excess indemnification set forth in Section 204 of the CGCL.
C. Any repeal or modification of this Article VI shall be prospective
and shall not affect the rights under this Article VI in effect at the time of
the alleged occurrence of any act or omission to act giving rise to liability or
indemnification.
VII.
A. The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, except as provided in paragraph B. of this
Article VII, and all rights conferred upon the stockholders herein are granted
subject to this reservation.
B. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the Voting Stock required by law, this Certificate
of Incorporation or any Preferred Stock Designation, the affirmative vote of
5
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the holders of at least sixty-six and two-thirds percent (66-2/3%) of the Voting
Stock, voting together as a single class, shall be required to alter, amend or
repeal Articles V, VI, and VII."
* * *
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FIVE: This Amended and Restated Certificate of Incorporation has been
duly approved by the Board of Directors of this corporation.
SIX: This Amended and Restated Certificate of Incorporation has been
duly adopted in accordance with the provisions of Sections 228, 242 and 245 of
the General Corporation Law of the State of Delaware by the Board of Directors
and the stockholders of this corporation.
IN WITNESS WHEREOF, Eloquent, Inc. has caused this Amended and Restated
Certificate of Incorporation to be signed by its President and Chief Executive
Officer in San Mateo, California this ____ day of __________, 1999.
ELOQUENT, INC.
By:
-------------------------------------
ABRAHAM KLEINFELD
President and Chief Executive Officer
<PAGE> 1
Exhibit 3.04
BYLAWS
OF
ELOQUENT, INC.
(A DELAWARE CORPORATION)
AS AMENDED AND RESTATED ____________, 1999
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C> <C> <C>
Article I Offices......................................................................1
Section 1. Registered Office......................................................1
Section 2. Other Offices..........................................................1
Article II Corporate Seal...............................................................1
Section 3. Corporate Seal.........................................................1
Article III Stockholders' Meetings.......................................................1
Section 4. Place Of Meetings......................................................1
Section 5. Annual Meetings........................................................1
Section 6. Special Meetings.......................................................4
Section 7. Notice Of Meetings.....................................................5
Section 8. Quorum.................................................................5
Section 9. Adjournment And Notice Of Adjourned Meetings...........................5
Section 10. Voting Rights..........................................................6
Section 11. Joint Owners Of Stock..................................................6
Section 12. List Of Stockholders...................................................6
Section 13. Action Without Meeting.................................................6
Section 14. Organization...........................................................7
Article IV Directors....................................................................8
Section 15. Number And Term Of Office..............................................8
Section 16. Powers.................................................................8
Section 17. Classes of Directors...................................................8
Section 18. Vacancies..............................................................9
Section 19. Resignation...........................................................10
Section 20. Removal...............................................................10
Section 21. Meetings..............................................................10
(a) Annual Meetings.....................................................10
(b) Regular Meetings....................................................10
(c) Special Meetings....................................................11
(d) Telephone Meetings..................................................11
(e) Notice Of Meetings..................................................11
</TABLE>
1
<PAGE> 3
<TABLE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
<S> <C> <C> <C>
(f) Waiver Of Notice............................................................11
Section 22. Quorum And Voting.....................................................11
Section 23. Action Without Meeting................................................12
Section 24. Fees And Compensation.................................................12
Section 25. Committees............................................................12
(a) Executive Committee.................................................12
(b) Other Committees....................................................12
(c) Term................................................................12
(d) Meetings............................................................13
Section 26. Organization..........................................................13
Article V Officers....................................................................13
Section 27. Officers Designated...................................................13
Section 28. Tenure And Duties Of Officers.........................................14
(a) General.............................................................14
(b) Duties Of Chairman Of The Board Of Directors........................14
(c) Duties Of President.................................................14
(d) Duties Of Vice Presidents...........................................14
(e) Duties Of Secretary.................................................14
(f) Duties Of Chief Financial Officer...................................15
Section 29. Delegation Of Authority...............................................15
Section 30. Resignations..........................................................15
Section 31. Removal...............................................................15
Article VI Execution Of Corporate Instruments And Voting Of Securities Owned By The
Corporation.................................................................15
Section 32. Execution Of Corporate Instruments....................................15
Section 33. Voting Of Securities Owned By The Corporation.........................16
Article VII Shares Of Stock.............................................................16
Section 34. Form And Execution Of Certificates....................................16
Section 35. Lost Certificates.....................................................17
Section 36. Transfers.............................................................17
</TABLE>
2
<PAGE> 4
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Section 37. Fixing Record Dates...................................................17
Section 38. Registered Stockholders...............................................18
Article VIII Other Securities Of The Corporation.........................................18
Section 39. Execution Of Other Securities.........................................18
Article IX Dividends...................................................................19
Section 40. Declaration Of Dividends..............................................19
Section 41. Dividend Reserve......................................................19
Article X Fiscal Year.................................................................19
Section 42. Fiscal Year...........................................................19
Article XI Indemnification.............................................................19
Section 43. Indemnification Of Directors, Officers, Employees And Other Agents....19
(a) Directors And Executive Officers....................................19
(b) Other Officers, Employees And Other Agents..........................20
(c) Expenses............................................................20
(d) Enforcement.........................................................20
(e) Non-Exclusivity Of Rights...........................................21
(f) Survival Of Rights..................................................21
(g) Insurance...........................................................21
(h) Amendments..........................................................21
(i) Saving Clause.......................................................21
(j) Certain Definitions.................................................21
Article XII Notices.....................................................................22
Section 44. Notices...............................................................22
(a) Notice To Stockholders..............................................22
(b) Notice To Directors.................................................22
(c) Address Unknown.....................................................23
(d) Affidavit Of Mailing................................................23
(e) Time Notices Deemed Given...........................................23
(f) Methods Of Notice...................................................23
</TABLE>
3
<PAGE> 5
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
(g) Failure To Receive Notice...................................................23
(h) Notice To Person With Whom Communication Is Unlawful........................23
(i) Notice To Person With Undeliverable Address.................................23
Article XIII Amendments..................................................................24
Section 45. Amendments............................................................24
Article XIV Loans To Officers...........................................................24
Section 46. Loans To Officers.....................................................24
</TABLE>
4
<PAGE> 6
BYLAWS
OF
ELOQUENT, INC.
(A DELAWARE CORPORATION)
AS AMENDED AND RESTATED ____________, 1999
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the corporation
in the State of Delaware shall be in the City of Wilmington, County of New
Castle. (Del. Code Ann., tit. 8, Section 131)
SECTION 2. OTHER OFFICES. The corporation shall also have and maintain
an office or principal place of business, at such place as may be fixed by the
Board of Directors, and may also have offices at such other places, both within
and without the State of Delaware as the Board of Directors may from time to
time determine or the business of the corporation may require. (Del. Code Ann.,
tit. 8, Section 122(8))
ARTICLE II
CORPORATE SEAL
SECTION 3. CORPORATE SEAL. The corporate seal shall consist of a die
bearing the name of the corporation and the inscription, "Corporate
Seal-Delaware." Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise. (Del. Code Ann., tit. 8,
Section 122(3))
ARTICLE III
STOCKHOLDERS' MEETINGS
SECTION 4. PLACE OF MEETINGS. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State of
Delaware, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the office of the corporation required to be
maintained pursuant to Section 2 hereof. (Del. Code Ann., tit. 8, Section
211(a))
SECTION 5. ANNUAL MEETINGS.
(a) The annual meeting of the stockholders of the corporation, for
the purpose of election of directors and for such other business as may lawfully
come before it, shall be held
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on such date and at such time as may be designated from time to time by the
Board of Directors. Nominations of persons for election to the Board of
Directors of the corporation and the proposal of business to be considered by
the stockholders may be made at an annual meeting of stockholders: (i) pursuant
to the corporation's notice of meeting of stockholders; (ii) by or at the
direction of the Board of Directors; or (iii) by any stockholder of the
corporation who was a stockholder of record at the time of giving of notice
provided for in the following paragraph, who is entitled to vote at the meeting
and who complied with the notice procedures set forth in Section 5. (Del. Code
Ann., tit. 8, Section 211(b))
(b) At an annual meeting of the stockholders, only such business
shall be conducted as shall have been properly brought before the meeting. For
nominations or other business to be properly brought before an annual meeting by
a stockholder pursuant to clause (c) of Section 5(a) of these Bylaws, (i) the
stockholder must have given timely notice thereof in writing to the Secretary of
the corporation, (ii) such other business must be a proper matter for
stockholder action under the Delaware General Corporation Law ("DGCL"), (iii) if
the stockholder, or the beneficial owner on whose behalf any such proposal or
nomination is made, has provided the corporation with a Solicitation Notice (as
defined in this Section 5(b)), such stockholder or beneficial owner must, in the
case of a proposal, have delivered a proxy statement and form of proxy to
holders of at least the percentage of the corporation's voting shares required
under applicable law to carry any such proposal, or, in the case of a nomination
or nominations, have delivered a proxy statement and form of proxy to holders of
a percentage of the corporation's voting shares reasonably believed by such
stockholder or beneficial owner to be sufficient to elect the nominee or
nominees proposed to be nominated by such stockholder, and must, in either case,
have included in such materials the Solicitation Notice, and (iv) if no
Solicitation Notice relating thereto has been timely provided pursuant to this
section, the stockholder or beneficial owner proposing such business or
nomination must not have solicited a number of proxies sufficient to have
required the delivery of such a Solicitation Notice under this Section 5. To be
timely, a stockholder's notice shall be delivered to the Secretary at the
principal executive offices of the corporation not later than the close of
business on the ninetieth (90th) day nor earlier than the close of business on
the one hundred twentieth (120th) day prior to the first anniversary of the
preceding year's annual meeting; provided, however, that in the event that the
date of the annual meeting is advanced more than thirty (30) days prior to or
delayed by more than thirty (30) days after the anniversary of the preceding
year's annual meeting, notice by the stockholder to be timely must be so
delivered not earlier than the close of business on the one hundred twentieth
(120th) day prior to such annual meeting and not later than the close of
business on the later of the ninetieth (90th) day prior to such annual meeting
or the tenth (10th) day following the day on which public announcement of the
date of such meeting is first made. In no event shall the public announcement of
an adjournment of an annual meeting commence a new time period for the giving of
a stockholder's notice as described above. Such stockholder's notice shall set
forth: (A) as to each person whom the stockholder proposed to nominate for
election or reelection as a director all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
directors in an election contest, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(the "1934 Act") and Rule 14a-11 thereunder (including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected); (B) as to any other business that the stockholder proposes
to bring before the meeting, a brief description of the business desired to be
brought before the meeting, the reasons for conducting
2
<PAGE> 8
such business at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the proposal is
made; and (C) as to the stockholder giving the notice and the beneficial owner,
if any, on whose behalf the nomination or proposal is made (i) the name and
address of such stockholder, as they appear on the corporation's books, and of
such beneficial owner, (ii) the class and number of shares of the corporation
which are owned beneficially and of record by such stockholder and such
beneficial owner, and (iii) whether either such stockholder or beneficial owner
intends to deliver a proxy statement and form of proxy to holders of, in the
case of the proposal, at least the percentage of the corporation's voting shares
required under applicable law to carry the proposal or, in the case of a
nomination or nominations, a sufficient number of holders of the corporation's
voting shares to elect such nominee or nominees (an affirmative statement of
such intent, a "Solicitation Notice").
(c) Notwithstanding anything in the second sentence of Section 5(b)
of these Bylaws to the contrary, in the event that the number of directors to be
elected to the Board of Directors of the corporation is increased and there is
no public announcement naming all of the nominees for director or specifying the
size of the increased Board of Directors made by the corporation at least one
hundred (100) days prior to the first anniversary of the preceding year's annual
meeting, a stockholder's notice required by this Section 5 shall also be
considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the Secretary at the
principal executive offices of the corporation not later than the close of
business on the tenth (10th) day following the day on which such public
announcement is first made by the corporation.
(d) Only such persons who are nominated in accordance with the
procedures set forth in this Section 5 shall be eligible to serve as directors
and only such business shall be conducted at a meeting of stockholders as shall
have been brought before the meeting in accordance with the procedures set forth
in this Section 5. Except as otherwise provided by law, the Chairman of the
meeting shall have the power and duty to determine whether a nomination or any
business proposed to be brought before the meeting was made, or proposed, as the
case may be, in accordance with the procedures set forth in these Bylaws and, if
any proposed nomination or business is not in compliance with these Bylaws, to
declare that such defective proposal or nomination shall not be presented for
stockholder action at the meeting and shall be disregarded.
(e) Notwithstanding the foregoing provisions of this Section 5, in
order to include information with respect to a stockholder proposal in the proxy
statement and form of proxy for a stockholder's meeting, stockholders must
provide notice as required by the regulations promulgated under the 1934 Act.
Nothing in these Bylaws shall be deemed to affect any rights of stockholders to
request inclusion of proposals in the corporation proxy statement pursuant to
Rule 14a-8 under the 1934 Act.
(f) For purposes of this Section 5, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service or in a document publicly filed by the
corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the 1934 Act.
3
<PAGE> 9
SECTION 6. SPECIAL MEETINGS.
(a) Special meetings of the stockholders of the corporation may be
called, for any purpose or purposes, by (i) the Chairman of the Board of
Directors, (ii) the Chief Executive Officer, or (iii) the Board of Directors
pursuant to a resolution adopted by a majority of the total number of authorized
directors (whether or not there exist any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board of
Directors for adoption). At any time or times that the corporation is subject to
Section 2115(b) of the California General Corporation Law ("CGCL"), stockholders
holding five percent (5%) or more of the outstanding shares shall have the right
to call a special meeting of stockholders only as set forth in Section 18(c)
herein.
(b) If a special meeting is properly called by any person or persons
other than the Board of Directors, the request shall be in writing, specifying
the general nature of the business proposed to be transacted, and shall be
delivered personally or sent by registered mail or by telegraphic or other
facsimile transmission to the Chairman of the Board of Directors, the Chief
Executive Officer, or the Secretary of the corporation. No business may be
transacted at such special meeting otherwise than specified in such notice. The
Board of Directors shall determine the time and place of such special meeting,
which shall be held not less than thirty-five (35) nor more than one hundred
twenty (120) days after the date of the receipt of the request. Upon
determination of the time and place of the meeting, the officer receiving the
request shall cause notice to be given to the stockholders entitled to vote, in
accordance with the provisions of Section 7 of these Bylaws. If the notice is
not given within one hundred (100) days after the receipt of the request, the
person or persons properly requesting the meeting may set the time and place of
the meeting and give the notice. Nothing contained in this paragraph (b) shall
be construed as limiting, fixing, or affecting the time when a meeting of
stockholders called by action of the Board of Directors may be held.
(c) Nominations of persons for election to the Board of Directors
may be made at a special meeting of stockholders at which directors are to be
elected pursuant to the corporation's notice of meeting (i) by or at the
direction of the Board of Directors or (ii) by any stockholder of the
corporation who is a stockholder of record at the time of giving notice provided
for in these Bylaws who shall be entitled to vote at the meeting and who
complies with the notice procedures set forth in this Section 6(c). In the event
the corporation calls a special meeting of stockholders for the purpose of
electing one or more directors to the Board of Directors, any such stockholder
may nominate a person or persons (as the case may be), for election to such
position(s) as specified in the corporation's notice of meeting, if the
stockholder's notice required by Section 5(b) of these Bylaws shall be delivered
to the Secretary at the principal executive offices of the corporation not
earlier than the close of business on the one hundred twentieth (120th) day
prior to such special meeting and not later than the close of business on the
later of the ninetieth (90th) day prior to such meeting or the tenth (10th) day
following the day on which public announcement is first made of the date of the
special meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting. In no event shall the public announcement of an
adjournment of a special meeting commence a new time period for the giving of a
stockholder's notice as described above.
4
<PAGE> 10
SECTION 7. NOTICE OF MEETINGS. Except as otherwise provided by law or
the Certificate of Incorporation, written notice of each meeting of stockholders
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder entitled to vote at such meeting, such
notice to specify the place, date and hour and purpose or purposes of the
meeting. Notice of the time, place and purpose of any meeting of stockholders
may be waived in writing, signed by the person entitled to notice thereof,
either before or after such meeting, and will be waived by any stockholder by
his attendance thereat in person or by proxy, except when the stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Any stockholder so waiving notice of such meeting shall be
bound by the proceedings of any such meeting in all respects as if due notice
thereof had been given. (Del. Code Ann., tit. 8, Sections 222, 229)
SECTION 8. QUORUM. At all meetings of stockholders, except where
otherwise provided by statute or by the Certificate of Incorporation, or by
these Bylaws, the presence, in person or by proxy duly authorized, of the
holders of a majority of the outstanding shares of stock entitled to vote shall
constitute a quorum for the transaction of business. In the absence of a quorum
any meeting of stockholders may be adjourned, from time to time, either by the
chairman of the meeting or by vote of the holders of a majority of the shares
represented thereat, but no other business shall be transacted at such meeting.
The stockholders present at a duly called or convened meeting, at which a quorum
is present, may continue to transact business until adjournment, notwithstanding
the withdrawal of enough stockholders to leave less than a quorum. Except as
otherwise provided by statute, the Certificate of Incorporation or these Bylaws,
in all matters other than the election of directors, the affirmative vote of the
majority of shares present in person or represented by proxy at the meeting and
entitled to vote on the subject matter shall be the act of the stockholders.
Except as otherwise provided by statute, the Certificate of Incorporation or
these Bylaws, directors shall be elected by a plurality of the votes of the
shares present in person or represented by proxy at the meeting and entitled to
vote on the election of directors. Where a separate vote by a class or classes
or series is required, except where otherwise provided by the statute or by the
Certificate of Incorporation or these Bylaws, a majority of the outstanding
shares of such class or classes or series, present in person or represented by
proxy, shall constitute a quorum entitled to take action with respect to that
vote on that matter and, except where otherwise provided by the statute or by
the Certificate of Incorporation or these Bylaws, the affirmative vote of the
majority (plurality, in the case of the election of directors) of the votes cast
by the holders of shares of such class or classes or series shall be the act of
such class or classes or series. (Del. Code Ann., tit. 8, Section 216)
SECTION 9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting of
stockholders, whether annual or special, may be adjourned from time to time
either by the chairman of the meeting or by the vote of a majority of the shares
casting votes. When a meeting is adjourned to another time or place, notice need
not be given of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken. At the adjourned
meeting the corporation may transact any business which might have been
transacted at the original meeting. If the adjournment is for more than thirty
(30) days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting. (Del. Code Ann., tit. 8,
Section 222(c))
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SECTION 10. VOTING RIGHTS. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the stock
records of the corporation on the record date, as provided in Section 12 of
these Bylaws, shall be entitled to vote at any meeting of stockholders. Every
person entitled to vote shall have the right to do so either in person or by an
agent or agents authorized by a proxy granted in accordance with Delaware law.
An agent so appointed need not be a stockholder. No proxy shall be voted after
three (3) years from its date of creation unless the proxy provides for a longer
period. (Del. Code Ann., tit. 8, Sections 211(e), 212(b))
SECTION 11. JOINT OWNERS OF STOCK. If shares or other securities having
voting power stand of record in the names of two (2) or more persons, whether
fiduciaries, members of a partnership, joint tenants, tenants in common, tenants
by the entirety, or otherwise, or if two (2) or more persons have the same
fiduciary relationship respecting the same shares, unless the Secretary is given
written notice to the contrary and is furnished with a copy of the instrument or
order appointing them or creating the relationship wherein it is so provided,
their acts with respect to voting shall have the following effect: (a) if only
one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the
majority so voting binds all; (c) if more than one (1) votes, but the vote is
evenly split on any particular matter, each faction may vote the securities in
question proportionally, or may apply to the Delaware Court of Chancery for
relief as provided in the DGCL, Section 217(b). If the instrument filed with the
Secretary shows that any such tenancy is held in unequal interests, a majority
or even-split for the purpose of subsection (c) shall be a majority or
even-split in interest. (Del. Code Ann., tit. 8, Section 217(b))
SECTION 12. LIST OF STOCKHOLDERS. The Secretary shall prepare and make,
at least ten (10) days before every meeting of stockholders, a complete list of
the stockholders entitled to vote at said meeting, arranged in alphabetical
order, showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not
specified, at the place where the meeting is to be held. The list shall be
produced and kept at the time and place of meeting during the whole time
thereof, and may be inspected by any stockholder who is present. (Del. Code
Ann., tit. 8, Section 219(a))
SECTION 13. ACTION WITHOUT MEETING. No action shall be taken by the
stockholders except at an annual or special meeting of stockholders called in
accordance with these Bylaws, and no action shall be taken by the stockholders
by written consent.
(a) Unless otherwise provided in the Certificate of Incorporation,
any action required by statute to be taken at any annual or special meeting of
the stockholders, or any action which may be taken at any annual or special
meeting of the stockholders, may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock 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.
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(b) Every written consent shall bear the date of signature of each
stockholder who signs the consent, and no written consent shall be effective to
take the corporate action referred to therein unless, within sixty (60) days of
the earliest dated consent delivered to the corporation in the manner herein
required, written consents signed by a sufficient number of stockholders to take
action are delivered to the corporation by delivery to its registered office in
the State of Delaware, its principal place of business or an officer or agent of
the corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to a corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
(Del. Code Ann., tit. 8, Section 228)
(c) Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing. If the action which is consented
to is such as would have required the filing of a certificate under any section
of the DGCL if such action had been voted on by stockholders at a meeting
thereof, then the certificate filed under such section shall state, in lieu of
any statement required by such section concerning any vote of stockholders, that
written consent has been given in accordance with Section 228 of the DGCL.
(d) Notwithstanding the foregoing, no such action by written consent
may be taken following the closing of the initial public offering pursuant to an
effective registration statement under the Securities Act of 1933, as amended
(the "1933 Act"), covering the offer and sale of Common Stock of the corporation
(the "Initial Public Offering").
SECTION 14. ORGANIZATION.
(a) At every meeting of stockholders, the Chairman of the Board of
Directors, or, if a Chairman has not been appointed or is absent, the President,
or, if the President is absent, the most senior Vice President present, or in
the absence of any such officer, a chairman of the meeting chosen by a majority
in interest of the stockholders entitled to vote, present in person or by proxy,
shall act as chairman. The Secretary, or, in his absence, an Assistant Secretary
directed to do so by the President, shall act as secretary of the meeting.
(b) The Board of Directors of the corporation shall be entitled to
make such rules or regulations for the conduct of meetings of stockholders as it
shall deem necessary, appropriate or convenient. Subject to such rules and
regulations of the Board of Directors, if any, the chairman of the meeting shall
have the right and authority to prescribe such rules, regulations and procedures
and to do all such acts as, in the judgment of such chairman, are necessary,
appropriate or convenient for the proper conduct of the meeting, including,
without limitation, establishing an agenda or order of business for the meeting,
rules and procedures for maintaining order at the meeting and the safety of
those present, limitations on participation in such meeting to stockholders of
record of the corporation and their duly authorized and constituted proxies, and
such other persons as the chairman shall permit, restrictions on entry to the
meeting after the time fixed for the commencement thereof, limitations on the
time allotted to questions or comments by participants and regulation of the
opening and closing of the polls for balloting on matters which are to be voted
on by ballot. Unless, and to the extent determined by the Board of Directors or
the chairman of the meeting, meetings of stockholders shall not be required to
be held in accordance with rules of parliamentary procedure.
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ARTICLE IV
DIRECTORS
SECTION 15. NUMBER AND TERM OF OFFICE. The authorized number of
directors of the corporation shall be fixed in accordance with the Certificate
of Incorporation. Directors need not be stockholders unless so required by the
Certificate of Incorporation. If for any cause, the directors shall not have
been elected at an annual meeting, they may be elected as soon thereafter as
convenient at a special meeting of the stockholders called for that purpose in
the manner provided in these Bylaws. (Del. Code Ann., tit. 8, Sections 141(b),
211(b), (c))
SECTION 16. POWERS. The powers of the corporation shall be exercised,
its business conducted and its property controlled by the Board of Directors,
except as may be otherwise provided by statute or by the Certificate of
Incorporation. (Del. Code Ann., tit. 8, Section 141(a))
SECTION 17. CLASSES OF DIRECTORS.
(a) Subject to the rights of the holders of any series of Preferred
Stock to elect additional directors under specified circumstances, following the
closing of the Initial Public Offering, the directors shall be divided into
three classes designated as Class I, Class II and Class III, respectively.
Directors shall be assigned to each class in accordance with a resolution or
resolutions adopted by the Board of Directors. At the first annual meeting of
stockholders following the closing of the Initial Public Offering, the term of
office of the Class I directors shall expire and Class I directors shall be
elected for a full term of three years. At the second annual meeting of
stockholders following the Initial Public Offering, the term of office of the
Class II directors shall expire and Class II directors shall be elected for a
full term of three years. At the third annual meeting of stockholders following
the Initial Public Offering, the term of office of the Class III directors shall
expire and Class III directors shall be elected for a full term of three years.
At each succeeding annual meeting of stockholders, directors shall be elected
for a full term of three years to succeed the directors of the class whose terms
expire at such annual meeting. During such time or times that the corporation is
subject to Section 2115(b) of the CGCL, this Section 17(a) shall become
effective and apply only when the corporation is a "listed" corporation within
the meaning of Section 301.5 of the CGCL.
(b) In the event that the corporation (i) is subject to Section
2115(b) of the CGCL AND (ii) is not a "listed" corporation or ceases to be a
"listed" corporation under Section 301.5 of the CGCL, Section 17(a) of these
Bylaws shall not apply and all directors shall be elected at each annual meeting
of stockholders to hold office until the next annual meeting.
(c) No person entitled to vote at an election for directors may
cumulate votes to which such person is entitled, unless, at the time of such
election, the corporation (i) is subject to Section 2115(b) of the CGCL AND (ii)
is not a "listed" corporation or ceases to be a "listed" corporation under
Section 301.5 of the CGCL. During this time, every stockholder entitled to vote
at an election for directors may cumulate such stockholder's votes and give one
candidate a number of votes equal to the number of directors to be elected
multiplied by the number of votes to which such stockholder's shares are
otherwise entitled, or distribute the stockholder's votes on the same principle
among as many candidates as such stockholder thinks fit. No stockholder,
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however, shall be entitled to so cumulate such stockholder's votes unless (i)
the names of such candidate or candidates have been placed in nomination prior
to the voting and (ii) the stockholder has given notice at the meeting, prior to
the voting, of such stockholder's intention to cumulate such stockholder's
votes. If any stockholder has given proper notice to cumulate votes, all
stockholders may cumulate their votes for any candidates who have been properly
placed in nomination. Under cumulative voting, the candidates receiving the
highest number of votes, up to the number of directors to be elected, are
elected.
Notwithstanding the foregoing provisions of this section, each director shall
serve until his successor is duly elected and qualified or until his death,
resignation or removal. No decrease in the number of directors constituting the
Board of Directors shall shorten the term of any incumbent director.
SECTION 18. VACANCIES.
(a) Unless otherwise provided in the Certificate of Incorporation,
any vacancies on the Board of Directors resulting from death, resignation,
disqualification, removal or other causes and any newly created directorships
resulting from any increase in the number of directors shall, unless the Board
of Directors determines by resolution that any such vacancies or newly created
directorships shall be filled by stockholders, be filled only by the affirmative
vote of a majority of the directors then in office, even though less than a
quorum of the Board of Directors. Any director elected in accordance with the
preceding sentence shall hold office for the remainder of the full term of the
director for which the vacancy was created or occurred and until such director's
successor shall have been elected and qualified. A vacancy in the Board of
Directors shall be deemed to exist under this Section 18 in the case of the
death, removal or resignation of any director. (Del. Code Ann., tit. 8, Section
223(a), (b))
(b) If at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a majority
of the whole board (as constituted immediately prior to any such increase), the
Delaware Court of Chancery may, upon application of any stockholder or
stockholders holding at least ten percent (10%) of the total number of the
shares at the time outstanding having the right to vote for such directors,
summarily order an election to be held to fill any such vacancies or newly
created directorships, or to replace the directors chosen by the directors then
in offices as aforesaid, which election shall be governed by Section 211 of the
DGCL. (Del. Code Ann., tit. 8, Section 223(c)).
(c) At any time or times that the corporation is subject to Section
2115(b) of the CGCL, if, after the filling of any vacancy, the directors then in
office who have been elected by stockholders shall constitute less than a
majority of the directors then in office, then
(1) Any holder or holders of an aggregate of five percent (5%) or
more of the total number of shares at the time outstanding having the right to
vote for those directors may call a special meeting of stockholders; or
(2) The Superior Court of the proper county shall, upon
application of such stockholder or stockholders, summarily order a special
meeting of stockholders, to be held
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to elect the entire board, all in accordance with Section 305(c) of the CGCL.
The term of office of any director shall terminate upon that election of a
successor.
SECTION 19. RESIGNATION. Any director may resign at any time by
delivering his written resignation to the Secretary, such resignation to specify
whether it will be effective at a particular time, upon receipt by the Secretary
or at the pleasure of the Board of Directors. If no such specification is made,
it shall be deemed effective at the pleasure of the Board of Directors. When one
or more directors shall resign from the Board of Directors, effective at a
future date, a majority of the directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each director so chosen shall hold office for the unexpired
portion of the term of the director whose place shall be vacated and until his
successor shall have been duly elected and qualified. (Del. Code Ann., tit. 8,
Sections 141(b), 223(d))
SECTION 20. REMOVAL.
(a) During such time or times that the corporation is subject to
Section 2115(b) of the CGCL, the Board of Directors or any individual director
may be removed from office at any time without cause by the affirmative vote of
the holders of at least 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 would be sufficient to elect that director if voted cumulatively at an
election which the same total number of votes 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.
(b) At any time or times that the corporation is not subject to
Section 2115(b) of the CGCL and subject to any limitations imposed by law,
Section 20(a) above shall no longer apply and the Board of Directors or any
director may be removed from office at any time (i) with cause by the
affirmative vote of the holders of a majority of the voting power of all
then-outstanding shares of voting stock of the corporation, entitled to vote at
an election of directors (the "Voting Stock") or (ii) without cause by the
affirmative vote of the holders of at least sixty-six and two-thirds percent (66
2/3%) of the voting power of all then-outstanding shares of the Voting Stock.
SECTION 21. MEETINGS.
(a) ANNUAL MEETINGS. The annual meeting of the Board of Directors
shall be held immediately before or after the annual meeting of stockholders and
at the place where such meeting is held. No notice of an annual meeting of the
Board of Directors shall be necessary and such meeting shall be held for the
purpose of electing officers and transacting such other business as may lawfully
come before it.
(b) REGULAR MEETINGS. Unless otherwise restricted by the Certificate
of Incorporation, regular meetings of the Board of Directors may be held at any
time or date and at any place within or without the State of Delaware which has
been designated by the Board of
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Directors and publicized among all directors. No formal notice shall be required
for regular meetings of the Board of Directors. (Del. Code Ann., tit. 8, Section
141(g))
(c) SPECIAL MEETINGS. Unless otherwise restricted by the Certificate
of Incorporation, special meetings of the Board of Directors may be held at any
time and place within or without the State of Delaware whenever called by the
Chairman of the Board, the President or any two of the directors (Del. Code
Ann., tit. 8, Section 141(g))
(d) TELEPHONE MEETINGS. Any member of the Board of Directors, or of
any committee thereof, may participate in a meeting by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
by such means shall constitute presence in person at such meeting. (Del. Code
Ann., tit. 8, Section 141(i))
(e) NOTICE OF MEETINGS. Notice of the time and place of all special
meetings of the Board of Directors shall be orally or in writing, by telephone,
including a voice messaging system or other system or technology designed to
record and communicate messages, facsimile, telegraph or telex, or by electronic
mail or other electronic means, during normal business hours, at least
twenty-four (24) hours before the date and time of the meeting, or sent in
writing to each director by first class mail, charges prepaid, at least three
(3) days before the date of the meeting. Notice of any meeting may be waived in
writing at any time before or after the meeting and will be waived by any
director by attendance thereat, except when the director attends the meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. (Del. Code Ann., tit. 8, Section 229)
(f) WAIVER OF NOTICE. The transaction of all business at any meeting
of the Board of Directors, or any committee thereof, however called or noticed,
or wherever held, shall be as valid as though had at a meeting duly held after
regular call and notice, if a quorum be present and if, either before or after
the meeting, each of the directors not present shall sign a written waiver of
notice. All such waivers shall be filed with the corporate records or made a
part of the minutes of the meeting. (Del. Code Ann., tit. 8, Section 229)
SECTION 22. QUORUM AND VOTING.
(a) Unless the Certificate of Incorporation requires a greater
number and except with respect to indemnification questions arising under
Section 43 hereof, for which a quorum shall be one-third of the exact number of
directors fixed from time to time in accordance with the Certificate of
Incorporation, a quorum of the Board of Directors shall consist of a majority of
the exact number of directors fixed from time to time by the Board of Directors
in accordance with the Certificate of Incorporation; provided, however, at any
meeting whether a quorum be present or otherwise, a majority of the directors
present may adjourn from time to time until the time fixed for the next regular
meeting of the Board of Directors, without notice other than by announcement at
the meeting. (Del. Code Ann., tit. 8, Section 141(b))
(b) At each meeting of the Board of Directors at which a quorum is
present all questions and business shall be determined by the affirmative vote
of a majority of the directors
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present, unless a different vote be required by law, the Certificate of
Incorporation or these Bylaws. (Del. Code Ann., tit. 8, Section 141(b))
SECTION 23. ACTION WITHOUT MEETING. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and such writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee. (Del. Code Ann., tit. 8, Section 141(f))
SECTION 24. FEES AND COMPENSATION. Directors shall be entitled to such
compensation for their services as may be approved by the Board of Directors,
including, if so approved, by resolution of the Board of Directors, a fixed sum
and expenses of attendance, if any, for attendance at each regular or special
meeting of the Board of Directors and at any meeting of a committee of the Board
of Directors. Nothing herein contained shall be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise and receiving compensation therefor. (Del. Code
Ann., tit. 8, Section 141(h))
SECTION 25. COMMITTEES.
(a) EXECUTIVE COMMITTEE. The Board of Directors may appoint an
Executive Committee to consist of one (1) or more members of the Board of
Directors. The Executive Committee, to the extent permitted by law and provided
in the resolution of the Board of Directors shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the corporation, and may authorize the seal of the corporation to
be affixed to all papers which may require it; but no such committee shall have
the power or authority in reference to (i) approving or adopting, or
recommending to the stockholders, any action or matter expressly required by the
DGCL to be submitted to stockholders for approval, or (ii) adopting, amending or
repealing any bylaw of the corporation. (Del. Code Ann., tit. 8, Section 141(c))
(b) OTHER COMMITTEES. The Board of Directors may from time to time
appoint such other committees as may be permitted by law. Such other committees
appointed by the Board of Directors shall consist of one (1) or more members of
the Board of Directors, and shall have such powers and perform such duties as
may be prescribed by the resolution or resolutions creating such committees, but
in no event shall such committee have the powers denied to the Executive
Committee in these Bylaws. (Del. Code Ann., tit. 8, Section 141(c))
(c) TERM. Each member of a committee of the Board of Directors shall
serve a term on the committee coexistent with such member's term on the Board of
Directors. The Board of Directors, subject to any requirements of any
outstanding series of preferred Stock and the provisions of subsections (a) or
(b) of this Bylaw, may at any time increase or decrease the number of members
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of a committee or terminate the existence of a committee. The membership of a
committee member shall terminate on the date of his death or voluntary
resignation from the committee or from the Board of Directors. The Board of
Directors may at any time for any reason remove any individual committee member
and the Board of Directors may fill any committee vacancy created by death,
resignation, removal or increase in the number of members of the committee. The
Board of Directors may designate one or more directors as alternate members of
any committee, who may replace any absent or disqualified member at any meeting
of the committee, and, in addition, in the absence or disqualification of any
member of a committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. (Del. Code Ann.,
tit. 8, Section 141(c))
(d) MEETINGS. Unless the Board of Directors shall otherwise provide,
regular meetings of the Executive Committee or any other committee appointed
pursuant to this Section 25 shall be held at such times and places as are
determined by the Board of Directors, or by any such committee, and when notice
thereof has been given to each member of such committee, no further notice of
such regular meetings need be given thereafter. Special meetings of any such
committee may be held at any place which has been determined from time to time
by such committee, and may be called by any director who is a member of such
committee, upon written notice to the members of such committee of the time and
place of such special meeting given in the manner provided for the giving of
written notice to members of the Board of Directors of the time and place of
special meetings of the Board of Directors. Notice of any special meeting of any
committee may be waived in writing at any time before or after the meeting and
will be waived by any director by attendance thereat, except when the director
attends such special meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. A majority of the authorized number of
members of any such committee shall constitute a quorum for the transaction of
business, and the act of a majority of those present at any meeting at which a
quorum is present shall be the act of such committee. (Del. Code Ann., tit. 8,
Sections 141(c), 229)
SECTION 26. ORGANIZATION. At every meeting of the directors, the
Chairman of the Board of Directors, or, if a Chairman has not been appointed or
is absent, the President (if a director), or if the President is absent, the
most senior Vice President (if a director), or, in the absence of any such
person, a chairman of the meeting chosen by a majority of the directors present,
shall preside over the meeting. The Secretary, or in his absence, any Assistant
Secretary directed to do so by the President, shall act as secretary of the
meeting.
ARTICLE V
OFFICERS
SECTION 27. OFFICERS DESIGNATED. The officers of the corporation shall
include, if and when designated by the Board of Directors, the Chairman of the
Board of Directors, the Chief Executive Officer, the President, one or more Vice
Presidents, the Secretary, the Chief Financial Officer, the Treasurer and the
Controller, all of whom shall be elected at the annual organizational meeting of
the Board of Directors. The Board of Directors may also appoint one or more
Assistant Secretaries, Assistant Treasurers, Assistant Controllers and such
other officers and agents with such powers and duties as it shall deem
necessary. The Board of Directors may assign such additional titles to one or
more of the officers as it shall deem appropriate. Any one person may hold any
number of offices of the corporation at any one time unless specifically
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prohibited therefrom by law. The salaries and other compensation of the officers
of the corporation shall be fixed by or in the manner designated by the Board of
Directors. (Del. Code Ann., tit. 8, Sections 122(5), 142(a), (b))
SECTION 28. TENURE AND DUTIES OF OFFICERS.
(a) GENERAL. All officers shall hold office at the pleasure of the
Board of Directors and until their successors shall have been duly elected and
qualified, unless sooner removed. Any officer elected or appointed by the Board
of Directors may be removed at any time by the Board of Directors. If the office
of any officer becomes vacant for any reason, the vacancy may be filled by the
Board of Directors. (Del. Code Ann., tit. 8, Section 141(b), (e))
(b) DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of
the Board of Directors, when present, shall preside at all meetings of the
stockholders and the Board of Directors. The Chairman of the Board of Directors
shall perform other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. If there is no President, then the Chairman
of the Board of Directors shall also serve as the Chief Executive Officer of the
corporation and shall have the powers and duties prescribed in paragraph (c) of
this Section 28. (Del. Code Ann., tit. 8, Section 142(a))
(c) DUTIES OF PRESIDENT. The President shall preside at all meetings
of the stockholders and at all meetings of the Board of Directors, unless the
Chairman of the Board of Directors has been appointed and is present. Unless
some other officer has been elected Chief Executive Officer of the corporation,
the President shall be the chief executive officer of the corporation and shall,
subject to the control of the Board of Directors, have general supervision,
direction and control of the business and officers of the corporation. The
President shall perform other duties commonly incident to his office and shall
also perform such other duties and have such other powers as the Board of
Directors shall designate from time to time. (Del. Code Ann., tit. 8, Section
142(a))
(d) DUTIES OF VICE PRESIDENTS. The Vice Presidents, in the order of
their seniority, may assume and perform the duties of the President in the
absence or disability of the President or whenever the office of President is
vacant. The Vice Presidents shall perform other duties commonly incident to
their office and shall also perform such other duties and have such other powers
as the Board of Directors or the President shall designate from time to time.
(Del. Code Ann., tit. 8, Section 142(a))
(e) DUTIES OF SECRETARY. The Secretary shall attend all meetings of
the stockholders and of the Board of Directors, and shall record all acts and
proceedings thereof in the minute book of the corporation. The Secretary shall
give notice in conformity with these Bylaws of all meetings of the stockholders,
and of all meetings of the Board of Directors and any committee thereof
requiring notice. The Secretary shall perform all other duties given him in
these Bylaws and other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. The President may direct any Assistant
Secretary to assume and perform the duties of the Secretary in the absence or
disability of the Secretary, and each Assistant Secretary shall perform
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other duties commonly incident to his office and shall also perform such other
duties and have such other powers as the Board of Directors or the President
shall designate from time to time. (Del. Code Ann., tit. 8, Section 142(a))
(f) DUTIES OF CHIEF FINANCIAL OFFICER. The Chief Financial Officer
shall keep or cause to be kept the books of account of the corporation in a
thorough and proper manner, and shall render statements of the financial affairs
of the corporation in such form and as often as required by the Board of
Directors or the President. The Chief Financial Officer, subject to the order of
the Board of Directors, shall have the custody of all funds and securities of
the corporation. The Chief Financial Officer shall perform other duties commonly
incident to his office and shall also perform such other duties and have such
other powers as the Board of Directors or the President shall designate from
time to time. The President may direct the Treasurer or any Assistant Treasurer,
or the Controller or any Assistant Controller to assume and perform the duties
of the Chief Financial Officer in the absence or disability of the Chief
Financial Officer, and each Treasurer and Assistant Treasurer and each
Controller and Assistant Controller shall perform other duties commonly incident
to his office and shall also perform such other duties and have such other
powers as the Board of Directors or the President shall designate from time to
time. (Del. Code Ann., tit. 8, Section 142(a))
SECTION 29. DELEGATION OF AUTHORITY. The Board of Directors may from
time to time delegate the powers or duties of any officer to any other officer
or agent, notwithstanding any provision hereof.
SECTION 30. RESIGNATIONS. Any officer may resign at any time by giving
written notice to the Board of Directors or to the President or to the
Secretary. Any such resignation shall be effective when received by the person
or persons to whom such notice is given, unless a later time is specified
therein, in which event the resignation shall become effective at such later
time. Unless otherwise specified in such notice, the acceptance of any such
resignation shall not be necessary to make it effective. Any resignation shall
be without prejudice to the rights, if any, of the corporation under any
contract with the resigning officer. (Del. Code Ann., tit. 8, Section 142(b))
SECTION 31. REMOVAL. Any officer may be removed from office at any time,
either with or without cause, by the affirmative vote of a majority of the
directors in office at the time, or by the unanimous written consent of the
directors in office at the time, or by any committee or superior officers upon
whom such power of removal may have been conferred by the Board of Directors.
ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND VOTING
OF SECURITIES OWNED BY THE CORPORATION
SECTION 32. EXECUTION OF CORPORATE INSTRUMENTS. The Board of Directors
may, in its discretion, determine the method and designate the signatory officer
or officers, or other person or persons, to execute on behalf of the corporation
any corporate instrument or document,
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or to sign on behalf of the corporation the corporate name without limitation,
or to enter into contracts on behalf of the corporation, except where otherwise
provided by law or these Bylaws, and such execution or signature shall be
binding upon the corporation. (Del. Code Ann., tit. 8, Sections 103(a), 142(a),
158)
Unless otherwise specifically determined by the Board of Directors or
otherwise required by law, promissory notes, deeds of trust, mortgages and other
evidences of indebtedness of the corporation, and other corporate instruments or
documents requiring the corporate seal, and certificates of shares of stock
owned by the corporation, shall be executed, signed or endorsed by the Chairman
of the Board of Directors, or the President or any Vice President, and by the
Secretary or Chief Financial Officer or Treasurer or any Assistant Secretary or
Assistant Treasurer. All other instruments and documents requiring the corporate
signature, but not requiring the corporate seal, may be executed as aforesaid or
in such other manner as may be directed by the Board of Directors. (Del. Code
Ann., tit. 8, Sections 103(a), 142(a), 158)
All checks and drafts drawn on banks or other depositaries on funds to
the credit of the corporation or in special accounts of the corporation shall be
signed by such person or persons as the Board of Directors shall authorize so to
do.
Unless authorized or ratified by the Board of Directors or within the
agency power of an officer, no officer, agent or employee shall have any power
or authority to bind the corporation by any contract or engagement or to pledge
its credit or to render it liable for any purpose or for any amount. (Del. Code
Ann., tit. 8, Sections 103(a), 142(a), 158)
SECTION 33. VOTING OF SECURITIES OWNED BY THE CORPORATION. All stock and
other securities of other corporations owned or held by the corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors, or, in the absence of such authorization,
by the Chairman of the Board of Directors, the Chief Executive Officer, the
President, or any Vice President. (Del. Code Ann., tit. 8, Section 123)
ARTICLE VII
SHARES OF STOCK
SECTION 34. FORM AND EXECUTION OF CERTIFICATES. Certificates for the
shares of stock of the corporation shall be in such form as is consistent with
the Certificate of Incorporation and applicable law. Every holder of stock in
the corporation shall be entitled to have a certificate signed by or in the name
of the corporation by the Chairman of the Board of Directors, or the President
or any Vice President and by the Treasurer or Assistant Treasurer or the
Secretary or Assistant Secretary, certifying the number of shares owned by him
in the corporation. Any or all of the signatures on the certificate may be
facsimiles. 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 with the same effect as if he were such officer,
transfer agent, or registrar at the date of issue. Each certificate shall state
upon the face or back thereof, in full or in summary, all of the powers,
designations, preferences, and rights, and the limitations or restrictions of
the shares
16
<PAGE> 22
authorized to be issued or shall, except as otherwise required by law, set forth
on the face or back a statement that the corporation will furnish without charge
to each stockholder who so requests the powers, designations, preferences and
relative, participating, optional, or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions of
such preferences and/or rights. Within a reasonable time after the issuance or
transfer of uncertificated stock, the corporation shall send to the registered
owner thereof a written notice containing the information required to be set
forth or stated on certificates pursuant to this section or otherwise required
by law or with respect to this section a statement that the corporation will
furnish without charge to each stockholder who so requests the powers,
designations, preferences and relative participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights. Except as
otherwise expressly provided by law, the rights and obligations of the holders
of certificates representing stock of the same class and series shall be
identical. (Del. Code Ann., tit. 8, Section 158)
SECTION 35. LOST CERTIFICATES. A new certificate or certificates shall
be issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. The corporation may require, as a condition
precedent to the issuance of a new certificate or certificates, the owner of
such lost, stolen, or destroyed certificate or certificates, or his legal
representative, to agree to indemnify the corporation in such manner as it shall
require or to give the corporation a surety bond in such form and amount as it
may direct as indemnity against any claim that may be made against the
corporation with respect to the certificate alleged to have been lost, stolen,
or destroyed. (Del. Code Ann., tit. 8, Section 167)
SECTION 36. TRANSFERS.
(a) Transfers of record of shares of stock of the corporation shall
be made only upon its books by the holders thereof, in person or by attorney
duly authorized, and upon the surrender of a properly endorsed certificate or
certificates for a like number of shares. (Del. Code Ann., tit. 8, Section 201,
tit. 6, Section 8-401(1))
(b) The corporation shall have power to enter into and perform any
agreement with any number of stockholders of any one or more classes of stock of
the corporation to restrict the transfer of shares of stock of the corporation
of any one or more classes owned by such stockholders in any manner not
prohibited by the DGCL. (Del. Code Ann., tit. 8, Section 160 (a))
SECTION 37. FIXING RECORD DATES.
(a) In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of Directors may fix, in advance, a record date,
which record date shall not precede the date upon which the resolution fixing
the record date is adopted by the Board of Directors, and which record date
shall, subject to applicable law, not be more than sixty (60) nor less than ten
(10) days before the date of such meeting. If no record date is fixed by the
Board of Directors, the record date for determining stockholders entitled to
notice of or to vote at a meeting of
17
<PAGE> 23
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
(b) In order that the corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix, in advance, a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted, and which record date shall be not more than sixty (60)
days prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto. (Del. Code Ann., tit. 8, Section 213)
SECTION 38. REGISTERED STOCKHOLDERS. The corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and shall not
be bound to recognize any equitable or other claim to or interest in such share
or shares on the part of any other person whether or not it shall have express
or other notice thereof, except as otherwise provided by the laws of Delaware.
(Del. Code Ann., tit. 8, Sections 213(a), 219)
ARTICLE VIII
OTHER SECURITIES OF THE CORPORATION
SECTION 39. EXECUTION OF OTHER SECURITIES. All bonds, debentures and
other corporate securities of the corporation, other than stock certificates
(covered in Section 33), may be signed by the Chairman of the Board of
Directors, the President or any Vice President, or such other person as may be
authorized by the Board of Directors, and the corporate seal impressed thereon
or a facsimile of such seal imprinted thereon and attested by the signature of
the Secretary or an Assistant Secretary, or the Chief Financial Officer or
Treasurer or an Assistant Treasurer; provided, however, that where any such
bond, debenture or other corporate security shall be authenticated by the manual
signature, or where permissible facsimile signature, of a trustee under an
indenture pursuant to which such bond, debenture or other corporate security
shall be issued, the signatures of the persons signing and attesting the
corporate seal on such bond, debenture or other corporate security may be the
imprinted facsimile of the signatures of such persons. Interest coupons
appertaining to any such bond, debenture or other corporate security,
authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an
Assistant Treasurer of the corporation or such other person as may be authorized
by the Board of Directors, or bear imprinted thereon the facsimile signature of
such person. In case any officer who shall have signed or attested any bond,
debenture or other corporate security, or whose facsimile signature shall appear
thereon or on any such interest coupon, shall have ceased to be such officer
before the bond, debenture or other corporate security so signed or attested
shall have been delivered, such bond, debenture or other corporate security
nevertheless may be adopted by the corporation and issued and delivered as
though the person who signed the same
18
<PAGE> 24
or whose facsimile signature shall have been used thereon had not ceased to be
such officer of the corporation.
ARTICLE IX
DIVIDENDS
SECTION 40. DECLARATION OF DIVIDENDS. Dividends upon the capital stock
of the corporation, subject to the provisions of the Certificate of
Incorporation and applicable law, if any, may be declared by the Board of
Directors pursuant to law at any regular or special meeting. Dividends may be
paid in cash, in property, or in shares of the capital stock, subject to the
provisions of the Certificate of Incorporation and applicable law. (Del. Code
Ann., tit. 8, Sections 170, 173)
SECTION 41. DIVIDEND RESERVE. Before payment of any dividend, there may
be set aside out of any funds of the corporation available for dividends such
sum or sums as the Board of Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the Board of Directors shall think
conducive to the interests of the corporation, and the Board of Directors may
modify or abolish any such reserve in the manner in which it was created. (Del.
Code Ann., tit. 8, Section 171)
ARTICLE X
FISCAL YEAR
SECTION 42. FISCAL YEAR. The fiscal year of the corporation shall be
fixed by resolution of the Board of Directors.
ARTICLE XI
INDEMNIFICATION
SECTION 43. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER
AGENTS.
(a) DIRECTORS AND EXECUTIVE OFFICERS. The corporation shall
indemnify its directors and executive officers (for the purposes of this Article
XI, "executive officers" shall have the meaning defined in Rule 3b-7 promulgated
under the 1934 Act) to the fullest extent not prohibited by the DGCL; provided,
however, that the corporation may modify 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 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, (iii) such indemnification is provided by the corporation, in its
sole discretion, pursuant to the powers vested in the corporation under the DGCL
or any other applicable law or (iv) such indemnification is required to be made
under subsection (d).
19
<PAGE> 25
(b) OTHER OFFICERS, EMPLOYEES AND OTHER AGENTS. The corporation
shall have power to indemnify its other officers, employees and other agents as
set forth in the DGCL or any other applicable law. The Board of Directors shall
have the power to delegate the determination of whether indemnification shall be
given to any such person to such officers or other persons as the Board of
Directors shall determine.
(c) EXPENSES. The corporation shall advance to any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was a director or executive
officer, of the corporation, or is or was serving at the request of the
corporation as a director or executive officer of another corporation,
partnership, joint venture, trust or other enterprise, prior to the final
disposition of the 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 should be determined ultimately that such person is not entitled
to be indemnified under this Section 43 or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to
paragraph (e) of this Section 43, no advance shall be made by the corporation to
an executive officer of the corporation (except by reason of the fact that such
executive officer is or was a director of the corporation in which event this
paragraph shall not apply) in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, if a determination is reasonably and
promptly made (i) by the Board of Directors by a majority vote of a quorum
consisting of directors who were not parties to the proceeding, or (ii) if such
quorum is not obtainable, or, even if obtainable, a quorum of disinterested
directors so directs, 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 or not opposed to the best
interests of the corporation.
(d) 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 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. In connection with any claim for indemnification, 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
DGCL or any other applicable law for the corporation to indemnify the claimant
for the amount claimed. Neither the failure of the corporation (including its
Board of Directors, independent legal counsel or its stockholders) to have made
a determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he has met the applicable
standard of conduct set forth in the DGCL or any other applicable law, nor an
actual determination by the corporation (including its Board of Directors,
independent legal counsel or its stockholders) that the claimant
20
<PAGE> 26
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.
(e) NON-EXCLUSIVITY OF RIGHTS. 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 applicable statute, provision of the Certificate
of Incorporation, Bylaws, agreement, vote of stockholders 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 not prohibited by the DGCL, or by any other applicable law.
(f) 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, officer,
employee or other agent and shall inure to the benefit of the heirs, executors
and administrators of such a person.
(g) INSURANCE. To the fullest extent permitted by the DGCL or any
other applicable law, 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 Section 43.
(h) AMENDMENTS. Any repeal or modification of this Section 43 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.
(i) 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 full extent not prohibited by any applicable portion of this Bylaw that
shall not have been invalidated, or by any other applicable law. If this Section
43 shall be invalid due to the application of the indemnification provisions of
another jurisdiction, then the corporation shall indemnify each director and
executive officer to the full extent under any other applicable law.
(j) CERTAIN DEFINITIONS. For the purposes of this Bylaw, the
following definitions shall apply:
(1) The term "PROCEEDING" shall be broadly construed and shall
include, without limitation, the investigation, preparation, prosecution,
defense, settlement, arbitration and appeal of, and the giving of testimony in,
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative 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.
21
<PAGE> 27
(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," "EXECUTIVE OFFICER," "OFFICER,"
"EMPLOYEE," or "AGENT" of the corporation shall include, without limitation,
situations where such person is serving at the request of the corporation as,
respectively, a director, executive officer, officer, employee, trustee or agent
of another corporation, partnership, joint venture, trust or other enterprise.
(5) References to "other enterprises" shall include employee
benefit plans; references to "fines" shall include any excise taxes assessed on
a person with respect to an employee benefit plan; and references to "serving at
the request of the corporation" shall include any service as a director,
officer, employee or agent of the corporation which imposes duties on, or
involves services by, such director, officer, employee, or agent with respect to
an employee benefit plan, its participants, or beneficiaries; and a person who
acted in good faith and in a manner he reasonably believed to be in the interest
of the participants and beneficiaries of an employee benefit plan shall be
deemed to have acted in a manner "not opposed to the best interests of the
corporation" as referred to in this Section 43.
ARTICLE XII
NOTICES
SECTION 44. NOTICES.
(a) NOTICE TO STOCKHOLDERS. Whenever, under any provisions of these
Bylaws, notice is required to be given to any stockholder, it shall be given in
writing, timely and duly deposited in the United States mail, postage prepaid,
and addressed to his last known post office address as shown by the stock record
of the corporation or its transfer agent. (Del. Code Ann., tit. 8, Section 222)
(b) NOTICE TO DIRECTORS. Any notice required to be given to any
director may be given by the method stated in subsection (a), or by overnight
delivery service, facsimile, telex or telegram, except that such notice other
than one which is delivered personally shall be sent to such address as such
director shall have filed in writing with the Secretary, or, in the absence of
such filing, to the last known post office address of such director.
22
<PAGE> 28
(c) ADDRESS UNKNOWN. If no address of a stockholder or director be
known, notice may be sent to the office of the corporation required to be
maintained pursuant to Section 2 hereof.
(d) AFFIDAVIT OF MAILING. An affidavit of mailing, executed by a
duly authorized and competent employee of the corporation or its transfer agent
appointed with respect to the class of stock affected, specifying the name and
address or the names and addresses of the stockholder or stockholders, or
director or directors, to whom any such notice or notices was or were given, and
the time and method of giving the same, shall in the absence of fraud, be prima
facie evidence of the facts therein contained. (Del. Code Ann., tit. 8, Section
222)
(e) TIME NOTICES DEEMED GIVEN. All notices given by mail or by
overnight delivery service, as above provided, shall be deemed to have been
given as at the time of mailing and all notices given by facsimile, telex or
telegram shall be deemed to have been given as of the sending time recorded at
time of transmission.
(f) METHODS OF NOTICE. It shall not be necessary that the same
method of giving notice be employed in respect of all directors, but one
permissible method may be employed in respect of any one or more, and any other
permissible method or methods may be employed in respect of any other or others.
(g) FAILURE TO RECEIVE NOTICE. The period or limitation of time
within which any stockholder may exercise any option or right, or enjoy any
privilege or benefit, or be required to act, or within which any director may
exercise any power or right, or enjoy any privilege, pursuant to any notice sent
him in the manner above provided, shall not be affected or extended in any
manner by the failure of such stockholder or such director to receive such
notice.
(h) NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL. Whenever
notice is required to be given, under any provision of law or of the Certificate
of Incorporation or Bylaws of the corporation, to any person with whom
communication is unlawful, the giving of such notice to such person shall not be
required and there shall be no duty to apply to any governmental authority or
agency for a license or permit to give such notice to such person. Any action or
meeting which shall be taken or held without notice to any such person with whom
communication is unlawful shall have the same force and effect as if such notice
had been duly given. In the event that the action taken by the corporation is
such as to require the filing of a certificate under any provision of the DGCL,
the certificate shall state, if such is the fact and if notice is required, that
notice was given to all persons entitled to receive notice except such persons
with whom communication is unlawful.
(i) NOTICE TO PERSON WITH UNDELIVERABLE ADDRESS. Whenever notice is
required to be given, under any provision of law or the Certificate of
Incorporation or Bylaws of the corporation, to any stockholder to whom (i)
notice of two consecutive annual meetings, and all notices of meetings or of the
taking of action by written consent without a meeting to such person during the
period between such two consecutive annual meetings, or (ii) all, and at least
two, payments (if sent by first class mail) of dividends or interest on
securities during a twelve-month period, have been mailed addressed to such
person at his address as shown on the records of the corporation and have been
returned undeliverable, the giving of such notice to such person
23
<PAGE> 29
shall not be required. Any action or meeting which shall be taken or held
without notice to such person shall have the same force and effect as if such
notice had been duly given. If any such person shall deliver to the corporation
a written notice setting forth his then current address, the requirement that
notice be given to such person shall be reinstated. In the event that the action
taken by the corporation is such as to require the filing of a certificate under
any provision of the DGCL, the certificate need not state that notice was not
given to persons to whom notice was not required to be given pursuant to this
paragraph. (Del. Code Ann, tit. 8, Section 230)
ARTICLE XIII
AMENDMENTS
SECTION 45. AMENDMENTS. Subject to paragraph (h) of Section 43 of these
Bylaws, the Bylaws may be altered or amended or new Bylaws adopted by the
affirmative vote of at least sixty-six and two-thirds percent (66-2/3) of the
voting power of all the then-outstanding shares of the Voting Stock. The Board
of Directors shall also have the power to adopt, amend, or repeal Bylaws. (Del.
Code Ann., tit. 8, Sections 109(a), 122(6))
ARTICLE XIV
LOANS TO OFFICERS
SECTION 46. LOANS TO OFFICERS. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation or of its subsidiaries, including any officer or employee who
is a director of the corporation or its subsidiaries, whenever, in the judgment
of the Board of directors, such loan, guarantee or assistance may reasonably be
expected to benefit the corporation. The loan, guarantee or other assistance may
be with or without interest and may be unsecured, or secured in such manner as
the Board of Directors shall approve, including, without limitation, a pledge of
shares of stock of the corporation. Nothing in these Bylaws shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute. (Del. Code Ann., tit. 8, Section 143)
24
<PAGE> 1
EXHIBIT 4.01
COMMON STOCK COMMON STOCK
NUMBER SHARES
ILO
[ELOQUENT(R), INC. LOGO]
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFICATE IS TRANSFERABLE
IN NEW YORK, NY OR RIDGEFIELD PARK, NJ SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP
THIS CERTIFIES THAT is the record holder of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK,
$.001 PAR VALUE PER SHARE, OF
ELOQUENT, INC.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this Certificate properly
endorsed. This Certificate is not valid until countersigned by the Transfer
Agent and registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated:
ELOQUENT, INC.
CORPORATE
SEAL
March 29, 1995
DELAWARE
R. John Curson Abraham Kleinfeld
CHIEF FINANCIAL OFFICER AND SECRETARY CHIEF EXECUTIVE OFFICER AND PRESIDENT
COUNTERSIGNED AND REGISTERED:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE> 2
ELOQUENT, INC.
A statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights as established, from time to time, by the Certificate of
Incorporation of the Corporation and by any certificate of determination, the
number of shares constituting each class and series, and the designations
thereof, may be obtained by the holder hereof upon request and without charge
from the Secretary of the Corporation at the principal office of the
Corporation.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of
survivorship and not as tenants
in common
COM PROP -- as community property
UNIF GIFT MIN ACT -- ............... Custodian ......................
(Cust) (Minor)
under Uniform Gifts to Minors
Act ..............................................
(State)
UNIF TRF MIN ACT -- ............. Custodian (until age...............)
(Cust)
.......................... under Uniform Transfers
(Minor)
to Minors Act.....................................
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, hereby sell, assign and transfer unto
------------------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
- --------------------------------------------------------------------------
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney
- -----------------------------------------------------------------------
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated
-------------------------
X
---------------------------------------
X
---------------------------------------
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR
ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By
--------------------------------
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE
17Ad-15.
<PAGE> 1
EXHIBIT 4.02
ELOQUENT, INC.
FOURTH AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
1. GENERAL............................................................. 1
1.1 Definitions................................................... 1
2. REGISTRATION; RESTRICTIONS ON TRANSFER.............................. 3
2.1 Restrictions On Transfer...................................... 3
2.2 Demand Registration........................................... 4
2.3 Piggyback Registrations....................................... 5
2.4 Form S-3 Registration......................................... 6
2.5 Expenses Of Registration...................................... 7
2.6 Obligations Of The Company.................................... 8
2.7 Termination Of Registration Rights............................ 9
2.8 Delay Of Registration; Furnishing Information................. 9
2.9 Indemnification............................................... 9
2.10 Assignment Of Registration Rights............................. 11
2.11 Amendment Of Registration Rights.............................. 11
2.12 Limitation On Subsequent Registration Rights.................. 11
2.13 "Market Stand-Off" Agreement.................................. 12
2.14 Rule 144 Reporting............................................ 12
3. OTHER COVENANTS..................................................... 12
3.1 Basic Financial Information And Reporting..................... 12
3.2 Inspection Rights............................................. 13
3.3 Confidentiality Of Records.................................... 13
3.4 Reservation Of Common Stock................................... 14
3.5 Stock Vesting................................................. 14
3.6 Key Man Insurance............................................. 15
3.7 Proprietary Information And Inventions Agreement.............. 15
3.8 Use Of Proceeds............................................... 15
3.9 "Market Stand-Off" Agreements................................. 15
3.10 Indemnification............................................... 15
3.11 Assignment Of Repurchase Rights And Company Right Of First
Refusal....................................................... 15
3.12 Board Of Directors............................................ 16
</TABLE>
i
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
3.13 Qualified Small Business Stock................................ 16
3.14 Visitation Rights............................................. 17
3.15 Termination of Covenants...................................... 17
4. RIGHTS OF FIRST REFUSAL............................................. 17
4.1 Subsequent Offerings.......................................... 17
4.2 Exercise Of Rights............................................ 17
4.3 Issuance Of Equity Securities To Other Persons................ 17
4.4 Termination Of Rights Of First Refusal........................ 18
4.5 Transfer Of Rights Of First Refusal........................... 18
4.6 Excluded Securities........................................... 18
5. MISCELLANEOUS....................................................... 19
5.1 Governing Law................................................. 19
5.2 Survival...................................................... 19
5.3 Successors And Assigns........................................ 19
5.4 Severability.................................................. 19
5.5 Amendment And Waiver.......................................... 19
5.6 Delays Or Omissions........................................... 19
5.7 Notices....................................................... 20
5.8 Attorneys' Fees............................................... 20
5.9 Titles And Subtitles.......................................... 20
5.10 Counterparts.................................................. 20
</TABLE>
ii
<PAGE> 4
FOURTH AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
THIS FOURTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT (the
"Agreement") is entered into as of the 20th day of October, 1999, by and among
ELOQUENT, INC., a Delaware corporation (the "Company"), and the investors listed
on Exhibit A hereto. The investors listed on Exhibit A hereto shall be referred
to hereinafter as the "Investors" and each individually as an "Investor."
RECITALS
WHEREAS, certain Investors were parties to that certain Third Amended and
Restated Investors' Rights Agreement dated as of June 22, 1998 by and between
the Company and such Investors (the "Prior Agreement"), pursuant to which the
Company granted such Investors certain registration rights, information rights,
rights of participation and other rights set forth in the Prior Agreement;
WHEREAS, in connection with the Company's issuance of Subordinated Notes
with Detachable Warrants pursuant to the Securities Purchase Agreement dated as
of the date hereof by and among the Company and certain of the Investors (the
"Purchase Agreement"), the Company and the Investors that were parties to the
Prior Agreement wish to amend and replace the Prior Agreement with this
Agreement and to include the other Investors (the "New Investors") as parties to
this Agreement; and
WHEREAS, the New Investors desire to become parties to this Agreement.
NOW, THEREFORE, in consideration of the mutual promises, representations,
warranties, covenants and conditions set forth in this Agreement and in the
Purchase Agreement, the parties mutually agree as follows:
1. GENERAL.
1.1 DEFINITIONS. As used in this Agreement the following terms shall have
the following respective meanings:
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"FINANCING WARRANTS" means (1) the warrants to purchase 37,188 shares of
Common Stock issued by the Company to Lighthouse Capital Partners, L.P., (2) the
warrants to purchase 71,798 shares of Common Stock issued by the Company to
Lighthouse Capital Partners II, L.P., (3) the warrants to purchase 14,450 shares
of Common Stock issued by the Company to Onset Enterprise Associates II, L.P.,
(4) the warrant to purchase 70,000 shares of Common Stock issued by the Company
to TBCC Funding Trust II and (5) the warrant to purchase 14,451 shares of Series
B Preferred Stock issued by the Company to Imperial Bancorp.
"FORM S-3" means such form under the Securities Act as in effect on the
date hereof or any successor registration form under the Securities Act
subsequently adopted by the SEC that
1.
<PAGE> 5
permits inclusion or incorporation of substantial information by reference to
other documents filed by the Company with the SEC.
"HOLDER" means any person owning of record Registrable Securities that
have not been sold to the public or any assignee of record of such Registrable
Securities in accordance with Section 2.10 hereof.
"INITIAL OFFERING" means the Company's first firm commitment underwritten
public offering of its Common Stock registered under the Securities Act.
"INVESTOR NOTES" means the Subordinated Notes issued by the Company to
Investors pursuant to the Purchase Agreement.
"INVESTOR WARRANTS" means the warrants to purchase 1,500,000 shares of
Common Stock issued by the Company to Investors pursuant to the Purchase
Agreement.
"REGISTER," "REGISTERED," and "REGISTRATION" refer to a registration
effected by preparing and filing a registration statement in compliance with the
Securities Act, and the declaration or ordering of effectiveness of such
registration statement or document.
"REGISTRABLE SECURITIES" means (1) Common Stock of the Company issued or
issuable upon conversion of the Shares or upon exercise of the Investor
Warrants; (2) for purposes of Section 2.3 only, Common Stock of the Company
issued or issuable upon exercise of the Financing Warrants (or upon conversion
of any preferred stock issued or issuable upon exercise of any Financing
Warrants), and (3) any Common Stock of the Company issued as (or issuable upon
the conversion or exercise of any warrant, right or other security that is
issued as) a dividend or other distribution with respect to, or in exchange for
or in replacement of, such above-described securities. Notwithstanding the
foregoing, Registrable Securities shall not include any securities sold by a
person to the public either pursuant to a registration statement or Rule 144 or
sold in a private transaction in which the transferor's rights under Section 2
of this Agreement are not assigned.
"REGISTRABLE SECURITIES THEN OUTSTANDING" shall be the number of shares
determined by calculating the total number of shares of the Company's Common
Stock that are Registrable Securities and either (1) are then issued and
outstanding or (2) are issuable pursuant to then exercisable, exchangeable or
convertible securities.
"REGISTRATION EXPENSES" shall mean all expenses incurred by the Company in
complying with Sections 2.2, 2.3 and 2.4 hereof, including, without limitation,
all registration and filing fees, printing expenses, fees and disbursements of
counsel for the Company, reasonable fees and disbursements not to exceed $15,000
of a single special counsel for the Holders, blue sky fees and expenses and the
expense of any special audits incident to or required by any such registration
(but excluding the compensation of regular employees of the Company, which shall
be paid in any event by the Company).
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
2.
<PAGE> 6
"SELLING EXPENSES" shall mean all underwriting discounts and selling
commissions applicable to the sale.
"SHARES" shall mean (1) the Company's Series A Preferred Stock issued
pursuant to the Series A Preferred Stock Purchase Agreement dated as of October
19, 1995 by and between the Company and certain of the Investors, (2) the
Company's Series B Preferred Stock issued pursuant to the Series B Preferred
Stock Purchase Agreement dated as of August 9, 1996 by and between the Company
and certain of the Investors, (3) the Company's Series C Preferred Stock issued
pursuant to the Series C Preferred Stock Purchase Agreement dated as of August
26, 1997 by and between the Company and certain of the Investors, (4) the
Company's Series D Preferred Stock issued pursuant to the Series D Preferred
Stock Purchase Agreement dated as of June 22, 1998 by and between the Company
and certain of the Investors and (5) the Company's Series E Preferred Stock
issued or issuable upon exchange of the Investor Notes pursuant to the Purchase
Agreement.
2. REGISTRATION; RESTRICTIONS ON TRANSFER.
2.1 RESTRICTIONS ON TRANSFER.
(a) Each Holder agrees not to make any disposition of all or any
portion of the Shares or Registrable Securities unless and until:
(i) There is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition is made
in accordance with such registration statement; or
(ii) (A) The transferee has agreed in writing to be bound by
this Section 2.1, (B) such Holder shall have notified the Company of the
proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and (C) if
reasonably requested by the Company, such Holder shall have furnished the
Company with an opinion of counsel, reasonably satisfactory to the Company, that
such disposition will not require registration of such shares under the
Securities Act. It is agreed that the Company will not require opinions of
counsel for transactions made pursuant to Rule 144 except in unusual
circumstances.
(iii) Notwithstanding the provisions of paragraphs (i) and
(ii) above, no such registration statement or opinion of counsel shall be
necessary for a transfer by a Holder that is (A) a partnership to its partners
or former partners in accordance with partnership interests, (B) a corporation
to its stockholders in accordance with their interest in the corporation, (C) a
limited liability company to its members or former members in accordance with
their interest in the limited liability company, (D) to the Holder's family
member or trust for the benefit of an individual Holder, or (E) to any
subsidiary of the Holder, provided the transferee will be subject to the terms
of this Section 2.1 to the same extent as if he were an original Holder
hereunder. In addition, no opinion of counsel will be necessary for transfers
made pursuant to Rule 144 under the Securities Act if there is no material
question as to the availability of current information under Rule 144(c), the
transferring Holder represents that it has complied with Rule 144(d) and (e) in
reasonable detail, the selling broker represents that it has complied with Rule
144(f) and the Company is provided with a copy of such Holder's notice of
proposed sale.
3.
<PAGE> 7
(b) Each certificate representing Shares or Registrable Securities
shall (unless otherwise permitted by the provisions of the Agreement) be stamped
or otherwise imprinted with a legend substantially similar to the following (in
addition to any legend required under applicable state securities laws or as
provided elsewhere in this Agreement):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AND
UNTIL REGISTERED UNDER THE ACT OR UNLESS THE COMPANY HAS RECEIVED AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT
SUCH REGISTRATION IS NOT REQUIRED.
(c) The Company shall be obligated to reissue promptly unlegended
certificates at the request of any holder thereof if the holder shall have
obtained an opinion of counsel (which counsel may be counsel to the Company)
reasonably acceptable to the Company to the effect that the securities proposed
to be disposed of may lawfully be so disposed of without registration,
qualification or legend.
(d) Any legend endorsed on an instrument pursuant to applicable
state securities laws and the stop-transfer instructions with respect to such
securities shall be removed upon receipt by the Company of an order of the
appropriate blue sky authority authorizing such removal.
2.2 DEMAND REGISTRATION.
(a) Subject to the conditions of this Section 2.2, if the Company
shall receive a written request from the Holders of at least 50% of the
Registrable Securities then outstanding (the "Initiating Holders") that the
Company file a registration statement under the Securities Act covering the
registration of at least 20% of the aggregate Registrable Securities or any
lesser percentage of such securities if the registration has an aggregate
offering price to the public in excess of $2,000,000 (a "Qualified Public
Offering"), then the Company shall, within 30 days of the receipt thereof, give
written notice of such request to all Holders, and subject to the limitations of
this Section 2.2, use its best efforts to effect, as soon as practicable, the
registration under the Securities Act of all Registrable Securities that the
Holders request to be registered.
(b) If the Initiating Holders intend to distribute the Registrable
Securities covered by their request by means of an underwriting, they shall so
advise the Company as a part of their request made pursuant to this Section 2.2
and the Company shall include such information in the written notice referred to
in Section 2.2(a). In such event, the right of any Holder to include its
Registrable Securities in such registration shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the Initiating Holders and such Holder) to the extent
provided herein. All Holders proposing to distribute their securities through
such underwriting shall enter into an underwriting agreement in customary form
with the underwriter or underwriters selected for such underwriting by a
4.
<PAGE> 8
majority in interest of the Initiating Holders (which underwriter or
underwriters shall be reasonably acceptable to the Company). Notwithstanding any
other provision of this Section 2.2, if the underwriter advises the Company that
marketing factors require a limitation of the number of securities to be
underwritten (including Registrable Securities) then the Company shall so advise
all Holders of Registrable Securities that would otherwise be underwritten
pursuant hereto, and the number of shares that may be included in the
underwriting shall be allocated to the Holders of such Registrable Securities on
a pro rata basis based on the number of Registrable Securities held by all such
Holders (including the Initiating Holders). Any Registrable Securities excluded
or withdrawn from such underwriting shall be withdrawn from the registration.
(c) The Company shall not be required to effect a registration
pursuant to this Section 2.2:
(i) after the Company has effected three registrations
pursuant to this Section 2.2, and such registrations have been declared or
ordered effective; or
(ii) if within 30 days of receipt of a written request from
Initiating Holders pursuant to Section 2.2(a), the Company gives notice to the
Holders of the Company's intention to make its Initial Offering within 90 days;
or
(iii) if the Company shall furnish to Holders requesting a
registration statement pursuant to this Section 2.2, a certificate signed by the
Chairman of the Board stating that in the good faith judgment of the Board of
Directors of the Company, it would be seriously detrimental to the Company and
its stockholders for such registration statement to be effected at such time, in
which event the Company shall have the right to defer such filing for a period
of not more than 180 days after receipt of the request of the Initiating
Holders; provided that such right to delay a request shall be exercised by the
Company no more than once in any one-year period.
2.3 PIGGYBACK REGISTRATIONS. The Company shall notify all Holders of
Registrable Securities in writing at least 30 days prior to the filing of any
registration statement under the Securities Act for purposes of a public
offering of securities of the Company (including, but not limited to,
registration statements relating to secondary offerings of securities of the
Company, but excluding registration statements relating to employee benefit
plans or with respect to corporate reorganizations or other transactions under
Rule 145 of the Securities Act) and will afford each such Holder an opportunity
to include in such registration statement all or part of such Registrable
Securities held by such Holder. Each Holder desiring to include in any such
registration statement all or any part of the Registrable Securities held by it
shall, within 15 days after the above-described notice from the Company, so
notify the Company in writing. Such notice shall state the intended method of
disposition of the Registrable Securities by such Holder. If a Holder decides
not to include all of its Registrable Securities in any registration statement
thereafter filed by the Company, such Holder shall nevertheless continue to have
the right to include any Registrable Securities in any subsequent such
registration statement or registration statements as may be filed by the Company
with respect to offerings of its securities, all upon the terms and conditions
set forth herein.
(a) If the registration statement under which the Company gives
notice under this Section 2.3 is for an underwritten offering, the Company shall
so advise the Holders of
5.
<PAGE> 9
Registrable Securities. In such event, the right of any such Holder to be
included in a registration pursuant to this Section 2.3 shall be conditioned
upon such Holder's participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting to the extent provided
herein. All Holders proposing to distribute their Registrable Securities through
such underwriting shall enter into an underwriting agreement in customary form
with the underwriter or underwriters selected for such underwriting by the
Company. Notwithstanding any other provision of the Agreement, if the
underwriter determines in good faith that marketing factors require a limitation
of the number of shares to be underwritten, the number of shares that may be
included in the underwriting shall be allocated, first, to the Company; second,
to the Holders on a pro rata basis based on the total number of Registrable
Securities held by the Holders; and third, to any stockholder of the Company
(other than a Holder) on a pro rata basis. No such reduction shall reduce the
securities being offered by the Company for its own account to be included in
the registration and underwriting, and in no event shall the amount of
securities of the selling Holders included in the registration be reduced below
33-1/3% of the total amount of securities included in such registration, unless
such offering is the Initial Offering and such registration does not include
shares of any other selling stockholders, in which event any or all of the
Registrable Securities of the Holders may be excluded in accordance with the
immediately preceding sentence. In no event will shares of any other selling
stockholder be included in such registration that would reduce the number of
shares that may be included by Holders without the written consent of Holders of
not less than 66-2/3% of the Registrable Securities proposed to be sold in the
offering.
(b) The Company shall have the right to terminate or withdraw any
registration initiated or withdraw any registration initiated by it under this
Section 2.3 prior to the effectiveness of such registration whether or not any
Holder has elected to include securities in such registration. The Registration
Expenses of such withdrawn registration shall be borne by the Company in
accordance with Section 2.5 hereof.
2.4 FORM S-3 REGISTRATION. In case the Company shall receive from a Holder
or Holders of at least 25% of Registrable Securities a written request or
requests that the Company effect a registration on Form S-3 (or any successor to
Form S-3) or any similar short-form registration statement and any related
qualification or compliance with respect to all or a part of the Registrable
Securities owned by such Holder or Holders, the Company will:
(a) promptly give written notice of the proposed registration, and
any related qualification or compliance, to all other Holders of Registrable
Securities; and
(b) as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Holder's or
Holders' Registrable Securities as are specified in such request, together with
all or such portion of the Registrable Securities of any other Holder or Holders
joining in such request as are specified in a written request given within 15
days after receipt of such written notice from the Company; provided, however,
that the Company shall not be obligated to effect any such registration,
qualification or compliance pursuant to this Section 2.4:
(i) if Form S-3 (or any successor or similar form) is not
available for such offering by the Holders, or
6.
<PAGE> 10
(ii) if the Holders, together with the holders of any other
securities of the Company entitled to inclusion in such registration, propose to
sell Registrable Securities and such other securities (if any) at an aggregate
price to the public of less than $500,000, or
(iii) if the Company shall furnish to the Holders a
certificate signed by the Chairman of the Board of Directors of the Company
stating that in the good faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to the Company and its stockholders
for such Form S-3 Registration to be effected at such time, in which event the
Company shall have the right to defer the filing of the Form S-3 registration
statement for a period of not more than 90 days after receipt of the request of
the Holder or Holders under this Section 2.4; provided, that such right to delay
a request shall be exercised by the Company not more than twice in any one-year
period, or
(iv) if the Company has, within the 12-month period preceding
the date of such request, already effected two registrations on Form S-3 for the
Holders pursuant to this Section 2.4, or
(v) in any particular jurisdiction in which the Company would
be required to qualify to do business or to execute a general consent to service
of process in effecting such registration, qualification or compliance.
(c) Subject to the foregoing, the Company shall file a Form S-3
registration statement covering the Registrable Securities and other securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Holders. Registrations effected pursuant to this
Section 2.4 shall not be counted as demands for registration or registrations
effected pursuant to Sections 2.2 or 2.3, respectively.
2.5 EXPENSES OF REGISTRATION. All such Registration Expenses incurred in
connection with registrations requested pursuant to Section 2.2, Section 2.3 and
Section 2.4 after the first three registrations requested pursuant to each of
these sections shall be paid by the selling Holders pro rata in proportion to
the number of shares sold by each. All other Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to
Section 2.2 or any registration under Section 2.3 or Section 2.4 herein shall be
borne by the Company. All Selling Expenses incurred in connection with any
registrations hereunder, shall be borne by the holders of the securities so
registered pro rata on the basis of the number of shares so registered. The
Company shall not, however, be required to pay for expenses of any registration
proceeding begun pursuant to Section 2.2 or 2.4, the request of which has been
subsequently withdrawn by the Initiating Holders unless (a) the withdrawal is
based upon material adverse information concerning the Company of which the
Initiating Holders were not aware at the time of such request or (b) the Holders
of a majority of Registrable Securities agree to forfeit their right to one
requested registration pursuant to Section 2.2 or Section 2.4, as applicable, in
which event such right shall be forfeited by all Holders. If the Holders are
required to pay the Registration Expenses, such expenses shall be borne by the
holders of securities (including Registrable Securities) requesting such
registration in proportion to the number of shares for which registration was
requested. If the Company is required to pay the Registration Expenses of a
withdrawn offering pursuant to clause (a) above, then the Holders shall not
forfeit their rights pursuant to Section 2.2 or Section 2.4 to a demand
registration.
7.
<PAGE> 11
2.6 OBLIGATIONS OF THE COMPANY. Whenever required to effect the
registration of any Registrable Securities, the Company shall, as expeditiously
as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use all reasonable efforts to cause
such registration statement to become effective, and, upon the request of the
Holders of a majority of the Registrable Securities registered thereunder, keep
such registration statement effective for up to 90 days or, if earlier, until
the Holder or Holders have completed the distribution related thereto.
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish to the Holders such number of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as they may reasonably request in order
to facilitate the disposition of Registrable Securities owned by them.
(d) Use all reasonable efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders, provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter(s) of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
(g) Cause all such Registrable Securities registered hereunder to be
listed on each securities exchange on which similar securities issued by the
Company are then listed.
(h) Furnish, at the request of a majority of the Holders
participating in the registration, on the date that such Registrable Securities
are delivered to the underwriters for sale, if such securities are being sold
through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective, (i) an opinion, dated as of such date, of the
counsel representing the Company for the purposes of such registration, in form
and substance as is customarily given to underwriters in an underwritten public
offering and reasonably satisfactory to a majority in interest of the Holders
requesting registration, addressed to the underwriters, if any, and to the
Holders requesting registration of Registrable Securities and (ii) a letter
dated as of such date,
8.
<PAGE> 12
from the independent certified public accountants of the Company, in form and
substance as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering and reasonably satisfactory to a
majority in interest of the Holders requesting registration, addressed to the
underwriters, if any, and if permitted by applicable accounting standards, to
the Holders requesting registration of Registrable Securities.
2.7 TERMINATION OF REGISTRATION RIGHTS. All registration rights granted
under this Section 2 shall terminate and be of no further force and effect seven
years after the date of the Company's Initial Offering. In addition, a Holder's
registration rights shall expire if (i) the Company has completed its Initial
Offering and is subject to the provisions of the Exchange Act, (ii) such Holder
(together with its affiliates, partners and former partners) holds less than 1%
of the Company's outstanding Common Stock (treating all shares of convertible
Preferred Stock on an as converted basis) and (iii) all Registrable Securities
held by such Holder may be sold under Rule 144 during any 90-day period.
2.8 DELAY OF REGISTRATION; FURNISHING INFORMATION.
(a) No Holder shall have any right to obtain or seek an injunction
restraining or otherwise delaying any such registration as the result of any
controversy that might arise with respect to the interpretation or
implementation of this Section 2.
(b) It shall be a condition precedent to the obligations of the
Company to take any action pursuant to Section 2.2, 2.3 or 2.4 that the selling
Holders shall furnish to the Company such information regarding themselves, the
Registrable Securities held by them and the intended method of disposition of
such securities as shall be required to effect the registration of their
Registrable Securities.
2.9 INDEMNIFICATION. In the event any Registrable Securities are included
in a registration statement under Sections 2.2, 2.3 or 2.4:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, the partners, officers, directors and legal counsel
of each Holder, any underwriter (as defined in the Securities Act) for such
Holder and each person, if any, who controls such Holder or underwriter within
the meaning of the Securities Act or the Exchange Act, against any losses,
claims, damages, or liabilities (joint or several) to which they may become
subject under the Securities Act, the Exchange Act or other federal or state
law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "Violation") by the Company: (i) any
untrue statement or alleged untrue statement of a material fact contained in
such registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein, or necessary to make the statements therein not misleading, or
(iii) any violation or alleged violation by the Company of the Securities Act,
the Exchange Act, any state securities law or any rule or regulation promulgated
under the Securities Act, the Exchange Act or any state securities law in
connection with the offering covered by such registration statement; and the
Company will reimburse each such Holder, partner, officer or director,
underwriter or controlling person for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim,
9.
<PAGE> 13
damage, liability or action; provided however, that the indemnity agreement
contained in this Section 2.9(a) shall not apply to amounts paid in settlement
of any such loss, claim, damage, liability or action if such settlement is
effected without the consent of the Company, which consent shall not be
unreasonably withheld, nor shall the Company be liable in any such case for any
such loss, claim, damage, liability or action to the extent that it arises out
of or is based upon a Violation that occurs in reliance upon and in conformity
with written information furnished expressly for use in connection with such
registration by such Holder, partner, officer, director, underwriter or
controlling person of such Holder.
(b) To the extent permitted by law, each Holder will, if Registrable
Securities held by such Holder are included in the securities as to which such
registration qualifications or compliance is being effected, indemnify and hold
harmless the Company, each of its directors, its officers, and legal counsel and
each person, if any, who controls the Company within the meaning of the
Securities Act, any underwriter and any other Holder selling securities under
such registration statement or any of such other Holder's partners, directors or
officers or any person who controls such Holder, against any losses, claims,
damages or liabilities (joint or several) to which the Company or any such
director, officer, controlling person, underwriter or other such Holder, or
partner, director, officer or controlling person of such other Holder may become
subject under the Securities Act, the Exchange Act or other federal or state
law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereto) arise out of or are based upon any Violation, in each case to
the extent (and only to the extent) that such Violation occurs in reliance upon
and in conformity with written information furnished by such Holder under an
instrument duly executed by such Holder and stated to be specifically for use in
connection with such registration; and each such Holder will reimburse any legal
or other expenses reasonably incurred by the Company or any such director,
officer, controlling person, underwriter or other Holder, or partner, officer,
director or controlling person of such other Holder in connection with
investigating or defending any such loss, claim, damage, liability or action if
it is judicially determined that there was such a Violation; provided, however,
that the indemnity agreement contained in this Section 2.9(b) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Holder, which consent
shall not be unreasonably withheld; provided further, that in no event shall any
indemnity under this Section 2.9 exceed the net proceeds from the offering
received by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 2.9 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 2.9, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if materially prejudicial to its ability to
defend such action, shall relieve such indemnifying party of any liability to
the
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indemnified party under this Section 2.9, but the omission so to deliver written
notice to the indemnifying party will not relieve it of any liability that it
may have to any indemnified party otherwise than under this Section 2.9.
(d) If the indemnification provided for in this Section 2.9 is held
by a court of competent jurisdiction to be unavailable to an indemnified party
with respect to any losses, claims, damages or liabilities referred to herein,
the indemnifying party, in lieu of indemnifying such indemnified party
thereunder, shall to the extent permitted by applicable law contribute to the
amount paid or payable by such indemnified party as a result of such loss,
claim, damage or liability in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and of the indemnified
party on the other in connection with the Violation(s) that resulted in such
loss, claim, damage or liability, as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by a court of law by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission; provided, that in no event shall any contribution by a
Holder hereunder exceed the proceeds from the offering received by such Holder.
(e) The obligations of the Company and Holders under this Section
2.9 shall survive completion of any offering of Registrable Securities in a
registration statement. No Indemnifying Party, in the defense of any such claim
or litigation, shall, except with the consent of each Indemnified Party, consent
to entry of any judgment or enter into any settlement that does not include as
an unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.
2.10 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the company to
register Registrable Securities pursuant to this Section 2 may be assigned by a
Holder to a transferee or assignee of Registrable Securities that (i) is a
subsidiary, parent, general partner, limited partner, retired partner or
officer, stockholder or other equity holder of a Holder, (ii) is a Holder's
family member or trust for the benefit of an individual Holder, or (iii)
acquires at least 20% of such Holder's shares of Registrable Securities (as
adjusted for stock splits and combinations); provided, however, (A) the
transferor shall, within ten days after such transfer, furnish to the Company
written notice of the name and address of such transferee or assignee and the
securities with respect to which such registration rights are being assigned and
(B) such transferee shall agree to be subject to all restrictions set forth in
this Agreement.
2.11 AMENDMENT OF REGISTRATION RIGHTS. Any provision of this Section 2 may
be amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and the Holders of at least 66-2/3% of the
Registrable Securities. Any amendment or waiver effected in accordance with this
Section 2.11 shall be binding upon each Holder and the Company. By acceptance of
any benefits under this Section 2, Holders of Registrable Securities hereby
agree to be bound by the provisions hereunder.
2.12 LIMITATION ON SUBSEQUENT REGISTRATION RIGHTS. After the date of this
Agreement, the Company shall not, without the prior written consent of the
Holders of greater
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<PAGE> 15
than 50% of the Registrable Securities, enter into any agreement with any holder
or prospective holder of any securities of the Company that would grant such
holder registration rights senior to those granted to the Holders hereunder. The
Company shall not, without the written consent of the Holders of greater than
50% of the Registrable Securities, grant any registration rights to any
purchaser of the Company's securities who purchases such securities after the
date of this Agreement unless such purchaser becomes a party to this Agreement.
2.13 "MARKET STAND-OFF" AGREEMENT. If requested by the Company as the
representative of the underwriters of Common Stock (or other securities) of the
Company, each Holder shall not sell or otherwise transfer or dispose of any
Shares or Common Stock (or other securities) of the Company held by each such
Holder (other than those included in the registration) for a period specified by
the representative of the underwriters not to exceed 180 days following the
effective date of a registration statement of the Company filed under the
Securities Act; provided that all officers and directors of the Company enter
into similar agreements.
The obligations described in this Section 2.13 shall not apply to a
registration relating solely to employee benefit plans on Form S-1 or Form S-8
or similar forms that may be promulgated in the future, or a registration
relating solely to a SEC Rule 145 transaction on Form S-4 or similar forms that
may be promulgated in the future. The Company may impose stop-transfer
instructions with respect to the shares of Common Stock (or other securities)
subject to the foregoing restriction until the end of said 180-day period.
2.14 RULE 144 REPORTING. With a view to making available to the Holders
the benefits of certain rules and regulations of the SEC that may permit the
sale of the Registrable Securities to the public without registration, the
Company agrees to use its best efforts to:
(a) Make and keep public information available, as those terms are
understood and defined in SEC Rule 144 or any similar or analogous rule
promulgated under the Securities Act, at all times after the effective date of
the first registration filed by the Company for an offering of its securities to
the general public;
(b) File with the SEC, in a timely manner, all reports and other
documents required of the Company under the Exchange Act;
(c) So long as a Holder owns any Registrable Securities, furnish to
such Holder forthwith upon request: a written statement by the Company as to its
compliance with the reporting requirements of said Rule 144 of the Securities
Act, and of the Exchange Act (at any time after it has become subject to such
reporting requirements); a copy of the most recent annual or quarterly report of
the Company; and such other reports and documents as a Holder may reasonably
request in availing itself of any rule or regulation of the SEC allowing it to
sell any such securities without registration.
3. OTHER COVENANTS.
3.1 BASIC FINANCIAL INFORMATION AND REPORTING.
(a) The Company will maintain true books and records of account in
which full and correct entries will be made of all its business transactions
pursuant to a system of
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accounting established and administered in accordance with generally accepted
accounting principles consistently applied, and will set aside on its books all
such proper accruals and reserves as shall be required under generally accepted
accounting principles consistently applied.
(b) As soon as practicable after the end of each fiscal year of the
Company, and in any event within 120 days thereafter, the Company will furnish
each Investor owning and/or having the right to acquire, together with its
affiliates, not less than 300,000 shares of Registrable Securities (in each case
as adjusted for stock splits and combinations) (a "Major Investor") a
consolidated balance sheet of the Company, as at the end of such fiscal year,
and a consolidated statement of income and a consolidated statement of cash
flows of the Company, for such year, all prepared in accordance with generally
accepted accounting principles consistently applied and setting forth in each
case in comparative form the figures for the previous fiscal year, all in
reasonable detail. Such financial statements shall be accompanied by a report
and opinion thereon by independent public accountants of national standing
selected by the Company's Board of Directors.
(c) The Company will furnish each Major Investor, as soon as
practicable after the end of the first, second and third quarterly accounting
periods in each fiscal year of the Company, and in any event within 45 days
thereafter, a consolidated balance sheet of the Company as of the end of each
such quarterly period, and a consolidated statement of income and a consolidated
statement of cash flows of the Company for such period and for the current
fiscal year to date, prepared in accordance with generally accepted accounting
principles, with the exception that no notes need be attached to such statements
and year-end audit adjustments may not have been made.
(d) The Company will furnish each such Major Investor (i) at least
30 days prior to the beginning of each fiscal year an annual budget and
operating plans for such fiscal year (and as soon as available, any subsequent
revisions thereto); (ii) promptly after the Company's receipt thereof, each
"management letter" provided to the Company by the Company's independent public
accountants; and (iii) as soon as practicable after the end of each month, and
in any event within 20 days thereafter, a consolidated balance sheet of the
Company as of the end of each such month, and a consolidated statement of income
and a consolidated statement of cash flows of the Company for such month and for
the current fiscal year to date, including a comparison to plan figures for such
period, prepared in accordance with generally accepted accounting principles
consistently applied, with the exception that no notes need be attached to such
statements and year-end audit adjustments may not have been made.
3.2 INSPECTION RIGHTS. Each Investor shall have the right to visit and
inspect any of the properties of the Company or any of its subsidiaries, and to
discuss the affairs, finances and accounts of the Company or any of its
subsidiaries with its officers, and to review such information as is reasonably
requested all at such reasonable times and as often as may be reasonably
requested; provided, however, that the Company shall not be obligated under this
Section 3.2 with respect to a competitor of the Company or with respect to
information that the Board of Directors determines in good faith is confidential
and should not, therefore, be disclosed.
3.3 CONFIDENTIALITY OF RECORDS.
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(a) Each Investor agrees not to use Confidential Information (as
hereinafter defined) of the Company for its own use or for any purpose except to
evaluate and enforce its equity investment in the Company. Each Investor shall
undertake to treat such Confidential Information in a manner consistent with the
treatment of its own information of such proprietary nature and agrees that it
shall protect the confidentiality of and use reasonable best efforts to prevent
disclosure of the Confidential Information to prevent it from falling into the
public domain or the possession of unauthorized persons. Each transferee of any
Investor who receives Confidential Information shall agree to be bound by such
provisions. For purposes of this Section, "Confidential Information" means any
information, technical data or know-how, including, but not limited to, the
Company's research, products, software, services, development, inventions,
processes, designs, drawings, engineering, marketing, or finances, that is
disclosed by the Company either directly or indirectly in writing, orally or by
drawings or inspection of parts or equipment and, if in written form, is stamped
"Confidential" or "Proprietary" or, if disclosed orally, is promptly confirmed
in writing to be Confidential Information.
(b) Confidential Information does not include information, technical
data or know-how that (i) is in the Investor's possession at the time of
disclosure as shown by Investor's files and records immediately prior to the
time of disclosure; (ii) before or after it has been disclosed to the Investor,
it is part of the public knowledge or literature, not as a result of any action
or inaction of the Investor; (iii) is disclosed to an Investor on a
non-confidential basis by a third party having a legal right to such
information; (iv) is independently developed by Investor, as properly documented
by the Investor; or (v) is approved for release by written authorization of
Company. The provisions of this Section shall not apply (i) to the extent that
an Investor is required to disclose Confidential Information pursuant to any
law, statute, rule or regulation or any order of any court or jurisdiction
process or pursuant to any direction, request or requirement (whether or not
having the force of law but if not having the force of law being of a type with
which institutional investors in the relevant jurisdiction are accustomed to
comply) of any self-regulating organization or any governmental, fiscal,
monetary or other authority; (ii) to the disclosure of Confidential Information
to an Investor's employees, counsel, accountants or other professional advisors;
(iii) to the extent that an Investor needs to disclose Confidential Information
for the protection of any of such Investor's rights or interest against the
Company, whether under this Agreement or otherwise; or (iv) to the disclosure of
Confidential Information to a prospective transferee of securities that agrees
to be bound by the provisions of this Section in connection with the receipt of
such Confidential Information.
3.4 RESERVATION OF COMMON STOCK. The Company will at all times reserve and
keep available, solely for issuance and delivery upon the conversion of the
Preferred Stock and the exercise of the Investor Warrants, all Common Stock
issuable from time to time upon such conversion or exercise. If at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of the Preferred Stock and the exercise of the Investor
Warrants, the Company shall promptly take such corporate action as may be
necessary to increase its authorized but unissued shares of Common Stock as
appropriate.
3.5 STOCK VESTING. Unless otherwise approved by the Board of Directors,
all stock options and other stock equivalents issued after the date of this
Agreement to employees, directors, consultants and other service providers shall
be subject to vesting as follows: (i) 25% of such stock shall vest at the end of
the first year following the later of the date of issuance or such person's
services commencement date with the Company, and (ii) 75% of such stock shall
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<PAGE> 18
vest monthly over the remaining three years. With respect to any shares of stock
purchased by any such person, the Company's repurchase option shall provide that
upon such person's termination of employment or service with the Company, with
or without cause, the Company or its assignee (to the extent permissible under
applicable securities laws and other laws) shall have the option to purchase at
cost any unvested shares of stock held by such person.
3.6 KEY MAN INSURANCE. Subject to the approval of the Board of Directors,
the Company will use its best efforts to obtain and maintain in full force and
effect term life insurance for key service providers and in the amounts
determined by the Board of Directors.
3.7 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT. The Company shall
require all employees to execute and deliver a Proprietary Information and
Inventions Agreement substantially in the form provided to counsel to the New
Investors.
3.8 USE OF PROCEEDS. The Company shall use the proceeds from the sale of
the Series E Preferred Stock sold pursuant to the Purchase Agreement solely as
set forth therein.
3.9 "MARKET STAND-OFF" AGREEMENTS. The Company shall require all
purchasers of its capital stock to agree, if so requested by the Company or any
underwriter's representative in connection with the Initial Offering, not to
sell or otherwise transfer any securities of the Company during a period of up
to 180 days following the effective date of the registration statement of the
Company filed under the Securities Act with respect to the Initial Offering.
3.10 INDEMNIFICATION. The Company has and will maintain, for so long as
any representative of the Holders is a member of the Board of Directors,
provisions in its Certificate of Incorporation and Bylaws that allow it to
indemnify its officers and directors to the fullest extent permitted by Delaware
law.
3.11 ASSIGNMENT OF REPURCHASE RIGHTS AND COMPANY RIGHT OF FIRST REFUSAL.
At all times prior to the closing of the Initial Offering the Company shall
maintain in effect with respect to all outstanding shares of Common Stock a
right of first refusal with respect to any proposed sale or transfer of shares
of Common Stock substantially in the form currently contained in the Company's
Bylaws. If, at any time prior to the closing of the Initial Offering, the
Company elects not to exercise the right of first refusal as to the sale or
transfer of any shares of Common Stock, including without limitation, shares
issued upon exercise of employee stock options or pursuant to any employee
compensation or stock purchase program, the Company shall assign such right of
first refusal pro rata among the Significant Investors (as defined below) as
follows:
(a) Within 10 days following the receipt of a notice from a holder
of Common Stock (a "Transferring Holder") advising the Company of such holder's
desire to transfer any shares of Common Stock subject to the Company's right of
first refusal (an "Offer"), the Company shall make an election as to whether it
chooses to exercise its right to purchase such shares, and if the Company elects
not to purchase such shares it shall immediately deliver written notice (a
"Notice of Offer") of its election not to exercise its right of first refusal
and of its assignment of such right to each Investor owning and/or having the
right to acquire, together with its affiliates, not less than 150,000 shares of
Registrable Securities (in each case as adjusted for stock splits and
combinations) (a "Significant Investor"). Each Significant Investor shall have
the right and option, for a period of 15 days after delivery of the Notice of
Offer to the
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<PAGE> 19
Investor, to accept, at the purchase price and on the terms specified in the
Notice of Offer (1) such Significant Investor's Proportionate Percentage, as
defined below, of the securities offered pursuant to the Offer and (2) any of
the securities offered pursuant to the Offer that are not accepted by the other
Significant Investors, in which case such securities not deemed to have been
offered to and accepted by the Significant Investors shall be deemed to have
been offered to and accepted by the Significant Investors that exercised their
option under this clause (2), pro rata in accordance with their respective
Proportionate Percentages (excluding, for the purpose of such calculation, any
Significant Investor not exercising its option under this clause (2)).
Acceptance of the Offer shall be made by each Significant Investor by the
delivery of a written notice to the Company and the Transferring Holder within
said 15-day period, which notice shall indicate such Significant Investor's
election to exercise its rights under this Section 3.12 and shall specify the
number of securities that such Significant Investor wishes to purchase and
whether such Significant Investor wishes to exercise its rights under clause (2)
above.
(b) Transfers of securities under the terms of this Section 3.12
shall be made at the offices of the Company on a mutually satisfactory business
day within 15 days after the expiration of the applicable time periods. Delivery
of certificates or other instruments evidencing such securities duly endorsed
for transfer shall be made on such date against payment of the purchase price
therefor.
(c) If effective acceptances are not received pursuant to Section
3.12(a) with respect to all securities offered for sale pursuant to the
aforesaid Notice of Offer, then the Transferring Holder may transfer to a third
party all of the securities so offered for sale or any part thereof at the price
and on the identical terms stated in the original Notice of Offer and in
accordance with the Bylaws.
(d) For purposes of this Section 3.12 only, the term "Proportionate
Percentage" shall mean, with respect to a Significant Investor, a fraction
(expressed as a percentage), the numerator of which is equal to the sum of the
total number of shares held by such Significant Investor (on an as-if-converted
to Common Stock basis) and the denominator of which is the total number of
shares held by all Significant Investors (on an as-if-converted to Common Stock
basis).
3.12 BOARD OF DIRECTORS. The Company will use its commercially reasonable
efforts to cause its Board of Directors to meet at least quarterly and, for so
long as a representative of Crosslink Omega Ventures III, L.P. (and its
affiliates) is on the Board of Directors, to cause such representative to remain
on the Audit Committee of the Board of Directors.
3.13 QUALIFIED SMALL BUSINESS STOCK. The Company shall submit to its
stockholders (including the Investors) and to the Internal Revenue Service any
reports that may be required under Section 1202(d)(1)(c) of the Code and any
related Treasury Regulations. In addition, within ten days after any Investor
has delivered to the Company a written request therefor, the Company shall
deliver to such Investor a written statement informing the Investor whether such
Investor's interest in the Company constitutes "qualified small business stock"
as defined in Section 1202(c) of the Code. The Company's obligation to furnish a
written statement pursuant to this Section 3.14 shall continue notwithstanding
the fact that a class of the Company's stock may be traded on an established
securities market.
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3.14 VISITATION RIGHTS. The Company shall allow one representative
designated by Menlo Ventures VII, L.P., for so long as it owns any Shares, to
attend all meetings of the Company's board of directors in a nonvoting capacity
and, in connection therewith, the Company shall give such representative copies
of all notices, minutes, consents and other materials, financial or otherwise,
that the Company provides to its board of directors, subject to confidentiality
and other limitations set forth in any management rights agreement between the
Company and Menlo Ventures VII, L.P.
3.15 TERMINATION OF COVENANTS. All covenants of the Company contained in
Section 3 of this Agreement shall expire and terminate as to each Investor on
the effective date of the registration statement pertaining to the Initial
Offering.
4. RIGHTS OF FIRST REFUSAL.
4.1 SUBSEQUENT OFFERINGS. Each Significant Investor shall have a right of
first refusal to purchase its pro rata share of all Equity Securities, as
defined below, that the Company may, from time to time, propose to sell and
issue after the date of this Agreement, other than the Equity Securities
excluded by Section 4.6 hereof. Each Significant Investor's pro rata share is
equal to the ratio of (A) the number of shares of the Company's Common Stock
(including all shares of Common Stock issued or issuable upon conversion of the
Shares, Investor Warrants or other convertible instruments) that such Investor
is deemed to be a holder of immediately prior to the issuance of such Equity
Securities to (B) the total number of shares of the Company's outstanding Common
Stock (including all shares of Common Stock issued or issuable upon conversion
of the Shares, the Investor Warrants or other convertible instruments)
immediately prior to the issuance of the Equity Securities and assuming exercise
of all outstanding options and warrants to purchase Securities of the Company.
The term "Equity Securities" shall mean (i) any Common Stock, Preferred Stock or
other security of the Company, (ii) any security convertible, with or without
consideration, into any Common Stock, Preferred Stock or other security
(including any option to purchase such a convertible security), (iii) any
security carrying any warrant or right to subscribe to or purchase any Common
Stock, Preferred Stock or other security or (iv) any such warrant or right.
4.2 EXERCISE OF RIGHTS. If the Company proposes to issue any Equity
Securities, it shall give each Significant Investor written notice of its
intention, describing the Equity Securities, the price and the terms and
conditions upon which the Company proposes to issue the same. Each Significant
Investor shall have 15 days from the giving of such notice to agree to purchase
its pro rata share of the Equity Securities for the price and upon the terms and
conditions specified in the notice by giving written notice to the Company and
stating therein the quantity of Equity Securities to be purchased.
Notwithstanding the foregoing, the Company shall not be required to offer or
sell such Equity Securities to any Significant Investor who would cause the
Company to be in violation of applicable federal securities laws by virtue of
such offer or sale. The closing of any purchase and sale hereunder shall take
place concurrently with, or as soon as practicable after, the closing of the
sale of Equity Securities to third parties.
4.3 ISSUANCE OF EQUITY SECURITIES TO OTHER PERSONS. If not all of the
Significant Investors elect to purchase their pro rata share of the Equity
Securities, then the Company shall promptly notify in writing the Significant
Investors who do so elect and shall offer such Significant Investors the right
to acquire such unsubscribed shares. Such Significant Investors
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<PAGE> 21
shall have five days after receipt of such notice to notify the Company of their
election to purchase all or a portion thereof of the unsubscribed shares. If
such Significant Investors fail to exercise in full the rights of first refusal,
the Company shall have 90 days thereafter to sell the Equity Securities in
respect of which the Significant Investor's rights were not exercised, at a
price and upon general terms and conditions materially no more favorable to the
purchasers thereof than specified in the Company's notice to the Significant
Investors pursuant to Section 4.2 hereof. If the Company has not sold such
Equity Securities within 60 days of the notice provided pursuant to Section 4.2,
the Company shall not thereafter issue or sell any Equity Securities, without
first offering such securities to the Significant Investors in the manner
provided above.
4.4 TERMINATION OF RIGHTS OF FIRST REFUSAL. The rights of first refusal
established by this Section 4 shall terminate upon the effective date of the
registration statement pertaining to a public offering that results in the
automatic conversion of the Shares into Common Stock and not apply to such
public offering.
4.5 TRANSFER OF RIGHTS OF FIRST REFUSAL. The rights of first refusal of
each Significant Investor under this Section 4 may be transferred to the same
parties, subject to the same restrictions as any transfer of registration rights
pursuant to Section 2.10.
4.6 EXCLUDED SECURITIES. The rights of first refusal established by this
Section 4 shall have no application to any of the following Equity Securities:
(a) Option Pool Shares, as defined in Article IV, Section
G.4.(j)(iv), of the Company's Amended and Restated Certificate of Incorporation;
(b) stock issued pursuant to any rights, agreements, options and
warrants outstanding as of the date of this Agreement;
(c) stock issued pursuant to any rights, agreements, options and
warrants granted after the date of this Agreement, provided that the rights of
first refusal established by this Section 4 applied with respect to the initial
sale or grant by the Company of such rights, agreements, warrants or options;
(d) any Equity Securities issued as consideration in a merger,
consolidation, acquisition or similar business combination approved by the
Company's Board of Directors;
(e) shares of Common Stock issued in connection with any stock
split, stock dividend or recapitalization by the Company;
(f) shares of Common Stock issued upon conversion of the Shares or
exercise of the Investor Warrants or Financing Warrants;
(g) any Equity Securities issued pursuant to any equipment leasing
arrangement or bank financing approved by the Board of Directors; or
(h) the Investor Notes or the Series E Preferred Stock issuable upon
exchange of the Investor Notes.
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5. MISCELLANEOUS.
5.1 GOVERNING LAW. This Agreement is intended to take effect as a sealed
instrument and shall be governed by and construed under the laws of the State of
Massachusetts as applied to agreements among Massachusetts residents entered
into and to be performed entirely within Massachusetts.
5.2 SURVIVAL. The representations, warranties, covenants, and agreements
made herein shall survive any investigation made by any Holder and the closing
of the transactions contemplated hereby. All statements as to factual matters
contained in any certificate or other instrument delivered by or on behalf of
the Company pursuant hereto in connection with the transactions contemplated
hereby shall be deemed to be representations and warranties by the Company
hereunder solely as of the date of such certificate or instrument.
5.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided herein,
the provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors, and administrators of the parties hereto
and shall inure to the benefit of and be enforceable by each person who shall be
a holder of Registrable Securities from time to time; provided, however, that
prior to the receipt by the Company of adequate written notice of the transfer
of any Registrable Securities specifying the full name and address of the
transferee, the Company may deem and treat the person listed as the holder of
such shares in its records as the absolute owner and holder of such shares for
all purposes, including the payment of dividends or any redemption price.
5.4 SEVERABILITY. In case any provision of the Agreement shall be invalid,
illegal, or unenforceable, the validity, legality, and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
5.5 AMENDMENT AND WAIVER.
(a) Except as otherwise expressly provided, this Agreement may be
amended or modified only upon the written consent of the Company and the holders
of at least 66-2/3% of the Registrable Securities.
(b) Except as otherwise expressly provided, the obligations of the
Company and the rights of the Holders under this Agreement may be waived only
with the written consent of the holders of at least 66-2/3% of the Registrable
Securities.
(c) Notwithstanding Section 5.5(a), but subject to the other
provisions of this Agreement, this Agreement may be amended with only the
written consent of the Company to include additional purchasers of Shares as
"Investors," "Holders" and parties hereto.
5.6 DELAYS OR OMISSIONS. It is agreed that no delay or omission to
exercise any right, power, or remedy accruing to any Holder, upon any breach,
default or noncompliance of the Company under this Agreement shall impair any
such right, power, or remedy, nor shall it be construed to be a waiver of any
such breach, default or noncompliance, or any acquiescence therein, or of any
similar breach, default or noncompliance thereafter occurring. It is further
agreed that any waiver, permit, consent, or approval of any kind or character on
any Holder's part of any breach, default or noncompliance under the Agreement or
any waiver on such
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Holder's part of any provisions or conditions of this Agreement must be in
writing and shall be effective only to the extent specifically set forth in such
writing. All remedies, either under this Agreement, by law, or otherwise
afforded to Holders, shall be cumulative and not alternative.
5.7 NOTICES. All notices required or permitted hereunder 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 days after having been sent by registered or certified mail,
return receipt requested, postage prepaid, or (iv) one day after deposit with a
nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. All communications shall be sent to the party
to be notified at the address as set forth on the signature pages hereof or
Exhibit A hereto or at such other address as such party may designate by ten
days advance written notice to the other parties hereto.
5.8 ATTORNEYS' FEES. In the event that any dispute among the parties to
this Agreement should result in litigation, the prevailing party in such dispute
shall be entitled to recover from the losing party all fees, costs and expenses
of enforcing any right of such prevailing party under or with respect to this
Agreement, including without limitation, such reasonable fees and expenses of
attorneys and accountants, which shall include, without limitation, all fees,
costs and expenses of appeals.
5.9 TITLES AND SUBTITLES. The titles of the sections and subsections of
this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
5.10 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
20.
<PAGE> 24
IN WITNESS WHEREOF, the parties hereto have executed this Fourth Amended
and Restated Investors' Rights Agreement as of the date set forth in the first
paragraph hereof.
COMPANY: INVESTORS:
ELOQUENT, INC. OMEGA BAYVIEW, L.L.C.
By: By:
-------------------------------- ----------------------------------
Abraham Kleinfeld
Chief Executive Officer ----------------------------------
and President Authorized Signatory
CROSSLINK CROSSOVER FUND II, L.P.
By: Crossover Investment Management,
L.L.C.
Its General Partner
By:
----------------------------------
Its:
-----------------------------
CROSSLINK CROSSOVER FUND III, L.P.
By: Crossover Fund III Management,
L.L.C.
Its General Partner
By:
----------------------------------
Michael J. Stark
Managing Member
CROSSLINK OMEGA VENTURES III, L.L.C.
By: Crosslink Omega III Holdings,
L.L.C.
Its Authorized Signatory
By:
----------------------------------
Authorized Signatory
CROSSLINK OFFSHORE OMEGA VENTURES III,
A CAYMAN ISLANDS TRUST
By: Crosslink Omega III Holdings,
L.L.C.
Its Authorized Signatory
By:
----------------------------------
----------------------------------
Authorized Signatory
FOURTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 25
MENLO VENTURES VII, L.P.
By: MV Management VII, L.L.C.
Its General Partner
By:
----------------------------------
Sonja L. Hoel
Its Managing Member
MENLO ENTREPRENEURS FUND VII, L.P.
By: MC Management VII, L.L.C.
Its General Partner
By:
----------------------------------
Sonja L. Hoel
Its Managing Member
ONSET ENTERPRISE ASSOCIATES II, L.P.
By: OEA II Management, L.P.
Its General Partner
By:
----------------------------------
Terry Opdendyk
Its General Partner
ONSET ENTERPRISE ASSOCIATES III, L.P.
By: OEA III Management, LLC
Its General Partner
By:
----------------------------------
Terry Opdendyk
Its Managing Director
FOURTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 26
FOUNDATION CAPITAL, L.P.
By: Foundation Capital Management, LLC
Its General Partner
By:
----------------------------------
----------------------------------
Its Manager
FOUNDATION CAPITAL ENTREPRENEURS FUND,
LLC
By: Foundation Capital Management, LLC
Its Manager
By:
----------------------------------
----------------------------------
Its Manager
LIGHTHOUSE CAPITAL PARTNERS, L.P.
LIGHTHOUSE CAPITAL PARTNERS II, L.P.
By:
----------------------------------
Its:
----------------------------------
IMPERIAL BANCORP
By:
----------------------------------
Its:
----------------------------------
TBCC FUNDING TRUST II
By:
----------------------------------
Its:
----------------------------------
FOURTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 27
---------------------------------------
MICHAEL FAHEY
---------------------------------------
ZOFIA T. GLAZER
---------------------------------------
KENNETH R. GRANT
STEPHEN M. SAUCY AND PATRICIA T. SAUCY,
TRUSTEES, THE SAUCY FAMILY TRUST DATED
10/30/95
---------------------------------------
Stephen M. Saucy, Trustee
MICHAEL N. AND MARY G. SCHUH 1990
FAMILY TRUST
---------------------------------------
Stephen M. Saucy, Trustee
GMN INVESTORS II, L.P.
By: GMN Investors LLC
Its General Partner
By:
----------------------------------
David F. Millet
Managing Director
JENSTAR PARTNERS I, LLC
By:
----------------------------------
Thomas E. Tucker
Managing Member
FOURTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 28
THE MANUFACTURERS LIFE INSURANCE
COMPANY (U.S.A.)
By:
----------------------------------
William M. Sheehan
MEIER MITCHELL & COMPANY
By:
----------------------------------
James V. Mitchell
President
TRANSNATIONAL GROUP SERVICES LLC
By:
----------------------------------
Bruce Rogoff
Vice Chairman
CAMBRIDGE TECHNOLOGY CAPITAL FUND, L.P.
By: Cambridge Technology GPLP, L.P.
Its General Partner
By: Cambridge Technology CGP, Inc.
Its General Partner
By:
----------------------------------
Barry Rosenbaum
Managing Director
EXETER CAPITAL PARTNERS IV, L.P.
By: Exeter IV Advisors, L.P.
Its General Partner
By: Exeter IV Advisors, Inc.
Its General Partner
By:
----------------------------------
Kurt F. Bergquist
Vice President
FOURTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 29
THE STONEBERG FAMILY TRUST
By:
----------------------------------
Peter Stoneberg, Trustee
ANDERSON ELOQUENT, L.P.
By: Spring Creek Partners
Its General Partner
By:
----------------------------------
Duane R. Bach
General Partner
---------------------------------------
MICHAEL MITGANG
---------------------------------------
CHAD ABRAHAM
---------------------------------------
PETER BENNETT
FOURTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 30
EXHIBIT A
AMENDED SCHEDULE OF INVESTORS
Menlo Ventures VII, L.P. and
Menlo Entrepreneurs Fund VII, L.P.
3000 Sand Hill Road
Building 4, Suite 100
Menlo Park, CA 94025
Attn: Sonja Hoel
Onset Enterprise Associates II, L.P. and
Onset Enterprise Associates III, L.P.
2490 Sand Hill Road
Menlo Park, CA 94025
Attn: Terry Opdendyk
Foundation Capital, L.P. and
Foundation Capital Entrepreneurs Fund, LLC
75 Willow Road, Suite 103
Menlo Park, CA 94025
Attn: Kathryn Gould
Lighthouse Capital Partners, L.P. and
Lighthouse Capital Partners II, L.P.
100 Drakes Landing Road, Suite 260
Greenbrae, CA 94904
Attn: Rick Stubblefield
TBCC Funding Trust II
15260 Ventura Blvd.
Suite 1240
Sherman Oaks, CA 91403
Attn: Ian Sutnider
Imperial Bancorp
9920 S. La Cienega Blvd.
Inglewood, CA 90301
Attn: General Counsel
Michael Fahey
163 Rock Harbor Lane
Foster City, CA 94404
Zofia T. Glazer
20 Monadnock Drive
Shrewsbury, MA 01545
Kenneth R. Grant
688 Knoll Drive
San Carlos, CA 94070
Stephen M. Saucy and Patricia T. Saucy,
Trustees, The Saucy Family Trust Dated 10/30/95
55 Cortaderia Court
Danville, CA 94526
Michael N. and Mary G. Schuh 1990 Family Trust
400 Old Bennett Trail
Glen Ellen, CA 95442
Omega Bayview, L.L.C.,
Crosslink Crossover Fund II, L.P.,
Crosslink Crossover Fund III, L.P.,
Crosslink Omega Ventures III, L.L.C. and
Crosslink Offshore Omega Ventures III, a Cayman Islands trust
c/o Crosslink Capital, Inc.
555 California Street, Suite 2600
San Francisco, CA 94104
Attn: Jason Sanders
GMN Investors II, L.P.
20 William Street
Wellesley, MA 02481
Attn: David F. Millet
JenStar Partners I, LLC
3 Upper Newport Drive
Second Floor
Newport Beach, CA 92660
1.
<PAGE> 31
MF Private Capital, Inc.
45 Milk Street
Boston, MA 02109
Attn: William M. Sheehan
(with a copy to:
Nixon Peabody LLP
101 Federal Street
Boston, MA 02110
Attn: Craig D. Mills, P.C.)
Meier Mitchell & Company
4 Orinda Way
Suite 200-B
Orinda, CA 94563
Attn: James V. Mitchell
(with a copy to:
GATX Capital
Four Embarcadero Center
Suite 2200
San Francisco, CA 94111
Attn: Craig F. Bruzzone)
TransNational Group Services LLC
133 Federal Street
Boston, MA 02110
Attn: Bruce Rogoff
The Stoneberg Family Trust
41 Dos Posos
Orinda, CA 94563
Attn: Peter Stoneberg, Trustee
Anderson Eloquent, L.P.
c/o Spring Creek Partners
330 Spring Creek Road
Rockford, IL 61107
Attn: Duane Bach
Exeter Capital Partners IV, L.P.
10 East 53rd Street
32nd Floor
New York, NY 10022
Attn: Kurt Bergquist
Cambridge Technology Capital Fund I L.P.
11512 El Camino Real, Suite 215
San Diego, CA 92130
Attn: LeAnn Silberman
Michael A. Mitgang
586 California Way
Emerald Hills, CA 94062
Peter Bennett
18815 24th Avenue North
Plymouth, MN 55447
Chad Abraham
2130A Gordon Ave.
Menlo Park, CA 94025
2.
<PAGE> 1
EXHIBIT 4.03
SECURITIES PURCHASE AGREEMENT
ELOQUENT, INC.
2000 Alameda de las Pulgas, Suite 100
San Mateo, CA 94403
As of October 20, 1999
GMN Investors II, L.P.
20 William Street, Suite 250
Wellesley, Massachusetts 02481
Additional Investors Listed on
Exhibit A Attached Hereto
Ladies and Gentlemen:
The undersigned, Eloquent, Inc., a Delaware corporation (the "Company"),
hereby agrees with you as follows:
1. DEFINITIONS.
For all purposes of this Agreement the following terms shall have the
meanings set forth herein or elsewhere in the provisions hereof:
Accounts Receivable Line of Credit. Accounts Receivable Line of Credit
shall mean the accounts receivable-based portion of the revolving line of credit
from Transamerica in favor of the Company as further set forth in the Senior
Credit Agreement.
Adjusted Net Worth. Adjusted Net Worth shall mean, in connection with
any liquidation or sale of assets by the Company, the consolidated net worth of
the equity of the Company, immediately prior to such liquidation or immediately
after such sale, determined in accordance with generally accepted accounting
principles, taking into account (i) the total consideration received by the
Company for such transaction, (ii) the transaction costs incurred in connection
with such transaction, and (iii) any liabilities (excluding any accrual for
vacation time) of the Company whether or not to be discharged in connection with
such transaction.
Affiliate. Affiliate shall mean any Person directly or indirectly
controlling, directly or indirectly controlled by or under direct or indirect
common control with the Company (or other specified Person) and shall include
(a) any Person who is a
<PAGE> 2
-2-
director or beneficial holder of at least 10% of any class of the then
outstanding capital stock (or other shares of beneficial interest) of the
Company (or other specified Person) and Family Members of any such Person, (b)
any Person of which the Company (or other specified Person) or an Affiliate (as
defined in clause (a) above) of the Company (or other specified Person) shall,
directly or indirectly, either beneficially own at least 10% of any class of the
then outstanding capital stock (or other shares of beneficial interest) or
constitute at least a 10% equity participant, and (c) in the case of a specified
Person who is an individual, Family Members of such Person; provided, however,
that no Investor nor Gemini Investors LLC shall be considered an Affiliate of
the Company for the purposes of this Agreement.
Capital Expenditures. Capital Expenditures shall mean amounts paid or
Indebtedness incurred by the Company or any of its Subsidiaries in connection
with the purchase or lease of fixed assets (both tangible and intangible) that
would be required to be capitalized and shown on the balance sheet of such
Person in accordance with generally accepted accounting principles.
Capital Transaction. Capital Transaction shall mean any of the
following: (i) one or more mergers or consolidations involving the Company (in a
single transaction or series of related or unrelated transactions) in which the
Company is not the surviving entity and the holders of equity interests in the
Company prior to such transaction(s) own less than a majority of the surviving
entity's voting securities immediately after such transaction(s); (ii) a
liquidation, dissolution or winding up of the Company or a sale of all or
substantially all of the assets of the Company or other similar corporate
actions pursuant to which the Company or the holders of equity interests in the
Company receive cash, securities or other property; (iii) securities
constituting at least a majority of the voting power of the Company are sold to
a Person that is not an Affiliate; or (iv) the closing of the Company's
underwritten public offering pursuant to an effective registration statement
under the Securities Act.
Charter. Charter shall include the articles or certificate of
incorporation, statute, constitution, joint venture or partnership agreement or
articles or other organizational document of any Person other than an
individual, each as from time to time amended or modified.
Closing. See Section 2.3.
Closing Date. See Section 2.3.
Code. Code shall mean the Internal Revenue Code of 1986, any successor
statute of similar import, and the rules and regulations thereunder,
collectively and as from time to time amended and in effect.
Commission. Commission shall mean the Securities and Exchange
Commission.
<PAGE> 3
-3-
Common Stock. Common Stock shall mean, collectively, the Common Stock of
the Company described in Section 4.5(a) and in addition, any capital stock or
other securities into which or for which Common Stock shall have been converted
or exchanged pursuant to any recapitalization, reorganization or merger of the
Company.
Company. See preamble.
Consolidated or consolidated. Consolidated or consolidated shall mean,
with reference to any term defined herein, that term as applied to the accounts
of the Company and all of its Subsidiaries, consolidated in accordance with
generally accepted accounting principles.
Converted Common Shares. Converted Common Shares shall mean,
collectively, (a) shares of Common Stock issuable upon exercise of the
conversion rights of the Series E Preferred Stock in accordance with its terms,
(b) any shares of Common Stock into which such shares of Common Stock have been
converted, (c) any capital stock or other securities into which or for which
such shares of Common Stock shall have been converted or exchanged pursuant to
any recapitalization, reorganization or merger of the Company, and (d) any
shares of capital stock issued with respect to the foregoing pursuant to a stock
dividend or stock split; provided that no Converted Common Shares which have
been sold pursuant to a Public Sale shall be considered to be outstanding
Converted Common Shares or Securities hereunder.
Co-Sale Agreement. Co-Sale Agreement means the Fourth Amended and
Restated Co-Sale Agreement dated as of the date hereof among the Company, the
Investors and certain of the other stockholders of the Company, as such
Agreement may be amended, restated, modified or supplemented in accordance with
the terms of this Agreement.
Default. Default shall mean an event or condition which with the passage
of time or giving of notice, or both, would become an Event of Default.
Distribution. Distribution shall mean (a) the declaration or payment of
any dividend on or in respect of any shares of any class of capital stock of the
Company or other specified Person, (b) the purchase, redemption or other
retirement of any shares of any class of capital stock of the Company or other
specified Person, directly or indirectly or otherwise, or (c) any other
distribution on or in respect of any shares of any class of capital stock of the
Company or other specified Person (in each case except a repurchase of shares of
Common Stock from an employee or consultant of the Company in connection with
the termination of such employee's or consultant's relationship as such with the
Company).
EBITDA. EBITDA shall mean for any period, an amount equal to the sum of
(a) the consolidated net income of the Company and its Subsidiaries during such
period determined in accordance with generally accepted accounting principles,
but excluding
<PAGE> 4
-4-
therefrom all extraordinary items of income or loss, plus (b) all amounts
deducted in the computation thereof on account of (i) interest, (ii) taxes,
(iii) depreciation, and (iv) amortization.
Employment Agreements. Employment Agreements shall mean the employment
agreements between the Company and certain key employees listed on Schedule 1
hereto.
Environmental Laws. Environmental Laws shall mean any federal, state, or
local judgment, decree, order, law, license, rule or regulation relating to
health, safety or the environment.
ERISA. ERISA shall mean the federal Employee Retirement Income Security
Act of 1974, any successor statute of similar import, and the rules and
regulations thereunder, collectively and as from time to time amended and in
effect.
ERISA Affiliate. ERISA Affiliate shall mean, with respect to any Person,
any trade or business (whether or not incorporated) that is a member of a group
described in Section 414(b) or Section 414(c) of the Code of which such Person
is a member.
Events of Default. See Section 9.1.
Family Members. Family Members shall mean, as applied to any individual,
any parent, spouse, child, spouse of a child, brother or sister of the
individual, and each trust created for the benefit of one or more of such
Persons and each custodian of a property of one or more such Persons.
Financing Agreements. Financing Agreements shall include this Agreement,
the Securities, the Investors' Rights Agreement, the Co-Sale Agreement, the
Voting Agreement, and any and every other present or future instrument or
written agreement from time to time entered into between the Company and any of
the Investors or any other Holder of the Securities and which relates to this
Agreement or is stated to be a Financing Agreement, as from time to time amended
or modified, and all written statements, reports or certificates delivered by or
on behalf of the Company to you or any other Holder of the Securities in
connection herewith or therewith.
generally accepted accounting principles. Generally accepted accounting
principles shall mean accounting principles which are (a) consistent with the
principles promulgated or adopted by the Financial Accounting Standards Board
and its predecessors, in effect for the fiscal year of the Company and its
Subsidiaries ended December 31, 1998 (except for mandatory changes from time to
time thereafter), (b) except as provided in clause (a) of this definition, (b)
applied on a basis consistent with prior periods, and (c) such that a certified
public accountant would, insofar as the use of accounting principles is
pertinent, be in a position to deliver an unqualified opinion as to financial
statements in which such principles have been properly applied.
<PAGE> 5
-5-
GMN. GMN shall mean GMN Investors II, L.P., a Delaware limited
partnership.
Hazardous Substances. Hazardous Substances shall mean any hazardous
waste as defined by 42 U.S.C. Section 6903(5), any hazardous substances as
defined by 42 U.S.C. Section 9601(14), any pollutant or contaminant as defined
by 42 U.S.C. Section 9601(33), and any toxic substance, oil, petroleum, friable
asbestos, hazardous materials, or other substances regulated by any
Environmental Laws.
Holder. Holder shall mean, as to any Security, the holder thereof,
unless such holder shall have presented such Security to the Company for
transfer and the transferee shall have been entered in the Company's stock
register referred to in Section 12.2(a) (in the case of Series E Preferred
Shares, Converted Common Shares or Warrant Shares), in the register referred to
in Section 12.1(a) (in the case of a Note) or in the register referred to in
Section 12.3(a) (in the case of a Warrant) as a subsequent holder, in which case
"Holder" shall mean such subsequent holder.
Indebtedness. Indebtedness shall include all obligations, contingent and
otherwise, which in accordance with generally accepted accounting principles
should be classified upon the obligor's balance sheet as liabilities, or to
which reference should be made by footnotes thereto, including without
limitation, in any event and whether or not so classified: (i) all debt and
similar monetary obligations, whether direct or indirect; (ii) all liabilities
secured by any mortgage, pledge, security interest, lien, charge, or other
encumbrance existing on property owned or acquired subject thereto, whether or
not the liability secured thereby shall have been assumed; (iii) all guaranties,
endorsements and other contingent obligations whether direct or indirect in
respect of Indebtedness of others, including any obligation to supply funds to
or in any manner to invest in, directly or indirectly, the debtor, to purchase
Indebtedness, or to assure the owner of Indebtedness against loss, through an
agreement to purchase goods, supplies, or services for the purpose of enabling
the debtor to make payment of the Indebtedness held by such owner or otherwise;
and (iv) obligations to reimburse issuers of any letters of credit.
Indebtedness for Borrowed Money. Indebtedness for Borrowed Money shall
mean (a) all Indebtedness of the Company and its Subsidiaries for borrowed
money, whether current or funded, or secured or unsecured, (b) all Indebtedness
of the Company and its Subsidiaries for the deferred purchase price of property
or services represented by a note or other security, (c) all Indebtedness of the
Company and its Subsidiaries created or arising under any conditional sale or
other title retention agreement with respect to property acquired by the Company
or any of its Subsidiaries (even though the rights and remedies of the seller or
lender under such agreement in the event of default are limited to repossession
or sale of such property), (d) all Indebtedness of the Company and its
Subsidiaries secured by a purchase money mortgage or other lien to secure all or
part of the purchase price of property subject to
<PAGE> 6
-6-
such mortgage or lien, (e) all obligations under leases which shall have been or
should be, in accordance with generally accepted accounting principles, recorded
as capital leases in respect of which the Company or any of its Subsidiaries are
liable as lessee, (f) any liability of the Company or any of its Subsidiaries in
respect of banker's acceptances or letters of credit, (g) all interest, fees and
other expenses owed with respect to indebtedness described in the foregoing
clauses (a), (b), (c), (d), (e) or (f) above, and (h) all Indebtedness referred
to in clause (a), (b), (c), (d), (e), (f) or (g) above which is directly or
indirectly guaranteed by the Company or any of its Subsidiaries, or which the
Company or any of its Subsidiaries has agreed (contingently or otherwise) to
purchase or otherwise acquire, or in respect of which the Company or any of its
Subsidiaries has otherwise assured a creditor against loss.
Investments. Investments shall mean (a) any purchase of shares of
capital stock, units, interests, evidence of Indebtedness or other security
issued by any other Person, (b) any loan, advance, or extension of credit to, or
contribution to the capital of, any other Person, (c) any purchase of the
securities of any other Person, or commitment to make such purchase, and (d) any
other investment in any other Person; provided, however, that the term
"Investment" shall not include (i) trade and customer accounts receivable for
services rendered in the ordinary course of business and payable in accordance
with customary trade terms, and all letters of credit or other instruments
securing or evidencing the same, (ii) advances to employees for travel and
relocation expenses, drawing accounts and similar expenditures but only to the
extent that all such advances outstanding at any particular time do not exceed
$100,000, (iii) stock or other securities acquired in connection with the
satisfaction or enforcement of Indebtedness or claims due or owing to the
Company or any of its Subsidiaries or as security for any such Indebtedness or
claim, and (iv) any acquisition of assets or stock of a Person which is
permitted pursuant to Section 7.12.
Investors. Investors shall mean GMN and the additional investors listed
on Exhibit A hereto.
Investors' Rights Agreement. Investors' Rights Agreement shall mean the
Fourth Amended and Restated Investors' Rights Agreement dated as of the date
hereof among the Company, the Investors and certain of the other stockholders of
the Company, as such Agreement may be amended, restated, modified or
supplemented in accordance with the terms of this Agreement.
Lien. Lien shall mean (a) any encumbrance, mortgage, pledge, lien,
charge or other security interest of any kind upon any property or assets of any
character, or upon the income or profits therefrom; or (b) any acquisition of or
agreement to have an option to acquire any property or assets upon conditional
sale or other title retention agreement, device or arrangement (including a
capitalized lease); or (c) any sale, assignment, pledge or other transfer for
security of any accounts, general intangibles, or chattel paper, with or without
recourse.
<PAGE> 7
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Major Holder. Major Holder shall mean the holder or holders at the
relevant time (excluding the Company) of (a) in the case of the Notes, at least
10% of the then outstanding principal amount of the Notes, (b) in the case of
the Series E Preferred Stock, at least 10% of the then outstanding shares of
Series E Preferred Stock, (c) in the case of the Converted Common Shares,
Warrants and Warrant Shares, at least 10% of the total number of (i) the then
outstanding Converted Common Shares, (ii) Warrant Shares then issuable upon
exercise of the outstanding Warrants plus (iii) then outstanding Warrant Shares,
and (d) if no class of Securities is referred to, the Major Holders of the Notes
so long as any Notes are outstanding, the Major Holders of the Series E
Preferred Shares and the Major Holders of the Converted Common Shares, Warrants
and/or Warrant Shares.
Majority Holders. Majority Holders shall mean the holder or holders at
the relevant time (excluding the Company) of (a) in the case of the Notes,
66-2/3% or more in outstanding principal amount of the Notes, (b) in the case of
the Series E Preferred Shares, 66-2/3% or more of the then outstanding Series E
Preferred Shares, (c) in the case of the Converted Common Shares, Warrants and
Warrant Shares, 66-2/3% or more of (i) the then outstanding Converted Common
Shares, (ii) Warrant Shares then issuable upon exercise of the outstanding
Warrants plus (iii) then outstanding Warrant Shares, considered collectively,
and (d) if no class of Securities is referred to, the Majority Holders of the
Notes so long as any Notes are outstanding, and the Majority Holders of the then
outstanding Series E Preferred Shares (on an as converted basis), Converted
Common Shares, Warrants (on an as converted basis) and Warrant Shares,
considered collectively; provided that for purposes of Section 9.2(b), Majority
Holder shall only refer to the holder or holders at the relevant time (excluding
the Company) of 66-2/3% or more of the then outstanding Converted Common Shares;
and provided further that for purposes of Section 9.2(c), Majority Holder shall
only refer to the holder or holders at the relevant time (excluding the Company)
of 66-2/3% or more of the number of Warrant Shares then issuable upon exercise
of the outstanding Warrants plus then outstanding Warrant Shares, considered
collectively.
Management Stock Option Plan. Management Stock Option Plan shall mean
the Company's equity incentive plans pursuant to which the Company has the right
to grant options, stock bonuses and the like to employees and consultants of the
Company for up to a maximum of 6,004,500 shares of Common Stock.
Maximum Rate. See Section 3.5(c).
Notes. Notes shall mean the Senior Subordinated Notes of the Company
aggregating $20,000,000 in principal amount issued pursuant to Section 2.1
hereof and any other Notes transferred to any other holders pursuant to Section
13 hereof; provided that no Notes that have been sold pursuant to a Public Sale
shall be considered to be outstanding Notes or Securities hereunder.
Permitted Indebtedness. See Section 7.8.
<PAGE> 8
-8-
Permitted Liens. See Section 7.9.
Permitted Renewal. See Section 3.6(b).
Person. Person shall mean an individual, partnership, corporation,
limited liability company, association, trust, joint venture, unincorporated
organization, and any government, governmental department or agency or political
subdivision thereof.
Preferred Stock. Preferred Stock means the Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and
Series E Preferred Stock of the Company as further described in Section 4.5.
Projections. See Section 4.7(a)(iii).
Public Sale. Public Sale shall mean any sale of Common Stock or other
equity interest of the Company to the public pursuant to a public offering
registered under the Securities Act (other than pursuant to a Rule 145
transaction or on Form S-8) or to the public through a broker or market-maker
pursuant to the provisions of Rule 144 (or any successor rule) adopted under the
Securities Act or any other public offering not required to be registered under
the Securities Act.
Purchase Price. See Section 2.2.
Purchased Securities. See Section 2.2.
Real Property. See Section 4.13.
Related Agreements. Related Agreements shall mean, collectively, the
Financing Agreements, the Senior Debt Documents, the Charter of the Company AND
the Employment Agreements.
Release. Release shall have the meaning specified in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C.
Sections 9601 et seq. and the regulations promulgated thereunder, as in effect
from time to time.
Restricted Payment. Restricted Payment shall mean any payment (whether
in cash, securities or other property) to or for the benefit of any Affiliate of
the Company or any of its Subsidiaries in respect of any Indebtedness owed by or
other obligation of the Company or such Subsidiary to such Affiliate.
Securities. Securities shall mean the Notes, the Series E Preferred
Shares, the Converted Common Shares, the Warrants and the Warrant Shares.
<PAGE> 9
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Securities Act. Securities Act shall mean the Securities Act of 1933, as
amended, or any successor federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
Senior Credit Agreement. Senior Credit Agreement shall mean the Loan and
Security Agreement, dated July 14, 1999, among the Company and the Senior
Lender.
Senior Debt Documents. Senior Debt Documents shall mean (a) the Senior
Credit Agreement and the other Loan Documents, as defined therein, (b) the
Senior Loan and Security Agreement No. 6270, dated as of August 5, 1999, between
the Company and Phoenix Leasing Incorporated and all promissory notes,
agreements and other documents related thereto, (c) the Master Equipment Lease
Agreement, dated as of November 13, 1995, between the Company and Lighthouse
Capital Partners, L.P., and all Lease Line Schedules and Equipment Schedules, as
such terms are defined therein, agreements and other documents related thereto,
and (d) the Master Equipment Lease Agreement, dated as of March 21, 1997,
between the Company and Lighthouse Capital Partners II, L.P., and all Lease Line
Schedules and Equipment Schedules, as such terms are defined therein, agreements
and other documents related thereto,
Senior Indebtedness. See Section 3.6(b)
Senior Lender. Senior Lender shall mean Transamerica and its successors
and assigns.
Series E Preferred Shares. Series E Preferred Shares shall mean the
shares of Preferred Stock of the Company issued to the Investors pursuant to
Section 2.1 hereof and any capital stock or other securities into which or for
which such Preferred Stock shall have been converted or exchanged pursuant to
any recapitalization, reorganization or merger of the Company.
Series E Preferred Stock. Series E Preferred Stock shall mean the Series
E Preferred Stock, $.001 par value per share, of the Company.
Small Business Act. Small Business Act shall mean the Small Business
Investment Act of 1958, as amended, or any successor federal statute, and the
rules and regulations of the Small Business Administration thereunder (including
without limitation Title 13, Code of Federal Regulations, Sections 107 and 121),
all as the same shall be in effect from time to time.
Standstill Period. See Section 3.6(b).
Subordinated Indebtedness. See Section 3.6(b).
Subsidiary. Subsidiary shall mean any Person of which the Company or
other specified Person now or hereafter shall at the time own directly or
indirectly through a
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Subsidiary at least a majority of the outstanding capital stock (or other
shares of beneficial interest) entitled to vote generally.
Transamerica. Transamerica shall mean Transamerica Business Credit
Corporation.
Transfer Notice. See Section 13.2.
Voting Agreement. Voting Agreement shall mean the Voting Agreement dated
as of the date hereof among the Company, the Investors and certain of the other
stockholders of the Company, as such Agreement may be amended, restated,
modified or supplemented in accordance with the terms of this Agreement.
Warrants. Warrants shall mean the Warrants of the Company issued to the
Investors pursuant to Sections 2.1 hereof and any other Warrants transferred to
any other holders pursuant to Section 11 hereof; provided that no Warrants which
have been sold pursuant to a Public Sale shall be considered to be outstanding
Warrants or Securities hereunder.
Warrant Shares. Warrant Shares shall mean, collectively, (a) Common
Stock issuable upon exercise of the Warrants in accordance with their terms, (b)
any shares of Common Stock into which such shares of Common Stock have been
converted, (c) any capital stock or other securities into which or for which
such Common Stock shall have been converted or exchanged pursuant to any
recapitalization, reorganization or merger of the Company, and (d) any shares of
capital stock issued with respect to the foregoing pursuant to a stock dividend
or a stock split; provided that no Warrant Shares which have been sold pursuant
to a Public Sale shall be considered to be outstanding Warrant Shares or
Securities hereunder.
2. SALE AND PURCHASE OF PURCHASED SECURITIES.
2.1. Sale and Purchase of Purchased Securities.
(a) The Company agrees to issue and sell to you and, subject to all of
the terms and conditions hereof and in reliance on the representations and
warranties set forth or referred to herein, you agree to purchase the Senior
Subordinated Notes of the Company set forth opposite your name on Exhibit A, in
the aggregate principal amount of $20,000,000, such Notes to be in the form of
Exhibit B hereto.
(b) The Company agrees to issue and sell to you and, subject to all of
the terms and conditions hereof and in reliance on the representations and
warranties set forth or referred to herein, you agree to purchase Common Stock
Purchase Warrants for the purchase of the number of shares of Common Stock of
the Company set forth on Exhibit A hereto, such Warrants to be in the form of
Exhibit C.
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2.2. Purchase Price. The aggregate purchase price for the Securities
purchased pursuant to Section 2.1 (the "Purchased Securities") is $20,002,000
(the "Purchase Price"). The parties hereto agree that (a) the aggregate purchase
price for such Notes is $20,000,000, and (b) the aggregate purchase price for
such Warrants is $2,000, and will be reported as such by all parties for
federal, state and local tax purposes.
2.3. Closing. The closing of the purchase and sale of the Purchased
Securities (the "Closing") will take place at the offices of Cooley Godward LLP,
One Maritime Plaza, 20th Floor, San Francisco California at 10:00 a.m. on
October 20, 1999, or at such other time, date and place as the parties hereto
may agree upon (the "Closing Date"). At the Closing, the Company will deliver to
you the Purchased Securities against payment by you of the Purchase Price in
immediately available funds. Each of the Purchased Securities will be issued to
you and registered in your name in the records of the Company.
2.4. Use of Proceeds. The proceeds from the sale of the Purchased
Securities hereunder will be used solely to repay the Accounts Receivable Line
of Credit and for other general working capital purposes. The Company agrees
that it will not use any part of the proceeds from the sale of the Purchased
Securities to purchase or carry any "margin security" or "margin stock", as such
terms are defined in any regulation, rule or interpretation of the Board of
Governors of the Federal Reserve System.
3. PRINCIPAL AND INTEREST PAYMENTS ON NOTES; SUBORDINATION.
3.1. Mandatory Principal Repayment. The Company agrees to repay the
aggregate principal amount of the Notes in one installment in the amount of all
unpaid principal of the Notes on the earlier to occur of (i) October 20, 2004 or
(ii) a Capital Transaction.
3.2. Optional Prepayments. The Company may at any time and from time to
time prepay all or any portion (in integral multiples of $10,000) of the
principal amount of the Notes, provided that all accrued and unpaid interest on
the principal amount being prepaid is paid at the same time as such prepayment.
Any such prepayment shall be made to the Holders of the Notes pro rata, in
accordance with the outstanding principal amounts of such Holder's Notes.
3.3. Presentation or Surrender of Notes. The Company may, as a condition
to accepting any prepayment of a Note, require the Holder thereof to present
such Note at the place specified in the Note for payment of the principal
thereof, for notation thereon of the amount and date of such prepayment, or, if
such Note is prepaid in full, to surrender the same to the Company.
3.4. No Reborrowing. No amount repaid or prepaid pursuant to Section 3.1
or 3.2 may be reborrowed under the Notes.
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3.5. Interest Payments. (a) Subject to Sections 3.5(b) and 3.5(c)
hereof, the unpaid principal amount of the Notes outstanding from time to time
shall bear interest from the Closing Date until and including the maturity of
the Notes, at a rate per annum equal to 12%. Interest on the Notes shall be
calculated on the basis of the actual number of days elapsed and a 360 day year,
and shall be paid quarterly in arrears on the last day of each calendar quarter,
commencing on the first such date following the Closing Date.
(b) Upon the occurrence and during the continuance of any Event of
Default described in Section 9.1(a) the Notes shall bear interest at a rate
equal to 16% per annum, payable quarterly in arrears on the last business day of
each calendar quarter, commencing on the first such date following the
occurrence of such Event of Default and calculated in accordance with Section
3.5(a) above.
(c) It is not intended by the Holders of the Notes, and nothing
contained in this Agreement or any Note shall be deemed, to establish or require
the payment of a rate of interest in excess of the maximum rate permitted by
applicable federal, state or other law (the "Maximum Rate") and, to prevent such
an occurrence, any agreement which may now or hereafter be in effect between the
Company and the Holders of the Notes regarding the payment of fees or interest
to such Holders is hereby limited by the provisions of this Section 3.5(c). If,
in any month, the effective interest rate applicable to the principal
outstanding under the Notes, absent the Maximum Rate limitation contained
herein, would have exceeded the Maximum Rate, then the effective interest rate
applicable to the Notes for that month shall be the Maximum Rate, and, if in any
subsequent month, the effective interest rate would otherwise be less than the
Maximum Rate, then the effective interest rate applicable to the Notes for such
month shall be increased to the Maximum Rate until such time as the amount of
interest paid hereunder equals the amount of interest which would have been paid
in respect of the Notes if the same had not been limited by the Maximum Rate. In
the event that, upon payment in full of the principal outstanding under the
Notes, the total amount of interest paid or accrued in respect of the Notes
under the terms of this Agreement is less than the total amount of interest
which would have been paid or accrued in respect of the Notes had the interest
not been limited hereby to the Maximum Rate, then the Company shall, to the
extent permitted by such applicable federal, state or other law, pay to each of
the holders of the Notes an amount equal to the excess, if any, of (i) the
lesser of (A) the amount of interest which would have been charged in respect of
the Notes if the Maximum Rate had, at all times, been in effect with respect to
the Notes and (B) the amount of interest which would have accrued in respect of
the Notes had the effective interest rate applicable with respect to the Notes
at all times not been limited hereunder by the Maximum Rate over (ii) the amount
of interest actually paid or accrued in respect of the Notes held by such holder
under this Agreement. In the event that the Holders of the Notes receive,
collect or apply as interest any sum in excess of the Maximum Rate, such excess
amount shall be applied to the reduction of principal
<PAGE> 13
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outstanding under the Notes until the payment in full thereof, and if no such
principal is then outstanding, such excess, or part thereof remaining, shall be
paid to the Company.
3.6. Subordination.
(a) Subordination to Senior Indebtedness. Notwithstanding any other
provision of this Agreement, the payment of principal and interest on each of
the Notes is and shall be junior and subordinated in right of payment, to the
extent and in the manner set forth in this Section 3.6, to the prior
payment in full of all amounts due and owing upon all Senior Indebtedness at any
time outstanding.
(b) Definitions. As used herein, (i) the term Senior Indebtedness shall
mean all of the Indebtedness from time to time owing by the Company under the
Senior Debt Documents as in effect on the date hereof and under any Permitted
Renewal thereof; provided, however, that Senior Indebtedness shall include
principal and interest thereon under such agreements at any time of
determination only to the extent that the aggregate principal amount thereunder
does not exceed $11,150,000 minus the amount of all principal installments and
prepayments made by the Company to the extent that such installments and
prepayments may not be reborrowed by the Company under the terms of such
agreements; (ii) the term Permitted Renewal shall mean any amendment of any
credit facility under the Senior Debt Documents which does not (A) extend the
scheduled maturities of the loans made thereunder, (B) increase the aggregate
principal amount permitted to be outstanding at any time thereunder, or (C)
modify or amend any provisions in any way which would impose materially greater
restrictions on the rights of the holders of Subordinated Indebtedness to the
payment thereof than those imposed by the Senior Debt Documents on the date
hereof or otherwise materially adversely affect the rights of the holders of
Subordinated Indebtedness hereunder; (iii) the term Subordinated Indebtedness
shall mean the Indebtedness of the Company under the Notes; (iv) the term
Standstill Period shall mean with respect to any Subordinated Indebtedness, the
period commencing on the date on which the holder thereof shall have received
written notice from the holders of Senior Indebtedness of the occurrence of an
Event of Default (as defined in the Senior Credit Agreement) under the Senior
Credit Agreement and ending on the earlier of (A) 90 days after the commencement
of such period or (B) the date on which all Events of Default under the Senior
Credit Agreement have been cured or waived; and (v) the term Subordinated
Instrument shall mean any instrument or agreement evidencing Subordinated
Indebtedness.
(c) Prior Payment of Senior Indebtedness in Bankruptcy, etc. In the
event of any insolvency, bankruptcy, receivership, liquidation, reorganization
or other similar proceedings relating to the Company or its debts or assets,
and, in the event of any proceedings for voluntary liquidation, dissolution or
other winding up of the Company or distribution or marshalling of its assets or
any composition with creditors of the Company, whether or not involving
insolvency or bankruptcy, if all Senior Indebtedness has not been paid in full
at such time, (i) the holders of Subordinated Indebtedness shall demand, but
only the holders of Senior Indebtedness may collect, payment of all
<PAGE> 14
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Subordinated Indebtedness due from the Company, and (ii) the holders of the
Senior Indebtedness are hereby irrevocably authorized at any such meeting or in
any such proceeding to collect any assets of the Company distributed, divided or
applied by way of dividend or payment or any such securities issued on account
of Subordinated Indebtedness and apply the same, or the proceeds of any
realization upon the same that the holders of the Senior Indebtedness in their
discretion elect to effect, to Senior Indebtedness until all Senior Indebtedness
shall have been paid in full, rendering any surplus then remaining to the
holders of the Notes. The holders of the Subordinated Indebtedness shall retain
the right to vote and otherwise act in any such proceeding (including, without
limitation, the right to vote to accept or reject any plan of partial or
complete liquidation, reorganization, arrangement, composition or extension).
(d) No Payment on Notes Under Certain Conditions.
(i) During any Standstill Period with respect to any Subordinated
Indebtedness, (A) no payment shall be made by the Company or accepted by any
holder of such Subordinated Indebtedness thereunder; and (B) unless the holders
of Senior Indebtedness shall have accelerated such Senior Indebtedness or shall
have commenced an action or proceeding against the Company to enforce any of
their rights in respect of the Senior Indebtedness, no action or proceeding
shall be commenced by any holder of such Subordinated Indebtedness to collect
payment thereof. The acceleration of any Subordinated Indebtedness by the holder
thereof during any Standstill Period applicable thereto shall be deemed to be
automatically rescinded upon the expiration of such Standstill Period if upon
such expiration no Default or Event of Default (other than failure by the
Company to pay the principal amount so accelerated) exists under this Agreement.
(ii) Notwithstanding anything herein to the contrary, no
Standstill Period shall commence within 90 days after the end of another
Standstill Period nor may the provisions of this Section 3.6(d) or the
Standstill Periods established hereby restrict or prohibit for more than 180
days in any 360-day period the Company from making or the holder thereof from
accepting any payment of Subordinated Indebtedness or such holder from bringing
any action or proceeding to collect any such payment.
(e) Payments Held in Trust. If, in violation of the terms of this
Section 3.6, any holder of Subordinated Indebtedness receives payment thereof or
any distribution with respect thereto before all Senior Indebtedness is paid in
full, such payment or distribution shall be held in trust for and paid ratably
to the holders of Senior Indebtedness or their representatives until all Senior
Indebtedness shall have been paid in full. No such payments or distributions
paid to the holders of Senior Indebtedness or their representatives by any
holder of Subordinated Indebtedness shall be deemed to discharge any of such
Subordinated Indebtedness.
(f) Subrogation. Upon the payment in full and termination of all
commitments in respect of any credit facility that constitutes Senior
Indebtedness, the holders of the
<PAGE> 15
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unpaid Subordinated Indebtedness shall be subrogated to the rights of the
holders of Senior Indebtedness under such credit facility to receive payments or
distributions of assets of the Company applicable to such Senior Indebtedness.
For purposes of such subrogation, no payments or distributions made to the
holders of Senior Indebtedness of any cash, property or securities to which the
holders of Subordinated Indebtedness would be entitled except for the
subordination provisions of this Section 3.6 and no payment to the holders of
Senior Indebtedness by the holders of Subordinated Indebtedness, as between the
Company, its creditors (other than the holders of Senior Indebtedness) and the
holders of Subordinated Indebtedness shall be deemed to discharge any of the
Senior Indebtedness.
(g) Scope of Subordination. The subordination provisions of this Section
3.6 are intended solely to define the relative rights of the holders of
Subordinated Indebtedness and the holders of Senior Indebtedness. Nothing in
this Section 3.6 or any Subordinated Instrument shall impair, as between the
Company, its creditors (other than the holders of Senior Indebtedness) and the
holders of Subordinated Indebtedness, the unconditional and absolute obligation
of the Company to timely pay the principal, interest, and other amounts and
obligations owing under the terms of such Subordinated Instrument or affect the
relative rights of the holders of such Subordinated Instrument and creditors of
the Company (other than the holders of Senior Indebtedness), nor shall anything
prevent any holder of Subordinated Indebtedness from accepting any payment with
respect to such Subordinated Indebtedness or exercising all remedies otherwise
permitted by applicable law upon default with respect to such Subordinated
Indebtedness or this Agreement, subject to any rights under this Section 3.6 of
the holders of Senior Indebtedness in respect of such payment.
(h) Notices. The holders of Senior Indebtedness will promptly notify the
holders of Subordinated Indebtedness in writing of the occurrence of any Event
of Default (as defined in the Senior Credit Agreement), and the holders of
Subordinated Indebtedness will promptly notify the holders of Senior
Indebtedness in writing of the occurrence of any Event of Default hereunder. The
failure to give such notice shall not, however, deprive either the holders of
Senior Indebtedness or the holders of Subordinated Indebtedness of any rights or
remedies to which they are entitled hereunder.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
In order to induce you to enter into this Agreement and to purchase the
Purchased Securities, the Company hereby represents and warrants to you that, as
of the Closing and immediately after giving effect to the Closing (for the
avoidance of doubt, such representations as to Subsidiaries to include all
Subsidiaries of the Company whether such Subsidiaries are or become Subsidiaries
of the Company before or after the Closing):
<PAGE> 16
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4.1. Organization and Good Standing. The Company and each of its
Subsidiaries is duly organized and existing in good standing in its jurisdiction
of organization and is duly qualified as a foreign corporation and authorized to
do business in all other jurisdictions in which the nature of its business or
property makes such qualification necessary, except where the failure to so
qualify would not be expected to materially adversely affect the Company's or
such Subsidiary's business or financial condition. The Company and each of its
Subsidiaries has the power to own its properties and to carry on its business as
now conducted and as proposed to be conducted.
4.2. Authorization. The execution, delivery and performance by the
Company of this Agreement and each Related Agreement to which the Company is a
party, and the issuance and sale by the Company of the Securities hereunder, (a)
are within the Company's power and authority, (b) have been duly authorized by
all necessary corporate proceedings, and (c) do not conflict with or result in
any material breach of any provision of or the creation of any Lien upon any of
the property of the Company or its Subsidiaries or require any consent or
approval pursuant to the Charter or bylaws of the Company, except for such
necessary corporate approvals as shall have been received prior to the Closing
Date, or any material law, regulation, order, judgment, writ, injunction,
license, permit, agreement or instrument.
4.3. Enforceability. The execution and delivery by the Company of this
Agreement and each of the Related Agreements to which the Company is a party,
and the issuance and sale by the Company of the Securities hereunder, will
result in legally binding obligations of the Company enforceable against the
Company in accordance with the respective terms and provisions hereof and
thereof, except to the extent that (a) such enforceability is limited by
bankruptcy, insolvency, reorganization, moratorium or other laws relating to or
affecting generally the enforcement of creditors' rights, (b) the availability
of the remedy of specific performance or injunctive or other equitable relief is
subject to the discretion of the court before which any proceeding therefor may
be brought, and (c) the enforceability of the indemnity and contribution
provisions contained in the Investors' Rights Agreement may be limited under
federal securities laws.
4.4. Governmental Approvals. The execution, delivery and performance by
the Company of this Agreement and each Related Agreement to which the Company is
a party, and the issuance and sale of the Securities hereunder, do not require
the approval or consent of, or any filing with, any governmental authority or
agency.
4.5. Capitalization.
(a) Capital Stock. The authorized capital stock of the Company consists
of (i) 9,938,844 shares of Preferred Stock as of the date hereof, including (A)
1,250,000 shares of Series A Preferred Stock, $.001 par value per share (the
"Series A Preferred Stock"), (B) 1,921,964 shares of Series B Preferred Stock,
$.001 par value per share
<PAGE> 17
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(the "Series B Preferred Stock"), (C) 1,912,233 shares of Series C Preferred
Stock, $.001 par value per share (the "Series C Preferred Stock"), (D) 2,354,647
shares of Series D Preferred Stock, $.001 par value per share (the "Series D
Preferred Stock"), and (E) 2,500,000 shares of Series E Preferred Stock, $.001
par value per share (the "Series E Preferred Stock"), and (ii) 30,000,000 shares
of Common Stock, $.001 par value per share (the "Common Stock"). On the Closing
Date, after giving effect to the transactions contemplated hereby and by the
Related Agreements, the Company will have no outstanding capital stock other
than (i) (A) 1,250,000 shares of Series A Preferred Stock, (B) 1,907,513 shares
of Series B Preferred Stock, (C) 1,912,233 shares of Series C Preferred Stock
and (D) 2,089,263 shares of Series D Preferred Stock, and (ii) 3,511,888 shares
of Common Stock, all of which shares will be owned as set forth in Schedule
4.5(a) hereto and will be duly authorized, validly issued, fully paid and
non-assessable. On the Closing Date, after giving effect to the transactions
contemplated hereby and by the Related Agreements, each of the Subsidiaries of
the Company will have the authorized, issued and outstanding capital stock set
forth in Schedule 4.5(a) hereto, all of which outstanding shares of capital
stock will be duly authorized, validly issued, fully paid and non-assessable.
(b) Options, Etc. Except for the Notes and the Warrants and as set forth
on Schedule 4.5(b), each of the Company and its Subsidiaries has no outstanding
rights (either pre-emptive or other) or options to subscribe for or purchase,
and no warrants or other agreements providing for or requiring the issuance by
any of the Company or its Subsidiaries of, any of its capital stock or other
equity interest, or any securities convertible into or exchangeable for its
capital stock or other equity interest.
(c) Reservation, Etc. Sufficient shares of authorized but unissued
Common Stock have been reserved by appropriate corporate action in connection
with the prospective conversion of the Series E Preferred Stock and the
prospective exercise of the Warrants. The issuance of the Converted Common
Shares, the Warrants and the Warrant Shares (i) will not require any further
corporate action by the stockholders or directors of the Company, (ii) will not
be subject to pre-emptive rights in any present or future stockholders of the
Company, and (iii) will not conflict with any provision of any agreement to
which the Company is a party or by which it is bound. All Series E Preferred
Stock, when issued upon exchange of the Notes, in accordance with their terms,
will be duly authorized, validly issued, fully paid and non-assessable. All
Converted Common Shares and Warrant Shares, when issued upon exercise of,
respectively, the conversion rights of the Series E Preferred Stock or the
Warrants, in accordance with their respective terms, will be duly authorized,
validly issued, fully paid and non-assessable.
4.6. Subsidiaries. The Company has no Subsidiaries and does not own or
hold of record and/or beneficially any shares of any class of the capital of any
corporation. The Company does not own any legal and/or beneficial interests in
any partnerships, business trusts or joint ventures, or in any other
unincorporated trade or business enterprises.
<PAGE> 18
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4.7. Reports and Financial Statements. (a) You have heretofore been
furnished with complete and correct copies of the following:
(i) the consolidated balance sheets and related consolidated
statements of income and cash flows of the Company and its Subsidiaries
attached hereto as Schedule 4.7(a)(i) (collectively, the "Financial
Statements");
(ii) the pro forma consolidated balance sheet of the Company and
its Subsidiaries as at September 30, 1999 and the pro forma combined
historical income statements dated September 30, 1999, each of such
balance sheets and income statements taking into account all
transactions contemplated hereby and by the Related Agreements, such
balance sheet and income statements being attached hereto as Schedule
4.7(a)(ii); and
(iii) the projections of the future performance of the Company
and its Subsidiaries for each quarter following the Closing Date through
December 31, 2000 and for each 12-month period thereafter through 2002,
on a consolidated basis, including income, net profits, and cash flows
(the "Projections").
(b) Each of the Financial Statements was prepared in accordance with
generally accepted accounting principles applied on a basis consistent with
prior periods except as otherwise stated therein; each of the balance sheets of
the Company included in such financial statements fairly and accurately presents
the financial condition of the Company and its Subsidiaries as at the close of
business on the date thereof; and each of the statements of income and cash
flows of the Company and its Subsidiaries included in such financial statements
fairly and accurately presents the results of operations of the Company and its
Subsidiaries for the fiscal period then ended. Any adjustments to the Financial
Statements described on Schedule 4.7(b) hereto have a reasonable business basis
for being made.
(c) The pro forma consolidated balance sheet of the Company and its
Subsidiaries and the pro forma consolidated income statements referred to in
Section 4.7(a)(ii) have been prepared by management of the Company on a
reasonable basis, taking into consideration the effect of the transactions
contemplated hereby and by the Related Agreements, and the Company is not aware
of any fact which casts any significant doubt on the accuracy or completeness
thereof. As of the date of this Agreement, the Company and its Subsidiaries have
no material liabilities and, to the best of the Company's knowledge, no material
contingent liabilities not disclosed in such financial statements, except
current liabilities incurred in the ordinary course of business since the date
of such balance sheet that have not had, either individually or in the
aggregate, a material adverse effect on the Company's business, financial
condition or results of operations.
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(d) The Projections were prepared by management of the Company in a good
faith effort to estimate the Company's financial condition and results of
operations for the periods presented therein. The assumptions applied in
preparing the Projections, which assumptions are set forth in the notes thereto,
appeared reasonable to management as of the date thereof and as of the date of
this Agreement; however, there is no assurance that these assumptions will prove
to be valid.
4.8. Material Adverse Change. There has been no material adverse change
in the business, assets, or financial condition of the Company or any of its
Subsidiaries since December 31, 1998.
4.9. Indebtedness and Liens. Neither the Company nor any of its
Subsidiaries has any Indebtedness or Liens upon any of its properties other than
Permitted Indebtedness and Permitted Liens.
4.10. Related Agreements. You have heretofore or simultaneously herewith
been furnished with complete and correct copies of all of the Related
Agreements. This Agreement and the Related Agreements are the only material
agreements relating to the transactions contemplated hereby to which the Company
or any of its Subsidiaries is a party. Neither the Company nor any of its
Subsidiaries is in default on any of its obligations under this Agreement or any
Related Agreement to which the Company or any of its Subsidiaries is a party
and, to the best knowledge of the Company, no other party to any Related
Agreement is in default thereunder.
4.11. ERISA. Each of the Company and its Subsidiaries, and each of such
Person's employee benefit plans, if any, is in compliance in all material
respects with the requirements of applicable law, including but not limited to
ERISA and any applicable provisions of the Code. None of the Company or its
Subsidiaries nor any of their Affiliates maintains or contributes to, or has
previously maintained or contributed to, any defined benefit plan pursuant to a
collective bargaining agreement.
4.12. Solvency. Prior to, upon and immediately after consummation of the
transactions contemplated hereby and by the Related Agreements, the Company is
solvent, has tangible and intangible assets having a fair value in excess of the
amount required to pay its probable liabilities on its existing debts as they
become absolute and matured, and has access to adequate capital for the conduct
of its business and the ability to pay its debts from time to time incurred in
connection therewith as such debts mature.
4.13. Title to Assets; Leases. Except as disclosed on Schedule 4.13
attached hereto, the Company and its Subsidiaries own all of the assets
reflected in the pro forma consolidated balance sheet of the Company and its
Subsidiaries as at the Closing Date, subject to no Liens other than Permitted
Liens. Neither the Company nor any of its Subsidiaries owns any real property.
The Company and each of its Subsidiaries enjoys peaceful and undisturbed
possession, and is in material compliance with the terms, (a)
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of all leases of real property on which facilities operated by it are situated
(the "Real Property"), each of which is listed on Schedule 4.13 hereto, and (b)
of all leases of personal property, and all leases described in clauses (a) and
(b) above are valid and in full force and effect.
4.14. Litigation. There is no litigation, at law or in equity, or any
proceeding before any court, board or other governmental or administrative
agency or any arbitrator pending or, to the knowledge of the Company, threatened
which, individually or in the aggregate, is reasonably likely to result in any
final judgment or liability which, after giving effect to any applicable
insurance, could result in any material adverse change in the business, assets
or financial condition of the Company or any of its Subsidiaries or which seeks
to enjoin the consummation of, or which questions the validity of, any of the
transactions contemplated by this Agreement or any Related Agreement.
No judgment, decree or order of any court, board or other governmental or
administrative agency or arbitrator has been issued against or binds the Company
or any of its Subsidiaries or any of their assets which has or may have any
material adverse effect on the business, assets or financial condition of the
Company or any of its Subsidiaries.
4.15. Defaults. No Default or Event of Default exists on the date
hereof. Neither the Company nor any of its Subsidiaries is in default under any
provisions of its respective Charter or by-laws or under any material provisions
of any franchise, contract, agreement, lease or other instrument to which it is
a party or by which it or its property is bound or in material violation of any
law, judgment, decree or governmental order, rule or regulation.
4.16. Governmental Regulations. The Company is not a "holding company",
or a "subsidiary company" of a "holding company" or an "affiliate" of a "holding
company", as such terms are defined in the Public Utility Holding Company Act of
1935; nor is the Company a "registered investment company", or an "affiliated
person" or a "principal underwriter" of a "registered investment company", as
such terms are defined in the Investment Company Act of 1940, as amended.
4.17. Representations and Warranties under Related Agreements. All
representations and warranties made by the Company or any of its Subsidiaries in
any of the Related Agreements or in the certificates delivered in connection
therewith are true and correct as of the date hereof with the same force and
effect as though made on and as of the date hereof, and such representations and
warranties are hereby confirmed to you and made representations and warranties
of the Company hereunder as fully as if set forth herein. To the best knowledge
of the Company, all representations and warranties made in the Related
Agreements by or on behalf of any party thereto other than the Company or its
Subsidiaries are true and correct in all material respects.
4.18. Licenses, Etc. The Company and its Subsidiaries have all
franchises, patents, patent applications, patent licenses, patent rights,
trademarks, trademark rights,
<PAGE> 21
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trade names, trade name rights, copyrights, licenses, permits, authorizations
and other rights as are necessary for the conduct of their business as currently
conducted or currently proposed to be conducted, except to the extent that the
failure to have any of them would not be reasonably likely to have a material
adverse effect on the business, assets or financial condition of the Company or
any of such Subsidiaries. All of the foregoing are in full force and effect, and
the Company and each of its Subsidiaries is in compliance with the foregoing
without any known conflict with the valid rights of others which could be
reasonably likely to affect or impair in a material manner the business, assets
or financial condition of the Company or any of such Subsidiaries.
4.19. Tax Returns. The Company and its Subsidiaries have filed all tax
returns and reports which are required to be filed with any foreign, federal,
state or local governmental authority or agency, except where failure to file
such returns and reports with any such state or local governmental
authority or agency would not be expected to materially adversely affect the
Company's or any of its Subsidiaries' business or financial condition, and the
Company and each such Subsidiary has paid, or made adequate provision for the
payment of, all assessments received and all taxes which have become due under
applicable foreign, federal, state or local governmental law or regulations with
respect to the periods in respect of which such returns and reports were filed.
The Company knows of no additional assessments since the date of such returns
and reports for which adequate reserves appearing on the pro forma consolidated
balance sheet referred to in Section 4.7(a)(ii) have not been established. The
Company and each of its Subsidiaries have made adequate provision for all
current taxes.
4.20. Environmental Compliance. The Company has taken reasonable steps
to investigate the past and present condition and usage of the Real Property and
the operations conducted thereon, and, based upon such diligent inquiry, has
determined that:
(a) The Company and each of its Subsidiaries has been issued and
is in compliance with all permits, certificates, approvals, licenses and
other authorizations relating to environmental matters and required
under applicable Environmental Laws for the conduct of its business.
None of the Company, its Subsidiaries, nor any operator of the Real
Property is in alleged violation of any Environmental Laws which alleged
violation would have a material adverse effect on the business, assets,
or financial condition of the Company or any of its Subsidiaries.
(b) No Release of Hazardous Substance or other condition exists
at, on, or under any of the Real Property or any property formerly owned
or leased by the Company or any of its Subsidiaries for which the
Company or any of its Subsidiaries may be liable under any Environmental
Laws.
<PAGE> 22
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(c) Neither the Company nor any of its Subsidiaries has received
notice from any third party that it may be liable for any costs or
damages whatsoever arising out of the Release of Hazardous Substances.
(d) To the knowledge of the Company, no underground storage tank
or receptacle, asbestos containing material, or equipment containing
polychlorinated biphenyls (PCBs) exists at any of the Real Property,
except to the extent such existence is not in violation of any
Environmental Laws.
(e) Any Hazardous Substances generated by the Company, its
Subsidiaries, or any operator of the Real Property have been transported
offsite only by licensed carriers in accordance with applicable
Environmental Law.
4.21. Labor Relations. The Company and its Subsidiaries are in material
compliance with all applicable federal and state laws respecting employment and
employment practices, terms and conditions of employment, wages and hours, and
nondiscrimination in employment, and are not engaged in any unfair labor
practice. There is no charge pending or, to the Company's knowledge, threatened,
against or with respect to the Company or any of its Subsidiaries before any
court or agency alleging unlawful discrimination in employment practices, and
there is no charge of or proceeding with regard to any unfair labor practice
against any of them pending before the National Labor Relations Board. There is
no labor strike, dispute, slow-down, or work stoppage pending, or to the
Company's knowledge, threatened against or involving the Company or any of its
Subsidiaries. No employees of the Company or any of its Subsidiaries are party
to a collective bargaining agreement, and no such collective bargaining
agreement is currently being negotiated. No one has petitioned and no one is now
petitioning for union representation of any employees of the Company. Neither
the Company nor any of its Subsidiaries has experienced any work stoppage or
other material labor difficulty.
4.22. Potential Conflicts of Interest. Neither the Company nor any of
its Subsidiaries, nor, to the knowledge of the Company, any of their respective
officers or directors (i) owns, directly or indirectly, any interest in
(excepting passive holdings for investment purposes of not more than one percent
(1%) of the securities of any publicly held and traded company), or is an
officer, director, employee, or consultant of, any Person that is a competitor,
lessor, lessee, customer or supplier of the Company or any of its Subsidiaries;
(ii) owns, directly or indirectly, any interest in any tangible or intangible
property used in or necessary to the business of the Company or any of its
Subsidiaries; (iii) to the knowledge of the Company, has any cause of action or
other claim whatsoever against the Company or any of its Subsidiaries, or owes
any amount to the Company or any of its Subsidiaries, except for claims in the
ordinary course of business, such as for accrued vacation pay, accrued benefits
under employee benefit plans, and similar matters and agreements.
<PAGE> 23
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4.23. Material Contracts. Except for the contracts, agreements and
arrangements listed in Schedule 4.23 and contracts, agreements or other
arrangements that have been fully performed and with respect to which neither
the Company nor any of its Subsidiaries has any further obligations or
liabilities, neither the Company nor any of its Subsidiaries is a party to or
otherwise bound by (i) any agreement, instrument, or commitment that may affect
its ability to consummate the transactions contemplated hereby or by the Related
Agreements, or (ii) any other material agreement, instrument, or commitment;
including without limitation, any:
(a) agreement for the purchase, sale, lease or license by or from it of
(i) real estate requiring total payments in excess of $100,000 in any instance
or (ii) other services, products, or assets, requiring total payments in excess
of $100,000 in any instance, other than agreements for the purchase of inventory
in the ordinary course of its business;
(b) agreements requiring it to purchase all or substantially all of its
requirements for a particular product or service from a particular supplier or
suppliers, or requiring it to supply all of a particular customer's or
customers' requirements for a certain service or product;
(c) agreement or other commitment pursuant to which it has agreed to
indemnify or hold harmless any other person, to share tax liability of any other
person, or to refrain from competing with any other person;
(d) (i) employment agreement, (ii) consulting agreement, or (iii)
agreement providing for severance payments or other additional rights or
benefits (whether or not optional) in the event of a sale or other change in
control of it;
(e) agreement with any current or former Affiliate, stockholder,
officer, director, employee, or consultant of the Company or any of the
Company's Subsidiaries, or with any person in which any such Affiliate has an
interest;
(f) joint venture, partnership or teaming agreement;
(g) agreement with any domestic or foreign government or agency or
executive office thereof or any subcontract between it and any third party
relating to a contract between such third party and any domestic or foreign
government or agency or executive office thereof; or
(h) agreement the performance of which is reasonably likely to result in
a loss to it.
The Company has delivered to the Investors correct and complete copies of each
agreement, instrument, and commitment listed in Schedule 4.23, each as amended
to date. Each such agreement, instrument, and commitment is a valid, binding and
enforceable obligation of the Company or its relevant Subsidiary (except to the
extent
<PAGE> 24
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that enforcement may be limited by any applicable bankruptcy, insolvency,
reorganization, or other laws affecting creditors' rights generally or by
general principles of equity) and is in full force and effect. Except as set
forth in Schedule 4.23, neither the Company nor any of its Subsidiaries is, nor
to the Company's knowledge, is any other party thereto (nor is the Company or
any of its Subsidiaries, to the Company's knowledge, considered by any other
party thereto to be) in material breach of or noncompliance with any term of any
such agreement, instrument, or commitment (nor is there, to the Company's
knowledge, any basis for any of the foregoing), except for breaches or
noncompliances that singly or in the aggregate would not have a material adverse
effect on the business, financial condition or operations of the Company of any
of its Subsidiaries. No claim, change order, request for equitable adjustment,
or request for contract price or schedule adjustment, between the Company or any
of its Subsidiaries and any supplier or customer, relating to any agreement,
instrument, or commitment listed in Schedule 4.23 is pending or, to the
Company's knowledge, threatened, other than those claims, change orders or
requests which could not result in a material adverse effect on the business,
financial condition or operations of the Company or any of its Subsidiaries. No
agreement, instrument, or commitment listed in Schedule 4.23 includes or
incorporates any provision, the effect of which may be to enlarge or accelerate
any of the obligations of the Company or any of its Subsidiaries or to give
additional rights to any other party thereto, or will terminate, lapse, or in
any other way be affected, by reason of the transactions contemplated by this
Agreement.
4.24. Intellectual Property.
(a) Except as set forth on Schedule 4.24, the Company or one of its
Subsidiaries is the sole and exclusive owner of or has the right to use, free
and clear of any material obligations to pay royalties or any other similar
obligations, and free and clear of all mortgages, liens or other encumbrances of
any kind, all (if any) patents, trade secrets, trademarks, trade names, brand
names and copyrights the use of which are material to the business or operations
of the Company and its Subsidiaries as now conducted. Except as otherwise
described in Schedule 4.24 there are no material licenses, sublicenses,
covenants or agreements which have been entered into by the Company or any of
its Subsidiaries with respect to any patents, trade secrets, trademarks, trade
names, brand names or copyrights other than (i) licenses of the Company's
products entered into with its customers in the ordinary course of business and
(ii) licenses or agreements arising from the purchase of "off the shelf" or
standard products. None of the Company nor any of its Subsidiaries is in default
in any material respect under or in relation to any such license, sublicense,
covenant or agreement.
(b) To the knowledge of the Company, there is no claim by or demand of
any person pertaining to, and there is no pending or, to the best knowledge of
the Company, threatened action, suit, proceeding or investigation relating to
any rights of the Company or any of its Subsidiaries in respect of any patents,
trade secrets, trademarks, trade names, brand names or copyrights used in the
business or operations
<PAGE> 25
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of the Company or any of its Subsidiaries, the outcome of which could reasonably
be expected to have a material adverse effect on the business, financial
condition or operations of the Company of any of its Subsidiaries.
(c) No patent, trade secret, trademark, trade name, brand name or
copyright owned or used by the Company or any of its Subsidiaries (i) is, to the
Company's knowledge, being infringed by any person, or (ii) to the Company's
knowledge, infringes any patent, trade secret, trademark, copyright or other
intellectual property right of any person.
(d) None of the Company nor any of its Subsidiaries is a party to or
bound by any agreement or contract (whether written or, to its knowledge, oral)
containing any covenant prohibiting the Company or any of its Subsidiaries from
competing in any business of any kind in any territory or from competing with
any person, or prohibiting the Company or any of its Subsidiaries from doing any
kind of business with any person.
4.25. Brokers. Except as set forth on Schedule 4.25, no finder, broker,
agent or other intermediary has acted for or on behalf of the Company or any or
its Subsidiaries in connection with the negotiation or consummation of the
transactions contemplated hereby, and no fee will be payable by the Company or
any of its Subsidiaries to any such person in connection with such transactions
other than the fees payable to GMN at the Closing.
4.26. Real Property Holding Corporation. The Company hereby represents
and certifies that it is not a "United States real property holding corporation"
within the meaning of Section 897 of the Code, as amended, and Treasury
Regulation Section 1.897-2.
4.27. Year 2000. To the Company's knowledge, all hardware and software
products used by the Company and each of its Subsidiaries in the administration
and the business operations of such Person will be able to accurately process
date data (including, but not limited to calculating, comparing and sequencing)
from, into and between the twentieth century (through year 1999), the year 2000
and the twenty-first century, including leap year calculations, when used in
accordance with the product documentation accompanying such hardware and
software products.
4.28. Qualified Small Business Stock. The Company shall submit to its
stockholders (including GMN and any other Holder of Securities which is a "small
business investment company") and to the Internal Revenue Service any reports
that may be required under Section 1202(d)(1)(C) of the Code and the Regulations
promulgated thereunder. In addition, within ten days after receipt of an
Investor's written request therefor, the Company shall deliver to such Investor
a written statement indicating whether such Investor's interest in the Company
constitutes "qualified small business stock" as defined in Section 1202(c) of
the Code.
<PAGE> 26
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4.29. Disclosure. No representation, warranty or statement made in this
Agreement, any Related Agreement, or any written agreement, certificate,
statement or document furnished by or on behalf of the Company in connection
herewith or therewith contains any untrue statement of material fact or omits to
state a material fact necessary in order to make the statements contained herein
or therein, in light of the circumstances in which they were made, not
misleading.
5. REPRESENTATIONS AND WARRANTIES OF INVESTORS.
Each of you severally, and not jointly, represents and warrants to the
Company, as to yourself only, that, as of the Closing:
5.1. Organization and Good Standing. Such Investor is duly organized and
existing in good standing in its jurisdiction of organization and is authorized
to do business in all other jurisdictions in which the nature of its business or
property makes such qualification necessary, except where the failure to so
qualify would not be expected to materially adversely affect such Investor's
business or financial condition. Such Investor has the requisite power to own
its properties and to carry on its business as now conducted and as proposed to
be conducted.
5.2. Authority; Enforceability. Such Investor has all requisite power
and full legal right and authority to enter into this Agreement and each of the
Related Agreements to which it is a party, to perform all of its agreements and
obligations hereunder and thereunder, and to consummate the transactions
contemplated hereby and thereby. This Agreement and each of the other Related
Agreements to which such Investor is a party has (or will have at Closing) been
duly executed and delivered by such Investor and constitutes (or will constitute
at Closing) its legal, valid, and binding obligation, enforceable against it in
accordance with its terms, except to the extent that enforcement may be limited
by any applicable bankruptcy, insolvency, reorganization, or other laws
affecting creditors' rights generally or by general principles of equity.
5.3. Governmental Consents. Except as set forth in Schedule 5.3, no
consent, approval or authorization of, or registration, qualification or filing
with, any governmental agency or authority is required for the execution and
delivery by such Investor of this Agreement, or for the consummation by such
Investor of the transactions contemplated hereby.
5.4. Investment Representation. Such Investor is (i) an "accredited
investor" as defined in the Securities Act, and (ii) acquiring the Purchased
Securities for investment and not with a view to selling or otherwise
distributing the Purchased Securities; provided, however, that the disposition
of such Person's property shall at all times be and remain in its control,
subject to the provisions of Section 13 hereof.
<PAGE> 27
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5.5. Brokers. Such Investor has not retained or been represented by any
broker, agent, finder or other intermediary in connection with the negotiation
or consummation of the transactions contemplated by this Agreement.
6. CONDITIONS TO PURCHASE AT CLOSING.
Your obligation to purchase the Purchased Securities pursuant to this
Agreement at the Closing is subject to compliance by the Company with its
agreements herein contained, and to the satisfaction, on or prior to the Closing
Date, of the following conditions:
6.1. Related Agreements. Each of the Related Agreements shall have been
executed and delivered in a form satisfactory to you, and each of the Related
Agreements shall be in full force and effect and no term or condition thereof
shall have been amended, modified or waived except with your prior written
consent. All covenants, agreements and conditions contained in the Related
Agreements which are to be performed or complied with on or prior to the Closing
Date shall have been performed or complied with (or waived with the Investors'
prior written consent).
6.2. Charter Documents; Good Standing Certificates. You shall have
received (i) a copy, certified by the applicable Secretary of State to be true
and complete as of a date not more than fifteen (15) days prior to the Closing
Date, of the Charters of the Company and each of its Subsidiaries, (ii) a copy,
certified by a duly authorized officer of the Company to be true and complete as
of the Closing Date, of the by-laws of each of the Company and its Subsidiaries,
and (iii) certificates, dated not more than 15 days prior to the Closing Date,
of the applicable Secretary of State as to the Company's and each of its
Subsidiaries' corporate good standing or qualification to do business, as the
case may be, in such state.
6.3. Proof of Corporate Action, Consents and Waivers. You shall have
received from the Company copies, certified by a duly authorized officer thereof
to be true and complete as of the Closing Date, of the records of (i) all action
taken to authorize the execution, delivery and performance of this Agreement and
each of the Related Agreements to which the Company is or is to become a party,
and (ii) all consents and waivers from stockholders of the Company and any other
third parties required for the Company's execution, delivery or performance of
any Financing Agreement.
6.4. Incumbency Certificate. You shall have received from the Company an
incumbency certificate, dated the Closing Date, signed by a duly authorized
officer of the Company and giving the name and bearing a specimen signature of
each individual who shall be authorized to sign, in the name and on behalf of
the Company, this Agreement and each of the Related Agreements to which the
Company is or is to become a party, and to give notices and to take other action
on behalf of the Company under each of such documents.
<PAGE> 28
-28-
6.5. Legal Opinion. You shall have received from Cooley Godward LLP,
counsel to the Company a favorable opinion, in form acceptable to you and your
counsel and covering such matters with respect to the transactions contemplated
by this Agreement and the Related Agreements as you or your counsel may
reasonably request.
6.6. Representations and Warranties; Officers' Certificates. The
representations and warranties contained or incorporated by reference herein
shall be true and correct on and as of the Closing Date; no event or condition
shall have occurred or would result from the issuance of any of the Securities
which would be a Default or an Event of Default on and as of the Closing Date,
and the Company shall have performed and complied with all conditions and
agreements required to be performed or complied with by it prior to the Closing
Date; and you shall have received on the Closing Date a certificate to these
effects signed by an authorized officer of the Company.
6.7. Legality; Governmental Authorization. The purchase of the Purchased
Securities shall not be prohibited by any law or governmental order or
regulation, and shall not subject you to any penalty, special tax, or other
onerous condition. All necessary consents, approvals, licenses, permits, orders
and authorizations of, or registrations, declarations and filings with, any
governmental or administrative agency or of or with any other Person, with
respect to any of the transactions contemplated by this Agreement or any of the
Related Agreements shall have been duly obtained or made and shall be in full
force and effect.
6.8. Repayment of Accounts Receivable Line of Credit. On the Closing
Date, simultaneously with the purchase and sale of the Purchased Securities
hereunder, the Company shall have made provision for the substantially
concurrent repayment of the Accounts Receivable Line of Credit. On the Closing
Date, after giving effect to the transactions described in the foregoing
sentence, the Company will have no Indebtedness for Borrowed Money other than as
expressly reflected on the pro forma balance sheet of the Company referred to in
Section 4.7(a)(ii) hereof.
6.9. Payment of Certain Fees and Disbursements. Bingham Dana LLP, your
special counsel, shall have received payment for all legal fees reasonably
charged and all charges for costs, expenses and disbursements incurred by such
counsel through the Closing Date in connection with the transactions
contemplated by this Agreement and the Related Agreements. In addition, GMN
shall have received payment for all costs, expenses and disbursements incurred
by it through the Closing Date in connection with the transactions contemplated
by this Agreement and the Related Agreements.
6.10. SBIC Documentation. The Company shall have executed and delivered
to you all documents required by you in connection with the investment
contemplated hereby under the rules and regulations applicable to you by virtue
of your status as a "small business investment company", including without
limitation, SBA Form 480
<PAGE> 29
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(Size Status Declaration), SBA Form 652 (Assurance of Compliance) and SBA Form
1031 (Portfolio Finance Report).
6.11. Board of Directors. The Voting Agreement shall have been executed
and delivered to you.
6.12 Amended and Restated Certificate of Incorporation. The Amended and
Restated Certificate of Incorporation of the Company, as set forth on Exhibit D
attached hereto, shall have been filed with the Delaware Secretary of State.
6.13. No Material Change. There shall not have been, or threatened to be
after giving effect to the transactions contemplated hereby, any material damage
to or loss or destruction of any properties or assets owned or leased by the
Company or any of its Subsidiaries (whether or not covered by insurance) or any
material adverse change in the business, financial condition or prospects of the
Company or any of its Subsidiaries or imposition of any laws, rules or
regulations which would materially adversely affect the business, operations,
prospects, properties, assets or condition (financial or otherwise) of the
Company or any of its Subsidiaries.
6.14. Closing Fee. Each Investor shall have received payment from the
Company of a closing fee in the amount of 0.5% of the Purchase Price of Notes
purchased by such Investor.
6.15. General. All instruments and legal, governmental, administrative
and corporate proceedings in connection with the transactions contemplated by
this Agreement and the Related Agreements shall be satisfactory in form and
substance to you, and you shall have received copies of all documents,
including, without limitation, records of corporate or other proceedings,
opinions of counsel, consents, licenses, approvals, permits and orders which you
may have requested in connection therewith.
6.16 Usury Permit. The Company shall have obtained and provided the
Investors with a copy of a usury permit issued by the State of California,
Department of Corporations.
7. COVENANTS APPLICABLE TO THE COMPANY WHILE NOTES ARE OUTSTANDING.
The Company covenants that, until all of the Indebtedness of the Company
with respect to the Notes has been paid in full, the Company will comply and
will cause each of the Company's Subsidiaries to comply with the following
provisions, unless otherwise consented to in writing by the Majority Holders of
the Notes:
7.1. Records and Accounts. The Company and each of its Subsidiaries will
keep true and accurate records and books of account in which full, true and
correct entries will be made in accordance with generally accepted accounting
principles and
<PAGE> 30
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maintain adequate accounts and reserves for all taxes (including income taxes),
all depreciation, depletion, obsolescence and amortization of its properties and
all other contingencies.
7.2. Corporate Existence; Maintenance of Properties. The Company and
each of its Subsidiaries will preserve and keep in full force and effect its
legal existence, rights and franchises. Neither the Company nor any of its
Subsidiaries will engage in any business other than the business currently being
conducted by such Person and businesses that are similar or ancillary thereto.
The Company and each of its Subsidiaries will maintain all of its properties
used or useful in the conduct of its business in good condition, repair and
working order (ordinary wear and tear excepted) and cause to be made all
necessary repairs, renewals, replacements, betterments and improvements thereof,
all as in the judgment of the Company may be necessary so that the business
carried on in connection therewith may be properly and advantageously conducted
at all times; provided, however, that nothing in this Section 7.2 shall prevent
the Company or any of its Subsidiaries from discontinuing the operation and
maintenance of any of such properties if such discontinuance is, in the judgment
of the Company, desirable in the conduct of such Person's business and does not
in the aggregate materially adversely affect the business, assets or financial
condition of the Company and its Subsidiaries.
7.3. Insurance. The Company and each of its Subsidiaries will maintain
with financially sound and reputable insurance companies, funds or underwriters
insurance of the kinds, covering the risks and in the relative proportionate
amounts usually carried by reasonable and prudent companies conducting
businesses similar to that of such Person.
7.4. Taxes. The Company and each of its Subsidiaries will pay and
discharge, or cause to be paid and discharged, before the same shall become
overdue, all material taxes, assessments and other governmental charges imposed
upon the Company and each of its Subsidiaries and their real properties, sales
and activities, or any part thereof, or upon the income or profits therefrom, as
well as all claims for labor, materials, or supplies, which if unpaid might by
law become a Lien or charge upon any of their properties; provided, however,
that any such tax, assessment, charge, levy or claim need not be paid if the
validity or amount thereof shall currently be contested in good faith by
appropriate proceedings and if the Company or any of its Subsidiaries shall have
set aside on its books adequate reserves with respect thereto; and provided,
further, that the Company and its Subsidiaries will pay or cause to be paid all
such taxes, assessments, charges, levies or claims forthwith upon the
commencement of foreclosure on any Lien which may have attached as security
therefor.
7.5. Inspection of Properties and Books. The Company and each of its
Subsidiaries shall permit you or any of your designated representatives to visit
and inspect, upon reasonable notice to the Company and during normal business
hours, any of the properties of the Company and its Subsidiaries, to examine the
books of account
<PAGE> 31
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of the Company and its Subsidiaries (and to make copies thereof and extracts
therefrom), and to discuss the affairs, finances and accounts of the Company and
its Subsidiaries with, and to be advised as to the same by, officers of such
Persons, all at such reasonable times and intervals as you may reasonably
request.
7.6. Compliance with Laws, Contracts, Licenses, and Permits. The Company
and each of its Subsidiaries will comply with (a) all applicable laws and
regulations wherever its business is conducted except where failure to so comply
would not reasonably be expected to materially adversely affect the Company's or
such Subsidiary's business or financial condition, (b) the provisions of its
Charter and by-laws, (c) all materials provisions of material agreements and
instruments by which it or any of its properties may be bound (including,
without limitation, the Related Agreements), and (d) all applicable decrees,
orders, and judgments. If any authorization, consent, approval, operating right,
permit or license from any officer, agency or instrumentality of any government
shall become necessary or required in order that the Company or any of its
Subsidiaries may fulfill any of its obligations hereunder, the Company and its
Subsidiaries will promptly take or cause to be taken all reasonable steps within
its power to obtain such authorization, consent, approval, operating right,
permit or license and furnish you with evidence thereof.
7.7. Further Assurances. The Company and each of its Subsidiaries will
cooperate with you and execute such further instruments and documents as you
shall reasonably request to carry out to your satisfaction the transactions
contemplated by this Agreement and the Related Agreements.
7.8. Restrictions on Indebtedness. Neither the Company nor any of its
Subsidiaries will create, incur, assume, guarantee or be or remain liable,
contingently or otherwise, with respect to any Indebtedness other than the
following ("Permitted Indebtedness"):
(a) Indebtedness under the Notes;
(b) Indebtedness under the Senior Debt Documents;
(c) current liabilities incurred in the ordinary course of
business not incurred through (i) the borrowing of money, or (ii) the
obtaining of credit except for credit on an open account basis
customarily extended in connection with normal purchases of goods and
services;
(d) Indebtedness in respect of taxes, assessments, governmental
charges or levies and claims for labor, materials and supplies to the
extent that payment therefor shall not at the time be required to be
made in accordance with the provisions of Section 7.4 hereof;
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(e) Indebtedness in respect of judgments or awards which have
been in force for less than the applicable period for taking an appeal
so long as execution is not levied thereunder or in respect of which the
Company or any of its Subsidiaries shall at the time in good faith be
prosecuting an appeal or proceedings for review and in respect of which
a stay of execution shall have been obtained pending such appeal or
review;
(f) endorsements for collection, deposit or negotiation and
warranties of products or services, in each case incurred in the
ordinary course of business;
(g) Indebtedness in respect of operating leases and capital
leases incurred in the ordinary course of business;
(h) Indebtedness under or in respect of the agreements or
instruments existing on the date of this Agreement listed and described
on Schedule 7.8 hereto, but only to the extent of the amounts listed
thereon; and
(i) Indebtedness incurred in connection with any purchase money
financing of any Capital Expenditures permitted hereunder, provided that
the aggregate principal amount of such Indebtedness incurred by the
Company and each of its Subsidiaries during any fiscal year shall not
exceed $250,000 in the aggregate.
7.9. Restrictions on Liens. Neither the Company nor any of its
Subsidiaries will create or incur or suffer to be created or incurred or to
exist any Lien or other security interest of any kind upon any of its property
or assets of any character whether now owned or hereafter acquired, or upon the
income or profits therefrom; or transfer any of such property or assets or the
income or profits therefrom for the purpose of subjecting the same to the
payment of Indebtedness or performance of any other obligation in priority to
payment of its general creditors; or acquire, or agree or have an option to
acquire, any property or assets upon conditional sale or other title retention
or purchase money security agreement, device or arrangement; or suffer to exist
for a period of more than 30 days after the same shall have been incurred any
Indebtedness or claim or demand against it which if unpaid might by law or upon
bankruptcy or insolvency, or otherwise, be given any priority whatsoever over
its general creditors (other than those claims which the Company or such
Subsidiary is contesting in good faith by appropriate proceedings and as to
which the Company or such Subsidiary shall have set aside on its books, adequate
reserves with respect thereto); or sell, assign, pledge or otherwise transfer
any accounts, contract rights, general intangibles or chattel paper, with or
without recourse; provided, however, that the Company and its Subsidiaries may
create or incur or suffer to be created or incurred or to exist any of the
following ("Permitted Liens"):
(a) Liens to secure taxes, assessments and other government
charges or claims for labor, material or supplies in respect of
obligations not overdue
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(other than any such overdue taxes, levies, claims, assessments or
charges, to the extent the payment therefor shall not at the time be
required to be made in accordance with the provisions of Section 7.4
hereof);
(b) Deposits or pledges made in connection with, or to secure
payment of, workmen's compensation, unemployment insurance, old age
pensions or other social security obligations;
(c) Liens in respect of judgments or awards, the Indebtedness
with respect to which is permitted by Section 7.8(e);
(d) Liens of carriers, warehousemen, mechanics and materialmen,
and other like liens, in existence less than 60 days from the date of
creation thereof or in respect of obligations not overdue or, if
overdue, all such liens that the Company or such Subsidiary is
contesting in good faith by appropriate proceedings which prevent
enforcement of the lien;
(e) Encumbrances consisting of easements, rights of way, zoning
restrictions, restrictions on the use of real property and
irregularities in the title thereto, landlord's or lessor's Liens under
leases to which the Company or any of its Subsidiaries is a party, and
other minor Liens or encumbrances none of which interferes materially
with the use of the property affected in the ordinary conduct of the
business of the Company and its Subsidiaries and which defects do not
individually or in the aggregate have a material adverse effect on the
business, assets or financial condition of the Company or any of its
Subsidiaries;
(f) Any Liens on the assets and property of the Company or any of
its Subsidiaries from time to time securing Indebtedness permitted by
Section 7.8(b) and Liens presently outstanding as shown on Schedule 7.9
hereto; and
(g) Purchase money security interests in or purchase money
mortgages on real or personal property acquired after the date hereof to
secure purchase money Indebtedness permitted by Section 7.8(i), incurred
in connection with the acquisition of such property, which security
interests or mortgages cover only the real or personal property so
acquired.
(h) Liens in favor of depository institutions or securities
intermediaries securing deposit accounts or securities accounts, as
applicable.
7.10. Distributions. Neither the Company nor any of its Subsidiaries
shall make any Distribution except that (i) the Company may pay dividends to the
holders of Preferred Stock in accordance with the terms of the Company's Charter
and (ii) any Subsidiary may make Distributions to the Company.
<PAGE> 34
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7.11. Capital Expenditures. The Company and its Subsidiaries together
will not make any Capital Expenditures in excess of $50,000 for any single
expenditure or project nor will any of such Persons make any Capital
Expenditures which aggregate more than $250,000 with respect to such Person in
any fiscal year.
7.12. Merger, Consolidation, Purchase or Sale of Assets. Neither the
Company nor any of its Subsidiaries will (a) become a party to any merger or
consolidation; provided that any Subsidiary of the Company may merge or
consolidate with the Company or any other Subsidiary of the Company; or (b)
sell, lease, sublease or otherwise transfer or dispose of any portion of its
assets with an aggregate value in excess of $50,000 in any fiscal year (other
than sales of assets in the ordinary course of business consistent with past
practice). Neither the Company nor any of its Subsidiaries will (i) acquire all
or substantially all of the capital stock or assets of any Person or (ii)
acquire any assets outside the ordinary course of business.
7.13. Investments. The Company will not, nor will it permit any of its
Subsidiaries to, have outstanding or acquire or commit itself to acquire or hold
any Investment except for the Investments set forth on Schedule 7.13 and except
Investments in: (a) marketable direct obligations issued or guaranteed by the
United States of America or any state or subdivision thereof which mature within
one year from the date of acquisition thereof or which are subject to a
repurchase agreement, exercisable within 90 days from the date of acquisition
thereof, with any commercial bank or trust company incorporated under the laws
of the United States of America or any State thereof or the District of
Columbia, (b) commercial paper maturing within one year from the date of
acquisition thereof and having, at the date of acquisition thereof, the highest
rating obtainable from Moody's Investors Service, Inc. or Standard & Poor's
Corporation, (c) bankers' acceptances eligible for rediscount under Federal
Reserve Board requirements accepted by any commercial bank or trust company
referred to in clause (a) hereof, (d) certificates of deposit maturing within
one year from the date of acquisition thereof issued by any commercial bank or
trust company referred to in clause (a) hereof and having capital and surplus of
at least $100,000,000 and having at least an "A" rating or better, and (e)
certificates of deposit issued by banks organized under the laws of any other
jurisdiction, each having combined capital and surplus of not less than
$100,000,000, and having at least an "A" rating or better.
7.14. Transactions with Affiliates. Neither the Company nor any of its
Subsidiaries will (a) engage in any transaction with any Affiliate except as
expressly provided in clause (b) below, or (b) make any Restricted Payment other
than on terms and conditions at least as favorable to the Company or such
Subsidiary as those that would be obtained through an arm's-length negotiation
with an unaffiliated party.
7.15. Employee Benefit Plans. The Company and each of its Subsidiaries
will take all actions necessary to maintain, fund, and administer its employee
benefit plans in accordance with federal, state and local law. Without limiting
the foregoing, each of the Company and its Subsidiaries (a) will not permit the
aggregate present value of the
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unfunded vested accrued benefits under all employee benefit plans of the Company
or such Subsidiary or any ERISA Affiliate to exceed $10,000, and will not take
any action which would result in the foregoing; (b) will furnish to you a copy
of any actuarial statement related to any pension plan maintained, funded or
contributed to by the Company or such Subsidiary which is required to be
submitted under Section 103(d) of ERISA, no later than the date on which such
statement is submitted to the Department of Labor or the Internal Revenue
Service; (c) will furnish to you forthwith a copy of (i) any notice of a pension
plan termination sent to the Pension Benefit Guaranty Corporation under Section
4041(a) of ERISA with respect to any pension plan maintained, funded or
contributed to by the Company or such Subsidiary, or (ii) any notice, report or
demand sent or received by a pension plan under Sections 4041, 4042, 4043, 4063,
4065, 4066 and 4068 of ERISA; and (d) will furnish to you a copy of any request
for waiver from the funding standards or extension of the amortization periods
required by Sections 303 and 304 of ERISA or Section 412 of the Code with
respect to any pension plan maintained, funded or contributed to by the Company
or such Subsidiary no later than the date on which the request is submitted to
the Department of Labor or the Internal Revenue Service, as the case may be.
7.16. Financial Covenants.
(a) At all times the Company will have on hand cash and cash equivalents
equal to at least, in the aggregate, one and one-half times debt service
coverage for all Indebtedness for the immediately succeeding twelve-month
period.
(b) The Company will generate EBITDA of at least $(4.0) million for the
quarter ending December 31, 1999.
(c) At all times the Company will maintain EBITDA of at least the
amounts set forth below for the periods set forth below:
<TABLE>
<CAPTION>
Period Maximum Cumulative EBITDA Loss
------ ------------------------------
<S> <C> <C>
1/01/00 --- 3/31/00 $ (5.0) million
1/01/00 --- 6/30/00 $ (8.0) million
1/01/00 --- 9/30/00 $(10.0) million
1/01/00 --- 12/31/00 $(11.0) million
</TABLE>
8. COVENANTS APPLICABLE WHILE THE SECURITIES ARE OUTSTANDING.
The Company hereby agrees that except as limited by Sections 8.1, 8.2,
8.3, 8.5, 8.6 and 8.8, so long as any Securities are outstanding that it will
comply with and it will cause its Subsidiaries to comply with the following
provisions:
<PAGE> 36
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8.1. Officers' Certificates. So long as any Investor is holding any
Notes or Series E Preferred Shares, together with delivery of consolidated
financial statements of the Company pursuant to the Investors' Rights Agreement,
the Company will deliver to each Major Holder a certificate of the President,
chief financial officer or Treasurer of the Company, (a) stating that such
statements have been prepared in accordance with generally accepted accounting
principles consistently applied and present fairly the consolidated financial
position of the Company and its Subsidiaries as of the dates specified and the
results of its consolidated operations and cash flows with respect to the
periods specified (subject in the case of interim financial statements only to
normal year-end audit adjustments and a lack of footnotes), and (b) stating that
such officers have caused the provisions of this Agreement and the Securities to
be reviewed and have no knowledge of any Default or Event of Default, or if
either such officer has such knowledge, specifying such Default or Event of
Default and the nature thereof, and what action the Company has taken, is taking
or proposes to take with respect thereto.
8.2. Notice of Litigation, Defaults, Etc. So long as any Investor is
holding any Notes or Series E Preferred Shares, the Company will promptly give
notice to each Major Holder of any litigation or any administrative proceeding
to which the Company or any of its Subsidiaries may hereafter become a party
which may result in any material adverse change in the business, assets, or
financial condition of the Company or any of its Subsidiaries. Forthwith upon
any officer of the Company obtaining knowledge of any Default or Event of
Default hereunder, any default or event of default under any Related Agreement
or any agreement relating to any Indebtedness for Borrowed Money, the Company
will furnish a notice specifying the nature and period of existence thereof and
in the case of a Default or Event of Default hereunder, what action the Company
has taken, is taking or proposes to take with respect thereto. Promptly after
the receipt thereof, the Company will provide copies of any reports as to
adequacies in accounting controls submitted by independent accountants with
respect to the Company and its Subsidiaries.
8.3. Right to Attend Meetings. (a) The Company will call and hold a
meeting of its board of directors at least once each fiscal quarter. Pursuant to
the terms and provisions of the Voting Agreement and so long as any Investor is
the Holder of any Notes or Series E Preferred Shares, the Investors shall have
the right to one seat on the board of directors of the Company and one seat on
the Company's Compensation Committee, which at the Closing Date will be occupied
by David F. Millet. The director designated by the Investors shall receive the
same compensation for board service as any other outside member of the board of
directors of the Company. In addition, the Company agrees to reimburse such
director for all reasonable out-of-pocket expenses incurred by such director in
connection with his or her attendance at board or committee meetings or any
other meetings called by the board of directors of the Company, including, but
not limited to, travel and lodging expenses. Any such reimbursement of expenses
shall be made promptly after submission of a bill therefor by such director. The
Company will give the director designated by the Investors at
<PAGE> 37
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least five business days' prior written notice to the extent such notice is
reasonably practicable otherwise, as prescribed in the by-laws of the Company,
of the time, place and subject matter of any proposed meeting (or action by
written consent) of the board of directors of the Company or any committee
thereof, such notice in all cases to include true and complete copies of all
documents furnished to any other director in connection with such meeting or
consent.
(b) For so long as any Investor is holding any Notes or Series E
Preferred Shares and the Investors choose not to designate an individual to fill
such seat, the Investors shall be entitled to have an observer at each board
meeting and such observer shall be entitled to receive notice and information as
set forth in paragraph (a) above. Any such observer will be entitled to attend
any meeting of the Company's board of directors or, if a meeting is held by
telephone conference, to participate therein by telephone.
8.4. Other Information. The Company will deliver to each Person entitled
to receive notice pursuant to Section 8.3(a) of board meetings and consents
copies of all papers which may be distributed from time to time to the directors
or stockholders of the Company at such time as such papers are so distributed to
them. In addition, from time to time upon your request or upon the request of
any representative designated by the Majority Holders, the Company will furnish
to any authorized officer or representative of such Person such information
regarding the business, affairs, prospects and financial condition of the
Company and its Subsidiaries as such officer or representative may reasonably
request. Each such officer or representative shall have the right during normal
business hours to examine the books and records of the Company and its
Subsidiaries, to make copies, notes and abstracts therefrom, and to make an
independent examination of the books and records of the Company and its
Subsidiaries.
8.5. Amendment of Related Agreements, Etc. Neither the Company nor any
of its Subsidiaries shall agree to any amendment or modification of its Charter
or by-laws, or agree to any amendment or modification of or grant any waiver or
fail to enforce any of its rights pursuant to any of the Related Agreements,
unless approved in each case by the Majority Holders in writing;
provided that this Section 8.5 shall not apply to an amendment or modification
of the Company's Charter or by-laws if no Notes or Series E Preferred Shares are
outstanding.
8.6. Sale and Issuance of Capital Stock. So long as any Investor is
holding any Notes or Series E Preferred Shares, neither the Company nor any of
its Subsidiaries will (a) issue, sell, give away, transfer, pledge, mortgage,
assign or otherwise dispose of, (b) grant any rights (either preemptive or
other) or options to subscribe for or purchase, or (c) enter into any
agreements, or issue any warrants, providing for the issuance of any of its
capital stock or any securities convertible into or exchangeable for any of its
capital stock that ranks equal or senior to the Series E Preferred Shares,
except for the Preferred Shares. So long as any Investor is holding any Notes or
Series
<PAGE> 38
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E Preferred Shares, neither the Company nor any of its Subsidiaries will
authorize or permit to be authorized any additional class or series of capital
stock or other equity interest that is not on a parity with or junior to the
Series E Preferred Shares or increase the number of shares of authorized capital
stock (other than Common Stock) from that set forth in Section 4.5(a) hereof.
8.7. Activities and Use of Proceeds.
(a) Neither the Company nor any of its Subsidiaries will engage in any
activity or use directly or indirectly the proceeds from the sale of the
Purchased Securities for any purpose for which a "small business investment
company" is prohibited from providing funds by the Small Business Act.
(b) The Company will use the proceeds from the sale of the Purchased
Securities for the purposes set forth in Section 2.4 hereof. The Company will
deliver within ninety (90) days following the Closing Date a written report,
certified as correct by the Company's President, verifying the purposes and the
amounts for which proceeds from the Purchased Securities have been disbursed.
The Company will supply to the Investors such additional information and
documents as the Investors may reasonably request with respect to the use of
proceeds and will permit the Investors to have access to any and all records and
information and personnel as the Investors deem necessary to verify such use of
proceeds.
(c) The Company will not, without obtaining the prior written approval
of GMN and any other Holder of Securities which is a "small business investment
company", change within one year following the Closing Date the Company's
business activity to a business activity which a "business investment company"
is prohibited from providing funds under the Small Business Act, nor will the
Company engage in any business activity other than that engaged in by the
Company and its Subsidiaries at the Closing Date and businesses reasonably
related thereto.
8.8. Directors and Officers Insurance. So long as any Note or any Series
E Preferred Shares are outstanding, the Company will maintain directors and
officers liability insurance in an amount and with coverage reasonably
satisfactory to the Investors at the Closing.
9. DEFAULTS.
9.1. Events of Default. Holders of the Securities will be entitled to
exercise the remedies provided by Section 9.2 hereof in accordance with the
terms thereof if any one or more of the following events ("Events of Default")
shall occur:
(a) the Company shall (i) fail to make any payment of principal
on the Notes on the date the same shall become due, whether on any
scheduled payment
<PAGE> 39
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date, at maturity or by acceleration, or otherwise; or (ii) fail to make
any payment of interest on the Notes within 5 days of the date the same
shall become due; or
(b) the Company or any of its Subsidiaries shall fail to perform
or observe any covenant, agreement or provision applicable to it set
forth in Sections 7.2, 7.8 through 7.16, 8, and 14 hereof;
(c) the Company or any of its Subsidiaries shall fail to perform
or observe any covenant, agreement or provision applicable to it, under
this Agreement or any other Financing Agreement to which it is a party,
other than those provisions set forth in Sections 9.1(a) - (b) above,
and such failure shall not be rectified, waived or cured to the
satisfaction of the Majority Holders within thirty (30) days of written
notice thereof to the Company;
(d) there occurs any "Event of Default" under any Senior Debt
Document, and such Event of Default shall not be waived by the Senior
Lender or cured within thirty (30) days of the Company or the Senior
Lender becoming aware thereof;
(e) any material representation or warranty made by the Company
to you in connection with this Agreement or any Related Agreement or any
amendment to this Agreement or any Related Agreement shall prove to have
been false on the date as of which it was made;
(f) the Company or any of its Subsidiaries shall fail (i) to make
any required payment on any Indebtedness for Borrowed Money in excess of
$100,000, or (ii) to perform or observe any of the covenants or
provisions required to be performed or observed by it pursuant to any of
the Related Agreements, as amended from time to time consistent with
Section 8.5 and, in the case of each of (i) and (ii), (x) such failure
shall continue, without having been duly cured, waived or consented to,
beyond the period of grace, if any, therein specified and so as to
permit the acceleration thereof, if any acceleration is provided for
therein, or (y) any security interest in or other Lien on any property
securing any such Indebtedness shall be enforced through judicial
proceedings or foreclosure or repossession of collateral; or
(g) a final judgment which in the aggregate with other
outstanding final judgments against the Company or any of its
Subsidiaries exceeds $100,000 shall be rendered against the Company or
any of its Subsidiaries if, within 30 days after entry thereof, such
judgment shall not have been satisfied and discharged or stayed pending
appeal or bonded, or within 30 days after expiration of such stay such
judgment shall not have been discharged; or
(h) the Company or any of its Subsidiaries shall:
<PAGE> 40
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(i) commence a voluntary case under Title 11 of the
United States Code as from time to time in effect, or authorize,
by appropriate proceedings of its board of directors or other
governing body, the commencement of such a voluntary case;
(ii) have filed against it a petition commencing an
involuntary case under said Title 11 and such petition shall not
have been dismissed or stayed within 60 days;
(iii) seek relief as a debtor under any applicable
law, other than said Title 11, of any jurisdiction relating to
the liquidation or reorganization of debtors or to the
modification or alteration of the rights of creditors, or consent
to or acquiesce in such relief;
(iv) have entered against it an order by a court of
competent jurisdiction (x) finding it to be bankrupt or
insolvent, (y) ordering or approving its liquidation,
reorganization or any modification or alteration of the rights of
its creditors, or (z) assuming custody of, or appointing a
receiver or other custodian for, all or a substantial part of its
property; or
(v) make an assignment for the benefit of, or enter
into a composition with, its creditors, or appoint or consent to
the appointment of a receiver or other custodian for all or a
substantial part of its property;
(i) the Company or any of its Subsidiaries shall fail to maintain
in full force and effect any federal, state or local license, permit or
operating right material to the operation of its business; or
(j) a material adverse change in the business, operations or
financial condition of the Company or any of its Subsidiaries shall have
occurred.
9.2. Remedies. Upon the occurrence and continuance of any of the
Events of Default under Section 9.1 hereof, in each and every such case,
(a) the Majority Holders of the Notes (but only so long as each
Holder of more than $4,000,000 in aggregate outstanding principal amount
of the Notes consents) may proceed to protect and enforce its or their
rights by suit in equity, action at law and/or other appropriate
proceedings either for specific performance of any covenant, provision
or condition contained or incorporated by reference in this Agreement or
in the Notes, or in aid of the exercise of any power granted in this
Agreement or in the Notes, and (unless there shall have occurred an
Event of Default under Section 9.1(h) hereof, in which case the
<PAGE> 41
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unpaid balance of the Notes shall automatically become due and payable)
may by notice to the Company, declare all or any part of the unpaid
principal amount of the Notes then outstanding to be forthwith due and
payable, and thereupon such unpaid principal amount or part thereof,
together with interest accrued thereon and all other sums, if any,
payable under this Agreement or the Notes shall become so due and
payable without presentation, presentment, protest or further demand or
notice of any kind, all of which are hereby expressly waived, and such
holder or holders may proceed to enforce payment of such amount or part
thereof in such manner as it or they may elect;
(b) the Majority Holders of the Series E Preferred Shares may
proceed to protect and enforce its or their rights by suit in equity,
action at law and/or other appropriate proceedings either for specific
performance of any covenant, provision or condition contained or
incorporated by reference in this Agreement or in any Related Agreement,
or in aid of the exercise of any power granted in this Agreement or any
Related Agreement; or
(c) the Majority Holders of the Converted Common Shares, Warrants
and Warrant Shares may proceed to protect and enforce its or their
rights by suit in equity, action at law and/or other appropriate
proceedings either for specific performance of any covenant, provision
or condition contained or incorporated by reference in this Agreement or
in any Related Agreement, or in aid of the exercise of any power granted
in this Agreement or any Related Agreement.
9.3. Waivers. The Company and each of its Subsidiaries hereby waives, to
the extent not prohibited by applicable law, (a) all presentments, demands for
performance and notices of nonperformance (except to the extent specifically
required by the provisions hereof), (b) any requirement of diligence or
promptness on the part of any holder of Securities in the enforcement of its
rights under the provisions of this Agreement, the Charter of the Company, or
any Financing Agreement, and (c) any and all notices of every kind and
description which may be required to be given by any statute or rule of law.
9.4. Course of Dealing. No course of dealing between the Company or any
of its Subsidiaries on the one hand, and you or any holder of Securities, on the
other hand, shall operate as a waiver of any of your or its rights under this
Agreement, the Charter of the Company, or any Financing Agreement. No delay or
omission in exercising any right under this Agreement, the Charter of the
Company, or any Financing Agreement shall operate as a waiver of such right or
any other right. A waiver on any one occasion shall not be construed as a bar to
or waiver of any right or remedy on any other occasion.
9.5 Special Event of Default. So long as any single Holder of Notes
holds more than $4,000,000 in aggregate outstanding principal amount thereof,
upon the occurrence and during the continuance of an Event of Default described
in Section
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9.1(a) or 9.1(d) hereof, and until such time as the Notes are paid in
full, any action described in Schedule 9.5 hereto shall require the consent of
the director appointed pursuant to Section 8.3 hereof in addition to the
approval of a majority of the Board of Directors (which director may be counted
in determining a majority of such Board).
10. REGISTRATION RIGHTS.
You will have certain registration rights with respect to the Converted
Common Shares and Warrant Shares as set forth in the Investors' Rights
Agreement.
11. SUBSEQUENT HOLDERS OF SECURITIES.
Whether or not any express assignment has been made in this Agreement,
the provisions of this Agreement and the Financing Agreements that are for your
benefit as the holder of any Securities are also for the benefit of, and
enforceable by, all subsequent holders of Securities.
12. REGISTRATION AND TRANSFER OF SECURITIES.
12.1. Registration, Transfer and Exchange of Notes.
(a) The Company shall keep at its principal office a register in which
shall be entered the names and addresses of the registered Holders of the Notes
issued by it and particulars of the respective Notes held by them and of all
transfers of such Notes. The ownership of any of the Notes shall be proven by
such register and the Company may conclusively rely upon such register.
(b) The Holder of any of the Notes may at any time and from time to time
prior to maturity or redemption thereof surrender any Note held by it for
exchange or (subject to compliance with the applicable provisions of Section 13
hereof) transfer at said office of the Company. Within a reasonable time
thereafter and without expense (other than transfer taxes, if any) to such
Holder, the Company shall issue, at its expense, in exchange therefor another
Note or Notes, dated the date to which interest has been paid on the surrendered
Note, for the same aggregate principal amount as the unpaid principal amount of
the Note or Notes so surrendered, having the same maturity and rate of interest,
containing the same provisions and subject to the same terms and conditions as
the Note or Notes so surrendered. Each such new Note shall be in the
denominations and registered in the name of such person or persons as the Holder
of such surrendered Note or Notes may designate in writing, and such exchange
shall be made in a manner such that no additional or lesser amount of principal
or interest shall result. The Company will pay shipping and insurance charges,
from and to each Holder's principal office, involved in the exchange or transfer
of any Note.
(c) Each Note issued hereunder, whether originally or in substitution
for, or upon transfer or exchange of, any Note shall be registered on the date
of execution
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thereof by the Company. The registered Holder of a Note shall be deemed to be
the owner of such Note for all purposes of this Agreement. All notices given
hereunder to such Holder shall be deemed validly given if given in the manner
specified in Section 15 hereof.
12.2. Transfer and Exchange of Series E Preferred Shares, Converted
Common Shares and Warrant Shares.
(a) The Company shall keep at its principal office a register in which
shall be entered the names and addresses of the Holders of the Series E
Preferred Shares, the Converted Common Shares and the Warrant Shares and the
particulars (including without limitation the class thereof, if applicable) of
the respective Series E Preferred Shares, the Converted Common Shares and the
Warrant Shares held by them and of all transfers of shares of Series E Preferred
Shares and/or Converted Common Shares and Warrant Shares or conversions of
shares of Series E Preferred Shares, Warrant Shares or Common Shares from one
class to another, as applicable. References to the "holder" or "holder of
record" of any Series E Preferred Shares, Converted Common Shares or Warrant
Shares shall mean the holder thereof unless the holder shall have presented the
stock certificates evidencing same to the Company for transfer and the
transferee shall have been entered in said register as a subsequent holder, in
which case the terms shall mean such subsequent holder. The ownership of any of
the Series E Preferred Shares and/or Converted Common Shares and Warrant Shares
shall be proven by such register and the Company may conclusively rely upon such
register.
(b) Upon surrender at such office of any certificate representing shares
of Series E Preferred Shares and/or Converted Common Shares or Warrant Shares
for registration of exchange or (subject to compliance with the applicable
provisions of this Agreement, including without limitation the conditions set
forth in Section 13 hereof) transfer or conversion, the Company shall issue, at
its expense, one or more new certificates, in such denomination or denominations
as may be requested, for shares of such class of Series E Preferred Shares
and/or Converted Common Shares or Warrant Shares, as applicable, as may be
requested, and registered as such holder may request. Any certificate
representing shares of Series E Preferred Shares and/or Converted Common Shares
or Warrant Shares surrendered for registration of transfer shall be duly
endorsed, or accompanied by a written instrument of transfer duly executed by
the holder of such certificate or his attorney duly authorized in writing. The
Company will pay shipping and insurance charges, from and to each holder's
principal office, upon any transfer, exchange or conversion provided for in this
Section 12.2.
(c) Each certificate evidencing Series E Preferred Shares and/or
Converted Common Shares or Warrant Shares, whether originally or in substitution
for, or upon transfer, conversion or exchange of, any Series E Preferred Shares
or Converted Common Shares or upon the exercise of any Warrant, as applicable,
shall be registered on the date of execution thereof by the Company. The
registered holder of record shall be deemed to be the owner of the Series E
Preferred Shares and/or Converted Common
<PAGE> 44
-44-
Shares or Warrant Shares, as applicable, for all purposes of this Agreement. All
notices given hereunder to the holder of record shall be deemed validly given if
given in the manner specified in Section 15 hereof.
12.3. Registration, Transfer and Exchange of Warrants.
(a) The Company shall keep at its principal office a register in which
shall be entered the names and addresses of the Holders of Warrants issued by it
and particulars of the respective Warrants held by them and of all transfers of
such Warrants. The ownership of any of the Warrants shall be proven by such
register and the Company may conclusively rely upon such register.
(b) The Holder of any of the Warrants may at any time and from time to
time prior to exercise thereof surrender any Warrant held by it for exchange or
(subject to compliance with Section 13 hereof) transfer at said office of the
Company. On surrender for exchange of the Warrants, properly endorsed, to the
Company, the Company at its expense will issue and deliver to or on the order of
the Holder thereof a new Warrant or Warrants of like tenor, in the name of such
Holder or, upon payment by such Holder of any applicable transfer taxes, as such
Holder may direct, calling in the aggregate on the face or faces thereof for the
number of shares of Warrant Shares called for on the face or faces of the
Warrants so surrendered. The Company will pay shipping and insurance charges,
from and to each Holder's principal office, involved in the exchange or transfer
of any Warrant.
(c) Each Warrant issued hereunder, whether originally or in substitution
for, or upon transfer or exchange of, any Warrant shall be registered on the
date of execution thereof by the Company. The registered Holder of a Warrant
shall be deemed to be the owner of such Warrant for all purposes of this
Agreement. All notices given hereunder to such Holder shall be deemed validly
given if given in the manner specified in Section 15 hereof.
12.4. Replacement of Securities. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of any
Security and, in the case of any such loss, theft or destruction, upon delivery
of an indemnity bond in such reasonable amount as the Company may determine (or,
in the case of any Security held by any Investor or another institutional
Holder, an unsecured indemnity agreement from such Investor or such other Holder
reasonably satisfactory to the Company) or, in the case of any such mutilation,
upon the surrender of such Security for cancellation to the Company at its
principal office, the Company, at its own expense, will execute and deliver, in
lieu thereof, a new Security of like tenor, dated in the case of a Note so that
there will be no loss of interest. Any Security in lieu of which any such new
Security has been so executed and delivered by the Company shall not be deemed
to be outstanding for any purpose of this Agreement.
13. RESTRICTIONS ON TRANSFER.
<PAGE> 45
-45-
13.1. General Restriction. The Securities shall be transferable only
upon the satisfaction of the conditions set forth below in this Section 13.
13.2. Notice of Transfer. Prior to any transfer of any Securities, the
Holder thereof shall be required to give written notice to the Company
describing in reasonable detail the manner and terms of the proposed transfer
and the identity of the proposed transferee (the "Transfer Notice"), accompanied
by (a) (i) a certificate of such Holder or the proposed transferee certifying
that such transferee is an "accredited investor", as defined in the Securities
Act, and (ii) if requested by the Company, an opinion, addressed to the Company,
of Bingham Dana LLP or other counsel reasonably acceptable to the Company, that
such transfer may be effected without registration of such Securities under the
Securities Act, and (b) the written agreement of the proposed transferee to be
bound by all of the provisions hereof and of the Financing Agreements,
applicable to holders of such Securities hereunder or thereunder.
13.3. Restrictive Legends. Except as otherwise permitted by this Section
13, each Security shall bear the legend specified for such Security in Schedule
13.3 hereto.
13.4. Termination of Restrictions. The restrictions imposed by this
Section 13 upon the transferability of Securities shall terminate as to any
particular Securities when such Securities shall have been effectively
registered under the Securities Act or sold pursuant to a Public Sale. Whenever
any of such restrictions shall terminate as to any Securities, the holder
thereof shall be entitled to receive from the Company, at such Person's expense,
new Securities without such legends.
14. EXPENSES; INDEMNITY.
(a) The Company hereby agrees to pay on demand all reasonable
out-of-pocket expenses incurred by you, in connection with the transactions
contemplated by this Agreement and the Related Agreements and in connection with
any amendments or waivers (whether or not the same become effective) hereof or
thereof and all reasonable out-of-pocket expenses incurred by you or any holder
of any Security issued hereunder in connection with the enforcement of any
rights hereunder, under any other Related Agreement or with respect to any
Security, including without limitation (i) the reasonable legal fees and all
charges for costs, expenses and disbursements of Bingham Dana LLP, the
Investors' special counsel, in connection with the transactions contemplated by
this Agreement and the Related Agreements and any amendments, modifications,
approvals, consents or waivers hereunder or thereunder; and (ii) all reasonable
out-of-pocket expenses (including without limitation reasonable attorneys' fees
and costs, whether or not such attorneys are your employees, all costs
associated with any rights of board attendance, observation or inspection and
travel and lodging expenses related thereto, and reasonable consulting,
accounting, appraisal, investment banking and similar professional fees and
charges) incurred by you in connection with (A) the exercise, enforcement or
preservation of rights under this Agreement or any of
<PAGE> 46
-46-
the Related Agreements against the Company or any of its officers or employees
that are party thereto or the administration thereof whether before or after the
occurrence of a Default or Event of Default (including engineering, appraiser,
environmental consulting and investment banking charges) and (B) any litigation,
proceeding or dispute whether arising hereunder or otherwise, in any way related
to your relationship with the Company.
(b) The Company hereby further agrees to indemnify, exonerate and hold
you and your stockholders, officers, directors, employees and agents free and
harmless from and against any and all actions, causes of action, suits, losses,
liabilities, damages and expenses (including, without limitation, reasonable
attorneys' fees and disbursements), incurred in any capacity by any of the
indemnitees as a result of or relating to (A) any transaction financed or to be
financed in whole or in part directly or indirectly with proceeds from the sale
of any of the Securities, or (B) the execution, delivery, performance or
enforcement of this Agreement (including, without limitation, any failure by the
Company to comply with any of its covenants hereunder), the Related Agreements
or any instrument contemplated hereby or thereby, except, in each such case, for
any such liabilities arising from any indemnitee's breach of this Agreement,
gross negligence or willful misconduct.
(c) The Company hereby indemnifies you against and agrees that it will
hold you harmless from any claim, demand or liability for any broker's, finder's
or placement fees or lender's incentive fees alleged to have been incurred by it
in connection with the transactions contemplated by this Agreement or the
Related Agreements.
(d) Except to the extent otherwise expressly provided herein, the
Company shall pay on demand interest at a rate per annum equal to the lesser of
the maximum rate of interest permitted by law or 16% (compounded monthly) on all
overdue amounts payable under this Agreement until such amounts shall be paid in
full.
(e) The obligations of the Company under this Section 14 shall survive
payment or transfer of the Securities and the termination of this Agreement.
(f) In the event of any dispute involving the terms of this Agreement,
the prevailing party shall be entitled to collect reasonable fees and expenses
incurred by the prevailing party in connection with such dispute from the other
parties to such dispute.
15. NOTICES.
Any notice or other communication in connection with this Agreement, any
other Financing Agreement or the Securities will be in writing and shall be
deemed to be properly delivered if either personally delivered or sent by
telecopier, overnight courier or mailed certified or registered mail, return
receipt requested, postage prepaid, to the recipient at the address specified
below:
<PAGE> 47
-47-
If to the Company, then to its address set forth on page 1
hereof, to the attention of the President or at such other address as
such person shall have specified by notice actually received by the
addressor, with a copy to Jodie M. Bourdet, Esq., Cooley Godward LLP,
20th Floor, One Maritime Plaza, San Francisco, CA 94111-3580.
If to GMN, then to its address set forth on page 1 hereof, to the
attention of James J. Goodman, or at such other address as GMN shall
have specified by notice actually received by the addressor, with a copy
to David L. Engel, Esq., Bingham Dana LLP, 150 Federal Street, Boston,
MA 02110-1726.
If to any other Holder of any Security, to it at its address set
forth in the applicable register referred to in Section 12 hereof.
Any such notice shall be effective (a) if delivered personally or by telecopier,
when received, (b) if sent by overnight courier, when receipted for, and (c) if
mailed as described above, five (5) days after being so mailed.
16. SURVIVAL AND TERMINATION OF COVENANTS.
All covenants, agreements, representations and warranties made herein or
in any other document referred to herein or delivered to you pursuant hereto
shall be deemed to have been relied on by you, notwithstanding any investigation
made by you or on your behalf, and shall survive the execution and delivery to
you hereof and of the Securities.
17. AMENDMENTS AND WAIVERS.
Any term of this Agreement may be amended and the observance of any term
of this Agreement may be waived (either generally or in a particular instance
and either retroactively or prospectively) only with the written consent of the
Company and the Majority Holders of the Notes, the Majority Holders of the
Series E Preferred Shares and the Majority Holders of the Converted Common
Shares, Warrants and Warrant Shares, respectively, with respect to any provision
of this Agreement which by its terms operates for the benefit of such respective
Holders. Any term of the Notes may be amended and the observance of any term of
the Notes may be waived (either generally or in a particular instance and either
retroactively or prospectively) only with the written consent of the Company and
the Majority Holders of the Notes with respect to whom such amendment or waiver
is made. Notwithstanding the foregoing, (a) without the prior written consent of
each Holder of Notes with respect to whom such amendment or waiver is made, no
such amendment or waiver shall extend the fixed maturity or reduce the
principal amount of, or reduce the rate or extend the time of payment of
interest on, or reduce the amount or extend the time of payment of any principal
or premium payable on any prepayment of, any Note with respect to whom
<PAGE> 48
-48-
such amendment or waiver is made, (b) without the prior written consent of the
percentage of Securities referred to in the definition of "Majority Holders" as
in effect on the Closing Date, reduce the percentage of Securities the Holders
of which are required to consent to any such amendment or waiver, or (c) without
the written consent of the percentage of the Holders of each Security required
to exercise the remedies provided in Section 9.2 hereof, increase such required
percentage. Any amendment or waiver effected in accordance with this Section 17
shall be binding upon each Holder of any Security sold pursuant to this
Agreement and the Company.
18. CONSENT TO JURISDICTION.
THE COMPANY HEREBY AGREES TO SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF
THE COURTS IN AND OF THE COMMONWEALTH OF MASSACHUSETTS OVER ANY SUIT, ACTION OR
PROCEEDING EXISTING UNDER OR RELATING TO THIS AGREEMENT, THE SECURITIES OR ANY
OF THE OTHER FINANCING AGREEMENTS, AND CONSENTS THAT SERVICE OF PROCESS WITH
RESPECT TO ALL COURTS IN AND OF THE COMMONWEALTH OF MASSACHUSETTS MAY BE MADE BY
REGISTERED MAIL TO IT AT ITS ADDRESS SET FORTH ON PAGE 1 HEREOF.
19. RIGHT TO PUBLICIZE
The Company hereby acknowledges that each Investor will have the right
to publicize its investment in the Company as contemplated hereby by means of a
tombstone advertisement or other customary advertisement in newspapers and other
periodicals.
20. WAIVER OF JURY TRIAL.
THE COMPANY HEREBY EXPRESSLY WAIVES ANY RIGHT IT MAY HAVE TO A JURY
TRIAL IN ANY SUIT, ACTION OR PROCEEDING EXISTING UNDER OR RELATING TO THIS
AGREEMENT, THE SECURITIES OR ANY OF THE OTHER FINANCING AGREEMENTS.
21. MISCELLANEOUS.
This Agreement and the other Financing Agreements set forth the entire
understanding of the parties hereto with respect to the transactions
contemplated hereby and supersede any prior written or oral understandings with
respect thereto. The invalidity or unenforceability of any term or provision
hereof shall not affect the validity or enforceability of any other term or
provision hereof. The headings in this Agreement are for convenience of
reference only and shall not alter or otherwise affect the meaning hereof. THIS
AGREEMENT IS INTENDED TO TAKE EFFECT AS A SEALED INSTRUMENT AND MAY BE EXECUTED
IN ANY NUMBER OF
<PAGE> 49
-49-
COUNTERPARTS WHICH TOGETHER SHALL CONSTITUTE ONE INSTRUMENT AND SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE DOMESTIC SUBSTANTIVE LAWS OF
THE COMMONWEALTH OF MASSACHUSETTS WITHOUT GIVING EFFECT TO ANY CHOICE OR
CONFLICT OF LAW PROVISION OR RULE THAT WOULD CAUSE THE APPLICATION OF THE
DOMESTIC SUBSTANTIVE LAWS OF ANY OTHER STATE, AND SHALL BIND AND INURE TO THE
BENEFIT OF THE PARTIES HERETO AND THEIR RESPECTIVE SUCCESSORS AND ASSIGNS.
<PAGE> 50
-50-
If the foregoing corresponds with your understanding of our agreement,
kindly sign this letter and the accompanying copies thereof in the appropriate
space below and return one counterpart of the same to the Company, at its
address first listed above.
Very truly yours,
ELOQUENT, INC.
By:
----------------------------------
Name:
Title:
Accepted and agreed to:
GMN INVESTORS II, L.P.
By: GMN INVESTORS LLC,
ITS GENERAL PARTNER
By:
---------------------------------
David F. Millet
Managing Director
MEIER MITCHELL & COMPANY
By:
---------------------------------
James V. Mitchell, President
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)
By:
---------------------------------
William M. Sheehan
Title:
------------------------------
TRANS NATIONAL GROUP SERVICES, LLC
By:
---------------------------------
Bruce Rogoff, Vice Chairman
SECURITIES PURCHASE AGREEMENT - SIGNATURE PAGE
<PAGE> 51
-51-
JENSTAR PARTNERS I, LLC
By:
---------------------------------
Thomas E. Tucker
Managing Member
THE STONEBERG FAMILY TRUST
By:
---------------------------------
Peter Stoneberg, Trustee
ANDERSON ELOQUENT, L.P.
By: SPRING CREEK PARTNERS
ITS GENERAL PARTNER
By:
---------------------------------
Duane R. Bach,
General Partner
EXETER CAPITAL
PARTNERS, IV, L.P.
By: EXETER IV ADVISORS, L.P.
ITS GENERAL PARTNER
EXETER IV ADVISORS, INC.
ITS GENERAL PARTNER
By:
---------------------------------
Kurt F. Bergquist,
Vice President
<PAGE> 52
-52-
CAMBRIDGE TECHNOLOGY
CAPITAL FUND I L.P.
By: CAMBRIDGE TECHNOLOGY
GPLP, L.P.
ITS GENERAL PARTNER
By: CAMBRIDGE TECHNOLOGY
CGP, INC.
ITS GENERAL PARTNER
By:
---------------------------------
Barry Rosenbaum
Managing Director
- ---------------------------------
Michael A. Mitgang
- ---------------------------------
Peter Bennett
- ---------------------------------
Chad Abraham
BAYVIEW INVESTORS, LTD.
By: Robertson, Stephens & Company
Private Equity Group, L.L.C.
Its General Partner
By:
-----------------------------
Its
------------------------
<PAGE> 53
-53-
CROSSOVER FUND II, L.P.
By: Crossover Investment Management, L.L.C.
Its Investment Manager
By:
--------------------------------
Its
--------------------------
OMEGA VENTURES III, L.L.C.
By: Robertson Stephens Investment
Management Co.
Its Investment Manager
By:
--------------------------------
Its
--------------------------
RS & CO. OFFSHORE OMEGA VENTURES
III, A CAYMAN ISLANDS TRUST
By: RS Omega III Holdings, L.L.C.
Its Investment Manager
By:
--------------------------------
Its:
--------------------------
MENLO VENTURES VII, L.P.
By: MV Management VII, L.L.C.
Its General Partner
By:
--------------------------------
Sonja L. Hoel
Its Managing Member
MENLO ENTREPRENEURS FUND VII, L.P.
By: MC Management VII, L.L.C.
Its General Partner
By:
--------------------------------
Sonja L. Hoel
Its Managing Member
<PAGE> 54
-54-
ONSET ENTERPRISE ASSOCIATES II, L.P.
By: OEA II Management, L.P.
Its General Partner
By:
--------------------------------
Terry Opdendyk
Its General Partner
ONSET ENTERPRISE ASSOCIATES III, L.P.
By: OEA III Management, LLC
Its General Partner
By:
--------------------------------
Terry Opdendyk
Its Managing Director
FOUNDATION CAPITAL, L.P.
By: Foundation Capital Management, LLC
Its General Partner
By:
--------------------------------
Kathryn Gould
Its Manager
FOUNDATION CAPITAL ENTREPRENEURS FUND, LLC
By: Foundation Capital Management, LLC
Its Manager
By:
--------------------------------
Kathryn Gould
Its Manager
<PAGE> 55
Schedule 9.5
Consent to Certain Actions
(a) the establishment and modification of the annual budget and
forecasts with respect to operating income, cash flow, and capital expenditures
of the Company and its Subsidiaries;
(b) the establishment of any pension, insurance or benefit plan for any
employee of the Company and its Subsidiaries (including, without limitation,
officers' and directors' liability insurance);
(c) except as provided in the annual budget approved pursuant to clause
(a) above, (i) the entering into by the Company or any of its Subsidiaries of
any operating lease which requires total payments of more than $25,000 over the
term of such lease, (ii) the making of any capital expenditure in excess of
$25,000 for any single expenditure or project or for such expenditures or
projects which individually have a value of less than $25,000 but which
aggregate more than $25,000 in any fiscal year and (iii) the sale or any
commitment for the sale by the Company or any of its Subsidiaries of any assets
or property which individually have a value of more than $25,000 or of such
assets or property which individually have a value of less than $25,000 but
which aggregate more than $25,000 in any fiscal year;
(d) (i) the issuance, purchase, redemption or repurchase, or
determination whether to exercise repurchase rights, of any Common Stock or
other securities of the Company and its Subsidiaries including, without
limitation, options and warrants, (ii) the selection of an appraiser in
connection with any repurchase pursuant to any Management Stock Option Plan and
(iii) the establishment and the terms of any Management Stock Option Plan;
(e) the declaration or payment of any dividends or other distributions
in respect of the capital of the Company and its Subsidiaries;
(f) the making of an initial public offering;
(g) (i) the incurrence by the Company or any of its Subsidiaries of any
Indebtedness for Borrowed Money, including, without limitation, the
establishment of a line of credit at any bank or other financial institution or
(ii) the granting by the Company or any of its Subsidiaries of any Liens on any
of its properties or assets except (A) liens to secure taxes, assessments and
other governmental charges in respect of obligations not overdue, (B) landlord's
or lessor's liens under leases under which the Company or any of its
Subsidiaries is the lessee, (C) Liens being contested by the Company in good
faith by appropriate proceedings or (D) other Liens not consented to, approved
by or acquiesced in by the Company or any of its Subsidiaries that are
discharged within 90 days after the creation thereof;
<PAGE> 56
-2-
(h) the giving by the Company or any of its Subsidiaries of any
guaranties or indemnities in connection with the debt or other obligations of
any Person;
(i) the institution or settlement of any lawsuit or other legal
proceeding involving a claim by the Company or any of its Subsidiaries of more
than $50,000;
(j) any action to effect the voluntary, or which would precipitate an
involuntary, dissolution or winding-up of the Company or any of its
Subsidiaries;
(k) the entering into by the Company or any of its Subsidiaries of any
partnership, joint venture or other similar joint business undertaking;
(l) the creation, modification, amendment or repeal of the Charter or
by-laws of the Company or any of its Subsidiaries;
(m) the establishment of any new business or change in the business of
the Company and its Subsidiaries;
(n) the entering into or consummating of any merger or consolidation, or
any sale, lease, sublease or other transfer or disposition of any assets of the
Company or any of its Subsidiaries or any voting stock of any Subsidiary of the
Company (other than sales of assets in the ordinary course of business
consistent with past practice or any sales of assets provided in the annual
budget approved pursuant to clause (a) above or permitted pursuant to clause (c)
above);
(o) the acquisition by the Company or any of its Subsidiaries of any
stock, Indebtedness, obligations or liabilities of, or the acquisition by the
Company or any of its Subsidiaries of all or a substantially portion of the
properties or assets of, or the making by the Company or any of its Subsidiaries
of any loans, advances, capital contributions or transfers of property to, any
Person;
(p) (i) the entering into by the Company or any of its Subsidiaries of
any transaction with any Affiliate on terms more favorable to such Affiliate
than would have been obtainable on an arms-length basis in the ordinary course
of business, or (ii) the making of any payment (whether in cash, securities or
other property) to or for the benefit of any Affiliate of the Company or any of
its Subsidiaries in respect of any indebtedness owed by, or other obligation of,
the Company or any of its Subsidiaries to such Affiliate, other than (A) the
reasonable out-of-pocket expenses of any member of the Board of Directors of the
Company or any of its Subsidiaries who is not an employee, officer or
shareholder of the Company or its Subsidiaries, and (B) the reasonable costs and
expenses associated with any rights of board or executive committee attendance
or observation or inspection and lodging expenses related thereto;
<PAGE> 57
-3-
(q) any amendment or modification of, or the granting of any waiver, or
the failure to enforce any of the rights of the Company pursuant to, any of the
Related Agreements;
(r) the appointment and termination of the President, Chief Executive
Officer, Chief Operating Officer or Chief Financial Officer (or Persons holding
equivalent positions) of the Company and its Subsidiaries and the establishment
of any bonus plan or incentive compensation payable to any of such officers of
the Company or its Subsidiaries;
(s) the appointment and retention of auditors and legal counsel for the
Company and its Subsidiaries; and
(t) retaining and compensating by the Company or any of its Subsidiaries
of any consultant, advertising agency, public relations firm, investment banker
or other advisor or professional whose annual remuneration exceeds $25,000.
<PAGE> 58
EXHIBIT A
INVESTORS
<TABLE>
<CAPTION>
Principal Aggregate
Amount of Purchase
Name Notes($) Warrants Price($)
----- --------------- -------- --------------
<S> <C> <C> <C>
GMN Investors II, L.P. 5,000,000 375,000 5,000,500
Meier Mitchell & Company 2,000,000 150,000 2,000,200
The Manufacturers Life Insurance Company (U.S.A.) 2,500,000 187,500 2,500,250
Trans National Group Services LLC 2,000,000 150,000 2,000,200
JenStar Partners I, LLC 1,500,000 112,500 1,500,150
The Stoneberg Family Trust 100,000 7,500 100,010
Anderson Eloquent, L.P. 200,000 15,000 200,020
Exeter Capital Partners, IV, L.P. 500,000 37,500 500,050
Cambridge Technology Capital Fund I, L.P. 1,000,000 75,000 1,000,100
Michael A. Mitgang 100,000 7,500 100,010
Peter Bennett 50,000 3,750 50,005
Chad Abraham 50,000 3,750 50,005
Omega Bayview, L.L.C 46,495 3,487 46,500
Crosslink Crossover Fund III, L.P. 86,691 6,502 86,700
Crosslink Omega Ventures III, L.L.C. 338,767 25,407 338,800
Crosslink Offshore Omega Ventures III 528,047 39,604 528,100
Menlo Ventures VII, L.P. 960,000 72,000 960,096
Menlo Entrepreneurs Fund VII, L.P. 40,000 3,000 40,004
Onset Enterprise Associates II, L.P. 1,000,000 75,000 1,000,100
Onset Enterprise III, L.P. 1,000,000 75,000 1,000,100
Foundation Capital, L.P. 900,000 67,500 900,090
Foundation Capital Entrepreneurs Fund, LLC 100,000 7,500 100,010
---------- --------- ----------
TOTAL 20,000,000 1,500,000 20,002,000
========== ========= ==========
</TABLE>
<PAGE> 59
EXHIBIT B
FORM OF NOTE
<PAGE> 60
EXHIBIT B TO
SECURITIES PURCHASE AGREEMENT
NEITHER THIS NOTE NOR THE SHARES ISSUABLE UPON EXERCISE OF THE CONVERSION RIGHTS
SET FORTH IN THIS NOTE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND NEITHER THIS NOTE NOR THE SHARES ISSUABLE UPON EXERCISE OF THE
CONVERSION RIGHTS SET FORTH IN THIS NOTE CAN BE SOLD OR TRANSFERRED UNLESS THE
REGISTRATION PROVISIONS OF THE SAID ACT HAVE BEEN COMPLIED WITH OR UNLESS
COMPLIANCE WITH SUCH PROVISIONS IS NOT REQUIRED. THIS SECURITY SHALL BE SUBJECT
TO THE TERMS AND CONDITIONS CONTAINED IN THE PURCHASE AGREEMENT, AS DEFINED
BELOW, A COPY OF WHICH WILL BE PROVIDED BY THE COMPANY UPON REQUEST.
ELOQUENT, INC.
SENIOR SUBORDINATED CONVERTIBLE NOTE
Up to $___________ October __, 1999
FOR VALUE RECEIVED, upon the terms and subject to the conditions set
forth in this promissory note (this "Note"), ELOQUENT, INC., a Delaware
corporation (the "Company"), absolutely and unconditionally promises to pay to
the order of _________________, as holder (in such capacity being referred to
herein, together with its successors and assigns, as the "Holder"), at the
Holder's offices at _________________________________, the principal amount of
_______________ DOLLARS ($__________), together with interest thereon as
specified in Section 2 hereof.
This Note is being issued (i) pursuant to the Securities Purchase
Agreement, dated as of October ___, 1999 (the "Purchase Agreement") among the
Company, the Holder and certain other parties thereto, and (ii) together with a
stock purchase warrant, in the form attached to the Purchase Agreement as
Exhibit C (the "Warrant"), to be issued by the Company to the Holder to purchase
the number and type of shares of capital stock or other securities of the
Company as described therein (the "Warrant Shares"). This Note is one of the
Senior Subordinated Convertible Notes, dated as of the date hereof, being issued
by the Company to Investors (as defined in the Purchase Agreement)
(collectively, the "Notes") and shall be subject to the terms and provisions
contained in the Purchase Agreement.
SECTION 1. MATURITY. The entire principal amount hereof, and all unpaid
interest thereon, shall become due and payable on the sooner to occur of (i)
October ___, 2004 (the "Maturity Date"), or (ii) the date of a Capital
Transaction (as defined in the Purchase Agreement).
SECTION 2. INTEREST. This Note shall bear interest on the principal
amount outstanding and unpaid from time to time from the date hereof until such
principal amount is paid or discharged in full when due hereunder at the rate of
12% per annum. Overdue
<PAGE> 61
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principal, and to the extent permitted by applicable law, overdue interest,
shall bear interest at the rate of 16% per annum from the due date thereof until
paid in full. Upon the occurrence and during the continuance of any other Event
of Default (as defined in the Purchase Agreement), this Note shall bear interest
at the rate of 16% per annum. Interest shall be calculated on the basis of a
360-day year and paid for the actual number of days elapsed and shall be payable
quarterly in arrears on the last day of each quarter, commencing on December 31,
1999, with a final payment of all accrued and unpaid interest upon maturity.
SECTION 3. PREPAYMENT.. Subject to the Purchase Agreement, the Company
shall have the right to prepay, in whole or in part (in integral multiples of
$10,000, or if less, the aggregate principal amount outstanding), the unpaid
principal amount of this Note on ten (10) business days' prior written notice to
the Holder. Any notice of prepayment given pursuant to this Section 3 shall not
act to restrict or limit any rights which the Holder may have at the time of
receipt of such notice to convert this Note pursuant to, and in accordance with,
Section 5 hereof. Any prepayment of the principal amount of this Note shall be
made without premium or prepayment penalty, provided that the Company shall pay
all accrued interest to the date of prepayment on the principal amount prepaid.
All payments to be made by the Company hereunder shall be made in U.S. dollars
in immediately available funds, without setoff or counterclaim and without any
withholding or deduction whatsoever.
SECTION 4. ACCELERATION EVENTS. If any of the following events or
circumstances (each an "Acceleration Event") shall occur and be continuing:
(a) the Company shall fail to pay any amount of principal when
due and payable hereunder; or any interest or other amount (if any) within 5
days of the date on which such interest or other amount is due and payable; or
(b) the Company shall fail to cure any breach of its other
covenants, agreements or obligations hereunder within thirty (30) days after
written notice by the Holder to the Company specifying such breach; or
(c) an Event of Default under the Purchase Agreement;
THEN, the Holder at its option at any time thereafter, but subject to the terms
and provision of Section 9 of the Purchase Agreement, may declare the entire and
unpaid principal of this Note and all (if any) other amounts payable on or in
respect of this Note and the obligations evidenced hereby due and payable, and
the same shall thereupon forthwith become and be due and payable to the Holder
(an "Acceleration") without presentment, demand, protest, notice of protest or
any other formalities of any kind, all of which are hereby expressly and
irrevocably waived by the Company.
SECTION 5. CONVERSION. Subject to the terms of the Purchase Agreement,
this Note shall be convertible pursuant to the terms and provisions of this
Section 5.
<PAGE> 62
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SECTION 5.1. CONVERSION RIGHTS.
(a) At any time after December 31, 2000 and while this Note is
outstanding, the Holder may convert all or any portion of the principal amount
of this Note outstanding, and all or any portion of accrued and unpaid interest
on this Note, into such number of whole shares of Conversion Stock as the
principal amount (and interest, if any) which the Holder elects to convert will
purchase at the Conversion Price, upon the terms and subject to the conditions
hereinafter specified.
(b) In addition, at any time after December 31, 2000 and while any Note
is outstanding, the Majority Holders (as defined in the Purchase Agreement) of
the Notes may elect to convert all of the outstanding principal amount of all
outstanding Notes, and all accrued and unpaid interest on all Notes, into such
number of whole shares of Conversion Stock as the principal amount (and
interest, if any) which shall be converted will purchase at the Conversion
Price, upon the terms and subject to the conditions hereinafter specified, in
which case all outstanding Notes shall be automatically converted into
Conversion Stock; provided that any Holder (as defined in the Purchase
Agreement) of more than $4,000,000 in aggregate outstanding principal amount of
Notes may, at its sole option, elect not to have its Notes converted pursuant to
this Section 5.1(b).
SECTION 5.2. CERTAIN DEFINITIONS. For all purposes of this Note, the
following terms shall have the respective meanings set forth below:
(a) "Common Stock" shall mean and include the Company's Common Stock,
$.001 par value per share, authorized as at the date of this Note (as described
in Section 4.5 of the Purchase Agreement) and shall include also any other
capital stock of the Company of any class or series which shall be authorized at
any time after the date of this Note and which shall have the right to
participate in the distribution of earnings and assets of the Company without
limitation as to amount;
(b) "Conversion Notice" shall mean written notice by the Holder or the
Majority Holders, as the case may be, in substantially the form annexed hereto
of the Holder or Majority Holders' desire to exercise its or their conversion
rights hereunder;
(c) "Conversion Price" shall mean, in relation to any share of
Conversion Stock at any time of reference, the "Conversion Price" as defined in
Article IV, Section G.4(c) of the Amended and Restated Certificate of
Incorporation of the Company filed with the Delaware Secretary of State on
October ___, 1999 (as amended from time to time, the "Charter"), as adjusted
from time to time pursuant to the provisions of the Charter commencing as of the
date hereof;
(d) "Conversion Stock" shall mean (i) the Company's Series E Preferred
Stock issuable upon the conversion of this Note or any promissory notes
delivered in substitution or
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exchange therefor; and (ii) shall include also any other capital stock of any
other class which may become and be issuable upon such exercise; and
(e) "Series E Preferred Stock" shall mean the Company's Series E
Preferred Stock, $.001 par value per share, authorized as at the date of this
Note.
SECTION 5.3. CONVERSION MECHANISM.
(a) Conversion of this Note shall be made upon surrender of this Note to
the Company at its principal place of business (or at such other office as the
Company shall designate by notice in writing to the Holder from time to time),
accompanied by written notice of the Holder or Majority Holders' election to
convert in substantially the form of the Conversion Notice annexed hereto. If
less than the full amount of the then outstanding principal and accrued interest
hereunder is being converted pursuant to Section 5.1(a) hereof, then the Company
shall issue another Note of like tenor to this Note for the remaining balance of
the principal hereunder. If Majority Holders have made an election to convert
pursuant to Section 5.1(b) hereof, the Company shall give Holders of more than
$4,000,000 in aggregate outstanding principal amount of Notes who are not
signatories to the Majority Holders' Conversion Notice written notice of the
Majority Holders' election to convert within seven (7) days of the Company's
receipt thereof. If such a Holder of more than $4,000,000 in aggregate
outstanding principal amount of Notes desires not to have its Notes converted
pursuant to Section 5.1(b), such Holder shall give the Company written notice
thereof within 15 days after such Holder receives notice from the Company.
Otherwise, such Holder's outstanding Notes shall be converted to Conversion
Stock pursuant to Section 5.1(b).
(b) The Company agrees that, at the time of such surrender and exercise
of conversion rights in compliance with the provisions hereof, the shares of
Conversion Stock issuable pursuant to such exercise shall be and be deemed to be
issued to the Holder (or the Holder's permitted designee or designees which may
include the Holder for which the Holder is acting as agent hereunder) as the
record owner of such shares as of the close of business of the Company on the
date on which conversion rights under this Note shall have been exercised as
aforesaid.
(c) The Company covenants that all shares of Conversion Stock which may
be issued upon the exercise of conversion rights under this Note will, upon such
exercise, be fully paid and non-assessable and free from all taxes, liens and
charges in respect of the issue thereof.
(d) The certificates for the shares of Conversion Stock so issued shall
be delivered to the Holder (or the Holder's permitted designee or designees)
within a reasonable time, not exceeding ten (10) days, after the date on which
the conversion rights under this Note shall have been so exercised, and shall
bear substantially the following legend:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY
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NOT BE SOLD OR TRANSFERRED UNLESS THE REGISTRATION PROVISIONS OF THE SAID ACT
HAVE BEEN COMPLIED WITH OR UNLESS COMPLIANCE WITH SUCH PROVISIONS IS NOT
REQUIRED.
(e) This Note may be converted more than once and from time to time.
Unless the Holder shall have elected to convert accrued but unpaid interest
hereon, all of such interest shall be paid to the Holder in cash immediately
upon the conversion of the principal amount of this Note then being converted.
(f) No fractional shares or scrip representing fractional shares shall
be issued upon the exercise of conversion rights under this Note, and the
Conversion Price with respect to any such fractional shares shall be payable to
the Holder in cash in immediately available funds by the Company within ten (10)
days after the date of any such conversion.
(g) Issuance of certificates for shares of Conversion Stock upon the
exercise of conversion rights under this Note shall be made without charge to
the Holder (or the Holder's permitted designee(s)) for any issue or transfer
taxes or any other incidental expenses in respect of the issuance of such
certificates, all of which taxes and expenses shall be paid by the Company, and
such certificates shall be issued in the name of the Holder (or the Holder's
permitted designee(s)); provided, however, that any income taxes or capital
gains taxes or similar taxes shall be payable by the Holder.
SECTION 5.4. CERTAIN OBLIGATIONS OF THE COMPANY. The Company will, in
accordance with the laws of the State of Delaware, take such actions as may be
necessary to ensure that the authorized amount of any class of stock from which
Conversion Stock is to be issued shall, at the time of such conversion, be
sufficient to permit the exercise of conversion rights under this Note and to
ensure that, at the time of such conversion, the authorized amount of any class
of stock into which the Conversion Stock is convertible shall be sufficient to
permit the exercise of any such conversion rights applicable to the Conversion
Stock. The Company will not, by amendment of its Certificate of Incorporation or
through reorganization, consolidation, merger, dissolution, issuance of capital
stock or sale of treasury stock (otherwise than upon exercise of conversion
rights hereunder) or sale of assets, or by any other voluntary act or deed,
avoid or seek to avoid the material performance or observance of any of the
covenants, stipulations or conditions in this Note to be observed or performed
by the Company. The Company will at all times in good faith assist, insofar as
it is able, in the carrying out of all of the provisions of this Note in a
reasonable manner and in the taking of all other action which may be necessary
in order to protect and preserve the rights of the Holder set forth herein and
in the Charter. The Company will maintain an office where presentations and
demands to or upon the Company in respect of this Note may be made. The Company
will give notice in writing to the registered Holder, at the address of the
registered Holder appearing on the books of the Company, of each change in the
location of such office.
SECTION 5.5. ANTIDILUTION. So long as this Note is outstanding, all of
the antidilution provisions of Article IV, Section G.4 of the Charter shall
apply to the Conversion Stock
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commencing as of the date hereof regardless of when this Note is converted into
Conversion Stock.
SECTION 5.6. NO RIGHTS OR RESPONSIBILITIES AS STOCKHOLDER. This Note
neither entitles the Holder to any rights, nor subjects the Holder to any
responsibilities, as a shareholder of the Company.
SECTION 6. EXCHANGE. This Note is exchangeable, upon the surrender
hereof by the registered Holder at the principal office of the Company, for new
promissory notes of like tenor and date representing in the aggregate the then
outstanding principal balance hereof (together with interest theretofore accrued
and unpaid), each of such new notes to evidence the portion of such then
outstanding principal balance (and accrued and unpaid interest on such principal
amount) as shall be designated by said registered Holder at the time of such
surrender.
SECTION 7. LOSS, THEFT, DESTRUCTION OR MUTILATION OF NOTE. Upon receipt
by the Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Note, and, in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it, and upon
reimbursement to the Company of all reasonable expenses incidental thereto, and
upon surrender and cancellation of this Note, if mutilated, the Company will
make and deliver a new promissory note of like tenor and date, and in the
principal balance then outstanding, in lieu of this Note.
SECTION 8. TITLE TO NOTE. This Note and all rights hereunder are
transferable (subject to the legend set forth in the heading on the first page
hereof), in whole or in part, at the office or agency of the Company by the
registered Holder in person or by a duly authorized attorney, upon surrender of
this Note together with an assignment hereof properly endorsed. Until transfer
hereof on the registration books of the Company, the Company may treat the
registered Holder as the owner hereof for all purposes.
SECTION 9. COMMUNICATIONS AND NOTICES. All notices, demands, requests,
certificates or other communications hereunder must be in writing, either
delivered in hand or sent by private expedited courier for overnight delivery
with signature required, or by facsimile transmission, by tested or otherwise
authenticated telex or cable, in each such case, such notice, demand, request,
certificate or other communications being deemed to have been given upon
delivery or receipt, as the case may be, or by certified mail, postage prepaid,
in which case, such notice, demand, request, certificate or other communications
shall be deemed to have been given three (3) days after the date on which it is
first deposited in the mails, and, if to the Company, shall be addressed to it
at its principal place of business referred to in the first paragraph hereof, or
at such other address as the Company may hereafter designate in writing by
notice to the registered Holder, and, if to such registered Holder, addressed to
such Holder at the address of such Holder as shown on the books of the Company.
SECTION 10. MISCELLANEOUS.
<PAGE> 66
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(a) If the last or appointed day for the taking of any action required
or the expiration of any right granted herein shall be a Sunday or a Saturday or
shall be a legal holiday or a day on which banking institutions in the City of
Boston, Massachusetts, are authorized or required by law to remain closed, then
such action shall be taken or right may be exercised on the next succeeding day
which is not a Sunday, a Saturday or a legal holiday and not a day on which
banking institutions in the City of Boston, Massachusetts, are authorized or
required by law to remain closed.
(b) THIS NOTE SHALL BE BINDING UPON THE COMPANY'S SUCCESSORS IN TITLE
AND ASSIGNS. THIS NOTE SHALL CONSTITUTE A CONTRACT UNDER SEAL AND, FOR ALL
PURPOSES, SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS (WITHOUT REGARD TO THE LAWS OR RULES OF LAW
APPLICABLE TO CONFLICT OR CHOICE OF LAW).
(c) The Company and every endorser and guarantor of this Note or the
obligation represented hereby expressly waive presentment, demand, notice,
protest and all other demands and notices in connection with the delivery,
acceptance, performance, default or enforcement of this Note, assent to any
extension or postponement of the time of payment or any other indulgence, to any
substitution, exchange or release of collateral and to the addition or release
of any other party or person primarily or secondarily liable. The failure of the
Holder to exercise any or all of its rights, remedies, powers or privileges
hereunder in any instance shall not constitute a waiver thereof in that or any
other instance.
(d) The Company hereby agrees to pay promptly the reasonable fees,
expenses and disbursements of the Holder's attorneys incurred from time to time
in connection with any amendment, modification, consent or waiver to or under
this Note.
(e) Should all or any part of the indebtedness represented by this Note
be collected by action at law, or in bankruptcy, insolvency, receivership or
other court proceedings, or should this Note be placed in the hands of attorneys
for collection after default, the Company hereby promises to pay to the Holder,
upon demand by the Holder at any time, in addition to the outstanding principal
balance of, accrued interest, and all (if any) other amounts payable on or in
respect of this Note, all court costs and reasonable attorneys' fees and other
collection charges and expenses incurred or sustained by the Holder.
(f) In the event of irreconcilable conflict between the provisions of
this Note and the Purchase Agreement, the provisions of the Purchase Agreement
shall control. If any term of this Note shall be held to be invalid, illegal or
unenforceable, the validity of all other terms hereof shall in no way be
affected thereby, and this Note shall be construed and be enforceable as if such
invalid, illegal or unenforceable term had not been included herein. This Note
is intended to provide to the Holder the benefit of the right to convert this
Note into Conversion Stock on the terms and conditions contained herein, and the
terms and provisions of this Note shall be
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construed to afford the Holder such maximum benefit at all times, including upon
the occurrence of one or more of the events contemplated in Section 5.5 hereof.
(g) This Note may be amended, modified or waived if, and only if, such
amendment, modification or waiver is in writing and signed by the Company and
the Majority Holders of the Notes (as defined in the Purchase Agreement). Any
such amendment, modification waiver approved by the Majority Holders of the
Notes shall be binding upon all of the holders of the Notes and such holders
shall be deemed to have approved the amendment, modification or waiver at issue.
SECTION 11. SUBORDINATION. The Holder acknowledges that any amounts owed
by the Company to the Holder hereunder are, and shall be, subordinate to the
Indebtedness evidenced by the Senior Debt Documents (as defined in the Purchase
Agreement).
IN WITNESS WHEREOF, the Company has caused this Senior Subordinated
Convertible Note to be signed in its corporate name and its corporate seal to be
impressed hereon by its duly authorized officers.
ELOQUENT, INC.
By:______________________________
Name:
Title:
The foregoing Senior Subordinated Convertible Note is hereby accepted
and agreed to by the undersigned on and as of the date first above written.
[_______________________________]
By:_______________________________
Name:
Title:
<PAGE> 68
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FORM OF CONVERSION NOTICE
(To be signed only on exercise of conversion rights)
TO: ELOQUENT, INC.
The undersigned, [the] registered [Holder] [Majority Holders] of Senior
Subordinated Convertible Note[s] dated October __, 1999 (the "Note"), of
Eloquent, Inc. (the "Company") hereby irrevocably elect[s] to exercise
[its][their] conversion rights under the provisions of Section 5.1[(a)][(b)] of
the Note[s] by conversion of [(i)] [all of the] $ of outstanding principal of
the Note[s][, and [(ii)] [all of the] $___________ of accrued and unpaid
interest thereon, for * shares of Series E Preferred Stock of the Company, and
request[s] that the certificates for such shares be issued in the name of, and
delivered to,______________, whose address is _______________.
Dated: _________________________________
(Signature must conform in all
respects to name of registered
holder as specified on the face
of the Note)
_________________________________
(Address)
[In the case of a conversion pursuant to
Section 5.1(b), add signature blocks for
each Majority Holder]
Signed in the presence of:
______________________
* Insert here the number of shares as to which all of the outstanding
principal of, and if to be converted, accrued and unpaid interest on, the
Note[s] is/are being converted.
<PAGE> 69
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FORM OF ASSIGNMENT
(To be signed only on transfer of Note)
For value received, the undersigned hereby sells, assigns, and transfers
unto all right, title and interest in and to the within Senior Subordinated
Convertible Note, dated October __, 1999, of Eloquent, Inc., and appoints
Attorney to transfer such right on the books of said Company with full power of
substitution in the premises.
Dated: _________________________________
(Signature must conform in all
respects to name of registered
holder as specified on the face
of the Note)
_________________________________
(Address)
Signed in the presence of:
______________________
<PAGE> 70
EXHIBIT C
FORM OF WARRANT
<PAGE> 71
EXHIBIT C TO
SECURITIES PURCHASE
AGREEMENT
Form of Warrant
Right to Purchase _______ Shares of Common Stock
of Eloquent, Inc.
This Warrant and any shares acquired upon the exercise of this Warrant
have not been registered under the Securities Act of 1933, as amended, and may
not be sold or transferred in the absence of such registration or an exemption
therefrom under such Act or any applicable state securities laws. Furthermore,
this Warrant and any shares acquired upon the exercise of this Warrant may be
sold or otherwise transferred only in compliance with the conditions specified
in Section 13 of the Securities Purchase Agreement referred to hereinafter,
complete and correct copies of which are available for inspection at the
principal office of Eloquent, Inc. and will be furnished without charge to the
holder of this Warrant upon written request. This Warrant is issued pursuant to
the Securities Purchase Agreement and if any provision of this Warrant is found
to conflict with the Securities Purchase Agreement, the provisions of the
Securities Purchase Agreement shall prevail.
The shares represented by this certificate are subject to the terms of a
certain Fourth Amended and Restated Investors' Rights Agreement, dated as of
even date herewith, among Eloquent, Inc. and certain investors. The Fourth
Amended and Restated Investors' Rights Agreement contains certain restrictive
provisions relating to the transfer of shares of the stock represented thereby.
A copy of the Fourth Amended and Restated Investors' Rights Agreement is on file
at Eloquent, Inc.'s principal offices. Upon written request to the Secretary of
Eloquent, Inc., a copy of the Fourth Amended and Restated Investors' Rights
Agreement will be provided without charge to appropriately interested persons.
No. W-___
Eloquent, Inc.
Common Stock Purchase Warrant
Eloquent, Inc., a Delaware corporation (together with any corporation
which shall succeed to or assume the obligations of Eloquent, Inc. hereunder,
the "Company"), hereby certifies that, for value received,____________________,
a ___________________, or its assigns, is entitled, subject to the terms set
forth
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below, to purchase from the Company from time to time in accordance with Section
2.2 hereof, until the termination in full or in part of this Warrant pursuant to
Section 2.4 hereof, up to _________________ fully paid and non-assessable shares
of Common Stock (as defined in Section 12 hereof) at an initial purchase price
per share of $.01 (such price per share as adjusted from time to time as
provided herein is referred to herein as the "Exercise Price"). The number of
shares of Common Stock for which this Warrant is exerciseable and the Exercise
Price are subject to adjustment as provided herein.
This Warrant is issued pursuant to the Securities Purchase Agreement (as
amended and in effect from time to time, the "Securities Purchase Agreement"),
dated as of October ___, 1999, among the Company, GMN Investors II, L.P. and the
other investors listed on Exhibit A attached thereto, a copy of which is on file
at the principal office of the Company. The holder of this Warrant shall be
entitled to all of the benefits and shall be subject to all of the obligations
of the Securities Purchase Agreement.
1. DEFINITIONS. Terms defined in the Securities Purchase Agreement and not
otherwise defined herein are used herein with the meanings so defined. Certain
terms are used in this Warrant as specifically defined in Section 12 hereof.
2. EXERCISE OF WARRANT.
2.1. Exercise. This Warrant may be exercised prior to its expiration
pursuant to Section 2.4 hereof by the holder hereof from time to time in
accordance with Section 2.2, by surrender of this Warrant, with the form of
subscription at the end hereof duly executed by such holder, to the Company at
its principal office, accompanied by payment, by certified or official bank
check payable to the order of the Company or by wire transfer to its account, in
the amount obtained by multiplying the number of shares of Common Stock for
which this Warrant is then being exercised by the Exercise Price then in effect.
In the event the Warrant is not exercised in full, the Company, at its expense,
will forthwith issue and deliver to or upon the order of the holder hereof a new
Warrant or Warrants of like tenor, in the name of the holder hereof or as such
holder (upon payment by such holder of any applicable transfer taxes) may
request, calling in the aggregate on the face or faces thereof for the number of
shares of Common Stock equal (without giving effect to any adjustment therein)
to the number of such shares called for on the face of this Warrant minus the
number of such shares (without giving effect to any adjustment therein) for
which this Warrant shall have been exercised. Upon any exercise of this Warrant,
in whole or in part, the holder hereof may pay the aggregate Exercise Price with
respect to the shares of Common Stock for which this Warrant is then being
exercised (collectively, the "Exercise Shares") by surrendering its rights to a
number of Exercise Shares having a fair market value equal to or greater than
the required aggregate Exercise Price, in which case the holder hereof would
receive the number of Exercise Shares to which it would otherwise be entitled
upon such exercise, less the surrendered shares.
<PAGE> 73
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2.2. Warrant Agent. In the event that a bank or trust company shall have
been appointed as trustee for the holder of the Warrant pursuant to Section 6.2
hereof, such bank or trust company shall have all the powers and duties of a
warrant agent appointed pursuant to Section 13 hereof and shall accept, in its
own name for the account of the Company or such successor entity as may be
entitled thereto, all amounts otherwise payable to the Company or such
successor, as the case may be, on exercise of this Warrant pursuant to this
Section 2.
2.3. Termination. This Warrant shall terminate in full upon the earliest
to occur of (i) exercise in full, (ii) the fifth anniversary of the date on
which all Senior Subordinated Convertible Notes issued pursuant to the Purchase
Agreement owned or held by the Holder of this Warrant have been paid in full
(including all accrued and unpaid interest thereon) or converted into Series E
Preferred Stock of the Company, and (iii) October ___, 2006.
3. REGISTRATION RIGHTS. The holder of this Warrant has the right to cause
the Company to register the Warrant Stock issued upon exercise hereof, under the
Securities Act and any blue sky or securities laws of any jurisdictions within
the United States at the time and in the manner specified in the Investors'
Rights Agreement.
4. DELIVERY OF STOCK CERTIFICATES ON EXERCISE.
4.1 Delivery. As soon as practicable after the exercise of this Warrant
in full or in part, and in any event within ten (10) days thereafter, the
Company, at its expense (including the payment by it of any applicable issue
taxes), will cause to be issued in the name of and delivered to the holder
hereof, or as such holder (upon payment by such holder of any applicable
transfer taxes) may direct, a certificate or certificates for the number of
fully paid and non-assessable shares of Common Stock (or Other Securities) to
which such holder shall be entitled on such exercise, together with any other
stock or other securities and property (including cash, where applicable) to
which such holder is entitled upon such exercise.
4.2. Fractional Shares. In the event that the exercise of this Warrant,
in full or in part, results in the issuance of any fractional share of Common
Stock, then in such event the holder of this Warrant shall be entitled to cash
equal to the fair market value of such fractional share as determined in good
faith by the Company's Board of Directors.
5. ADJUSTMENT FOR DIVIDENDS, DISTRIBUTIONS AND RECLASSIFICATIONS. In case
at any time or from time to time, the holders of Common Stock shall have
received, or (on or after the record date fixed for the determination of
shareholders eligible to receive) shall have become entitled to receive, without
payment therefor:
<PAGE> 74
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(a) other or additional stock, other securities, or property
(other than cash) by way of dividend; or
(b) other or additional (or less) stock or other securities or
property (including cash) by way of spin-off, split-up,
reclassification, recapitalization, combination of shares or similar
corporate restructuring;
other than additional shares of Common Stock issued as a stock dividend or in a
stock-split (adjustments in respect of which are provided for in Section 7
hereof), then and in each such case the holder of this Warrant, on the exercise
hereof as provided in Section 2 hereof, shall be entitled to receive the amount
of stock and other securities and property (including cash in the case referred
to in subsection (b) of this Section 5) which such holder would have received
prior to or would have held on the date of such exercise if on the date hereof
it had been the holder of record of the number of shares of Common Stock called
for on the face of this Warrant and had thereafter, during the period from the
date hereof to and including the date of such exercise, retained such shares and
all such other or additional stock and other securities and property (including
cash in the case referred to in subsection (b) of this Section 5) receivable by
such holder as aforesaid during such period, without interest, giving effect to
all further adjustments called for during such period by Sections 6 and 7
hereof.
6. ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION, MERGER, ETC.
6.1. Certain Adjustments. In case at any time or from time to time, the
Company shall (i) effect a capital reorganization, reclassification or
recapitalization, (ii) consolidate with or merge into any other person, or (iii)
transfer all or substantially all of its properties or assets to any other
person under any plan or arrangement contemplating the dissolution of the
Company, then in each such case, the holder of this Warrant, on the exercise
hereof as provided in Section 2 hereof at any time after the consummation of
such reorganization, recapitalization, consolidation or merger or the effective
date of such dissolution, as the case may be, shall receive, in lieu of the
Common Stock (or Other Securities) issuable on such exercise prior to such
consummation or effective date, the stock and other securities and property
(including cash) to which such holder would have been entitled upon such
consummation or in connection with such dissolution, as the case may be, if such
holder had so exercised this Warrant immediately prior thereto, all subject to
further adjustment thereafter as provided in Sections 5 and 7 hereof.
6.2. Appointment of Trustee for Warrant Holders Upon Dissolution. In the
event of any dissolution of the Company following the transfer of all or
substantially all of its properties or assets, the Company, prior to such
dissolution, shall, at its expense, deliver or cause to be delivered the stock
and other securities and property (including cash, where applicable) receivable
by the holders of the Warrant after the
<PAGE> 75
-5-
effective date of such dissolution pursuant to this Section 6 to a bank or trust
company having its principal office in Boston, Massachusetts, as trustee for the
holder or holders of the Warrant.
6.3. Continuation of Terms. Upon any reorganization, consolidation,
merger or transfer (and any dissolution following any transfer) referred to in
this Section 6, this Warrant shall continue in full force and effect and the
terms hereof shall be applicable to the shares of stock and other securities and
property receivable on the exercise of this Warrant after the consummation of
such reorganization, consolidation or merger or the effective date of
dissolution following any such transfer, as the case may be, and shall be
binding upon the issuer of any such stock or other securities, including, in the
case of any such transfer, the person acquiring all or substantially all of the
properties or assets of the Company, whether or not such person shall have
expressly assumed the terms of this Warrant as provided in Section 8 hereof.
7. ADJUSTMENTS FOR ISSUANCE OF COMMON STOCK AND AMOUNT OF OUTSTANDING
COMMON STOCK.
7.1. General. If at any time there shall occur any stock split, stock
dividend, reverse stock split or other subdivision of the Company's Common Stock
("Stock Event"), then the number of shares of Common Stock to be received by the
holder of this Warrant shall be appropriately adjusted such that the proportion
of the number of shares issuable hereunder to the total number of shares of the
Company (on a fully diluted basis) prior to such Stock Event is equal to the
proportion of the number of shares issuable hereunder to the total number of
shares of the Company (on a fully-diluted basis) after such Stock Event and the
Exercise Price shall be appropriately adjusted such that the aggregate Exercise
Price for the total number of shares of the Company issuable hereunder prior to
such Stock Event is equal to the aggregate Exercise Price for the total number
of shares of the Company issuable hereunder after such Stock Event; provided
that in no event will the Exercise Price be less than the par value of the
Common Stock.
7.2. Sale of Common Stock. This Section 7.2 shall apply until such time
as all Notes (as defined in the Securities Purchase Agreement) held by the
holder of this Warrant are paid in full or all of the Notes held by such Holder
are exchanged for Series E Preferred Stock of the Company. If at any time there
shall occur any issuance or sale by the Company of any shares of Common Stock
(except pursuant to the exercise of any other Warrant issued pursuant to the
Securities Purchase Agreement or the conversion of any Series E Preferred Stock
of the Company issued pursuant to the Securities Purchase Agreement) or of any
securities convertible into or exchangeable for shares of Common Stock or any
warrants, options, subscriptions or purchase rights with respect to shares of
Common Stock or securities convertible into or exchangeable for shares of Common
Stock (any of the foregoing events being referred to herein as a "Stock Sale
Event" and the securities issued in connection therewith being referred to
herein as "New Securities"), so that the New Security Price Per Share (as
defined herein) of such
<PAGE> 76
-6-
newly issued securities is lower than the then current Warrant Price Per Share
(as defined herein), then the Exercise Price shall be adjusted immediately
thereafter so that it shall equal the price determined by multiplying the
Exercise Price in effect immediately prior thereto by a fraction, of which the
numerator shall be the number of shares of Common Stock outstanding immediately
prior to such issuance plus the number of additional shares of Common Stock the
aggregate New Security Price Per Share for such issuance would purchase at the
Warrant Price Per Share on such date, and of which the denominator shall be the
number of shares of Common Stock outstanding immediately prior to such issuance
plus the number of additional shares of Common Stock sold or offered for
subscription or purchase (such fraction being the "Adjuster Fraction");
provided, however, that the foregoing provisions shall not apply to (A) shares
of Common Stock issued upon conversion of the Preferred Stock of the Company,
(B) up to 6,004,500 shares (net of repurchases and option cancellations, and
subject to adjustments for stock splits, reverse stock splits, combinations and
similar events) 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) issued or to be issued to employees, officers or directors of,
or consultants or advisors to the Company or any subsidiary pursuant to stock
purchase or stock option plans or other arrangements that are approved by the
Board of Directors, (C) shares of Common Stock or Preferred Stock (and/or
options, warrants or other rights) issued pursuant to any equipment leasing
arrangement or bank financing approved by the Board of Directors, or (D) any
shares of Common Stock or Preferred Stock issued or issuable upon the conversion
of the Notes or exercise of the Warrants. For purposes hereof, "Warrant Price
Per Share" shall mean $6.00 (subject to adjustment in the event of any stock
splits, stock dividends, recapitalizations, reorganizations and the like with
respect to the Common Stock). For purposes hereof, "New Security Price Per
Share" shall mean (a) the sum of (I) the aggregate consideration paid by the
purchasers of the applicable New Securities for such New Securities plus (II) in
the case of any warrants, options, subscriptions or purchase rights with respect
to shares of Common Stock or securities convertible into or exchangeable for
shares of Common Stock, the minimum amount of consideration, if any, payable to
the Company upon exercise, conversion or exchange thereof (provided that, if the
New Securities are issued for no consideration, the consideration paid under
this clause (a) shall be deemed to be $.01 per share), divided by (b) the total
number of shares of Common Stock of the Company issued or sold to such
purchasers or to which such purchasers are entitled to convert the New
Securities. Such adjustment shall be made successively whenever such an issuance
shall occur. To the extent that any such shares, rights, options, warrants or
convertible or exchangeable securities are not so issued or expire unexercised,
the Exercise Price then in effect shall be readjusted to the Exercise Price
which would then be in effect if such unissued or unexercised rights, options,
warrants or convertible or exchangeable securities had not been issuable.
When any adjustment is required to be made to the Exercise Price
pursuant to this Section 7.2, the number of shares of Common Stock purchasable
upon exercise of this Warrant shall be changed to the number determined by
dividing (i) an amount
<PAGE> 77
-7-
equal to the number of shares issuable upon the exercise of this Warrant
immediately prior to such adjustment, multiplied by the Exercise Price in effect
immediately prior to such adjustment, by (ii) the Exercise Price in effect
immediately after such adjustment without considering the fact that the Exercise
Price as adjusted may be lower than the par value of the Common Stock.
7.3. Other Securities. In case any Other Securities shall have been
issued, or shall then be subject to issue upon the conversion or exchange of any
stock (or Other Securities) of the Company (or any other issuer of Other
Securities or any other entity referred to in Section 6 hereof) or to
subscription, purchase or other acquisition pursuant to any rights or options
granted by the Company (or such other issuer or entity), the holder hereof shall
be entitled to receive upon exercise hereof such amount of Other Securities (in
lieu of or in addition to Common Stock) as is determined in accordance with the
terms hereof, treating all references to Common Stock herein as references to
Other Securities to the extent applicable, and the computations, adjustments and
readjustments provided for in this Section 7 with respect to the number of
shares of Common Stock issuable upon exercise of this Warrant shall be made as
nearly as possible in the manner so provided and applied to determine the amount
of Other Securities from time to time receivable on the exercise of the Warrant,
so as to provide the holder of the Warrant with the benefits intended by this
Section 7 and the other provisions of this Warrant.
8. NO DILUTION OR IMPAIRMENT. The Company will not, by amendment of its
Charter 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 terms of this
Warrant, but will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holder of the Warrant as
described herein, in the Securities Purchase Agreement or in any other Related
Agreement, against dilution. Without limiting the generality of the foregoing,
the Company (i) will not increase the par value of any shares of stock
receivable on the exercise of the Warrant above the amount payable therefor on
such exercise, (ii) will take all such action as may be necessary or appropriate
in order that the Company may validly and legally issue fully paid and
non-assessable shares of stock on the exercise of the Warrant from time to time
outstanding, (iii) will not issue any capital stock of any class which is
preferred as to dividends or as to the distribution of assets upon voluntary or
involuntary dissolution, liquidation or winding up, unless the rights of the
holders thereof shall be limited to a fixed sum or percentage of par value in
respect of participation in dividends and in any such distribution of assets,
(iv) will comply in all respects with the provisions of Section 8 of the
Securities Purchase Agreement except to the extent such compliance may be waived
by Section 17 of the Securities Purchase Agreement, and (v) will not transfer
all or substantially all of its properties and assets to any other entity
(corporate or otherwise), or consolidate with or merge into any other entity or
permit any such entity
<PAGE> 78
-8-
to consolidate with or merge into the Company (if the Company is not the
surviving entity), unless such other entity shall expressly assume in writing
and will be bound by all the terms of this Warrant and the Securities Purchase
Agreement.
9. ACCOUNTANTS' CERTIFICATE AS TO ADJUSTMENTS. In each case of any event
that may require any adjustment or readjustment in the shares of Common Stock
issuable on the exercise of this Warrant, the Company at its expense will
promptly prepare a certificate setting forth such adjustment or readjustment, or
stating the reasons why no adjustment or readjustment is being made, and
showing, in detail, the facts upon which any such adjustment or readjustment is
based, including a statement of (i) the number of shares of the Company's Common
Stock then outstanding on a fully diluted basis, and (ii) the number of shares
of Common Stock to be received upon exercise of this Warrant, in effect
immediately prior to such adjustment or readjustment and as adjusted and
readjusted (if required by Section 7) on account thereof. The Company will
forthwith mail a copy of each such certificate to the Majority Holders of the
Warrants, and will, on the written request at any time of the Majority Holders
of the Warrants, furnish to such holders a like certificate setting forth the
calculations used to determine such adjustment or readjustment. At its option,
the Majority Holders of the Warrants may confirm the adjustment noted on the
certificate by causing such adjustment to be computed by an independent
certified public accountant at the expense of the Company.
10. NOTICES OF RECORD DATE. In the event of:
(a) 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 any
right to subscribe for, purchase or otherwise acquire any shares of
stock of any class or any other securities or property, or to receive
any other right; or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company
or any transfer of all or substantially all the assets of the Company to
or any consolidation or merger of the Company with or into any other
Person; or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company; or
(d) any proposed issue or grant by the Company of any shares of
stock of any class or any other securities, or any right or option to
subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities (other than the issue of Common Stock on
the exercise of this Warrant),
<PAGE> 79
-9-
then, and in each such event, the Company will mail or cause to be mailed to the
Majority Holders of the Warrants a notice specifying (i) the date on which any
such record is to be taken for the purpose of such dividend, distribution or
right, and stating the amount and character of such dividend, distribution or
right, (ii) the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding-up is anticipated to take place, and the time, if any is to be fixed, as
of which 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 on such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding-up and (iii) the amount and character of any
stock or other securities, or rights or options with respect thereto, proposed
to be issued or granted, the date of such proposed issue or grant and the
persons or class of persons to whom such proposed issue or grant is to be
offered or made. Such notice shall be mailed at least twenty (20) days prior to
the date specified in such notice on which any such action is to be taken.
11. RESERVATION OF STOCK ISSUABLE ON EXERCISE OF WARRANT. The Company will
at all times reserve and keep available, solely for issuance and delivery on the
exercise of this Warrant, a number of shares of Common Stock equal to the total
number of shares of Common Stock from time to time issuable upon exercise of
this Warrant, and, from time to time, will take all steps necessary to amend its
Charter to provide sufficient reserves of shares of Common Stock issuable upon
exercise of this Warrant.
12. DEFINITIONS. As used herein the following terms, unless the context
otherwise requires, have the following respective meanings:
12.1. The term Common Stock includes (i) the Company's Common Stock,
$.001 par value per share, (ii) any other capital stock of any class or classes
(however designated) of the Company, the holders of which shall have the right,
without limitation as to amount, either to all or to a share of the balance of
current dividends and liquidating dividends after the payment of dividends and
distributions on any shares entitled to preference, and (iii) any other
securities into which or for which any of the securities described in clauses
(i) or (ii) above have been converted or exchanged pursuant to a plan of
recapitalization, reorganization, merger, sale of assets or otherwise.
12.2. The term Other Securities refers to any stock (other than Common
Stock) and other securities of the Company or any other entity (corporate or
otherwise) (i) which the holder of this Warrant at any time shall be entitled to
receive, or shall have received, on the exercise of this Warrant, in lieu of or
in addition to Common Stock, or (ii) which at any time shall be issuable or
shall have been issued in exchange for or in replacement of Common Stock or
Other Securities, in each case pursuant to Section 5 or 6 hereof.
<PAGE> 80
-10-
13. WARRANT AGENT. The Company may, by written notice to the holder of this
Warrant, appoint an agent having an office in Boston, Massachusetts for the
purpose of issuing Common Stock on the exercise of this Warrant pursuant to
Section 2 hereof, and exchanging or replacing this Warrant pursuant to the
Securities Purchase Agreement, or any of the foregoing, and thereafter any such
issuance, exchange or replacement, as the case may be, shall be made at such
office by such agent.
14. REMEDIES. The Company stipulates that the remedies at law of the holder
of this Warrant in the event of any default or threatened default by the Company
in the performance of or compliance with any of the terms of this Warrant are
not and will not be adequate, and that such terms may be specifically enforced
by a decree for the specific performance of any agreement contained herein or by
an injunction against a violation of any of the terms hereof or otherwise.
15. NOTICES. All notices and other communications from the Company to the
holder of this Warrant shall be mailed by first class registered or certified
mail, postage prepaid, or sent by overnight courier (or sent in the form of a
telex or telecopy) at such address as may have been furnished to the Company in
writing by such holder or, until any such holder furnishes to the Company an
address, then to, and at the address of, the last holder of this Warrant who has
so furnished an address to the Company.
16. MISCELLANEOUS. In case any provision of this Warrant shall be invalid,
illegal or unenforceable, or partially invalid, illegal or unenforceable, the
provision shall be enforced to the extent, if any, that it may legally be
enforced and the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby. This Warrant
and any term hereof may be changed, waived, discharged or terminated only by a
statement in writing signed by the party against which enforcement of such
change, waiver, discharge or termination is sought. This Warrant is intended to
take effect as a sealed instrument and shall be governed by and construed in
accordance with the domestic substantive laws (and not the conflict of law
rules) of the Commonwealth of Massachusetts. The headings in this Warrant are
for purposes of reference only, and shall not limit or otherwise affect any of
the terms hereof. This Warrant shall take effect as an instrument under seal.
[ The remainder of this page is intentionally left blank. ]
<PAGE> 81
-11-
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its
duly authorized officer and its corporate seal to be impressed hereon and
attested by its Secretary.
Dated as of October ___, 1999
ELOQUENT, INC.
(Corporate Seal) By:___________________________
Title:________________________
Attest:
___________________________
Secretary
<PAGE> 82
-12-
FORM OF SUBSCRIPTION
(To be signed only on exercise
of Common Stock Purchase Warrant)
TO: Eloquent, Inc.
The undersigned, the Holder of the within Common Stock Purchase Warrant,
hereby irrevocably elects to exercise this Common Stock Purchase Warrant for,
and to purchase thereunder shares of the Common Stock of Eloquent, Inc., a
Delaware corporation, and herewith makes payment of $ ________ therefor, and
requests that the certificates for such shares be issued in the name of, and
delivered to __________, whose address is _________.
Dated: __________________ ___________________________
(Signature must conform in all
respects to name of Holder as
specified on the face of the
Warrant)
___________________________
(Address)
<PAGE> 83
-13-
FORM OF ASSIGNMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and transfers
unto ____________ the right represented by the within Warrant to purchase shares
of the Common Stock of Eloquent, Inc., a Delaware corporation, to which the
within Warrant relates, and appoints attorney to transfer such right on the
books of Eloquent, Inc., with full power of substitution in the premises.
Dated:___________________________
___________________________
By:__________________________
Name:________________________
Title:_______________________
<PAGE> 84
EXHIBIT D
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
[SEE EXHIBIT 3.01]
<PAGE> 1
EXHIBIT 10.01
INDEMNITY AGREEMENT
THIS AGREEMENT is made and entered into this day of , 19
by and between ELOQUENT, INC., a Delaware corporation (the "Corporation"), and
("Agent").
RECITALS
WHEREAS, Agent performs a valuable service to the Corporation in
capacity as of the Corporation;
WHEREAS, the stockholders of the Corporation have adopted bylaws (the
"Bylaws") providing for the indemnification of the directors, officers,
employees and other agents of the Corporation, including persons serving at the
request of the Corporation in such capacities with other corporations or
enterprises, as authorized by the Delaware General Corporation Law, as amended
(the "Code");
WHEREAS, the Bylaws and the Code, by their non-exclusive nature, permit
contracts between the Corporation and its agents, officers, employees and other
agents with respect to indemnification of such persons; and
WHEREAS, in order to induce Agent to continue to serve as of the
Corporation, the Corporation has determined and agreed to enter into this
Agreement with Agent;
NOW, THEREFORE, in consideration of Agent's continued service as
after the date hereof, the parties hereto agree as follows:
AGREEMENT
1. SERVICES TO THE CORPORATION. Agent will serve, at the will of the
Corporation or under separate contract, if any such contract exists, as of the
Corporation or as a director, officer or other fiduciary of an affiliate of the
Corporation (including any employee benefit plan of the Corporation) faithfully
and to the best of his ability so long as he is duly elected and qualified in
accordance with the provisions of the Bylaws or other applicable charter
documents of the Corporation or such affiliate; provided, however, that Agent
may at any time and for any reason resign from such position (subject to any
contractual obligation that Agent may have assumed apart from this Agreement)
and that the Corporation or any affiliate shall have no obligation under this
Agreement to continue Agent in any such position.
2. INDEMNITY OF AGENT. The Corporation hereby agrees to hold harmless
and indemnify Agent to the fullest extent authorized or permitted by the
provisions of the Bylaws and the Code, as the same may be amended from time to
time (but, only to the extent that such amendment permits the Corporation to
provide broader indemnification rights than the Bylaws or the Code permitted
prior to adoption of such amendment).
1.
<PAGE> 2
3. ADDITIONAL INDEMNITY. In addition to and not in limitation of the
indemnification otherwise provided for herein, and subject only to the
exclusions set forth in Section 4 hereof, the Corporation hereby further agrees
to hold harmless and indemnify Agent:
(a) against any and all expenses (including attorneys' fees),
witness fees, damages, judgments, fines and amounts paid in settlement and any
other amounts that Agent becomes legally obligated to pay because of any claim
or claims made against or by him in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, arbitrational,
administrative or investigative (including an action by or in the right of the
Corporation) to which Agent is, was or at any time becomes a party, or is
threatened to be made a party, by reason of the fact that Agent is, was or at
any time becomes a director, officer, employee or other agent of Corporation, or
is or was serving or at any time serves at the request of the Corporation as a
director, officer, employee or other agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise; and
(b) otherwise to the fullest extent as may be provided to Agent by
the Corporation under the non-exclusivity provisions of the Code and Section 41
of the Bylaws.
4. LIMITATIONS ON ADDITIONAL INDEMNITY. No indemnity pursuant to
Section 3 hereof shall be paid by the Corporation:
(a) on account of any claim against Agent for an accounting of
profits made from the purchase or sale by Agent of securities of the Corporation
pursuant to the provisions of Section 16(b) of the Securities Exchange Act of
1934 and amendments thereto or similar provisions of any federal, state or local
statutory law;
(b) on account of Agent's conduct that was knowingly fraudulent or
deliberately dishonest or that constituted willful misconduct;
(c) on account of Agent's conduct that constituted a breach of
Agent's duty of loyalty to the Corporation or resulted in any personal profit or
advantage to which Agent was not legally entitled;
(d) for which payment is actually made to Agent under a valid and
collectible insurance policy or under a valid and enforceable indemnity clause,
bylaw or agreement, except in respect of any excess beyond payment under such
insurance, clause, bylaw or agreement;
(e) if indemnification is not lawful (and, in this respect, both the
Corporation and Agent have been advised that the Securities and Exchange
Commission believes that indemnification for liabilities arising under the
federal securities laws is against public policy and is, therefore,
unenforceable and that claims for indemnification should be submitted to
appropriate courts for adjudication); or
(f) in connection with any proceeding (or part thereof) initiated by
Agent, or any proceeding by Agent 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
2.
<PAGE> 3
proceeding was authorized by the Board of Directors of the Corporation, (iii)
such indemnification is provided by the Corporation, in its sole discretion,
pursuant to the powers vested in the Corporation under the Code, or (iv) the
proceeding is initiated pursuant to Section 9 hereof.
5. CONTINUATION OF INDEMNITY. All agreements and obligations of the
Corporation contained herein shall continue during the period Agent is a
director, officer, employee or other agent of the Corporation (or is or was
serving at the request of the Corporation as a director, officer, employee or
other agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise) and shall continue thereafter so long as Agent
shall be subject to any possible claim or threatened, pending or completed
action, suit or proceeding, whether civil, criminal, arbitrational,
administrative or investigative, by reason of the fact that Agent was serving in
the capacity referred to herein.
6. PARTIAL INDEMNIFICATION. Agent shall be entitled under this
Agreement to indemnification by the Corporation for a portion of the expenses
(including attorneys' fees), witness fees, damages, judgments, fines and amounts
paid in settlement and any other amounts that Agent becomes legally obligated to
pay in connection with any action, suit or proceeding referred to in Section 3
hereof even if not entitled hereunder to indemnification for the total amount
thereof, and the Corporation shall indemnify Agent for the portion thereof to
which Agent is entitled.
7. NOTIFICATION AND DEFENSE OF CLAIM. Not later than thirty (30) days
after receipt by Agent of notice of the commencement of any action, suit or
proceeding, Agent will, if a claim in respect thereof is to be made against the
Corporation under this Agreement, notify the Corporation of the commencement
thereof; but the omission so to notify the Corporation will not relieve it from
any liability which it may have to Agent otherwise than under this Agreement.
With respect to any such action, suit or proceeding as to which Agent notifies
the Corporation of the commencement thereof:
(a) the Corporation will be entitled to participate therein at its
own expense;
(b) except as otherwise provided below, the Corporation may, at its
option and jointly with any other indemnifying party similarly notified and
electing to assume such defense, assume the defense thereof, with counsel
reasonably satisfactory to Agent. After notice from the Corporation to Agent of
its election to assume the defense thereof, the Corporation will not be liable
to Agent under this Agreement for any legal or other expenses subsequently
incurred by Agent in connection with the defense thereof except for reasonable
costs of investigation or otherwise as provided below. Agent shall have the
right to employ separate counsel in such action, suit or proceeding but the fees
and expenses of such counsel incurred after notice from the Corporation of its
assumption of the defense thereof shall be at the expense of Agent unless (i)
the employment of counsel by Agent has been authorized by the Corporation, (ii)
Agent shall have reasonably concluded, and so notified the Corporation, that
there is an actual conflict of interest between the Corporation and Agent in the
conduct of the defense of such action or (iii) the Corporation shall not in fact
have employed counsel to assume the defense of such
3.
<PAGE> 4
action, in each of which cases the fees and expenses of Agent's separate counsel
shall be at the expense of the Corporation. The Corporation shall not be
entitled to assume the defense of any action, suit or proceeding brought by or
on behalf of the Corporation or as to which Agent shall have made the conclusion
provided for in clause (ii) above; and
(c) the Corporation shall not be liable to indemnify Agent under
this Agreement for any amounts paid in settlement of any action or claim
effected without its written consent, which shall not be unreasonably withheld.
The Corporation shall be permitted to settle any action except that it shall not
settle any action or claim in any manner which would impose any penalty or
limitation on Agent without Agent's written consent, which may be given or
withheld in Agent's sole discretion.
8. EXPENSES. The Corporation shall advance, prior to the final
disposition of any proceeding, promptly following request therefor, all expenses
incurred by Agent in connection with such proceeding upon receipt of an
undertaking by or on behalf of Agent to repay said amounts if it shall be
determined ultimately that Agent is not entitled to be indemnified under the
provisions of this Agreement, the Bylaws, the Code or otherwise.
9. ENFORCEMENT. Any right to indemnification or advances granted by
this Agreement to Agent shall be enforceable by or on behalf of Agent 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. Agent, in such enforcement action,
if successful in whole or in part, shall be entitled to be paid also the expense
of prosecuting his claim. It shall be a defense to any action for which a claim
for indemnification is made under Section 3 hereof (other than an action brought
to enforce a claim for expenses pursuant to Section 8 hereof, provided that the
required undertaking has been tendered to the Corporation) that Agent is not
entitled to indemnification because of the limitations set forth in Section 4
hereof. Neither the failure of the Corporation (including its Board of Directors
or its stockholders) to have made a determination prior to the commencement of
such enforcement action that indemnification of Agent is proper in the
circumstances, nor an actual determination by the Corporation (including its
Board of Directors or its stockholders) that such indemnification is improper
shall be a defense to the action or create a presumption that Agent is not
entitled to indemnification under this Agreement or otherwise.
10. SUBROGATION. In the event of payment under this Agreement, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Agent, who shall execute all documents required and shall
do all acts that may be necessary to secure such rights and to enable the
Corporation effectively to bring suit to enforce such rights.
11. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on Agent by this
Agreement shall not be exclusive of any other right which Agent may have or
hereafter acquire under any statute, provision of the Corporation's Certificate
of Incorporation or Bylaws, agreement, vote of stockholders or directors, or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding office.
4.
<PAGE> 5
12. SURVIVAL OF RIGHTS.
(a) The rights conferred on Agent by this Agreement shall continue
after Agent has ceased to be a director, officer, employee or other agent of the
Corporation or to serve at the request of the Corporation as a director,
officer, employee or other agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise and shall inure to the
benefit of Agent's heirs, executors and administrators.
(b) The Corporation shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Corporation, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform if no such succession
had taken place.
13. SEPARABILITY. Each of the provisions of this Agreement is a
separate and distinct agreement and independent of the others, so that if any
provision hereof shall be held to be invalid for any reason, such invalidity or
unenforceability shall not affect the validity or enforceability of the other
provisions hereof. Furthermore, if this Agreement shall be invalidated in its
entirety on any ground, then the Corporation shall nevertheless indemnify Agent
to the fullest extent provided by the Bylaws, the Code or any other applicable
law.
14. GOVERNING LAW. This Agreement shall be interpreted and enforced in
accordance with the laws of the State of Delaware.
15. AMENDMENT AND TERMINATION. No amendment, modification, termination
or cancellation of this Agreement shall be effective unless in writing signed by
both parties hereto.
16. IDENTICAL COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall for all purposes be deemed to be an
original but all of which together shall constitute but one and the same
Agreement. Only one such counterpart need be produced to evidence the existence
of this Agreement.
17. HEADINGS. The headings of the sections of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction hereof.
18. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given (i)
upon delivery if delivered by hand to the party to whom such communication was
directed or (ii) upon the third business day after the date on which such
communication was mailed if mailed by certified or registered mail with postage
prepaid:
(a) If to Agent, at the address indicated on the signature page
hereof.
(b) If to the Corporation, to:
5.
<PAGE> 6
Eloquent, Inc.
2000 Alameda de las Pulgas, Suite 100
San Mateo, CA 94403
or to such other address as may have been furnished to Agent by the Corporation.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.
ELOQUENT, INC.
By:
----------------------------------
Title:
-------------------------------
AGENT
-------------------------------------
Address:
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6.
<PAGE> 1
EXHIBIT 10.02
ELOQUENT, INC.
EQUITY INCENTIVE PLAN
ADOPTED DECEMBER 14, 1995
1. PURPOSES.
(a) The purpose of the Plan is to provide a means by which selected
Employees and Directors of, and Consultants to, the Company and its Affiliates
may be given an opportunity to benefit from increases in value of the stock of
the Company through the granting of (i) Incentive Stock Options, (ii)
Nonstatutory Stock Options, (iii) stock bonuses, and (iv) rights to purchase
restricted stock, all as defined below.
(b) The Company, by means of the Plan, seeks to retain the services of
persons who are now Employees or Directors of, or Consultants to, the Company or
its Affiliates, to secure and retain the services of new Employees, Directors
and Consultants, and to provide incentives for such persons to exert maximum
efforts for the success of the Company and its Affiliates.
(c) The Company intends that the Stock Awards issued under the Plan
shall, in the discretion of the Board or any Committee to which responsibility
for administration of the Plan has been delegated pursuant to subsection 3(c),
be either (i) Options granted pursuant to Section 6 hereof, including Incentive
Stock Options and Nonstatutory Stock Options, or (ii) stock bonuses or rights to
purchase restricted stock granted pursuant to Section 7 hereof. All Options
shall be separately designated Incentive Stock Options or Nonstatutory Stock
Options at the time of grant, and in such form as issued pursuant to Section 6,
and a separate certificate or certificates will be issued for shares purchased
on exercise of each type of Option.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in Sections 424(e)
and (f) respectively, of the Code.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a Committee appointed by the Board in accordance
with subsection 3(c) of the Plan.
(e) "COMPANY" means Eloquent, Inc., a Delaware corporation.
(f) "CONSULTANT" means any person, including an advisor, engaged by the
Company or an Affiliate to render consulting services and who is compensated for
such services, provided
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that the term "Consultant" shall not include Directors who are paid only a
director's fee by the Company or who are not compensated by the Company for
their services as Directors.
(g) "CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT" means
the employment or relationship as a Director or Consultant is not interrupted or
terminated. The Board, in its sole discretion, may determine whether Continuous
Status as an Employee, Director or Consultant shall be considered interrupted in
the case of: (i) any leave of absence approved by the Board, including sick
leave, military leave, or any other personal leave; or (ii) transfers between
locations of the Company or between the Company, Affiliates or their successors.
(h) "DIRECTOR" means a member of the Board.
(i) "DISINTERESTED PERSON" means a Director: who either (i) was not
during the one year prior to service as an administrator of the Plan granted or
awarded equity securities pursuant to the Plan or any other plan of the Company
or any affiliate entitling the participants therein to acquire equity securities
of the Company or any affiliate except as permitted by Rule 16b-3(c)(2)(i); or
(ii) is otherwise considered to be a "disinterested person" in accordance with
Rule 16b-3(c)(2)(i), or any other applicable rules, regulations or
interpretations of the Securities and Exchange Commission.
(j) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Affiliate of the Company. Neither service as a
Director nor payment of a director's fee by the Company shall be sufficient to
constitute "employment" by the Company.
(k) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(l) "FAIR MARKET VALUE" means, as of any date, the value of the common
stock of the Company determined as follows and in each case in a manner
consistent with Section 260.140.50 of Title 10 of the California Code of
Regulations:
(1) If the common stock is listed on any established stock exchange
or a national market system, including without limitation the National Market
System of the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") System, the Fair Market Value of a share of common stock
shall be the closing sales price for such stock (or the closing bid, if no sales
were reported) as quoted on such system or exchange (or the exchange with the
greatest volume of trading in common stock) on the last market trading day prior
to the day of determination, as reported in the Wall Street Journal or such
other source as the Board deems reliable;
(2) If the common stock is quoted on the NASDAQ System (but not on
the National Market System thereof) or is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a share of common stock shall be the mean of the bid and asked prices for the
common stock on the last market trading day prior to the day of determination,
as reported in the Wall Street Journal or such other source as the Board deems
reliable;
(3) In the absence of an established market for the common stock,
the Fair Market Value shall be determined in good faith by the Board.
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<PAGE> 3
(m) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(n) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify
as an Incentive Stock Option.
(o) "OFFICER" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(p) "OPTION" means a stock option granted pursuant to the Plan.
(q) "OPTION AGREEMENT" means a written agreement between the Company
and an Optionee evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of the
Plan.
(r) "OPTIONEE" means any person who holds an outstanding Option.
(s) "PLAN" means this Eloquent, Inc. Equity Incentive Plan.
(t) "RULE 16B-3" means Rule 16b-3 of the Exchange Act or any successor
to Rule 16b-3, as in effect when discretion is being exercised with respect to
the Plan.
(u) "STOCK AWARD" means any right granted under the Plan, including any
Option, any stock bonus, and any right to purchase restricted stock.
(v) "STOCK AWARD AGREEMENT" means a written agreement between the
Company and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to the
terms and conditions of the Plan.
3. ADMINISTRATION.
(a) The Plan shall be administered by the Board unless and until the
Board delegates administration to a Committee, as provided in subsection 3(c).
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(1) To determine from time to time which of the persons eligible
under the Plan shall be granted Stock Awards; when and how each Stock Award
shall be granted; whether a Stock Award will be an Incentive Stock Option, a
Nonstatutory Stock Option, a stock bonus, a right to purchase restricted stock,
or a combination of the foregoing; the provisions of each Stock Award granted
(which need not be identical), including the time or times when a person shall
be permitted to receive stock pursuant to a Stock Award; and the number of
shares with respect to which a Stock Award shall be granted to each such person.
(2) To construe and interpret the Plan and Stock Awards granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the
3
<PAGE> 4
exercise of this power, may correct any defect, omission or inconsistency in the
Plan or in any Stock Award Agreement, in a manner and to the extent it shall
deem necessary or expedient to make the Plan fully effective.
(3) To amend the Plan or a Stock Award as provided in Section 13.
(c) The Board may delegate administration of the Plan to a committee
composed of not fewer than two (2) members (the "Committee"), all of the members
of which Committee shall be Disinterested Persons. If administration is
delegated to a Committee, the Committee shall have, in connection with the
administration of the Plan, the powers theretofore possessed by the Board (and
references in this Plan to the Board shall thereafter be to the Committee),
subject, however, to such resolutions, not inconsistent with the provisions of
the Plan, as may be adopted from time to time by the Board. The Board may
abolish the Committee at any time and revest in the Board the administration of
the Plan. Additionally, prior to the date of the first registration of an equity
security of the Company under Section 12 of the Exchange Act, and
notwithstanding anything to the contrary contained herein, the Board may
delegate administration of the Plan to any person or persons and the term
"Committee" shall apply to any person or persons to whom such authority has been
delegated. Notwithstanding anything in this Section 3 to the contrary, at any
time the Board or the Committee may delegate to a committee of one or more
members of the Board the authority to grant Stock Awards to eligible persons who
are not then subject to Section 16 of the Exchange Act.
(d) Any requirement that an administrator of the Plan be a
Disinterested Person shall not apply (i) prior to the date of the first
registration of an equity security of the Company under Section 12 of the
Exchange Act, or (ii) if the Board or the Committee expressly declares that such
requirement shall not apply. Any Disinterested Person shall otherwise comply
with the requirements of Rule 16b-3.
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 12 relating to adjustments
upon changes in stock, the stock that may be issued pursuant to Stock Awards
shall not exceed in the aggregate Eight Hundred Fifty Thousand (850,000) shares
of the Company's common stock. If any Stock Award shall for any reason expire or
otherwise terminate, in whole or in part, without having been exercised in full,
the stock not acquired under such Stock Award shall revert to and again become
available for issuance under the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
5. ELIGIBILITY.
(a) Incentive Stock Options may be granted only to Employees. Stock
Awards other than Incentive Stock Options may be granted only to Employees,
Directors or Consultants.
(b) A Director shall in no event be eligible for the benefits of the
Plan unless at the time discretion is exercised in the selection of the Director
as a person to whom Stock Awards may be granted, or in the determination of the
number of shares which may be covered by Stock
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<PAGE> 5
Awards granted to the Director: (i) the Board has delegated its discretionary
authority over the Plan to a Committee which consists solely of Disinterested
Persons; or (ii) the Plan otherwise complies with the requirements of Rule
16b-3. The Board shall otherwise comply with the requirements of Rule 16b-3.
This subsection 5(b) shall not apply (i) prior to the date of the first
registration of an equity security of the Company under Section 12 of the
Exchange Act, or (ii) if the Board or Committee expressly declares that it shall
not apply.
(c) No person shall be eligible for the grant of an Option or an award
to purchase restricted stock if, at the time of grant, such person owns (or is
deemed to own pursuant to Section 424(d) of the Code) stock possessing more than
ten percent (10%) of the total combined voting power of all classes of stock of
the Company or of any of its Affiliates unless the exercise price of such Option
is at least one hundred ten percent (110%) of the Fair Market Value of such
stock at the date of grant and the Option is not exercisable after the
expiration of five (5) years from the date of grant, or in the case of a
restricted stock purchase award, the purchase price is at least one hundred
percent (100%) of the Fair Market Value of such stock at the date of grant.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise) the
substance of each of the following provisions:
(a) TERM. No Option shall be exercisable after the expiration of ten
(10) years from the date it was granted.
(b) PRICE. The exercise price of each Incentive Stock Option shall be
not less than one hundred percent (100%) of the Fair Market Value of the stock
subject to the Option on the date the Option is granted; the exercise price of
each Nonstatutory Stock Option shall be not less than eighty-five percent (85%)
of the Fair Market Value of the stock subject to the Option on the date the
Option is granted. Notwithstanding the foregoing, an Option (whether an
Incentive Stock Option or a Nonstatutory Stock Option) may be granted with an
exercise price lower than that set forth in the preceding sentence if such
Option is granted in substitution for another option in a manner satisfying the
provisions of Section 424(a) of the Code.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to an
Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised, or (ii) at
the discretion of the Board or the Committee, (A) by delivery to the Company of
other common stock of the Company, (B) according to a deferred payment or other
arrangement (which may include, without limiting the generality of the
foregoing, the use of other common stock of the Company) with the person to whom
the Option is granted or to whom the Option is transferred pursuant to
subsection 6(d), or (C) in any other form of legal consideration that may be
acceptable to the Board.
In the case of any deferred payment arrangement, interest shall be
payable at least annually and shall be charged at the minimum rate of interest
necessary to avoid the treatment as
5
<PAGE> 6
interest, under any applicable provisions of the Code, of any amounts other than
amounts stated to be interest under the deferred payment arrangement.
(d) TRANSFERABILITY. An Option shall not be transferable except by will
or by the laws of descent and distribution, and shall be exercisable during the
lifetime of the person to whom the Option is granted only by such person.
Notwithstanding the foregoing, the person to whom the Option is granted may, by
delivering written notice to the Company, in a form satisfactory to the Company,
designate a third party who, in the event of the death of the Optionee, shall
thereafter be entitled to exercise the Option.
(e) VESTING. The total number of shares of stock subject to an Option
may, but need not, be allotted in periodic installments (which may, but need
not, be equal). The Option Agreement may provide that from time to time during
each of such installment periods, the Option may become exercisable ("vest")
with respect to some or all of the shares allotted to that period, and may be
exercised with respect to some or all of the shares allotted to such period
and/or any prior period as to which the Option became vested but was not fully
exercised. The Option may be subject to such other terms and conditions on the
time or times when it may be exercised (which may be based on performance or
other criteria) as the Board may deem appropriate. The vesting provisions of
individual Options may vary but, for California employees, will provide for
vesting of at least twenty percent (20%) per year of the total number of shares
subject to the Option. The provisions of this subsection 6(e) are subject to any
Option provisions governing the minimum number of shares as to which an Option
may be exercised.
(f) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR
CONSULTANT. In the event an Optionee's Continuous Status as an Employee,
Director or Consultant terminates (other than upon the Optionee's death or
disability), the Optionee may exercise his or her Option (to the extent that the
Optionee was entitled to exercise it at the date of termination) but only within
such period of time ending on the earlier of (i) the date three (3) months after
the termination of the Optionee's Continuous Status as an Employee, Director or
Consultant (or such longer or shorter period, which in no event shall be less
than thirty (30) days, specified in the Option Agreement), or (ii) the
expiration of the term of the Option as set forth in the Option Agreement. If,
after termination, the Optionee does not exercise his or her Option within the
time specified in the Option Agreement, the Option shall terminate, and the
shares covered by such Option shall revert to and again become available for
issuance under the Plan.
An Optionee's Option Agreement may also provide that if the exercise of
the Option following the termination of the Optionee's Continuous Status as an
Employee, Director, or Consultant (other than upon the Optionee's death or
disability) would result in liability under Section 16(b) of the Exchange Act,
then the Option shall terminate on the earlier of (i) the expiration of the term
of the Option set forth in the Option Agreement, or (ii) the tenth (10th) day
after the last date on which such exercise would result in such liability under
Section 16(b) of the Exchange Act. Finally, an Optionee's Option Agreement may
also provide that if the exercise of the Option following the termination of the
Optionee's Continuous Status as an Employee, Director or Consultant (other than
upon the Optionee's death or disability) would be prohibited at any time solely
because the issuance of shares would violate the registration requirements under
the Act, then the Option shall terminate on the earlier of (i) the expiration of
the term of the Option set forth in the first paragraph of this subsection 6(f),
or (ii) the expiration of a period
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<PAGE> 7
of three (3) months after the termination of the Optionee's Continuous Status as
an Employee, Director or Consultant during which the exercise of the Option
would not be in violation of such registration requirements.
(g) DISABILITY OF OPTIONEE. In the event an Optionee's Continuous
Status as an Employee, Director or Consultant terminates as a result of the
Optionee's disability, the Optionee may exercise his or her Option (to the
extent that the Optionee was entitled to exercise it at the date of
termination), but only within such period of time ending on the earlier of (i)
the date twelve (12) months following such termination (or such longer or
shorter period, which in no event shall be less than six (6) months, specified
in the Option Agreement), or (ii) the expiration of the term of the Option as
set forth in the Option Agreement. If, at the date of termination, the Optionee
is not entitled to exercise his or her entire Option, the shares covered by the
unexercisable portion of the Option shall revert to and again become available
for issuance under the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified herein, the Option shall
terminate, and the shares covered by such Option shall revert to and again
become available for issuance under the Plan.
(h) DEATH OF OPTIONEE. In the event of the death of an Optionee during,
or within a period specified in the Option after the termination of, the
Optionee's Continuous Status as an Employee, Director or Consultant, the Option
may be exercised (to the extent the Optionee was entitled to exercise the Option
at the date of death) by the Optionee's estate, by a person who acquired the
right to exercise the Option by bequest or inheritance or by a person designated
to exercise the option upon the Optionee's death pursuant to subsection 6(d),
but only within the period ending on the earlier of (i) the date eighteen (18)
months following the date of death (or such longer or shorter period, which in
no event shall be less than six (6) months, specified in the Option Agreement),
or (ii) the expiration of the term of such Option as set forth in the Option
Agreement. If, at the time of death, the Optionee was not entitled to exercise
his or her entire Option, the shares covered by the unexercisable portion of the
Option shall revert to and again become available for issuance under the Plan.
If, after death, the Option is not exercised within the time specified herein,
the Option shall terminate, and the shares covered by such Option shall revert
to and again become available for issuance under the Plan.
(i) EARLY EXERCISE. The Option may, but need not, include a provision
whereby the Optionee may elect at any time while an Employee, Director or
Consultant to exercise the Option as to any part or all of the shares subject to
the Option prior to the full vesting of the Option. Any unvested shares so
purchased shall be subject to a repurchase right in favor of the Company, with
the repurchase price to be equal to the original purchase price of the stock, or
to any other restriction the Board determines to be appropriate; provided,
however, that (i) the right to repurchase at the original purchase price shall
lapse at a minimum rate of twenty percent (20%) per year over five (5) years
from the date the Option was granted, (ii) such right shall be exercisable only
within (A) the ninety (90) day period following the termination of employment or
the relationship as a Director or Consultant, or (B) such longer period as may
be agreed to by the Company and the Optionee (for example, for purposes of
satisfying the requirements of Section 1202(c)(3) of the Code (regarding
"qualified small business stock")), (iii) such right shall be exercisable only
for cash or cancellation of purchase money indebtedness for the shares, and (iv)
if the Company exercises such right, it must purchase all of the shares subject
to the Option unless the Optionee consents otherwise. Should the right of
repurchase be assigned by the
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<PAGE> 8
Company, the assignee shall pay the Company cash equal to the difference between
the original purchase price and the stock's Fair Market Value if the original
purchase price is less than the stock's Fair Market Value.
(j) RIGHT OF REPURCHASE. The Option may, but need not, include a
provision whereby the Company may elect, prior to the date of the first
registration of an equity security of the Company under Section 12 of the
Exchange Act, to repurchase all of the vested shares exercised pursuant to the
Option; provided, however, that (i) with the consent of the Optionee or his
personal representative, as the case may be, the Company may repurchase less
than all of such vested shares; (ii) such repurchase right shall be exercisable
only within (A) the ninety (90) day period following the termination of
employment or the relationship as a Director or Consultant, or (B) such longer
period as may be agreed to by the Company and the Optionee (for example, for
purposes of satisfying the requirements of Section 1202(c)(3) of the Code
(regarding "qualified small business stock")), and (iii) such right shall be
exercisable only for cash or cancellation of purchase money indebtedness for the
shares at a repurchase price equal to the greater of (A) the stock's Fair Market
Value at the time of such termination, or (B) the original purchase price paid
for such shares by the Optionee.
(k) RIGHT OF FIRST REFUSAL. The Option may, but need not, include a
provision whereby the Company may elect, prior to the date of the first
registration of an equity security of the Company under Section 12 of the
Exchange Act, to exercise a right of first refusal following receipt of notice
from the Optionee of the intent to transfer all or any part of the shares
exercised pursuant to the Option.
(l) RE-LOAD OPTIONS. Without in any way limiting the authority of the
Board or Committee to make or not to make grants of Options hereunder, the Board
or Committee shall have the authority (but not an obligation) to include as part
of any Option Agreement a provision entitling the Optionee to a further Option
(a "Re-Load Option") in the event the Optionee exercises the Option evidenced by
the Option agreement, in whole or in part, by surrendering other shares of
Common Stock in accordance with this Plan and the terms and conditions of the
Option Agreement. Any such Re-Load Option (i) shall be for a number of shares
equal to the number of shares surrendered as part or all of the exercise price
of such Option; (ii) shall have an expiration date which is the same as the
expiration date of the Option the exercise of which gave rise to such Re-Load
Option; and (iii) shall have an exercise price which is equal to one hundred
percent (100%) of the Fair Market Value of the Common Stock subject to the
Re-Load Option on the date of exercise of the original Option. Notwithstanding
the foregoing, a Re-Load Option that is granted to a 10% stockholder (as
described in subsection 5(c)), shall have an exercise price which is equal to
one hundred ten percent (110%) of the Fair Market Value of the stock subject to
the Re-Load Option on the date of exercise of the original Option and shall have
a term which is no longer than five (5) years.
Any such Re-Load Option may be an Incentive Stock Option or a
Nonstatutory Stock Option, as the Board or Committee may designate at the time
of the grant of the original Option; provided, however, that the designation of
any Re-Load Option as an Incentive Stock Option shall be subject to the one
hundred thousand dollar ($100,000) annual limitation on exercisability of
Incentive Stock Options described in subsection 12(e) of the Plan and in Section
422(d) of the Code. There shall be no Re-Load Options on a Re-Load Option. Any
such Re-Load Option
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<PAGE> 9
shall be subject to the availability of sufficient shares under subsection 4(a)
and shall be subject to such other terms and conditions as the Board or
Committee may determine which are not inconsistent with the express provisions
of the Plan regarding the terms of Options.
7. TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK.
Each stock bonus or restricted stock purchase agreement shall be in
such form and shall contain such terms and conditions as the Board or the
Committee shall deem appropriate. The terms and conditions of stock bonus or
restricted stock purchase agreements may change from time to time, and the terms
and conditions of separate agreements need not be identical, but each stock
bonus or restricted stock purchase agreement shall include (through
incorporation of provisions hereof by reference in the agreement or otherwise)
the substance of each of the following provisions as appropriate:
(a) PURCHASE PRICE. The purchase price under each restricted stock
purchase agreement shall be such amount as the Board or Committee shall
determine and designate in such agreement, but in no event shall the purchase
price be less than eighty-five percent (85%) of the stock's Fair Market Value on
the date such award is made. Notwithstanding the foregoing, the Board or the
Committee may determine that eligible participants in the Plan may be awarded
stock pursuant to a stock bonus agreement in consideration for past services
actually rendered to the Company or for its benefit.
(b) TRANSFERABILITY. No rights under a stock bonus or restricted stock
purchase agreement shall be transferable except by will or the laws of descent
and distribution or pursuant to a qualified domestic relations order satisfying
the requirements of Rule 16b-3 and any administrative interpretations or
pronouncements thereunder, so long as stock awarded under such agreement remains
subject to the terms of the agreement.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to a
stock purchase agreement shall be paid either: (i) in cash at the time of
purchase; (ii) at the discretion of the Board or the Committee, according to a
deferred payment or other arrangement with the person to whom the stock is sold;
or (iii) in any other form of legal consideration that may be acceptable to the
Board or the Committee in its discretion. Notwithstanding the foregoing, the
Board or the Committee to which administration of the Plan has been delegated
may award stock pursuant to a stock bonus agreement in consideration for past
services actually rendered to the Company or for its benefit.
(d) VESTING. Shares of stock sold or awarded under the Plan may, but
need not, be subject to a repurchase option in favor of the Company in
accordance with a vesting schedule to be determined by the Board or the
Committee; provided, however, that (i) the right to repurchase at the original
purchase price shall lapse at a minimum rate of twenty percent (20%) per year
over five (5) years from the date the Stock Award was granted, and (ii) such
right shall be exercisable only (A) within the ninety (90) day period following
the termination of employment or the relationship as a Director or Consultant,
or (B) such longer period as may be agreed to by the Company and the holder of
the Stock Award (for example, for purposes of satisfying the requirements of
Section 1202(c)(3) of the Code (regarding "qualified small business stock")),
and (iii) such right shall be exercisable only for cash or cancellation of
purchase money
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indebtedness for the shares. Should the right of repurchase be assigned by the
Company, the assignee shall pay the Company cash equal to the difference between
the original purchase price and the stock's Fair Market Value if the original
purchase price is less than the stock's Fair Market Value.
(e) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR
CONSULTANT. In the event a Participant's Continuous Status as an Employee,
Director or Consultant terminates, the Company may repurchase or otherwise
reacquire, subject to the limitations described in subsection 7(d), all of the
shares of stock held by that person that have not vested as of the date of
termination under the terms of the stock bonus or restricted stock purchase
agreement between the Company and such person; provided, however, that with the
consent of such person or his personal representative, as the case may be, the
Company may repurchase or otherwise reacquire less than all of such stock.
8. CANCELLATION AND RE-GRANT OF OPTIONS.
The Board or the Committee shall have the authority to effect, at any
time and from time to time, (i) the repricing of any outstanding Options and/or
(ii) with the consent of the affected holders of Options, the cancellation of
any outstanding Options under the Plan and the grant in substitution therefor of
new Options under the Plan covering the same or different numbers of shares of
stock, but having an exercise price per share not less than eighty-five percent
(85%) of the Fair Market Value (one hundred percent (100%) of the Fair Market
Value in the case of an Incentive Stock Option) or, in the case of a 10%
stockholder (as described in subsection 5(c)), not less than one hundred ten
percent (110%) of the Fair Market Value) per share of stock on the new grant
date. Notwithstanding the foregoing, the Board or the Committee may grant an
Option with an exercise price lower than that set forth above if such Option is
granted as part of a transaction to which section 424(a) of the Code applies.
9. COVENANTS OF THE COMPANY.
(a) During the terms of the Stock Awards, the Company shall keep
available at all times the number of shares of stock required to satisfy such
Stock Awards.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of the Stock Award; provided,
however, that this undertaking shall not require the Company to register under
the Securities Act of 1933, as amended (the "Securities Act") either the Plan,
any Stock Award or any stock issued or issuable pursuant to any such Stock
Award. If, after reasonable efforts, the Company is unable to obtain from any
such regulatory commission or agency the authority that counsel for the Company
deems necessary for the lawful issuance and sale of stock under the Plan, the
Company shall be relieved from any liability for failure to issue and sell stock
upon exercise of such Stock Awards unless and until such authority is obtained.
10. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Stock Awards shall
constitute general funds of the Company.
10
<PAGE> 11
11. MISCELLANEOUS.
(a) Neither an Employee, Director or Consultant nor any person to whom
a Stock Award is transferred under subsection 6(d) or 7(b) shall be deemed to be
the holder of, or to have any of the rights of a holder with respect to, any
shares subject to such Stock Award unless and until such person has satisfied
all requirements for exercise of the Stock Award pursuant to its terms.
(b) 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 section shall not
apply when issuance is limited to key employees whose duties in connection with
the Company assure them access to equivalent information.
(c) Nothing in the Plan or any instrument executed or Stock Award
granted pursuant thereto shall confer upon any Employee, Director, Consultant or
other holder of Stock Awards any right to continue in the employ of the Company
or any Affiliate (or to continue acting as a Director or Consultant) or shall
affect the right of the Company or any Affiliate to terminate the employment of
any Employee with or without cause the right of the Company's Board of Directors
and/or the Company's shareholders to remove any Director pursuant to the terms
of the Company's By-Laws and the provisions of the Delaware General Corporation
Law or the right to terminate the relationship of any Consultant pursuant to the
terms of such Consultant's agreement with the Company or Affiliate.
(d) To the extent that the aggregate Fair Market Value (determined at
the time of grant) of stock with respect to which Incentive Stock Options are
exercisable for the first time by any Optionee during any calendar year under
all plans of the Company and its Affiliates exceeds one hundred thousand dollars
($100,000), the Options or portions thereof which exceed such limit (according
to the order in which they were granted) shall be treated as Nonstatutory Stock
Options.
(e) The Company may require any person to whom a Stock Award is
granted, or any person to whom a Stock Award is transferred pursuant to
subsection 6(d) or 7(b), as a condition of exercising or acquiring stock under
any Stock Award, (1) to give written assurances satisfactory to the Company as
to such person's knowledge and experience in financial and business matters
and/or to employ a purchaser representative reasonably satisfactory to the
Company who is knowledgeable and experienced in financial and business matters,
and that he or she is capable of evaluating, alone or together with the
purchaser representative, the merits and risks of exercising the Stock Award;
and (2) to give written assurances satisfactory to the Company stating that such
person is acquiring the stock subject to the Stock Award for such person's own
account and not with any present intention of selling or otherwise distributing
the stock. The foregoing requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (i) the issuance of the shares upon the
exercise or acquisition of stock under the Stock Award has been registered under
a then currently effective registration statement under the Securities Act, or
(ii) as to any particular requirement, a determination is made by counsel for
the Company that such requirement need not be met in the circumstances under the
then applicable securities laws. The Company may, upon advice of counsel to the
Company,
11
<PAGE> 12
place legends on stock certificates issued under the Plan as such counsel deems
necessary or appropriate in order to comply with applicable securities laws,
including, but not limited to, legends restricting the transfer of the stock.
(f) To the extent provided by the terms of a Stock Award Agreement, the
person to whom a Stock Award is granted may satisfy any federal, state or local
tax withholding obligation relating to the exercise or acquisition of stock
under a Stock Award by any of the following means or by a combination of such
means: (1) tendering a cash payment; (2) authorizing the Company to withhold
shares from the shares of the common stock otherwise issuable to the participant
as a result of the exercise or acquisition of stock under the Stock Award; or
(3) delivering to the Company owned and unencumbered shares of the common stock
of the Company.
12. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject
to any Stock Award, without the receipt of consideration by the Company (through
merger, consolidation, reorganization, recapitalization, reincorporation, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of consideration by the
Company), the Plan will be appropriately adjusted in the class(es) and maximum
number of shares subject to the Plan pursuant to subsection 4(a) and the
outstanding Stock Awards will be appropriately adjusted in the class(es) and
number of shares and price per share of stock subject to such outstanding Stock
Awards. Such adjustments shall be made by the Board or the Committee, the
determination of which shall be final, binding and conclusive. (The conversion
of any convertible securities of the Company shall not be treated as a
"transaction not involving the receipt of consideration by the Company.")
(b) In the event of: (1) a merger or consolidation in which the Company
is not the surviving corporation or (2) a reverse merger in which the Company is
the surviving corporation but the shares of the Company's common stock
outstanding immediately preceding the merger are converted by virtue of the
merger into other property, whether in the form of securities, cash or otherwise
then to the extent permitted by applicable law: (i) any surviving corporation or
an Affiliate of such surviving corporation shall assume any Stock Awards
outstanding under the Plan or shall substitute similar Stock Awards for those
outstanding under the Plan, or (ii) such Stock Awards shall continue in full
force and effect. In the event any surviving corporation and its Affiliates
refuse to assume or continue such Stock Awards, or to substitute similar Stock
Awards for those outstanding under the Plan, then such Stock Awards shall be
terminated if not exercised prior to such event. In the event of a dissolution
or liquidation of the Company, any Stock Awards outstanding under the Plan shall
terminate if not exercised prior to such event.
13. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in Section 12 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the stockholders of
the Company within twelve (12) months before or after the adoption of the
amendment, where the amendment will:
12
<PAGE> 13
(i) Increase the number of shares reserved for Stock Awards under
the Plan;
(ii) Modify the requirements as to eligibility for participation
in the Plan (to the extent such modification requires stockholder approval in
order for the Plan to satisfy the requirements of Section 422 of the Code); or
(iii) Modify the Plan in any other way if such modification
requires stockholder approval in order for the Plan to satisfy the requirements
of Section 422 of the Code or to comply with the requirements of Rule 16b-3.
(b) The Board may in its sole discretion submit any other amendment to
the Plan for stockholder approval, including, but not limited to, amendments to
the Plan intended to satisfy the requirements of Section 162(m) of the Code and
the regulations promulgated thereunder regarding the exclusion of
performance-based compensation from the limit on corporate deductibility of
compensation paid to certain executive officers.
(c) It is expressly contemplated that the Board may amend the Plan in
any respect the Board deems necessary or advisable to provide eligible
Employees, Directors or Consultants with the maximum benefits provided or to be
provided under the provisions of the Code and the regulations promulgated
thereunder relating to Incentive Stock Options and/or to bring the Plan and/or
Incentive Stock Options granted under it into compliance therewith.
(d) Rights and obligations under any Stock Award granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the person to whom the Stock Award was
granted and (ii) such person consents in writing.
(e) The Board at any time, and from time to time, may amend the terms
of any one or more Stock Award; provided, however, that the rights and
obligations under any Stock Award shall not be impaired by any such amendment
unless (i) the Company requests the consent of the person to whom the Stock
Award was granted and (ii) such person consents in writing.
14. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate on December 13, 2005, which shall be
within ten (10) years from the date the Plan is adopted by the Board or approved
by the stockholders of the Company, whichever is earlier. No Stock Awards may be
granted under the Plan while the Plan is suspended or after it is terminated.
(b) Rights and obligations under any Stock Award granted while the Plan
is in effect shall not be impaired by suspension or termination of the Plan,
except with the consent of the person to whom the Stock Award was granted.
15. EFFECTIVE DATE OF PLAN.
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<PAGE> 14
The Plan shall become effective as determined by the Board, but no
Stock Awards granted under the Plan shall be exercised unless and until the Plan
has been approved by the stockholders of the Company, which approval shall be
within twelve (12) months before or after the date the Plan is adopted by the
Board, and, if required, an appropriate permit has been issued by the
Commissioner of Corporations of the State of California.
14
<PAGE> 1
EXHIBIT 10.03
IT IS UNLAWFUL TO CONSUMMATE A SALE OR
TRANSFER OF THIS SECURITY, OR ANY INTEREST
THEREIN, OR TO RECEIVE ANY CONSIDERATION
THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT
OF THE COMMISSIONER OF CORPORATIONS OF THE
STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN
THE COMMISSIONER'S RULES.
INCENTIVE STOCK OPTION
__________, Optionee:
Eloquent, Inc. (the "Company"), pursuant to its Equity Incentive Plan
(the "Plan"), has this day granted to you, the optionee named above, an option
to purchase shares of the common stock of the Company ("Common Stock"). This
option is intended to qualify as an "incentive stock option" within the meaning
of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").
The grant hereunder is in connection with and in furtherance of the
Company's compensatory benefit plan for participation of the Company's employees
(including officers), directors or consultants and is intended to comply with
the provisions of Rule 701 promulgated by the Securities and Exchange Commission
under the Securities Act of 1933, as amended (the "Act").
The details of your option are as follows:
1. The total number of shares of Common Stock subject to this option is
__________. Subject to the limitations contained herein, twenty percent (20%) of
the shares will vest (become exercisable) on __________ and one sixtieth (1/60)
of the shares will then vest on the same day of each month thereafter until
either (i) you cease to provide services to the Company for any reason, or (ii)
this option becomes fully vested.
2. (a) The exercise price of this option is __________ per share, being
not less than the fair market value of the Common Stock on the date of grant of
this option.
(b) Payment of the exercise price per share is due in full upon
exercise of all or any part of each installment which has accrued to you. You
may elect, to the extent permitted by applicable statutes and regulations, to
make payment of the exercise price under one of the following alternatives:
(i) Payment of the exercise price per share in cash (including
check) at the time of exercise; or
<PAGE> 2
(ii) Payment pursuant to a program developed under Regulation T
as promulgated by the Federal Reserve Board which results in the receipt of cash
(or check) by the Company prior to the issuance of Common Stock.
3. (a) Subject to the provisions of this option you may elect at any
time during your employment with the Company or an affiliate thereof, to
exercise the option as to any part or all of the shares subject to this option
at any time during the term hereof, including without limitation, a time prior
to the date of earliest exercise ("vesting") stated in paragraph 1 hereof;
provided, however, that:
(i) a partial exercise of this option shall be deemed to cover
first vested shares and then the earliest vesting installment of unvested
shares;
(ii) any shares so purchased from installments that have not
vested as of the date of exercise shall be subject to the purchase option in
favor of the Company as described in the Early Exercise Stock Purchase Agreement
attached hereto;
(iii) you shall enter into an Early Exercise Stock Purchase
Agreement in the form attached hereto with a vesting schedule that will result
in the same vesting as if no early exercise had occurred; and
(iv) this option shall not be exercisable under this paragraph
3 to the extent such exercise would cause the aggregate fair market value of any
shares subject to incentive stock options granted you by the Company or any
affiliate (valued as of their grant date) which would become exercisable for the
first time during any calendar year to exceed $100,000.
(b) The election provided in this paragraph 3 to purchase shares
upon the exercise of this option prior to the vesting dates shall cease upon
termination of your employment with the Company or an affiliate thereof and may
not be exercised after the date thereof.
4. This option may not be exercised for any number of shares that would
require the issuance of anything other than whole shares.
5. Notwithstanding anything to the contrary contained herein, this
option may not be exercised unless the shares issuable upon exercise of this
option are then registered under the Act or, if such shares are not then so
registered, the Company has determined that such exercise and issuance would be
exempt from the registration requirements of the Act.
6. The term of this option commences on __________, the date of grant
and, unless sooner terminated as set forth below or in the Plan, terminates on
__________ (which date shall be no more than ten (10) years from date this
option is granted). In no event may this option be exercised on or after the
date on which it terminates. This option shall terminate prior to the expiration
of its term as follows: thirty (30) days after the termination of your
employment with the Company or an affiliate of the Company (as defined in the
Plan) unless one of the following circumstances exists:
2
<PAGE> 3
(a) Your termination of employment is due to your disability. This
option will then terminate on the earlier of the termination date set forth
above or twelve (12) months following such termination of employment. You should
be aware that if your disability is not considered a permanent and total
disability within the meaning of Section 422(c)(6) of the Code, and you exercise
this option more than three (3) months following the date of your termination of
employment, your exercise will be treated for tax purposes as the exercise of a
"nonstatutory stock option" instead of an "incentive stock option."
(b) Your termination of employment is due to your death or you die
within such thirty (30) day period. This option will then terminate on the
earlier of the termination date set forth above or eighteen (18) months after
your death.
(c) If during any part of such thirty (30) day period you may not
exercise your option solely because of the condition set forth in paragraph 5
above, then your option will not terminate until the earlier of the termination
date set forth above or until this option shall have been exercisable for an
aggregate period of thirty (30) days after your termination of employment.
(d) If your exercise of the option within thirty (30) days after
termination of your employment with the Company or with an affiliate would
result in liability under section 16(b) of the Securities Exchange Act of 1934,
then your option will terminate on the earlier of (i) the termination date set
forth above, (ii) the tenth (10th) day after the last date upon which exercise
would result in such liability or (iii) six (6) months and ten (10) days after
the termination of your employment with the Company or an affiliate.
However, this option may be exercised following termination of
employment only as to that number of shares as to which it was exercisable on
the date of termination of employment under the provisions of paragraph 1 of
this option.
In order to obtain the federal income tax advantages associated with an
"incentive stock option," the Code requires that at all times beginning on the
date of grant of the option and ending on the day three (3) months before the
date of the option's exercise, you must be an employee of the Company or an
affiliate, except in the event of your death or permanent and total disability.
The Company has provided for continued vesting or extended exercisability of
your option under certain circumstances for your benefit, but cannot guarantee
that your option will necessarily be treated as an "incentive stock option" if
you provide services to the Company or an affiliate as a consultant or exercise
your option more than three (3) months after the date your employment with the
Company and all affiliates terminates.
7. (a) This option may be exercised, to the extent specified above, by
delivering a notice of exercise (in a form designated by the Company) together
with the exercise price to the Secretary of the Company, or to such other person
as the Company may designate, during regular business hours, together with such
additional documents as the Company may then require pursuant to subparagraph
6(f) of the Plan.
(b) By exercising this option you agree that:
3
<PAGE> 4
(i) the Company may require you to enter an arrangement providing
for the payment by you to the Company of any tax withholding obligation of the
Company arising by reason of (1) the exercise of this option; (2) the lapse of
any substantial risk of forfeiture to which the shares are subject at the time
of exercise; or (3) the disposition of shares acquired upon such exercise;
(ii) you will notify the Company in writing within fifteen (15)
days after the date of any disposition of any of the shares of the Common Stock
issued upon exercise of this option that occurs within two (2) years after the
date of this option grant or within one (1) year after such shares of Common
Stock are transferred upon exercise of this option; and
(iii) the Company (or a representative of the underwriters) may, in
connection with the first underwritten registration of the offering of any
securities of the Company under the Act, require that you not sell or otherwise
transfer or dispose of any shares of Common Stock or other securities of the
Company during such period (not to exceed one hundred eighty (180) days)
following the effective date (the "Effective Date") of the registration
statement of the Company filed under the Act as may be requested by the Company
or the representative of the underwriters. For purposes of this restriction you
will be deemed to own securities which (i) are owned directly or indirectly by
you, including securities held for your benefit by nominees, custodians, brokers
or pledgees; (ii) may be acquired by you within sixty (60) days of the Effective
Date; (iii) are owned directly or indirectly, by or for your brothers or sisters
(whether by whole or half blood) spouse, ancestors and lineal descendants; or
(iv) are owned, directly or indirectly, by or for a corporation, partnership,
estate or trust of which you are a shareholder, partner or beneficiary, but only
to the extent of your proportionate interest therein as a shareholder, partner
or beneficiary thereof. You further agree that the Company may impose
stop-transfer instructions with respect to securities subject to the foregoing
restrictions until the end of such period.
8. This option is not transferable, except by will or by the laws of
descent and distribution, and is exercisable during your life only by you.
Notwithstanding the foregoing, by delivering written notice to the Company, in a
form satisfactory to the Company, you may designate a third party who, in the
event of your death, shall thereafter be entitled to exercise this option. The
shares of Common Stock covered by this option are subject to a right of first
refusal in favor of the Company and certain holders of the Company's Preferred
Stock as provided in the bylaws of the Company, as amended from time to time.
9. This option is not an employment contract and nothing in this
option shall be deemed to create in any way whatsoever any obligation on your
part to continue in the employ of the Company, or of the Company to continue
your employment with the Company.
10. Any notices provided for in this option or the Plan shall be given
in writing and shall be deemed effectively given upon receipt or, in the case of
notices delivered by the Company to you, five (5) days after deposit in the
United States mail, postage prepaid, addressed to you at the address specified
below or at such other address as you hereafter designate by written notice to
the Company.
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<PAGE> 5
11. This option is subject to all the provisions of the Plan, a copy of
which is attached hereto and its provisions are hereby made a part of this
option, including without limitation the provisions of paragraph 6 of the Plan
relating to option provisions, and is further subject to all interpretations,
amendments, rules and regulations which may from time to time be promulgated and
adopted pursuant to the Plan. In the event of any conflict between the
provisions of this option and those of the Plan, the provisions of the Plan
shall control.
Dated __________.
Very truly yours,
ELOQUENT, INC.
By
----------------------------------------
Duly authorized on behalf of the Board of
Directors
5
<PAGE> 1
EXHIBIT 10.04
ELOQUENT, INC.
1997 EQUITY INCENTIVE PLAN
ADOPTED ON JULY 18, 1997
AMENDED ON JANUARY 20, 1999
1. PURPOSES.
(a) The purpose of the Plan is to provide a means by which selected
Employees and Directors of, and Consultants to, the Company and its Affiliates
may be given an opportunity to benefit from increases in value of the stock of
the Company through the granting of (i) Incentive Stock Options, (ii)
Nonstatutory Stock Options, (iii) stock bonuses, and (iv) rights to purchase
restricted stock, all as defined below.
(b) The Company, by means of the Plan, seeks to retain the services of
persons who are now Employees or Directors of, or Consultants to, the Company or
its Affiliates, to secure and retain the services of new Employees, Directors
and Consultants, and to provide incentives for such persons to exert maximum
efforts for the success of the Company and its Affiliates.
(c) The Company intends that the Stock Awards issued under the Plan
shall, in the discretion of the Board or any Committee to which responsibility
for administration of the Plan has been delegated pursuant to subsection 3(c),
be either (i) Options granted pursuant to Section 6 hereof, including Incentive
Stock Options and Nonstatutory Stock Options, or (ii) stock bonuses or rights to
purchase restricted stock granted pursuant to Section 7 hereof. All Options
shall be separately designated Incentive Stock Options or Nonstatutory Stock
Options at the time of grant, and in such form as issued pursuant to Section 6,
and a separate certificate or certificates will be issued for shares purchased
on exercise of each type of Option.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in Sections 424(e)
and (f) respectively, of the Code.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a Committee appointed by the Board in accordance
with subsection 3(c) of the Plan.
(e) "COMPANY" means Eloquent, Inc., a Delaware corporation.
1.
<PAGE> 2
(f) "CONSULTANT" means any person, including an advisor, engaged by the
Company or an Affiliate to render consulting services and who is compensated for
such services, provided that the term "Consultant" shall not include Directors
who are paid only a director's fee by the Company or who are not compensated by
the Company for their services as Directors.
(g) "CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT" means
the employment or relationship as a Director or Consultant is not interrupted or
terminated. The Board, in its sole discretion, may determine whether Continuous
Status as an Employee, Director or Consultant shall be considered interrupted in
the case of: (i) any leave of absence approved by the Board, including sick
leave, military leave, or any other personal leave; or (ii) transfers between
locations of the Company or between the Company, Affiliates or their successors.
(h) "DIRECTOR" means a member of the Board.
(i) "DISINTERESTED PERSON" means a Director: who either (i) was not
during the one year prior to service as an administrator of the Plan granted or
awarded equity securities pursuant to the Plan or any other plan of the Company
or any affiliate entitling the participants therein to acquire equity securities
of the Company or any affiliate except as permitted by Rule 16b-3(c)(2)(i); or
(ii) is otherwise considered to be a "disinterested person" in accordance with
Rule 16b-3(c)(2)(i), or any other applicable rules, regulations or
interpretations of the Securities and Exchange Commission.
(j) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Affiliate of the Company. Neither service as a
Director nor payment of a director's fee by the Company shall be sufficient to
constitute "employment" by the Company.
(k) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(l) "FAIR MARKET VALUE" means, as of any date, the value of the common
stock of the Company determined as follows and in each case in a manner
consistent with Section 260.140.50 of Title 10 of the California Code of
Regulations:
(1) If the common stock is listed on any established stock exchange
or a national market system, including without limitation the National Market
System of the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") System, the Fair Market Value of a share of common stock
shall be the closing sales price for such stock (or the closing bid, if no sales
were reported) as quoted on such system or exchange (or the exchange with the
greatest volume of trading in common stock) on the last market trading day prior
to the day of determination, as reported in the Wall Street Journal or such
other source as the Board deems reliable;
(2) If the common stock is quoted on the NASDAQ System (but not on
the National Market System thereof) or is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a share of common stock shall be the mean of the bid and asked prices for the
common stock on the last market trading day prior to the
2.
<PAGE> 3
day of determination, as reported in the Wall Street Journal or such other
source as the Board deems reliable;
(3) In the absence of an established market for the common stock,
the Fair Market Value shall be determined in good faith by the Board.
(m) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(n) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify
as an Incentive Stock Option.
(o) "OFFICER" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(p) "OPTION" means a stock option granted pursuant to the Plan.
(q) "OPTION AGREEMENT" means a written agreement between the Company
and an Optionee evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of the
Plan.
(r) "OPTIONEE" means any person who holds an outstanding Option.
(s) "PLAN" means this Eloquent, Inc. Equity Incentive Plan.
(t) "RULE 16b-3" means Rule 16b-3 of the Exchange Act or any successor
to Rule 16b-3, as in effect when discretion is being exercised with respect to
the Plan.
(u) "STOCK AWARD" means any right granted under the Plan, including any
Option, any stock bonus, and any right to purchase restricted stock.
(v) "STOCK AWARD AGREEMENT" means a written agreement between the
Company and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to the
terms and conditions of the Plan.
3. ADMINISTRATION.
(a) The Plan shall be administered by the Board unless and until the
Board delegates administration to a Committee, as provided in subsection 3(c).
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(1) To determine from time to time which of the persons eligible
under the Plan shall be granted Stock Awards; when and how each Stock Award
shall be granted; whether a Stock Award will be an Incentive Stock Option, a
Nonstatutory Stock Option, a stock bonus, a
3.
<PAGE> 4
right to purchase restricted stock, or a combination of the foregoing; the
provisions of each Stock Award granted (which need not be identical), including
the time or times when a person shall be permitted to receive stock pursuant to
a Stock Award; and the number of shares with respect to which a Stock Award
shall be granted to each such person.
(2) To construe and interpret the Plan and Stock Awards granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.
(3) To amend the Plan or a Stock Award as provided in Section 13.
(c) The Board may delegate administration of the Plan to a committee
composed of not fewer than two (2) members (the "Committee"), all of the members
of which Committee shall be Disinterested Persons. If administration is
delegated to a Committee, the Committee shall have, in connection with the
administration of the Plan, the powers theretofore possessed by the Board (and
references in this Plan to the Board shall thereafter be to the Committee),
subject, however, to such resolutions, not inconsistent with the provisions of
the Plan, as may be adopted from time to time by the Board. The Board may
abolish the Committee at any time and revest in the Board the administration of
the Plan. Additionally, prior to the date of the first registration of an equity
security of the Company under Section 12 of the Exchange Act, and
notwithstanding anything to the contrary contained herein, the Board may
delegate administration of the Plan to any person or persons and the term
"Committee" shall apply to any person or persons to whom such authority has been
delegated. Notwithstanding anything in this Section 3 to the contrary, at any
time the Board or the Committee may delegate to a committee of one or more
members of the Board the authority to grant Stock Awards to eligible persons who
are not then subject to Section 16 of the Exchange Act.
(d) Any requirement that an administrator of the Plan be a
Disinterested Person shall not apply (i) prior to the date of the first
registration of an equity security of the Company under Section 12 of the
Exchange Act, or (ii) if the Board or the Committee expressly declares that such
requirement shall not apply. Any Disinterested Person shall otherwise comply
with the requirements of Rule 16b-3.
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 12 relating to adjustments
upon changes in stock, the stock that may be issued pursuant to Stock Awards
shall not exceed in the aggregate two million nine hundred thirty-four thousand
five hundred (2,934,500) shares of the Company's common stock. If any Stock
Award shall for any reason expire or otherwise terminate, in whole or in part,
without having been exercised in full, the stock not acquired under such Stock
Award shall revert to and again become available for issuance under the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
4.
<PAGE> 5
5. ELIGIBILITY.
(a) Incentive Stock Options may be granted only to Employees. Stock
Awards other than Incentive Stock Options may be granted only to Employees,
Directors or Consultants.
(b) A Director shall in no event be eligible for the benefits of the
Plan unless at the time discretion is exercised in the selection of the Director
as a person to whom Stock Awards may be granted, or in the determination of the
number of shares which may be covered by Stock Awards granted to the Director:
(i) the Board has delegated its discretionary authority over the Plan to a
Committee which consists solely of Disinterested Persons; or (ii) the Plan
otherwise complies with the requirements of Rule 16b-3. The Board shall
otherwise comply with the requirements of Rule 16b-3. This subsection 5(b) shall
not apply (i) prior to the date of the first registration of an equity security
of the Company under Section 12 of the Exchange Act, or (ii) if the Board or
Committee expressly declares that it shall not apply.
(c) No person shall be eligible for the grant of an Option or an award
to purchase restricted stock if, at the time of grant, such person owns (or is
deemed to own pursuant to Section 424(d) of the Code) stock possessing more than
ten percent (10%) of the total combined voting power of all classes of stock of
the Company or of any of its Affiliates unless the exercise price of such Option
is at least one hundred ten percent (110%) of the Fair Market Value of such
stock at the date of grant and the Option is not exercisable after the
expiration of five (5) years from the date of grant, or in the case of a
restricted stock purchase award, the purchase price is at least one hundred
percent (100%) of the Fair Market Value of such stock at the date of grant.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise) the
substance of each of the following provisions:
(a) TERM. No Option shall be exercisable after the expiration of ten
(10) years from the date it was granted.
(b) PRICE. The exercise price of each Incentive Stock Option shall be
not less than one hundred percent (100%) of the Fair Market Value of the stock
subject to the Option on the date the Option is granted; the exercise price of
each Nonstatutory Stock Option shall be not less than eighty-five percent (85%)
of the Fair Market Value of the stock subject to the Option on the date the
Option is granted. Notwithstanding the foregoing, an Option (whether an
Incentive Stock Option or a Nonstatutory Stock Option) may be granted with an
exercise price lower than that set forth in the preceding sentence if such
Option is granted in substitution for another option in a manner satisfying the
provisions of Section 424(a) of the Code.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to an
Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised, or (ii) at
the discretion of the Board or the Committee, (A) by
5.
<PAGE> 6
delivery to the Company of other common stock of the Company, (B) according to a
deferred payment or other arrangement (which may include, without limiting the
generality of the foregoing, the use of other common stock of the Company) with
the person to whom the Option is granted or to whom the Option is transferred
pursuant to subsection 6(d), or (C) in any other form of legal consideration
that may be acceptable to the Board.
In the case of any deferred payment arrangement, interest shall be
payable at least annually and shall be charged at the minimum rate of interest
necessary to avoid the treatment as interest, under any applicable provisions of
the Code, of any amounts other than amounts stated to be interest under the
deferred payment arrangement.
(d) TRANSFERABILITY. An Option shall not be transferable except by will
or by the laws of descent and distribution, and shall be exercisable during the
lifetime of the person to whom the Option is granted only by such person.
Notwithstanding the foregoing, the person to whom the Option is granted may, by
delivering written notice to the Company, in a form satisfactory to the Company,
designate a third party who, in the event of the death of the Optionee, shall
thereafter be entitled to exercise the Option.
(e) VESTING. The total number of shares of stock subject to an Option
may, but need not, be allotted in periodic installments (which may, but need
not, be equal). The Option Agreement may provide that from time to time during
each of such installment periods, the Option may become exercisable ("vest")
with respect to some or all of the shares allotted to that period, and may be
exercised with respect to some or all of the shares allotted to such period
and/or any prior period as to which the Option became vested but was not fully
exercised. The Option may be subject to such other terms and conditions on the
time or times when it may be exercised (which may be based on performance or
other criteria) as the Board may deem appropriate. The vesting provisions of
individual Options may vary but, for California employees, will provide for
vesting of at least twenty percent (20%) per year of the total number of shares
subject to the Option. The provisions of this subsection 6(e) are subject to any
Option provisions governing the minimum number of shares as to which an Option
may be exercised.
(f) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR
CONSULTANT. In the event an Optionee's Continuous Status as an Employee,
Director or Consultant terminates (other than upon the Optionee's death or
disability), the Optionee may exercise his or her Option (to the extent that the
Optionee was entitled to exercise it at the date of termination) but only within
such period of time ending on the earlier of (i) the date three (3) months after
the termination of the Optionee's Continuous Status as an Employee, Director or
Consultant (or such longer or shorter period, which in no event shall be less
than thirty (30) days, specified in the Option Agreement), or (ii) the
expiration of the term of the Option as set forth in the Option Agreement. If,
after termination, the Optionee does not exercise his or her Option within the
time specified in the Option Agreement, the Option shall terminate, and the
shares covered by such Option shall revert to and again become available for
issuance under the Plan.
An Optionee's Option Agreement may also provide that if the exercise of
the Option following the termination of the Optionee's Continuous Status as an
Employee, Director, or
6.
<PAGE> 7
Consultant (other than upon the Optionee's death or disability) would result in
liability under Section 16(b) of the Exchange Act, then the Option shall
terminate on the earlier of (i) the expiration of the term of the Option set
forth in the Option Agreement, or (ii) the tenth (10th) day after the last date
on which such exercise would result in such liability under Section 16(b) of the
Exchange Act. Finally, an Optionee's Option Agreement may also provide that if
the exercise of the Option following the termination of the Optionee's
Continuous Status as an Employee, Director or Consultant (other than upon the
Optionee's death or disability) would be prohibited at any time solely because
the issuance of shares would violate the registration requirements under the
Act, then the Option shall terminate on the earlier of (i) the expiration of the
term of the Option set forth in the first paragraph of this subsection 6(f), or
(ii) the expiration of a period of three (3) months after the termination of the
Optionee's Continuous Status as an Employee, Director or Consultant during which
the exercise of the Option would not be in violation of such registration
requirements.
(g) DISABILITY OF OPTIONEE. In the event an Optionee's Continuous
Status as an Employee, Director or Consultant terminates as a result of the
Optionee's disability, the Optionee may exercise his or her Option (to the
extent that the Optionee was entitled to exercise it at the date of
termination), but only within such period of time ending on the earlier of (i)
the date twelve (12) months following such termination (or such longer or
shorter period, which in no event shall be less than six (6) months, specified
in the Option Agreement), or (ii) the expiration of the term of the Option as
set forth in the Option Agreement. If, at the date of termination, the Optionee
is not entitled to exercise his or her entire Option, the shares covered by the
unexercisable portion of the Option shall revert to and again become available
for issuance under the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified herein, the Option shall
terminate, and the shares covered by such Option shall revert to and again
become available for issuance under the Plan.
(h) DEATH OF OPTIONEE. In the event of the death of an Optionee during,
or within a period specified in the Option after the termination of, the
Optionee's Continuous Status as an Employee, Director or Consultant, the Option
may be exercised (to the extent the Optionee was entitled to exercise the Option
at the date of death) by the Optionee's estate, by a person who acquired the
right to exercise the Option by bequest or inheritance or by a person designated
to exercise the option upon the Optionee's death pursuant to subsection 6(d),
but only within the period ending on the earlier of (i) the date eighteen (18)
months following the date of death (or such longer or shorter period, which in
no event shall be less than six (6) months, specified in the Option Agreement),
or (ii) the expiration of the term of such Option as set forth in the Option
Agreement. If, at the time of death, the Optionee was not entitled to exercise
his or her entire Option, the shares covered by the unexercisable portion of the
Option shall revert to and again become available for issuance under the Plan.
If, after death, the Option is not exercised within the time specified herein,
the Option shall terminate, and the shares covered by such Option shall revert
to and again become available for issuance under the Plan.
(i) EARLY EXERCISE. The Option may, but need not, include a provision
whereby the Optionee may elect at any time while an Employee, Director or
Consultant to exercise the Option as to any part or all of the shares subject to
the Option prior to the full vesting of the Option.
7.
<PAGE> 8
Any unvested shares so purchased shall be subject to a repurchase right in favor
of the Company, with the repurchase price to be equal to the original purchase
price of the stock, or to any other restriction the Board determines to be
appropriate; provided, however, that (i) the right to repurchase at the original
purchase price shall lapse at a minimum rate of twenty percent (20%) per year
over five (5) years from the date the Option was granted, (ii) such right shall
be exercisable only within (A) the ninety (90) day period following the
termination of employment or the relationship as a Director or Consultant, or
(B) such longer period as may be agreed to by the Company and the Optionee (for
example, for purposes of satisfying the requirements of Section 1202(c)(3) of
the Code (regarding "qualified small business stock")), (iii) such right shall
be exercisable only for cash or cancellation of purchase money indebtedness for
the shares, and (iv) if the Company exercises such right, it must purchase all
of the shares subject to the Option unless the Optionee consents otherwise.
Should the right of repurchase be assigned by the Company, the assignee shall
pay the Company cash equal to the difference between the original purchase price
and the stock's Fair Market Value if the original purchase price is less than
the stock's Fair Market Value.
(j) RIGHT OF REPURCHASE. The Option may, but need not, include a
provision whereby the Company may elect, prior to the date of the first
registration of an equity security of the Company under Section 12 of the
Exchange Act, to repurchase all of the vested shares exercised pursuant to the
Option; provided, however, that (i) with the consent of the Optionee or his
personal representative, as the case may be, the Company may repurchase less
than all of such vested shares; (ii) such repurchase right shall be exercisable
only within (A) the ninety (90) day period following the termination of
employment or the relationship as a Director or Consultant, or (B) such longer
period as may be agreed to by the Company and the Optionee (for example, for
purposes of satisfying the requirements of Section 1202(c)(3) of the Code
(regarding "qualified small business stock")), and (iii) such right shall be
exercisable only for cash or cancellation of purchase money indebtedness for the
shares at a repurchase price equal to the greater of (A) the stock's Fair Market
Value at the time of such termination, or (B) the original purchase price paid
for such shares by the Optionee.
(k) RIGHT OF FIRST REFUSAL. The Option may, but need not, include a
provision whereby the Company may elect, prior to the date of the first
registration of an equity security of the Company under Section 12 of the
Exchange Act, to exercise a right of first refusal following receipt of notice
from the Optionee of the intent to transfer all or any part of the shares
exercised pursuant to the Option.
(l) RE-LOAD OPTIONS. Without in any way limiting the authority of the
Board or Committee to make or not to make grants of Options hereunder, the Board
or Committee shall have the authority (but not an obligation) to include as part
of any Option Agreement a provision entitling the Optionee to a further Option
(a "Re-Load Option") in the event the Optionee exercises the Option evidenced by
the Option agreement, in whole or in part, by surrendering other shares of
Common Stock in accordance with this Plan and the terms and conditions of the
Option Agreement. Any such Re-Load Option (i) shall be for a number of shares
equal to the number of shares surrendered as part or all of the exercise price
of such Option; (ii) shall have an expiration date which is the same as the
expiration date of the Option the exercise of which gave
8.
<PAGE> 9
rise to such Re-Load Option; and (iii) shall have an exercise price which is
equal to one hundred percent (100%) of the Fair Market Value of the Common Stock
subject to the Re-Load Option on the date of exercise of the original Option.
Notwithstanding the foregoing, a Re-Load Option that is granted to a 10%
stockholder (as described in subsection 5(c)), shall have an exercise price
which is equal to one hundred ten percent (110%) of the Fair Market Value of the
stock subject to the Re-Load Option on the date of exercise of the original
Option and shall have a term which is no longer than five (5) years.
Any such Re-Load Option may be an Incentive Stock Option or a
Nonstatutory Stock Option, as the Board or Committee may designate at the time
of the grant of the original Option; provided, however, that the designation of
any Re-Load Option as an Incentive Stock Option shall be subject to the one
hundred thousand dollar ($100,000) annual limitation on exercisability of
Incentive Stock Options described in subsection 12(e) of the Plan and in Section
422(d) of the Code. There shall be no Re-Load Options on a Re-Load Option. Any
such Re-Load Option shall be subject to the availability of sufficient shares
under subsection 4(a) and shall be subject to such other terms and conditions as
the Board or Committee may determine which are not inconsistent with the express
provisions of the Plan regarding the terms of Options.
7. TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK.
Each stock bonus or restricted stock purchase agreement shall be in
such form and shall contain such terms and conditions as the Board or the
Committee shall deem appropriate. The terms and conditions of stock bonus or
restricted stock purchase agreements may change from time to time, and the terms
and conditions of separate agreements need not be identical, but each stock
bonus or restricted stock purchase agreement shall include (through
incorporation of provisions hereof by reference in the agreement or otherwise)
the substance of each of the following provisions as appropriate:
(a) PURCHASE PRICE. The purchase price under each restricted stock
purchase agreement shall be such amount as the Board or Committee shall
determine and designate in such agreement, but in no event shall the purchase
price be less than eighty-five percent (85%) of the stock's Fair Market Value on
the date such award is made. Notwithstanding the foregoing, the Board or the
Committee may determine that eligible participants in the Plan may be awarded
stock pursuant to a stock bonus agreement in consideration for past services
actually rendered to the Company or for its benefit.
(b) TRANSFERABILITY. No rights under a stock bonus or restricted stock
purchase agreement shall be transferable except by will or the laws of descent
and distribution or pursuant to a qualified domestic relations order satisfying
the requirements of Rule 16b-3 and any administrative interpretations or
pronouncements thereunder, so long as stock awarded under such agreement remains
subject to the terms of the agreement.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to a
stock purchase agreement shall be paid either: (i) in cash at the time of
purchase; (ii) at the discretion of the Board or the Committee, according to a
deferred payment or other arrangement with the person to whom the stock is sold;
or (iii) in any other form of legal consideration that may be
9.
<PAGE> 10
acceptable to the Board or the Committee in its discretion. Notwithstanding the
foregoing, the Board or the Committee to which administration of the Plan has
been delegated may award stock pursuant to a stock bonus agreement in
consideration for past services actually rendered to the Company or for its
benefit.
(d) VESTING. Shares of stock sold or awarded under the Plan may, but
need not, be subject to a repurchase option in favor of the Company in
accordance with a vesting schedule to be determined by the Board or the
Committee; provided, however, that (i) the right to repurchase at the original
purchase price shall lapse at a minimum rate of twenty percent (20%) per year
over five (5) years from the date the Stock Award was granted, and (ii) such
right shall be exercisable only (A) within the ninety (90) day period following
the termination of employment or the relationship as a Director or Consultant,
or (B) such longer period as may be agreed to by the Company and the holder of
the Stock Award (for example, for purposes of satisfying the requirements of
Section 1202(c)(3) of the Code (regarding "qualified small business stock")),
and (iii) such right shall be exercisable only for cash or cancellation of
purchase money indebtedness for the shares. Should the right of repurchase be
assigned by the Company, the assignee shall pay the Company cash equal to the
difference between the original purchase price and the stock's Fair Market Value
if the original purchase price is less than the stock's Fair Market Value.
(e) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR
CONSULTANT. In the event a Participant's Continuous Status as an Employee,
Director or Consultant terminates, the Company may repurchase or otherwise
reacquire, subject to the limitations described in subsection 7(d), all of the
shares of stock held by that person that have not vested as of the date of
termination under the terms of the stock bonus or restricted stock purchase
agreement between the Company and such person; provided, however, that with the
consent of such person or his personal representative, as the case may be, the
Company may repurchase or otherwise reacquire less than all of such stock.
8. CANCELLATION AND RE-GRANT OF OPTIONS.
The Board or the Committee shall have the authority to effect, at any
time and from time to time, (i) the repricing of any outstanding Options and/or
(ii) with the consent of the affected holders of Options, the cancellation of
any outstanding Options under the Plan and the grant in substitution therefor of
new Options under the Plan covering the same or different numbers of shares of
stock, but having an exercise price per share not less than eighty-five percent
(85%) of the Fair Market Value (one hundred percent (100%) of the Fair Market
Value in the case of an Incentive Stock Option) or, in the case of a 10%
stockholder (as described in subsection 5(c)), not less than one hundred ten
percent (110%) of the Fair Market Value) per share of stock on the new grant
date. Notwithstanding the foregoing, the Board or the Committee may grant an
Option with an exercise price lower than that set forth above if such Option is
granted as part of a transaction to which section 424(a) of the Code applies.
9. COVENANTS OF THE COMPANY.
10.
<PAGE> 11
(a) During the terms of the Stock Awards, the Company shall keep
available at all times the number of shares of stock required to satisfy such
Stock Awards.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of the Stock Award; provided,
however, that this undertaking shall not require the Company to register under
the Securities Act of 1933, as amended (the "Securities Act") either the Plan,
any Stock Award or any stock issued or issuable pursuant to any such Stock
Award. If, after reasonable efforts, the Company is unable to obtain from any
such regulatory commission or agency the authority that counsel for the Company
deems necessary for the lawful issuance and sale of stock under the Plan, the
Company shall be relieved from any liability for failure to issue and sell stock
upon exercise of such Stock Awards unless and until such authority is obtained.
10. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Stock Awards shall
constitute general funds of the Company.
11. MISCELLANEOUS.
(a) Neither an Employee, Director or Consultant nor any person to whom
a Stock Award is transferred under subsection 6(d) or 7(b) shall be deemed to be
the holder of, or to have any of the rights of a holder with respect to, any
shares subject to such Stock Award unless and until such person has satisfied
all requirements for exercise of the Stock Award pursuant to its terms.
(b) 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 section shall not
apply when issuance is limited to key employees whose duties in connection with
the Company assure them access to equivalent information.
(c) Nothing in the Plan or any instrument executed or Stock Award
granted pursuant thereto shall confer upon any Employee, Director, Consultant or
other holder of Stock Awards any right to continue in the employ of the Company
or any Affiliate (or to continue acting as a Director or Consultant) or shall
affect the right of the Company or any Affiliate to terminate the employment of
any Employee with or without cause the right of the Company's Board of Directors
and/or the Company's shareholders to remove any Director pursuant to the terms
of the Company's By-Laws and the provisions of the Delaware General Corporation
Law or the right to terminate the relationship of any Consultant pursuant to the
terms of such Consultant's agreement with the Company or Affiliate.
(d) To the extent that the aggregate Fair Market Value (determined at
the time of grant) of stock with respect to which Incentive Stock Options are
exercisable for the first time by any Optionee during any calendar year under
all plans of the Company and its Affiliates exceeds
11.
<PAGE> 12
one hundred thousand dollars ($100,000), the Options or portions thereof which
exceed such limit (according to the order in which they were granted) shall be
treated as Nonstatutory Stock Options.
(e) The Company may require any person to whom a Stock Award is
granted, or any person to whom a Stock Award is transferred pursuant to
subsection 6(d) or 7(b), as a condition of exercising or acquiring stock under
any Stock Award, (1) to give written assurances satisfactory to the Company as
to such person's knowledge and experience in financial and business matters
and/or to employ a purchaser representative reasonably satisfactory to the
Company who is knowledgeable and experienced in financial and business matters,
and that he or she is capable of evaluating, alone or together with the
purchaser representative, the merits and risks of exercising the Stock Award;
and (2) to give written assurances satisfactory to the Company stating that such
person is acquiring the stock subject to the Stock Award for such person's own
account and not with any present intention of selling or otherwise distributing
the stock. The foregoing requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (i) the issuance of the shares upon the
exercise or acquisition of stock under the Stock Award has been registered under
a then currently effective registration statement under the Securities Act, or
(ii) as to any particular requirement, a determination is made by counsel for
the Company that such requirement need not be met in the circumstances under the
then applicable securities laws. The Company may, upon advice of counsel to the
Company, place legends on stock certificates issued under the Plan as such
counsel deems necessary or appropriate in order to comply with applicable
securities laws, including, but not limited to, legends restricting the transfer
of the stock.
(f) To the extent provided by the terms of a Stock Award Agreement, the
person to whom a Stock Award is granted may satisfy any federal, state or local
tax withholding obligation relating to the exercise or acquisition of stock
under a Stock Award by any of the following means or by a combination of such
means: (1) tendering a cash payment; (2) authorizing the Company to withhold
shares from the shares of the common stock otherwise issuable to the participant
as a result of the exercise or acquisition of stock under the Stock Award; or
(3) delivering to the Company owned and unencumbered shares of the common stock
of the Company.
12. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject
to any Stock Award, without the receipt of consideration by the Company (through
merger, consolidation, reorganization, recapitalization, reincorporation, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of consideration by the
Company), the Plan will be appropriately adjusted in the class(es) and maximum
number of shares subject to the Plan pursuant to subsection 4(a) and the
outstanding Stock Awards will be appropriately adjusted in the class(es) and
number of shares and price per share of stock subject to such outstanding Stock
Awards. Such adjustments shall be made by the Board or the Committee, the
determination of which shall be final, binding and conclusive. (The conversion
12.
<PAGE> 13
of any convertible securities of the Company shall not be treated as a
"transaction not involving the receipt of consideration by the Company.")
(b) In the event of: (1) a merger or consolidation in which the Company
is not the surviving corporation or (2) a reverse merger in which the Company is
the surviving corporation but the shares of the Company's common stock
outstanding immediately preceding the merger are converted by virtue of the
merger into other property, whether in the form of securities, cash or otherwise
then to the extent permitted by applicable law: (i) any surviving corporation or
an Affiliate of such surviving corporation shall assume any Stock Awards
outstanding under the Plan or shall substitute similar Stock Awards for those
outstanding under the Plan, or (ii) such Stock Awards shall continue in full
force and effect. In the event any surviving corporation and its Affiliates
refuse to assume or continue such Stock Awards, or to substitute similar Stock
Awards for those outstanding under the Plan, then such Stock Awards shall be
terminated if not exercised prior to such event. In the event of a dissolution
or liquidation of the Company, any Stock Awards outstanding under the Plan shall
terminate if not exercised prior to such event.
13. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in Section 12 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the stockholders of
the Company within twelve (12) months before or after the adoption of the
amendment, where the amendment will:
(i) Increase the number of shares reserved for Stock Awards under
the Plan;
(ii) Modify the requirements as to eligibility for participation
in the Plan (to the extent such modification requires stockholder approval in
order for the Plan to satisfy the requirements of Section 422 of the Code); or
(iii) Modify the Plan in any other way if such modification
requires stockholder approval in order for the Plan to satisfy the requirements
of Section 422 of the Code or to comply with the requirements of Rule 16b-3.
(b) The Board may in its sole discretion submit any other amendment to
the Plan for stockholder approval, including, but not limited to, amendments to
the Plan intended to satisfy the requirements of Section 162(m) of the Code and
the regulations promulgated thereunder regarding the exclusion of
performance-based compensation from the limit on corporate deductibility of
compensation paid to certain executive officers.
(c) It is expressly contemplated that the Board may amend the Plan in
any respect the Board deems necessary or advisable to provide eligible
Employees, Directors or Consultants with the maximum benefits provided or to be
provided under the provisions of the Code and the regulations promulgated
thereunder relating to Incentive Stock Options and/or to bring the Plan and/or
Incentive Stock Options granted under it into compliance therewith.
13.
<PAGE> 14
(d) Rights and obligations under any Stock Award granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the person to whom the Stock Award was
granted and (ii) such person consents in writing.
(e) The Board at any time, and from time to time, may amend the terms
of any one or more Stock Award; provided, however, that the rights and
obligations under any Stock Award shall not be impaired by any such amendment
unless (i) the Company requests the consent of the person to whom the Stock
Award was granted and (ii) such person consents in writing.
14. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate on July 17, 2007, which shall be
within ten (10) years from the date the Plan is adopted by the Board or approved
by the stockholders of the Company, whichever is earlier. No Stock Awards may be
granted under the Plan while the Plan is suspended or after it is terminated.
(b) Rights and obligations under any Stock Award granted while the Plan
is in effect shall not be impaired by suspension or termination of the Plan,
except with the consent of the person to whom the Stock Award was granted.
15. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no
Stock Awards granted under the Plan shall be exercised unless and until the Plan
has been approved by the stockholders of the Company, which approval shall be
within twelve (12) months before or after the date the Plan is adopted by the
Board, and, if required, an appropriate permit has been issued by the
Commissioner of Corporations of the State of California.
14.
<PAGE> 1
EXHIBIT 10.05
INCENTIVE STOCK OPTION
___________, Optionee:
Eloquent, Inc. (the "Company"), pursuant to its 1997 Equity Incentive
Plan (the "Plan"), has this day granted to you, the optionee named above, an
option to purchase shares of the common stock of the Company ("Common Stock").
This option is intended to qualify as an "incentive stock option" within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code").
The grant hereunder is in connection with and in furtherance of the
Company's compensatory benefit plan for participation of the Company's employees
(including officers), directors or consultants and is intended to comply with
the provisions of Rule 701 promulgated by the Securities and Exchange Commission
under the Securities Act of 1933, as amended (the "Act").
The details of your option are as follows:
1. The total number of shares of Common Stock subject to this option is
___________. Subject to the limitations contained herein, twenty percent (20%)
of the shares will vest (become exercisable) on ___________ and one sixtieth
(1/60) of the shares will then vest on the same day of each month thereafter
until either (i) you cease to provide services to the Company for any reason, or
(ii) this option becomes fully vested.
2. (a) The exercise price of this option is $0.39 per share, being not
less than the fair market value of the Common Stock on the date of grant of this
option.
(b) Payment of the exercise price per share is due in full upon
exercise of all or any part of each installment which has accrued to you. You
may elect, to the extent permitted by applicable statutes and regulations, to
make payment of the exercise price under one of the following alternatives:
(i) Payment of the exercise price per share in cash (including
check) at the time of exercise; or
(ii) Payment pursuant to a program developed under Regulation T
as promulgated by the Federal Reserve Board which results in the receipt of cash
(or check) by the Company prior to the issuance of Common Stock.
3. (a) Subject to the provisions of this option you may elect at any
time during your employment with the Company or an affiliate thereof, to
exercise the option as to any part or all of the shares subject to this option
at any time during the term hereof, including without limitation, a time prior
to the date of earliest exercise ("vesting") stated in paragraph 1 hereof;
provided, however, that:
(i) any portion of this option to be exercised is not vested,
this option must be exercised in full and may not be exercised in part;
1.
<PAGE> 2
(ii) any shares so purchased from installments that have not
vested as of the date of exercise shall be subject to the purchase option in
favor of the Company as described in the Early Exercise Stock Purchase Agreement
attached hereto;
(iii) you shall enter into an Early Exercise Stock Purchase
Agreement in the form attached hereto with a vesting schedule that will result
in the same vesting as if no early exercise had occurred; and
(iv) this option shall not be exercisable under this paragraph
3 to the extent such exercise would cause the aggregate fair market value of any
shares subject to incentive stock options granted you by the Company or any
affiliate (valued as of their grant date) which would become exercisable for the
first time during any calendar year to exceed $100,000.
(b) The election provided in this paragraph 3 to purchase shares
upon the exercise of this option prior to the vesting dates shall cease upon
termination of your employment with the Company or an affiliate thereof and may
not be exercised after the date thereof.
4. This option may not be exercised for any number of shares that would
require the issuance of anything other than whole shares.
5. Notwithstanding anything to the contrary contained herein, this
option may not be exercised unless the shares issuable upon exercise of this
option are then registered under the Act or, if such shares are not then so
registered, the Company has determined that such exercise and issuance would be
exempt from the registration requirements of the Act.
6. The term of this option commences on ___________, the date of grant
and, unless sooner terminated as set forth below or in the Plan, terminates on
___________ (which date shall be no more than ten (10) years from date this
option is granted). In no event may this option be exercised on or after the
date on which it terminates. This option shall terminate prior to the expiration
of its term as follows: thirty (30) days after the termination of your
employment with the Company or an affiliate of the Company (as defined in the
Plan) unless one of the following circumstances exists:
(a) Your termination of employment is due to your disability. This
option will then terminate on the earlier of the termination date set forth
above or twelve (12) months following such termination of employment. You should
be aware that if your disability is not considered a permanent and total
disability within the meaning of Section 422(c)(6) of the Code, and you exercise
this option more than three (3) months following the date of your termination of
employment, your exercise will be treated for tax purposes as the exercise of a
"nonstatutory stock option" instead of an "incentive stock option."
(b) Your termination of employment is due to your death or you die
within such thirty (30) day period. This option will then terminate on the
earlier of the termination date set forth above or eighteen (18) months after
your death.
2.
<PAGE> 3
(c) If during any part of such thirty (30) day period you may not
exercise your option solely because of the condition set forth in paragraph 5
above, then your option will not terminate until the earlier of the termination
date set forth above or until this option shall have been exercisable for an
aggregate period of thirty (30) days after your termination of employment.
(d) If your exercise of the option within thirty (30) days after
termination of your employment with the Company or with an affiliate would
result in liability under section 16(b) of the Securities Exchange Act of 1934,
then your option will terminate on the earlier of (I) the termination date set
forth above, (II) the tenth (10th) day after the last date upon which exercise
would result in such liability or (III) six (6) months and ten (10) days after
the termination of your employment with the Company or an affiliate.
However, this option may be exercised following termination of
employment only as to that number of shares as to which it was exercisable on
the date of termination of employment under the provisions of paragraph 1 of
this option.
In order to obtain the federal income tax advantages associated with an
"incentive stock option," the Code requires that at all times beginning on the
date of grant of the option and ending on the day three (3) months before the
date of the option's exercise, you must be an employee of the Company or an
affiliate, except in the event of your death or permanent and total disability.
The Company has provided for continued vesting or extended exercisability of
your option under certain circumstances for your benefit, but cannot guarantee
that your option will necessarily be treated as an "incentive stock option" if
you provide services to the Company or an affiliate as a consultant or exercise
your option more than three (3) months after the date your employment with the
Company and all affiliates terminates.
7. (a) This option may be exercised, to the extent specified above, by
delivering a notice of exercise (in a form designated by the Company) together
with the exercise price to the Secretary of the Company, or to such other person
as the Company may designate, during regular business hours, together with such
additional documents as the Company may then require pursuant to subparagraph
6(f) of the Plan.
(b) By exercising this option you agree that:
(i) the Company may require you to enter an arrangement
providing for the payment by you to the Company of any tax withholding
obligation of the Company arising by reason of (1) the exercise of this option;
(2) the lapse of any substantial risk of forfeiture to which the shares are
subject at the time of exercise; or (3) the disposition of shares acquired upon
such exercise;
(ii) you will notify the Company in writing within fifteen (15)
days after the date of any disposition of any of the shares of the Common Stock
issued upon exercise of this option that occurs within two (2) years after the
date of this option grant or within one (1) year after such shares of Common
Stock are transferred upon exercise of this option; and
(iii) the Company (or a representative of the underwriters) may,
in connection with the first underwritten registration of the offering of any
securities of the Company under the Act, require that you not sell or otherwise
transfer or dispose of any shares of Common Stock or other securities of the
3.
<PAGE> 4
Company during such period (not to exceed one hundred eighty (180) days)
following the effective date (the "Effective Date") of the registration
statement of the Company filed under the Act as may be requested by the Company
or the representative of the underwriters. For purposes of this restriction you
will be deemed to own securities which (i) are owned directly or indirectly by
you, including securities held for your benefit by nominees, custodians, brokers
or pledgees; (ii) may be acquired by you within sixty (60) days of the Effective
Date; (iii) are owned directly or indirectly, by or for your brothers or sisters
(whether by whole or half blood) spouse, ancestors and lineal descendants; or
(iv) are owned, directly or indirectly, by or for a corporation, partnership,
estate or trust of which you are a shareholder, partner or beneficiary, but only
to the extent of your proportionate interest therein as a shareholder, partner
or beneficiary thereof. You further agree that the Company may impose
stop-transfer instructions with respect to securities subject to the foregoing
restrictions until the end of such period.
8. This option is not transferable, except by will or by the laws of
descent and distribution, and is exercisable during your life only by you.
Notwithstanding the foregoing, by delivering written notice to the Company, in a
form satisfactory to the Company, you may designate a third party who, in the
event of your death, shall thereafter be entitled to exercise this option. The
shares of Common Stock covered by this option are subject to a right of first
refusal in favor of the Company and certain holders of the Company's Preferred
Stock as provided in the bylaws of the Company, as amended from time to time.
9. This option is not an employment contract and nothing in this option
shall be deemed to create in any way whatsoever any obligation on your part to
continue in the employ of the Company, or of the Company to continue your
employment with the Company.
10. Any notices provided for in this option or the Plan shall be given
in writing and shall be deemed effectively given upon receipt or, in the case of
notices delivered by the Company to you, five (5) days after deposit in the
United States mail, postage prepaid, addressed to you at the address specified
below or at such other address as you hereafter designate by written notice to
the Company.
4.
<PAGE> 5
11. This option is subject to all the provisions of the Plan, a copy of
which is attached hereto and its provisions are hereby made a part of this
option, including without limitation the provisions of paragraph 6 of the Plan
relating to option provisions, and is further subject to all interpretations,
amendments, rules and regulations which may from time to time be promulgated and
adopted pursuant to the Plan. In the event of any conflict between the
provisions of this option and those of the Plan, the provisions of the Plan
shall control.
Very truly yours,
ELOQUENT, INC.
By
-------------------------------------------
Duly authorized on behalf of the Board of
Directors
5.
<PAGE> 1
Exhibit 10.06
ELOQUENT, INC.
1999 EQUITY INCENTIVE PLAN
ADOPTED OCTOBER 21, 1999
APPROVED BY STOCKHOLDERS OCTOBER ___, 1999
TERMINATION DATE: OCTOBER ___, 2009
1. PURPOSES.
(A) ELIGIBLE STOCK AWARD RECIPIENTS. The persons eligible to receive
Stock Awards are the Employees, Directors and Consultants of the Company and its
Affiliates.
(B) AVAILABLE STOCK AWARDS. The purpose of the Plan is to provide a
means by which eligible recipients of Stock Awards may be given an opportunity
to benefit from increases in value of the Common Stock through the granting of
the following Stock Awards: (i) Incentive Stock Options, (ii) Nonstatutory Stock
Options, (iii) stock bonuses and (iv) rights to acquire restricted stock. The
Plan also provides for non-discretionary grants of Nonstatutory Stock Options to
Non-Employee Directors of the Company.
(C) GENERAL PURPOSE. The Company, by means of the Plan, seeks to retain
the services of the group of persons eligible to receive Stock Awards, to secure
and retain the services of new members of this group and to provide incentives
for such persons to exert maximum efforts for the success of the Company and its
Affiliates.
2. DEFINITIONS.
(A) "AFFILIATE" means any parent corporation or subsidiary corporation
of the Company, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f), respectively, of the Code.
(B) "BOARD" means the Board of Directors of the Company.
(C) "CODE" means the Internal Revenue Code of 1986, as amended.
(D) "COMMITTEE" means a committee of one or more members of the Board
appointed by the Board in accordance with subsection 3(c).
(E) "COMMON STOCK" means the common stock of the Company.
(F) "COMPANY" means Eloquent, Inc., a Delaware corporation.
(G) "CONSULTANT" means any person, including an advisor, (i) engaged by
the Company or an Affiliate to render consulting or advisory services and who is
compensated for such services or (ii) who is a member of the Board of Directors
of an Affiliate. However, the term "Consultant" shall not include either
Directors who are not compensated by the Company
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for their services as Directors or Directors who are merely paid a director's
fee by the Company for their services as Directors.
(H) "CONTINUOUS SERVICE" means that the Participant's service with the
Company or an Affiliate, whether as an Employee, Director or Consultant, is not
interrupted or terminated. The Participant's Continuous Service shall not be
deemed to have terminated merely because of a change in the capacity in which
the Participant renders service to the Company or an Affiliate as an Employee,
Consultant or Director or a change in the entity for which the Participant
renders such service, provided that there is no interruption or termination of
the Participant's Continuous Service. For example, a change in status from an
Employee of the Company to a Consultant of an Affiliate or a Director will not
constitute an interruption of Continuous Service. The Board or the chief
executive officer of the Company, in that party's sole discretion, may determine
whether Continuous Service shall be considered interrupted in the case of any
leave of absence approved by that party, including sick leave, military leave or
any other personal leave.
(I) "COVERED EMPLOYEE" means the chief executive officer and the four
(4) other highest compensated officers of the Company for whom total
compensation is required to be reported to stockholders under the Exchange Act,
as determined for purposes of Section 162(m) of the Code.
(J) "DIRECTOR" means a member of the Board of Directors of the Company.
(K) "DISABILITY" means the permanent and total disability of a person
within the meaning of Section 22(e)(3) of the Code.
(L) "EMPLOYEE" means any person employed by the Company or an Affiliate.
Mere service as a Director or payment of a director's fee by the Company or an
Affiliate shall not be sufficient to constitute "employment" by the Company or
an Affiliate.
(M) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(N) "FAIR MARKET VALUE" means, as of any date, the value of the Common
Stock determined as follows:
(I) If the Common Stock is listed on any established stock exchange
or traded on the Nasdaq National Market or the Nasdaq SmallCap Market, the Fair
Market Value of a share of Common Stock shall be the closing sales price for
such stock (or the closing bid, if no sales were reported) as quoted on such
exchange or market (or the exchange or market with the greatest volume of
trading in the Common Stock) on the day of determination, as reported in The
Wall Street Journal or such other source as the Board deems reliable.
(II) In the absence of such markets for the Common Stock, the Fair
Market Value shall be determined in good faith by the Board.
(O) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
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<PAGE> 3
(P) "IPO DATE" means the effective date of the initial public offering
of the Company's Common Stock.
(Q) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or a subsidiary, does
not receive compensation (directly or indirectly) from the Company or its parent
or a subsidiary for services rendered as a consultant or in any capacity other
than as a Director (except for an amount as to which disclosure would not be
required under Item 404(a) of Regulation S-K promulgated pursuant to the
Securities Act ("Regulation S-K")), does not possess an interest in any other
transaction as to which disclosure would be required under Item 404(a) of
Regulation S-K and is not engaged in a business relationship as to which
disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is
otherwise considered a "non-employee director" for purposes of Rule 16b-3.
(R) "NON-EMPLOYEE DIRECTOR OPTION" means a Non-Statutory Stock Option
granted pursuant to Section 7 hereof.
(S) "NON-EMPLOYEE DIRECTOR OPTION AGREEMENT" means a written agreement
between the Company and a Non-Employee Director evidencing the terms and
conditions of a Non-Employee Director Option grant. Each Non-Employee Director
Option Agreement shall be subject to the terms and conditions of the Plan.
(T) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify
as an Incentive Stock Option.
(U) "OFFICER" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(V) "OPTION" means an Incentive Stock Option or a Nonstatutory Stock
Option granted pursuant to the Plan.
(W) "OPTION AGREEMENT" means a written agreement between the Company and
an Optionholder evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of the
Plan.
(X) "OPTIONHOLDER" means a person to whom an Option is granted pursuant
to the Plan or, if applicable, such other person who holds an outstanding
Option.
(Y) "OUTSIDE DIRECTOR" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
Treasury Regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.
(Z) "PARTICIPANT" means a person to whom a Stock Award is granted
pursuant to the Plan or, if applicable, such other person who holds an
outstanding Stock Award.
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(AA) "PLAN" means this Eloquent, Inc. 1999 Equity Incentive Plan.
(BB) "RULE 16B-3" means Rule 16b-3 promulgated under the Exchange Act or
any successor to Rule 16b-3, as in effect from time to time.
(CC) "SECURITIES ACT" means the Securities Act of 1933, as amended.
(DD) "STOCK AWARD" means any right granted under the Plan, including an
Option, a stock bonus and a right to acquire restricted stock.
(EE) "STOCK AWARD AGREEMENT" means a written agreement between the
Company and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to the
terms and conditions of the Plan.
(FF) "TEN PERCENT STOCKHOLDER" means a person who owns (or is deemed to
own pursuant to Section 424(d) of the Code) stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company or of any of its Affiliates.
3. ADMINISTRATION.
(A) ADMINISTRATION BY BOARD. The Board shall administer the Plan unless
and until the Board delegates administration to a Committee, as provided in
subsection 3(c). Any interpretation of the Plan by the Board and any decision by
the Board under the Plan shall be final and binding on all persons.
(B) POWERS OF BOARD. The Board shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:
(I) To determine from time to time which of the persons eligible
under the Plan shall be granted Stock Awards; when and how each Stock Award
shall be granted; what type or combination of types of Stock Award shall be
granted; the provisions of each Stock Award granted (which need not be
identical), including the time or times when a person shall be permitted to
receive Common Stock pursuant to a Stock Award; and the number of shares of
Common Stock with respect to which a Stock Award shall be granted to each such
person.
(II) To construe and interpret the Plan and Stock Awards granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.
(III) To amend the Plan or a Stock Award as provided in Section 13.
(IV) Generally, to exercise such powers and to perform such acts as
the Board deems necessary or expedient to promote the best interests of the
Company which are not in conflict with the provisions of the Plan.
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<PAGE> 5
(C) DELEGATION TO COMMITTEE.
(I) GENERAL. The Board may delegate administration of the Plan to a
Committee or Committees of one (1) or more members of the Board, and the term
"Committee" shall apply to any person or persons to whom such authority has been
delegated. If administration is delegated to a Committee, the Committee shall
have, in connection with the administration of the Plan, the powers theretofore
possessed by the Board, including the power to delegate to a subcommittee any of
the administrative powers the Committee is authorized to exercise (and
references in this Plan to the Board shall thereafter be to the Committee or
subcommittee), subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.
(II) COMMITTEE COMPOSITION WHEN COMMON STOCK IS PUBLICLY TRADED. At
such time as the Common Stock is publicly traded, in the discretion of the
Board, a Committee may consist solely of two or more Outside Directors, in
accordance with Section 162(m) of the Code, and/or solely of two or more
Non-Employee Directors, in accordance with Rule 16b-3. Within the scope of such
authority, the Board or the Committee may (1) delegate to a committee of one or
more members of the Board who are not Outside Directors, the authority to grant
Stock Awards to eligible persons who are either (a) not then Covered Employees
and are not expected to be Covered Employees at the time of recognition of
income resulting from such Stock Award or (b) not persons with respect to whom
the Company wishes to comply with Section 162(m) of the Code and/or (2) delegate
to a committee of one or more members of the Board who are not Non-Employee
Directors the authority to grant Stock Awards to eligible persons who are not
then subject to Section 16 of the Exchange Act.
4. SHARES SUBJECT TO THE PLAN.
(A) SHARE RESERVE. Subject to the provisions of Section 12 relating to
adjustments upon changes in Common Stock, the Common Stock that may be issued
pursuant to Stock Awards shall not exceed in the aggregate the initial reserve
amount set forth below (the "Initial Reserve Amount"), plus an annual increase
to be added each January 1, beginning January 1, 2001, equal to four percent
(4.0%) of the total number of shares of Common Stock outstanding on such January
1. Notwithstanding the foregoing, the Board may designate a smaller number of
shares of Common Stock to be added to the share reserve as of a particular
January 1. The Initial Reserve Amount shall be equal to that number of shares of
Common Stock that, as of the IPO Date, is reserved under the Company's 1995
Equity Incentive Plan and 1997 Equity Incentive Plan and has not been reserved
for outstanding stock awards under such plans or issued under such plans. For
purposes of complying with the requirements of Section 422 of the Code, the
maximum aggregate number of shares of Common Stock that may be issued pursuant
to Incentive Stock Options under this Plan shall be two hundred fifty thousand
(250,000) shares multiplied by the number of years of the term of this Plan, or
an aggregate of two million five hundred thousand (2,500,000) shares.
Notwithstanding the foregoing, the Company shall have no obligation to grant any
Incentive Stock Options under the Plan.
(B) REVERSION OF SHARES TO THE SHARE RESERVE. If any Stock Award shall
for any reason expire or otherwise terminate, in whole or in part, without
having been exercised in full, the shares of Common Stock not acquired under
such Stock Award shall revert to and again become available for issuance under
the Plan. In addition, if any stock award issued under the Company's 1995 Equity
Incentive Plan and 1997 Equity Incentive Plan shall for any reason expire or
otherwise terminate, in whole or in part, without having been exercised in full,
the shares of Common Stock not acquired under such stock award shall revert to
and again become available for issuance under this Plan.
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<PAGE> 6
(C) SOURCE OF SHARES. The shares of Common Stock subject to the Plan may
be unissued shares or reacquired shares, bought on the market or otherwise.
5. ELIGIBILITY.
(A) ELIGIBILITY FOR SPECIFIC STOCK AWARDS. Incentive Stock Options may
be granted only to Employees. Stock Awards other than Incentive Stock Options
may be granted to Employees, Directors and Consultants.
(B) TEN PERCENT STOCKHOLDERS. A Ten Percent Stockholder shall not be
granted an Incentive Stock Option unless the exercise price of such Option is at
least one hundred ten percent (110%) of the Fair Market Value of the Common
Stock at the date of grant and the Option is not exercisable after the
expiration of five (5) years from the date of grant.
(C) SECTION 162(m) LIMITATION. Subject to the provisions of Section 12
relating to adjustments upon changes in the shares of Common Stock, no Employee
shall be eligible to be granted Options covering more than two million five
hundred thousand (2,500,000) shares of the Common Stock during any calendar
year.
(D) CONSULTANTS. A Consultant shall not be eligible for the grant of a
Stock Award if, at the time of grant, a Form S-8 Registration Statement under
the Securities Act ("Form S-8") is not available to register either the offer or
the sale of the Company's securities to such Consultant because of the nature of
the services that the Consultant is providing to the Company, or because the
Consultant is not a natural person, or as otherwise provided by the rules
governing the use of Form S-8, unless the Company determines both (i) that such
grant (A) shall be registered in another manner under the Securities Act (e.g.,
on a Form S-3 Registration Statement) or (B) does not require registration under
the Securities Act in order to comply with the requirements of the Securities
Act, if applicable, and (ii) that such grant complies with the securities laws
of all other relevant jurisdictions.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. All Options shall be separately
designated Incentive Stock Options or Nonstatutory Stock Options at the time of
grant, and, if certificates are issued, a separate certificate or certificates
will be issued for shares of Common Stock purchased on exercise of each type of
Option. The provisions of separate Options need not be identical, but each
Option shall include (through incorporation of provisions hereof by reference in
the Option or otherwise) the substance of each of the following provisions:
(A) TERM. Subject to the provisions of subsection 5(b) regarding Ten
Percent Stockholders, no Incentive Stock Option shall be exercisable after the
expiration of ten (10) years from the date it was granted.
(B) EXERCISE PRICE OF AN INCENTIVE STOCK OPTION. Subject to the
provisions of subsection 5(b) regarding Ten Percent Stockholders, the exercise
price of each Incentive Stock Option shall be not less than one hundred percent
(100%) of the Fair Market Value of the Common Stock subject to the Option on the
date the Option is granted. Notwithstanding the
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foregoing, an Incentive Stock 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.
(C) EXERCISE PRICE OF A NONSTATUTORY STOCK OPTION. The exercise price of
each Nonstatutory Stock Option shall be not less than eighty-five percent (85%)
of the Fair Market Value of the Common Stock subject to the Option on the date
the Option is granted. Notwithstanding the foregoing, a Nonstatutory Stock
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.
(D) CONSIDERATION. The purchase price of Common Stock acquired pursuant
to an Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised or (ii) at
the discretion of the Board at the time of the grant of the Option (or
subsequently in the case of a Nonstatutory Stock Option) (1) by delivery to the
Company of other Common Stock, (2) according to a deferred payment or other
similar arrangement with the Optionholder or (3) in any other form of legal
consideration that may be acceptable to the Board; provided, however, that at
any time that the Company is incorporated in Delaware, payment of the Common
Stock's "par value," as defined in the Delaware General Corporation Law, shall
not be made by deferred payment.
In the case of any deferred payment arrangement, interest shall be
compounded at least annually and shall be charged at the minimum rate of
interest necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be interest
under the deferred payment arrangement.
(E) TRANSFERABILITY OF AN INCENTIVE STOCK OPTION. An Incentive Stock
Option shall not be transferable except by will or by the laws of descent and
distribution and shall be exercisable during the lifetime of the Optionholder
only by the Optionholder. Notwithstanding the foregoing, the Optionholder may,
by delivering written notice to the Company, in a form satisfactory to the
Company, designate a third party who, in the event of the death of the
Optionholder, shall thereafter be entitled to exercise the Option.
(F) TRANSFERABILITY OF A NONSTATUTORY STOCK OPTION. A Nonstatutory Stock
Option shall be transferable to the extent provided in the Option Agreement. If
the Nonstatutory Stock Option does not provide for transferability, then the
Nonstatutory Stock Option shall not be transferable except by will or by the
laws of descent and distribution and shall be exercisable during the lifetime of
the Optionholder only by the Optionholder. Notwithstanding the foregoing, the
Optionholder may, by delivering written notice to the Company, in a form
satisfactory to the Company, designate a third party who, in the event of the
death of the Optionholder, shall thereafter be entitled to exercise the Option.
(G) VESTING GENERALLY. The total number of shares of Common Stock
subject to an Option may, but need not, vest and therefore become exercisable in
periodic installments that may, but need not, be equal. The Option may be
subject to such other terms and conditions on
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the time or times when it may be exercised (which may be based on performance or
other criteria) as the Board may deem appropriate. The vesting provisions of
individual Options may vary. The provisions of this subsection 6(g) are subject
to any Option provisions governing the minimum number of shares of Common Stock
as to which an Option may be exercised.
(H) TERMINATION OF CONTINUOUS SERVICE. In the event an Optionholder's
Continuous Service terminates (other than upon the Optionholder's death or
Disability), the Optionholder may exercise his or her Option (to the extent that
the Optionholder was entitled to exercise such Option as of the date of
termination) but only within such period of time ending on the earlier of (i)
the date three (3) months following the termination of the Optionholder's
Continuous Service (or such longer or shorter period specified in the Option
Agreement), or (ii) the expiration of the term of the Option as set forth in the
Option Agreement. If, after termination, the Optionholder does not exercise his
or her Option within the time specified in the Option Agreement, the Option
shall terminate.
(I) EXTENSION OF TERMINATION DATE. An Optionholder's Option Agreement
may also provide that if the exercise of the Option following the termination of
the Optionholder's Continuous Service (other than upon the Optionholder's death
or Disability) would be prohibited at any time solely because the issuance of
shares of Common Stock would violate the registration requirements under the
Securities Act, then the Option shall terminate on the earlier of (i) the
expiration of the term of the Option set forth in subsection 6(a) or (ii) the
expiration of a period of three (3) months after the termination of the
Optionholder's Continuous Service during which the exercise of the Option would
not be in violation of such registration requirements.
(J) DISABILITY OF OPTIONHOLDER. In the event that an Optionholder's
Continuous Service terminates as a result of the Optionholder's Disability, the
Optionholder may exercise his or her Option (to the extent that the Optionholder
was entitled to exercise such Option as of the date of termination), but only
within such period of time ending on the earlier of (i) the date twelve (12)
months following such termination (or such longer or shorter period specified in
the Option Agreement) or (ii) the expiration of the term of the Option as set
forth in the Option Agreement. If, after termination, the Optionholder does not
exercise his or her Option within the time specified herein, the Option shall
terminate.
(K) DEATH OF OPTIONHOLDER. In the event (i) an Optionholder's Continuous
Service terminates as a result of the Optionholder's death or (ii) the
Optionholder dies within the period (if any) specified in the Option Agreement
after the termination of the Optionholder's Continuous Service for a reason
other than death, then the Option may be exercised (to the extent the
Optionholder was entitled to exercise such Option as of the date of death) by
the Optionholder's estate, by a person who acquired the right to exercise the
Option by bequest or inheritance or by a person designated to exercise the
option upon the Optionholder's death pursuant to subsection 6(e) or 6(f), but
only within the period ending on the earlier of (1) the date eighteen (18)
months following the date of death (or such longer or shorter period specified
in the Option Agreement) or (2) the expiration of the term of such Option as set
forth in the Option Agreement. If, after death, the Option is not exercised
within the time specified herein, the Option shall terminate.
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(L) EARLY EXERCISE. The Option may, but need not, include a provision
whereby the Optionholder may elect at any time before the Optionholder's
Continuous Service terminates to exercise the Option as to any part or all of
the shares of Common Stock subject to the Option prior to the full vesting of
the Option. Any unvested shares of Common Stock so purchased may be subject to a
repurchase option in favor of the Company or to any other restriction the Board
determines to be appropriate.
(M) RE-LOAD OPTIONS. Without in any way limiting the authority of the
Board to make or not to make grants of Options hereunder, the Board shall have
the authority (but not an obligation) to include as part of any Option Agreement
a provision entitling the Optionholder to a further Option (a "Re-Load Option")
in the event the Optionholder exercises the Option evidenced by the Option
Agreement, in whole or in part, by surrendering other shares of Common Stock in
accordance with this Plan and the terms and conditions of the Option Agreement.
Any such Re-Load Option shall (i) provide for a number of shares of Common Stock
equal to the number of shares of Common Stock surrendered as part or all of the
exercise price of such Option; (ii) have an expiration date which is the same as
the expiration date of the Option the exercise of which gave rise to such
Re-Load Option; and (iii) have an exercise price which is equal to one hundred
percent (100%) of the Fair Market Value of the Common Stock subject to the
Re-Load Option on the date of exercise of the original Option. Notwithstanding
the foregoing, a Re-Load Option shall be subject to the same exercise price and
term provisions heretofore described for Options under the Plan.
Any such Re-Load Option may be an Incentive Stock Option or a
Nonstatutory Stock Option, as the Board may designate at the time of the grant
of the original Option; provided, however, that the designation of any Re-Load
Option as an Incentive Stock Option shall be subject to the one hundred thousand
dollar ($100,000) annual limitation on the exercisability of Incentive Stock
Options described in subsection 11(d) and in Section 422(d) of the Code. There
shall be no Re-Load Options on a Re-Load Option. Any such Re-Load Option shall
be subject to the availability of sufficient shares of Common Stock under
subsection 4(a) and the "Section 162(m) Limitation" on the grants of Options
under subsection 5(c) and shall be subject to such other terms and conditions as
the Board may determine which are not inconsistent with the express provisions
of the Plan regarding the terms of Options.
7. NON-EMPLOYEE DIRECTOR STOCK OPTIONS.
Without any further action of the Board, each Non-Employee Director
shall be granted Nonstatutory Stock Options as described in subsections 7(a) and
7(b) (collectively, "Non-Employee Director Options"). Each Non-Employee Director
Option shall include the substance of the terms set forth in subsections 7(c)
through 7(k).
(A) INITIAL GRANTS. After the IPO Date, each person who is elected or
appointed for the first time to be a Non-Employee Director automatically shall,
upon the date of his or her initial election or appointment to be a Non-Employee
Director by the Board or stockholders of the Company, be granted an Initial
Grant to purchase twenty-five thousand (25,000) shares of Common Stock on the
terms and conditions set forth herein. For purposes of the foregoing sentence,
on the tenth (10th) business day after the IPO Date, each person then serving as
a Non-Employee Director shall be deemed to have been initially elected as a
Non-Employee Director on such date.
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(B) ANNUAL GRANTS. After the IPO Date, each person who is a Non-Employee
Director on the Board on the day after the annual stockholders' meeting, shall,
on that date, be granted an Annual Grant of purchase five thousand (5,000)
shares of Common Stock on the terms and conditions set forth herein.
Notwithstanding the foregoing, the number of shares of Common Stock subject to
an Annual Grant to a Non-Employee Director that has not served in that capacity
for the entire period since the preceding annual stockholders' meeting shall be
reduced, pro rata, for each full quarter the person did not serve during such
period.
(C) TERM. Each Non-Employee Director Option shall have a term of ten
(10) years from the date it is granted.
(D) EXERCISE PRICE. The exercise price of each Non-Employee Director
Option shall be one hundred percent (100%) of the Fair Market Value of the stock
subject to the Non-Employee Director Option on the date of grant.
Notwithstanding the foregoing, a Non-Employee Director Option may be granted
with an exercise price lower than that set forth in the preceding sentence if
such Non-Employee Director 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.
(E) VESTING. Each Initial Grant shall vest one-third (1/3) per year from
the date on which it is granted. Each Annual Grant shall vest one year from the
date on which it is granted.
(F) CONSIDERATION. The purchase price of stock acquired pursuant to a
Non-Employee Director Option may be paid, to the extent permitted by applicable
statutes and regulations, in any combination of (i) cash or check, (ii) delivery
to the Company of other Common Stock, (ii) deferred payment or (iv) any other
form of legal consideration that may be acceptable to the Board and provided in
the Non-Employee Director Option Agreement; provided, however, that at any time
that the Company is incorporated in Delaware, payment of the Common Stock's "par
value," as defined in the Delaware General Corporation Law, shall not be made by
deferred payment. In the case of any deferred payment arrangement, interest
shall be compounded at least annually and shall be charged at the minimum rate
of interest necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be interest
under the deferred payment arrangement.
(G) TRANSFERABILITY. A Non-Employee Director Option shall not be
transferable except by will or by the laws of descent and distribution and shall
be exercisable during the lifetime of the Non-Employee Director only by the
Non-Employee Director. Notwithstanding the foregoing, the Non-Employee Director
may, by delivering written notice to the Company, in a form satisfactory to the
Company, designate a third party who, in the event of the death of the
Non-Employee Director, shall thereafter be entitled to exercise the Non-Employee
Director Option.
(H) TERMINATION OF CONTINUOUS SERVICE. In the event a Non-Employee
Director's Continuous Service terminates (other than upon the Non-Employee
Director's death or Disability), the Non-Employee Director may exercise his or
her Non-Employee Director Option (to the extent that the Non-Employee Director
was entitled to exercise it as of the date of termination) but only within such
period of time ending on the earlier of (i) the date three (3) months following
the termination of the Non-Employee Director's Continuous Service, or (ii) the
expiration of the term of the Non-Employee Director Option as set forth in the
Non-Employee Director Option Agreement. If, after termination, the Non-Employee
Director does not exercise his or her Non-Employee Director Option within the
time specified in the Non-Employee Director Option Agreement, the Non-Employee
Director Option shall terminate.
(I) EXTENSION OF TERMINATION DATE. If the exercise of the Non-Employee
Director Option following the termination of the Non-Employee Director's
Continuous Service (other
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than upon the Non-Employee Director's death or Disability) would be prohibited
at any time solely because the issuance of shares would violate the registration
requirements under the Securities Act, then the Non-Employee Director Option
shall terminate on the earlier of (i) the expiration of the term of the
Non-Employee Director Option set forth in subsection 7(c) or (ii) the expiration
of a period of three (3) months after the termination of the Non-Employee
Director's Continuous Service during which the exercise of the Non-Employee
Director Option would not violate such registration requirements.
(J) DISABILITY OF NON-EMPLOYEE DIRECTOR. In the event a Non-Employee
Director's Continuous Service terminates as a result of the Non-Employee
Director's Disability, the Non-Employee Director may exercise his or her
Non-Employee Director Option (to the extent that the Non-Employee Director was
entitled to exercise it as of the date of termination), but only within such
period of time ending on the earlier of (i) the date twelve (12) months
following such termination or (ii) the expiration of the term of the
Non-Employee Director Option as set forth in the Non-Employee Director Option
Agreement. If, after termination, the Non-Employee Director does not exercise
his or her Non-Employee Director Option within the time specified herein, the
Non-Employee Director Option shall terminate.
(K) DEATH OF NON-EMPLOYEE DIRECTOR. In the event (i) a Non-Employee
Director's Continuous Service terminates as a result of the Non-Employee
Director's death or (ii) the Non-Employee Director dies within the three-month
period after the termination of the Non-Employee Director's Continuous Service
for a reason other than death, then the Non-Employee Director Option may be
exercised (to the extent the Non-Employee Director was entitled to exercise the
Non-Employee Director Option as of the date of death) by the Non-Employee
Director's estate, by a person who acquired the right to exercise the
Non-Employee Director Option by bequest or inheritance or by a person designated
to exercise the Non-Employee Director Option upon the Non-Employee Director's
death, but only within the period ending on the earlier of (1) the date eighteen
(18) months following the date of death or (2) the expiration of the term of
such Non-Employee Director Option as set forth in the Non-Employee Director
Option Agreement. If, after death, the Non-Employee Director Option is not
exercised within the time specified herein, the Non-Employee Director Option
shall terminate.
8. PROVISIONS OF STOCK AWARDS OTHER THAN OPTIONS.
(A) STOCK BONUS AWARDS. Each stock bonus agreement shall be in such form
and shall contain such terms and conditions as the Board shall deem appropriate.
The terms and conditions of stock bonus agreements may change from time to time,
and the terms and conditions of separate stock bonus agreements need not be
identical, but each stock bonus agreement shall include (through incorporation
of provisions hereof by reference in the agreement or otherwise) the substance
of each of the following provisions:
(I) CONSIDERATION. A stock bonus may be awarded in consideration for
past services actually rendered to the Company or an Affiliate for its benefit.
(II) VESTING. Shares of Common Stock awarded under the stock bonus
agreement may, but need not, be subject to a share repurchase option in favor of
the Company in accordance with a vesting schedule to be determined by the Board.
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(III) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. In the event
a Participant's Continuous Service terminates, the Company may reacquire any or
all of the shares of Common Stock held by the Participant which have not vested
as of the date of termination under the terms of the stock bonus agreement.
(IV) TRANSFERABILITY. Rights to acquire shares under the stock bonus
agreement shall be transferable by the Participant only upon such terms and
conditions as are set forth in the stock bonus agreement, as the Board shall
determine in its discretion, so long as Common Stock awarded under the stock
bonus agreement remains subject to the terms of the stock bonus agreement.
(B) RESTRICTED STOCK AWARDS. Each restricted stock purchase agreement
shall be in such form and shall contain such terms and conditions as the Board
shall deem appropriate. The terms and conditions of the restricted stock
purchase agreements may change from time to time, and the terms and conditions
of separate restricted stock purchase agreements need not be identical, but each
restricted stock purchase agreement shall include (through incorporation of
provisions hereof by reference in the agreement or otherwise) the substance of
each of the following provisions:
(I) PURCHASE PRICE. The purchase price under each restricted stock
purchase agreement shall be such amount as the Board shall determine and
designate in such restricted stock purchase agreement. The purchase price shall
not be less than eighty-five percent (85%) of the Common Stock's Fair Market
Value on the date such award is made or at the time the purchase is consummated.
(II) CONSIDERATION. The purchase price of Common Stock acquired
pursuant to the restricted stock purchase agreement shall be paid either: (i) in
cash at the time of purchase; (ii) at the discretion of the Board, according to
a deferred payment or other similar arrangement with the Participant; or (iii)
in any other form of legal consideration that may be acceptable to the Board in
its discretion; provided, however, that at any time that the Company is
incorporated in Delaware, then payment of the Common Stock's "par value," as
defined in the Delaware General Corporation Law, shall not be made by deferred
payment.
(III) VESTING. Shares of Common Stock acquired under the restricted
stock purchase agreement may, but need not, be subject to a share repurchase
option in favor of the Company in accordance with a vesting schedule to be
determined by the Board.
(IV) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. In the event a
Participant's Continuous Service terminates, the Company may repurchase or
otherwise reacquire any or all of the shares of Common Stock held by the
Participant which have not vested as of the date of termination under the terms
of the restricted stock purchase agreement.
(V) TRANSFERABILITY. Rights to acquire shares under the restricted
stock purchase agreement shall be transferable by the Participant only upon such
terms and conditions as are set forth in the restricted stock purchase
agreement, as the Board shall determine in its discretion, so long as Common
Stock awarded under the restricted stock purchase agreement remains subject to
the terms of the restricted stock purchase agreement.
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9. COVENANTS OF THE COMPANY.
(A) AVAILABILITY OF SHARES. During the terms of the Stock Awards, the
Company shall keep available at all times the number of shares of Common Stock
required to satisfy such Stock Awards.
(B) SECURITIES LAW COMPLIANCE. The Company shall seek to obtain from
each regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to grant Stock Awards and to issue and sell shares
of Common Stock upon exercise of the Stock Awards; provided, however, that this
undertaking shall not require the Company to register under the Securities Act
the Plan, any Stock Award or any Common Stock issued or issuable pursuant to any
such Stock Award. If, after reasonable efforts, the Company is unable to obtain
from any such regulatory commission or agency the authority which counsel for
the Company deems necessary for the lawful issuance and sale of Common Stock
under the Plan, the Company shall be relieved from any liability for failure to
issue and sell Common Stock upon exercise of such Stock Awards unless and until
such authority is obtained.
10. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of Common Stock pursuant to Stock Awards shall
constitute general funds of the Company.
11. MISCELLANEOUS.
(A) ACCELERATION OF EXERCISABILITY AND VESTING. The Board shall have the
power to accelerate the time at which a Stock Award may first be exercised or
the time during which a Stock Award or any part thereof will vest in accordance
with the Plan, notwithstanding the provisions in the Stock Award stating the
time at which it may first be exercised or the time during which it will vest.
(B) STOCKHOLDER RIGHTS. No Participant shall be deemed to be the holder
of, or to have any of the rights of a holder with respect to, any shares of
Common Stock subject to such Stock Award unless and until such Participant has
satisfied all requirements for exercise of the Stock Award pursuant to its
terms.
(C) NO EMPLOYMENT OR OTHER SERVICE RIGHTS. Nothing in the Plan or any
instrument executed or Stock Award granted pursuant thereto shall confer upon
any Participant any right to continue to serve the Company or an Affiliate in
the capacity in effect at the time the Stock Award was granted or shall affect
the right of the Company or an Affiliate to terminate (i) the employment of an
Employee with or without notice and with or without cause, (ii) the service of a
Consultant pursuant to the terms of such Consultant's agreement with the Company
or an Affiliate or (iii) the service of a Director pursuant to the Bylaws of the
Company or an Affiliate, and any applicable provisions of the corporate law of
the state in which the Company or the Affiliate is incorporated, as the case may
be.
(D) INCENTIVE STOCK OPTION $100,000 LIMITATION. To the extent that the
aggregate Fair Market Value (determined at the time of grant) of Common Stock
with respect to which Incentive Stock Options are exercisable for the first time
by Participant during any calendar year
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(under all plans of the Company and its Affiliates) exceeds one hundred thousand
dollars ($100,000), the Options or portions thereof which exceed such limit
(according to the order in which they were granted) shall be treated as
Nonstatutory Stock Options.
(E) INVESTMENT ASSURANCES. The Company may require a Participant, as a
condition of exercising or acquiring Common Stock under any Stock Award, (i) to
give written assurances satisfactory to the Company as to the Participant's
knowledge and experience in financial and business matters and/or to employ a
purchaser representative reasonably satisfactory to the Company who is
knowledgeable and experienced in financial and business matters and that he or
she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the Stock Award; and (ii) to
give written assurances satisfactory to the Company stating that the Participant
is acquiring Common Stock subject to the Stock Award for the Participant's own
account and not with any present intention of selling or otherwise distributing
the Common Stock. The foregoing requirements, and any assurances given pursuant
to such requirements, shall be inoperative if (iii) the issuance of the shares
of Common Stock upon the exercise or acquisition of Common Stock under the Stock
Award has been registered under a then currently effective registration
statement under the Securities Act or (iv) as to any particular requirement, a
determination is made by counsel for the Company that such requirement need not
be met in the circumstances under the then applicable securities laws. The
Company may, upon advice of counsel to the Company, place legends on stock
certificates issued under the Plan as such counsel deems necessary or
appropriate in order to comply with applicable securities laws, including, but
not limited to, legends restricting the transfer of the Common Stock.
(F) WITHHOLDING OBLIGATIONS. To the extent provided by the terms of a
Stock Award Agreement, the Participant may satisfy any federal, state or local
tax withholding obligation relating to the exercise or acquisition of Common
Stock under a Stock Award by any of the following means (in addition to the
Company's right to withhold from any compensation paid to the Participant by the
Company) or by a combination of such means: (i) tendering a cash payment; (ii)
authorizing the Company to withhold shares of Common Stock from the shares of
Common Stock otherwise issuable to the Participant as a result of the exercise
or acquisition of Common Stock under the Stock Award; or (iii) delivering to the
Company owned and unencumbered shares of the Common Stock. Notwithstanding the
foregoing, the Company shall not be authorized to withhold shares of Common
Stock at rates in excess of the minimum statutory withholding rates for federal
and state tax purposes, including payroll taxes.
12. ADJUSTMENTS UPON CHANGES IN STOCK.
(A) CAPITALIZATION ADJUSTMENTS. If any change is made in the Common
Stock subject to the Plan, or subject to any Stock Award, without the receipt of
consideration by the Company (through merger, consolidation, reorganization,
recapitalization, reincorporation, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan will be appropriately
adjusted in the class(es) and maximum number of securities subject to the Plan
pursuant to subsection 4(a) and the maximum number of securities subject to
award to any person pursuant to subsection 5(c), and the outstanding Stock
Awards will be appropriately adjusted in the class(es) and number of
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securities and price per share of Common Stock subject to such outstanding Stock
Awards. The Board shall make such adjustments, and its determination shall be
final, binding and conclusive. (The conversion of any convertible securities of
the Company shall not be treated as a transaction "without receipt of
consideration" by the Company.)
(B) CHANGE IN CONTROL. In the event of (i) a dissolution, liquidation or
sale of substantially all of the assets of the Company, (ii) a merger or
consolidation in which the Company is not the surviving corporation or (iii) a
reverse merger in which the Company is the surviving corporation but the shares
of Common Stock outstanding immediately preceding the merger are converted by
virtue of the merger into other property, whether in the form of securities,
cash or otherwise, then, to the extent permitted by applicable law: (i) any
surviving corporation shall assume any Stock Awards outstanding under the Plan
or shall substitute similar stock awards (including an award to acquire the same
consideration paid to the stockholders in the transaction described in this
subsection 12(b)) for those outstanding under the Plan, or (ii) such Stock
Awards shall continue in full force and effect. In the event any surviving
corporation refuses to assume or continue such Stock Awards, or to substitute
similar stock awards for those outstanding under the Plan, then with respect to
Stock Awards held by Participants whose Continuous Service has not terminated,
the time during which such Stock Awards may be exercised shall be accelerated,
and the Stock Awards terminated if not exercised prior to such event.
13. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(A) AMENDMENT OF PLAN. The Board at any time, and from time to time, may
amend the Plan. However, except as provided in Section 12 relating to
adjustments upon changes in Common Stock, no amendment shall be effective unless
approved by the stockholders of the Company to the extent stockholder approval
is necessary to satisfy the requirements of Section 422 of the Code, Rule 16b-3
or any Nasdaq or securities exchange listing requirements.
(B) STOCKHOLDER APPROVAL. The Board may, in its sole discretion, submit
any other amendment to the Plan for stockholder approval, including, but not
limited to, amendments to the Plan intended to satisfy the requirements of
Section 162(m) of the Code and the regulations thereunder regarding the
exclusion of performance-based compensation from the limit on corporate
deductibility of compensation paid to certain executive officers.
(C) CONTEMPLATED AMENDMENTS. It is expressly contemplated that the Board
may amend the Plan in any respect the Board deems necessary or advisable to
provide eligible Employees with the maximum benefits provided or to be provided
under the provisions of the Code and the regulations promulgated thereunder
relating to Incentive Stock Options and/or to bring the Plan and/or Incentive
Stock Options granted under it into compliance therewith.
(D) NO IMPAIRMENT OF RIGHTS. Rights under any Stock Award granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the Participant and (ii) the Participant
consents in writing.
(E) AMENDMENT OF STOCK AWARDS. The Board at any time, and from time to
time, may amend the terms of any one or more Stock Awards; provided, however,
that the rights under
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any Stock Award shall not be impaired by any such amendment unless (i) the
Company requests the consent of the Participant and (ii) the Participant
consents in writing.
14. TERMINATION OR SUSPENSION OF THE PLAN.
(A) PLAN TERM. The Board may suspend or terminate the Plan at any time.
Unless sooner terminated, the Plan shall terminate on the day before the tenth
(10th) anniversary of the date the Plan is adopted by the Board or approved by
the stockholders of the Company, whichever is earlier. No Stock Awards may be
granted under the Plan while the Plan is suspended or after it is terminated.
(B) NO IMPAIRMENT OF RIGHTS. Suspension or termination of the Plan shall
not impair rights and obligations under any Stock Award granted while the Plan
is in effect, except with the written consent of the Participant.
15. EFFECTIVE DATE OF PLAN.
The Plan shall become effective on the date on which it is adopted by
the Board, but no Stock Award shall be exercised (or, in the case of a stock
bonus, shall be granted) unless and until the Plan has been approved by the
stockholders of the Company, which approval shall be within twelve (12) months
before or after the date the Plan is adopted by the Board.
16. CHOICE OF LAW.
The law of the State of Delaware shall govern all questions concerning
the construction, validity and interpretation of this Plan, without regard to
such state's conflict of laws rules.
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EXHIBIT 10.07
ELOQUENT, INC.
1999 EQUITY INCENTIVE PLAN
STOCK OPTION AGREEMENT
(INCENTIVE AND NONSTATUTORY STOCK OPTIONS)
Pursuant to your Stock Option Grant Notice ("Grant Notice") and this
Stock Option Agreement, Eloquent, Inc. (the "Company") has granted you an option
under its 1999 Equity Incentive Plan (the "Plan") to purchase the number of
shares of the Company's Common Stock indicated in your Grant Notice at the
exercise price indicated in your Grant Notice. Defined terms not explicitly
defined in this Stock Option Agreement but defined in the Plan shall have the
same definitions as in the Plan.
The details of your option are as follows:
1. VESTING. Subject to the limitations contained herein, your option
will vest as provided in your Grant Notice, provided that vesting will cease
upon the termination of your Continuous Service.
2. NUMBER OF SHARES AND EXERCISE PRICE. The number of shares of Common
Stock subject to your option and your exercise price per share referenced in
your Grant Notice may be adjusted from time to time for Capitalization
Adjustments, as provided in the Plan.
3. EXERCISE PRIOR TO VESTING ("EARLY EXERCISE"). If permitted in your
Grant Notice (i.e., the "Exercise Schedule" indicates that "Early Exercise" of
your option is permitted) and subject to the provisions of your option, you may
elect at any time that is both (i) during the period of your Continuous Service
and (ii) during the term of your option, to exercise all or part of your option,
including the nonvested portion of your option; provided, however, that:
(a) a partial exercise of your option shall be deemed to cover first
vested shares of Common Stock and then the earliest vesting installment of
unvested shares of Common Stock;
(b) any shares of Common Stock so purchased from installments that
have not vested as of the date of exercise shall be subject to the purchase
option in favor of the Company as described in the Company's form of Early
Exercise Stock Purchase Agreement;
(c) you shall enter into the Company's form of Early Exercise Stock
Purchase Agreement with a vesting schedule that will result in the same vesting
as if no early exercise had occurred; and
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(d) if your option is an incentive stock option, then, as provided
in the Plan, to the extent that the aggregate Fair Market Value (determined at
the time of grant) of the shares of Common Stock with respect to which your
option plus all other incentive stock options you hold are exercisable for the
first time by you during any calendar year (under all plans of the Company and
its Affiliates) exceeds one hundred thousand dollars ($100,000), your option(s)
or portions thereof that exceed such limit (according to the order in which they
were granted) shall be treated as nonstatutory stock options.
4. METHOD OF PAYMENT. Payment of the exercise price is due in full upon
exercise of all or any part of your option. You may elect to make payment of the
exercise price in cash or by check or in any other manner PERMITTED BY YOUR
GRANT NOTICE, which may include one or more of the following:
(a) In the Company's sole discretion at the time your option is
exercised and provided that at the time of exercise the Common Stock is publicly
traded and quoted regularly in The Wall Street Journal, pursuant to a program
developed under Regulation T as promulgated by the Federal Reserve Board that,
prior to the issuance of Common Stock, results in either the receipt of cash (or
check) by the Company or the receipt of irrevocable instructions to pay the
aggregate exercise price to the Company from the sales proceeds.
(b) Provided that at the time of exercise the Common Stock is
publicly traded and quoted regularly in The Wall Street Journal, by delivery of
already-owned shares of Common Stock either that you have held for the period
required to avoid a charge to the Company's reported earnings (generally six
months) or that you did not acquire, directly or indirectly from the Company,
that are owned free and clear of any liens, claims, encumbrances or security
interests, and that are valued at Fair Market Value on the date of exercise.
"Delivery" for these purposes, in the sole discretion of the Company at the time
you exercise your option, shall include delivery to the Company of your
attestation of ownership of such shares of Common Stock in a form approved by
the Company. Notwithstanding the foregoing, you may not exercise your option by
tender to the Company of Common Stock to the extent such tender would violate
the provisions of any law, regulation or agreement restricting the redemption of
the Company's stock.
(c) Pursuant to the following deferred payment alternative:
(i) Not less than one hundred percent (100%) of the aggregate
exercise price, plus accrued interest, shall be due four (4) years from date of
exercise or, at the Company's election, upon termination of your Continuous
Service.
(ii) Interest shall be compounded at least annually and shall be
charged at the minimum rate of interest necessary to avoid the treatment as
interest, under any applicable provisions of the Code, of any portion of any
amounts other than amounts stated to be interest under the deferred payment
arrangement.
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(iii) At any time that the Company is incorporated in Delaware,
payment of the Common Stock's "par value," as defined in the Delaware General
Corporation Law, shall be made in cash and not by deferred payment.
(iv) In order to elect the deferred payment alternative, you
must, as a part of your written notice of exercise, give notice of the election
of this payment alternative and, in order to secure the payment of the deferred
exercise price to the Company hereunder, if the Company so requests, you must
tender to the Company a promissory note and a security agreement covering the
purchased shares of Common Stock, both in form and substance satisfactory to the
Company, or such other or additional documentation as the Company may request.
5. WHOLE SHARES. You may exercise your option only for whole shares of
Common Stock.
6. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary
contained herein, you may not exercise your option unless the shares of Common
Stock issuable upon such exercise are then registered under the Securities Act
or, if such shares of Common Stock are not then so registered, the Company has
determined that such exercise and issuance would be exempt from the registration
requirements of the Securities Act. The exercise of your option must also comply
with other applicable laws and regulations governing your option, and you may
not exercise your option if the Company determines that such exercise would not
be in material compliance with such laws and regulations.
7. TERM. The term of your option commences on the Date of Grant and
expires upon the EARLIEST of the following:
(a) three (3) months after the termination of your Continuous
Service for any reason other than your Disability or death, provided that if
during any part of such three- (3-) month period your option is not exercisable
solely because of the condition set forth in the preceding paragraph relating to
"Securities Law Compliance," your option shall not expire until the earlier of
the Expiration Date or until it shall have been exercisable for an aggregate
period of three (3) months after the termination of your Continuous Service;
(b) twelve (12) months after the termination of your Continuous
Service due to your Disability;
(c) eighteen (18) months after your death if you die either during
your Continuous Service or within three (3) months after your Continuous Service
terminates;
(d) the Expiration Date indicated in your Grant Notice; or
(e) the tenth (10th) anniversary of the Date of Grant.
If your option is an incentive stock option, note that, to obtain the
federal income tax advantages associated with an "incentive stock option," the
Code requires that at all times
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beginning on the date of grant of your option and ending on the day three (3)
months before the date of your option's exercise, you must be an employee of the
Company or an Affiliate, except in the event of your death or Disability. The
Company has provided for extended exercisability of your option under certain
circumstances for your benefit but cannot guarantee that your option will
necessarily be treated as an "incentive stock option" if you continue to provide
services to the Company or an Affiliate as a Consultant or Director after your
employment terminates or if you otherwise exercise your option more than three
(3) months after the date your employment terminates.
8. EXERCISE.
(a) You may exercise the vested portion of your option (and the
unvested portion of your option if your Grant Notice so permits) during its term
by delivering a Notice of Exercise (in a form designated by the Company)
together with the exercise price to the Secretary of the Company, or to such
other person as the Company may designate, during regular business hours,
together with such additional documents as the Company may then require.
(b) By exercising your option you agree that, as a condition to any
exercise of your option, the Company may require you to enter into an
arrangement providing for the payment by you to the Company of any tax
withholding obligation of the Company arising by reason of (1) the exercise of
your option, (2) the lapse of any substantial risk of forfeiture to which the
shares of Common Stock are subject at the time of exercise, or (3) the
disposition of shares of Common Stock acquired upon such exercise.
(c) If your option is an incentive stock option, by exercising your
option you agree that you will notify the Company in writing within fifteen (15)
days after the date of any disposition of any of the shares of the Common Stock
issued upon exercise of your option that occurs within two (2) years after the
date of your option grant or within one (1) year after such shares of Common
Stock are transferred upon exercise of your option.
9. TRANSFERABILITY. Your option is not transferable, except by will or
by the laws of descent and distribution, and is exercisable during your life
only by you. Notwithstanding the foregoing, by delivering written notice to the
Company, in a form satisfactory to the Company, you may designate a third party
who, in the event of your death, shall thereafter be entitled to exercise your
option.
10. RIGHT OF REPURCHASE. To the extent provided in the Company's bylaws
as amended from time to time, the Company shall have the right to repurchase all
or any part of the shares of Common Stock you acquire pursuant to the exercise
of your option.
11. OPTION NOT A SERVICE CONTRACT. Your option is not an employment or
service contract, and nothing in your option shall be deemed to create in any
way whatsoever any obligation on your part to continue in the employ of the
Company or an Affiliate, or of the Company or an Affiliate to continue your
employment. In addition, nothing in your option shall obligate the Company or an
Affiliate, their respective shareholders, Boards of Directors, Officers
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or Employees to continue any relationship that you might have as a Director or
Consultant for the Company or an Affiliate.
12. WITHHOLDING OBLIGATIONS.
(a) At the time you exercise your option, in whole or in part, or at
any time thereafter as requested by the Company, you hereby authorize
withholding from payroll and any other amounts payable to you, and otherwise
agree to make adequate provision for (including by means of a "cashless
exercise" pursuant to a program developed under Regulation T as promulgated by
the Federal Reserve Board to the extent permitted by the Company), any sums
required to satisfy the federal, state, local and foreign tax withholding
obligations of the Company or an Affiliate, if any, which arise in connection
with your option. Notwithstanding the foregoing, the Company shall not be
authorized to withhold shares of Common Stock at rates in excess of the minimum
statutory withholding rates for federal and state tax purposes, including
payroll taxes.
(b) Upon your request and subject to approval by the Company, in its
sole discretion, and compliance with any applicable conditions or restrictions
of law, the Company may withhold from fully vested shares of Common Stock
otherwise issuable to you upon the exercise of your option a number of whole
shares of Common Stock having a Fair Market Value, determined by the Company as
of the date of exercise, not in excess of the minimum amount of tax required to
be withheld by law. If the date of determination of any tax withholding
obligation is deferred to a date later than the date of exercise of your option,
share withholding pursuant to the preceding sentence shall not be permitted
unless you make a proper and timely election under Section 83(b) of the Code,
covering the aggregate number of shares of Common Stock acquired upon such
exercise with respect to which such determination is otherwise deferred, to
accelerate the determination of such tax withholding obligation to the date of
exercise of your option. Notwithstanding the filing of such election, shares of
Common Stock shall be withheld solely from fully vested shares of Common Stock
determined as of the date of exercise of your option that are otherwise issuable
to you upon such exercise. Any adverse consequences to you arising in connection
with such share withholding procedure shall be your sole responsibility.
(c) You may not exercise your option unless the tax withholding
obligations of the Company and/or any Affiliate are satisfied. Accordingly, you
may not be able to exercise your option when desired even though your option is
vested, and the Company shall have no obligation to issue a certificate for such
shares of Common Stock or release such shares of Common Stock from any escrow
provided for herein.
13. NOTICES. Any notices provided for in your option or the Plan shall
be given in writing and shall be deemed effectively given upon receipt or, in
the case of notices delivered by mail by the Company to you, five (5) days after
deposit in the United States mail, postage prepaid, addressed to you at the last
address you provided to the Company.
14. GOVERNING PLAN DOCUMENT. Your option is subject to all the
provisions of the Plan, the provisions of which are hereby made a part of your
option, and is further subject to all interpretations, amendments, rules and
regulations which may from time to time be promulgated and adopted pursuant to
the Plan. In the event of any conflict between the provisions of your option and
those of the Plan, the provisions of the Plan shall control.
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EXHIBIT 10.08
ELOQUENT, INC.
1999 EQUITY INCENTIVE PLAN
NON-EMPLOYEE DIRECTOR STOCK OPTION AGREEMENT
Pursuant to the 1999 Equity Incentive Plan (the "Plan") and this Non-Employee
Director Stock Option Agreement, Eloquent, Inc. (the "Company") has granted you
a Nonstatutory Stock Option under the Plan to purchase
__________________________ (________) shares of the Company's Common Stock at an
exercise price of $___________ per share. Capitalized terms not defined in this
Stock Option Agreement are defined in the Plan.
The details of your option are as follows:
1. NUMBER OF SHARES AND EXERCISE PRICE. Pursuant to your option, you may
purchase __________________________ (________) shares of the Company's Common
Stock at an exercise price of $___________ per share subject to the terms and
conditions set forth in this Stock Option Agreement and the Plan. The number of
shares and exercise price subject to your option may be adjusted from time to
time to reflect Capitalization Adjustments, as provided in the Plan.
2. VESTING. Your option shall vest as follows:________________________.
3. DATE OF GRANT. Your option has been granted effective ______________
(the "Date of Grant").
4. METHOD OF PAYMENT. Payment of the exercise price is due in full upon
exercise of all or any part of your option. You may elect to make payment of the
exercise price in cash or by check or by one or more of the following:
(a) Provided that at the time of exercise the Common Stock is
publicly traded and quoted regularly in The Wall Street Journal, then pursuant
to a program developed under Regulation T as promulgated by the Federal Reserve
Board which, prior to the issuance of Common Stock, results in either the
receipt of cash (or check) by the Company or the receipt of irrevocable
instructions to pay the aggregate exercise price to the Company from the sales
proceeds (a "cashless exercise").
(b) Provided that at the time of exercise the Common Stock is
publicly traded and quoted regularly in The Wall Street Journal, then by
delivery of already-owned shares of Common Stock (valued at their Fair Market
Value on the date of exercise) if (i) either you have held the already-owned
shares for the period required to avoid a charge to the Company's reported
earnings (generally six months) or you did not acquire the already-owned shares,
directly or indirectly from the Company, and (ii) you own the already-owned
shares free and clear of any liens, claims, encumbrances or security interests.
"Delivery" for these purposes shall include delivery to the Company of your
attestation of ownership of such shares of Common Stock in a form approved by
the Company. Notwithstanding the foregoing, your option may not be exercised by
tender to the Company of Common Stock to the extent such
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tender would constitute a violation of the provisions of any law, regulation or
agreement restricting the redemption of the Company's stock.
5. WHOLE SHARES. Your option may only be exercised for whole shares.
6. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary
contained herein, your option may not be exercised unless the shares issuable
upon exercise of your option are then registered under the Securities Act or, if
such shares are not then so registered, the Company has determined that such
exercise and issuance would be exempt from the registration requirements of the
Securities Act. The exercise of your option must also comply with other
applicable laws and regulations governing the option, and the option may not be
exercised if the Company determines that the exercise would not be in material
compliance with such laws and regulations.
7. TERM. The term of your option commences on the Date of Grant and
expires upon the EARLIEST of the following:
(a) three (3) months after the termination of your Continuous
Service for any reason other than death or Disability, provided that if during
any part of such three- (3-) month period your option is not exercisable solely
because of the condition set forth in the preceding paragraph relating to
"Securities Law Compliance," your option shall not expire until the earlier of
the Expiration Date or until it shall have been exercisable for an aggregate
period of three (3) months after the termination of your Continuous Service;
(b) twelve (12) months after the termination of your Continuous
Service due to Disability;
(c) eighteen (18) months after your death if you die either during
your Continuous Service or within three (3) months after your Continuous Service
terminates for any reason; or
(d) the tenth (10th) anniversary of the Date of Grant.
8. EXERCISE.
(a) You may exercise your option during its term by delivering a
Notice of Exercise (in a form designated by the Company) together with the
exercise price to the Secretary of the Company, or to such other person as the
Company may designate, during regular business hours, together with such
additional documents as the Company may then require.
(b) By exercising your option you agree that, as a condition to any
exercise of your option, the Company may require you to enter an arrangement
providing for the payment by you to the Company of any tax withholding
obligation of the Company arising by reason of (1) the exercise of your option
or (2) the disposition of shares acquired upon such exercise.
9. TRANSFERABILITY. Your option is not transferable, except by will or
by the laws of descent and distribution, and is exercisable during your life
only by you. Notwithstanding the foregoing, by delivering written notice to the
Company, in a form satisfactory to the Company,
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you may designate a third party who, in the event of your death, shall
thereafter be entitled to exercise your option.
10. OPTION NOT A SERVICE CONTRACT. Your option is not a service
contract, and nothing in your option shall obligate the Company or an Affiliate,
their respective shareholders, Boards of Directors, officers or employees to
continue any relationship that you might have as a Director.
11. WITHHOLDING OBLIGATIONS.
(a) At the time your option is exercised, in whole or in part, or at
any time thereafter as requested by the Company, you hereby authorize
withholding from payroll and any other amounts payable to you, and otherwise
agree to make adequate provision for (including by means of a "cashless
exercise" pursuant to a program developed under Regulation T as promulgated by
the Federal Reserve Board to the extent permitted by the Company), any sums
required to satisfy the federal, state, local and foreign tax withholding
obligations of the Company or an Affiliate, if any, which arise in connection
with your option. Notwithstanding the foregoing, the Company shall not be
authorized to withhold shares of Common Stock at rates in excess of the minimum
statutory withholding rates for federal and state tax purposes, including
payroll taxes.
(b) Your option is not exercisable unless the tax withholding
obligations of the Company and/or any Affiliate are satisfied. Accordingly, you
may not be able to exercise your option when desired even though your option is
vested.
12. NOTICES. Any notices provided for in your option or the Plan shall
be given in writing and shall be deemed effectively given upon receipt or, in
the case of notices delivered by the Company to you, five (5) days after deposit
in the United States mail, postage prepaid, addressed to you at the last address
you provided to the Company.
13. GOVERNING PLAN DOCUMENT. Your option is subject to all applicable
provisions of the Plan, which are hereby made a part of your option, and is
further subject to all interpretations, amendments, rules and regulations which
may from time to time be promulgated and adopted pursuant to the Plan. In the
event of any conflict between the provisions of your option and those of the
Plan, the provisions of the Plan shall control.
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Exhibit 10.09
ELOQUENT, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
ADOPTED BY THE BOARD OF DIRECTORS OCTOBER 21, 1999
APPROVED BY STOCKHOLDERS OCTOBER __ , 1999
1. PURPOSE.
(A) The purpose of the Plan is to provide a means by which Employees of
the Company and certain designated Affiliates may be given an opportunity to
purchase shares of the Common Stock of the Company.
(B) The Company, by means of the Plan, seeks to retain the services of
such Employees, to secure and retain the services of new Employees and to
provide incentives for such persons to exert maximum efforts for the success of
the Company and its Affiliates.
(C) The Company intends that the Rights to purchase shares of the Common
Stock granted under the Plan be considered options issued under an "employee
stock purchase plan," as that term is defined in Section 423(b) of the Code.
2. DEFINITIONS.
(A) "AFFILIATE" means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in Sections 424(e)
and (f), respectively, of the Code.
(B) "BOARD" means the Board of Directors of the Company.
(C) "CODE" means the Internal Revenue Code of 1986, as amended.
(D) "COMMITTEE" means a Committee appointed by the Board in accordance
with subparagraph 3(c) of the Plan.
(E) "COMMON STOCK" means the Common Stock of Eloquent, Inc..
(F) "COMPANY" means Eloquent, Inc., a Delaware corporation.
(G) "DIRECTOR" means a member of the Board.
(H) "ELIGIBLE EMPLOYEE" means an Employee who meets the requirements set
forth in the Offering for eligibility to participate in the Offering.
(I) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or an Affiliate of the Company. Neither service as a
Director nor payment of a director's fee shall be sufficient to constitute
"employment" by the Company or the Affiliate.
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(J) "EMPLOYEE STOCK PURCHASE PLAN" means a plan that grants rights
intended to be options issued under an "employee stock purchase plan," as that
term is defined in Section 423(b) of the Code.
(K) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(L) "FAIR MARKET VALUE" means the value of a security, as determined in
good faith by the Board. If the security is listed on any established stock
exchange or traded on the Nasdaq National Market or the Nasdaq SmallCap Market,
then, except as otherwise provided in the Offering, the Fair Market Value of the
security shall be the closing sales price (rounded up where necessary to the
nearest whole cent) for such security (or the closing bid, if no sales were
reported) as quoted on such exchange or market (or the exchange or market with
the greatest volume of trading in the relevant security of the Company) on the
relevant determination date, as reported in The Wall Street Journal or such
other source as the Board deems reliable, or if such date is not a trading day,
then on the next preceding trading day.
(M) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or subsidiary, does not
receive compensation (directly or indirectly) from the Company or its parent or
subsidiary for services rendered as a consultant or in any capacity other than
as a Director (except for an amount as to which disclosure would not be required
under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act
("Regulation S-K")), does not possess an interest in any other transaction as to
which disclosure would be required under Item 404(a) of Regulation S-K, and is
not engaged in a business relationship as to which disclosure would be required
under Item 404(b) of Regulation S-K; or (ii) is otherwise considered a
"non-employee director" for purposes of Rule 16b-3.
(N) "OFFERING" means the grant of Rights to purchase shares of the
Common Stock under the Plan to Eligible Employees.
(O) "OFFERING DATE" means a date selected by the Board for an Offering
to commence.
(P) "OUTSIDE DIRECTOR" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
the Treasury regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time, and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director, or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.
(Q) "PARTICIPANT" means an Eligible Employee who holds an outstanding
Right granted pursuant to the Plan or, if applicable, such other person who
holds an outstanding Right granted under the Plan.
(R) "PLAN" means this Eloquent, Inc. Amended and Restated 1997 Employee
Stock Purchase Plan.
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(S) "PURCHASE DATE" means one or more dates established by the Board
during an Offering on which Rights granted under the Plan shall be exercised and
purchases of shares of the Common Stock carried out in accordance with such
Offering.
(T) "RIGHT" means an option to purchase shares of the Common Stock
granted pursuant to the Plan.
(U) "RULE 16B-3" means Rule 16b-3 of the Exchange Act or any successor
to Rule 16b-3 as in effect with respect to the Company at the time discretion is
being exercised regarding the Plan.
(V) "SECURITIES ACT" means the Securities Act of 1933, as amended.
3. ADMINISTRATION.
(A) The Board shall administer the Plan unless and until the Board
delegates administration to a Committee, as provided in subparagraph 3(c).
Whether or not the Board has delegated administration, the Board shall have the
final power to determine all questions of policy and expediency that may arise
in the administration of the Plan.
(B) The Board (or the Committee) shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:
(I) To determine when and how Rights to purchase shares of the
Common Stock shall be granted and the provisions of each Offering of such Rights
(which need not be identical).
(II) To designate from time to time which Affiliates of the Company
shall be eligible to participate in the Plan.
(III) To construe and interpret the Plan and Rights granted under
it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan, in a manner and to the extent it
shall deem necessary or expedient to make the Plan fully effective.
(IV) To amend the Plan as provided in paragraph 14.
(V) To terminate or suspend the Plan as provided in paragraph 16.
(VI) Generally, to exercise such powers and to perform such acts as
it deems necessary or expedient to promote the best interests of the Company and
its Affiliates and to carry out the intent that the Plan be treated as an
Employee Stock Purchase Plan.
(C) The Board may delegate administration of the Plan to a Committee of
the Board composed of two (2) or more members, all of the members of which
Committee may be, in the discretion of the Board, Non-Employee Directors and/or
Outside Directors. If administration is delegated to a Committee, the Committee
shall have, in connection with the administration of the Plan, the powers
theretofore possessed by the Board, including the power to delegate to a
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subcommittee of two (2) or more Outside Directors any of the administrative
powers the Committee is authorized to exercise (and references in this Plan to
the Board shall thereafter be to the Committee or such a subcommittee), subject,
however, to such resolutions, not inconsistent with the provisions of the Plan,
as may be adopted from time to time by the Board. The Board may abolish the
Committee at any time and revest in the Board the administration of the Plan.
4. SHARES SUBJECT TO THE PLAN.
(A) Subject to the provisions of paragraph 13 relating to adjustments
upon changes in securities, the shares of the Common Stock that may be sold
pursuant to Rights granted under the Plan shall not exceed in the aggregate
seven hundred thousand (700,000) shares of the Common Stock (the "Reserved
Shares"). As of each January 1, beginning on January 1, 2001, and continuing
through and including January 1, 2009, the number of Reserved Shares will be
increased automatically by one percent (1.0%) of the total number of shares of
the Common Stock outstanding on such January 1. Notwithstanding the foregoing,
the Board may designate a smaller number of shares to be added to the share
reserve as of a particular January 1. If any Right granted under the Plan shall
for any reason terminate without having been exercised, the shares of the Common
Stock not purchased under such Right shall again become available for the Plan.
(B) The shares of the Common Stock subject to the Plan may be unissued
shares of the Common Stock or shares of the Common Stock that have been bought
on the open market at prevailing market prices or otherwise.
5. GRANT OF RIGHTS; OFFERING.
The Board may from time to time grant or provide for the grant of Rights
to purchase shares of the Common Stock under the Plan to Eligible Employees in
an Offering on an Offering Date or Dates selected by the Board. Each Offering
shall be in such form and shall contain such terms and conditions as the Board
shall deem appropriate, which shall comply with the requirements of Section
423(b)(5) of the Code that all Employees granted Rights to purchase shares of
the Common Stock under the Plan shall have the same rights and privileges. The
terms and conditions of an Offering shall be incorporated by reference into the
Plan and treated as part of the Plan. The provisions of separate Offerings need
not be identical, but each Offering shall include (through incorporation of the
provisions of this Plan by reference in the document comprising the Offering or
otherwise) the period during which the Offering shall be effective, which period
shall not exceed twenty-seven (27) months beginning with the Offering Date, and
the substance of the provisions contained in paragraphs 6 through 9, inclusive.
6. ELIGIBILITY.
(A) Rights may be granted only to Employees of the Company or, as the
Board may designate as provided in subparagraph 3(b), to Employees of an
Affiliate. Except as provided in subparagraph 6(b), an Employee shall not be
eligible to be granted Rights under the Plan unless, on the Offering Date, such
Employee has been in the employ of the Company or the Affiliate, as the case may
be, for such continuous period preceding such grant as the Board may require,
but
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in no event shall the required period of continuous employment be less than
ninety (90) days or equal to or greater than two (2) years; provided, however,
that Employees who are employed by the Company as of the Effective Date of this
Plan who would otherwise be Eligible Employees if not for the required period of
continuous employment with the Company shall be eligible to participate in the
Plan with respect to the first Offering Period without regard to their period of
prior continuous employment with the Company provided that they remain in
continuous employment through the end of the first Offering Period.
(B) The Board may provide that each person who, during the course of an
Offering, first becomes an Eligible Employee will, on a date or dates specified
in the Offering which coincides with the day on which such person becomes an
Eligible Employee or which occurs thereafter, receive a Right under that
Offering, which Right shall thereafter be deemed to be a part of that Offering.
Such Right shall have the same characteristics as any Rights originally granted
under that Offering, as described herein, except that:
(I) the date on which such Right is granted shall be the "Offering
Date" of such Right for all purposes, including determination of the exercise
price of such Right;
(II) the period of the Offering with respect to such Right shall
begin on its Offering Date and end coincident with the end of such Offering; and
(III) the Board may provide that if such person first becomes an
Eligible Employee within a specified period of time before the end of the
Offering, he or she will not receive any Right under that Offering.
(C) No Employee shall be eligible for the grant of any Rights under the
Plan if, immediately after any such Rights are granted, such Employee owns stock
possessing five percent (5%) or more of the total combined voting power or value
of all classes of stock of the Company or of any Affiliate. For purposes of this
subparagraph 6(c), the rules of Section 424(d) of the Code shall apply in
determining the stock ownership of any Employee, and stock which such Employee
may purchase under all outstanding rights and options shall be treated as stock
owned by such Employee.
(D) An Eligible Employee may be granted Rights under the Plan only if
such Rights, together with any other Rights granted under all Employee Stock
Purchase Plans of the Company and any Affiliates, as specified by Section
423(b)(8) of the Code, do not permit such Eligible Employee's rights to purchase
shares of the Common Stock or any Affiliate to accrue at a rate which exceeds
twenty five thousand dollars ($25,000) of the fair market value of such shares
of the Common Stock (determined at the time such Rights are granted) for each
calendar year in which such Rights are outstanding at any time.
(E) The Board may provide in an Offering that Employees who are highly
compensated Employees within the meaning of Section 423(b)(4)(D) of the Code
shall not be eligible to participate.
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7. RIGHTS; PURCHASE PRICE.
(A) On each Offering Date, each Eligible Employee, pursuant to an
Offering made under the Plan, shall be granted the Right to purchase up to the
number of shares of the Common Stock purchasable either:
(I) with a percentage designated by the Board not exceeding fifteen
percent (15%) of such Employee's Earnings (as defined by the Board in each
Offering) during the period which begins on the Offering Date (or such later
date as the Board determines for a particular Offering) and ends on the date
stated in the Offering, which date shall be no later than the end of the
Offering; or
(II) with a maximum dollar amount designated by the Board that, as
the Board determines for a particular Offering, (1) shall be withheld, in whole
or in part, from such Employee's Earnings (as defined by the Board in each
Offering) during the period which begins on the Offering Date (or such later
date as the Board determines for a particular Offering) and ends on the date
stated in the Offering, which date shall be no later than the end of the
Offering and/or (2) shall be contributed, in whole or in part, by such Employee
during such period.
(B) The Board shall establish one or more Purchase Dates during an
Offering on which Rights granted under the Plan shall be exercised and purchases
of shares of the Common Stock carried out in accordance with such Offering.
(C) In connection with each Offering made under the Plan, the Board may
specify a maximum number of shares of the Common Stock that may be purchased by
any Participant as well as a maximum aggregate number of shares of the Common
Stock that may be purchased by all Participants pursuant to such Offering. In
addition, in connection with each Offering that contains more than one Purchase
Date, the Board may specify a maximum aggregate number of shares of the Common
Stock which may be purchased by all Participants on any given Purchase Date
under the Offering. If the aggregate purchase of shares of the Common Stock upon
exercise of Rights granted under the Offering would exceed any such maximum
aggregate amount, the Board shall make a pro rata allocation of the shares of
the Common Stock available in as nearly a uniform manner as shall be practicable
and as it shall deem to be equitable.
(D) The purchase price of shares of the Common Stock acquired pursuant
to Rights granted under the Plan shall be not less than the lesser of:
(I) an amount equal to eighty-five percent (85%) of the fair market
value of the shares of the Common Stock on the Offering Date; or
(II) an amount equal to eighty-five percent (85%) of the fair market
value of the shares of the Common Stock on the Purchase Date.
8. PARTICIPATION; WITHDRAWAL; TERMINATION.
(A) An Eligible Employee may become a Participant in the Plan pursuant
to an Offering by delivering a participation agreement to the Company within the
time specified in the Offering, in such form as the Company provides. Each such
agreement shall authorize payroll
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deductions of up to the maximum percentage specified by the Board of such
Employee's Earnings during the Offering (as defined in each Offering). The
payroll deductions made for each Participant shall be credited to a bookkeeping
account for such Participant under the Plan and either may be deposited with the
general funds of the Company or may be deposited in a separate account in the
name of, and for the benefit of, such Participant with a financial institution
designated by the Company. To the extent provided in the Offering, a Participant
may reduce (including to zero) or increase such payroll deductions. To the
extent provided in the Offering, a Participant may begin such payroll deductions
after the beginning of the Offering. A Participant may make additional payments
into his or her account only if specifically provided for in the Offering and
only if the Participant has not already had the maximum permitted amount
withheld during the Offering.
(B) At any time during an Offering, a Participant may terminate his or
her payroll deductions under the Plan and withdraw from the Offering by
delivering to the Company a notice of withdrawal in such form as the Company
provides. Such withdrawal may be elected at any time prior to the end of the
Offering except as provided by the Board in the Offering. Upon such withdrawal
from the Offering by a Participant, the Company shall distribute to such
Participant all of his or her accumulated payroll deductions (reduced to the
extent, if any, such deductions have been used to acquire shares of the Common
Stock for the Participant) under the Offering, without interest unless otherwise
specified in the Offering, and such Participant's interest in that Offering
shall be automatically terminated. A Participant's withdrawal from an Offering
will have no effect upon such Participant's eligibility to participate in any
other Offerings under the Plan but such Participant will be required to deliver
a new participation agreement in order to participate in subsequent Offerings
under the Plan.
(C) Rights granted pursuant to any Offering under the Plan shall
terminate immediately upon cessation of any participating Employee's employment
with the Company or a designated Affiliate for any reason (subject to any
post-employment participation period required by law) or other lack of
eligibility. The Company shall distribute to such terminated Employee all of his
or her accumulated payroll deductions (reduced to the extent, if any, such
deductions have been used to acquire shares of the Common Stock for the
terminated Employee) under the Offering, without interest unless otherwise
specified in the Offering. If the accumulated payroll deductions have been
deposited with the Company's general funds, then the distribution shall be made
from the general funds of the Company, without interest. If the accumulated
payroll deductions have been deposited in a separate account with a financial
institution as provided in subparagraph 8(a), then the distribution shall be
made from the separate account, without interest unless otherwise specified in
the Offering.
(D) Rights granted under the Plan shall not be transferable by a
Participant otherwise than by will or the laws of descent and distribution, or
by a beneficiary designation as provided in paragraph 15 and, otherwise during
his or her lifetime, shall be exercisable only by the person to whom such Rights
are granted.
9. EXERCISE.
(A) On each Purchase Date specified therefor in the relevant Offering,
each Participant's accumulated payroll deductions and other additional payments
specifically
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provided for in the Offering (without any increase for interest) will be applied
to the purchase of shares of the Common Stock up to the maximum number of shares
of the Common Stock permitted pursuant to the terms of the Plan and the
applicable Offering, at the purchase price specified in the Offering. No
fractional shares of the Common Stock shall be issued upon the exercise of
Rights granted under the Plan unless specifically provided for in the Offering.
(B) Unless otherwise specifically provided in the Offering, the amount,
if any, of accumulated payroll deductions remaining in any Participant's account
after the purchase of shares of the Common Stock that is equal to the amount
required to purchase one or more whole shares of the Common Stock on the final
Purchase Date of the Offering shall be distributed in full to the Participant at
the end of the Offering, without interest. If the accumulated payroll deductions
have been deposited with the Company's general funds, then the distribution
shall be made from the general funds of the Company, without interest. If the
accumulated payroll deductions have been deposited in a separate account with a
financial institution as provided in subparagraph 8(a), then the distribution
shall be made from the separate account, without interest unless otherwise
specified in the Offering. The amount of accumulated payroll deductions
remaining in any Participant's account that is less than the amount required to
purchase one whole share of Common Stock on the final Purchase Date of the
Offering shall be carried over to the next Offering or shall, if the Participant
requests or does not participate in the next Offering, be refunded.
(C) No Rights granted under the Plan may be exercised to any extent
unless the shares of the Common Stock to be issued upon such exercise under the
Plan (including Rights granted thereunder) are covered by an effective
registration statement pursuant to the Securities Act and the Plan is in
material compliance with all applicable state, foreign and other securities and
other laws applicable to the Plan. If on a Purchase Date in any Offering
hereunder the Plan is not so registered or in such compliance, no Rights granted
under the Plan or any Offering shall be exercised on such Purchase Date, and the
Purchase Date shall be delayed until the Plan is subject to such an effective
registration statement and such compliance, except that the Purchase Date shall
not be delayed more than twelve (12) months and the Purchase Date shall in no
event be more than twenty-seven (27) months from the Offering Date. If, on the
Purchase Date of any Offering hereunder, as delayed to the maximum extent
permissible, the Plan is not registered and in such compliance, no Rights
granted under the Plan or any Offering shall be exercised and all payroll
deductions accumulated during the Offering (reduced to the extent, if any, such
deductions have been used to acquire Shares) shall be distributed to the
Participants, without interest unless otherwise specified in the Offering. If
the accumulated payroll deductions have been deposited with the Company's
general funds, then the distribution shall be made from the general funds of the
Company, without interest. If the accumulated payroll deductions have been
deposited in a separate account with a financial institution as provided in
subparagraph 8(a), then the distribution shall be made from the separate
account, without interest unless otherwise specified in the Offering.
10. COVENANTS OF THE COMPANY.
(A) During the terms of the Rights granted under the Plan, the Company
shall ensure that the number of shares of the Common Stock required to satisfy
such Rights are available.
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(B) The Company shall seek to obtain from each federal, state, foreign
or other regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to issue and sell shares of the Common Stock upon
exercise of the Rights granted under the Plan. If, after reasonable efforts, the
Company is unable to obtain from any such regulatory commission or agency the
authority which counsel for the Company deems necessary for the lawful issuance
and sale of shares of the Common Stock under the Plan, the Company shall be
relieved from any liability for failure to issue and sell shares of the Common
Stock upon exercise of such Rights unless and until such authority is obtained.
11. USE OF PROCEEDS FROM SHARES.
Proceeds from the sale of shares of the Common Stock pursuant to Rights
granted under the Plan shall constitute general funds of the Company.
12. RIGHTS AS A STOCKHOLDER.
A Participant shall not be deemed to be the holder of, or to have any of
the rights of a holder with respect to, shares of the Common Stock subject to
Rights granted under the Plan unless and until the Participant's shares of the
Common Stock acquired upon exercise of Rights under the Plan are recorded in the
books of the Company.
13. ADJUSTMENTS UPON CHANGES IN SECURITIES.
(A) If any change is made in the shares of the Common Stock subject to
the Plan, or subject to any Right, without the receipt of consideration by the
Company (through merger, consolidation, reorganization, recapitalization,
reincorporation, stock dividend, dividend in property other than cash, stock
split, liquidating dividend, combination of shares, exchange of shares, change
in corporate structure or other transaction not involving the receipt of
consideration by the Company), the Plan will be appropriately adjusted in the
class(es) and maximum number of shares of the Common Stock subject to the Plan
pursuant to subparagraph 4(a), and the outstanding Rights will be appropriately
adjusted in the class(es), number of shares of the Common Stock and purchase
limits of such outstanding Rights. The Board shall make such adjustments, and
its determination shall be final, binding and conclusive. (The conversion of any
convertible securities of the Company shall not be treated as a transaction that
does not involve the receipt of consideration by the Company.)
(B) In the event of: (i) a dissolution, liquidation, or sale of all or
substantially all of the assets of the Company; (ii) a merger or consolidation
in which the Company is not the surviving corporation; or (iii) a reverse merger
in which the Company is the surviving corporation but the shares of the Common
Stock outstanding immediately preceding the merger are converted by virtue of
the merger into other property, whether in the form of securities, cash or
otherwise, then: (1) any surviving or acquiring corporation may assume Rights
outstanding under the Plan or may substitute similar rights (including a right
to acquire the same consideration paid to the Company's stockholders in the
transaction described in this subparagraph 13(b)) for those outstanding under
the Plan, or (2) in the event any surviving or acquiring corporation does not
assume such Rights or substitute similar rights for those outstanding under the
Plan, then, as determined by the Board in its sole discretion, such Rights
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<PAGE> 10
may continue in full force and effect or the Participants' accumulated payroll
deductions (exclusive of any accumulated interest which cannot be applied toward
the purchase of shares of the Common Stock under the terms of the Offering) may
be used to purchase shares of the Common Stock immediately prior to the
transaction described above under the ongoing Offering and the Participants'
Rights under the ongoing Offering thereafter terminated.
14. AMENDMENT OF THE PLAN.
(A) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in paragraph 13 relating to adjustments upon changes
in securities and except as to minor amendments to benefit the administration of
the Plan, to take account of a change in legislation or to obtain or maintain
favorable tax, exchange control or regulatory treatment for Participants or the
Company or any Affiliate, no amendment shall be effective unless approved by the
stockholders of the Company to the extent stockholder approval is necessary for
the Plan to satisfy the requirements of Section 423 of the Code, Rule 16b-3
under the Exchange Act and any Nasdaq or other securities exchange listing
requirements. Currently under the Code, stockholder approval within twelve (12)
months before or after the adoption of the amendment is required where the
amendment will:
(I) Increase the number of shares of the Common Stock reserved for
Rights under the Plan;
(II) Modify the provisions as to eligibility for participation in
the Plan to the extent such modification requires stockholder approval in order
for the Plan to obtain employee stock purchase plan treatment under Section 423
of the Code or to comply with the requirements of Rule 16b-3; or
(III) Modify the Plan in any other way if such modification requires
stockholder approval in order for the Plan to obtain employee stock purchase
plan treatment under Section 423 of the Code or to comply with the requirements
of Rule 16b-3.
(B) It is expressly contemplated that the Board may amend the Plan in
any respect the Board deems necessary or advisable to provide Employees with the
maximum benefits provided or to be provided under the provisions of the Code and
the regulations promulgated thereunder relating to Employee Stock Purchase Plans
and/or to bring the Plan and/or Rights granted under it into compliance
therewith.
(C) Rights and obligations under any Rights granted before amendment of
the Plan shall not be impaired by any amendment of the Plan, except with the
consent of the person to whom such Rights were granted, or except as necessary
to comply with any laws or governmental regulations, or except as necessary to
ensure that the Plan and/or Rights granted under the Plan comply with the
requirements of Section 423 of the Code.
15. DESIGNATION OF BENEFICIARY.
(A) A Participant may file a written designation of a beneficiary who is
to receive any shares of the Common Stock and/or cash, if any, from the
Participant's account under the Plan in the event of such Participant's death
subsequent to the end of an Offering but prior to delivery to
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the Participant of such shares of the Common Stock and cash. In addition, a
Participant may file a written designation of a beneficiary who is to receive
any cash from the Participant's account under the Plan in the event of such
Participant's death during an Offering.
(B) The Participant may change such designation of beneficiary at any
time by written notice. In the event of the death of a Participant and in the
absence of a beneficiary validly designated under the Plan who is living at the
time of such Participant's death, the Company shall deliver such shares of the
Common Stock and/or cash to the executor or administrator of the estate of the
Participant, or if no such executor or administrator has been appointed (to the
knowledge of the Company), the Company, in its sole discretion, may deliver such
shares of the Common Stock and/or cash to the spouse or to any one or more
dependents or relatives of the Participant, or if no spouse, dependent or
relative is known to the Company, then to such other person as the Company may
designate.
16. TERMINATION OR SUSPENSION OF THE PLAN.
(A) The Board in its discretion may suspend or terminate the Plan at any
time. Unless sooner terminated, the Plan shall terminate at the time that all of
the shares of the Common Stock subject to the Plan's reserve, as increased
and/or adjusted from time to time, have been issued under the terms of the Plan.
No Rights may be granted under the Plan while the Plan is suspended or after it
is terminated.
(B) Rights and obligations under any Rights granted while the Plan is in
effect shall not be impaired by suspension or termination of the Plan, except as
expressly provided in the Plan or with the consent of the person to whom such
Rights were granted, or except as necessary to comply with any laws or
governmental regulation, or except as necessary to ensure that the Plan and/or
Rights granted under the Plan comply with the requirements of Section 423 of the
Code.
17. EFFECTIVE DATE OF PLAN.
The Plan shall become effective simultaneously with the effectiveness of
the Company's registration statement under the Securities Act with respect to
the initial public offering of shares of the Company's Common Stock (the
"Effective Date"), but no Rights granted under the Plan shall be exercised
unless and until the Plan has been approved by the stockholders of the Company
within twelve (12) months before or after the date the Plan is adopted by the
Board, which date may be prior to the Effective Date.
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Exhibit 10.10
ELOQUENT, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
OFFERING
ADOPTED OCTOBER 21, 1999
1. GRANT; OFFERING DATE.
(A) The Board of Directors (the "Board") of Eloquent, Inc. (the
"Company"), pursuant to the Company's Employee Stock Purchase Plan (the "Plan"),
hereby authorizes the grant of rights to purchase shares of the common stock of
the Company ("Common Stock") to all Eligible Employees (an "Offering"). The
first Offering shall begin on the effective date of the initial public offering
of the Company's Common Stock and end on January 31, 2002 (the "Initial
Offering"). Thereafter, an Offering shall begin on February 1, 2002, and on each
February 1 every second year thereafter, and each such offering shall end on the
day prior to the second anniversary of its Offering Date. The first day of an
Offering is that Offering's "Offering Date."
(B) Notwithstanding the foregoing: (i) if any Offering Date falls on a
day that is not a Trading Day (as defined herein), then such Offering Date shall
instead fall on the next subsequent Trading Day and (ii) if any Purchase Date
falls on a day that is not a Trading Day, then such Purchase Date shall instead
fall on the immediately preceding Trading Day. "Trading Day" shall mean any day
the exchange(s) or market(s) on which the Common Stock is listed, whether it be
any established stock exchange, The Nasdaq National Market, The Nasdaq SmallCap
Market or otherwise, is open for trading.
(C) Notwithstanding anything to the contrary, in the event that the Fair
Market Value (as defined herein) of a share of Common Stock on any Purchase Date
during an Offering is less than the Fair Market Value of a share of Common Stock
on the Offering Date of such Offering, then following the purchase of Common
Stock on such Purchase Date: (i) the Offering shall terminate and (ii) all
participants in the just-terminated Offering shall automatically be enrolled in
the Offering that shall commence on the next Trading Day following the Purchase
Date and continue for the remainder of the term of the immediately preceding
Offering terminated under this Section 1(c). Except as provided in paragraph 4,
"Fair Market Value" shall mean the closing sales price for the Common Stock (or
the closing bid price, if no sales were reported) as quoted on any established
stock exchange or traded on the Nasdaq National Market or the Nasdaq SmallCap
Market and as reported in The Wall Street Journal or such other source as the
Board deems reliable.
(D) Prior to the commencement of any Offering, the Board (or the
Committee described in subparagraph 2(c) of the Plan, if any) may change any or
all terms of such Offering and any subsequent Offerings. The granting of rights
pursuant to each Offering hereunder shall occur on each respective Offering Date
unless, prior to such date (a) the Board (or the Committee) determines that such
Offering shall not occur, or (b) no shares remain available for issuance under
the Plan in connection with the Offering.
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(E) Notwithstanding any other provisions of an Offering, if the terms of
an Offering as previously established by the Board would, as a result of a
change to applicable accounting standards, as a result of obtaining shareholder
approval during such Offering for shares of Common Stock that would be issued
under such Offering (but for the provisions of this Section 1(e)), or otherwise,
generate a charge to earnings, such Offering shall terminate effective as of the
earlier of (1) the day prior to the date such change of accounting standards
would otherwise first apply to the Offering or (2) the day prior to the date
upon which the maximum aggregate number of shares of Common Stock available to
be purchased by all Eligible Employees under such Offering (excluding any
additional shares of Common Stock made available for issuance under the Plan by
approval of the shareholders of the Company during the Offering) exceeds the
aggregate number of whole shares purchasable by all Eligible Employees based
upon the aggregate of such Employees' payroll deductions accumulated pursuant to
such Offering (the "Offering Termination Date"), and such Offering Termination
Date shall be the final Purchase Date of such Offering. A subsequent Offering
shall commence on such date and on such terms as shall be provided by the Board
of Directors of the Company.
2. ELIGIBLE EMPLOYEES.
(a) All employees of the Company and each of its Affiliates (as defined
in the Plan) incorporated in the United States, shall be granted rights to
purchase Common Stock under each Offering on the Offering Date of such Offering,
provided that each such employee otherwise meets the employment requirements of
subparagraph 5(a) of the Plan (an "Eligible Employee") and that each Eligible
Employee may only contribute to one Offering at any given point in time if they
have completed three (3) months of service with the Company, provided, however,
that otherwise eligible employees with less than three (3) months of service
with the Company but who are employed by the Company on the date of the
Company's initial public offering will be eligible to participate in the Plan as
of the Initial Offering if they remain in employment with the Company through
the relevant Purchase Date of the initial Offering Period.
Notwithstanding the foregoing, the following employees shall not be
Eligible Employees or be granted rights under an Offering: (i) part-time or
seasonal employees whose customary employment is less than twenty (20) hours per
week or five (5) months per calendar year and (ii) 5% stockholders (including
ownership through unexercised and/or unvested stock options) described in
subparagraph 5(c) of the Plan.
(b) Notwithstanding the foregoing, each person who first becomes an
Eligible Employee during any Offering and at least six (6) months prior to the
final Purchase Date (as defined in paragraph 6 hereof) of the Offering will, on
the next February 1 or August 1 during that Offering following the date that
person first becomes an Eligible Employee, receive a right under such Offering,
which right shall thereafter be deemed to be a part of the Offering. Such right
shall have the same characteristics as any rights originally granted under the
Offering except that:
(1) the date on which such right is granted shall be the "Offering
Date" of such right for all purposes, including determination of the exercise
price of such right; and
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(2) the Offering for such right shall begin on its Offering Date and
end coincident with the end of the ongoing Offering.
3. RIGHTS.
(A) Subject to the limitations contained herein and in the Plan, on each
Offering Date each Eligible Employee shall be granted the right to purchase the
number of shares of Common Stock purchasable with up to fifteen percent (15%) of
such employee's Earnings paid during the period of such Offering beginning after
such Eligible Employee first commences participation; provided, however, that no
employee may purchase Common Stock on a particular Purchase Date that would
result in more than fifteen percent (15%) of such employee's Earnings in the
period from the Offering Date to such Purchase Date having been applied to
purchase shares under all ongoing Offerings under the Plan and all other plans
of the Company intended to qualify as "employee stock purchase plans" under
Section 423 of the Internal Revenue Code of 1986, as amended (the "Code"). For
this Offering, "Earnings" means the base salary paid to an employee (including
all amounts elected to be deferred by the employee, that would otherwise have
been paid, under any cash or deferred arrangement established by the Company),
overtime pay, commissions, and bonuses, but excluding other remuneration paid
directly to the employee, profit sharing, the cost of employee benefits paid for
by the Company, education or tuition reimbursements, imputed income arising
under any Company group insurance or benefit program, traveling expenses,
business and moving expense reimbursements, income received in connection with
stock options, contributions made by the Company under any employee benefit
plan, and similar items of compensation.
(B) Notwithstanding the foregoing, the maximum number of shares of
Common Stock an Eligible Employee may purchase on any Purchase Date in an
Offering shall be such number of shares as has a Fair Market Value (determined
as of the Offering Date for such Offering) equal to (x) $25,000 multiplied by
the number of calendar years in which the right under such Offering has been
outstanding at any time, minus (y) the Fair Market Value of any other shares of
Common Stock (determined as of the relevant Offering Date with respect to such
shares) which, for purposes of the limitation of Section 423(b)(8) of the Code,
are attributed to any of such calendar years in which the right is outstanding.
The amount in clause (y) of the previous sentence shall be determined in
accordance with regulations applicable under Section 423(b)(8) of the Code based
on (i) the number of shares previously purchased with respect to such calendar
years pursuant to such Offering or any other Offering under the Plan, or
pursuant to any other Company plans intended to qualify as "employee stock
purchase plans" under Section 423 of the Code, and (ii) the number of shares
subject to other rights outstanding on the Offering Date for such Offering
pursuant to the Plan or any other such Company plan.
(C) The maximum aggregate number of shares available to be purchased by
all Eligible Employees under an Offering shall be the number of shares remaining
available under the Plan on the Offering Date. If the aggregate purchase of
shares of Common Stock upon exercise of rights granted under the Offering would
exceed the maximum aggregate number of shares available, the Board shall make a
pro rata allocation of the shares available in a uniform and equitable manner.
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4. PURCHASE PRICE.
The purchase price of the Common Stock under the Offering shall be the
lesser of: (i) eighty-five percent (85%) of the Fair Market Value of the Common
Stock on the Offering Date or (ii) or eighty-five percent (85%) of the Fair
Market Value of the Common Stock on the Purchase Date, in each case rounded up
to the nearest whole cent per share. For the Initial Offering, the Fair Market
Value of the Common Stock at the time when the Offering commences shall be the
price per share at which shares of Common Stock are first sold to the public in
the Company's initial public offering as specified in the final prospectus with
respect to that public offering.
5. PARTICIPATION.
(A) An Eligible Employee may elect to participate in an Offering only at
the beginning of the Offering, or such later date specified in subparagraph
2(b). An Eligible Employee shall become a participant in an Offering by
delivering an enrollment form authorizing payroll deductions. Such deductions
must be either a fixed dollar amount per pay period, up to a maximum dollar
amount which is less than or equal to fifteen percent (15%) of Earnings, or in
whole percentages of Earnings, with a minimum percentage of one percent (1%) and
a maximum percentage of fifteen percent (15%). A participant may not make
additional payments into his or her account. The agreement shall be made on such
enrollment form as the Company provides, and must be delivered to the Company
prior to the date participation is to be effective, unless a later time for
filing the enrollment form is set by the Company for all Eligible Employees with
respect to a given Offering. For the Initial Offering, the time for filing an
enrollment form and commencing participation for individuals who are Eligible
Employees on the Offering Date for the Initial Offering shall be determined by
the Company and communicated to such Eligible Employees.
(B) A participant may decrease his or her participation level during the
course of a six (6) month purchase interval one (1) time, and only by delivering
notice to the Company at least ten (10) days in advance of the Purchase Date in
such form as the Company prescribes; provided that a participant may (i) reduce
his or her deductions to zero percent (0%) upon ten (10) days' prior notice, or
within such shorter period as determined by the Board and communicated to the
participants, by delivering a notice in such form as the Company provides, (ii)
may increase or decrease his or her participation level at any time to become
effective on the day following the next subsequent Purchase Date, or (iii) may
withdraw from an Offering and receive his or her accumulated payroll deductions
from the Offering (reduced to the extent, if any, such deductions have been used
to acquire Common Stock for the participant on any prior Purchase Dates) without
interest, at any time prior to the end of the Offering, excluding only each ten
(10) day period immediately preceding a Purchase Date, by delivering a
withdrawal notice to the Company in such form as the Company provides. A
participant who has withdrawn from an Offering shall not again participate in
such Offering, but may participate in subsequent Offerings under the Plan in
accordance with the terms thereof.
6. PURCHASES.
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Subject to the limitations contained herein, on each Purchase Date, each
participant's accumulated payroll deductions (without any increase for interest)
shall be applied to the purchase of whole shares of Common Stock, up to the
maximum number of shares permitted under the Plan and the Offering. "Purchase
Date" shall be defined as each January 31 and July 31 within the Offering. The
Purchase Dates under the Initial Offering shall be January 31 and July 31 of the
year 2000, January 31 and July 31 of the year 2001 and January 31 of the year
2002. Notwithstanding the foregoing, if any Purchase Date falls on a day that is
not a Trading Day, then such Purchase Date shall instead fall on the immediately
preceding Trading Day.
7. NOTICES AND AGREEMENTS.
Any notices or agreements provided for in an Offering or the Plan shall
be given in writing, in a form provided by the Company, and unless specifically
provided for in the Plan or this Offering, shall be deemed effectively given
upon receipt or, in the case of notices and agreements delivered by the Company,
five (5) days after deposit in the United States mail, postage prepaid.
8. EXERCISE CONTINGENT ON STOCKHOLDER APPROVAL.
The rights granted under an Offering are subject to the approval of the
Plan by the stockholders as required for the Plan to obtain treatment as a
tax-qualified employee stock purchase plan under Section 423 of the Code and to
comply with the requirements of an available exemption from potential liability
under Section 16(b) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") set forth in Rule 16b-3 promulgated under the Exchange Act.
9. OFFERING SUBJECT TO PLAN.
Each Offering is subject to all the provisions of the Plan, and its
provisions are hereby made a part of the Offering, and is further subject to all
interpretations, amendments, rules and regulations which may from time to time
be promulgated and adopted pursuant to the Plan. In the event of any conflict
between the provisions of an Offering and those of the Plan (including
interpretations, amendments, rules and regulations which may from time to time
be promulgated and adopted pursuant to the Plan), the provisions of the Plan
shall control.
5
<PAGE> 1
EXHIBIT 10.11
ELOQUENT, INC.
2000 ALAMEDA DE LAS PULGAS
SUITE 100
SAN MATEO, CA 94403
December 23,1998
Abraham Kleinfeld
833 Marin Drive
Mill Valley, CA 94941
RE: TERMS OF EMPLOYMENT
Dear Abe:
Eloquent, Inc. is pleased to offer you the position of President and Chief
Executive Officer on the following terms:
As President and Chief Executive Officer of Eloquent, you will work in
Eloquent's principal offices. You will perform the duties customarily associated
with this position and such duties as may be assigned to you by Eloquent's Board
of Directors. Of course, the Board of Directors may change your position, duties
and work location from time to time as it deems necessary. Your first day of
employment will be January 18, 1999. On or shortly after your first day of
employment, you will be added to Eloquent's Board of Directors.
Your initial base salary will be $215,000 per year, less standard deductions and
withholdings, paid semi-monthly. You also will be eligible to receive a cash
bonus of up to $100,000 in the aggregate for fiscal 1999 (payable quarterly),
subject to fulfillment of objectives established by the Board of Directors for
fiscal 1999 and your continued employment with Eloquent.
Upon approval by the Board of Directors on or after the date you become an
employee of Eloquent, you will receive an incentive stock option to purchase
1,160,000 shares of Eloquent Common Stock with an exercise price of $1.00 per
share (the "First Option"). In addition, promptly after Eloquent closes its next
round of equity financing, you will be issued a second option to purchase enough
shares of Eloquent Common Stock so that your options in the aggregate cover at
least 7% of the outstanding Eloquent capital stock on a fully-diluted basis. The
second option will have a per-share exercise price equal to the fair market
value of one share of Eloquent Common Stock on the date of grant. If, upon
closing of Eloquent's next round of equity financing, the value of one share of
Eloquent Common Stock is less than $1.00 per share Eloquent will reduce the
exercise price of the First Option accordingly.
All such options will vest over four years, with 12.5% vesting on the six-month
anniversary of the date of grant (for this purpose, the date of grant of any
option replacing the First Option will be deemed to be the date of grant of the
First Option), and the remainder of the shares subject to the option vesting in
42 monthly installments thereafter. However, in the event of a "Corporate
1.
<PAGE> 2
Transaction" (as defined below), 50% of your unvested shares will immediately
vest upon the closing of such transaction. A "Corporate Transaction" is (a) a
sale, lease or disposition of all or substantially all of the assets of Eloquent
or (b) any consolidation or merger of Eloquent with or into any other entity, or
any other corporate reorganization, in which the Eloquent stockholders
immediately prior to such transaction own less than 50% of the surviving
entity's voting power immediately after such transaction. The terms and
conditions of your option grants will be set forth in Eloquent's 1997 Equity
Incentive Plan and forms of incentive stock option agreement, both of which are
available upon request from Eloquent.
In addition to your salary and incentive compensation, you will be eligible to
receive the benefits Eloquent provides to its employees generally. In addition,
Eloquent will reimburse you for reasonable documented business expenses pursuant
to Eloquent policy.
You will be expected to abide by all of Eloquent's policies and procedures. As a
condition to your employment, you must execute and abide by all documents
required to be executed by all new Eloquent employees generally, including an
employee proprietary information and inventions agreement in Eloquent's standard
form.
Either you or Eloquent may terminate your employment relationship at any time
for any reason whatsoever, with or without cause or advance notice. This at-will
employment relationship cannot be changed except in a writing signed by a duly
authorized officer or duly authorized member of the Board of Directors of
Eloquent. If Eloquent terminates your employment without cause (as defined
below), Eloquent will continue to pay your then-effective base salary, subject
to standard withholdings and deductions, for a period of six months following
such termination of employment. In addition, in such event, your stock options
outlined above will continue to vest for the period in which your base salary is
paid. Such severance benefits (base salary and vesting) will cease immediately
upon your obtaining employment during such six-month period. "Cause" means (a)
conviction or indictment for any felony or any crime involving moral turpitude
or dishonesty; (b) participation in a fraud or act of dishonesty against
Eloquent; (c) material breach of Eloquent's policies; (d) intentional damage to
Eloquent's property; (e) material breach of the terms of this letter agreement,
including any breach of Eloquent's employee proprietary information and
inventions agreement; or (e) conduct by you that, in the good faith and
reasonable determination of Eloquent's Board of Directors, demonstrates
unacceptable job performance or gross unfitness to serve.
You will not, for one year following the termination of your employment with
Eloquent for any reason, initiate or participate in the solicitation of any
employee of Eloquent or any of its affiliates to terminate his or her
relationship with Eloquent or any of its affiliates.
This letter agreement is the complete, final and exclusive embodiment of the
entire agreement between you and Eloquent with respect to the terms and
conditions of your employment, and supersedes all prior understandings. It may
not be amended or modified except by a written instrument signed by you and a
duly authorized officer or duly authorized member of the Board of Directors of
Eloquent. This letter agreement will be construed and interpreted in accordance
with the laws of the State of California and will be deemed drafted by both
parties.
2.
<PAGE> 3
As required by law, this offer of employment is subject to satisfactory proof of
your right to work in the United States.
I trust that the point outlined above fully clarify the terms of Eloquent's
employment offer. If you choose to accept our offer under the terms described
above, please sign below and return this letter agreement to me by December 30,
1998.
On behalf of Eloquent's Board of Directors, let me express our excitement at the
prospect of your joining the Eloquent team. We look forward to a productive and
enjoyable work relationship helping Eloquent grow.
Very truly yours,
Eloquent, Inc.
By: /s/ KATHRYN GOULD
--------------------------------------------
Kathryn Gould, Director
On behalf of the Board of Directors
Accepted and agreed:
/s/ ABRHAMA KLEINFELD
- -------------------------------
Abraham Kleinfeld
3.
<PAGE> 1
EXHIBIT 10.12
OFFICE LEASE
BETWEEN
ELOQUENT, INC.
AND
CALIFORNIA CASUALTY INDEMNITY EXCHANGE
DATED: NOVEMBER 19, 1996
<PAGE> 2
OFFICE LEASE
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE 1 Basic Lease Information....................................................1
1.1 Basic Lease Information.......................................................1
1.2 Exhibits......................................................................4
ARTICLE 2 AGREEMENT..................................................................4
ARTICLE 3 DELIVERY OF POSSESSION.....................................................4
ARTICLE 4 MONTHLY RENT...............................................................5
ARTICLE 5 OPERATING EXPENSES.........................................................5
5.1 General.......................................................................5
5.2 Estimated Payments............................................................7
5.3 Annual Settlement.............................................................7
5.4 Final Proration...............................................................8
5.5 Other Taxes...................................................................8
5.6 Additional Rent...............................................................8
ARTICLE 6 INSURANCE..................................................................8
6.1 Landlord's Insurance..........................................................8
6.2 Tenant's Insurance............................................................9
6.3 Certain Insurance Risk........................................................9
6.4 Forms of Policies............................................................10
6.5 Waiver of Subrogation........................................................10
ARTICLE 7 USE.......................................................................10
ARTICLE 8 REQUIREMENTS OF LAW.......................................................10
8.1 General......................................................................10
8.2 Hazardous Materials..........................................................11
8.3 Americans with Disabilities Act Compliance...................................11
ARTICLE 9 ASSIGNMENT AND SUBLETTING.................................................12
9.1 General......................................................................12
9.2 Submission Of Information....................................................12
9.3 Payments to Landlord.........................................................12
9.4 Prohibited Transfers.........................................................13
9.5 Permitted Transfer...........................................................13
9.6 Remedies.....................................................................13
ARTICLE 10 RULES AND REGULATIONS.....................................................13
ARTICLE 11 COMMON AREAS..............................................................14
</TABLE>
i.
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE 12 LANDLORD'S SERVICES.......................................................14
12.1 Landlord's Repair And Maintenance............................................14
12.2 Landlord's Other Services....................................................15
12.3 Tenant's Costs...............................................................15
12.4 Limitation On Liability......................................................16
ARTICLE 13 TENANT'S CARE OF THE PREMISES.............................................16
13.1 Maintenance..................................................................16
13.2 Energy Conservation..........................................................16
ARTICLE 14 ALTERATIONS...............................................................17
14.1 General......................................................................17
14.2 Free-Standing Partitions.....................................................17
14.3 Removal......................................................................17
ARTICLE 15 MECHANICS' LIENS..........................................................18
ARTICLE 16 END OF TERM...............................................................18
ARTICLE 17 EMINENT DOMAIN............................................................19
ARTICLE 18 DAMAGE AND DESTRUCTION....................................................19
ARTICLE 19 SUBORDINATION.............................................................20
19.1 General......................................................................21
19.2 Attornment and Nondisturbance................................................20
ARTICLE 20 ENTRY BY LANDLORD.........................................................21
ARTICLE 21 INDEMNIFICATION, WAIVER, AND RELEASE......................................22
21.1 Indemnification..............................................................22
21.2 Waiver and Release...........................................................22
ARTICLE 22 SECURITY DEPOSIT..........................................................23
ARTICLE 23 QUIET ENJOYMENT...........................................................23
ARTICLE 24 EFFECT OF SALE............................................................23
ARTICLE 25 DEFAULT...................................................................23
25.1 Events of Default............................................................23
25.2 Landlord's Remedies..........................................................24
25.3 Certain Damages..............................................................25
25.4 Continuing Liability After Termination.......................................25
25.5 Cumulative Remedies..........................................................26
25.6 Waiver of Redemption.........................................................26
</TABLE>
ii.
<PAGE> 4
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE 26 AMENITIES.................................................................26
26.1 Parking......................................................................26
26.2 Health and Fitness Facility..................................................26
26.3 Cafeteria....................................................................26
26.4 Second Floor Reception Area..................................................26
ARTICLE 27 MISCELLANEOUS.............................................................27
27.1 No Offer.....................................................................27
27.2 Joint and Several Liability..................................................27
27.3 No Construction Against Drafting Party.......................................27
27.4 Time of the Essence..........................................................27
27.5 No Recordation...............................................................27
27.6 No Waiver....................................................................27
27.7 Fair Market Rental Value.....................................................27
27.8 Estoppel Certificates........................................................28
27.9 Waiver of Jury Trial.........................................................29
27.10 No Merger....................................................................29
27.11 Holding Over.................................................................29
27.12 Notices......................................................................29
27.13 Severability.................................................................29
27.14 Written Amendment Required...................................................29
27.15 Entire Agreement.............................................................30
27.16 Captions.....................................................................30
27.17 Notice of Landlord's Default.................................................30
27.18 Authority....................................................................30
27.19 Brokers......................................................................30
27.20 Governing Law................................................................30
27.21 Late Payments................................................................30
27.22 No Easements for Air or Light................................................30
27.23 Tax Credits..................................................................31
27.24 Relocation of the Premises...................................................31
27.25 Financial Reports............................................................31
27.26 Fees.........................................................................31
27.27 Binding Effect...............................................................32
EXHIBITS A.1 through A.4: The Premises ............................................A-1
EXHIBIT B: Legal Description of the Land ...........................B-1
EXHIBIT C: Rules and Regulations ...................................C-1
EXHIBIT D: Workletter ..............................................D-1
EXHIBIT E: Budgeted 1997 Operating Expenses ........................E-1
</TABLE>
<PAGE> 5
OFFICE LEASE
THIS OFFICE LEASE (this "Lease") dated for reference purposes only as of
November 19, 1996 , is entered into by and between CALIFORNIA CASUALTY INDEMNITY
EXCHANGE, a California reciprocal interinsurance exchange ("Landlord"), and
ELOQUENT, INC., a Delaware corporation ("Tenant").
ARTICLE 1
BASIC LEASE INFORMATION
1.1 BASIC LEASE INFORMATION. In addition to the Terms that are defined
elsewhere in this Lease, these Terms are used in this Lease:
(a) PREMISES: The Premises shall be that certain space located in
that portion of the Building commonly known as Suites 240, 144, 131 and 130 and
as more specifically shown on Exhibit A to this Lease.
(b) BUILDING: The Building located on the Land and which is
commonly known as 2000 Alameda de las Pulgas in the City of San Mateo, County of
San Mateo, California.
(c) LAND: The land on which the building is located and which is
described in Exhibit B.
(d) RENTABLE AREA OF THE PREMISES: Approximately 17,340 useable
square feet or approximately 19,942 total rentable square feet as follows:
<TABLE>
<CAPTION>
Suite Rentable Size Delivery Date
<S> <C> <C>
240 5,601 SF 1/15/97
144 9,200 SF 4/l/97
131 2,128 SF 4/l/97
130 3,013 SF 7/1/97
</TABLE>
(e) RENTABLE AREA OF THE BUILDING: 134,761 square feet.
(f) TERM/OPTION TO EXTEND: Sixty (60) months, sixteen (16) days
beginning on the Commencement Date and expiring on the Expiration Date. Tenant
shall have one option to extend the Lease under the same basic terms and
conditions as the original Lease except Rent, which will be adjusted to 100% of
the then Fair Market Rental Rate as defined in paragraph 27.7 for comparable
buildings in the San Mateo market. Tenant will provide Landlord with written
notice of its intention to exercise this option no later than nine months prior
to the Expiration Date.
(g) COMMENCEMENT DATE: January 15, 1997 as to Suite 240 or upon
completion of tenant improvements, whichever occurs last, and upon completion of
tenant improvements as to the balance of the space (approximately April, 1997
and July, 1997). The
1
<PAGE> 6
exact commencement dates will be memorialized in a Commencement Memorandum which
will be based upon the final terms and conditions of Exhibit D, Workletter.
(h) EXPIRATION DATE: January 31, 2002.
(i) Intentionally deleted.
(j) MONTHLY RENT:
<TABLE>
<CAPTION>
Months Rate/Sq. Ft./Month
<S> <C>
1-12 $2.75 Fully Serviced
13-24 $2.83 Fully Serviced
25-36 $2.92 Fully Serviced
37-48 $3.01 Fully Serviced
49-60 $3.10 Fully Serviced
</TABLE>
(k) OPERATING EXPENSES BASE: Tenant is responsible for to pay its
pro rata share of increases in the operating expenses and real estate taxes over
the Base Year, which shall be defined as calendar tax year 1997. Tenant shall be
exempt from any increases in real estate taxes associated with the sale or
transfer of the Building during the initial Term.
(l) TENANT'S SHARE: 14.8% determined by dividing the rentable
area of the Premises by the rentable area of the building, multiplying the
resulting quotient by 100, and rounding to the 3rd decimal place). Landlord
reserves the right to reduce or increase Tenant's share at any time during the
term of this Lease if the total rentable area of the building actually increases
or decreases.
(m) PARKING SPACES: Four parking stalls for each one thousand
(1,000) rentable square feet leased. These stalls will be located either in the
covered garage or in the surface parking area.
(n) PARKING CHARGE: All parking is provided free of charge.
(o) BASE YEAR: Calendar year 1997.
(p) LANDLORD'S ADDRESS:
California Casualty Indemnity Exchange
1900-2000 Alameda de las Pulgas
P.O. Box M
San Mateo, California 94402
Attention: Real Estate Department, H-1
2
<PAGE> 7
(q) TENANT'S ADDRESS:
Eloquent, Inc.
2000 Alameda de las Pulgas, Suite 240
San Mateo, CA 94403-1298
Attn: Bruce Forgrieve
(r) BROKER: Landlord and Tenant acknowledge that Cornish & Carey
Commercial represents both Landlord and Tenant and each hereby consents to such
representation.
(s) ADDITIONAL RENT: Any amounts that this Lease requires Tenant
to pay in addition to Monthly Rent.
(t) PRIME RATE: The rate of interest from time to time announced
by Bank of America NT & SA ("Bank of America"), or any successor to it, as its
prime rate. If Bank of America or any successor to it ceases to announce its
prime rate, the prime rate will be a comparable interest rate designated by
Landlord to replace the prime rate.
(u) STORAGE AREA: Intentionally deleted.
(v) STORAGE RENT: Intentionally deleted.
(w) PREPAID RENT: Upon Lease execution, Tenant shall provide to
Landlord the last two months' rent, in the total amount of $123,640.40. Landlord
will hold this amount in its own account and will have use of this account for
its own purposes except that Landlord will apply this amount to the rent due for
months 59 and 60 of the initial term. Such application will be made without
limitation or offset except as provided for under this Lease. In addition, upon
Lease execution, Tenant will provide to Landlord the first month's rent in the
amount of $15,402.75.
(x) EXPANSION OF PREMISES: Tenant shall have the first right of
offering subject to any other tenant's rights in existence as of November 19,
1996, as to any space that becomes available during the initial Term.
Notwithstanding the preceding sentence, Tenant has first priority on current
Suite 154, provided Tenant notifies Landlord, in writing, on or before March 31,
1998, of its desire to expand into that space.
(y) OTHER AMENITIES: During the Term, Tenant shall have forty
(40) free memberships in Club 2000, the Building's on-site health and fitness
facility. Tenant shall have the right to buy additional memberships at the rate
of $10.00 each annually.
Tenant will have use of second floor reception area and
reception desk as often as needed. Tenant shall also have the right to use the
cafeteria in common with other tenants.
(z) SIGNAGE: Landlord will, at its sole cost, provide standard
Building signage in the main lobby, common hallways and the entrance to the
Premises.
3
<PAGE> 8
(aa) TENANT IMPROVEMENTS: Landlord and Tenant will work towards a
mutually agreeable floor plan and Workletter for the Tenant improvements
described in greater detail in the Workletter that is attached as Exhibit D, and
incorporated herein by this reference. Landlord will provide $10.00 per useable
square foot for Tenant's interior improvements to all leased spaces. Tenant is
responsible for all permit fees, architect and engineering costs, ADA and Code
compliance, and all construction costs related to the Tenant Improvements. To
facilitate the Tenant Improvements, Tenant agrees to use the Landlord's
architect. Landlord will solicit bids from at least three contractors to perform
the Tenant Improvements, subject to Tenant's sole right to approve the
contractor that will perform the work. Landlord will engage and pay contractor
up to the amount of the allowance, and will bill Tenant for amounts exceeding
the allowance, as described in greater detail in the Workletter.
If any other provision of this Lease contradicts any definition of this
Article, the other provision will prevail.
1.2 EXHIBITS: The following exhibits are attached to this Lease and are
made part of this Lease:
EXHIBITS A.1 through A.4--The Premises
A.1--Suite 240
A.2--Suite 144
A.3--Suite 131
A.4--Suite 130
EXHIBIT B--Legal Description of the Land
EXHIBIT C--Rules and Regulations
EXHIBIT D--Workletter
EXHIBIT E--Budgeted 1997 Operating Expenses
ARTICLE 2
AGREEMENT
Landlord leases the Premises to Tenant, and Tenant leases the Premises
from Landlord, according to this Lease. The duration of this Lease will be the
Term. The Term will commence on the Commencement Date and will expire on the
Expiration Date.
ARTICLE 3
DELIVERY OF POSSESSION
Landlord will be deemed to have delivered possession of the Premises to
Tenant on the Commencement Date. If no Workletter is attached to this Lease, it
will be deemed that Landlord delivered to Tenant possession of the Premises as
is in its present condition on the Commencement Date. Tenant acknowledges that
neither Landlord nor its agents or employees have made any representations or
warranties as to the suitability or fitness of the Premises for the conduct of
Tenant's business or for any other purpose, nor has Landlord or its agents or
employees agreed
4
<PAGE> 9
to undertake any alterations or construct any Tenant improvements to the
Premises except as expressly provided in this Lease. If for any reason beyond
Landlord's control, Landlord cannot deliver possession of the Premises to Tenant
on the Commencement Date, this Lease will not be void or voidable, and Landlord
will not be liable to Tenant for any resultant loss or damage. (Operation of
leases, agreements, etc. by and between Landlord and Tenant is deemed to be
within Landlord's control.)
ARTICLE 4
MONTHLY RENT
Throughout the Term of this Lease, Tenant will pay Monthly Rent to
Landlord as rent for the Premises. Monthly Rent will be paid in advance on or
before the first day of each calendar month of the Term. If the Term commences
on a day other than the first day of a calendar month or ends on a day other
than the last day of a calendar month, then Monthly Rent will be appropriately
prorated by Landlord based on the actual number of calendar days in such month.
If the Term commences on a day other than the first day of a calendar month,
then the prorated. Monthly Rent for such month will be paid on or before the
first day of the Term. Monthly Rent will be paid to Landlord, without written
notice or demand, and without deduction or offset, in lawful money of the United
States of America at Landlord's address, or to such other address as Landlord
may from time to time designate in writing.
ARTICLE 5
OPERATING EXPENSES
5.1 GENERAL.
(a) In addition to Monthly Rent, beginning on the Commencement
Date Tenant will pay Tenant's share of the amount by which the operating
expenses paid, payable, or incurred by Landlord in each calendar year or partial
calendar year during the Term exceeds the product of the operating expenses base
times the rentable area of the building. If operating expenses are calculated
for a partial calendar year, the operating expenses base will be appropriately
prorated.
(b) As used in this Lease, the term "Operating Expenses" means:
(1) All reasonable costs of management, operation, and
maintenance of the project, including without limitation real and personal
property taxes and assessments (and any tax levied in whole or in part in lieu
of or in addition to real property taxes) notwithstanding the foregoing, Tenant
shall not be liable for any property tax increases as set forth in 1.1(k);
wages, salaries, and compensation of employees; consulting, accounting, legal,
janitorial, maintenance, guard, and other services; management fees and costs
(charged by Landlord, any affiliate of Landlord, or any other entity managing
the project and determined at a rate consistent with prevailing market rates for
comparable services and projects); reasonable reserves for operating expenses;
that part of office rent or rental value of space in the project used or
furnished by Landlord to enhance, manage, operate, and maintain the project;
power, water, waste disposal, and other utilities; materials and supplies;
maintenance and repairs; insurance obtained with respect to the project;
depreciation on personal property and equipment, except as set forth in
5
<PAGE> 10
(c) below or which is or should be capitalized on the books of Landlord; and any
other costs, charges, and expenses that under generally accepted accounting
principles would be regarded as management, maintenance, and operating expenses;
and
(2) The cost (amortized over such period as Landlord will
reasonably determine) together with interest at the greater of the prime rate
prevailing plus 2% or Landlord's borrowing rate for such capital improvements
plus 2% on the unamortized balance of any capital improvements that are made to
the project by Landlord (i) for the purpose of reducing operating expenses, or
(ii) after the Lease date and by requirement of any governmental law or
regulation that was not applicable to the project at the time it was constructed
and not as a result of special requirements for an Tenant's use of the building.
(c) The operating expenses will not include:
(1) depreciation on the project (other than depreciation
on personal property, equipment, window coverings on exterior windows provided
by Landlord and carpeting in public corridors and common areas);
(2) costs of alterations of space or other improvements
made for other tenants of the project;
(3) finders' fees and real estate brokers' commissions;
(4) ground Lease payments, mortgage principal, or
interest;
(5) capital items other than those referred to in clause
(b)(2) above;
(6) costs of replacements to personal property and
equipment for which depreciation costs are included as an operating expense;
(7) costs of excess or additional services provided to any
Tenant in the building that are directly billed to such Tenants;
(8) the cost of repairs due to casualty or condemnation
that are reimbursed by third parties;
(9) any cost due to Landlord's breach of this Lease;
(10) any income, estate, inheritance, or other transfer
tax and any excess profit, franchise, or similar taxes on Landlord's business;
(11) all costs, including legal fees, relating to
activities for the solicitation and execution of Leases of space in the
building; and
(12) any legal fees incurred by Landlord in enforcing its
rights under other leases for premises in the building.
6
<PAGE> 11
(d) The operating expenses that vary with occupancy and that are
attributable to any part of the Term in which less than 95% of the rentable area
of the building is occupied by Tenants will be adjusted by Landlord to the
amount that Landlord reasonably believes they would have been if 95% of the
rentable area of the building had been so occupied.
(e) Tenant acknowledges that Landlord has not made any
representation or given Tenant any assurances that the operating, expenses base
will equal or approximate the actual operating expenses per square foot of
rentable area of the Premises for any calendar year during the Term other than
the Base Year.
5.2 ESTIMATED PAYMENTS. During each calendar year or partial calendar
year in the Term, in addition to Monthly Rent, Tenant will pay to Landlord on
the first day of each month an amount equal to 1/12 of the product of Tenant's
share multiplied by the "estimated operating expenses" (defined below) for such
calendar year. "Estimated operating expenses" for any calendar year means
Landlord's reasonable estimate of operating expenses for such calendar year,
less the product of the operating expenses base, multiplied by the rentable area
of the building and will be subject to revision according to the further
provisions of this Section 5.2 and Section 5.3. During any partial calendar year
during the Term, estimated operating expenses will be estimated on a full-year
basis. During each December during the Term, or as soon after each December as
practicable, Landlord will give Tenant written notice of estimated operating
expenses for the ensuing calendar year. On or before the first day of each month
during the ensuing calendar year (or each month of the Term, if a partial
calendar year), Tenant will pay to Landlord 1/12 of the product of Tenant's
share multiplied by the estimated operating expenses for such calendar year;
however, if such written notice is not given in December, Tenant will continue
to make monthly payments on the basis of the prior year's estimated operating
expenses until the month after such written notice is given, at which time
Tenant will commence making monthly payments based upon the revised estimated
operating expenses. In the month Tenant first makes a payment based upon the
revised estimated operating expenses, Tenant will pay to Landlord for each month
which has elapsed since December the difference between the amount payable based
upon the revised estimated operating expenses and the amount payable based upon
the prior year's estimated operating expenses. If at any time or times it
reasonably appears to Landlord that the actual operating expenses for any
calendar year will vary from the estimated operating expenses for such calendar
year, Landlord may, by written notice to Tenant, revise the estimated operating
expenses for such calendar year, and subsequent payments by Tenant in such
calendar year will be based upon such revised estimated operating expenses.
5.3 ANNUAL SETTLEMENT. Within 120 days after the end of each calendar
year or as soon after such 120-day period as practicable, Landlord will deliver
to Tenant a statement of amounts payable under Section 5.1 for such calendar
year prepared and certified by Landlord. Such certified statement will be final
and binding upon Landlord and Tenant unless Tenant objects to it in writing to
Landlord within thirty (30) days after it is given to Tenant. If such statement
shows an amount owing by Tenant that is less than the estimated payments
previously made by Tenant for such calendar year, the excess will be held by
Landlord and credited against the next payment of rent; however, if the Term has
ended and Tenant was not in default at its end, Landlord will refund the excess
to Tenant. If such statement shows an amount owing by Tenant that is more than
the estimated payments previously made by Tenant for such calendar year, Tenant
will pay
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the deficiency to Landlord within 30 days after the delivery of such statement.
Tenant may review Landlord's records of the operating expenses, at Tenant's sole
cost and expense, at the place Landlord normally maintains such records during
Landlord's normal business hours upon reasonable advance written notice.
5.4 FINAL PRORATION. If this Lease ends on a day other than the last day
of a calendar year, the amount of increase (if any) in the operating expenses
payable by Tenant applicable to the calendar year in which this Lease ends will
be calculated on the basis of the number of days of the Term falling within such
calendar year, and Tenant's obligation to pay any increase or Landlord's
obligation to refund any overage will survive the expiration or other
Termination of this Lease.
5.5 OTHER TAXES.
(a) Tenant will reimburse Landlord upon demand for any and all
taxes payable by Landlord (other than as set forth in subparagraph (b) below),
whether or not now customary or within the contemplation of Landlord and Tenant:
(1) upon or measured by rent, including without
limitation, any gross revenue tax, excise tax, or value added tax levied by the
federal government or any other governmental body with respect to the receipt of
rent; and
(2) upon this transaction or any document to which Tenant
is a party creating or transferring an interest or an estate in the Premises.
(b) Tenant will not be obligated to pay any inheritance tax, gift
tax, transfer tax, franchise tax, income tax (based on net income), profit tax,
or capital levy imposed upon Landlord.
(c) Tenant will pay promptly when due all personal property taxes
on Tenant's personal property in the Premises and any other taxes payable by
Tenant that if not paid might give rise to a lien on the Premises or Tenant's
interest in the Premises.
(d) Notwithstanding the foregoing, Tenant shall not be
responsible for any gross receipts tax.
5.6 ADDITIONAL RENT. Amounts payable by Tenant according to this Article
5 will be payable as rent, without deduction or offset. If Tenant fails to pay
any amounts due according to this Article 5, Landlord will have all the rights
and remedies available to it on account of Tenant's failure to pay rent.
ARTICLE 6
INSURANCE
6.1 LANDLORD'S INSURANCE. At all times during the Term, Landlord will
carry and maintain:
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(a) Basic causes of loss (fire and extended coverage) insurance
covering the Building, its equipment, common area furnishings, and Leasehold
improvements in the Premises to the extent of the Tenant finish allowance (as
that Term is defined in the Workletter);
(b) Bodily injury and property damage liability insurance; and
(c) Such other insurance as Landlord reasonably determines from
time to time.
(d) Automobile liability insurance with limits not less than
$1,000,000.
The insurance coverages and amounts in this Section 6.1 will be
reasonably determined by Landlord, based on coverages carried by prudent owners
of comparable buildings in the vicinity of the project.
6.2 TENANT'S INSURANCE. At all times during the Term, Tenant will carry
and maintain, at Tenant's expense, the following insurance, in the amounts
specified below or such other amounts as Landlord may from time to time
reasonably request, with insurance companies and on forms satisfactory to
Landlord:
(a) Commercial General Liability "occurrence form," or
equivalent, covering the Premises and operations of the Tenant, including
personal injury and contractual liability, with combined single limit for bodily
injury and property damage of not less than $1,000,000 per occurrence,
$1,000,000 annual aggregate, naming Landlord, its agents and employees, and any
others specified from time to time by Landlord, as Additional insured under such
Policy. Such policy will be primary insurance, and any similar insurance which
may be purchased by the Landlord shall be excess of Tenant's policy, and not
contributory therewith.
(b) Insurance covering all of Tenant's furniture and fixtures,
machinery, equipment, stock, and any other personal property owned or used in
Tenant's business and found in, on, or about the project, and any Leasehold
improvements to the Premises in excess of the allowance, if any, provided
pursuant to the Workletter, if any, in an amount not less than the full
replacement value, against Basic Form Causes of Loss (fire and extended
coverage). All policy proceeds will be used for the repair of replacement of the
damaged or destroyed property; however if this Lease terminates pursuant to the
provisions of Article 18, Tenant will be entitled to any proceeds resulting from
damage to Tenant's furniture and fixtures, machinery, equipment, stock and other
personal property.
(c) Worker's compensation insurance insuring against and
satisfying Tenant's obligations and liabilities under the Workers' Compensation
laws of the state of California, including Employer's Liability insurance with a
limit of not less than $1,000,000.
(d) If Tenant operates owned, hired, or nonowned vehicles on the
project, Automobile Liability insurance with limits not less than $1,000,000.
6.3 CERTAIN INSURANCE RISK. Tenant will not do or permit to be done any
act or thing upon the Premises or the Building which would:
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(a) jeopardize or be in conflict with fire insurance policies
covering the Building, and personal property in the Building;
(b) increase the rate of fire insurance applicable to the
Building to an amount higher than it would otherwise be for general office use;
or
(c) subject Landlord to any liability or responsibility for
injury to any person or persons or to property by reason of any business or
operation being carried on upon the Premises or in the Building.
6.4 Forms of Policies. Certificates of insurance, providing for ten (10)
days advance notice of cancellation, together with copies of the endorsements,
when applicable, naming Landlord and any others specified by Landlord as
additional insured on General Liability, will be delivered to Landlord prior to
Tenant's occupancy of the Premises and from time to time at least 10 days prior
to the expiration of the Term of each such policy. Such policies shall be placed
with an insurer licensed by the State of California with an A.M. Best's Rating
of not less than B+:V.
6.5 Waiver of Subrogation. Landlord and Tenant each waive any and all
rights to recover against the other, and against the officers, directors,
shareholders or employees of such parties, for any loss or damage to such
waiving party arising from any cause covered by any property insurance carried
by such party.
ARTICLE 7
USE
The Premises will be used only for software research and development,
general business office purposes and purposes incidental to that use, and for no
other purpose. Tenant will use the Premises in a careful, safe, and proper
manner. Tenant will not use or permit the Premises to be used or occupied for
any purpose or in any manner prohibited by any applicable law, rule, regulation
or deed covenant, conditions and restrictions concerning the Premises, including
without limitation the obligation at Tenant's cost to alter, maintain, or
restore the Premises in compliance and conformity with all laws relating to the
condition, use or occupancy of the Premises. Tenant will not commit waste or
suffer or permit waste to be committed in, on, or about the Premises. Tenant
will conduct its business and control its employees, agents, and invitees in
such a manner as not to create any nuisance or interfere with, annoy, or disturb
any other Tenant or occupant of the project or Landlord in its operation of the
project.
ARTICLE 8
REQUIREMENTS OF LAW
8.1 General. At its sole cost and expense, Tenant will promptly comply
with all laws, statutes, ordinances, and governmental rules, regulations, or
requirements now in force or in force after the Lease date, with any direction
or occupancy certificate issued pursuant to any law by any public officer or
officers, as well as with the provisions of all recorded documents affecting the
Premises, insofar as they relate to the condition, use, or occupancy of the
Premises, excluding requirements of structural changes to the Premises or the
building, unless required by the unique nature of Tenant's use or occupancy of
the Premises.
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8.2 Hazardous Materials.
(a) "Hazardous substance" shall mean the substances included or
which hereafter may be included with the definitions of the terms "hazardous
substance" and "hazardous material" under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, 42 U.S.C. Sections 9601 et
seq., the Hazardous Materials Transportation Act of 1975, 49 U.S.C. Sections
1801 et seq., and to regulations promulgated under those various statutes as
amended, and petroleum. "Hazardous waste" shall mean any waste listed as or
meeting the identified characteristics of a "hazardous waste" under the Resource
Conservation and Recovery Act of 1976, 42 U.S.C. Sections 6901 et seq., and
regulations promulgated thereunder, collectively "RCRA," as amended. Also, any
other federal, state, or local statute law, ordinance, code, rule, regulation,
order to decree regulating relating to, or imposing liability or standards of
conduct concerning hazardous materials, waste, or substances now or at any time
hereafter in effect (collectively, with all other federal, state, or local
statutes, laws, ordinances, codes, rules, regulations, order or decree described
in this paragraph 8.2(a), "Hazardous Materials Laws").
(b) Tenant will not cause or permit the storage, use, generation,
or disposition of any hazardous materials in, on, or about the Premises or the
project by Tenant, its agents, employees, or contractors. Tenant will not permit
the Premises to be used or operated in a manner that may cause the Premises or
the project to be contaminated by any hazardous materials in violation of any
Hazardous Materials Laws. Tenant will immediately advise Landlord in writing of
(1) any and all enforcement, cleanup, remedial, removal, or other governmental
or regulatory actions instituted, completed, or threatened pursuant to any
Hazardous Materials Laws relating to any hazardous materials affecting the
Premises; and (2) all claims made or threatened by any third party against
Tenant, Landlord, or the Premises relating to damage, contribution, cost
recovery, compensation, loss, or injury resulting from any hazardous materials
on or about the Premises. Without Landlord's prior written consent, Tenant will
not take any remedial action or enter into any agreements or settlements in
response to the presence of any hazardous materials in, on, or about the
Premises.
(c) Tenant will be solely responsible for and will defend,
indemnify and hold Landlord, its agents, and employees harmless from and against
all claims, costs, and liabilities, including attorneys' fees and costs, arising
out of or in connection with Tenant's breach of its obligations in this Article
8. Tenant will be solely responsible for and will defend, indemnify, and hold
Landlord, its agents, and employees harmless from and against any and all
claims, costs, and liabilities, including attorneys' fees and costs, arising out
of or in connection with the removal, cleanup, and restoration work and
materials necessary to return the Premises and any other property of whatever
nature located on the project to their condition existing prior to the
appearance of Tenant's hazardous materials on the Premises. Tenant's obligations
under this Article 8 will survive the expiration or other Termination of this
Lease.
8.3 Americans With Disabilities Act Compliance.
(a) Landlord represents and warrants that the Building and the
Premises comply with the Americans with Disabilities Act (42 USC Sections
12101-12213) (the "Act") and the laws and
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regulations promulgated pursuant thereto as of the date of this Lease. Tenant is
responsible for all ADA compliance related to the Premises.
(b) Landlord shall indemnify and hold harmless Tenant for any
damages, fines, penalties, legal fees or costs of suit that are incurred,
awarded or assessed against Tenant as a result of violations of the Act or laws
and regulations promulgated thereto relating to the ownership maintenance or
operation of the Project.
(c) Tenant shall indemnify and hold harmless Landlord for any
damages, fines, penalties, legal fees or costs of suit that are incurred,
awarded or assessed against Landlord as a result of violations of the Act or
laws and regulations promulgated pursuant thereto relating to Tenant's use,
maintenance or operation of the Premises.
ARTICLE 9
ASSIGNMENT AND SUBLETTING
9.1 General. Tenant, for itself, its heirs, distributees, executors,
administrators, legal representatives, successors, and assigns, covenants that
it will not assign, mortgage, or encumber this Lease, nor sublease, nor permit
the Premises or any part of the Premises to be used or occupied by others,
without the prior written consent of Landlord in each and every instance, which
consent will not be unreasonably withheld or delayed. Any assignment or sublease
in violation of this Article 9 will be void. If this Lease is assigned, or if
the Premises or any part of the Premises are subleased or occupied by anyone
other than Tenant, Landlord may, after default by Tenant, collect rent from the
assignee, subtenant, or occupant, and apply the net amount collected to rent. No
assignment, sublease, occupancy, or collection will be deemed (a) a waiver of
the provisions of this Section 9.1; (b) the acceptance of the assignee,
subtenant, or occupant as Tenant; or (c) a release of Tenant from the further
performance by Tenant of covenants on the part of Tenant contained in this
Lease. The consent by Landlord to an assignment or sublease will not be
construed to relieve Tenant from obtaining Landlord's prior written consent in
writing to any further assignment or sublease. No permitted subtenant may assign
or encumber its sublease or further sublease all or any portion of its subleased
space, or otherwise permit the subleased space or any part of its subleased
space to be used or occupied by others, without Landlord's prior written consent
in each instance.
9.2 Submission of Information. If Tenant requests Landlord's consent to
a specific assignment or subletting, Tenant will submit in writing to Landlord
(a) the name and address of the proposed assignee or subtenant; (b) the business
Terms of the proposed assignment or sublease; (c) reasonably satisfactory
information as to the nature and character of the business of the proposed
assignee or subtenant, and as to the nature of its proposed use of the space;
(d) banking, financial, or other credit information reasonably sufficient to
enable Landlord to determine the financial responsibility and character of the
proposed assignee or subtenant; and (e) the proposed form of assignment or
sublease for Landlord's reasonable approval.
9.3 Payments to Landlord. If Landlord consents to a proposed assignment
or sublease, then Landlord will have the right to require Tenant to pay to
Landlord a sum equal to (a) 50% of any rent or other consideration paid to
Tenant by any proposed transferee that (after deducting the costs of Tenant, if
any, in effecting the assignment or sublease, including reasonable alterations
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costs, commissions and legal fees) is in excess of the rent allocable to the
transferred space then being paid by Tenant to Landlord pursuant to this Lease;
(b) any other profit or gain (after deducting any necessary expenses incurred)
realized by Tenant from any such sublease or assignment; and (c) Landlord's
reasonable attorneys' fees and costs incurred in connection with negotiation,
review, and processing of the transfer. All such sums payable will be payable to
Landlord at the time the next payment of Monthly Rent is due.
9.4 Prohibited Transfers. The transfer of a majority of the issued and
outstanding capital stock of any corporate Tenant or subtenant of this Lease, or
a majority of the total interest in any partnership Tenant or subtenant, however
accomplished, and whether in a single transaction or in a series of related or
unrelated transactions, will be deemed an assignment of this Lease or of such
sublease requiring Landlord's consent in each instance. For purposes of this
Article 9, the transfer of outstanding capital stock of any corporate Tenant
will not include any sale of such stock by persons other than those deemed
"insiders" within the meaning of the Securities Exchange Act of 1934, as
amended, effected through the "over-the-counter market" or through any
recognized stock exchange.
9.5 Permitted Transfer. Landlord consents to an assignment of this Lease
or sublease of all or part of the Premises to a wholly-owned subsidiary of
Tenant or the parent of Tenant or to any corporation into or with which Tenant
may be merged or consolidated; provided that Tenant promptly provides Landlord
with a fully executed copy of such assignment or sublease and that Tenant is not
released from liability under the Lease.
9.6 Remedies. If Tenant believes that Landlord has unreasonably withheld
its consent pursuant to this Article 9, Tenant's sole remedy will be to seek a
declaratory judgment that Landlord has unreasonably withheld its consent or an
order of specific performance or mandatory injunction of the Landlord's
agreement to give its consent; however, Tenant may recover damages if a court of
competent jurisdiction determines that Landlord has acted arbitrarily and
capriciously in evaluating the proposed assignee's or subtenant's
creditworthiness, identity, and business character and the proposed use and
lawfulness of the use.
ARTICLE 10
RULES AND REGULATIONS
Tenant and its employees, agents, licensees, and visitors will at all
times observe faithfully, and comply strictly with, the rules and regulations
set forth in Exhibit C. Landlord may from time to time reasonably amend, delete,
or modify existing rules and regulations, or adopt reasonable new rules and
regulations for the use, safety, cleanliness, and care of the Premises, the
building, and the project, and the comfort, quiet, and convenience of occupants
of the project. Modifications or additions to the rules and regulations will be
effective upon thirty (30) days' prior written notice to Tenant from Landlord.
In the event of any breach of any rules or regulations or any amendments or
additions to such rules and regulations, Landlord will have all remedies that
this Lease provides for default by Tenant, and will in addition have any
remedies available at law or in equity, including the right to enjoin any breach
of such rules and regulations. Landlord will not be liable to Tenant for
violation of such rules and regulations by any other Tenant, its employees,
agents, visitors, or licensees or any other person. In the event of any
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conflict between the provisions of this Lease and the rules and regulations, the
provisions of this Lease will govern.
ARTICLE 11
COMMON AREAS
As used in this Lease, the Term "common areas" means, without
limitation, the hallways, entryways, stairs, elevators, driveways, walkways,
terraces, docks, loading areas, restrooms, trash facilities, and all other areas
and facilities in the project that are provided and designated from time to time
by Landlord for the general nonexclusive use and convenience of Tenant with
Landlord and other Tenants of the project and their respective employees,
invitees, licensees, or other visitors. Landlord grants Tenant, its employees,
invitees, licensees, and other visitors a nonexclusive license for the Term to
use the common areas in common with others entitled to use the common areas,
subject to the Terms and conditions of this Lease. Without advance written
notice to Tenant, except with respect to matters covered by subsection (a)
below, and without any liability to Tenant in any respect, provided Landlord
will take no action permitted under this Article 11 in such a manner as to
materially impair or adversely affect Tenant's substantial benefit and enjoyment
of the Premises, Landlord will have the right to:
(a) Close off any of the common areas to whatever extent required
in the opinion of Landlord and its counsel to prevent a dedication of any of the
common areas or the accrual of any rights by any person or the public to the
common areas;
(b) Temporarily close any of the common areas for maintenance,
alteration, or improvement purposes; and
(c) Change the size, use, shape, or nature of any such common
areas, including erecting additional buildings on the common areas, expanding
the existing building or other buildings to cover a portion of the common areas,
converting common areas to a portion of the building or other buildings, or
converting any portion of the building (excluding the Premises) or other
buildings to common areas. Upon erection of any additional buildings or change
in common areas, the portion of the project upon which buildings or structures
have been erected will no longer be deemed to be a part of the common areas. In
the event of any such changes in the size or use of the building or common areas
of the building or project, Landlord will make an appropriate adjustment in the
rentable area of the building or the building's pro rata share of exterior
common areas of the project, as appropriate, and a corresponding adjustment to
Tenant's share of the operating expenses payable pursuant to Article 5 of this
Lease.
ARTICLE 12
LANDLORD'S SERVICES
12.1 Landlord's Repair and Maintenance. Landlord will maintain, repair
and restore the common areas of the project, including lobbies, stairs,
elevators, corridors, and restrooms, the windows in the building, the
mechanical, plumbing and electrical equipment serving the building, and the
structure of the building in reasonably good order and condition.
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12.2 Landlord's Other Services.
(a) Landlord will furnish the Premises with those services
customarily provided in comparable office buildings in the vicinity of the
project, including without limitation (1) electricity for lighting and the
operation of low-wattage office machines (such as desktop micro-computers,
desktop calculators, and typewriters) during, business hours (as that Term is
defined below), although Landlord will not be obligated to furnish more power to
the Premises than is proportionally allocated to the Premises under the building
design; (2) heat and air conditioning reasonably required for the comfortable
occupation of the Premises during business hours; (3) access and elevator
service; (4) lighting replacement during business hours (for building standard
lights, but not for any special Tenant lights, which will be replaced at
Tenant's sole cost and expense); (5) restroom supplies; (6) window washing with
reasonable frequency, as determined by Landlord; and (7) daily cleaning service
on weekdays. Landlord may provide, but will not be obligated to provide, any
such services (except access and elevator service) on holidays or weekends.
(b) Tenant will have access to the premise at all times. Tenant
will have the right to purchase for use during business hours and non-business
hours the services described in clauses (a)(1) and (2) in excess of the amounts
Landlord has agreed to furnish so long as (1) Tenant gives Landlord reasonable
prior written notice of its desire to do so; (2) the excess services are
reasonably available to Landlord and to the Premises; and (3) Tenant pays as
additional rent (at the time the next payment of monthly Rent is due) the cost
of such excess service from time to time charged by Landlord; subject to the
procedures established by Landlord from time to time for providing such
additional or excess services.
(c) The Term "business hours" means 7:00 a.m. - 7:00 p.m. on
Monday through Friday, except holidays (as that Term is defined below), and 9:00
a.m. - 3:00 p.m. on Saturdays and Sundays, except holidays. The Term "holidays"
means New Year's Day, Memorial Day, Independence Day, Labor Day, Thanksgiving
Day, and Christmas Day. Landlord shall be entitled to charge Tenant for any
services for hours in excess of the standard business hours as defined in the
first sentence of this paragraph.
(d) Landlord shall cause to have telecommunications cable
installed and maintained from the minimum point of entry, within the Building,
and to the point of interconnection with Tenant's proprietary telecommunications
systems.
12.3 Tenant's Costs. Whenever equipment or lighting (other than building
standard lights) is used in the Premises by Tenant and such equipment or
lighting affects the temperature otherwise normally maintained by the design of
the building's air conditioning system, Landlord will have the right, after
prior written notice to Tenant, to install supplementary air conditioning
facilities in the Premises or otherwise modify the ventilating and air
conditioning system serving the Premises; and the cost of such facilities,
modifications, and additional service will be paid by Tenant as additional rent.
If Landlord reasonably believes that Tenant is using more power than Landlord
furnishes pursuant to Section 12.2, Landlord may install separate meters of
Tenant's power usage, and Tenant will pay for the actual cost of such excess
power as additional rent,
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together with the cost of installing any risers, meters, or other facilities
that may be necessary to furnish or measure such excess power to the Premises.
12.4 Limitation on Liability. Landlord will not be in default under this
Lease or be liable to Tenant or any other person for direct or consequential
damage, or otherwise, for any failure to supply any heat, air conditioning,
elevator, cleaning, lighting, security; for surges or interruptions of
electricity; or for other services Landlord has agreed to supply (including, but
not limited to, the proper and continuous functioning of the telecommunications
cable noted in paragraph 12.2(d), above) during any period when Landlord uses
reasonable diligence to supply such services. Landlord will use reasonable
efforts to diligently remedy any interruption in the furnishing of such
services. Landlord reserves the right temporarily to discontinue such services
at such times as may be necessary by reason of accident; repairs, alterations or
improvements; strikes; lockouts; riots; acts of God; earthquakes; governmental
preemption in connection with a national or local emergency; any rule, order, or
regulation of any governmental agency; conditions of supply and demand that make
any product unavailable; Landlord's compliance with any mandatory governmental
energy conservation or environmental protection program, or any voluntary
governmental energy conservation program at the request of or with consent or
acquiescence of Tenant; or any other happening beyond tile control of Landlord.
Landlord will not be liable to Tenant or any other person or entity for direct
or consequential damages resulting from the admission to or exclusion from the
building or project of any person. In the event of invasion, mob, riot, public
excitement, strikes, lockouts, or other circumstances rendering such action
advisable in Landlord's sole opinion, Landlord will have the right to prevent
access to the building or project during the continuance of the same by such
means as Landlord, in its sole discretion, may deem appropriate, including
without limitation locking doors and closing parking areas and other common
areas. Landlord will not be liable for damages to person or property or for
injury to, or interruption of, business for any discontinuance permitted under
this Article 12, nor will such discontinuance in any way be construed as an
eviction of Tenant or cause an abatement of rent or operate to release Tenant
from any of Tenant's obligations under this Lease.
ARTICLE 13
TENANT'S CARE OF THE PREMISES
13.1 Maintenance. Tenant will maintain the Premises (including Tenant's
equipment, personal property, and trade fixtures located in the Premises) in
their condition at the time they were delivered to Tenant, reasonable wear and
tear excluded. Tenant will immediately advise Landlord of any damage to the
Premises or the project. All damage or injury to the Premises, the project, or
the fixtures, appurtenances, and equipment in the Premises or the project that
is caused by Tenant, its agents, employees, or invitees may be repaired,
restored, or replaced by Landlord, at the expense of Tenant. Such expense (plus
5% of such expense for Landlord's overhead) will be collectible as additional
rent and will be paid by Tenant within 10 days after delivery of a statement for
such expense.
13.2 Energy Conservation. Tenant will cooperate with any reasonable
energy conservation plan for the Building. Tenant agrees to maintain the window
shades down and adjusted in such a manner s o as to curtail the admission of
direct sunlight into the Premises. Notwithstanding the foregoing, in no event
shall Tenant be obligated to adjust the window shades in such a manner as to
deprive Tenant from the enjoyment of the view from the window.
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ARTICLE 14
ALTERATIONS
14.1 General.
(a) Except for the Tenant Improvements described in Article
1.1(z) and the Workletter, during the Term, Tenant will not make or allow to be
made any alterations, additions, or improvements to or of the Premises or any
part of the Premises, or attach any fixtures or equipment to the Premises,
except artwork, interior signage and normal communications equipment, without
first obtaining Landlord's written consent. All such alterations, additions, and
improvements consented to by Landlord, and capital improvements that are
required to be made to the project as a result of the nature of Tenant's use of
the Premises:
(1) Will be performed by contractors approved by Landlord
and subject to conditions specified by Landlord (which may include requiring the
posting of a mechanic's or materialmen's lien bond); and
(2) At Landlord's option, will be made by Landlord for
Tenant's account, and Tenant will reimburse Landlord for their cost (including
5% for Landlord's overhead) within ten (10) days after receipt of a statement of
such cost.
(b) Subject to Tenant's rights in Article 16, all alterations,
additions, fixtures, and improvements, whether temporary or permanent in
character, made in or upon the Premises either by Tenant or Landlord, will
immediately become Landlord's property and at the end of the Term will remain on
the Premises without compensation to Tenant, unless when consenting to such
alterations, additions, fixtures, or improvements, Landlord has advised Tenant
in writing that such alterations, additions, fixtures, or improvements must be
removed at the expiration or other Termination of this Lease.
14.2 Free-Standing Partitions. Tenant will have the right to install
free-standing, work station partitions, without Landlord's prior written
consent, so long as no building or other governmental permit is required for
their installation or relocation; however, if a permit is required, Landlord
will not unreasonably withhold its consent to such relocation or installation.
The free-standing work station partitions for which Tenant pays will be part of
Tenant's trade fixtures for all purposes under this Lease. All other partitions
installed in the Premises are and will be Landlord's property for all purposes
under this Lease.
14.3 Removal. If Landlord has required Tenant to remove any or all
alterations, additions, fixtures, and improvements that are made in or upon the
Premises pursuant to this Article 14 prior to the Expiration Date, Tenant will
remove such alterations, additions, fixtures, and improvements at Tenant's sole
cost and will restore the Premises to the condition in which they were before
such alterations, additions, fixtures, improvements, and additions were made,
reasonable wear and tear excepted.
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ARTICLE 15
MECHANICS' LIENS
Tenant will pay or cause to be paid all costs and charges for work (a)
done by Tenant or caused to be done by Tenant, in or to the Premises, and (b)
for all materials furnished for or in connection with such work. Tenant will
indemnify Landlord against and hold Landlord, the Premises, and the project
free, clear, and harmless of and from all mechanics' liens and claims of liens,
and all other liabilities, liens, claims, and demands on account of such work by
or on behalf of Tenant, other than work performed by Landlord pursuant to the
Workletter. If any such lien, at any time, is filed against the Premises or any
part of the project, Tenant will cause such lien to be discharged of record
within ten (10) days after the filing of such lien, except that if Tenant
desires to contest such lien, it will furnish Landlord, within such 10-day
period, security reasonably satisfactory to Landlord of at least 150% of the
amount of the claim, plus estimated costs and interest, or comply with such
statutory procedures as may be available to release the lien. If a final
judgment establishing the validity or existence of a lien for any amount is
entered, Tenant will pay and satisfy the same at once. If Tenant fails to pay
any charge for which a mechanics' lien has been filed, and has not given
Landlord security as described above, or has not complied with such statutory
procedures as may be available to release the lien, Landlord may, at its option,
pay such charge and related costs and interest, and the amount so paid, together
with reasonable attorneys' fees incurred in connection with such lien, will be
immediately due from Tenant to Landlord as additional rent. Nothing contained in
this Lease will be deemed the consent or agreement of Landlord to subject
Landlord's interest in the project to liability under any mechanics' or other
lien law. If Tenant receives written notice that a lien has been or is about to
be filed against the Premises or the project, or that any action affecting title
to the project has been commenced on account of work done by or for or materials
furnished to or for Tenant, it will immediately give Landlord written notice of
such notice. At least fifteen (15) days prior to the commencement of any work
(including but not limited to any maintenance, repairs, alterations, additions,
improvements, or installations) in or to the Premises, by or for Tenant, Tenant
will give Landlord written notice of the proposed work and the names and
addresses of the persons supplying labor and materials for the proposed work.
Landlord will have the right to post notices of nonresponsibility or similar
written notices on the Premises in order to protect the Premises against any
such liens.
ARTICLE 16
END OF TERM
At the end of this Lease, Tenant will promptly quit and surrender the
Premises broom-clean, in good order and repair, ordinary wear and tear excepted.
If Tenant is not then in default, Tenant may remove from the Premises any trade
fixtures, equipment, and movable furniture placed in the Premises by Tenant,
whether or not such trade fixtures or equipment are fastened to the building;
Tenant will not remove any trade fixtures or equipment without Landlord's prior
written consent if such fixtures or equipment are used in the operation of the
building, or if the removal of such fixtures or equipment will result in
impairing the structural strength of the building. Whether or not Tenant is in
default, Tenant will remove such alterations, additions, improvements, trade
fixtures, equipment, and furniture as Landlord has requested in accordance with
Article 14. Tenant will fully repair any damage occasioned by the removal of any
trade fixtures, equipment, furniture, alterations, additions, and improvements.
All trade fixtures, equipment, furniture, inventory, effects, alterations,
additions, and improvements on the Premises
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after the end of the Term will be deemed conclusively to have been abandoned and
may be appropriated, sold, stored, destroyed, or otherwise disposed of by
Landlord without written notice to Tenant or any other person and without
obligation to account for them. Tenant will pay Landlord for all expenses
incurred in connection with the removal of such property, including but not
limited to the cost of repairing any damage to the building or Premises caused
by the removal of such property. Tenant's obligation to observe and perform this
covenant will survive the expiration or other Termination of this Lease.
ARTICLE 17
EMINENT DOMAIN
If all of the Premises are taken by exercise of the power of eminent
domain (or conveyed by Landlord in lieu of such exercise) this Lease will
Terminate on a date (the "Termination date") which is the earlier of the date
upon which the condemning authority takes possession of the Premises or the date
on which title to the Premises is vested in the condemning authority. If more
than 25% of the rentable area of the Premises is so taken, Tenant will have the
right to cancel this Lease by written notice to Landlord given within twenty
(20) days after the Termination date. If less than 25% of the rentable area of
the Premises is so taken, or if the Tenant does not cancel this Lease according
to the preceding sentence, the Monthly Rent will be abated in the proportion of
the rentable area e Premises so taken to the rentable area of the Premises
immediately before such taking, and Tenant's share will be appropriately
recalculated. If 25% or more of the building or the project is so taken,
Landlord may cancel this Lease by written notice to Tenant given within 30 days
after the Termination date. In the event of any such taking, the entire award
will be paid to Landlord and Tenant will have no right or claim to any part of
such award; however, Tenant will have the right to assert a claim against the
condemning authority in a separate action, so long as Landlord's award is not
otherwise reduced, for Tenant's moving expenses and Leasehold improvements owned
by Tenant.
ARTICLE 18
DAMAGE AND DESTRUCTION
(a) If the Premises or the building are damaged by fire or other
insured casualty, Landlord will give Tenant written notice of the time which
will be needed to repair such damage, as determined by Landlord in its
reasonable discretion, and the election (if any) which Landlord has made
according to this Article 18. Such notice will be given before the 30th day (the
"notice date") after the fire or other insured casualty.
(b) If the Premises or the building are damaged by fire or other
insured casualty to an extent which may be repaired within 120 days after the
notice date, as reasonably determined by Landlord, Landlord will promptly begin
to repair the damage after the notice date and will diligently pursue the
completion of such repair. In that event this Lease will continue in full force
and effect except that Monthly Rent will be abated on a pro rata basis from the
date of the damage until the date of the completion of such repairs (the "repair
period") based on the proportion of the rentable area of the Premises Tenant is
unable to use during the repair period.
(c) If the Premises or the building are damaged by fire or other
insured casualty to an extent that may not be repaired within 120 days after the
notice date, as reasonably determined by Landlord, then (1) Landlord may cancel
this Lease as of the date of such damage
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by written notice given to Tenant on or before the notice date or (2) Tenant may
cancel this Lease as of the date of such damage by written notice given to
Landlord within ten (10) days after Landlord's delivery of a written notice that
the repairs cannot be made within such 120-day period. If neither Landlord nor
Tenant so elects to cancel this Lease, Landlord will diligently proceed to
repair the building and Premises and Monthly Rent will be abated on a pro rata
basis during the repair period based on the proportion of the rentable area of
the Premises Tenant is unable to use during the repair period.
(d) Notwithstanding the provisions of subparagraphs (a), (b), and
(c) above, if the Premises or the building are damaged by uninsured casualty, or
if the proceeds of insurance are insufficient to pay for the repair Of any
damage to the Premises or the building, Landlord will have the option to repair
such damage or cancel this Lease as of the date of such casualty by written
notice to Tenant on or before the notice date.
(e) If any such damage by fire or other casualty is the result of
the willful conduct or sole negligence or failure to act of Tenant, its agents,
contractors, employees, or invitees, there will be no abatement of Monthly Rent
as otherwise provided for in this Article 18. Tenant will have no rights to
Terminate this Lease on account of any damage to the Premises, the building, or
the project, except as set forth in this Lease.
ARTICLE 19
SUBORDINATION
19.1 GENERAL. This Lease and Tenant's rights under this Lease are
subject and subordinate to any ground or underlying Lease, mortgage, indenture,
deed of trust, or other lien encumbrance (each a "superior lien"), together with
any renewals, extensions, modifications, consolidations, and replacements of
such superior lien, now or after the date affecting or placed, charged, or
enforced against the land, the building, or all or any portion of the project or
any interest of Landlord in them or Landlord's interest in this Lease and the
Leasehold estate created by this Lease (except to the extent any such instrument
expressly provides that this Lease is superior to such instrument). This
provision will be self-operative and no further instrument of subordination will
be required in order to effect it. Notwithstanding the foregoing, Tenant will
execute, acknowledge, and deliver to Landlord, within twenty (20) days after
written demand by Landlord, such documents as may be reasonably requested by
Landlord or the holder of any superior lien to confirm or effect any such
subordination.
19.2 ATTORNMENT AND NONDISTURBANCE. Tenant agrees that in the event that
any holder of a superior lien succeeds to Landlord's interest in the Premises,
Tenant will pay to such holder all rents subsequently payable under this Lease.
Further, Tenant agrees that in the event of the enforcement by the holder of a
superior lien of the remedies provided for by law or by such superior lien,
Tenant will, upon request of any person or party succeeding to the interest of
Landlord as a result of such enforcement, automatically become the Tenant of and
attorn to such successor in interest without change in the Terms or provisions
of this Lease. Such successor in interest will not be bound by:
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(a) Any payment of rent for more than one (1) month in advance,
except prepayments in the nature of security for the performance by Tenant of
its obligations under this Lease;
(b) Any amendment or modification of this Lease made without the
written consent of such successor in interest (if such consent was required
under the Terms of such superior lien);
(c) Any claim against Landlord arising prior to the date on which
such successor in interest succeeded to Landlord's interest; or
(d) Any claim or offset of rent against the Landlord.
Upon request by such successor in interest and without cost to Landlord
or such successor in interest, Tenant will, within twenty (20) days after
written demand, execute, acknowledge, and deliver an instrument or instruments
confirming the attornment, so long as such instrument provides that such
successor in interest will not disturb Tenant in its use of the Premises in
accordance with this Lease.
ARTICLE 20
ENTRY BY LANDLORD
Landlord, its agents, employees, and contractors may enter the Premises
at any time in response to an emergency and at reasonable hours to:
(a) Inspect the Premises;
(b) Exhibit the Premises to prospective purchasers, lenders, or
Tenants during the last six (6) months of the Term;
(c) Determine whether Tenant is complying, with all its
obligations in this Lease;
(d) Supply cleaning service and any other service to be provided
by Landlord to Tenant according to this Lease;
(e) Post written notices of nonresponsibility or similar notices;
or
(f) Make repairs required of Landlord under the Terms of this
Lease or make repairs to any adjoining space or utility services or make
repairs, alterations, or improvements to any other portion of the building;
however, all such work will be done as promptly as reasonably possible and so as
to cause as little interference to Tenant as reasonably possible.
Except for damages caused by the willful negligence of the Landlord, its
agents, employees, or contractors, tenant, by this Article 20, waives any claim
against Landlord, its agents, employees, or contractors for damages for any
injury or inconvenience to or interference with Tenant's business, any loss of
occupancy or quiet enjoyment of the Premises, or any other
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loss occasioned by any entry in accordance with this Article 20. Landlord will
at all times have and retain a key with which to unlock all of the doors in, on,
or about the Premises (excluding Tenant's vaults, safes, and similar areas
designated in writing by Tenant in advance). Landlord will have the right to use
any and all means Landlord may deem proper to open doors in and to the Premises
in an emergency in order to obtain entry to the Premises, provided that Landlord
will promptly repair any damages caused by any forced entry. Any entry to the
Premises by Landlord in accordance with this Article 20 will not be construed or
deemed to be a forcible or unlawful entry into or a detainer of the Premises or
an eviction, actual or constructive, of Tenant from the Premises or any portion
of the Premises, nor will any such entry entitle Tenant to damages or an
abatement of Monthly Rent, additional rent, or other charges that this Lease
requires Tenant to pay.
ARTICLE 21
INDEMNIFICATION, WAIVER, AND RELEASE
21.1 Indemnification. Except for any injury or damage to persons or
property on the Premises that is proximately caused by or results proximately
from the sole negligence or knowingly wrongful act of Landlord, its employees,
or agents, unless contradicted by other terms of this Lease, Tenant will neither
hold nor attempt to hold Landlord, its employees, or agents liable for, and
Tenant will indemnify and hold harmless Landlord, its employees, and agents from
and against, any and all demands, claims, causes of action, fines, penalties,
damages (including consequential damages), liabilities, judgments, and expenses
(including without limitation reasonable attorneys' fees) incurred in connection
with or arising from:
(a) the use or occupancy or manner of use or occupancy of the
Premises by Tenant or any person claiming under Tenant;
(b) any activity, work, or thing done or permitted by Tenant in
or about the Premises, the building, or the project;
(c) any breach by Tenant or its employees, agents, contractors,
or invitees of this Lease; and
(d) any injury or damage to the person, property, or business of
Tenant, its employees, agents, contractors, or invitees entering upon the
Premises under the express or implied invitation of Tenant.
If any action or proceeding is brought against Landlord, its employees,
or agents by reason of any such claim for which Tenant has indemnified Landlord,
Tenant, upon written notice from Landlord, will defend the same at Tenant's
expense, with counsel reasonably satisfactory to Landlord.
21.2 Waiver and Release. Tenant, as a material part of the consideration
to Landlord for this Lease, by this Section 21.2 waives and releases all claims
against Landlord, its employees, and agents with respect to all matters for
which Landlord has disclaimed liability pursuant to the provisions of this
Lease.
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ARTICLE 22
SECURITY DEPOSIT
Intentionally deleted.
ARTICLE 23
QUIET ENJOYMENT
Landlord covenants and agrees with Tenant that so long as Tenant pays
the rent and observes and performs all the Terms, covenants, and conditions of
this Lease on Tenant's part to be observed and performed, Tenant may peaceably
and quietly enjoy the Premises subject, nevertheless, to the Terms and
conditions of this Lease, and Tenant's possession will not be disturbed by
anyone claiming by, through, or under Landlord.
ARTICLE 24
EFFECT OF SALE
A sale, conveyance, or assignment of the Building will operate to
release Landlord from liability from and after the effective date of such sale,
conveyance, or assignment upon all of the covenants, Terms, and conditions of
this Lease, express or implied, except those liabilities that arose prior to
such effective date, and, after the effective date of such sale, conveyance, or
assignment, Tenant will look solely to Landlord's successor in interest in and
to this Lease. This Lease will not be affected by any such sale, conveyance, or
assignment, and Tenant will attorn to Landlord's successor in interest to this
Lease, so long as such successor in interest assumes Landlord's obligations
under the Lease from and after such effective date.
ARTICLE 25
DEFAULT
25.1 Events of Default. The following events are referred to,
collectively, as "events of default" or, individually, as an "event of default":
(a) Tenant defaults in the due and punctual payment of rent, and
such default continues for five (5) days after written notice from Landlord;
however, Tenant will not be entitled to more than I written notice for monetary
defaults during any 12-month period, and if after such written notice any rent
is not paid when due, an event of default will be considered to have occurred
without further notice;
(b) Tenant vacates or abandons the Premises;
(c) This Lease or the Premises or any part of the Premises are
taken upon execution or by other process of law directed against Tenant, or are
taken upon or subject to any attachment by any creditor of Tenant or claimant
against Tenant, and said attachment is not discharged or disposed of within
fifteen (15) days after its levy;
(d) Tenant files a petition in bankruptcy or insolvency or for
reorganization or arrangement under the bankruptcy laws of the United States or
under any insolvency act of any state, or admits the material allegations of any
such petition by answer or otherwise, or is dissolved or makes an assignment for
the benefit of creditors;
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(e) Involuntary proceedings under any such bankruptcy law or
insolvency act or for the dissolution of Tenant are instituted against Tenant,
or a receiver or trustee is appointed for all or substantially all of the
property of Tenant, and such proceeding is not dismissed or such receivership or
trusteeship vacated within sixty (60) days after such institution or
appointment; or
(f) Tenant breaches any of the other agreements, Terms,
covenants, or conditions that this Lease requires Tenant to perform, and such
breach continues for a period of 30 days after written notice from Landlord to
Tenant or, if such breach cannot be cured reasonably within such 30-day period,
if Tenant fails to diligently commence to cure such breach within 30 days after
written notice from Landlord and to complete such cure within a reasonable time
thereafter.
25.2 Landlord's Remedies. If any one or more events of default set forth
in Section 25.1 occurs then Landlord has the right, at its election:
(a) To give Tenant written notice of Landlord's intention to
Terminate this Lease on the earliest date permitted by law or on any later date
specified in such notice, in which case Tenant's right to possession of the
Premises will cease and this Lease will be terminated, except as to Tenant's
liability, under this Lease existing as of such termination, as if the
expiration of the Term fixed in such notice were the end of the Term in which
event Landlord's damages shall be calculated pursuant to Section 25.4 below.
(b) Without further demand or notice, but in accordance with the
law, to reenter and take possession of the Premises or any part of the Premises,
repossess the same, expel Tenant and those claiming through or under Tenant, and
remove the effects of both or either, using such force for such purposes as may
be necessary, without being liable for prosecution, without being deemed guilty
of any manner of trespass, and without prejudice to any remedies for arrears of
Monthly Rent or other amounts payable under this Lease or as a result of any
preceding breach of covenants or conditions; or
(c) Without further demand or notice to cure any event of default
and to charge Tenant for the cost of effecting such cure, including without
limitation reasonable attorneys' fees and interest on the amount so advanced at
the rate set forth in Section 1.1(t), provided that Landlord will have no
obligation to cure any such event of default of Tenant.
Should Landlord elect to reenter as provided in subsection (b), or
should Landlord take possession pursuant to legal proceedings or pursuant to any
notice provided by law, Landlord may, from time to time, without Terminating
this Lease, relet the Premises or any part of the Premises in Landlord's or
Tenant's name, but for the account of Tenant, for such Term or Terms (which may
be greater or less than the period which would otherwise have constituted the
balance of the Term) and on such conditions and upon such other Terms (which may
include concessions of free rent and alteration and repair of the Premises) as
Landlord, in its reasonable discretion, may determine, and Landlord may collect
and receive the rent. Landlord will in no way be responsible or liable for any
failure to relet the Premises, or any part of the Premises, or for any failure
to collect any rent due upon such reletting. No such reentry or taking
possession of the Premises by Landlord will be construed as an election on
Landlord's part to Terminate this Lease
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unless a written notice of such intention is given to Tenant. No written notice
from Landlord under this Section or under a forcible or unlawful entry and
detainer statute or similar law will constitute an election by Landlord to
Terminate this Lease unless such notice specifically so states. Landlord
reserves the right following any such reentry or reletting, to exercise its
right to Terminate this Lease by giving Tenant such written notice, in which
event this Lease will Terminate as specified in such notice.
25.3 Certain Damages. In the event that Landlord does not elect to
Terminate this Lease as permitted in Section 25.2(a), but on the contrary elects
to take possession as provided in Section 25.2(b), Tenant will pay to Landlord
Monthly Rent and other sums as provided in this Lease that would be payable
under this Lease if such repossession had not occurred, less the net proceeds,
if any, of any reletting of the Premises after deducting all of Landlord's
reasonable expenses in connection with such reletting, including without
limitation all repossession costs, brokerage commissions, attorneys' fees,
expenses of employees, alteration and repair costs, and expenses of preparation
for such reletting. If, in connection with any reletting, the new Lease. Term
extends beyond the existing Term, or the Premises covered by such new Lease
include other Premises not part of the Premises, a fair apportionment of the
rent received from such reletting and the expenses occurred in connection with
such reletting, as provided in this Section will be made in determining the net
proceeds from such reletting, and any rent concessions will be equally
apportioned over the Term of the new Lease. Tenant will pay such rent and other
sums to Landlord monthly on the day on which the Monthly Rent would have been
payable under this Lease if possession had not been retaken, and Landlord will
be entitled to receive such rent and other sums from Tenant on each such day.
25.4 Continuing Liability After Termination. In the event this Lease is
terminated on account of the occurrence of an event of default, Landlord will be
entitled to recover against Tenant as damages for loss of the bargain and not as
a penalty:
(a) The worth at the time of award of the unpaid Rent that had
been earned at the time of termination;
(b) The worth at the time of award of the amount by which the
unpaid Rent that would have been earned after termination until the time of
award exceeds the amount of such rental loss that Tenant proves could have been
reasonably avoided by Landlord; and
(c) Any other amount necessary to compensate Landlord for all the
detriment proximately caused by Tenant's failure to perform its obligations
under this Lease or which in the ordinary course of things would be likely to
result therefrom.
The "worth at the time of award" of the amounts referred to in clauses
(a) and (b) above is computed by adding interest at the per annum interest rate
described in Section 1.1(t) on the date on which this Lease is Terminated from
the date of Termination until the time of the award. The "worth at the time of
award" of the amount referred to in clause (c) above is computed by discounting
such amount at the discount rate of the Federal Reserve Bank of San Francisco,
California, at the time of award plus 1%.
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25.5 Cumulative Remedies. Any suit or suits for the recovery of the
amounts and damages set forth in Sections 25.3 and 25.4 may be brought by
Landlord, from time to time, at Landlord's election, and nothing in this Lease
will be deemed to require Landlord to await the date upon which this Lease or
the Term would have expired had there occurred no event of default. Each right
and remedy provided for in this Lease is cumulative and is in addition to every
other right or remedy provided for in this Lease or now or after the Lease date
existing at law or in equity or by statute or otherwise, and the exercise or
beginning of the exercise by Landlord of any one or more of the rights or
remedies provided for in this Lease or now or after the Lease date existing at
law or in equity or by statute or otherwise will not preclude the simultaneous
or later exercise by Landlord of any or all other rights or remedies provided
for in this Lease or now or after the Lease date existing at law or in equity or
by statute or otherwise. All costs incurred by Landlord in collecting any
amounts and damages owing by Tenant pursuant to the provisions of this Lease or
to enforce any provision of this Lease, including reasonable attorneys' fees
from the date any such matter is turned over to an attorney, whether or not one
or more actions are commenced by Landlord, will also be recoverable by Landlord
from Tenant.
25.6 Waiver of Redemption. Tenant waives an right of redemption arising
as a result of Landlord's exercise of its remedies under this Article 25.
ARTICLE 26
AMENITIES
26.1 Parking. Parking is provided free of charge. However, if during the
Term of this Lease, or any extension thereof, Landlord is required to charge a
fee, collect a fee, tax, or assessment for parking by virtue of any mandate by
any governmental authority, Landlord agrees to give Tenant such notice as is
allowed by any such mandate.
26.2 Health and Fitness Facility.
(a) During the Term, Tenant shall have forty (40) free
memberships in Club 2000, the Building's on-site health and fitness facility.
Tenant shall have the right to buy additional memberships at the rate of $10.00
each annually.
(b) Tenant agrees that Tenant and its employees will abide by the
current rules and regulations of Club 2000 and will execute any required
applications, waivers and agreements as a condition for membership in Club 2000.
26.3 Cafeteria Use. Tenant shall have the right to use the cafeteria in
common with other tenants. In addition, Tenant may enter into an agreement
directly with the cafeteria operator relative to the Tenant's subsidizing the
cost of cafeteria services for the benefit of Tenant's employees.
26.4 Second Floor Reception AREA. Tenant will have use of second floor
reception area and reception desk as often as needed.
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ARTICLE 27
MISCELLANEOUS
27.1 No Offer. This Lease is submitted to Tenant on the understanding
that it will not be considered an offer and will not bind Landlord in any way
until Tenant has duly executed and delivered duplicate originals to Landlord and
Landlord has executed and delivered one of such originals to Tenant.
27.2 Joint and Several Liability. If Tenant is composed of more than one
signatory to this Lease, each signatory will be jointly and severally liable
with each other signatory for payment and performance according to this Lease.
The act of, written notice to, written notice from, refund to, or signature of
any signatory to this Lease (including without limitation modifications of this
Lease made by fewer than all such signatories) will bind every other signatory
as though every other signatory had so acted, or received or given the written
notice or refund, or signed.
27.3 No Construction Against Drafting Party. Landlord and Tenant
acknowledge that each of them and their counsel have had an opportunity to
review this Lease and that this Lease will not be construed against Landlord
merely because Landlord has prepared it.
27.4 Time of the Essence. Time is of the essence of each and every
provision of this Lease.
27.5 No Recordation. Tenant's recordation of this Lease or any
memorandum or short form of it will be void and a default under this Lease.
27.6 No Waiver. The waiver by Landlord of any agreement, condition, or
provision contained in this Lease will not be deemed to be a waiver of any
subsequent breach of the same or any other agreement, condition, or provision
contained in this Lease, nor will any custom or practice that may grow up
between the parties in the administration of the Terms of this Lease be
construed to waive or to lessen the right of Landlord to insist upon the
performance by Tenant in strict accordance with the Terms of this Lease. The
subsequent acceptance of rent by Landlord will not be deemed to be a waiver of
any preceding breach by Tenant of any agreement, condition, or provision of this
Lease, other than the failure of Tenant to pay the particular rent so accepted,
regardless of Landlord's knowledge of such preceding breach at the time of
acceptance of such rent.
27.7 Fair Market Rental Value.
(a) The term "Fair Market Rental Value," as it relates to Monthly
Rent for each Additional Term shall mean those terms being obtained at the time
that Fair Market Rental Value is being determined for leases commencing
generally around the first day of the ensuing Additional Term, by tenants of
comparable size, quality and financial strength to Tenant, for comparable space
and on comparable floors in buildings of comparable quality to the Building, in
comparable locations, and for a term comparable to that being considered by
Landlord and Tenant. Tenant concessions that are then generally available to
tenants under prevailing market
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conditions shall not be included as separate items; instead, the economic value
of any such tenant concessions shall be taken into consideration in setting Fair
Market Rental Value.
(b) Landlord shall notify Tenant of its good faith determination
of Fair Market Rental Value within thirty (30) days of Landlord's receipt of
Tenant's notice of Tenant's exercise of its Option to extend the Term. If Tenant
in good faith disputes Landlord's determination of Fair Market Rental Value, and
if such dispute is not resolved by negotiation between the parties within thirty
(30) days after Landlord's notice of Fair Market Rental Value is given, Fair
Market Rental Value shall be as determined by appraisal pursuant to subparagraph
(c) below.
(c) If Fair Market Rental Value is to be determined by appraisal,
within twenty (20) days after the expiration of the 30-day negotiation period,
Landlord and Tenant shall each appoint as an appraiser a real estate appraiser
who is a member of the Appraisal Institute with at least ten (10) years of
experience in appraising leasehold interests in office space in San Mateo
County, and give notice of such appointment to the other party. If either
Landlord or Tenant shall fail timely to appoint an appraiser, the appointed
appraiser shall select the second appraiser within ten (10) days after the
failure of Landlord or Tenant, as the case may be, to appoint its appraiser.
Such appraisers shall, within thirty (30) days after the appointment of the last
of them to be appointed, complete their determination of Fair Market Rental
Value based on the standard set forth in subparagraph (a) above, and submit
their appraisal reports separately and in writing to Landlord and Tenant. If the
valuations vary by 5% or less from their arithmetic average, the Fair Market
Rental Value shall be the arithmetic average of the two valuations. If the
valuations vary by more than 5% from their arithmetic average, tile two
appraisers shall, within ten (10) days after submission of the last appraisal
report, appoint a third appraiser who shall be similarly qualified. If the two
appraisers shall be unable to agree timely on the selection of a third appraiser
then either appraiser, on behalf of both, may request Such appointment by the
American Arbitration Association in San Francisco. Such appraiser shall, within
thirty (30) days after his appointment, make an independent determination of
Fair Market Rental Value and submit his appraisal report to Landlord and Tenant.
27.8 Estoppel Certificates. At any time and from time to time but within
15 days after prior written request by Landlord, Tenant will execute,
acknowledge, and deliver to Landlord, promptly upon request, a certificate
certifying (a) that this Lease is unmodified and in full force and effect or, if
there have been modifications, that this Lease is in full force and effect, as
modified, and stating the date and nature of each modification; (b) the date, if
any, to which rent and other sums payable under this Lease have been paid; (c)
that no written notice of any default has been delivered to Landlord which
default has not been cured, except as to defaults specified in said certificate;
(d) that there is no event of default under this Lease or an event which, with
notice or the passage of time, or both, would result in an event of default
under this Lease, except for defaults specified in said certificate; and (e)
such other matters as may be reasonably requested by Landlord. Any such
certificate may be relied upon by any prospective purchaser or existing or
prospective mortgagee or beneficiary under any deed of trust of the building or
any part of the project. Tenant's failure to deliver such a certificate within
such time will be conclusive evidence of the matters set forth in it.
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27.9 Waiver of Jury Trial. Landlord and Tenant by this Section 27.9
waive trial by jury in any action, proceeding, or counterclaim brought by either
of the parties to this Lease against the other on any matters whatsoever arising
out of or in any way connected with this Lease, the relationship of Landlord and
Tenant, Tenant's use or occupancy of the Premises, or any other claims (except
claims for personal injury or property damage), and any emergency statutory or
any other statutory remedy.
27.10 No Merger. The voluntary or other surrender of this Lease by
Tenant or the cancellation of this Lease by mutual agreement of Tenant and
Landlord or the Termination of this Lease on account of Tenant's default will
not work a merger, and will, at Landlord's option, (a) Terminate all or any
subleases and subtenancies or (b) operate as an assignment to Landlord of all or
any subleases or subtenancies. Landlord's option under this Section 27.10 will
be exercised by written notice to Tenant and all known sublessees or subtenants
in the Premises or any part of the Premises.
27.11 Holding Over. Tenant will have no right to remain in possession of
all or any part of the Premises after the expiration of the Term. If Tenant
remains in possession of all or any part of the Premises after the expiration of
the Term, with the express or implied consent of Landlord: (a) such tenancy will
be deemed to be a periodic tenancy from month-to-month only; (b) such tenancy
will not constitute a renewal or extension of this Lease for any further Term;
and (c) such tenancy may be Terminated by Landlord upon the earlier of thirty
(30) days' prior written notice or the earliest date permitted by law. In Such
event, Monthly Rent will be increased to an amount equal to 125% of the Monthly
Rent payable during, the last month of the Term, and any other sums due under
this Lease will be payable in the amount and at the times specified in this
Lease. Such month-to-month tenancy will be Subject to every other Term,
condition, and covenant contained in this Lease.
27.12 Notices. Any notice, request, demand, consent, approval, or other
communication required or permitted under this Lease must be in writing and will
be deemed to have been given when personally delivered, sent by facsimile with
receipt acknowledged, deposited with any nationally recognized overnight carrier
that routinely issues receipts, or deposited in any depository regularly
maintained by the United States Postal Service, postage prepaid, certified mail,
return receipt requested, addressed to the party for whom it is intended at its
address set forth in Section 1.1. Either Landlord or Tenant may add additional
addresses or change its address for purposes of receipt of any such
communication by giving ten (10) days' prior written notice of such change to
the other party in the manner prescribed in this Section 27.12.
27.13 Severability. If any provision of this Lease proves to be illegal,
invalid, or unenforceable, the remainder of this Lease will not be affected by
such finding, and in lieu of each provision of this Lease that is illegal,
invalid, or unenforceable a provision will be added as a part of this Lease as
similar in Terms to such illegal, invalid, or unenforceable provision as may be
possible and be legal, valid, and enforceable.
27.14 Written Amendment Required. No amendment, alteration, modification
of, or addition to the Lease will be valid or binding unless expressed in
writing and signed by Landlord and Tenant. Tenant agrees to make any
modifications of the Terms and provisions of this Lease
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required or requested by any lending institution providing financing for the
building, or project, as the case may be, provided that no such modifications
will materially adversely affect Tenant's rights and obligations under this
Lease.
27.15 Entire Agreement. This Lease, the exhibits and addenda, if any,
contain the entire agreement between Landlord and Tenant. No promises or
representations, except as contained in this Lease, have been made to Tenant
respecting the condition or the manner of operating the Premises, the building,
or the project.
27.16 Captions. The captions of the various articles and sections of
this Lease are for convenience only and do not necessarily define, limit,
describe, or construe the contents of such articles or sections.
27.17 Notice of Landlord's Default. In the event of any alleged default
in the obligation of Landlord under this Lease, Tenant will deliver to Landlord
written notice listing the reasons for Landlord's default and Landlord will have
thirty (30) days following receipt of such notice to cure such alleged default
or, in the event the alleged default cannot reasonably be cured within a 30-day
period, to commence action and proceed diligently to Cure such alleged default.
A copy of such notice to Landlord will be sent to any holder of a mortgage or
other encumbrance on the building or project of which Tenant has been notified
in writing, and any such holder will also have the same time periods to cure
such alleged default.
27.18 Authority. Tenant and the party executing this Lease on behalf of
Tenant represent to Landlord that such party is authorized to do so by requisite
action of the board of directors or partners, as the case may be, and agree upon
request to deliver to Landlord a resolution or similar document to that effect.
27.19 Brokers. Landlord and Tenant respectively represent and warrant to
each other that neither of them has consulted or negotiated with any broker or
finder with regard to the Premises except the broker named in Section 1.1, if
any. Each of them will indemnify the other against and hold the other harmless
from any claims for fees or commissions from anyone with whom either of them has
consulted or negotiated with regard to the Premises except the broker. Landlord
will pay any fees or commissions due the broker.
27.20 Governing Law. This Lease will be governed by and construed
pursuant to the laws of the state of California.
27.21 Late Payments. Any rent that is not paid when due will accrue
interest at a late rate charge of the Prime Rate plus 5% per annum (but in no
event in an amount in excess of the maximum rate allowed by applicable law) from
the date on which it was due until the date on which it is paid in full with
accrued interest.
27.22 No Easements for Air or Light. Any diminution or shutting off of
light, air, or view by any structure that may be erected on lands adjacent to
the building will in no way affect this Lease or impose any liability on
Landlord.
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27.23 Tax Credits. Landlord is entitled to claim all tax credits and
depreciation attributable to Leasehold improvements in the Premises. Promptly
after Landlord's demand, Landlord and Tenant will prepare a detailed list of the
Leasehold improvements and fixtures and their respective costs for which
Landlord or Tenant has paid. Landlord will be entitled to all credits and
depreciation for those items for which Landlord has paid by means of any Tenant
finish allowance or otherwise. Tenant will be entitled to any tax credits and
depreciation for all items for which Tenant has paid with funds not provided by
Landlord.
27.24 Relocation of the Premises. Landlord reserves the right to
relocate the Premises to substantially comparable space within the project,
pursuant to this Section 27.24. The definition "comparable space" will include
the elements of size, finishes and configuration as are reasonably attainable.
Landlord will give Tenant a written notice of its intention to relocate the
Premises, and Tenant will complete such relocation within 180 days after receipt
of such written notice. If the space to which Landlord proposes to relocate
Tenant is not substantially comparable to the Premises, Tenant may so notify
Landlord, and if Landlord fails to offer space satisfactory to Tenant, Tenant
may Terminate this Lease effective as of the 30th day after the date of
Landlord's initial written notice. If Tenant does relocate within the project,
then effective on the date of such relocation this Lease will be amended by
deleting the description of the original Premises and substituting for it a
description of such comparable space. Landlord agrees to reimburse Tenant for
its actual reasonable moving costs to such other space within the project, the
reasonable costs of reprinting stationery, and the costs of rewiring the new
Premises for telephone and computers comparably to the original Premises.
27.25 Financial Reports. Within fifteen (15) days after Landlord's
request, Tenant will furnish Tenant's most recent audited financial statements
(including any notes to them) to Landlord, or, if no such audited statements
have been prepared, such other financial statements (and notes to them) as may
have been prepared by an independent certified public accountant or, failing
those, Tenant's internally prepared financial statements. Tenant will discuss
its financial statements with Landlord and will give Landlord access to Tenant's
books and records in order to enable Landlord to verify the financial
statements. Landlord will not disclose any aspect of Tenant's financial
statements that Tenant designates to Landlord as confidential except (a) to
Landlord's lenders or prospective purchasers of the project, (b) in litigation
between Landlord and Tenant, and (c) if required by court order.
27.26 Fees.
(a) Landlord's Fees. Whenever Tenant requests Landlord to take
any action or give any consent required or permitted under this Lease, Tenant
will reimburse Landlord for all of Landlord's reasonable costs incurred in
reviewing the proposed action or consent, including without limitation
reasonable attorneys', engineers' or architects' fees, within ten (10) days
after Landlord's delivery to Tenant of a statement of such costs. Tenant will be
obligated to make such reimbursement without regard to whether Landlord consents
to any such proposed action.
(b) Tenant's Fees. Whenever Landlord requests Tenant to take any
action or give any consent required or permitted under this Lease, Landlord Will
reimburse Tenant for all of Tenant's reasonable costs incurred in reviewing the
proposed action or consent, including
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without limitation reasonable attorneys', engineers' or architects' fees, within
ten (10) days after Tenant's delivery to Landlord of a statement of such costs.
Landlord will be obligated to make such reimbursement without regard to whether
Tenant consents to any such proposed action.
27.27 Binding Effect. The covenants, conditions, and agreements
contained in this Lease will bind and inure to the benefit of Landlord and
Tenant and their respective heirs, distributees, executors, administrators,
successors, and, except as otherwise provided in this Lease, their assigns.
Landlord and Tenant have executed this Lease as of the day and year
first above written.
CALIFORNIA CASUALTY INDEMNITY EXCHANGE, a
California reciprocal interinsurance exchange
By: CALIFORNIA CASUALTY MANAGEMENT COMPANY
Its: Attorney-in-Fact and Manager
Date: November 22, 1996 /s/ RICHARD P. MULLER
--------------------------------------------------
By: Richard P. Muller
Its: Assistant Vice President and Real Estate
Manager
ELOQUENT, INC., a Delaware corporation
Date: November 22, 1996 /s/ BRUCE A. FORGRIEVE
--------------------------------------------------
By: Bruce A. Forgrieve
Its: Vice President of Operations and Finance
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EXHIBIT B
Legal Description of the Land
The legal description of the 2000 Alameda de las Pulgas building is as
follows:
Parcel Two as designated on the map entitled "Parcel Map 261," which
Parcel Map was filed in the office of the recorder of San Mateo County, State of
California on June 5, 1984, in Book 54 of Parcel Maps at Page 67.
See Exhibit B, page 2, for illustration of description of land.
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EXHIBIT C
RULES AND REGULATIONS
1. Landlord may from time to time adopt appropriate systems and
procedures for the security or safety of the building, any persons occupying,
using, or entering the building, or any equipment, finishings, or contents of
the building, and Tenant will comply with Landlord's reasonable requirements
relative to such systems and procedures.
2. The sidewalks, halls, passages, exits, entrances, elevators, and
stairways of the building will not be obstructed by any Tenants or used by any
of them for any purpose other than for ingress to and egress from their
respective Premises. The halls, passages, exits, entrances, elevators,
escalators, and stairways are not for the general public, and Landlord will in
all cases retain the right to control and prevent access to such halls,
passages, exits, entrances, elevators, and stairways of all persons whose
presence in the judgment of Landlord would be prejudicial to the safety,
character, reputation, and interests of the building and its Tenants, provided
that nothing contained in these rules and regulations will be construed to
prevent such access to persons with whom any Tenant normally deals in the
ordinary course of its business, unless such persons are engaged in illegal
activities. No Tenant and no employee or invitee of any Tenant will go upon the
roof of the building, except such roof or portion of such roof as may be
contiguous to the Premises of a particular Tenant and may be designated in
writing by Landlord as a roof deck or roof garden area. No Tenant will be
permitted to place or install any object (including without limitation radio and
television antennas, loudspeakers, sound amplifiers, microwave dishes, solar
devices, or similar devices) on the exterior of the building or on the roof of
the building.
3. No sign, placard, picture, name, advertisement, or written notice
visible from the exterior of Tenant's Premises will be inscribed, painted,
affixed, or otherwise displayed by Tenant on any part of the building or the
Premises without the prior written consent of Landlord. Landlord will adopt and
furnish to Tenant general guidelines relating to signs inside the building on
the office floors. Tenant agrees to conform to such guidelines. All approved
signs or lettering on doors will be printed, painted, affixed, or inscribed at
the expense of the Tenant by a person approved by Landlord. Other than draperies
expressly permitted by Landlord and building standard mini-blinds, material
visible from outside the building will not be permitted. In the event of the
violation of this rule by Tenant, Landlord may remove the violating items
without any liability, and may charge the expense incurred by such removal to
the Tenant or Tenants violating this rule.
4. No cooking will be done or permitted by any Tenant on the Premises,
except in areas of the Premises which are specially constructed for cooking and
except that use by the Tenant of microwave ovens and Underwriters' Laboratory
approved equipment for brewing coffee, tea, hot chocolate, and similar beverages
will be permitted, provided that such use is in accordance with all applicable
federal, state, and city laws, codes, ordinances, rules, and regulations.
5. No Tenant will employ any person or persons other than the cleaning
service of Landlord for the purpose of cleaning the Premises, unless otherwise
agreed to by Landlord in writing. Except with the written consent of Landlord,
no person or persons other than those
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approved by Landlord will be permitted to enter the building for the purpose of
cleaning it. No Tenant will cause any unnecessary labor by reason of such
Tenant's carelessness or indifference in the preservation of good order and
cleanliness. Should Tenant's actions result in any increased expense for any
required cleaning, Landlord reserves the right to assess Tenant for such
expenses.
6. The toilet rooms, toilets, urinals, wash bowls and other plumbing
fixtures will not be used for any purposes other than those for which they were
constructed, and no sweepings, rubbish, rags, or other foreign substances will
be thrown in such plumbing fixtures. All damages resulting from any misuse of
the fixtures will be borne by the Tenant who, or whose servants, employees,
agents, visitors, or licensees, caused the same.
7. No Tenant will in any way deface any part of the Premises or the
building of which they form a part. In those portions of the Premises where
carpet has been provided directly or indirectly by Landlord, Tenant will at its
own expense install and maintain pads to protect the carpet under all furniture
having casters other than carpet casters.
8. No Tenant will alter, change, replace, or re-key any lock or install
a new lock or a knocker on any door of the Premises. Landlord, its agents, or
employees will retain a pass (master) key to all door locks on the Premises. Any
new door locks required by Tenant or any change in keying of existing locks will
be installed or changed by Landlord following Tenant's written request to
Landlord and will be at Tenant's expense. All new locks and re-keyed locks will
remain operable by Landlord's pass (master) key. Landlord will furnish each
Tenant, free of charge, with a reasonably appropriate number of keys to each
door lock on the Premises and a reasonably appropriate number of building/area
access cards. Landlord will have the right to collect a reasonable charge for
additional keys and cards requested by any Tenant. Each Tenant, upon Termination
of its tenancy, will deliver to Landlord all keys and access cards for the
Premises and building that have been furnished to such Tenant.
9. The elevator designated for freight by Landlord will be available for
use by all Tenants in the building during, the hours and pursuant to such
procedures as Landlord may determine from time to time. The persons employed to
move Tenant's equipment, material, furniture, or other property in or out of the
building must be acceptable to Landlord. The moving company must be a locally
recognized professional mover, whose primary business is the performing of
relocation services, and must be bonded and fully insured. A certificate or
other verification of such insurance must be received and approved by Landlord
prior to the start of any moving operations. Insurance must be sufficient, in
Landlord's sole opinion, to cover all personal liability, theft or damage to the
project, including, but not limited to floor coverings, doors, walls, elevators,
stain, foliage, and landscaping. Special care must be taken to prevent damage to
foliage and landscaping during adverse weather. All moving operations will be
conducted at such times and in such a manner as Landlord will direct, and all
moving will take place during non-business hours unless Landlord agrees in
writing otherwise. Tenant will be responsible for the provision of building
security during all moving operations, and will be liable for all losses and
damages sustained by any party as a result of the failure to supply adequate
security. Landlord will have the right to prescribe the weight, size, and
position of all equipment, materials, furniture, or other property brought into
die building. Heavy objects will, if considered necessary by Landlord, stand on
wood strips of such thickness as is necessary to properly distribute the weight.
Landlord will
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not be responsible for loss of or damage to any such property from any cause,
and all damage done to the building by moving or maintaining such property will
be repaired at the expense of Tenant. Landlord reserves the right to inspect all
such property to be brought into the building and to exclude from the building
all such property which violates any of these rules and regulations or the Lease
of which these rules and regulations are a part. Supplies, goods, materials,
packages, furniture, and all other items of every kind delivered to or taken
from the Premises will be delivered or removed through the entrance and route
designated by Landlord, and Landlord will not be responsible for the loss or
damage of any such property unless such loss or damage results from the
negligence of Landlord, its agents, or employees.
10. No Tenant will use or keep in the Premises or the building any
kerosene, gasoline, or inflammable or combustible or explosive fluid or material
or chemical substance other than limited quantities of such materials or
substances reasonably necessary for the operation or maintenance of office
equipment or limited quantities of cleaning fluids and solvents required in
Tenant's normal operations in the Premises. Without Landlord s prior written
approval, no Tenant will use any method of heating or air conditioning other
than that supplied by Landlord. No Tenant will use or keep or permit to be used
or kept any foul or noxious gas or substance in the Premises.
11. Landlord will have the right, exercisable upon written notice and
without liability to any Tenant, to change the name and street address of the
building.
12. Landlord will have the right to prohibit any advertising by Tenant
mentioning the building that, in Landlord's reasonable opinion, tends to impair
the reputation of the building or its desirability as a building for offices,
and upon written notice from Landlord, Tenant will refrain from or discontinue
such advertising.
13. Tenant will not bring any animals (except "Seeing Eye" dogs) or
birds into the building, and will not permit bicycles or other vehicles inside
or on the sidewalks outside the building except in areas designated from time to
time by Landlord for such purposes.
14. All persons entering or leaving the building between the hours of 6
p.m. and 7 a.m. Monday through Friday, and at all hours on Saturdays, Sundays,
and holidays will comply with such off-hour regulations as Landlord may
establish and modify from time to time. Landlord reserves the right to limit
reasonably or restrict access to the building during such time periods.
15. Each Tenant will store all its trash and garbage within its
Premises. No material will be placed in the trash boxes or receptacles if such
material is of such nature that it may not be disposed of in the ordinary and
customary manner of removing and disposing of trash and garbage without being in
violation of any law or ordinance governing such disposal. All garbage and
refuse disposal will be made only through entryways and elevators provided for
such purposes and at such times as Landlord designates. Removal of any furniture
or furnishings, large equipment, packing crates, packing materials, and boxes
will be the responsibility of each Tenant and such items may not be disposed of
in the building trash receptacles nor will they be removed by the building's
janitorial service, except at Landlord's sole option and at the Tenant's
expense.
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No furniture, appliances, equipment, or flammable products of any type may be
disposed of in the building trash receptacles.
16. Canvassing, peddling, soliciting, and distributing handbills or any
other written materials in the building are prohibited, and each Tenant will
cooperate to prevent the same.
17. The requirements of the Tenants will be attended to only upon
application by written, personal, or telephone notice at the office of the
building. Employees of Landlord will not perform any work or do anything outside
of their regular duties unless under special instructions from Landlord.
18. A directory of the building, will be provided for the display of the
name and location of Tenants only and such reasonable number of the principal
officers and employees of Tenants as Landlord in its sole discretion approves,
but Landlord will not in any event be obligated to furnish more than one (1)
directory strip for each 2,500 square feet of rentable area. in the Premises.
Any additional name(s) that Tenant desires to place in such directory must first
be approved by Landlord, and if so approved, Tenant will pay to Landlord a
charge, set by Landlord, for each such additional name. All entries on the
building directory display will conform to standards and style set by Landlord
in its sole discretion. Space on any exterior signage will be provided in
Landlord's sole discretion. No Tenant will have any right to the use of any
exterior sign.
19. Tenant will see that the doors of the Premises are closed and locked
and that all water faucets, water apparatus, and utilities are shut off before
Tenant or Tenant's employees leave the Premises, so as to prevent waste or
damage, and for any default or carelessness in this regard Tenant will make good
all injuries sustained by other Tenants or occupants of the building or
Landlord. On multiple-tenancy floors, all Tenants will keep the doors to the
building corridors closed at all times except for ingress and egress.
20. Tenant will not conduct itself in any manner that is inconsistent
with the character of the building as a first quality building or that will
impair the comfort and convenience of other Tenants in the building.
21. Neither Landlord nor any operator of the parking areas within the
project, as the same are designated and modified by Landlord, in its sole
discretion, from time to time (the "parking areas") will be liable for loss of
or damage to any vehicle or any contents of such vehicle or accessories to any
such vehicle, or any property left in any of the parking areas, resulting from
fire, theft, vandalism, accident, conduct of other users of the parking areas
and other persons, or any other casualty or cause. Further, Tenant understands
and agrees that: (a) Landlord will not be obligated to provide any traffic
control, security protection or operator for the parking areas; (b) Tenant uses
the parking areas at its own risk; and (c) Landlord will not be liable for
personal injury or death, or theft, loss of, or damage to property. Tenant
waives and releases Landlord from any and all liability arising out of the use
of the parking areas by Tenant, its employees, agents, invitees, and visitors,
whether brought by any of such persons or any other person.
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22. Tenant (including Tenant's employees, agents, invitees, and
visitors) will use the parking spaces solely for the purpose of parking
passenger model cars, small vans, and small trucks and will comply in all
respects with any rules and regulations that may be promulgated by Landlord from
time to time with respect to the parking areas. The parking areas may be used by
Tenant, its agents, or employees, for occasional overnight parking of vehicles.
Tenant will ensure that any vehicle parked in any of the parking spaces will be
kept in proper repair and will not leak excessive amounts of oil or grease or
any amount of gasoline. If any of the parking spaces are at any time used (a)
for any purpose other than parking as provided above; (b) in any way or manner
reasonably objectionable to Landlord; or (c) by Tenant after default by Tenant
under the Lease, Landlord, in addition to any other rights otherwise available
to Landlord, may consider such default an event of default under the Lease.
23. Tenant's right to use the parking areas will be in common with other
Tenants of the project and with other parties permitted by Landlord to use the
parking areas. Landlord reserves the right to assign and reassign, from time to
time, particular parking spaces for use by. persons selected by Landlord,
provided that Tenant's rights under the Lease are preserved. Landlord will not
be liable to Tenant for any unavailability of Tenant's designated spaces, if
any, nor will any unavailability entitle Tenant to any refund, deduction, or
allowance. Tenant will not park in any numbered space or any space designated
as: RESERVED, HANDICAPPED, VISITORS ONLY, or LIMITED TIME PARKING (or similar
designation).
24. If the parking areas are damaged or destroyed, or if the use of the
parking areas is limited or prohibited by any governmental authority, or the
use. or operation of the parking areas is limited or prevented by strikes or
other labor difficulties or other causes beyond Landlord's control, Tenant's
inability to use the parking spaces will not subject Landlord or any operator of
the parking areas to any liability to Tenant and will not relieve Tenant of any
of its obligations under the Lease and the Lease will remain in full force and
effect.
25. Tenant has no right to assign or sublicense any of its rights in the
parking spaces, except as part of a permitted assignment or sublease of the
Lease; however, Tenant may allocate the parking spaces among its employees.
26. Tenant may not repair (except for emergency repairs necessary for
removal of the vehicle), wash or detail automobiles in the parking garage, in
uncovered parking spaces.
27. No act or thing done or omitted to be done by Landlord or Landlord's
agent during the Term of the Lease in connection with the enforcement of these
rules and regulations will constitute an eviction by Landlord of any Tenant nor
will it be deemed an acceptance of surrender of the Premises by any Tenant, and
no agreement to accept such Termination or surrender will be valid unless in a
writing signed by Landlord. The delivery of keys to any employee or agent of
Landlord will not operate as a Termination of the Lease or a surrender of the
Premises unless such delivery of keys is done in connection with a written
instrument executed by Landlord approving the Termination or surrender.
28. In these rules and regulations, Tenant includes tile employees,
agents, invitees, and licensees of Tenant and others permitted by Tenant to use
or occupy the Premises.
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29. Landlord may waive any one or more of these rules and regulations
for the benefit of any particular Tenant or Tenants, but no such waiver by
Landlord will be construed as a waiver of such rules and regulations in favor of
any other Tenant or Tenants, nor prevent Landlord from enforcing any such rules
and regulations against any or all of the Tenants of the building after such
waiver.
30. These rules and regulations are in addition to, and will not be
construed to modify or amend, in whole or in part, the Terms, covenants,
agreements, and conditions of the Lease.
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EXHIBIT D
WORKLETTER
Landlord will provide $10.00 per usable square foot ($173,400) for Tenant's
interior improvements to all leased spaces. Such build-out shall include all
hard and soft costs actually incurred by Tenant in constructing the interior
improvements including, but not limited to, labor, materials, architectural fee
and permits. Tenant agrees to use Landlord's architect provided its fees are
competitive with other architects in the marketplace. Landlord will engage and
pay contractor up to the Tenant improvement allowance. In the event the total
costs exceed the Tenant improvement allowance, Tenant shall pay to Landlord the
amount exceeding the Tenant improvement allowance upon completion of the Tenant
improvements.
Within twenty (20) days from the full execution of the Lease, Tenant shall
provide Landlord with preliminary floor plans showing the improvements
contemplated for Suite 240. Within sixty (60) days of full execution of the
Lease, Tenant shall provide Landlord with preliminary floor plans for the
balance of the space; Suites 144, 131, and 130.
Prior to submitting final working, drawings to the City of San Mateo for a
building permit, Tenant will submit the drawings to Landlord. After reviewing
the drawings, Landlord will present a preliminary budget to Tenant. If Tenant
deems the budget number unacceptable, Tenant may alter the scope of the planned
work or may request that Landlord put the planned work out to bid. If requested,
Landlord will then solicit bids from at least three (33) contractors to perform
the Tenant improvement work. Tenant shall then choose the contractor to perform
such work. Any changes or modifications to the plans that affect the cost must
be approved by the parties in writing (specifying the changes and cost
implications) in advance of such work being implemented.
Upon material completion of the work set forth above for each of the suites, the
parties shall walk through the area to confirm the work has been completed as
set forth in the plan(s). If the work is deemed to be materially complete by the
parties, they shall execute a commencement letter that shall serve as the
effective date for calculating the rent. In addition, any non-material items
shall be set forth in a punch list determined by Tenant within thirty (30) days
after the commencement letter has been executed by Landlord and Tenant. Landlord
shall complete the punch list as soon as commercially reasonable; however, in no
event later than sixty (60) days after the commencement letter's full execution.
D-1
<PAGE> 45
EXHIBIT E
CALIFORNIA CASUALTY INDEMNITY EXCHANGE
2000 BUILDING 1997 OPERATING EXPENSE BUDGET
<TABLE>
<CAPTION>
TOTAL
<S> <C>
Electricity $432,000
Gas 38,400
Water 6,000
Janitorial Services 132,000
Maintenance Others 0
Supplies 38,532
HVAC Repair 69,600
Electrical Repair 6,000
Plumbing Repair 3,252
Elevator Repair & Maintenance 9,600
Roof Repair & Maintenance 11,500
Parking Lot Repair & Maintenance 20,930
Misc. Repair & Maintenance 47,880
Consulting Fees 11,000
Other Admin. Costs 172,812
Insurance 144,000
Landscape Services 39,600
Trash Removal 22,800
Security 192,000
Window Cleaning 6,000
Misc. Services (Contingency) 3,936
----------
$1,407,842
/ 134,761
----------
$10.45 psf
</TABLE>
E-1
<PAGE> 46
FIRST AMENDMENT TO OFFICE LEASE
This First Amendment to Office Lease (the "Amendment"), effective March
20, 1997, is entered into by and between California Casualty Indemnity Exchange
("Landlord"), and Eloquent, Inc. ("Tenant").
RECITALS
a. Tenant has leased 17,340 useable square feet or 19942 rentable square
feet of office space from Landlord in the building commonly known as 2000
Alameda de las Pulgas, San Mateo, San Mateo County, California (the "Building"),
pursuant to a written lease dated November 19, 1996 (the "Lease"); and
b. Because of delays in occupancy related to the completion of the
tenant improvements, Tenant and Landlord mutually desire to amend the Lease to
conform the Lease provisions with the planned completion of the tenant
improvements.
THEREFORE, in consideration of the mutual promises, agreements,
covenants, and undertakings set forth below, the parties hereby agree as
follows:
AGREEMENT
1. COMMENCEMENT DATE
The Commencement Date as described in Section 1.1(g) of the Lease is
amended to June 9, 1997 which will also be deemed as the completion date for the
tenant improvements regardless of the actual completion date.
2. EXPIRATION DATE
The Expiration Date as described in Section 1.1(h) shall be amended to
May 31, 2002.
3. PREPAID RENT
Section 1.1 (w) describes prepaid rent in the amount of $123,640.40
which shall be applied to the rent due for the months of April and May of 2002.
Landlord has also received $15,402.75 which will be applied against the rent for
the partial month of June and a portion of the rent due for July of 1997.
Receipt of said prepaid rent has been acknowledged by tile Landlord.
1
<PAGE> 47
4. TENANT IMPROVEMENTS
Landlord will provide Tenant with a tenant improvement allowance of
$12.00 per useable square foot for Tenant's improvements to all interior spaces.
This new tenant allowance will replace the amount of the allowance contained in
Section 1.1(aa).
5. MONTHLY RENT
Section 1.1(j) shall be replace in its entirety with the following:
<TABLE>
<CAPTION>
MONTHS RATE/SQ. FT. /MONTH
<S> <C>
1-12 $2.79 Fully Serviced
13-24 $2.87 Fully Serviced
25-36 $2.96 Fully Serviced
37-48 $3.05 Fully Serviced
49-60 $3.14 Fully Serviced
</TABLE>
6. LANDLORD MANAGEMENT OF TENANT IMPROVEMENTS
Landlord shall enter into a construction contract with a contractor for
the purpose of completing the tenant improvements. Tenant shall compensate
Landlord for the effort and risk assumed by the Landlord in the amount of $6,146
for these services. This fee shall be payable on the Commencement Date of the
Lease.
7. LEGAL EFFECT
Except as amended by this Amendment, the Lease is unchanged and, as so
amended, the Lease shall remain in full force and effect.
IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Second
Amendment to Office Lease.
Tenant: Eloquent, Inc.
Dated: /s/ BRUCE A. FORGRIEVE
-------- -------------------------------
By: Bruce A. Forgrieve,
Its: Vice President of Operations and Finance
2
<PAGE> 48
LANDLORD: CALIFORNIA CASUALTY INDEMNITY
Exchange, a California reciprocal inter-insurance exchange
By: CALIFORNIA CASUALTY MANAGEMENT COMPANY
Its: Attorney-in-Fact and Manager
Date: May 7, 1997 /s/ RICHARD P. MULLER
----------- -------------------------------
By: Richard P. Muller
Its: Assistant Vice President and Real Estate
Manager
3
<PAGE> 49
SECOND AMENDMENT TO OFFICE LEASE
THIS SECOND AMENDMENT TO OFFICE LEASE (the "Amendment"), effective June
1, 1997, is entered into by and between CALIFORNIA CASUALTY INDEMNITY EXCHANGE
("Landlord"), and ELOQUENT, INC. ("Tenant").
RECITALS
a. Tenant has leased 17,340 useable square feet or 19942 rentable square
feet of office space from Landlord in the building commonly known as 2000
Alameda de las Pulgas, San Mateo, San Mateo County, California (the "Building"),
pursuant to a written lease dated November 19, 1996 and amended by the First
Amendment to Office Lease effective March 20, 1997 (collectively the "Lease");
and
b. Because of delays caused by Tenant resolving issues related to its
occupancy of Suite 130 and 131, Tenants requests and Landlord agrees to amend
the Lease to conform the Lease provisions with the planned completion of the
Suites 130 and 131 tenant improvements.
THEREFORE, in consideration of the mutual promises, agreements,
covenants, and undertakings set forth below, the parties hereby agree as
follows:
AGREEMENT
1. COMMENCEMENT DATE
The Commencement Date as described in Section 1.l(g) of the Lease is
amended to July 1, 1997 for Suites 130 and 131 which will also be deemed as the
completion date for the tenant improvements regardless of the actual completion
date. The Commencement Date for Suites 144 and 240 will remain as June 9, 1997.
2. EXPIRATION DATE
The Expiration Date as described in Section 1.1(h) shall remain as May
31, 2002 for the entire Premises.
3. LEGAL EFFECT
Except as amended by this Amendment, the Lease is unchanged and, as so
amended, the Lease shall remain in full force and effect.
1
<PAGE> 50
IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Second
Amendment to Office Lease.
Tenant: Eloquent, Inc.
Date: June 24, 1997 /s/ BRUCE A. FORGRIEVE
------------- --------------------------------------------------
By: Bruce A. Forgrieve,
Its: Vice President of Operations and Finance
Landlord: California Casualty Indemnity
Exchange, a California reciprocal interinsurance exchange
By: California Casualty Management Company
Its: Attorney-in-Fact and Manager
Date: June 13, 1997 /s/ RICHARD P. MULLER
------------- --------------------------------------------------
By: Richard P. Muller
Its: Assistant Vice President and Real Estate
Manager
2
<PAGE> 51
EXHIBIT A.1
[Suite 240 Floor Plan]
A-1
<PAGE> 52
EXHIBIT A.2
[Suite 144 Floor Plan]
A-2
<PAGE> 53
EXHIBIT A.3
[Suite 131 Floor Plan]
A-3
<PAGE> 54
EXHIBIT A.4
[Suite 130 Floor Plan]
A-4
<PAGE> 55
EXHIBIT B
[Map]
B-2
<PAGE> 56
THIRD AMENDMENT TO OFFICE LEASE
This Third Amendment to Office Lease (the "Amendment"), effective February
1, 1998 (the "Effective Date"), is entered into by and between California
Casualty Indemnity Exchange (the "Landlord"), and Eloquent, Inc. (the "Tenant").
RECITALS
a. Tenant has leased 17,340 useable square feet or 19,942 rentable
square feet of office space from Landlord in the building commonly known as 2000
Alameda de las Pulgas, San Mateo, San Mateo County, California (the
"Building"), pursuant to a written office lease dated November 19, 1996 and
amended by the First Amendment to Office Lease effective March 20, 1997 and
Second Amendment to Office Lease effective June 1, 1997 (collectively the
"Lease"); and
b. To accommodate the request of Tenant to create an extended payment
method to satisfy all of Tenant's remaining unpaid Tenant Improvement
obligations under the Lease, Landlord is willing to enter into this payment
arrangement.
Therefore, in consideration of the mutual promises, agreements, covenants,
and undertakings set forth below, the parties hereby agree as follows:
AGREEMENT
1. Monthly Rent
The term Monthly Rent, as described in the Office Lease at Section 1.1(j),
shall be amended as follows for payments beginning with March 1, 1998 and
continuing through the remaining term of the Lease:
<TABLE>
<CAPTION>
Months Rate/Sq. Ft./Month
- ------ --------------------
<S> <C>
10-12 $2.86 Fully Serviced
13-24 $2.94 Fully Serviced
25-36 $3.03 Fully Serviced
37-48 $3.12 Fully Serviced
49-60 $3.21 Fully Serviced
</TABLE>
2. Additional Payment
On or before February 15, 1998, Tenant shall pay to Landlord the sum of
$46,000.000 which shall be considered as Additional Rent under the Lease.
3. The Tenant's share of the Tenant Improvements shall be satisfied in
full through the payments made under this Third Amendment to Office Lease.
<PAGE> 57
4. Landlord hereby agrees to amend Paragraph 4 of the Consent to
Installation and Removal of Personal Property Agreement between California
Casualty Indemnity Exchange and Lighthouse Capital Partners dated effective
12/23/97 such that Tenant may finance with Lighthouse Capital Partners the
payment of $46,000 set forth in paragraph 2 of this Third Amendment to Office
Lease.
5. Legal Effect.
Except as amended by this Amendment, the Lease is unchanged and, as so
amended, the Lease shall remain in full force and effect.
IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Third
Amendment to Office Lease.
Tenant: Eloquent, Inc., a Delaware corporation
/s/ BRUCE A. FORGRIEVE
Dated: 2-6-98 ------------------------------------------------
By: Bruce A. Forgrieve
Its: Vice President of Operations and Finance
Landlord: California Casualty Indemnity Exchange
A California Reciprocal Inter-Insurance Exchange
Dated: 2-5-98 By: California Casualty Management Company
Its: Attorney in Fact and Manager
/s/ RICHARD P. MULLER
------------------------------------------------
By: Richard P. Muller
Its: Assistant Vice President
and Real Estate Manager
2
<PAGE> 1
EXHIBIT 10.13
SEARCH'97(TM) OEM AGREEMENT
BETWEEN
VERITY, INC.
894 ROSS DRIVE
SUNNYVALE, CALIFORNIA 94089
("VERITY")
AND
ELOQUENT, INC.
("LICENSEE")
1710 SOUTH AMPHLETT BLVD., SUITE 200
SAN MATEO, CALIFORNIA 94402-2703
1. DEFINITIONS. Certain of the defined terms used in this Agreement are as
follows:
1.1 "SOFTWARE" means the computer software, in object code form only,
which Verity owns or has the right to license to Licensee under this Agreement,
including the Development Software and the Run-Time Software, for use in
connection with Application. The specific Verity products incorporating the
Software to be licensed to Licensee are listed in Exhibit A.
1.2 "RUN-TIME SOFTWARE" means the portion of the Software which must be
incorporated in the Application to execute the search, retrieval and other
functionality of the Software.
1.3 "DEVELOPMENT SOFTWARE" means the tools and other portions of the
Software (including, without limitation, LIBVDL(#).LIB and LIBVDL(#).a code)
which are used to incorporate the Run-Time Software in the Application and
enable the Run-Time Software to provide search, retrieval and other
functionality within the Application.
1.4 "DOCUMENTATION" means the documentation, instructions and user's
guides, including updates thereto, relating to the Software, whether in printed
or electronic format, provided by Verity to Licensee for the purposes of this
Agreement.
1.5 "APPLICATION" means the software application program, including
content or data owned or licensed by Licensee from third parties, which is
developed by Licensee with the use of the Development Software and which
executes the Run-Time Software for the purposes described in Exhibit C. The
Application shall be enabled solely for the "Basic Search" and "Advanced Search"
functionality (as defined in Exhibit A) incorporated in the Software. The
Application shall not provide direct or exposed access to the development tools
or capabilities of the Development Software. The Application shall access,
modify, and/or manipulate only those Collections which it creates.
1.6 "COLLECTIONS" means the data structures created by Software and
required for the Run-Time Software to operate.
1.7 "PLATFORM" means a binary compatible combination of hardware and
operating system software supported by Verity that will run the Software and the
associated Application. The supported Platforms upon which Licensee may operate
the Software and the Application are set forth in Exhibit C.
1.8 "TERRITORY" means worldwide.
2. LICENSE GRANT.
1
<PAGE> 2
2.1 APPOINTMENT OF LICENSEE. Verity appoints Licensee as a Search'97Tm
OEM and, subject to the terms and conditions of this Agreement, grants to
Licensee certain rights to the Software during the term of the Agreement, as set
forth below. The parties acknowledge that the Software may contain software
licensed by Verity from third parties (the "Verity Licensors. Verity reserves
all rights not expressly granted hereunder.
2.2 THE DEVELOPMENT SOFTWARE.
2.2.1 DEVELOPMENT OF APPLICATION. Verity grants to Licensee a
nonexclusive and nontransferable right to use the Development Software on the
Platforms at Licensee's locations solely in the United States and solely for
internal development of the Application and related internal demonstration and
training of its personnel. In connection with such use, Licensee shall have the
right to make a reasonable number of copies of the Development Software for
normal backup and archival purposes only.
2.3 APPLICATION DISTRIBUTION. Verity grants to Licensee a nonexclusive
and nontransferable right to use, market, reproduce and distribute the Run-Time
Software solely as an embedded component of the Application and only in the
Territory. Licensee's right to distribute the Application is limited to those
persons who sublicense the Application for their own business or personal use
("End Users") and those persons who sublicense the Application for
redistribution to End Users ("Resellers"). To help assure quality, the
Application may only be licensed for use on the Platforms. Licensee acknowledges
that Licensee has no right to use, or sublicense others to use, the Software for
any dial-up, remote access, interactive, Internet-based or other on-line service
except that Licensee does have the right to use and sublicense Resellers and End
Users the Application for any dial up, remote access, interactive, Internet
based, extranet based, intranet based or other on-line service, provided that
such is made via the use of the Licensee Application on the client as well as on
the server site.
2.4 DOCUMENTATION. Verity grants to Licensee a nonexclusive and
nontransferable right to reproduce the Documentation only in the United States
solely: (i) to distribute the End User portions of the Documentation in the
Territory with the Application and (ii) for use internally by Licensee's
personnel in the United States in connection with the support of the
Application.
2.5 SUBLICENSE RIGHTS.
(a) REPRODUCTION. Licensee may sublicense its right to reproduce
the Application and the Documentation only to subcontractors (other than
Resellers) in the United States who agree in writing to be bound by terms
substantially similar to Section 9 ("Confidentiality"). Licensee and its
subcontractors will manufacture each copy of the media containing, the Software
under a quality assurance program designed to accurately reproduce the
Application without introduction of a virus or other embedded device or code in
the Software (e.g., back door, time bomb, Trojan Horse or worm) that is intended
to obstruct or prevent use of the Software.
(b) SUBLICENSE AGREEMENTS. Any distribution of the Application
shall be accomplished under a license agreement ("Sublicense Agreement") between
the Licensee and the person to whom the distribution is made. Each Sublicense
Agreement pertaining to a distribution to a Reseller (including Resellers
through multiple tiers of distribution) shall be signed by the Reseller and
shall contain terms and conditions at least as protective of Verity's
proprietary rights as the terms and conditions of this Agreement, including,
without limitation, the applicable provisions of Sections 2.3 (subject to
section 2.5(a)), 7, 8, 9, 10 (disclaimer only), 11.2, 12, 13, 15.4, 15.6 and
15.7. Any Sublicense Agreement pertaining to a distribution to an End User in
the United States may be through a shrink-wrap substantially in the form
attached as Exhibit D, so long as the End User is required to take an
affirmative act of consent to the terms of such shrink-wrap by opening the
Application package or clicking a button to initiate installation only after an
opportunity to view the applicable terms and conditions. Licensee will promptly
notify Verity of any violation of a Sublicense Agreement of which it becomes
aware, and will take commercially reasonable efforts to enforce each Sublicense
Agreement with at least the same degree of diligence used in enforcing similar
agreements governing end users of Licensee's own products. Such Sublicense
Agreements shall also state that Verity is a third party beneficiary of such
agreements with respect to provisions relating to use of the Application, and
that such provisions are also enforceable by Verity.
2
<PAGE> 3
2.6 SAMPLE APPLICATIONS. Licensee agrees to deliver to Verity ten (10)
copies of a Demo Disk Application within thirty (30) days of execution of this
Agreement. Licensee grants to Verity a worldwide, nonexclusive, nontransferable,
royalty-free and fully-paid right and license solely to use such copies
internally and to demonstrate such copies to existing and potential customers
for marketing purposes subject to the terms and conditions set forth for each
Demo Disk.
3. TERM. This Agreement shall remain in effect for an initial term of three (3)
years from the Effective Date, unless terminated earlier in accordance with
Section 14. The Agreement will renew automatically for successive one (1) year
terms unless written notice of termination is received by either party at least
thirty (30) days prior to the end of the then-current initial term or renewal
term.
4. LICENSE AND OTHER FEES. Fees (including sublicense fees) for the Software and
for all related support, training and other services offered by Verity are set
forth in Exhibit A. Licensee will pay all applicable shipping charges and taxes
(except for taxes based upon Verity's net income). All amounts required to be
paid to Verity hereunder shall be paid within thirty (30) days from the date of
Verity's valid applicable invoice.
5. SOFTWARE SUPPORT AND TRAINING.
5.1 INTERNAL SOFTWARE SUPPORT. During the term of this Agreement,
Licensee may obtain Software support, as further described in Exhibit B from
Verity for the purpose of Licensee's provision of support to its End Users and
Resellers. All items delivered by Verity in providing such support, including
Error Corrections and Software Updates, shall be deemed to become a part of the
applicable Software and shall be subject to all terms and conditions of this
Agreement.
5.2 SECOND-LINE SOFTWARE SUPPORT. Licensee is responsible for providing
front-line support to its End Users and Resellers with respect to Software
installation, on-going technical support, training and consultations relating to
the Application. Any direct request to Verity for support services by the
Licensee's End Users or Resellers; will be referred to Licensee.
6. ORDERING AND DELIVERY OF SOFTWARE. All orders for Software or other products
or services issued by Licensee shall be deemed subject to this Agreement and
shall specify the quantity ordered, the discounted price, Platform, and the
location thereof Licensee understands and agrees that any additional terms and
conditions of the Licensee's order shall be void and of no effect. No orders
shall be binding until the earlier of Verity's written confirmation or shipment.
Upon receipt of Licensee's initial purchase order, Verity shall deliver to
Licensee (i) the number of copies of Verity products comprising the Software
described on Exhibit A, (ii) one (1) golden master copy of the Run-Time Software
on magnetic media and (iii) one (1) copy of the Documentation. Verity shall
deliver to Licensee one (1) copy of any Error Corrections or Software Updates to
the Software on magnetic media and one (1) copy each of the applicable
Documentation, if any, promptly upon distribution by Verity of such Error
Corrections and Updates to other Verity OEMs. All shipments shall be FOB
shipping point. All orders delivered shall be deemed accepted by Licensee upon
delivery.
7. RECORDS AND REPORTS. Licensee shall keep complete and accurate records
relating to its use and marketing of the Application in accordance with standard
business practices in the computer industry and generally accepted accounting
principles. Within thirty (30) days after each calendar quarter, Licensee shall
provide Verity with a written sales report in the form supplied by Verity. Such
reports shall, at a minimum, contain information detailing each Application
distributed for the applicable reporting quarter, including (i) the number of
copies sold during the reporting period and the region of distributions, broken
down by month and on a cumulative basis; (ii) an accounting of the sublicense
fees associated with such copies; and (iii) second-line support fees due to
Verity associated with such copies. To assure compliance with the payment and
reporting requirements of this Agreement, Verity's independent auditors may
inspect Licensee's applicable records from time to time, but no more frequently
than once per year, upon ten (10) days notice and during normal business hours.
In the event any inspection of Licensee's records indicates an underpayment of
an amount equal to or greater than five percent (5%) of any amounts due
hereunder, Licensee shall promptly reimburse Verity for all reasonable expenses
associated with such inspection along with the deficient amounts.
3
<PAGE> 4
8. TITLE, USE OF TRADE NAMES AND TRADEMARKS.
8.1 PROPRIETARY RIGHTS. Title and ownership of all proprietary rights in
the Software, including any copyright, patent, trade secret, trademark or other
intellectual property rights, will at all times remain the property of Verity
and the Verity Licensors. Licensee agrees not to remove or obliterate any
copyright, trademark or proprietary rights notices of Verity or the Verity
Licensors from the Software or Documentation and shall reproduce all such
notices on all authorized copies of the Software or Documentation. Licensee
shall not modify, translate, disassemble, decompile, reverse engineer or cause
or allow discovery of the source code of the Software in any way. In addition,
Licensee shall include a copyright notice in the "About" screen.
8.2 TRADEMARKS. Verity hereby grants to Licensee a non-exclusive,
limited license to use the applicable Verity trademarks and logos ("Trademarks")
solely as permitted in this Agreement. Licensee agrees to cooperate with Verity
in facilitating Verity's monitoring and control of the nature and quality of
such products and services, and to supply Verity with specimens of use of the
Trademarks upon request. Licensee understands and agrees that the use of any
Trademark in connection with this Agreement shall not create any right, title or
interest, in or to the use of the Trademark and that all such use and goodwill
associated with the Trademark will inure to the benefit of Verity. Licensee
agrees not to register or attempt to register any Trademarks.
8.3 BRANDING; COOPERATIVE EFFORTS. The parties agree to determine mutual
co-marketing obligations at a later date.
9. CONFIDENTIALITY. Each party shall hold in confidence all materials or
information disclosed to it in confidence hereunder ("Confidential Information")
which are marked as confidential or proprietary, or if disclosed verbally,
reduced to writing and marked confidential within thirty (30) days after the
date of disclosure. Confidential Information shall also include any new product
information or the results of any bench mark or similar tests on the Software
conducted by Licensee or divulged by Licensee to Verity. Each party agrees to
take precautions to prevent any unauthorized disclosure or use of Confidential
Information consistent with precautions used to protect such party's own
confidential information, but in no event less than reasonable care. The
obligations of the parties hereunder shall not apply to any materials or
information which; (a) is now, or hereafter becomes, through no act or failure
to act on the part of the receiving party, generally known or available; (b) is
known by the receiving party at the time of receiving such information as
evidenced by its records; (c) is hereafter furnished to the receiving party by a
third party, as a matter of right and without restriction on disclosure; (d) is
independently developed by the receiving party without any breach of this
Agreement; or (e) is the subject of a written permission to disclose provided by
the disclosing party. Notwithstanding any other provision of this Agreement,
disclosure of Confidential Information shall not be precluded if such
disclosure:
(a) is in response to a valid order of a court or other
governmental body of the United States or any political subdivision thereof,
provided, however, that the responding party shall first have given notice to
the other party hereto and shall have made a reasonable effort to obtain a
protective order requiring that the Confidential Information so disclosed be
used only for which the order was issued;
(b) is otherwise required by law; or
(c) is otherwise necessary to establish rights or enforce
obligations under this Agreement, but only to the extent that any such
disclosure is necessary.
10. WARRANTY. Verity warrants to Licensee that for a period of ninety (90) days
from the date of delivery of the Software to Licensee that the Software used by
Licensee shall substantially perform in accordance with Verity's applicable
Documentation. Licensee's sole and exclusive remedy shall be for Verity to
modify or correct the Software or, if Verity is unable to provide a reasonable
work-around for the error, Verity will accept the return of the defective
Software in Licensee's possession and Verity will refund the license fees paid
by Licensee for such Software. This warranty shall not apply to any Software
which has been modified by Licensee or by any party other than Verity, or which
has been improperly installed or used in any manner other than as authorized
under this Agreement. EXCEPT AS SET FORTH IN THIS SECTION, VERITY AND VERITY
LICENSORS MAKE NO OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING THE IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS
4
<PAGE> 5
FOR A PARTICULAR PURPOSE. The Software is warranted only to Licensee, and
Licensee shall not extend any warranties for or on behalf of Verity or Verity
Licensors to End Users, Resellers, or any other third parties.
11. INFRINGEMENT INDEMNIFICATION.
11.1 BY VERITY. Verity agrees to indemnify and hold Licensee harmless
from all settlements agreed to by Verity and all costs and direct damages
awarded to a third party to the extent they arise out of a claim that the
Software as delivered to Licensee infringes a copyright enforceable in a country
which is a signatory to the Berne Convention; however, provided such country is
not on the U.S. Department of Commerce Watch List, U.S. patent, or trade secret
under U.S. law of a third party. Such obligation is subject to the following
conditions (i) Licensee shall notify Verity in writing within thirty (30) days
of the date Licensee first becomes aware of a claim; (ii) Verity has sole
control of the settlement, compromise, negotiation and defense of any such
action; and (iii) Licensee gives Verity all reasonably available information,
assistance and authority, at Verity's reasonable expense, to enable Verity to do
so. Verity may, at its option, obtain the right to continued use of the
Software, substitute other equivalent software, or modify the Software so it is
no longer infringing, or, if none of the foregoing remedies are available,
terminate Licensees right to the allegedly infringing Software and refund to
Licensee the amount which Licensee has paid for such Software, depreciated on a
straight-line basis over a five-year period. The foregoing indemnity shall not
apply to any infringement claim arising from Software which has been modified by
parties other than Verity or use of the Software in conjunction with other
software or hardware where use with such other software or hardware gives rise
to an infringement claim. THE FOREGOING STATES LICENSEE'S SOLE AND EXCLUSIVE
REMEDY WITH RESPECT TO CLAIMS OF INFRINGEMENT OF THIRD PARTY PROPRIETARY RIGHTS
OF ANY KIND, AND VERITY EXPRESSLY DISCLAIMS ANY IMPLIED WARRANTY OF
NONINFRINGEMENT.
11.2 BY LICENSEE. Licensee agrees to indemnify and hold Verity harmless
from all settlements agreed to by Licensee and all costs and direct damages
awarded to a third party to the extent they arise out of a claim that the
portions of the Application other than the Software ("Licensee Product")
infringes a copyright enforceable in a country which is a signatory to the Berne
Convention; however, provided such country is not on the U.S. Department of
Commerce Watch List, U.S. patent or trade secret under U.S. law of a third
party. Such obligation is subject to the following conditions (i) Verity shall
notify Licensee in writing within thirty (30) days of the date Verity first
becomes aware of a claim; (ii) Licensee has sole control of the settlement,
compromise, negotiation and defense of any such action; and (iii) Verity gives
Licensee all reasonably available information, assistance and authority, at
Licensee's expense, to enable Licensee to do so. Notwithstanding , the
foregoing, Licensee shall have no liability for nor shall Licensee indemnify
Verity against any infringement claim based solely on the Software or any
infringement claim that could have been avoided by use of software other than
the Software. THE FOREGOING STATES THE ENTIRE AND EXCLUSIVE OBLIGATION OF
LICENSEE TO VERITY RELATING TO ANY ALLEGED INFRINGEMENT OF PATENTS, COPYRIGHTS,
TRADEMARKS OR OTHER INTELLECTUAL PROPERTY RIGHTS.
12. LICENSEE INDEMNIFICATION. Licensee shall defend, indemnify and hold harmless
Verity and Verity Licensors from and against any claims by a Reseller, End User,
or other party arising out of (i) Licensee's or a Reseller's failure to obtain a
valid Sublicense Agreement or (ii) except as permitted by this Agreement,
Licensee's making representations or warranties regarding the Software to End
Users, Resellers or other third parties.
13. LIMITATION OF LIABILITY. NEITHER PARTY AND ITS LICENSORS' AGGREGATE
LIABILITY UNDER ANY CLAIMS ARISING OUT OF THIS AGREEMENT SHALL EXCEED ONE
HUNDRED THOUSAND DOLLARS (US$100,000). NEITHER PARTY WILL BE LIABLE FOR LOST
PROFITS OR FOR SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES,
REGARDLESS OF THE FORM OF ACTION, EVEN IF SUCH PARTY IS ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES. NOTWITHSTANDING THE ABOVE, THE LIMITATIONS SET
FORTH IN THIS SECTION SHALL NOT APPLY IF THE OTHER PARTY CAN BE SHOWN TO HAVE
FAILED TO EXERCISE REASONABLE CARE IN THE PRODUCTION AND/OR SUPPLY OF THE
SOFTWARE AND/OR DOCUMENTATION AND/OR THE PERFORMANCE OF ITS OBLIGATIONS UNDER
THIS AGREEMENT AND SUCH FAILURE RESULTS IN DEATH OR PERSONAL PHYSICAL INJURY.
14. TERMINATION. This Agreement may be terminated earlier by either party on
thirty (30) written days notice
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<PAGE> 6
to the other party if the other party fails to materially perform any obligation
hereunder and such failure is not cured within such thirty (30) day period;
provided, however, that either party may terminate this Agreement immediately
upon delivery of notice in connection with any breach by the other of Sections
2, 8.1 or 9. Upon termination or expiration, Licensee's licenses hereunder shall
terminate, all open orders shall automatically terminate, and Verity shall have
no obligation to fill such orders. In such event, Licensee shall immediately
cease using, marketing, reproducing and distributing the Software and shall
return all copies thereof to Verity, along with a certification signed by an
officer of Licensee that no copies have been retained by Licensee, except for
archival purposes. However, if the Agreement terminates or expires for any
reason other than Verity's termination of Licensee in accordance with this
Section, Licensee shall have the right to distribute all copies of the Software
paid for hereunder which are then in its inventory on the effective date of
termination (which amount shall not exceed Licensee's average monthly inventory
of the Application for the twelve months preceding the termination date); and
Licensee shall have the right to continue to use the Software internally at no
additional charge upon execution of Verity's then-current applicable end user
agreement to support End User customers who have valid Sublicense Agreements in
effect on the effective date of termination.. Nothing in this Section shall
effect the rights of the End User customers who have valid Sublicense Agreements
in effect on the effective date of termination. The obligations of each party
under Sections 4, 7, 8.1, 9, 10, 11, 12, 13, 14 and 15 shall survive termination
or expiration of this Agreement.
15. MISCELLANEOUS.
15.1 NO ASSIGNMENT. Neither party may transfer or assign this Agreement
or any rights or obligations hereunder without the prior written consent of the
other party.
15.2 NOTICES. Any notice required under this Agreement shall be given in
writing and shall be deemed effective upon delivery to the party to whom
addressed by (i) any means upon written verification by other party of actual
receipt or (ii) five days after sending, via certified mail, return receipt
requested. All notices shall be sent to the applicable address on the cover page
hereof or to such other address as the parties may designate in writing, with a
copy to the president and to the legal department of such party.
15.3 GOVERNING LAW. This Agreement shall be governed and interpreted by
the laws of the State of California, without giving effect to its principles of
conflicts of law. The parties agree that the United Nations Convention on
Contracts for the International Sales of Goods is specifically excluded from
application to this Agreement. In any legal action relating to this Agreement,
Licensee agrees to the exercise of jurisdiction over Licensee by a state or
federal court in Santa Clara County, California. In the event an action is
brought to enforce any provision or declare a breach of this Agreement, the
prevailing party shall be entitled to recover, in addition to any other amounts
awarded, reasonable legal and other related costs and expenses, including
attorney's fees, incurred thereby.
15.4 INJUNCTIVE RELIEF. It is expressly agreed that a material breach of
this Agreement will cause irreparable harm to Verity and that a remedy at law
would be inadequate. Therefore, in addition to any and all remedies available at
law, Verity and/or Verity Licensors shall be entitled to injunctive relief
against Licensee in the event of any threatened or actual violation of any or
all provisions in this Agreement.
15.5 INDEPENDENT CONTRACTOR. Licensee is an independent contractor, and
nothing in this Agreement shall be deemed to create a joint venture,
partnership, or agency relationship between the parties. Neither party has the
right or authority to assume or create any obligation or responsibility on
behalf of the other.
15.6 EXPORT. Licensee agrees that it will not export or re-export the
Software or the Application without the appropriate United States Government or
any other government licenses.
15.7 GOVERNMENT END USERS. The Software (a) was developed at private
expense, is existing computer software and no part of it was developed with
government funds, (b) is a trade secret of Verity for all purposes of the
Freedom of Information Act, (c) is commercial computer software submitted with
only those rights provided in Verity's then-current standard end-user license
agreement (d) in all respects is proprietary data belonging solely to Verity,
(e) is unpublished and all rights are reserved under the copyright laws of the
United States. For units of the Department of Defense (DoD) this Software is
licensed only with those rights specified in Verity's-then-current standard End
User license agreement, and use, duplication or disclosure of the Software is
subject to the restrictions set forth in such end-
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user license agreement.
15.8 FORCE MAJEURE. Neither party shall be liable hereunder by reason of
any failure or delay in the performance of its obligations hereunder (except for
the payment of money) on account of strikes, shortages, failure of suppliers,
riots, insurrection, fires, floods, storms, earthquakes, acts of God, war,
governmental action, labor conditions, or any other cause which is beyond the
reasonable control of such party.
15.9 ENTIRE AGREEMENT. If any portion of this Agreement is determined to
be or becomes unenforceable or illegal, such portion shall be deemed eliminated
and the remainder of this Agreement shall remain in effect in accordance with
its terms as modified by such deletion. No waiver of any breach of this
Agreement shall be effective unless in writing, nor shall any breach constitute
a waiver of any subsequent breach of any provision of this Agreement. This
Agreement (including all Exhibits) contains the entire agreement and
understanding between the parties with respect to the subject matter hereof, and
supersedes all prior agreements, negotiations, proposals and communications
between the parties. Moreover, this Agreement shall replace and supersede any
Verity end user license agreement included with the package of any Software used
by Licensee. This Agreement may be executed in counterparts.
The foregoing is agreed to effective as of the last execution date below
(the "Effective Date"):
VERITY, INC. ELOQUENT, INC.
By: /s/ Maryan Kamarei By: /s/ Bruce A. Forgrieve
--------------------------- ------------------------------------
Name: Maryan Kamarei Name: Bruce A. Forgrieve
--------------------------- ------------------------------------
Title: Corporate Attorney Title: Chief Financial Officer
-------------------------- -----------------------------------
Date: 5/30/97 Date: 5/30/97
-------------------------- -----------------------------------
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<PAGE> 8
VERITY, INC.
OEM Agreement
EXHIBIT A
FEES
1. LICENSED SOFTWARE:
Software includes solely:
one (1) copy of Search'97 Developer Kit on the Platforms specified in
Exhibit C.
2. LICENSE FEE:
(A) DEVELOPMENT SOFTWARE LICENSE FEE:
Licensee has fully paid for and Verity has delivered to Licensee the
licensed Software specified in Section I of this Exhibit A.
For a period of twelve (12) months from the Effective Date, Licensee may
acquire additional Search'97 Developer Kit licenses including internationalized
tool kit licenses for Asian languages on additional platforms at Verity's
then-current list price less a fifty percent (50%) discount. If Licensee elects
to acquire the additional internationalized versions of the Search'97 Developer
Kit within sixty (60) days from the Effective Date, then the royalty rates
specified below in Section 2B shall apply to licensing and distribution of such
internationalized Application.
(B) RUN TIME SOFTWARE LICENSE FEE:
Licensee shall pay to Verity subject to the following minimum royalty
payments:
(i) For Eloquent Navigation Server - Two Hundred Dollars (US$200) per
client/server Application except that no minimum per server will be required for
single transactions of One Hundred Thousand Dollars (US$100,000) in license fee
to Licensee;
(ii) For Eloquent Author - One Hundred Dollars (US$100) per Author; and
(iii) For Eloquent Reauthor - Ten Dollars (US$10) per Reauthor
(a) two and one half percent (2.5%) of Net Revenues accrued and/or paid to
Licensee during each calendar quarter related to all licensing and distribution
of Application which include the Verity Software with Basic Search functionality
and (b) seven and one half percent (7.5%) of Net Revenues accrued and/or paid to
Licensee during each calendar quarter related to all licensing and distribution
of Application which include the Verity Software with Basic and Advanced Search
functionality to End Users and Resellers, including without limitation all
royalties and one-time fees, within thirty (30) days of the end of each calendar
quarter ("Distribution License Fees").
For purposes of this Agreement, "Net Revenues" means gross revenues less
applicable taxes, shipping and handling charges related to distribution and
licensing of the applications, credits and returns.
Upon the Effective Date, due and payable net thirty (30) days, Licensee shall
pay Verity a nonrefundable prepaid license fee equal to Twenty Five Thousand
Dollars (US$25,000) ("Prepaid License Fees") against which the currently due
sublicense fees of Four Thousand Five Hundred Dollars (US$4,500) and the
Distribution License Fees subsequently incurred, due and owing, to Verity shall
apply until such prepaid license fee amount is exhausted. Upon termination or
expiration of this Agreement for any reason, all unrecouped Prepaid License Fees
paid to Verity shall be nonrefundable and nonrecoupable.
3. EVALUATION COPIES: Notwithstanding Paragraph 2 above, Verity grants Licensee
the right to provide evaluation copies of the Application incorporating the
Run-Time Software ("Evaluation Copies") to End Users. The evaluation period for
each Evaluation Copy shall be for a period of ninety (90) days from receipt by
the End User unless otherwise authorized in writing by Verity. The End User
shall be authorized to use the Evaluation Copy solely for evaluating its
applicability to its requirements and shall not be for any commercial or private
benefit use. Licensee may provide Evaluation Copies only to End Users who have
executed a written evaluation agreement substantially similar to Verity's
standard evaluation agreement, a copy of which will be provided to Licensee upon
written request.
4. INTERNAL SUPPORT: Upon the Effective Date, within thirty (30) days of such
date, Licensee shall pay Verity the fee for internal support of the number of
copies of Software set forth above, equal to eighteen percent
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<PAGE> 9
(18%) of the license fee or One Thousand Eight Hundred Dollars (US$1,800).
5. SECOND LINE SUPPORT: For the period Licensee obtains internal support,
Licensee shall additionally pay Verity the fee for second line support equal to
ten percent (10%) of the aggregate sublicense fees paid to Verity. Such fees to
be submitted with the quarterly sales report for all new customers and all
customers renewing, annual maintenance during the applicable quarter.
6. TRAINING. All training shall be made available for a training fee to be paid
by Licensee in addition to the amount payable pursuant to Paragraph 2 above.
Such training fee shall equal Verity's then-current training rates less a twenty
percent (20%) discount.
7. DOCUMENTATION. Verity shall provide one (1) copy of the applicable user
documentation with each copy of Development Software. Additional copies are
available to Licensee at $65.00 each.
8. PRICE LIST. Verity reserves the right to withdraw or change the availability
of the Software from its then-current product availability and price list at any
time.
9. BASIC SEARCH. The functionality of Basic Search shall include only Boolean
(and, or, not), accrue, near, near/n, many, wild card, phrase, sentence,
paragraph, word, soundex, 128 indexes, stem and thesaurus (English only) with
full multi-byte support. ASCII, HTML and SGML support.
10. ADVANCED SEARCH: The functionality of Advanced Search shall include
clustering, summarization, query by example (QBE), and ability to create and use
Topics.
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VERITY, INC.
OEM Agreement
EXHIBIT B
SOFTWARE SUPPORT TERMS AND CONDITIONS
For all Licensees who purchase Maintenance Services, Verity provides support in
the form of Error Corrections, Software Updates, and Hotline Telephone Support.
For Software which is supported, Maintenance Services are provided only for the
current release and the most recent previous release of the Software.
The initial effective date of Maintenance Services is the date Software is
shipped from Verity's facility.
DESCRIPTION OF SERVICES PROVIDED DURING A MAINTENANCE PERIOD
(A) ERROR CORRECTIONS. Verity shall exercise commercially reasonable
efforts to correct any error reported by the Licensee in the current unmodified
release of the Software in accordance with the priority level reasonably
assigned to such error by Verity. If a reported error has caused the Software to
be inoperable, or the Licensee's notice to Verity states that the reported error
is substantial and material with respect to the Licensee's use of the product,
Verity shall use its reasonable commercial efforts to correct such error or to
provide expeditiously a software patch or bypass around such error. The Licensee
acknowledges that all reported errors may not be corrected.
(B) SOFTWARE UPDATES. Verity provides, at no additional cost, one (1)
copy of all published revisions to the printed documentation and one (1) copy
of, or authorization to copy, new releases of the products, which are not
designated by Verity as new products for which it charges a separate fee.
(C) TELEPHONE HOTLINE SUPPORT. Verity provides telephone assistance to
all Licensees who have purchased Maintenance Services. Verity Support personnel
are available to answer questions related to Verity's supported products and how
they perform with compatible hardware systems. Assistance in the development of
custom applications for Verity's products is not included in standard hotline
support. If Licensees wish to acquire such support, it is available through
Verity's Consulting group at the then-current consulting rates.
PRIORITY LEVELS OF ERRORS
In the performance of Maintenance Services, Verity applies priority ratings to
problems reported by Licensees.
(A) PRIORITY I ERRORS.
DESCRIPTION: Program errors that prevent some function process
from substantially meeting the functional specification and
which seriously affect the overall performance of the function
or process and no work-around is known.
VERITY RESPONSE: Verity shall promptly initiate the following
procedures: (1) assign senior Verity engineers to correct the
error; (2) notify senior Verity Management that such errors have
been reported and that steps are being taken to correct the
error; (3) provide Licensee with periodic reports on the status
of corrections; (4) commence work to provide Licensee with a
work-around until final solution is available; (5) provide final
solution to Licensee as soon as it is available.
(B) PRIORITY II ERRORS.
DESCRIPTION: Program errors that prevent some function or
process from substantially meeting functional specification, but
has a reasonable work-around.
VERITY RESPONSE: Verity shall provide a work-around to the
Licensee and shall exercise commercially reasonable efforts to
include the fix for the error in the next software maintenance
release.
(C) PRIORITY III ERROR.
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DESCRIPTION: Program errors that prevent some portion of a
function from substantially meeting functional specification but
do not seriously affect the overall performance of the function.
VERITY RESPONSE: Verity may include the fix for the error in the
next major release of the Software.
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VERITY, INC.
OEM Agreement
EXHIBIT C
OEM APPLICATION
DESCRIPTION OF APPLICATIONS.
The Application(s) shall consist solely of Licensee's software application
program developed for/by Licensee and in existence as of the Effective Date,
currently known as "Eloquent Navigation Server", "Eloquent/CD", "Eloquent
Author", and "Eloquent Reauthor", together with substantially similar versions
of such Application as enhanced to include new additions, updates, upgrades, bug
fixes and other error corrections made from time to time.
<TABLE>
- ------------------------------------------------------------
Product Function
- ------------------------------------------------------------
<S> <C>
Eloquent Navigation Server store and access content. One
method of access uses search
over text.
Eloquent/CD allow viewing and navigation
of content on a CD. One
method of navigation is by
text search.
Eloquent Author compress, edit, and synchronize
audio, video, text and slides
to create viewable content
Indexes for future possible
test search.
Eloquent Reauthor modify and reuse existing
content. May reindex text.
Eloquent Demo Disk limited content version of
Eloquent/CD
- ------------------------------------------------------------
</TABLE>
PLATFORMS:
Windows 95/NT, MAC
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<PAGE> 13
EXHIBIT D
SHRINK WRAP AGREEMENT
NOTICE TO THE USER: BY OPENING THIS PACKAGE YOU INDICATE YOUR ACCEPTANCE OF
THESE TERMS. IF YOU DO NOT AGREE WITH THE TERMS OF THIS AGREEMENT, RETURN THE
PACKAGE UNOPENED WITHIN THIRTY (30) DAYS TO THE SUPPLIER OF THIS PACKAGE.
LICENSE GRANT. Eloquent, Inc. ("Eloquent") grants to you a limited,
non-exclusive, nontransferable, royalty-free license to use one copy of the
executable code of the Eloquent software contained on this CD-ROM (collectively
"Software") on only a single computer at any time. You may not rent, lease,
sell, sublicense, assign, or otherwise transfer the Software, including any
accompanying printed materials, nor may you create derivative works of or
otherwise modify the Software. You may not reverse engineer, decompile or
otherwise disassemble the Software except to the extent that this restriction is
expressly prohibited by applicable law. This license will terminate
automatically if you do not comply with the terms of this Agreement.
TITLE. You acknowledge that title and full ownership rights to the Software will
remain the exclusive property of Eloquent or its suppliers, and you will not
acquire any rights to the Software except as expressly set forth above.
SOFTWARE MAINTENANCE. Eloquent is not obligated to provide maintenance or
updates to you for the Software unless agreed to under separate agreement.
DISCLAIMER. THE SOFTWARE IS LICENSED "AS IS," WITHOUT WARRANTY OF ANY KIND.
ELOQUENT EXPRESSLY DISCLAIMS ANY AND ALL OTHER WARRANTIES, WHETHER EXPRESS OR
IMPLIED, INCLUDING BUT WITHOUT LIMITATION, THE IMPLIED WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND NON-INFRINGEMENT OF THIRD
PARTY RIGHTS. YOU ASSUME THE ENTIRE RISK AS TO QUALITY AND PERFORMANCE OF THE
SOFTWARE. SHOULD THE SOFTWARE PROVE DEFECTIVE, YOU, AND NOT ELOQUENT, ASSUME THE
ENTIRE COST OF ALL NECESSARY REPAIR AND ANY OTHER COSTS, DAMAGES OR LIABILITIES
RELATED THERETO. SOME STATES DO NOT ALLOW THE DISCLAIMER OF IMPLIED WARRANTIES,
LIMITATION ON HOW LONG AN IMPLIED WARRANTY LASTS, OR THE EXCLUSION OR LIMITATION
OF INCIDENTAL OR CONSEQUENTIAL DAMAGES, SO SUCH LIMITATIONS OR EXCLUSIONS MAY
NOT APPLY TO YOU. THIS WARRANTY GIVES YOU SPECIFIC LEGAL RIGHTS AND YOU MAY ALSO
HAVE OTHER RIGHTS WHICH VARY FROM STATE TO STATE.
DATA DISCLAIMER. This product is made up of Software plus data comprised of
statements and information provided by the sponsor and provider of this product
("Sponsor"). Any statements or information contained in this product are solely
those of the Sponsor or of the individuals depicted in this product, and not of
Eloquent. Eloquent will have no responsibility for any such statements or other
information.
NO LIABILITY FOR CONSEQUENTIAL DAMAGES. IN NO EVENT SHALL ELOQUENT OR ITS
SUPPLIERS BE LIABLE TO YOU FOR ANY INCIDENTAL, INDIRECT, SPECIAL OR
CONSEQUENTIAL DAMAGES OF ANY KIND, INCLUDING WITHOUT LIMITATION, DAMAGES FOR
LOSS OF BUSINESS PROFITS, BUSINESS INTERRUPTION, OR LOSS OF BUSINESS
INFORMATION, ARISING OUT OF THIS AGREEMENT OR USE OR INABILITY TO USE THE
SOFTWARE, EVEN IF ELOQUENT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
EXPORT. You agree that you will not export or re-export the Software without the
appropriate United States and foreign government licenses and you shall
otherwise comply with all applicable export control laws.
GOVERNMENT END USERS: The Software is comprised of "commercial computer
software" and "commercial computer software documentation" as such terms are
used in 48 C.F.R. 12.212 (SEPT 1995) and is provided to the Government (i) for
acquisition by or on behalf of civilian agencies, consistent with the policy set
forth in 48 C.F.R. 12.212; or (ii) for acquisition by or on behalf of units of
the Department of Defense, consistent with the policies set forth in 48 C.F.R.
227-7202-1 (JUN 1995) and 227.7202-3 (JUN 1995).
GOVERNING LAW. This Agreement will be governed by the laws of the State of
California without regard to conflict of laws principles. The United Nations
Convention on Contracts for the International Sale of Goods is expressly
disclaimed.
GENERAL. To the extent the Software contains software from third parry
suppliers, such suppliers are third party beneficiaries of this Agreement. You
agree that this is the entire agreement between you and Eloquent with respect to
the use of the Software which supersedes any prior agreement, whether written or
oral, and all other communications between the parties relating to the subject
matter of this Agreement. In the event of invalidity of any provision of this
Agreement, the parties agree that such invalidity shall not affect the validity
of the remaining portions of this Agreement.
<PAGE> 1
EXHIBIT 10.14
VOXWARE, INC. AND ELOQUENT
SOFTWARE LICENSE AGREEMENT
THIS SOFTWARE LICENSE AGREEMENT (the "Agreement") is entered into as of June 30,
1997, by and between VOXWARE, INC. ("Licensor"), a Delaware corporation, with
its principal place of business at 305 College Road East, Princeton, New Jersey
08540 and ELOQUENT ("Licensee"), a Delaware corporation with its principal place
of business at 2000 Alameda de las Pulgas, San Mateo, California 94403.
1. GRANT OF LICENSE.
(a) Licensor hereby grants to Licensee, on the terms and subject to the
conditions and limitations hereinafter set forth, a non-exclusive,
non-transferable license to Use the Licensed Programs in (and only in) the
software products described in SCHEDULE A hereto (such products when merged with
or incorporating the Licensed Programs shall be referred to as the "Software
Products"). Use of the Licensed Programs in any product other than the Software
Products is hereby prohibited, unless prior written consent is obtained from
Licensor. The license granted hereunder shall not be deemed to authorize
Licensee to change or modify in any way any Licensed Program.
(b) For purposes of this Agreement, "Licensed Programs" means those computer
software programs listed in SCHEDULE B hereto (as well as any Updates thereof
furnished by Licensor pursuant to the terms of this Agreement), in machine
readable binary image format, as well as any related material, whether in
machine readable, printed or other form, including but not limited to
instructional and operations manuals. The term Licensed Program includes all or
any portion of a Licensed Program incorporated in another program, whether in
machine readable, printed or other form. The term Licensed Program does not
include source code in any form.
(c) For purposes of this Agreement "Use" means (i) transferring any portion of
any Licensed Program from storage units or media into equipment for processing,
whether by electronic, mechanical or other means; (ii) utilizing any portion of
any Licensed Programs in the course of developing the Software Products; (iii)
merging and/or incorporating any Licensed Programs in machine readable form into
the Software Products; or (iv) developing, improving, manufacturing,
reproducing, marketing and licensing to third parties, directly and through
authorized resellers, OEMs and licensees of Licensee the Software Products
containing the Licensed Programs. "Use" also means referring to any
instructional or operational manual included in the definition of Licensed
Programs for the purpose of understanding or operating the Licensed Programs.
<PAGE> 2
(d) For purposes of this Agreement Licensee is restricted to the specific
corporation, or division thereof, designated as "Licensee" at the outset of this
Agreement. Licensee does not include any affiliate of Licensee (i.e., any person
which controls, is controlled by or under common control with Licensee). If the
designated Licensee is a division of a corporation, Licensee does not include
any other division or part of the said corporation.
2. CONDITIONS OF LICENSE.
(a) The license granted hereunder shall expire or terminate upon the expiration
or termination of this Agreement as set forth in, and subject to the terms of,
Section 14 hereof.
(b) The license granted hereunder may under no circumstances be transferred,
assigned or sublicensed by Licensee (except to sublicensees of the Software
Products as contemplated hereby).
(c) Under no circumstances shall Licensee be deemed the owner of a copy of the
Licensed Programs within the meaning of Section 117 of the Copyright Act of 1976
(as amended).
3. PRICE.
(a) The license fee and royalties for the Licensed Programs for the initial term
and for each renewal term, if any, hereof shall be as set forth in SCHEDULE C
hereto.
(b) Any applicable sales, use, personal property, excise or other taxes (other
than income or corporate franchise taxes) will be added to the license fee.
4. TERMS OF PAYMENT, RECORDS AND AUDITS.
(a) Unless otherwise set forth on SCHEDULE C hereto or in Section 4(c) below,
Licensor will invoice Licensee for the license fee. Payment is due within thirty
(30) days of the date of the invoice.
(b) No later than the 60th day of the month following each calendar quarter,
Licensee will deliver to Licensor a report itemizing the Sales Receipts and
number of units of the Software Products shipped or otherwise delivered to
customers during the previous quarter and the royalties and/or license fees (if
any) due. Sales Receipts shall be defined as actual cash receipts from the
license, sale or other distribution of the Software Products (exclusive of
sales, use, excise and other taxes) less the amount of any credits or refunds
for returns. In the event such report shows a credit balance in Licensee's
favor, Licensee shall deduct such amount from future royalties. With respect
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<PAGE> 3
to any payments received by Licensee from its customers in currency other than
U.S. Dollars, the exchange rate as published in the Wall Street Journal on the
date each such payment is received by Licensee shall be used in calculating the
royalties payable to Licensor hereunder. Licensor shall be entitled to receive
copies of all ongoing shipping reports from Licensee.
(c) No later than the 60th day of the month following each calendar quarter,
Licensee shall remit payment in U.S. Dollars for all royalties accrued during
that quarter.
(d) For at least two (2) years after the relevant shipments, Licensee will
retain records adequate for Licensor to verify the accuracy of Licensee's
reports and payments. Licensor shall have the right to audit and copy such
records upon not less than five (5) days prior notice to Licensee, such audit to
be performed by such auditors as Licensor shall desire in its sole discretion.
In the event that any such audit shall reveal a deficiency in royalty payments,
then Licensee shall immediately pay to Licensor the total amount of said
deficiency plus interest at the rate set forth in paragraph 4(e) below. In the
event such deficiency is equal to five percent (5%) or more of the royalties set
forth in the most recent royalty report, or if Licensee is in default hereunder,
then Licensee shall also pay to Licensor the cost of such audit. The provisions
of this paragraph 4(d) shall survive expiration or termination of this License
Agreement.
(e) Interest shall accrue on all amounts past due hereunder, including
royalties, at the monthly rate of one and one-half percent (1-1/2%) or at the
maximum legal rate, whichever is less. Nothing contained in this paragraph shall
be deemed a waiver of the termination provisions of this License Agreement in
the event of Licensee's default hereunder.
5. INSTALLATION.
(a) It is the Licensee's responsibility, without charge to Licensor, to
incorporate the Licensed Programs, defined in SCHEDULE B, into the Software
Products in accordance with documentation supplied by Licensor.
(b) It shall be the responsibility of Licensee to install the Licensed Programs
at its own expense.
6. ACCEPTANCE.
Licensee has evaluated the Licensed Programs prior to the date hereof. The
execution of this Agreement is evidence of Licensee's acceptance of the Licensed
Programs.
7. PROPRIETARY RIGHTS.
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<PAGE> 4
(a) Title to the Licensed Programs shall at all times remain exclusively with
Licensor. Licensee acknowledges that the Licensed Programs, and the original and
any copies thereof, in whole or in part, and all copyright, patent, trade
secret, trademark and other intellectual property and proprietary rights which
now or hereafter may exist therein, are owned by and remain the exclusive
valuable property of Licensor and embody substantial creative efforts, ideas and
expressions. Under no circumstances shall Licensee attempt, or permit others to
attempt, to decompile, disassemble or otherwise reverse engineer the Licensed
Programs.
(b) Licensee shall include, and shall not alter or remove, any applicable
copyright, patent, trade secret, trademark or other proprietary notices on all
copies (in whatever form) of the Licensed Programs and the packaging in which
they may be contained.
(c) The parties hereby acknowledge that this Agreement establishes a
relationship of confidentiality between them, and Licensee acknowledges that the
Licensed Programs are furnished by Licensor on a confidential basis. Unless
otherwise agreed to in writing by Licensor, Licensee shall limit access to the
Licensed Programs to its employees and agents and subcontractors under
commitments of non-disclosure and on a need-to-know basis only. Such access
shall be solely for the purpose of enabling Licensee to Use the Licensed
Programs for the limited purposes set forth in this Agreement.
(d) Licensee shall take all reasonable steps to safeguard the Licensed Programs
to assure that no unauthorized persons have access to them and that no person
authorized to have access to any of them takes any action with respect thereto
which is herein prohibited. Licensee shall promptly report to Licensor the
taking of any prohibited action with respect to any Licensed Program of which
Licensee becomes aware and shall take such further steps as may reasonably be
requested by Licensor to prevent such action.
8. EXCLUSIVE LIMITED WARRANTY AND REMEDY.
(a) Licensee, acknowledges that Licensed Programs are of such complexity that
they may contain inherent defects and the mere existence thereof shall not
constitute a breach of this warranty. Licensor warrants that the Licensed
Programs will upon delivery substantially conform to the description thereof set
forth in the pertinent user manuals and Specifications set forth in SCHEDULE D.
(b) As the sole and exclusive remedy for breach of the warranty contained in the
preceding subparagraph, Licensor will provide the support services set forth in
paragraph 12 hereof
(c) Licensees exclusive limited warranty provided for in this Section 8 shall
not apply to damage or deficiencies to the Licensed Programs resulting from
accident,
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alteration, modification, foreign attachments, misuse, tampering, negligence,
improper maintenance, abuse or failure to implement any Updates furnished
pursuant to this Agreement.
(d) Licensor reserves the right to make substitutions and modifications in the
Licensed Programs, provided that such substitutions or modifications will
improve performance of the Licensed Programs.
9. DISCLAIMER OF ALL OTHER WARRANTIES.
EXCEPT FOR THE EXPRESS WARRANTY STATED IN PARAGRAPH 8 ABOVE, LICENSOR
GRANTS NO WARRANTIES WITH RESPECT TO THE LICENSED PROGRAMS, EITHER EXPRESS OR
IMPLIED, INCLUDING ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE. THE STATED EXPRESS WARRANTY, AND THE REMEDY PROVIDED FOR
BREACH THEREOF, ARE IN LIEU OF ALL OTHER LIABILITIES OR OBLIGATIONS OF LICENSOR
(WHETHER SUCH LIABILITIES OR OBLIGATIONS WOULD ARISE UNDER THIS AGREEMENT OR
OTHERWISE BY OPERATION OF LAW) FOR ANY DAMAGES WHATSOEVER ARISING OUT OF OR IN
CONNECTION WITH THE DELIVERY, INSTALLATION, USE OR PERFORMANCE OF THE LICENSED
PROGRAMS.
10. LIMITATION OF LIABILITY.
(a) IN NO EVENT SHALL LICENSOR BE LIABLE UNDER ANY LEGAL THEORY (INCLUDING BUT
NOT LIMITED TO CONTRACT, NEGLIGENCE, MISREPRESENTATION, STRICT LIABILITY IN TORT
OR WARRANTY OF ANY KIND) FOR ANY INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL
DAMAGES (INCLUDING BUT NOT LIMITED TO LOST PROFITS), EVEN IF LICENSOR HAS NOTICE
OF THE POSSIBILITY OF SUCH DAMAGES. THIS LIMITATION SHALL APPLY NOTWITHSTANDING
ANY DETERMINATION THAT THE EXCLUSIVE REMEDY REFERRED TO IN SUBPARAGRAPH 8(b)
ABOVE FAILED OF ITS ESSENTIAL PURPOSE.
(b) Without limiting the effect of the preceding subparagraph, except with
regard to its obligations under Section 11 below, Licensor's maximum liability,
if any, for damages (including but not limited to liability arising out of
contract, negligence, misrepresentation, strict liability in tort or warranty of
any kind) shall not exceed the allocable portion of the fees paid by the
Licensee for the Licensed Program(s) involved during the preceding twelve (12)
months.
(c) Licensor shall under no circumstances be liable to Licensee for damages
arising out of any claim (including, but not limited to, a claim for personal
injury or property
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damage) made against Licensee by any other person or party arising out of
Licensee's activities.
(d) Licensee shall, at its cost and expense, defend, indemnify and hold Licensor
harmless from and against any claim (including, but not limited to, a claim for
personal injury or property damage) by any other person or party arising out of
or in connection with the use of the Licensed Programs to perform Licensee's
applications, regardless of whether such claim is founded in contract, tort or
warranty. The foregoing sentence shall not be applicable to the extent the
Licensed Programs are the only subject of such claim.
11. PATENTS AND COPYRIGHTS.
(a) Licensor will defend and indemnify Licensee against any claim that Licensed
Programs delivered hereunder, or the use thereof, constitute an infringement of
a currently effective United States, European or Japanese patent, copyright
trade secret or other intellectual property right. Licensees obligations
hereunder will only apply if Licensee notifies Licensor promptly in writing as
to any such claim; gives Licensor the right to contraband direct the
investigation, preparation, defense, trial and settlement of each such claim;
and provides Licensor with information deemed necessary by Licensor or its
counsel in connection with the foregoing. Licensee agrees to cooperate fully
with Licensor in the defenses and/or settlement of each such claim. If Licensor
receives notice of an alleged infringement or if the use of Licensed Programs is
prevented based on an alleged infringement, Licensor will have the right at its
option, to obtain for Licensee the right to continued use of any such Licensed
Programs; substitute other comparable programs that deliver equivalent or better
functionality and performance; or replace or modify such Licensed Programs or
their design so that they are no longer infringing. If, in Licensees opinion,
none of the foregoing alternatives is reasonably available to Licensor, then
Licensor may remove such Licensed Programs and refund any license fees paid by
Licensee for the current term of this Agreement on a prorated Basis. In no event
shall Licensees liability under this paragraph (excluding Licensees outside
counsel fees and internal costs) exceed the allocable amount paid by Licensee to
Licensor for the Licensed Program(s) which includes the alleged infringement.
The foregoing states the entire liability of Licensor with respect to
infringement of any patents, copyrights or other intellectual property rights by
Licensed Programs.
(b) Licensees obligation contained in the preceding subparagraph does not extend
to any suit or proceeding which is based upon a patent claim covering a
combination of which any Licensed Program licensed under this Agreement is
merely an element of the claim combined with other devices or elements not
acquired hereunder unless (and only to the extent) Licensor is a contributory
infringer, nor does it extend to use of any Licensed Program in a manner not
permitted or contemplated in Licensor's published documentation.
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12. SUPPORT SERVICES.
(a) Licensor may, at such time as Licensor deems appropriate, distribute Updates
to licensee. Updates consist of such corrections and modifications of Licensed
Programs or portions thereof which are backward compatible with the VCT, in
machine readable binary image format, as Licensor deems appropriate and which
Licensor distributes generally to its other licensees and which perform the same
or substantially similar functions as the Licensed programs. Licensee shall use
reasonable commercial efforts, upon receipt of any Update, to implement its use
such that it replaces entirely any previous version of the Licensed Programs or
portion thereof to which the Update applies. Upon implementation, an Update
shall constitute a Licensed Program and shall be subject to all the terms,
conditions and limitations of this agreement. If Licensee fails to implement the
use of any Update, Licensor will be under no obligation to furnish any further
support services under this Agreement after 180 days, and if Licensor chooses to
honor Licensee's request for such services, any and all costs incurred to
correct errors in any previous version of Licensed Programs will be borne by
Licensee.
(b) Licensor will use reasonable commercial efforts to correct any error in
Licensed Programs identified by Licensee in writing, such that the Licensed
Programs materially conform to the documentation and specifications. An error
will be deemed to exist if, and only if, the Licensed Program substantially
deviates from the description thereof in the pertinent user manual. If an error
is, in the opinion of Licensor, not reasonably capable of correction, Licensor
will use reasonable commercial efforts to advise Licensee on methods of avoiding
or overcoming the error.
(c) Licensor will use reasonable commercial efforts to answer Licensee's
questions relating to the use, application and functioning of Licensed programs.
Licensor makes no representations or guarantees with respect to the results to
be achieved by virtue of the services described in this paragraph.
(d) Support fees due to Licensor shall be as set forth in SCHEDULE C hereto.
13. EXCLUSIONS.
(a) Licensees obligation to provide support services hereunder is conditioned
upon the proper use of the Licensed Programs and does not cover Licensed
Programs that have been (i) modified without Licensees approval, (ii) used
contrary to Licensees instructions or (iii) serviced by anyone other than
Licensor (other than installation and any other services Licensee is required to
perform hereunder). Licensor will not be obligated to furnish service hereunder
if the need for such service arises from hardware malfunction, user error,
conditions correctable by reference to available documentation or malfunction of
programs not furnished by Licensor.
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(b) If service is requested by Licensee and furnished by Licensor as a result of
any of the causes specified in the preceding subparagraph, Licensee will be
obligated to pay for such service at Licensees standard rates then in effect for
time, materials and pre authorized travel, if any.
14. TERM.
(a) This Agreement shall have an initial term of one (1) year commencing on the
date first set forth above in this Agreement and shall automatically renew for
successive terms of one (1) year each unless Licensee provides written notice of
non-renewal to Licensor at least ninety (90) days prior to the expiration of the
then current term. If applicable, renewal fees are due within 30 days of the
commencement of any renewal year. Licensee shall also have the right to
terminate this Agreement at any time upon ninety (90) days written notice, after
the $20,000.00 nonrefundable Initial License Fee has been paid (and any
royalties or other fees accrued shall also be paid).
(b) Either party may terminate this Agreement, 30 days after delivering written
notice to the other party, in the event the other party breaches any of its
material obligations under this Agreement unless such breach is cured within
said 30 day period.
(c) Licensee's obligation to pay Licensor amounts due hereunder shall survive
any expiration or termination of this Agreement.
(d) Upon the termination, or expiration of this Agreement, Licensee shall
permanently discontinue the Use of the Licensed Programs and the Software
Products containing the Licensed programs. Within thirty (30) days after
Licensee has permanently discontinued the use of any Licensed Programs or
immediately upon the termination or expiration of this Agreement, Licensee shall
return to Licensor the original and all copies (whether whole or partial) of the
Licensed Programs in any form (other than copies incorporated in the Software
Products already produced and existing, and one additional copy for support
purposes only) and shall certify in writing to Licensor that it has done so.
15. ATTRIBUTION AND LEGENDS.
Licensee agrees to display Licensor's logo and trademarks in context appropriate
places to be selected by Licensee within the Software products. Further,
Licensee agrees to place notice of any copyright and patent protection or other
proprietary legend requested by Licensor within the Software Products.
16. ADVERTISING.
Licensee agrees that Licensor may mention this License Agreement in sales
presentations. Licensor also may mention this License Agreement in collateral
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materials consisting of sell sheets, brochures, packaging and related marketing
materials with the prior consent of Licensee, which consent will not be
unreasonably withheld. Licensor shall, in connection with its activities under
this paragraph 16, ensure that all trademarks and copyrights pertaining to
Licensee will be observed. Licensee recognizes the great value of the good will
associated with Licensees trademarks and the identification of the Software
Products with the trademarks. Therefore, Licensee shall submit to Licensor for
prior approval (a) samples of all Software Products which Licensee proposes to
offer for sale under Licensees trademarks and (b) samples which bear Licensor's
trademarks and which are to be used in connection with the Software Products.
Both parties may issue a press release subject to the approval of the other
party announcing the relationship and intended benefits and Use of the Licensed
Programs within the Software Products defined herein.
In addition to the foregoing, the parties shall issue a joint press release
within thirty (30) days of execution hereof, announcing the relationship and
intended benefits and Use of the Licensed Programs within the Licensee's
Products defined herein, and containing a quote from a senior executive of
Licensee stating that Licensee has chosen Licensor's technology because it
provides the best solution for transmitting high quality voice over bandwidth
constrained environments.
Licensee shall also issue a press release upon shipment of the Software
Products, containing a statement announcing that the Software Products contain
technology licensed from Licensor.
17. GENERAL.
(a) This Agreement will not be binding upon either party until signed by
Licensee and an authorized officer of Licensor.
(b) Licensee may not assign this Agreement without the prior written consent of
Licensor.
(c) This Agreement shall be governed by and construed in accordance with the
laws of the State of New Jersey. Without limiting the foregoing, this Agreement
shall be governed by the Uniform Commercial Code. The transaction which is the
subject matter of this Agreement shall be deemed to be a "transaction in goods"
and the Licensed Programs shall be deemed to be "goods" within the meaning of
the said statute, notwithstanding that this Agreement grants a license, that no
sale of Licensed Programs is contemplated and that title to the Licensed
Programs is retained by Licensor. To the extent, if any, that services are
provided in connection with this Agreement, such services shall be deemed
incidental to the provisions of "goods."
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(d) No failure or delay on the part of either party in exercising any right or
remedy provided in this Agreement shall operate as a waiver thereof; nor shall
any single or partial exercise of or failure to exercise any such right or
remedy preclude any other or further exercise thereof or the exercise of any
other right or remedy under this Agreement.
(e) Any notice required or permitted under this Agreement shall be in writing
and shall be sent to the appropriate address shown on the first page hereof
(unless notice of a changed address has been given) by telecopier and confirmed
via mail; telegram, private overnight courier service or registered or certified
airmail, return receipt requested, with postage prepaid.
(f) Licensees performance hereunder is subject to force majeure, including but
not limited to wars, riots, failure of contractors and subcontractors to
perform, strikes, labor disturbances, acts of God, fires, floods, explosions,
civil disturbances, inability to obtain required material or transportation, and
acts of governmental authorities.
(g) Licensee, acknowledges that the Licensed Programs are subject to the export
control laws add regulations of the U.S.A., and any amendments thereof. Licensee
confirms that it will not knowingly export or re-export the Licensed Programs,
directly or indirectly, in violation of any applicable law or regulation of the
United States or any other country.
(h) Paragraph headings herein are for convenience only and do not control or
affect the meaning or interpretation of any terms or provisions of this
Agreement.
(i) This Agreement (including any schedule hereto) supersedes all prior
agreements and understandings between the parties, whether written or oral,
related to the subject matter and is intended by the parties as the complete and
exclusive statement of the terms of their Agreement.
(j) No modification, addition to, or waiver of any of the terms of this
Agreement (including any schedule hereto) shall be effective unless in writing
and signed by an authorized officer of Licensor. Under no circumstances shall
the terms of any purchase order submitted by Licensee to Licensor, whether
before or after the execution of this Agreement, be deemed binding upon
Licensor. If any of the provisions of this Agreement are invalid under any
applicable statute or rule of law, they are, to that extent, deemed omitted.
(k) No action to enforce any claim arising out of or in connection with the
transaction which is the subject matter of this Agreement shall be brought by
either party against the other more than three (3) years after the cause of
action has occurred.
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(l) Licensor may, in its discretion, delegate all or any portion of its
obligation to perform services hereunder to an agent or subcontractor. In the
event Licensor does so, references to Licensor in this Agreement shall be deemed
to refer, in the alternative, to such agent or subcontractor.
AGREED TO AND ACCEPTED BY:
VOXWARE, INC. (LICENSOR)
By: /s/ Kenneth H. Traub
-----------------------------------
Name: Kenneth H. Traub
----------------------------------
Title: Executive Vice President and
Chief Financial Officer
---------------------------------
AGREED TO AND ACCEPTED BY:
ELOQUENT (LICENSEE)
----------
By: /s/ Bruce A. Forgrieve
------------------------------------
Name: Bruce A. Forgrieve
----------------------------------
Title: Chief Financial Officer
----------------------------------
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SCHEDULE A
SOFTWARE PRODUCTS
The Software Products shall consist solely of the following: Eloquent Author,
Eloquent Client/Server or Web Server, and Eloquent CD.
Eloquent/Client-Server or Web Server lets Windows and Macintosh users
find and play Infomedia presentations across industry-standard networks and
corporate intranets.
Eloquent/CD lets users view Infomedia talks in remote offices or on the
road from a CD-ROM without the need for a network connection. Large companies
can provide employees in remote locations with the same self-paced viewing
capabilities of Eloquent/Client-Server in situations where the corporate
intranet is not available.
Eloquent/Author lets companies create their own Infomedia production
facility. Eloquent/Author includes all of the tools necessary to transform video
tapes of presentations into complete Infomedia talks that can be distributed
through client-server access or CD-ROMS. Eloquent/Author is scheduled for
release in the second half of 1997.
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SCHEDULE B
LICENSED PROGRAMS
Subject to Paragraphs C and D of Schedule C, the Licensed Programs shall consist
solely of the following:
1. RT29HQ Codec - Embodied in the Voxware Compression Toolkit (VCT) for Real
Time speech compression. It shall consist of the release version of Voxware's
2,977bps codec, known as RT29HQ. Delivery for Intel platform shall be in the
form of Windows 95, Windows NT, and Windows 3.1 dynamic link libraries. Delivery
for Macintosh platform shall be in the form of static libraries compiled for the
Power PC CPU using the latest Metrowerks compiler. Licensee is licensed to Use
the RT29HQ Codec for speech compression and decompression only. Other features
of Licensor's technology such as time scaling, pitch shifting and personality
transformation are not included in this license. The next VIPT 1.50 Update will
be available on September 30, 1997 on the platforms specified above.
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SCHEDULE C
PRICE/FEES
A. INITIAL LICENSE FEE.
The nonrefundable Initial License Fee due to Licensor for the rights granted
hereunder during the Term of this Agreement shall be Twenty Thousand Dollars
($20,000.00), and shall be payable as follows:
(i) Ten Thousand Dollars ($10,000.00) due upon execution hereof;
and
(ii) Ten Thousand Dollars ($10,000.00) due on or before January
1, 1998.
B. ROYALTIES.
In addition to all other amounts due under this Agreement, Licensee shall pay
royalties to Licensor hereunder, of One and One-Half Per Cent (1-1/2%) of all
Sales Receipts derived from the Licensee's Web Server Software Products
containing the Licensed programs. The foregoing percentage is based on
Licensee's expectation that Licensee will charge approximately $20,000 to
$50,000.00 list price for each 20-port (or more) Web Server Software Product,
and proportionate fees for Web Server Software Products with less than 20 ports.
Should Licensee's list prices drop below the foregoing, then Licensee shall
promptly notify Licensor in writing, and the 1-1/2% shall be reasonably
negotiated upward.
C. OPTION TO LICENSE METASOUND.
During the initial term hereof, Licensee shall have the option to receive a
license, subject to all of the terms and conditions hereof, to any two (2) of
Licensor's four (4) current MetaSound Codecs (which are AC8, AC10, AC16, and
AC24), which are release versions of Voxware's 8 Kbps, 10 Kbps, 16 Kbps, and 24
Kbps monaural audio codecs, respectively. Delivery for Intel platform would be
in the form of Windows 95 dynamic link libraries. Features of the MetaSound
Codecs licensed would not include stereo sound. In the event Licensee exercises
the option described in this Paragraph C, the license fee due to Licensor shall
be an additional Fifteen Thousand Dollars ($15,000.00), due upon the exercise of
such option. In the event Licensee exercises such option, the two (2) MetaSound
Codecs licensed will be considered Licensed Programs subject to the terms and
conditions of this Agreement.
D. OPTION TO LICENSE SC3-6.
During the initial term hereof, Licensee shall have the option to receive a
license, subject to all of the terms and conditions hereof, to Licensor's SC3-6
Codec when available, which will be the release version of Voxware's 3 Kbps and
6 Kbps scaleable speech codec. Delivery for Intel platform would be in the form
of Windows 95 dynamic link libraries.
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In the event Licensee exercises the option described in this Paragraph D, the
license fee due to Licensor shall be an additional Ten Thousand Dollars
($10,000.00), due upon the exercise of such option. In the event Licensee
exercises such option, the SC3-6 Codec licensed will be considered a Licensed
Program subject to the terms and conditions of this Agreement.
E. SUPPORT FEES.
In the event that Licensee desires to receive the support services specified in
Paragraph 12 of this Agreement after the first year hereof, then for each
one-year period of the term or life of this Agreement after the first year
hereof, Licensee shall pay to Licensor support fees in the amount of Five
Thousand Dollars ($5,000.00) per year. The first annual support fee shall be due
on the first anniversary of this Agreement, and each subsequent annual support
fee shall be due within thirty (30) days of each subsequent anniversary date
hereof.
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SCHEDULE D
VOXWARE'S RT29HQ METAVOICE SPEECH CODEC
RT29HQ codec Version 2.0 incorporates improvements in robustness and output
speech quality. These recent improvements to the algorithm have resulted in
significant reductions in computational complexity, making it even simpler than
before to integrate high quality speech into applications.
RT29HQ is a speech codec using 8 kHz 16 bit samples for input (128,000 bits per
second) and compresses in real time to 2978 bits per second (a compression ratio
of 43:1). RT29HQ is recommended for applications where improved performance is
required compared to the lower rate RT24 codec. The low bit rate enables
communications in a variety of transmission bandwidth constrained environments,
and is ideal for internet applications.
CODEC SPECIFICATIONS
The frame size used for RT29HQ is 180 samples, or 22.5 msec. This results in 67
bits (8 bytes plus 3 bits) of compressed output per frame. (A bitrate of 2978
bps.)
Compression requires an average of 15% of a Pentium running at 133 MHZ.
Decompression requires an average of 6% of a P133. (27% and 10% of a P75.)
The codec exhibits an encoder delay of 45 ms, and a decoder delay of 12.5 ms.
Thus the total vocoder algorithmic delay is 57.5 ms.
RT29HQ COMPATIBILITY
RT29HQ produces and consumes a bitstream which is compatible with the bitstream
produced by other products using earlier releases of the Voxware RT29HQ codec.
Future releases of RT29HQ will support this bitstream.
PLATFORM SUPPORT
Version 2.0 of Voxware's RT29HQ MetaVoice codec is available for the
following primary platforms: Win95 and WinNT PC's, and PowerPC Macintosh. The
codec is contained within the new Voxware Compression Toolkit, which in addition
to providing the core codec functionality provides a high level API for ease of
developer integration.
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EXHIBIT 10.15
CONCENTRIC HOST SERVER SOLUTIONS
SERVICE AGREEMENT
THIS CO-LOCATION SERVICE AGREEMENT ("Agreement") is made and entered into on
March 30, 1998 to be effective on April 15, 1998 ("Effective Date") by and
between CONCENTRIC NETWORK CORPORATION ("Concentric"), a Delaware corporation
with a principal place of business at 10590 N. Tantau Ave., Cupertino, CA 95014,
and ELOQUENT INC. ("Customer") a Delaware corporation with a principal place of
business at 2000 Alameda de las Pulgas, Suite 100, San Mateo, CA 94403.
WHEREAS, Concentric provides co-located server hosting services and desires to
provide Customer with network bandwidth and hosting of certain server hardware
to facilitate such service; and
WHEREAS, Customer desires to receive such services and hosting for its Internet
system and Customer's third party customers;
NOW THEREFORE, parties hereto agree as follows:
1.0 SERVICES.
1.1 Subject to the terms and conditions herein, and during the term and
subsequent renewal terms of this Agreement, Concentric will provide the services
described in Exhibit A ("Services") that have been selected by Customer as
designated in Exhibit B. Customer may change selection at any time provided that
Customer gives Concentric at least 30 days prior written notice of such change
in selection. Customer agrees to pay charges for and will be billed only for
selected services, Customer agrees that during the term of the Agreement, if
Customer selects a bandwidth option of equal to or greater than 4Mbps, Customer
shall not thereafter change its selection to select a bandwidth option lesser
than 4Mbps.
1.2 HOSTING SERVICES. During the term of this Agreement, Concentric agrees to
provide for the Customer's industry standard hardware and software
configurations ("System(s)"), at Concentric's facilities located at Santa Clara
("Site"), full, unrestricted access to the Internet via Concentric's Internet
connection at the bandwidth selected by Customer and set forth and in Exhibit A.
Concentric shall provide regular routing and other systems administration and
support services as reasonably necessary to maintain access to the Internet via
Concentric's Internet connection. Concentric agrees to provide adequate physical
security for the System and a physical space and environment (including, without
limitation, electrical, ventilation, moisture, temperature, cleanliness, etc.)
in accordance with industry standards and will afford reasonable physical
accessibility to the System. Concentric agrees to use reasonable efforts to
provide back up sources of power to be utilized to keep the System in continuous
operation in the event of an interruption of electrical power.
1.3 INTERNET CONNECTIONS. To link the System to the Internet, Concentric shall
provide, subject to the payment by Customer of the charges specified in Exhibit
A as selected by Customer, on a continuous, twenty-four (24) hour basis, access
to appropriate Internet connections to support Customer's service selections in
a form suitable for connection to the
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Systems. Concentric will provide and implement such access so that the Systems
enjoys sufficient communications bandwidth to ensure efficient access to the
Internet Site at all times and without abnormal communication delays, including
during peak usage periods. Notwithstanding the preceding, Eloquent acknowledges
and agrees that Concentric is not responsible for downtime or delays due to
technical problems relating to the Internet.
2.0 FEES AND BILLING
2.1 Customer will pay Concentric all fees for the Services selected by Customer
in Exhibit B in accordance with the price schedule in Exhibit A ("Fees") less
ten percent (10%) for the term of this Agreement. Concentric agrees that in the
event that market conditions dictate lower pricing than what is stated in
Exhibit A, both parties agree to amend this Agreement to reflect the market
conditions. At such time, Concentric shall provide an updated Exhibit A with the
amended reduced pricing and Customer shall pay fees in accordance with such
amended price schedule in Exhibit A ("Fees") less ten percent (10%) for the
remainder of the term of this Agreement.
2.2 All Fees shall be paid at Concentric's address as indicated in this
Agreement or at such other address as Concentric may from time to time indicate
by proper notice hereunder. All invoices are due and payable within thirty (30)
days of Concentric's date of invoice.
2.3 All Fees are in U.S. Dollars and are exclusive of any applicable taxes.
Customer shall pay, indemnify, and hold Concentric harmless from all sales, use,
value added or other taxes of any nature, other than taxes on Concentric's net
income, including penalties and interest, and all government permit or license
fees assessed upon or with respect to any Fees (except to the extent Customer
provides Concentric with a valid tax exemption certificate) provided that
Concentric gives Eloquent prompt written .. notice of any such taxes. If any
applicable law requires Customer to withhold amounts from any payments to
Concentric hereunder: (a) Customer shall effect such withholding, remit such
amounts to the appropriate taxing authorities and promptly furnish Concentric
with tax receipts evidencing the payments of such amounts; and (b) the sum
payable by Customer upon which the deduction or withholding is based shall be
increased to the extent necessary to ensure that, after such deduction or
withholding, Concentric receives and retains, free from liability for such
deduction or withholding, a net amount equal to the amount Concentric would have
received and retained in the absence of such required deduction or withholding.
3.0 PROMOTION.
3.1 Both parties agree to cooperate with each other so that each party may issue
a press release concerning this Agreement, provided that each party must approve
any press release prior to its release. Company agrees it may be designated as a
"reference account" for Concentric's hosting and co-location services to certain
potential customers and to provide Concentric the ability to access the
Customer's co-located demo server for demo purposes.
3.2 Both parties agree to negotiate terms and conditions based on Concentric's
then current virtual private network services agreement. such that Customer will
acquire such services from Concentric for resale to its customers. Fees for such
services will be reasonable and commensurate with then current market
conditions.
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4.0 REPRESENTATIONS AND WARRANTIES.
4.1 Each party represents and warrants that it has the right and authority to
enter into this Agreement, and that by entering into this Agreement, it will not
violate, conflict with or result in a material default under any other contract,
agreement, indenture, decree, judgment, undertaking, conveyance, lien or
encumbrance to which it is a party or by which it or any of its property is or
may become subject or bound. Each party shall not grant any rights under any
future agreement, nor will it permit or suffer any lien, obligation or
encumbrances that will conflict with the performance of this Agreement. Both
parties represent and warrant that they will, at their own expense comply with
all laws, regulations and other legal requirements that apply to them and this
Agreement, including copyright, privacy and communications decency laws.
4.2 Concentric warrants that the Services will be performed in a good and
workmanlike manner at a quality of no less than industry standard. Customer
acknowledges that Concentric makes no warranty regarding any third party
hardware and software. Third party hardware and software procured by Concentric
for Customer as part of the Services may be warranted by its manufacturer.
4.3 Customer represents and warrants that it will: (a) not use any Concentric
equipment or services in a manner that: (i) is prohibited by any law or
regulation or Concentric policy, or to facilitate !he violation of any law or
regulation or such policy; or (ii) will disrupt third parties' use or enjoyment
of any communications service or outlet; (b) not violate or tamper with the
security of any Concentric computer equipment or program; and (c) have an
agreement with each of its customers sufficient to comply with the terms herein.
Customer acknowledges that prohibited conduct includes, but is not limited to,
use of the Concentric network to invade the privacy of third parties,
impersonation of Concentric personnel or other Concentric customers,
transmitting via e-mail, USENET or chat service any abusive, profane, libelous,
slanderous, threatening or otherwise harassing material or use of the Concentric
network in connection with the transmission of the same or substantially similar
unsolicited message to 50 or more recipients or 15 or more newsgroups in a
single day, provided, however, that Customer may, at the request of its third
party customers, transmit the same or substantially similar messages to such
third party customer's employees, agents, resellers and other individuals and
entities acting on behalf of the third party customer.
4.4 THE WARRANTIES SET FORTH IN SECTIONS 4.1 AND 4.2 ARE THE SOLE AND EXCLUSIVE
WARRANTIES' MADE BY CONCENTRIC. THE WARRANTIES SET FORTH IN SECTIONS 4.1 AND 4.3
ARE THE SOLE AND EXCLUSIVE WARRANTIES MADE BY CUSTOMER. CONCENTRIC AND CUSTOMER
MAKE NO OTHER WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED. CONCENTRIC EXPRESSLY
DISCLAIMS ANY: (a) WARRANTY OF DESIGN, MERCHANTABILITY, NONINFRINGEMENT OR
FITNESS FOR A PARTICULAR PURPOSE, EVEN IF CONCENTRIC HAS BEEN INFORMED OF SUCH
PURPOSE; OR (b) WARRANTY THAT THE SERVICES WILL BE ERROR-FREE, SECURE OR WITHOUT
INTERRUPTION AND ALL LIABILITY ON ACCOUNT THEREOF.
5.0 LIMITATION OF LIABILITY.
3
<PAGE> 4
Except for a breach of Section 4, or obligations arising out of Section 8.5 in
no event shall a party shall be liable for special, incidental, consequential or
punitive damages of any nature, for any reason, including without limitation any
termination of this Agreement, whether such liability is asserted on the basis
of contract, tort (including negligence or strict liability) or otherwise, even
if a party has been warned of the possibility of such damages, and
notwithstanding any failure of essential purpose of any limited remedy.
Concentric acknowledges that Customer shall not be liable to Concentric for any
claims regarding any third party hardware and software provided by Customer.
Third party hardware and software procured by Customer and used on System may be
warranted by its manufacturer. NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE
CONTRARY, CONCENTRIC SHALL NOT BE LIABLE FOR ANY DIRECT DAMAGES UNLESS SUCH
DAMAGES ARE DUE TO THE NEGLIGENCE OR WILLFUL MISCONDUCT OF CONCENTRIC. EXCEPT
FOR A BREACH OF SECTION 4, OR OBLIGATIONS ARISING OUT OF SECTION 8.5, A PARTY'S
ENTIRE LIABILITY TO THE OTHER PARTY CONCERNING PERFORMANCE OR NONPERFORMANCE IN
ANY WAY RELATED TO THE SUBJECT MATTER OF THIS AGREEMENT, AND REGARDLESS OF
WHETHER A CLAIM IS BASED IN CONTRACT, NEGLIGENCE OR IN TORT, SHALL NOT EXCEED
THE FEES RECEIVED BY CONCENTRIC FROM CUSTOMER UNDER THIS AGREEMENT DURING THE
PREVIOUS TWELVE (12) MONTHS.
6.0 CONFIDENTIAL INFORMATION
Each party agrees to maintain all Confidential Information in confidence to the
same extent that it protects its own similar Confidential Information and to use
such Confidential Information only as permitted under this Agreement. For
purposes of this Agreement "Confidential Information" shall mean information
including, without limitation, computer programs, code, algorithms, names and
expertise of employees and consultants, know-how, formulas, processes, ideas,
inventions (whether patentable or not), schematics and other technical,
business, financial and product development plans, forecasts, strategies and
information marked "Confidential", or if disclosed verbally, is identified as
confidential at the time of disclosure. Confidential Information of Customer
specifically includes but is not limited to all Content that is stored on the
Customer Systems. Concentric will have in place an appropriate agreement
sufficient to comply with this Section 6 with any person permitted access to
Confidential Information pursuant to this Section. Each party agrees to take all
reasonable precautions to prevent any unauthorized disclosure or use of
Confidential Information including, without limitations disclosing Confidential
Information only to its employees: (a) with a need to know to further permitted
uses of such information; (b) who are parties to appropriate agreements
sufficient to comply with this Section 6; and (c) who are informed of the
nondisclosure/non-use obligations imposed by this Section 6; and both parties
shall take appropriate steps to implement and enforce such
non-disclosure/non-use obligations. The foregoing restrictions on disclosure and
use shall survive for three (3) years following termination of this Agreement
but shall not apply with respect to any Confidential Information which: (i) was
or becomes publicly known through no fault of the receiving party; (ii) was
rightfully known or becomes rightfully known to the receiving party without
confidential or proprietary restriction from a source other than the disclosing
party; (iii) is independently developed by the receiving party without the
participation of individuals who have had access to the Confidential
Information; (iv) is approved by the
4
<PAGE> 5
disclosing party for disclosure without restriction in a written document which
is signed by a duly authorized officer of such disclosing party; and (v) the
receiving party is legally compelled to disclose; provided, however, that prior
to any such compelled disclosure, the receiving party will: (d) assert the
privileged and confidential nature of the Confidential Information against the
third party seeking disclosure; and (e) cooperate fully with the disclosing
party in protecting against any such disclosure and/or obtaining a protective
order narrowing the scope of such disclosure and/or use of the Confidential
Information. In the event that such protection against disclosure is not
obtained, the receiving party will be entitled to disclose the Confidential
Information, but only as, and to the extent, necessary to legally comply with
such compelled disclosure. Each of the parties hereto agrees not to disclose to
any third party the terms of this Agreement without the prior written consent of
the other party hereto, except to advisors, investors and others on a
need-to-know basis under circumstances that reasonably ensure the
confidentiality thereof, or to the extent required by law.
7.0 TERM AND TERMINATION
7.1 The term of this Agreement shall commence on the Effective Date and continue
for the term elected by Customer as set forth in Exhibit B, which shall be no
less than one (1) year. At the expiration of this initial term, this Agreement
shall automatically renew for a term of one (1) year subject to Customer's
acceptance of Concentric's then current Fees ninety (90) days prior to the
expiration of the then current term provided that Customer has received
sufficient prior written notice of such fees and that Customer accepts such
Fees, unless notice of non-renewal is sent by either party no less than ninety
(90) days before expiration of the then current term.
7.2 Concentric may terminate this Agreement upon written notice: (a) for any
material breach of this Agreement, which Customer fails to cure within thirty
(30) days following written notice by Concentric of such breach; or (b) upon
Customer's insolvency or liquidation as a result of which Customer ceases to do
business for a continuous period of at least three (3) months. Customer may
terminate this Agreement upon written notice: (a) for any material breach of
this Agreement which Concentric fails to cure within thirty (30) days following
written notice by Customer of such breach; or (b) upon Concentric's insolvency
or liquidation as a result of which Concentric ceases to do business for a
continuous period of at least three (3) months (c) upon ninety (90) days' prior
written notice for convenience any time after the expiration of the initial
term.
8.0 OTHER PROVISIONS
8.1 NON-ASSIGNMENT. This Agreement shall be binding upon, and inure to the
benefit of, the parties hereto and their respective successors and assigns.
Notwithstanding the above, this Agreement may not be assigned in whole or in
part by a party, without the written consent of the other party, which shall not
be unreasonably withheld. Any assignment in violation of this paragraph shall be
null and void, except for the circumstance of corporate acquisition, in whole,
or in part.
8.2 INDEPENDENT CONTRACTORS. The parties shall have the status of independent
contractors, and nothing in this Agreement shall be deemed to place the parties
in the relationship of employer-employee, principal-agent, or partners or in a
joint venture.
5
<PAGE> 6
8.3 NON-WAIVER. Failure of either party to enforce any of its rights hereunder
shall not be deemed to constitute a waiver of its future enforcement of such
rights or any other rights.
8.4 SEVERABILITY. If any provision of this Agreement is held to be invalid,
illegal, or unenforceable under present or future laws, such item shall be
struck from the Agreement; however, such invalidity or enforceability shall not
affect the remaining provisions or conditions of this Agreement. The parties
shall remain legally bound by the remaining terms of this Agreement, and shall
strive to reform the Agreement in a manner consistent with the original intent
of the parties.
8.5 INDEMNITY. Concentric, at its sole discretion, may elect to electronically
monitor the Concentric network and may disclose any content or records
concerning Customer's account as necessary to satisfy any law, regulation, or
other governmental request or to properly operate the Concentric network and
protect any of its customers provided, however, that prior to any such compelled
disclosure, the Concentric will: (a) provide Customer with prompt written notice
of such possible disclosure prior to making any disclosure, (b) assert the
privileged and confidential nature of the content against the third party
seeking disclosure; and (b) cooperate fully with Customer in protecting against
any such disclosure and/or obtaining a protective order narrowing the scope of
such disclosure. In the event that such protection against disclosure is not
obtained, Concentric will be entitled to disclose the content or records, but
only as, and to the extent, necessary to legally comply with such compelled
disclosure.. Customer expressly agrees that Concentric shall not be liable to
Customer or its customers for any action Concentric takes to remove or restrict
access to obscene, indecent or offensive content made available by Customer, nor
for any action taken to restrict access to material made available in violation
of any law, regulation or rights of a third party, including but not limited to,
rights under the copyright law and prohibitions on libel, slander and invasion
of privacy. Customer agrees to indemnify, hold harmless and upon request, defend
Concentric, from and against any and all claims, liability, losses, damages,
expenses and costs (including attorneys' fees) arising out of or in connection
with: (a) proprietary rights infringement claims based on Concentric's use
and/or operation of the System, other products provided to Concentric by
Customer, or Customer's proprietary software except to the extent such claims,
liability, loss, damage, expense or cost is due solely to the willful misconduct
or gross negligence of Concentric; and (b) information or content provided,
accessed or made available by Customer on Concentric's network.
8.6 FORCE MAJEURE. Either party shall be excused from any delay or failure in
performance hereunder caused by reason of any occurrence or contingency beyond
its reasonable control, including but not limited to, acts of God, earthquake,
labor disputes and strikes, riots, war or other unanticipated occurrences or
problems, and governmental requirements. The obligations and rights of the party
so excused shall be extended on a day-to-day basis for the period of time equal
to that of the underlying cause of the delay.
8.7 GOVERNING LAW. This Agreement shall be deemed to have been made in the State
of California, and the provisions and conditions of this Agreement shall be
governed by and interpreted in accordance with the substantive laws of the State
of California, without regard to conflict of laws provisions.
6
<PAGE> 7
8.8 ARBITRATION. Any dispute or claim arising out of or in connection with this
Agreement or the performance, breach or termination thereof, shall be finally
settled by binding arbitration in San Jose, California under the Rules of
Arbitration of the American Arbitration Association by an arbitrator appointed
in accordance with those rules. Judgment on the award rendered by the
arbitrators may be entered in any court having jurisdiction thereof.
Notwithstanding the foregoing, either party may apply to any court of competent
jurisdiction for equitable relief without breach of this arbitration provision.
All costs and expenses, including reasonable attorney's fees, of all parties
incurred in any dispute which is determined and/or settled pursuant to this
Section shall be borne by the party determined to be liable in respect of such
dispute; provided, however, that if compete liability is not assessed against
any one party, the parties shall share the total costs in proportion to their
respective amounts of liability so determined.
8.9 INTEGRATION. This Agreement expresses the complete and final understanding
of the parties with respect to the subject matter hereof, and supersedes all
prior communications between the parties, whether written or oral with respect
to the subject matter hereof. No modification of this Agreement shall be binding
upon the parties hereto, unless evidenced by a writing duly signed by authorized
representatives of the respective parties hereto.
8.10 NOTICES. Any required notices hereunder shall be given in writing by
certified mail or overnight express delivery service (such as DHL) at the
address of each party below, or to such other address as either party may from
time to time substitute by written notice. Notice shall be deemed served when
delivered or, if delivery is not accomplished by reason or some fault of the
addressee, when tendered.
If to Concentric: If to Customer:
Contracts Manager Director, Contract Admin.
Concentric Network Corporation Eloquent Inc.
10590 N. Tantau Ave. 2000 Alameda de las Pulgas, Suite 100
Cupertino, CA 95014 San Mateo, CA 94403
408 342-2800 650 294-6500
AGREED AND ACCEPTED:
CONCENTRIC NETWORK CORPORATION ELOQUENT, INC. ("CUSTOMER")
"(CONCENTRIC")
By: /s/ Michael F. Anthofer By: /s/ Bruce Forgrieve
- ---------------------------------- -------------------------------------
(Authorized Signature) (Authorized Signature)
Name: Michael F. Anthofer Name: Bruce Forgrieve
----------------------------- -----------------------------------
Title: Senior Vice President and Title: Chief Financial Officer
Chief Financial Officer -----------------------------------
-----------------------------
7
<PAGE> 8
EXHIBIT A
SERVICES PROVIDED & FEE SCHEDULE
FOR CO-LOCATION SERVICE
<TABLE>
<CAPTION>
STANDARD SERVICES
- ---------------------------------------------------------------------------------------
DESCRIPTION OF SERVICE FEE
- ---------------------------------------------------------------------------------------
<S> <C>
Customer Service/Operations Support No Charge
24 X 7 Network Operations Center (NOC)
VIA 408.327.2200
- ---------------------------------------------------------------------------------------
Bandwidth Utilization Reports No Charge
- ---------------------------------------------------------------------------------------
Block of 16 IP Addresses No Charge
- ---------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
NON-RECURRING FEES
- ------------------------------------------------------------------------------------------
DESCRIPTION OF SERVICE FEE
- ------------------------------------------------------------------------------------------
<S> <C>
Server Installation $1,000 per set-up
- ------------------------------------------------------------------------------------------
File System Backup Set-up* $500 per server
*Customer MUST supply a 2nd Network Interface Card
- ------------------------------------------------------------------------------------------
Customer Performance Reporting: $800 per server
Aquas Bazzar 2.0
- ------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MONTHLY RECURRING FEES
- ----------------------------------------------------------------------------------------------
BANDWIDTH OPTIONS DESCRIPTION OF SERVICE
(INCLUDES 8 INCHES OF RACK FEE FEE
SPACE) 1 YEAR TERM 2 YEAR TERM
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
500 Kbps Shared 10 Mbps Ethernet $ 550 $ 480
- ----------------------------------------------------------------------------------------------
1 Mbps Shared 10 Mbps Ethernet $1,200 $1,050
- ----------------------------------------------------------------------------------------------
2 Mbps Shared 10 Mbps Ethernet $1,925 $1,675
- ----------------------------------------------------------------------------------------------
4 Mbps Shared 10 Mbps Ethernet $2,750 $2,400
- ----------------------------------------------------------------------------------------------
10 Mbps Dedicated 10 Mbps Ethernet $4,400 $3,850
- ----------------------------------------------------------------------------------------------
Greater than 10 Mbps Dedicated Ethernet Price quoted Price quoted
upon request upon request
- ----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
OPTIONAL SERVICES (MONTHLY RECURRING)
- -------------------------------------------------------------------------------------------
FEE FEE
EQUIPMENT STORAGE OPTIONS DESCRIPTION OF SERVICE 1 YEAR TERM 2 YEAR TERM
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Additional Rack Space 8 inch shelf $ 75 $ 75
- -------------------------------------------------------------------------------------------
Dedicated Rack Complete 8 foot rack $ 500 $ 475
- -------------------------------------------------------------------------------------------
Dedicated Cabinet Complete 8 foot secure $ 500 $ 475
Lockable Cabinet
- -------------------------------------------------------------------------------------------
Dedicated Cage Secure Lockable Cage Quoted upon Quoted upon
request, request,
Availability is Availability is
site specific site specific
- -------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PERFORMANCE AND REPORTING OPTIONAL SERVICES (MONTHLY RECURRING)
- ------------------------------------------------------------------------------------------
DESCRIPTION OF SERVICE FEE
- ------------------------------------------------------------------------------------------
<S> <C>
Log Analysis & Reporting $ 750
- ------------------------------------------------------------------------------------------
Performance Reporting: $ 400
Keynote
- ------------------------------------------------------------------------------------------
File System Backup* $ 300
*Customer MUST supply a 2nd Network Interface Card
- ------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE> 9
<TABLE>
<CAPTION>
REMOTE HANDS SERVER MANAGEMENT AND MAINTENANCE (MONTHLY RECURRING)
- ---------------------------------------------------------------------------------------------
ON DEMAND - REMOTE HANDS SERVICE* *SEE DESCRIPTION OF REMOTE HANDS BELOW
- ---------------------------------------------------------------------------------------------
Level of Service Fee - Based on Actual Usage
- ---------------------------------------------------------------------------------------------
<S> <C>
Level 1 No Charge - Included with Service
- ---------------------------------------------------------------------------------------------
Level 2 $ 190 per hour
- ---------------------------------------------------------------------------------------------
Level 3 $ 250 per hour
- ---------------------------------------------------------------------------------------------
MONTHLY CONTRACTED - REMOTE HANDS SERVICE* *SEE DESCRIPTION OF REMOTE HANDS BELOW
- ---------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
LEVEL OF SERVICE LEVEL 2 LEVEL 3
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Up to 10 hours $ 1,250 $ 1,500
- ------------------------------------------------------------------------------------------
Up to 25 hours $ 2,750 $ 3,375
- ------------------------------------------------------------------------------------------
Up to 50 hours $ 4,000 $ 5,250
- ------------------------------------------------------------------------------------------
</TABLE>
REMOTE HANDS SERVICE DESCRIPTION
1. REMOTE HANDS SERVICES. Customer has, pursuant to the Agreement, located
certain equipment with Concentric's premises, and may from time to time request
that Concentric perform certain basic services with respect to such equipment.
Such services (herein referred to as "Remote Hands") offer an opportunity for
the Customer to avoid dispatching field services personnel for certain basic
on-site activity.
2. LEVELS OF SERVICE. Remote Hands Services include three (3) levels of service
as follows:
REMOTE HANDS LEVEL 1, involves the most basic activities of an on-site
technician, performed with "eyes", "ears" and "fingers", but without involvement
of tools, equipment, physical labor, keyboard or other data input. Examples of
Level 1 services would include:
Pushing an external button
Switching an external toggle
Power cycling (turning on and off) equipment
Scouting external cabling to connections
Observing, describing or reporting on Indicator lights or display information on
machines or consoles Basic observation and reporting on local environment within
Concentric's premises
REMOTE HANDS LEVEL 2, involves all the services of Level 1, plus some
configuration or running of certain basic operations pursuant to specific
real-time instructions from Customer. This level of service does not involve
opening or moving equipment or any direct hardware or software interaction.
Examples of Level 2 services would include:
Typing commands on a keyboard console
Changing of pre-labeled tapes
Cable organization, ties, or labeling
Modifying basic cable layout, such as Ethernet of FDDI connections
Re-labeling equipment
Concentric shall, in its reasonable discretion, determine the appropriate level
of Remote Hands to which each service request falls.
9
<PAGE> 10
REMOTE HANDS LEVEL 3, involves all the services of Level 2, plus direct contact
with equipment configuration, including hardware and software interaction,
provided Customer provides accurate, understandable real-time instructions.
Examples of Level 3 services would include:
Installation of previously received customer supplied equipment in existing rack
space Replacing hardware components with customer received spares or upgrades
Adding customer received memory
Upgrading drive capacity by installation of customer received new or additional
disk drives
3. CUSTOMER DIRECTION: Customer is required to provide clear, specific and
detailed instructions with respect to services requested. Concentric's
technicians are not required to act on directions which they believe are unclear
or incomplete. Technicians are not expected nor required hereunder to make
judgments or exercise discretion with respect to requested services, nor to make
recommendations as to courses of action to follow. If a technician either
doesn't understand an instruction, or believes it to be incorrect or
inadvisable, Customer agrees that technician may elect not to proceed with such
task until his or her concerns have been resolved, but neither Concentric nor
the technician shall have any responsibility or liability for carrying out any
requested procedure implemented in accordance with Customer's specific request.
4. PAYMENT OPTIONS AND TERMS: Remote Hands services may be purchased on a per
hour basis as needed (herein referred to as "On Demand"), or on a monthly
contract basis.
4.1 ON DEMAND: For Level 2 and Level 3 charges On Demand Remote Hands
services there is a one (1) minimum charge per request, with fifteen (15)
increments thereafter.
4.2 MONTHLY CONTRACT: The monthly contract amount shall be
non-refundable whether or not Customer utilizes all of the contractual services
hours during any month, and no service hours may be carried over to a subsequent
month. In the event a Customer requests service in excess of the monthly
contract amount, Customer will be billed for such excess hours at the Customer's
current contract rate. If the level of service (e.g., Levels 1, 2, or 3)
requested by Customer is higher than the level that Customer has contracted for,
the service will be billed at the applicable "On Demand" rate.
4.3 INVOICING. Invoices shall be provided monthly for services rendered
during the preceding month, shall be fully itemized with supporting
documentation, if any, attached. Payments for invoices shall be due 30 days from
date of invoice unless Customer reasonably and in good faith, disputes an
amount(s) listed on an invoices as incorrect.
5. REQUEST PROCEDURE: Customer shall initiate a Remote Hands Service request by
following the reasonable procedure specified in documentation provided by
Concentric to Customer, as such procedures may be modified by notice to Customer
from Concentric from time to time. Each service request requires a separate
verbal communication and initiation by Customer with Concentric's Network
Operations Center ("NOC"), and MUST be followed by fax, email, or other written
confirmation of a request for service. In the event customer has not elected a
Remote Hands service Option in Exhibit B, each request for Remote Hands services
will be billed to Customer at the applicable On Demand hourly rate as defined
herein and shall require an original signed request for service from a
previously authorized Customer representative. In cases of emergency, a signed
facsimile transmission service request followed by a signed original is
acceptable. Concentric's technician will use commercially reasonable efforts to
respond to a Customer request for Remote Hands service by telephone or
electronic communication within 30 minutes of receipt of the initial Customer
request. Technician will assign an Incident Tracking Number and will use
commercially reasonable efforts to commence the rendering of the service within
one (1) hour from the assignment of the Incident Tracking Number.
6. SYSTEMS MAINTENANCE SERVICES. Concentric agrees to perform the Customer
selected systems maintenance and repair services for the System as described
herein. Concentric shall perform its services in a timely and professional
manner in accordance with standards generally observed in the industry for
similar services and with no less care and diligence than it provides with
respect to the observation and maintenance of its own equivalent systems.
Concentric shall promptly notify Customer of any errors in the hardware of the
System and shall provide reasonable assistance in connection with the correction
of any such errors. With reasonable prior notice, Concentric shall allow
Customer employees or agents physical access to the System for routine
maintenance or other non-
10
<PAGE> 11
emergency purpose at any time subject to such third agents' execution of a
nondisclosure agreement reasonably acceptable to Concentric and compliance with
Concentric's security requirements.
SOFTWARE MAINTENANCE SERVICES. Customer shall be free to contract with
independent third parties to provide software maintenance services for the
System and Concentric will allow such third parties reasonable access to the
System as necessary to perform such database software maintenance services
subject to such third parties' execution of a nondisclosure agreement reasonably
acceptable to Concentric and compliance with Concentric's security requirements.
INTERNET CONNECTION SUPPORT. Concentric acknowledges that errors in the Internet
Connection are extremely serious and must be resolved with the greatest possible
urgency. Concentric will provide Customer, and any third party designated by
Customer to be responsible for the maintenance of the Software, with a beeper
number that can be used at any time to contact a responsible Concentric employee
who will return the beeper call within one (1) hour and who will arrange to give
Customer or its designated representative physical access to the System, whether
or not during normal business hours, within four (4) hours of the initial
telephone call to the beeper number provided by Concentric and reasonable
assistance, cooperation and technical support relating to Concentric's
environment and in diagnosing and remedying computer system malfunctions.
11
<PAGE> 12
EXHIBIT B
CUSTOMER SELECTION OF SERVICES
Customer must indicate below the desired Services and optional Services under
each category. Selections of Services indicated by Customer herein shall
indicate authorization by Customer for Concentric to invoice appropriately.
Customer may change selection at any time provided that Customer gives
Concentric at least 30 days prior written notice of such change in selection.
<TABLE>
<CAPTION>
CONTRACT TERM COMMITMENT
- -----------------------------------------------------------------------------
TERM LENGTH DESIRED TERM LENGTH
- -----------------------------------------------------------------------------
<S> <C>
One Year initial term of one year
- -----------------------------------------------------------------------------
Two Years
- -----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
NON-RECURRING SERVICES
- -------------------------------------------------------------------------------------------------
DESCRIPTION OF SERVICES NUMBER OF UNITS TOTAL FEE DESIRED SERVICE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Server Installation (fee per 4 $4,000 Yes
setup)
- -------------------------------------------------------------------------------------------------
File System Backup Set-up* No
(fee per server)
*Customer MUST supply a 2nd --
Network Interface Card
- -------------------------------------------------------------------------------------------------
Customer Performance No
Reporting:
Aquas Bazzar 2.0 --
(fee per server)
- -------------------------------------------------------------------------------------------------
Block of 161P Addresses No Charge Yes
- -------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MONTHLY RECURRING SERVICES
- -------------------------------------------------------------------------------------------------
BANDWIDTH OPTIONS NUMBER OF UNITS TOTAL FEE DESIRED SERVICE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
500 Kbps (Shared Ethernet) ---
- -------------------------------------------------------------------------------------------------
1 Mbps (Shared Ethernet) 1 $1,200 1 Mbps may be
upgraded with 30 days
notice
- -------------------------------------------------------------------------------------------------
2 Mbps (Shared Ethernet) -- --
- -------------------------------------------------------------------------------------------------
4 Mbps (Shared Ethernet) -- --
- -------------------------------------------------------------------------------------------------
10 Mbps (Dedicated Ethernet) -- --
- -------------------------------------------------------------------------------------------------
_______ Mbps (Dedicated -- --
Ethernet)
- -------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CO-LOCATION SPACE TYPE (MONTHLY RECURRING)
- -----------------------------------------------------------------------------------------------
EQUIPMENT STORAGE OPTION NUMBER OF TOTAL FEE DESIRED SERVICE
UNITES
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Shelf (8 inch racks) -- --
- -----------------------------------------------------------------------------------------------
Dedicated Rack (8 foot rack) 1 $500 yes
- -----------------------------------------------------------------------------------------------
Dedicated Cabinet (8 foot -- --
lockable cabinet)
- -----------------------------------------------------------------------------------------------
Dedicated Cage (Availability is -- --
site specific)
- -----------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 13
<TABLE>
<CAPTION>
PERFORMANCE AND REPORTING OPTIONAL SERVICES (MONTHLY RECURRING)
- -----------------------------------------------------------------------------------------------
REPORTING TYPE TOTAL FEE DESIRED SERVICE
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Bandwidth Utilization No Charge yes
- -----------------------------------------------------------------------------------------------
Keynote $400 --
- -----------------------------------------------------------------------------------------------
I/PRO $750 --
- -----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SYSTEM BACKUP (MONTHLY RECURRING)
- ----------------------------------------------------------------------------------------------
DESCRIPTION OF SERVICE NUMBER OF UNITS TOTAL FEE DESIRED SERVICE
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
File System Backup* No
*Customer MUST provide a ---
2nd Network Interface Card.
- ----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
REMOTE HANDS OPTIONAL SERVICES (MONTHLY RECURRING)
- ----------------------------------------------------------------------------------------------
ON DEMAND
- ----------------------------------------------------------------------------------------------
TYPE OF SERVICE HOURS PER MONTH TOTAL FEE* DESIRED SERVICE
HOURLY FEE IS BASED
ON ACTUAL USAGE
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Level 1 N/A No Charge, Included yes, may be upgraded
with service with 30 days notice
- ----------------------------------------------------------------------------------------------
Level 2 N/A $195 per hour x --
actual usage*
- ----------------------------------------------------------------------------------------------
Level 3 N/A $250 per hour x --
actual usage*
- ----------------------------------------------------------------------------------------------
MONTHLY CONTRACTED - REMOTE HANDS SERVICE* *SEE DESCRIPTION OF REMOTE HANDS BELOW
- ----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
DESIRED SERVICE DESIRED SERVICE
LEVEL OF SERVICE LEVEL 2 (LEVEL 2) LEVEL 3 (LEVEL 3)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Up to 10 Hours $1,250 --- $1,500 ---
- ------------------------------------------------------------------------------------------------
Up to 25 Hours $2,750 --- $3,375 ---
- ------------------------------------------------------------------------------------------------
Up to 50 Hours $4,000 --- $5,250 ---
- ------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE> 14
EXHIBIT C
CUSTOMERS EQUIPMENT
TO BE LOCATED WITHIN CONCENTRIC'S DATA CENTER
To be completed by Customer:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
QUANTITY BRAND TYPE SERIAL NUMBER
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
</TABLE>
OBLIGATIONS OF CUSTOMER:
Customer shall:
Supply hardware and software to the Concentric facility. Customer shall arrange
for the initial shipment, pay shipping cost, and provide insurance for
Customer's equipment at Concentric's data center with Customer as the named
payee. Customer shall arrange for the return of the Customer's hardware and
software upon the termination of this Agreement.
Installation and maintenance of Customer system software on hardware located in
Concentric's data center, unless contracted with Concentric separately under
Remote Hands as defined herein. Customer shall coordinate communication between
Concentric and other third parties as required herein.
Be responsible for the proper functioning of hardware and software.
Require that Content hosted at Concentric's facility in compliance with all
state and federal laws.
Supply any hardware or licensed software as deemed necessary by Customer for
repairs.
OBJECT CODE LICENSE. Subject to the terms and conditions of this Agreement,
Customer grants Concentric a nontransferable, non-exclusive limited license to
use object code versions of the software and documentation strictly limited to
use on behalf of and for the benefit of Customer, solely on the Customer's
hardware, solely at the Site or other locations as agreed to in writing by
Customer, solely in connection with the operation and maintenance of the System
as directed by Customer. No other rights are granted with regard to use of the
software and documentation.
14
<PAGE> 15
SAFEKEEPING. Concentric shall, while the System is in its possession and
control, implement and maintain procedures and facilities in accordance with
industry standards for its safekeeping and to guard against any loss of and/or
destruction to the System.
INSTALLATION. Concentric shall cooperate with Customer and Customer's designated
representatives to complete the installation of the System at Concentric's
facility.
REMOVAL. Upon the expiration or earlier termination of this Agreement or of the
parties' relationship of the Agreement, Concentric shall cooperate with Customer
or its designated representative's efforts to deinstall and to remove the System
in good working order from Concentric's premises.
CHANGE OF LOCATION. Concentric agrees not to remove the System from the facility
where it is originally installed unless Concentric obtains Customer's prior
written consent to such removal.
OWNERSHIP. Concentric agrees that the System and all Software and Hardware
therein shall remain the personal property of Customer. Concentric shall have no
right, title or interest therein, and Concentric shall do nothing inconsistent
with Customer's title, including, but not limited to, transferring, selling,
assigning, sublicensing, pledging, or otherwise disposing of, encumbering, or
suffering a lien or encumbrance upon or against any interest in the System
without Customer's prior written consent.
15
<PAGE> 1
EXHIBIT 10.16
SUBLEASE AGREEMENT
THIS SUBLEASE AGREEMENT is made effective as of June 1, 1999 between
CALIFORNIA CASUALTY MANAGEMENT COMPANY, a California corporation (hereinafter
called "Sublessor") and ELOQUENT, INC., a Delaware corporation (hereinafter
called "Sublessee").
WITNESSETH
WHEREAS, Sublessor is the Tenant under a written Office Lease dated as
of March 18, 1998 wherein OTR (hereinafter called "Prime Landlord") leased to
Sublessor certain real property located in 2000 Alameda de las Pulgas, City of
San Mateo, County of San Mateo, State of California. This Office Lease is
referred to as the "Prime Lease" and is incorporated herein by reference. Any
term in this Sublease with an initial capital letter, not specifically defined
herein, shall have the meaning given it in the Prime Lease.
WHEREAS, the Premises under the Prime Lease contains Suite 159 and
Sublessor desires to sublease Suite 159 (the "Sublet Premises") to Sublessee
under the terms and conditions contained in this Sublease Agreement; and
WHEREAS, Sublessee desires to sublease from Sublessor the Sublet
Premises on the terms set forth herein.
NOW THEREFORE, Sublessor and Sublessee agree as follows:
1. SUBLEASE.
Upon and subject to the terms and conditions of this Sublease and
applicable provisions of the Prime Lease, Sublessor subleases to Sublessee the
Sublet Premises, consisting of approximately 5,202 rentable square feet ("RSF")
in the Premises, and Sublessee subleases the Sublet Premises from Sublessor,
together with all easements, appurtenances and amenities necessary or convenient
for the enjoyment of the Sublet Premises, to the extent available to Sublessor
under the Prime Lease.
2. TERM.
Unless sooner terminated in accordance with this Sublease, the term
shall commence on the day CCMC receives final approval of this Sublease from the
Prime Landlord ("Sublease Commencement Date"), and terminate thirty-six (36)
calendar months thereafter.
Provided that the Sublessee is not then in default hereunder, the
Sublessor shall provide the Sublessee with a first right of refusal on the
Premises at the expiration of this
1
<PAGE> 2
Sublease, provided that the Sublessor does not choose to reoccupy the Premises
for its own purposes.
Sublessor shall give Sublessee notice of the first right of refusal not
less than thirty (30) calendar days prior to the expiration of this Sublease,
and Sublessee shall have five (5) business days to either accept or decline.
Sublessee's failure to reply shall be deemed a declination, conclusively. Notice
and reply must be given in writing.
3. DELIVERY OF SUBLET PREMISES.
As of the Sublease Commencement Date, Sublessor shall deliver the Sublet
Premises to Sublessee free of tenants with existing Building systems in good
working condition, and with the Sublessee Improvements described in Section 6 of
this Sublease completed.
4. RENT.
(a) Sublessee shall pay to Sublessor monthly rent ("Monthly Rent")
for each month during the Term. Monthly rent shall be comprised of base monthly
rent plus a prorata share of Building operating expenses.
(b) The monthly base full service rental rate for the Term is $3.50
per RSF. Commencing on the first day of the second year of the Term, and
annually thereafter, the monthly base rent shall increase by 3 % per annum. The
monthly base rent for the term is as follows:
<TABLE>
<CAPTION>
MONTHS MONTHLY RENT, FULL SERVICE
------ --------------------------
<S> <C>
1-12 $18,207.00
13-24 $18,753.21
25-36 $19,315.81
</TABLE>
(c) In addition to the monthly base rent, Sublessee shall be
responsible for its prorata share of Building operating expense passthroughs
over a Base Year of 1999.
(d) Monthly Rent shall be prorated based on actual days elapsed for
any partial calendar month occurring at the delivery of possession of any Space
or at the end of the term of this Sublease.
(e) Monthly Rent shall be paid by Sublessee to Sublessor without
prior notice or demand in advance on or before the same day of the month as the
Sublease Commencement Date each and every month during the Term of this
Sublease.
2
<PAGE> 3
(f) The late fee for delinquent Monthly Rent is $500 per delinquent
installment due plus interest on the delinquent Monthly Rent at the prime rate
(as then published by the Wall Street Journal plus 2%. Monthly Rent shall be
considered delinquent if Sublessee fails to pay on or before five (5) days after
the date the Monthly Rent is due.
5. SECURITY DEPOSIT/FIRST MONTH'S RENT.
Upon the Sublease Commencement Date, Sublessee shall provide Sublessor
with a security deposit in the amount of $25,000.00, which shall be refunded to
Sublessee upon full satisfaction of the terms and conditions of this Sublease.
In addition, Sublessee shall pay to Sublessor first month's monthly base rent of
$18,207.00 upon the Sublease Commencement Date.
6. SUBLESSEE IMPROVEMENTS.
Prior to the Sublease Commencement Date, Sublessor shall, at its sole
cost and expense, shampoo the carpets and paint the Sublet Premises.
7. USE AND CONDITION.
Sublessee may use the Sublet Premises only for general office and
software research and development purposes as permitted by the Prime Lease and
for no other purpose. Sublessor shall maintain the Sublet Premises in its
current condition, reasonable wear and tear excepted, from the effective date
hereof until the date of delivery of possession. To the best of Sublessor's
knowledge, there are no material defects in the Sublet Premises or any reason
they cannot be used for the purposes intended for the term of this Sublease.
Upon expiration of the term of this Sublease, Sublessee shall return the Sublet
Premises to Sublessor in the same condition as when possession was granted,
reasonable wear and tear excepted.
8. ASSIGNMENT AND SUBLETTING.
(a) Notwithstanding anything to the contrary contained in the Prime
Lease or this Sublease, Sublessee may further sublet or assign this Sublease if
Prime Landlord and Sublessor consent to such subleasing or assignment in
accordance with the Prime Lease. Consent by Sublessor shall not be unreasonably
withheld.
(b) Notwithstanding any assignment and assumption by the assignee of
the obligations of Sublessee hereunder, or any subletting, Sublessee shall
remain liable, jointly and severally, with its assignee or sublessee for the
performance and observance of Sublessee's obligations hereunder.
3
<PAGE> 4
9. ADMINISTRATIVE DETAILS AND ADDITIONAL SERVICES.
If Sublessee procures any additional services from the Prime Landlord
(such as custodial, maintenance or repair services), Sublessee shall pay Prime
Landlord directly for such additional services. Except in connection with
day-to-day administrative details and procurement of such additional services
and as otherwise expressly provided herein, Prime Landlord shall not be
obligated to deal directly with Sublessee and Sublessee shall have no
landlord-tenant relationship with Prime Landlord.
10. PRIME LEASE.
(a) Sublessor represents that it is not in default under the Prime
Lease and that, to the best of its knowledge, the Prime Landlord is not in
default thereunder. Sublessor further represents that the attached redacted copy
of the Prime Lease is a true and correct copy thereof. This Sublease is subject
and subordinate to the Prime Lease, however, Sublessee has no liability for
non-compliance with the redacted portions of the Prime Lease. The Prime Lease
shall control any conflict or inconsistency between the terms, covenants and
conditions of this Sublease and the terms, covenants, and conditions of the
Prime Lease. All the terms, covenants and conditions contained in the Prime
Lease shall be applicable to this Sublease with the same force and effect as if
Sublessor were the Landlord under the Prime Lease and Sublessee were the Tenant
under the Prime Lease.
(b) In case of any breach of this Sublease by Sublessee, Sublessor
shall have all the rights against Sublessee as would be available to the Prime
Landlord against the Tenant for Tenant's breach of the Prime Lease. Any breach
of this Sublease by Sublessee which would constitute a breach of the Prim Lease
if Sublessee were the Tenant under the Prime Lease shall constitute a breach of
the Prime Lease and Prime Landlord may exercise all rights and remedies
available under the Prime Lease against Sublessor and Sublessee, and may enforce
all provisions of this Sublease, including those pertaining to the collection of
Rent.
(c) This Sublease may not be modified without Prime Landlord's prior
written consent. Any modification without Prime Landlord's written consent shall
be null and void.
(d) If the Prime Lease is terminated or Prime Landlord re-enters or
repossesses the Sublet Premises, then Prime Landlord may, at its option, assume
Sublessor's right, title and interest as the Sublessor under this Sublease and,
at Prime Landlord's option, Sublessee will attorn to Prime Landlord.
Notwithstanding any such assumption, Prime Landlord shall: (i) have no
liabilities for any previous acts or omissions of Sublessor under this Sublease,
(ii) not be subject to any existing defense or offset against Sublessor, which
is not an existing defense or offset against Prime Landlord, (iii) not be bound
by any previous modification of this Sublease made without Prime Landlord's
prior written consent, or (iv) have no liabilities for any prepayment of more
than one-month's rent under this Sublease.
4
<PAGE> 5
(e) Sublessor shall promptly provide to Sublessee any notices from
Prime Landlord that affect Sublessee's use and/or occupancy of the Sublet
Premises.
(f) Provided that Sublessee performs all of its obligations
hereunder, Sublessor shall promptly perform all obligations under the Master
Lease.
11. INDEMNITY.
(a) Sublessee shall not do or permit anything to be done which would
be a breach or default under the Prime Lease or which would cause the Prime
Lease to be terminated or forfeited, and Sublessee shall indemnify, defend and
hold Sublessor harmless from and against any and all claims, costs, expenses,
liabilities, judgments, causes of action, and losses resulting from any such
breach or default by Sublessee under this Sublease or the Prime Lease.
(b) Sublessor shall indemnify, defend and hold Sublessee harmless
from and against any and all claims, costs, expenses, liabilities, judgments,
causes of action, and losses resulting from any such breach or default by
Sublessee under this Sublease or the Prime Lease.
12. INSURANCE.
(a) At all times during the Term, Sublessee will carry and maintain,
at Sublessee's expense, the following insurance, in the amounts specified below
or such other amounts as Sublessor may from time to time reasonably request,
with insurance companies and on forms satisfactory to Sublessor:
(i) Commercial General Liability "occurrence form," or
equivalent, covering the Premises and operations of the Sublessee, including
personal injury and contractual liability, with combined single limit for bodily
injury and property damage of not less than $1,000,000 per occurrence,
$1,000,000 annual aggregate, naming Sublessor, its agents and employees, and any
others specified from time to time by Sublessor, as Additional insured under
such Policy. Such policy will be primary insurance, and any similar insurance
which may be purchased by the Sublessor shall be excess of Sublessee's policy,
and not contributory therewith.
(ii) Insurance covering all of Sublessee's furniture and
fixtures, machinery, equipment, stock, and any other personal property owned or
used in Sublessee's business in an amount not less than the full replacement
value, against Basic Form Causes of Loss. (fire and extended coverage). All
policy proceeds will be used for the repair or replacement of the damaged or
destroyed property.
5
<PAGE> 6
(iii) Worker's compensation insurance insuring against and
satisfying Sublessee's obligations and liabilities under the Workers'
Compensation laws of the state of California, including Employer's Liability
insurance with a limit of not less dm $1,000,000.
(iv) If Sublessee operates owned, hired, or non-owned
vehicles on the project, Automobile Liability insurance with limits not less
than $1,000,000.
(b) Sublessee will not do or permit to be done any act or thing upon
the Premises or the Building which would:
(i) jeopardize or be in conflict with fire insurance
policies covering the Building and personal property in the Building;
(ii) increase the rate of fire insurance applicable to the
Building to an amount higher than it would otherwise be for general office use;
or
(iii) subject Sublessor to any liability or responsibility for
injury to any person or persons or to property by reason of any business or
operation being carried on upon the Premises or in the Building.
(c) Certificates of insurance, providing for ten (10) days advance
notice of cancellation, together with copies of the endorsements, when
applicable, naming Sublessor and any others specified by Sublessor as additional
insured on General Liability, will be delivered to Sublessor prior to
Sublessee's occupancy of the Premises and from time to time at least 10 days
prior to the expiration of the Term of each such policy. Such policies shall be
placed with an insurer with an A. M. Bests' Rating of not less than B+:V.
(d) Sublessor and Sublessee each waive any and all rights to recover
against the other and the Prime Landlord, and against the officers, directors,
shareholders or employees of such parties, for any loss or damage to such
waiving party arising from any cause covered by any property insurance carried
by such party.
13. POSSESSION.
If Sublessor fails or is unable to deliver possession on the date
required by this Sublease then rent, additional rent and any other charges with
respect to such space shall abate until Sublessor delivers possession.
14. SIGNS.
Sublessee may post signs on or about the Sublet Premises at Sublessee's
sole cost, in accordance with Prime Landlord's signage requirements.
6
<PAGE> 7
15. ALTERATIONS.
Sublessee may make alterations or additions to the interior or exterior
of the Sublet Premises if Prime Landlord consents to such alterations or
additions in accordance with the Prime Lease. Alterations and additions shall be
at Sublessee's sole expense. Sublessee shall indemnify, defend, and hold
Sublessor harmless from and against any and all claims and losses resulting from
such alterations and additions. At the expiration or earlier termination of this
Sublease, Sublessee shall remove all of its personal property located in or
about the Sublet Premises, including, without limitation, (i) its signs, (ii)
all movable furniture, trade fixtures, office equipment, and any of Sublessee's
personal belongings; and (iii) all telecommunication and other communication
cabling, including, without limitation, all copper wiring, coaxial wiring,
ethernet wiring, and fiber optic lines, as well as related conduit and
telecommunications equipment (e.g., routers, switches and relays) installed by
Sublessee beyond the minimum point of entry. In addition, Sublessee will return
the Sublet Premises to the condition at the time Sublessee took possession,
reasonable wear and tear excepted.
16. PARKING.
Sublessee shall have the non-exclusive right to use unreserved parking
spaces at a ratio of 4 parking stalls for each one thousand (1,000) RSF leased.
These stalls will be located within the covered garage or in the surface parking
area. All parking is provided free of charge.
17. PRIME LANDLORD'S CONSENT.
This Sublease shall not become effective and binding until Prime
Landlord has executed and delivered its consent thereto in the form attached to
this Sublease.
18. MISCELLANEOUS.
18.1 All notices, demands, requests, approvals, payments and other
communications between the parties (collectively "Notices") shall be in writing
at the address set forth below. Notices shall be sufficiently given if, and
shall be deemed not given unless, deposited in the United States mail postage
prepaid in certified or registered form, return receipt requested, or personally
served or delivered addressed as follows.
If to Sublessor:
California Casualty Management Company
Real Estate Department
1650 Telstar Drive
Colorado Springs, CO 80920-1004
Attn: Manager of Real Estate
7
<PAGE> 8
If to Sublessee:
Eloquent, Inc.
2000 Alameda de las Pulgas
San Mateo, CA 94403
Attn: Chief Financial Officer
If notices are personally delivered, copies also shall be mailed.
Notices shall be deemed given when personally served or delivered, two days
after deposit with Federal Express, or other similar overnight carrier, or five
days after deposit in the United States mail, postage-paid.
18.2 The covenants and agreements contained in this Sublease shall
bind and inure to the benefit of Sublessor, Sublessee and their respective
successors and assigns. This Sublease shall be interpreted for all purposes
under California law. The prevailing party in any action arising from this
Sublease shall be entitled to recover reasonable attorneys' fees.
18.3 All prior understandings and agreements between the parties
respecting the Sublet Premises are merged in this Sublease which alone fully and
completely sets forth the understanding of the parties. This Sublease may not be
changed or amended orally or in any manner other dm by a written agreement
signed by the parties, and approved in writing by Prime Landlord. Without first
obtaining Sublessee's agreement, Sublessor will not agree to amend the Prime
Lease in a manner that materially affects Sublessee's use or occupancy of the
Sublet Premises.
18.4 If either party hereto (i) makes a general assignment for the
creditors, (ii) admits in writing its inability to pay its debts as they become
due, files a in bankruptcy, (iii) is adjudicated as bankrupt or solvent, (iv)
files a petition in any pro seeking any reorganization, liquidation, dissolution
or similar relief under any law, an answer admitting the material allegations of
a petition filed against it in such proceeding, (vi) seeks, consents to or
acquiesces in the appointment of any trustee, receiver or liquidator, or (vii)
within ninety (90) days after the commencement of any proceeding against such
party seeking any reorganization, liquidation, dissolution or similar relief,
has not been dismissed or if within ninety days (90) after the appointment
without the consent or acquiescence of such party of any trustee, receiver or
liquidator, such appointment shall not have been vacated, then such party shall
be deemed in default hereunder and the other party may terminate this Sublease
at any time thereafter. In the event Sublessee files for bankruptcy protection,
all remaining payments under this Sublease constitute "rent reserved" under
applicable law.
18.5 Sublessor and Sublessee acknowledge that all real estate
commissions arising from this transaction shall be paid by Sublessor as part of
its agreement with Cornish & Carey Commercial.
8
<PAGE> 9
IN WITNESS WHEREOF, the parties have executed this Sublease effective as
of the date first set forth above.
SUBLESSEE: ELOQUENT, INC.
Date June 23, 1999 By /s/ signature illegible
------------- ----------------------------------------
Its CFO
---------------------------------------
SUBLESSOR: CALIFORNIA CASUALTY MANAGEMENT COMPANY
Date June 24, 1999 By /s/ signature illegible
------------- ----------------------------------------
Its Assistant Vice President and Real
Estate Manager
---------------------------------------
9
<PAGE> 10
Eloquent Sublease
2000/159
CONSENT OF PRIME LANDLORD
1. OTR, an Ohio general partnership ("Prime Landlord"), landlord
under the Prime Lease, consents to the foregoing Sublease; provided, however,
that except as specifically provided herein, this Consent shall not: (1)
constitute a waiver, amendment or modification of any term or condition of the
Prime Lease with respect to either Sublessor or Sublessee; or (2) limit the
obligations of Sublessor or the rights of Prime Landlord under the Lease; or (3)
make Prime Landlord a party to the Sublease.
2. Prime Landlord represents that (i) it is not in default under
the Prime Lease; (ii) to the best of its knowledge, Sublessor is not in default
under the Prime Lease; (iii) Sublessor has not paid rent for more than one month
in advance; and (iv) Sublessor's last rental payment was made June 23, 1999 for
the month of July, 1999.
OTR, an Ohio general partnership
Date 7/1/99 By /s/ signature illegible
------------------ ----------------------------------------
Its Director - West Region
---------------------------------------
10
<PAGE> 1
EXHIBIT 23.02
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
reports dated August 30, 1999, except as to subsequent events described in
Note 11 which is as of October 21, 1999, relating to the financial statements
and financial statement schedules of Eloquent, Inc., which appear in such
Registration Statement. We also consent to the reference to us under the
headings "Selected Financial Data" and "Experts" in such Registration Statement.
PricewaterhouseCoopers LLP
San Jose, California
October 21, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 9-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> SEP-30-1999 DEC-31-1998
<CASH> 3,431,202 6,660,939
<SECURITIES> 0 0
<RECEIVABLES> 3,507,280 2,086,777
<ALLOWANCES> 343,528 104,950
<INVENTORY> 0 0
<CURRENT-ASSETS> 6,943,545 9,015,549
<PP&E> 3,572,212 3,179,102
<DEPRECIATION> 1,546,672 991,287
<TOTAL-ASSETS> 9,688,722 11,461,375
<CURRENT-LIABILITIES> 9,631,914 4,851,688
<BONDS> 0 0
0 0
7,159 7,159
<COMMON> 3,452 3,472
<OTHER-SE> (842,577) 5,345,173
<TOTAL-LIABILITY-AND-EQUITY> 9,688,722 11,461,375
<SALES> 6,404,774 6,750,200
<TOTAL-REVENUES> 8,375,290 7,743,493
<CGS> 3,952,130 4,458,925
<TOTAL-COSTS> 5,097,130 6,175,032
<OTHER-EXPENSES> 12,895,612 11,514,948
<LOSS-PROVISION> 133,294 9,754
<INTEREST-EXPENSE> 418,594 259,343
<INCOME-PRETAX> (10,046,052) (10,008,040)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (10,046,055) (10,008,040)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (10,046,055) (10,008,040)
<EPS-BASIC> (3.06) (4.74)
<EPS-DILUTED> (3.06) (4.74)
</TABLE>
