<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 13, 1996
REGISTRATION NO. 333-04235
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
ONEWAVE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
DELAWARE 7379 04-3249618
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD (I.R.S. EMPLOYER
OF INCORPORATION OR INDUSTRIAL CLASSIFICATION IDENTIFICATION NO.)
ORGANIZATION) CODE NUMBER)
----------------
ONE ARSENAL MARKETPLACE
WATERTOWN, MASSACHUSETTS 02172
(617) 923-6500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
KLAUS P. BESIER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ONEWAVE, INC.
ONE ARSENAL MARKETPLACE
WATERTOWN, MASSACHUSETTS 02172
(617) 923-6500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPIES TO:
WILLIAM E. KELLY, ESQ. JOHN J. EGAN III, ESQ.
PEABODY & ARNOLD GOODWIN, PROCTER & HOAR LLP
50 ROWES WHARF EXCHANGE PLACE
BOSTON, MASSACHUSETTS 02110 BOSTON, MASSACHUSETTS 02109
MARK G. BORDEN, ESQ.
HALE AND DORR
60 STATE STREET
BOSTON, MASSACHUSETTS 02109
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
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, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same
offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES
AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
ONEWAVE, INC.
CROSS-REFERENCE SHEET SHOWING LOCATION IN THE PROSPECTUS OF
THE RESPONSES TO THE ITEMS OF FORM S-1
(PURSUANT TO ITEM 501 OF REGULATION S-K)
<TABLE>
<CAPTION>
FORM S-1 ITEM NUMBER OF CAPTION LOCATION OR HEADING IN PROSPECTUS
------------------------------- ---------------------------------
<S> <C>
1.Forepart of Registration Statement and Outside
Front Cover of Prospectus...................... Outside Front Cover Page
2.Inside Front and Outside Back Cover Pages of
Prospectus..................................... Inside Front Cover Page and Outside
Back Cover Page of Prospectus;
Prospectus Summary; Risk Factors
3.Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges...................... Outside Front Cover Page;
Inside Front Cover Page;
Prospectus Summary; The Company;
Risk Factors; Business
4.Use of Proceeds.................................. Use of Proceeds
5.Determination of Offering Price.................. Outside Front Cover Page; Underwriting
6.Dilution......................................... Dilution
7.Selling Security Holders......................... Management; Principal and Selling
Stockholders
8.Plan of Distribution............................. Outside Front Cover Page;
Inside Front Cover Page; Underwriting
9.Description of Securities to be Registered....... Description of Capital Stock
10.Interests of Named Experts and Counsel........... Not Applicable
11.Information with Respect to the Registrant
a.Description of Business....................... Risk Factors; The Company; Use of
Proceeds; Management's Discussion
and Analysis of Financial Condition
and Results of Operations; Business
b.Description of Property....................... Business--Facilities
c.Legal Proceedings............................. Not Applicable
d.Market Price of and Dividends on the
Registrant's Common Equity and Related
Stockholder Matters........................ Front Cover Page; Dividend Policy;
Underwriting; Principal and Selling
Stockholders; Shares Eligible for
Future Sale; Description of Capital Stock
e.Financial Statements.......................... Financial Statements
f.Selected Financial Data....................... Selected Financial Data
g.Supplementary Financial Information........... Not Applicable
h.Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................. Management's Discussion and Analysis of
Financial Condition and Results of
Operations
i.Changes in and Disagreements with Accountants
on Accounting and Financial Disclosures.... Not Applicable
j.Directors and Executive Officers.............. Management
k.Executive Compensation........................ Management; Certain Transactions
l.Security Ownership of Certain Beneficial
Owners and Management...................... Principal and Selling Stockholders
m.Certain Relationships and Related
Transactions............................... Certain Transactions
12.Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.................................... Not Applicable
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JUNE 13, 1996
3,750,000 SHARES
ONEWAVE, INC.
COMMON STOCK
(PAR VALUE $.001 PER SHARE)
-----------
Of the 3,750,000 shares of Common Stock offered hereby, 3,000,000 shares are
being sold by the Company and 750,000 shares are being sold by the Selling
Stockholders. See "Principal and Selling Stockholders". The Company will not
receive any of the proceeds from the sale of the shares being sold by the
Selling Stockholders.
Prior to this offering, there has been no public market for the Common Stock
of the Company. It is currently estimated that the initial public offering
price per share will be between $13.00 and $15.00. For factors to be considered
in determining the initial public offering price, see "Underwriting".
SEE "RISK FACTORS" ON PAGE 5 FOR CERTAIN CONSIDERATIONS RELEVANT TO AN
INVESTMENT IN THE COMMON STOCK.
Application has been made for quotation of the Common Stock on the Nasdaq
National Market under the symbol "OWAV".
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
-----------
<TABLE>
<CAPTION>
PROCEEDS
INITIAL PUBLIC UNDERWRITING TO PROCEEDS TO SELLING
OFFERING PRICE DISCOUNT(1) COMPANY(2) STOCKHOLDERS
-------------- ------------ ---------- -------------------
<S> <C> <C> <C> <C>
Per Share........... $ $ $ $
Total(3)............ $ $ $ $
</TABLE>
- -----
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933. See "Underwriting".
(2) Before deducting estimated expenses of $1,100,000 payable by the Company.
(3) The Company has granted the Underwriters an option for 30 days to purchase
up to an additional 562,500 shares at the initial public offering price per
share, less the underwriting discount, solely to cover over-allotments. If
such option is exercised in full, the total initial public offering price,
underwriting discount and proceeds to Company will be $ , $ and $ ,
respectively. See "Underwriting".
-----------
The shares offered hereby are offered severally by the Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to
their right to reject any order in whole or in part. It is expected that
certificates for the shares will be ready for delivery in New York, New York,
on or about , 1996, against payment therefor in immediately available funds.
GOLDMAN, SACHS & CO. HAMBRECHT & QUIST
-----------
The date of this Prospectus is , 1996.
<PAGE>
[Graphic depicts a three dimensional rectangular platform angled from the
upper left to bottom right of the page, divided into three segments. There is a
small gap between each of the platform segments. The front edges of these
segments are labeled, from right to left, "Data Access", "Functionality" and
"Presentation". The left end of the platform ends in a low brick wall, labeled
"Firewall." On the left side of the firewall is a cloud labeled "Internet".
Beyond the "Internet" cloud are three personal computers, labeled "Distributor",
"Partner" and "Customer". The screen of each computer says "Web Browser", and
the top of each computer is labeled "OpenScape WebEngine Client". There are
arrows from each computer to the "Firewall". On the "Presentation" platform
segment there are two computers. One is labeled "OpenScape WebEngine Client",
with the words "Web Browser" on its screen, and the other is labeled "OpenScape
WebEngine Client", with the words "Desktop Application" on its screen. There are
arrows between the "Firewall" and each of these computers to the box on the
"Functionality" platform segment. The "Functionality" segment is entirely
occupied by a box labeled "OpenScape Distributed WebEngine Data Integration &
Analysis". Attached to this box and extending across the gap and over a small
portion of the "Data Access" segment is a rectangular box with four cylinders
extending farther out over the "Data Access" segment labeled "OpenScape
OpenExtension". Placed on the "Data Access" segment, in front of each of these
cylinders, are four small rectangular boxes labeled (from back to front) "Legacy
System", "Client/Server System", "Database" and "Emerging Technologies". There
is an arrow from each of the "OpenExtension" cylinders to the box directly in
front of it. Behind the "Presentation" segment is the label "Intranet"; behind
the "Functionality" segment is the label "Enterprise"; and behind the "Data
Access" segment is the label "Current IT System."]
OneWave's OpenScape products allow organizations to Web-enable business
applications through use of a distributed component, multi-tier client/server
architecture, where presentation, functionality and data access layers are
developed and deployed independently of each other. OpenScape products provide
the high-volume and real-time performance capabilities required by businesses
through the utilization of standard Internet protocols, component-based,
object-oriented technology, a scalable, multi-tier architecture and an
intuitive point-and-click development environment. The Company believes that
its products will enable organizations to achieve significant competitive
advantages by increasing responsiveness to changing business conditions, and
exploiting the low cost, flexibility and ease-of-use of Internet technologies.
---------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN
THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.
---------------------
"OneWave" and all of the Company's logos and product names are trademarks of
the Company and are used throughout this document as such. This prospectus
also contains trademarks of other companies.
<PAGE>
1
[4/c )
[Graphic entitled "OneWave Solution" depicts a map of the United States, with
images of buildings labeled as "Company Headquarters", "Company Sales Office",
"Company Manufacturing Plant", "Company Distribution Center", "Company R&D
Center" and "Company Southeast Regional Office", placed at various locations
around the map, and encircled by arrows labeled "Intranet" in two places.
Another arrow leads from "Company Headquarters" to "Company Sales Office".
Another arrow leads from "Company Headquarters" to a brick wall labeled
"Firewall" located in the upper left quarter of the graphic. Beyond the
"Firewall" there is a cloud labeled "Internet". Beyond the cloud farther to the
left and top of the picture, there are nine buildings, arranged in three lines
of three buildings each, with each building in the first line labeled
"Distributors", in the second line labeled "Business Partners" and in the third
line labeled "Customers". There are arrows leading from each of the buildings
which is first in each line into the "Internet" cloud.]
OneWave Inc. is a provider of "Web-enabled" software for the development and
deployment of mission-critical business applications across an organization's
disparate information technology ("IT") systems and the extension of those
applications to Intranets and the Internet. The Company's OpenScape products
enable organizations to extend their current IT capabilities to conduct new,
dynamic and interactive communications and transactions with key audiences in
their extended enterprise, including customers, suppliers, distributors and
business partners.
<PAGE>
[4/C ART]
<PAGE>
PROSPECTUS SUMMARY
The following summary should be read in conjunction with, and qualified in
its entirety by, the more detailed information and the Financial Statements and
Notes thereto appearing elsewhere in this Prospectus. Except as otherwise
noted, all information contained in this Prospectus, including share and per
share information, (i) assumes no exercise of the Underwriters' over-allotment
option, (ii) reflects the conversion upon the consummation of this offering of
all outstanding shares of the Company's Series B Redeemable Convertible
Preferred Stock ("Series B Preferred Stock") and Series C Convertible Preferred
Stock ("Series C Preferred Stock") into 1,775,194 shares of Common Stock, and
(iii) reflects a two-for-three reverse stock split of the Company's Common
Stock effected in May 1996.
THE COMPANY
OneWave, Inc., formerly Business@Web, Inc. ("OneWave" or the "Company"), is a
provider of "Web-enabled" software for the development and deployment of
mission-critical business applications across an organization's disparate
information technology ("IT") systems and the extension of those applications
to Intranets and the Internet. The Company's OpenScape products enable
organizations to extend their current IT capabilities to conduct new, dynamic
and interactive communication and transactions with key audiences in their
"extended enterprise", including customers, suppliers, distributors and
business partners. OpenScape products provide the high-volume and real-time
performance capabilities required by businesses through the utilization of
standard Internet protocols, component-based, object-oriented technology, a
scaleable, multi-tier architecture and an intuitive point-and-click development
environment. The Company believes that its products will enable organizations
to achieve significant competitive advantages by increasing responsiveness to
changing business conditions, and exploiting the low cost, flexibility and
ease-of-use of Internet technologies.
In response to increased competitive pressures, businesses have engaged in
the reengineering of critical business processes in an attempt to realize
productivity and efficiency gains. A critical enabler of these reengineering
efforts has been the strategic use of information technology, such as legacy
and client/server systems. To date, the development and deployment of effective
enterprise-wide business applications have been limited by the proliferation of
multiple IT systems. The recent emergence of the World Wide Web and Internet
technologies offers businesses the opportunity to significantly improve
collaboration and communication both within the enterprise and with the
extended enterprise. Accordingly, organizations are increasingly seeking a
cost-effective IT solution which maximizes the value of their existing IT
infrastructure, while simultaneously capturing the strategic business benefits
of the Internet. Organizations are able to address this need through the use of
the Company's OpenScape development environment and its Distributed WebEngine,
WebEngine Client and OpenExtension products.
The Company's objective is to be a leading provider of software which
supports the development and deployment of Web-enabled business applications.
The Company intends to integrate emerging technologies in future OpenScape
product releases and to continually introduce additional OpenExtensions,
specific preconfigured add-on products which enable communications with
proprietary environments. The Company also intends to develop multiple
distribution channels, focusing primarily on the Company's direct sales force,
and its strategic relationships with leading technology companies including
BBN, Baan, Deloitte & Touche/ICS, Hewlett-Packard, Informix, NEC, PeopleSoft
and SAP.
The Company was incorporated in Delaware in January 1994. The Company's
executive offices are located at One Arsenal Marketplace, Watertown, MA 02172
and its telephone number is (617) 923-6500.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company.................... 3,000,000 shares
Common Stock offered by the Selling Stockholders....... 750,000 shares
Common Stock to be outstanding after the offering...... 14,844,890 shares(1)
Proposed Nasdaq National Market symbol................. OWAV
Use of proceeds........................................ For working capital,
repayment of debt and
other general
corporate purposes,
including possible
acquisitions.
</TABLE>
3
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
JANUARY 19, 1994
(INCEPTION) TO YEAR ENDED THREE MONTHS
DECEMBER 31, 1994 DECEMBER 31, 1995 ENDED MARCH 31,
----------------- ----------------- ----------------
1995 1996
------- --------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Total revenues.......... $ -- $6,070 $ 416 $ 2,381
Gross profit............ -- 2,669 222 1,118
Operating loss.......... (1,180) (2,621) (290) (8,497)
Net loss................ (1,180) (2,698) (290) (8,515)
Pro forma net loss per
common and common
equivalent share(2).... $(.21) $ (.65)
Pro forma weighted
average number of
common and common
equivalent shares
outstanding(2)......... 12,871 13,141
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
------------------------------------
PRO FORMA AS
ACTUAL PRO FORMA(3) ADJUSTED(3)(4)
------- ----------- --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................. $ 4,822 $ 4,792 $42,752
Working capital (deficit).................. (925) (955) 37,005
Total assets............................... 8,939 8,909 46,869
Redeemable preferred stock................. 7,380 -- --
Stockholders' equity (deficit)............. (6,933) 417 38,377
</TABLE>
- --------
(1) Based upon the number of shares of Common Stock outstanding as of May 1,
1996 after giving effect to the conversion of all outstanding shares of
Series C Preferred Stock into 799,994 shares of Common Stock and all
outstanding shares of Series B Preferred Stock into 975,200 shares of
Common Stock, in each case upon the consummation of this offering and, with
respect to the Series B Preferred Stock, assuming an initial public
offering price of $14.00 per share. If the initial public offering price
varies from $14.00 per share, the number of shares of Common Stock issuable
upon conversion of the Series B Preferred Stock is subject to adjustment
from a maximum of 1,103,137 shares of Common Stock (in the event that the
initial public offering price is $12.375 per share or less) to a minimum of
888,085 shares of Common Stock (in the event that the initial public
offering price is $15.375 per share or greater). Excludes (i) 3,500,000
shares of Common Stock reserved for issuance pursuant to the Company's
stock option plans, under which options for the purchase of an aggregate of
2,404,133 shares were outstanding as of May 1, 1996, (ii) 150,000 shares of
Common Stock reserved for issuance pursuant to the Company's Employee Stock
Purchase Plan and (iii) 23,333 shares of Common Stock that may be issued
upon the exercise of an outstanding Common Stock purchase warrant. See
"Management--Stock Plans", "Description of Capital Stock--Authorized and
Outstanding Capital Stock", "--Employee Stock Purchase Plan" and "--
Warrant" and Note 6 of Notes to Financial Statements.
(2) See Note 1(k) of Notes to Financial Statements for an explanation of the
determination of the number of shares used in computing pro forma net loss
per common and common equivalent share.
(3) Presented on a pro forma basis to give effect to (i) the sale subsequent to
March 31, 1996 of 1,200,000 shares of Series C Preferred Stock and the
receipt of $5,970,000 in net proceeds therefrom, (ii) the repurchase and
retirement subsequent to March 31, 1996 of 800,000 shares of Common Stock
for $6,000,000 and (iii) the automatic conversion of all outstanding shares
of Series B Preferred Stock and Series C Preferred Stock into 1,775,194
shares of Common Stock upon the consummation of this offering. See
"Description of Capital Stock--Authorized and Outstanding Capital Stock".
(4) Adjusted to give effect to the sale of 3,000,000 shares of Common Stock
offered by the Company at an assumed public offering price of $14.00 per
share, after deduction of the estimated underwriting discount and estimated
offering expenses payable by the Company.
4
<PAGE>
RISK FACTORS
This Prospectus contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. The Company's actual results could differ
materially from those set forth in the forward-looking statements as a result
of certain of the risk factors set forth below and elsewhere in this
Prospectus. In addition to the other information contained in this Prospectus,
the following factors should be considered carefully in evaluating an
investment in the Common Stock offered by this Prospectus.
LIMITED OPERATING HISTORY; ACCUMULATED DEFICIT
The Company was founded in January 1994 and introduced its first OpenScape
products on a commercial basis in late December 1995. Most of the Company's
revenues to date have been attributable to consulting and education services.
Accordingly, the Company has only a limited operating history upon which an
evaluation of the Company and its products and prospects can be based. The
Company's prospects must be considered in light of the risks, expenses and
difficulties frequently encountered by companies in their early stage of
development, particularly companies in new and rapidly evolving markets. To
address these risks, the Company must, among other things, respond to
competitive developments, continue to attract, retain and motivate qualified
management and other employees, continue to upgrade its technologies and
commercialize products and services which incorporate such technologies and
achieve market acceptance for its OpenScape products. There can be no
assurance that the Company will be successful in addressing such risks. The
Company has incurred net losses since inception and expects to continue to
operate at a loss for the foreseeable future. As of March 31, 1996, the
Company had an accumulated deficit of approximately $12,400,000. There can be
no assurance that the Company will achieve or sustain profitability. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS
The Company may experience significant fluctuations in future quarterly
operating results that may be caused by many factors, including demand for the
Company's products, introduction, enhancement or announcement of products by
the Company and its competitors, market acceptance of new products, size and
timing of significant orders, budgeting cycles of its customers, mix of
distribution channels, mix of products and services sold, mix of international
and North American revenues, changes in the level of operating expenses,
changes in the Company's sales incentive plans, customer order deferrals in
anticipation of enhancements or new products offered or announced by the
Company or its competitors, and general economic conditions. The Company
believes that a significant portion of its revenues may be derived from a
limited number of large orders, and the timing of such orders and their
fulfillment can be expected to cause material fluctuations in the Company's
operating results, particularly on a quarterly basis. In addition, the Company
intends to continue to expand its direct sales force. The timing of such
expansion and the rate at which new salespeople become productive could also
cause material fluctuations in the Company's quarterly financial condition and
operating results. As a result, the Company believes that period-to-period
comparisons of its results of operations are not necessarily meaningful and
should not be relied upon as any indication of future performance. In
addition, it is typical for software companies to recognize a substantial
portion of their revenues during the last few weeks of each quarter;
therefore, any delays in orders or shipments are likely to result in revenues
not being recognized until the following quarter. The Company's current
expense levels are based in part on its expectations of future revenues and,
as a result, net income for a given period could be disproportionately
affected by any reduction in revenues. There can be no assurance that the
Company will be able to achieve significant revenues, that the level of
revenues in the future will not decrease from past levels or that in some
future quarter the Company's revenues or operating results will not be below
the expectations of stock market securities analysts and investors. In such
event, the
5
<PAGE>
Company's profitability and price of its Common Stock could be materially and
adversely affected. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
RECENT INTRODUCTION OF OPENSCAPE PRODUCTS; NEW RELEASES
The Company introduced its first OpenScape products in late December 1995.
Sales of OpenScape products accounted for $488,000, or 20% of total revenues,
in the three months ended March 31, 1996. The Company's future success will
depend in large part on the Company's ability to increase sales of the
OpenScape product line which, in turn, will depend in part on the successful
development, introduction and market acceptance of new releases of OpenScape
products. To date, only a limited number of the Company's customers have
developed and deployed Internet applications using the Company's software. In
June 1996, the Company introduced Version 2.0 of its OpenScape product, which
provides additional capabilities for the effective development of Internet
applications. The Company anticipates that its future revenues will depend to
a significant degree on the successful introduction and market acceptance of
its OpenScape Version 2.0. In addition, the Company's future success will
depend on its ability to develop new OpenExtensions that enable applications
developed with the Company's products to integrate with various back-end
systems, applications and databases from vendors such as Baan, Informix,
PeopleSoft and SAP. There can be no assurance that any of the Company's
planned products will be successfully introduced or will achieve market
acceptance, and such failure to do so could have a material adverse effect on
the Company's business, prospects, financial condition and results of
operations.
DEVELOPING MARKET; UNPROVEN ACCEPTANCE OF THE COMPANY'S PRODUCTS
The market for the Company's software and services has only recently begun
to develop, is rapidly evolving and is characterized by an increasing number
of market entrants who have introduced, developed or announced products and
services for communication, collaboration and commerce over Intranets and the
Internet. As is typical in the case of a new and rapidly evolving industry,
demand and market acceptance for recently introduced products and services are
subject to a high level of uncertainty. The industry is evolving and has few
proven products. While the Company believes that its software products offer
significant advantages for communication, collaboration and commerce over
Intranets and the Internet, there can be no assurance that the market for the
Company's products and services will develop, that the Company's products and
services will achieve market acceptance, or that Intranets, the Internet and
related technologies will achieve widespread acceptance by businesses. If the
market for the Company's software and services fails to develop, develops more
slowly than expected or becomes saturated with competitors, or if the
Company's products do not achieve market acceptance, the Company's business,
prospects, financial condition and results of operations will be materially
adversely affected.
DEPENDENCE ON THE INTERNET
Sales of the Company's products will depend to a significant degree upon
development of robust demand for, and the infrastructure necessary to support,
commercial Internet access and traffic. The Internet may not prove to be a
viable commercial marketplace because of inadequate development of the
necessary infrastructure, such as a reliable network backbone or timely
development of complementary products, such as high speed modems. Because
communication, collaboration and commerce over Intranets and the Internet is
new and evolving, it is difficult to predict with any certainty whether the
infrastructure or complementary products necessary to make such applications
commercially viable will develop or, if developed, that there will be
sufficient commercial demand for the use of Intranets and the Internet. In
addition, critical issues concerning the commercial use of the Internet,
including security, reliability, cost, ease-of-use, access, and quality of
service, remain
6
<PAGE>
unresolved and may impact the growth of such use by businesses. Moreover, the
adoption of Intranets and the Internet for communications, collaboration and
commerce may be slowed as a result of enterprises that have already invested
substantial resources in other IT systems being particularly reluctant or slow
to adopt a new strategy or technology. If the infrastructure or complementary
products necessary for widespread business use of Intranets and the Internet
are not developed, or if Intranets or the Internet does not otherwise become
commercially viable, the Company's business, prospects, financial condition
and results of operations will be materially adversely affected.
COMPETITION
The market for Internet-based software and services is new, intensely
competitive and subject to rapid technological change. The Company expects
competition to persist and intensify in the future. Almost all of the
Company's current and potential competitors have significantly greater
financial, technical and marketing resources than the Company. The Company's
competitors may be able to respond more quickly to new or emerging
technologies and changes in customer requirements or devote greater resources
than the Company to the development, promotion and sale of their products.
Also, many current and potential competitors have greater name recognition and
more extensive customer bases that could be leveraged to gain market share to
the Company's detriment.
The Company expects to face additional competition as other established and
emerging companies enter the market for Internet-based solutions and new
products and technologies are introduced. Increased competition could result
in price reductions, fewer customer orders, reduced profitability and loss of
market share, any of which could materially adversely affect the Company's
business, prospects, financial condition and results of operations. In
addition, current and potential competitors may make strategic acquisitions or
establish cooperative relationships among themselves or with third parties,
thereby increasing their ability to deliver products which address the needs
of the Company's prospective customers. Current and potential competitors may
also be more successful than the Company in having their products or
technologies widely accepted. Accordingly, it is possible that new competitors
or alliances among current and new competitors may emerge and rapidly gain
significant market share. Such competition could materially adversely affect
the Company's ability to obtain and retain market acceptance for its products
and services. There can be no assurance that the Company will be able to
compete successfully against current and future competitors, and the failure
to do so could have a material adverse effect upon the Company's business,
prospects, financial condition and results of operations. See "Business--
Competition".
NEW PRODUCT DEVELOPMENT
A substantial portion of the Company's future revenues is expected to be
derived from the license of its OpenScape software and the sale of related
services. Accordingly, broad acceptance of the Company's software products and
services by customers is critical to the Company's future success, as is the
Company's ability to design, develop, test and support new software products
and enhancements on a timely basis that meet changing customer needs and
respond to technological developments and emerging industry standards. There
can be no assurance that the Company will be successful in developing and
marketing new software products and enhancements that meet changing customer
needs and respond to such technological changes or evolving industry
standards. In addition, there can be no assurance that the Company will not
experience difficulties that could delay or prevent the successful
development, introduction and marketing of new products and enhancements, or
that its new products and enhancements will adequately meet the requirements
of the marketplace and achieve market acceptance. If any of the Company's
future enhancements or products experience delays in release dates, or if they
fail to achieve market acceptance, the Company's business, prospects,
financial condition and results of operations could be materially adversely
affected. In addition, the introduction or announcement of new product
offerings or
7
<PAGE>
enhancements by the Company or the Company's competitors may cause customers
to defer or forgo purchases of current versions of the Company's products
which could have a material adverse effect on the Company's business,
prospects, financial condition and results of operations. See "Business--
Products" and "--Research and Development".
RISK OF SOFTWARE DEFECTS
Software products as internally complex as the Company's products frequently
contain errors or defects, especially when first introduced or when new
versions or enhancements are released. The Company introduced Version 2.0 of
OpenScape in June 1996. There can be no assurance that, despite testing by the
Company, defects and errors will not be found in OpenScape Version 2.0, the
Company's other current products, or future products and enhancements,
resulting in loss of revenues or delay in market acceptance, which in turn
could have a material adverse effect upon the Company's business, prospects,
financial condition and results of operations. See "Business--Research and
Development".
RELIANCE ON STRATEGIC RELATIONSHIPS
A key element of the Company's business strategy is to develop relationships
with leading industry organizations in order to increase the Company's market
presence, expand distribution channels and broaden the Company's product line.
The Company believes that its continued success depends in large part on its
ability to develop and maintain such relationships. Many of the Company's
strategic relationships are informal and non-exclusive, and do not require the
other party to sell the Company's products or expend resources toward the
promotion of the Company's products. In addition, these relationships
generally can be terminated by either party at any time. There can be no
assurance that the Company's existing or future strategic partners will not
develop and market products in direct competition with the Company or
otherwise discontinue their relationships with the Company, or that the
Company will be able to successfully develop additional strategic
relationships. The failure of the Company's strategic partners to augment the
sales of the Company's products could have a material adverse effect on the
Company's business, prospects, financial condition and results of operations.
See "Business--Strategic Alliances".
MANAGEMENT OF GROWTH
The rapid execution necessary for the Company to fully exploit the market
window for its products and services requires an effective planning and
management process. The Company's rapid growth has placed, and is expected to
continue to place, a significant strain on the Company's managerial,
operational and financial resources. The senior members of the Company's
management, including Klaus P. Besier, the Company's Chairman of the Board,
President and Chief Executive Officer, John Burke, the Company's Vice
President of Sales, Carolyn LoGalbo, the Company's Vice President of
Marketing, and Joseph Grattadauria, the Company's Vice President of Support
Services and Quality, have joined the Company during 1996. In addition, most
of the Company's development and engineering staff was only recently hired. To
manage its growth, the Company must continue to implement and improve its
operational and financial systems and to expand, train and manage its employee
base. The Company's future operating results will also depend on its ability
to expand its sales and marketing organizations, implement and manage new
distribution channels, penetrate different and broader markets, and grow its
services and support organizations commensurate with the increasing base of
its installed products. Further strain could also be placed on the Company's
resources should the Company choose to make acquisitions of complementary
businesses, products or technologies. If the Company is unable to plan and
manage its growth effectively, the Company's business, prospects, financial
condition and results of operations could be materially adversely affected.
See "Business--Research and Development" and "-- Employees".
8
<PAGE>
DEPENDENCE ON KEY PERSONNEL
The Company's performance is substantially dependent on the performance of
its executive officers and key employees, most of whom have worked together
for only a short period of time. Given the Company's early stage of
development, the Company is dependent on its ability to retain and motivate
high quality personnel, especially its management and highly skilled
development teams. The loss of the services of Klaus P. Besier, the Company's
Chairman of the Board, President and Chief Executive Officer, or any of its
executive officers or other key employees could have a material adverse effect
on the Company. The Company's future success also depends on its continuing
ability to identify, hire, train and retain other highly qualified technical
and managerial personnel. Competition for such personnel is intense, and there
can be no assurance that the Company will be able to attract, assimilate or
retain other highly qualified technical and managerial personnel in the
future. The inability to attract and retain the necessary technical and
managerial personnel could have a material adverse effect upon the Company's
business, prospects, financial condition and results of operations. See
"Business--Employees" and "Management".
EVOLVING DISTRIBUTION STRATEGY
The Company's distribution strategy includes leveraging its strategic
relationships and expanding its direct sales force. The Company has received
limited commitments to assist in the marketing and sale of its products from
the organizations with which it has established strategic relationships, but
there can be no assurance that any such commitments will lead to sales of such
products. The Company plans to expand its direct sales and support
organization to pursue prospects generated through its strategic relationships
and marketing initiatives. There can be no assurance that such internal
expansion will be successfully completed, that the cost of such expansion will
not exceed the revenues generated, or that the Company's sales and marketing
organization will be able to successfully compete against the significantly
more extensive and well-funded sales and marketing operations of many of the
Company's current or potential competitors. The Company's inability to
effectively manage its internal expansion could have a material adverse effect
on the Company's business, prospects, financial condition and results of
operations.
The Company also expects to augment its direct sales efforts by adding
value-added resellers ("VARs") and independent software vendors ("ISVs"). The
Company expects that any material increase in sales through VARs and ISVs as a
percentage of total revenues, especially in the percentage of sales through
VARs, will adversely affect the Company's average selling prices and gross
margins due to the lower unit prices that are typically received by the vendor
when selling through indirect channels. Agreements with VARs and ISVs
typically do not restrict VARs and ISVs from distributing competing products,
and in many cases may be terminated by either party without cause. The
Company's inability to recruit, manage or retain qualified VARs and ISVs, or
their inability to penetrate their respective market segments, could have a
material adverse effect on the Company's business, prospects, financial
condition and results of operations. See "Business--Sales and Marketing".
PROPRIETARY TECHNOLOGY; INTELLECTUAL PROPERTY
The Company's success and ability to compete is dependent in part upon its
proprietary technology. While the Company relies on a combination of
trademark, copyright and trade secret laws, employee and third-party
nondisclosure agreements and other methods to protect its technology, the
Company believes that factors such as the skills of its development personnel
are more essential to establishing and maintaining a technology leadership
position. The Company presently has no patents or patent applications pending.
There can be no assurance that competitors will not develop technologies that
are similar or superior to the Company's technology. The Company generally
enters into confidentiality or license agreements with its employees and
consultants, and generally controls access to and distribution of its source
code and other proprietary information. Despite these precautions, it may be
possible for a third party to copy or otherwise obtain and use the Company's
products or technology without authorization, or to develop similar technology
independently. In
9
<PAGE>
addition, effective copyright and trade secret protection may be unavailable
or limited in certain foreign countries, and the global nature of the Internet
makes it virtually impossible to control the ultimate destination of the
Company's products. Despite the Company's efforts to protect its proprietary
rights, unauthorized parties may attempt to copy aspects of the Company's
products or to obtain and use information that the Company regards as
proprietary. Policing unauthorized use of the Company's products is difficult.
There can be no assurance that the steps taken by the Company will prevent
misappropriation of its technology or that such agreements will be
enforceable. In addition, litigation may be necessary in the future to enforce
the Company's intellectual property rights, to protect the Company's trade
secrets, to determine the validity and scope of the proprietary rights of
others, or to defend against claims of infringement or invalidity. Such
litigation could result in substantial costs and diversion of resources and
could have a material adverse effect on the Company's business, prospects,
financial condition and results of operations.
DEPENDENCE ON THIRD-PARTY TECHNOLOGY
Certain of the Company's products contain software that is licensed to the
Company by third parties. There can be no assurance that these third-party
software licenses will continue to be available to the Company on commercially
reasonable terms. For example, certain technology incorporated in the
Company's software, including InterGroup Technologies, Inc.'s VisualWare for
Windows and Mystic River Software, Inc.'s Softbridge Basic Language, is
licensed from third parties on a nonexclusive basis. The termination of any of
such licenses, or the failure of the third-party licensors to adequately
maintain or update their products, could result in significant delay in the
Company's ability to ship certain of its products while it seeks to implement
technology offered by alternative sources. In addition, any required
replacement licenses could prove more costly than the Company's current
license relationships and might not provide technology as powerful and
functional as the third-party technology currently licensed by the Company.
Also, any such delay could have a material adverse effect on the Company's
results of operations for that quarter. While it may be necessary or desirable
in the future to obtain other licenses relating to one or more of the
Company's products or relating to current or future technologies, there can be
no assurance that the Company will be able to do so on commercially reasonable
terms or at all. The loss of, or inability to maintain, any such software
could result in shipment delays or reductions until equivalent software could
be developed, identified, licensed and integrated which could materially
adversely affect the Company's business, prospects, financial condition and
results of operations. See "Business--Strategic Alliances" and "--Proprietary
Rights".
PRODUCT LIABILITY
The Company markets its products and services to customers for the
development, deployment and management of critical business applications. The
Company's license agreements with its customers typically contain provisions
designed to limit the Company's exposure to potential product liability
claims. The Company may not, however, always be able to obtain adequate
contractual limitations on liability from its customers and end users and, in
any event, such provisions may not be effective as a result of existing or
future federal, state or local laws or ordinances or unfavorable judicial
decisions. Although the Company has not experienced any material product
liability claims to date, the sale and support of the Company's products may
entail the risk of such claims, which could be significant. A successful
product liability claim brought against the Company could have a material
adverse effect upon the Company's business, prospects, financial condition and
results of operations.
RISKS ASSOCIATED WITH GLOBAL OPERATIONS
Since its inception, the Company has derived less than 17% of its total
revenues in each year from sales to customers outside of the United States.
The Company intends to expand its operations outside of the United States and
enter additional international markets, which will require significant
10
<PAGE>
management attention and financial resources. The Company's ability to expand
the acceptance and use of its core technologies internationally is limited by
the general acceptance of the Internet and Intranets in other countries. The
Company expects to commit additional time and development resources to
customizing its products for selected international markets and developing
international sales and support channels. There can be no assurance that such
efforts will be successful. In addition, as the Company increases its
international sales, its total revenues may also be affected to a greater
extent by seasonal fluctuations resulting from lower sales that typically
occur during the summer months in Europe and other parts of the world. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations". In addition, the use of encryption technologies in the Company's
products could subject such products to export and/or import restrictions. Any
such export or import limitations could have a material adverse effect on the
ability to sell the Company's products outside the United States.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES
The Company is not currently subject to direct regulation by any
governmental agency, other than regulations applicable to business generally,
and there are currently few laws or regulations directly applicable to access
to or commerce on the Internet. Due to the increasing popularity and use of
the Internet, however, it is possible that a number of laws and regulations
may be adopted with respect to the Internet, covering issues such as user
privacy, pricing and characteristics and quality of products and services. The
adoption of any such laws or regulations may decrease the growth of the
Internet, which could in turn decrease the demand for the Company's products
and increase the Company's cost of doing business or otherwise have a material
adverse effect on the Company's business, prospects, financial condition and
results of operations. Moreover, the applicability to the Internet of existing
laws governing issues such as property ownership, libel and personal privacy
is uncertain.
CONCENTRATION OF STOCK OWNERSHIP
Upon completion of this offering, the present directors, executive officers,
holders of 5% or more of the Common Stock, and their respective affiliates
will beneficially own approximately 66% of the outstanding Common Stock
assuming no exercise of the Underwriters' over-allotment option and 63% of the
outstanding Common Stock assuming full exercise of the Underwriters' over-
allotment option. As a result, these stockholders will be able to exercise
significant influence over all matters requiring stockholder approval,
including the election of directors and approval of significant corporate
transactions. Such concentration of ownership may also have the effect of
delaying or preventing a change in control of the Company. See "Principal and
Selling Stockholders" and "Description of Capital Stock--Delaware Law and
Certain Charter Provisions".
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Company's
Common Stock, and there can be no assurance that an active public market for
the Common Stock will develop or be sustained after the offering. The initial
offering price was determined by negotiation between the Company and the
Underwriters based upon several factors. See "Underwriting" for a discussion
of the factors considered in determining the initial public offering price.
The market price of the Company's Common Stock is likely to be highly volatile
and could be subject to wide fluctuations in response to quarterly variations
in operating results, announcements of technological innovations or new
products by the Company or its competitors, changes in financial estimates by
securities analysts, or other events or factors. In addition, the stock market
has experienced significant price and volume fluctuations that have
particularly affected the market prices of equity securities of many high
technology companies and that have been unrelated to the operating performance
of such companies. In the past, following periods of volatility in the market
price of a company's securities, securities class
11
<PAGE>
action litigation has often been instituted against such a company. Such
litigation could result in substantial costs and a diversion of management's
attention and resources, which would have a material adverse effect on the
Company's business, prospects, financial condition and results of operations.
These broad market fluctuations may adversely affect the market price of the
Company's Common Stock. See "Underwriting".
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock in the public market
following this offering could adversely affect the market price for the Common
Stock. See "Description of Capital Stock" and "Shares Eligible for Future
Sale".
EFFECT OF CERTAIN CHARTER PROVISIONS; ANTI-TAKEOVER EFFECTS OF RESTATED
CERTIFICATE OF INCORPORATION, RESTATED BY-LAWS AND DELAWARE LAW
The Board of Directors has the authority to issue up to 5,000,000 shares of
Preferred Stock and to determine the price, rights, preferences, privileges
and restrictions, including voting rights, of those shares without any further
vote or action by the stockholders. The rights of the holders of Common Stock
will be subject to, and may be adversely affected by, the rights of the
holders of any Preferred Stock that may be issued in the future. The issuance
of Preferred Stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
making it more difficult for a third party to acquire a majority of the
outstanding voting stock of the Company. The Company has no present plans to
issue shares of Preferred Stock. Further, certain provisions of the Company's
Restated Certificate of Incorporation, including provisions that create a
classified board of directors, and of the Company's Restated By-laws and of
Delaware law could delay or make difficult a merger, tender offer or proxy
contest involving the Company. See "Management--Executive Officers and
Directors", "Description of Capital Stock--Preferred Stock" and "--Delaware
Law and Certain Charter Provisions".
DILUTION
Investors in this offering will incur immediate, substantial dilution. To
the extent outstanding options to purchase the Company's Common Stock are
exercised, there will be further dilution. See "Dilution".
12
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 3,000,000 shares of
Common Stock being offered by the Company in this offering are estimated to be
$37,960,000 ($45,283,750 if the Underwriters' over-allotment option is
exercised in full), assuming an initial public offering price of $14.00, and
after the deduction of the estimated underwriting discount and estimated
offering expenses payable by the Company. The Company will not receive any
proceeds from the sale of Common Stock by the Selling Stockholders. See
"Principal and Selling Stockholders".
The principal purposes of this offering are to increase the Company's equity
capital, to create a public market for the Company's Common Stock, to
facilitate future access by the Company to public equity markets, to provide
liquidity to existing stockholders, to provide increased visibility and
credibility in a marketplace where many of its current and potential
competitors are or will be publicly held companies, and to enhance the ability
of the Company to use its Common Stock as consideration for acquisitions and
as a means of attracting and retaining key employees.
The Company intends to use a portion of the net proceeds for the repayment
of a $2,000,000 principal amount term loan from State Street Bank and Trust
Company which matures in September 1996. The term loan bears interest at the
bank's prime rate plus 1% and the proceeds thereof were used to fund the
license fees due under a certain source code license agreement.
The remainder of the net proceeds will be used for working capital and other
general corporate purposes. The amount actually expended by the Company for
working capital purposes will vary significantly depending upon a number of
factors, including future revenue growth, the amount of cash generated by the
Company's operations and the progress of the Company's product development
efforts. The Company may also use a portion of the net proceeds to fund
possible acquisitions of, or investments in, businesses, products and
technologies that are complementary to those of the Company. The Company has
no specific agreements, commitments or understandings with respect to any such
acquisitions or investments. Pending such uses, the Company intends to invest
the net proceeds of this offering in investment-grade, interest bearing
instruments. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources".
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its Common Stock.
The Company currently intends to retain all of its earnings to finance future
growth and therefore does not anticipate paying any cash dividends on its
Common Stock in the foreseeable future. The Company is prohibited by its term
loan agreement from paying cash dividends.
13
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of March
31, 1996: (i) on an actual basis, (ii) on a pro forma basis as described in
Note 2 below and (iii) on a pro forma basis, as adjusted to give effect to the
sale of 3,000,000 shares of Common Stock offered by the Company at an assumed
initial public offering price of $14.00 per share. See "Use of Proceeds". The
capitalization information set forth in the table below is qualified by the
more detailed Financial Statements and Notes thereto appearing elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1996(1)
----------------------------------
PRO PRO FORMA
ACTUAL FORMA(2) AS ADJUSTED(2)
-------- -------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Short-term debt............................. $ 2,000 $ 2,000 $ 2,000
======== ======== ========
Series B Redeemable Convertible Preferred
Stock, $1.00 par value; 1,332,127 shares
authorized, issued or outstanding (actual);
no shares authorized, issued or outstanding
(pro forma and pro forma as adjusted)...... 7,380 -- --
Stockholders' equity (deficit)(3):
Series C Convertible Preferred Stock, $1.00
par value; 1,220,000 shares authorized, no
shares issued or outstanding (actual); no
shares authorized, issued or outstanding
(pro forma and pro forma as adjusted)...... -- -- --
Preferred Stock, $1.00 par value;
447,873 shares authorized, no shares issued
or outstanding (actual); 5,000,000 shares
authorized, no shares issued or outstanding
(pro forma and pro forma as adjusted)...... -- -- --
Common Stock, $.001 par value;
30,000,000 shares authorized, 10,803,030
shares
issued and outstanding (actual); 50,000,000
shares
authorized, 11,778,224 and 14,778,224
shares issued and outstanding (pro forma
and pro forma as adjusted)(3).............. 11 12 15
Additional paid-in capital.................. 8,145 15,494 53,451
Note receivable from executive officer...... (2,560) (2,560) (2,560)
Deferred compensation....................... (135) (135) (135)
Accumulated deficit......................... (12,394) (12,394) (12,394)
-------- -------- --------
Total stockholders' equity (deficit)........ (6,933) 417 38,377
-------- -------- --------
Total capitalization........................ $ 447 $ 417 $ 38,377
======== ======== ========
</TABLE>
- --------
(1) The Company's Board of Directors and stockholders have approved the
amendment and restatement of the Company's Certificate of Incorporation to
increase the number of authorized shares of Common Stock and Preferred
Stock to 50,000,000 and 5,000,000 shares, respectively. See "Description
of Capital Stock" and Note 6 of Notes to Financial Statements.
(2) Presented on a pro forma basis to give effect to (i) the sale subsequent
to March 31, 1996 of 1,200,000 shares of Series C Preferred Stock and the
receipt of $5,970,000 in net proceeds therefrom, (ii) the repurchase and
retirement subsequent to March 31, 1996 of 800,000 shares of Common Stock
for $6,000,000 and (iii) the automatic conversion of all outstanding
shares of Series C Preferred Stock into 799,994 shares of Common Stock and
all outstanding shares of Series B Preferred Stock into 975,200 shares of
Common Stock, in each case upon the consummation of this offering and,
with respect to the Series B Preferred Stock, assuming an initial public
offering price of $14.00 per share. If the initial public offering price
varies from $14.00 per share, the number of shares of Common Stock
issuable upon conversion of the Series B Preferred Stock is subject to
adjustment from a maximum of 1,103,137 shares of Common Stock (in the
event that the initial public offering price is $12.375 per share or less)
to a minimum of 888,085 shares of Common Stock (in the event that the
initial public offering price is $15.375 per share or greater). See
"Description of Capital Stock--Authorized and Outstanding Capital Stock"
and "Statement of Redeemable Convertible Stock and Stockholders' Equity
(Deficit)" contained on page F-5 of the Financial Statements.
(3) Excludes (i) 3,500,000 shares of Common Stock reserved for issuance
pursuant to the Company's stock option plans, under which options for the
purchase of an aggregate of 2,404,133 shares were outstanding as of May 1,
1996, (ii) 150,000 shares of Common Stock reserved for issuance pursuant
to the Company's Employee Stock Purchase Plan and (iii) 23,333 shares of
Common Stock that may be issued upon the conversion of an outstanding
common stock warrant. See "Management--Stock Plans" and "--Employee Stock
Purchase Plan", "Description of Capital Stock--Warrant" and Note 6 of
Notes to Financial Statements.
14
<PAGE>
DILUTION
As of March 31, 1996, the Company had a pro forma net tangible book value of
approximately $417,000 or $.04 per share of Common Stock. Pro forma net
tangible book value per share represents the Company's total tangible assets
less its total liabilities, divided by the aggregate pro forma number of
shares of Common Stock outstanding (after giving effect to the conversion of
the outstanding shares of Series C Stock and Series B Preferred Stock into
1,775,194 shares of Common Stock as described in Note 1 below, and the
repurchase of 800,000 shares of Common Stock by the Company). After giving
effect to the sale of the 3,000,000 shares of Common Stock offered by the
Company hereby at an assumed initial public offering price of $14.00 per share
and after deducting the estimated underwriting discount and estimated offering
expenses payable by the Company, the pro forma net tangible book value at
March 31, 1996 would have been approximately $38,377,000 or $2.60 per share of
Common Stock. This represents an immediate increase in pro forma net tangible
book value per share of $2.56 to existing stockholders and an immediate
dilution of $11.40 per share to the investors purchasing the shares of Common
Stock offered hereby. The following table illustrates such dilution per share:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............... $14.00
Pro forma net tangible book value per share as of March 31,
1996........................................................ $ .04
Increase per share attributable to this offering............. 2.56
Pro forma net tangible book value per share after this offer-
ing.......................................................... 2.60
------
Dilution per share to new investors........................... $11.40
======
</TABLE>
The following table summarizes, on a pro forma basis as of March 31, 1996,
the total number of shares of Common Stock purchased from the Company, the
total consideration paid, and the average price per share paid, by existing
stockholders and by new investors, based (for new investors) upon an assumed
initial public offering price of $14.00 per share (before deducting the
estimated underwriting discount and estimated offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------ ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockhold-
ers(2)(3) 11,778,224 79.7% $14,440,784 25.6% $ 1.23
New investors(3)........ 3,000,000 20.3 42,000,000 74.4 14.00
---------- ----- ----------- -----
Total................... 14,778,224 100.0% $56,440,784 100.0%
========== ===== =========== =====
</TABLE>
- --------
(1) All outstanding shares of Series C Preferred Stock convert into 799,994
shares of Common Stock and all outstanding shares of Series B Preferred
Stock convert into 975,200 shares of Common Stock, in each case upon the
consummation of this offering and, with respect to the Series B Preferred
Stock, assuming an initial public offering of $14.00 per share. If the
initial public offering price varies from $14.00 per share, the number of
shares of Common Stock issuable upon conversion of the Series B Preferred
Stock is subject to adjustment from a maximum of 1,103,137 shares of
Common Stock (in the event that the initial public offering price is
$12.375 per share or less) to a minimum of 888,085 shares of Common Stock
(in the event that the initial public offering price is $15.375 per share
or greater). See "Description of Capital Stock--Authorized and Outstanding
Capital Stock".
(2) Does not includes an aggregate of 3,673,333 shares reserved for issuance
under the Company's stock option plans, the Company's Employee Stock
Purchase Plan and upon exercise of an outstanding Common Stock warrant.
See "Management--Stock Plans" and "Description of Capital Stock--Warrant".
(3) Sales by the Selling Stockholders in this offering will reduce the number
of shares held by existing stockholders to 11,028,224, or 74.6% (71.9% if
the over-allotment option is exercised in full) of the total shares
outstanding after this offering, and will increase the number of shares
held by new investors to 3,750,000, or 25.4% of the total number of shares
of Common Stock outstanding after this offering (4,312,500 or 28.1% of the
total number of shares of Common Stock after this offering if the over-
allotment option is exercised in full).
15
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements of the Company, including the Notes
thereto, included elsewhere in this Prospectus. The statement of operations
data set forth below for the period from inception (January 19, 1994) to
December 31, 1994, and for the fiscal year ended December 31, 1995 and the
balance sheet data as of December 31, 1994 and 1995 are derived from the
Company's audited financial statements which have been audited by Arthur
Andersen LLP, independent public accountants, and which are included elsewhere
in this Prospectus. The statement of operations data for the three months
ended March 31, 1995 and 1996 and the balance sheet data as of March 31, 1996
are derived from unaudited financial statements of the Company and include, in
the opinion of the Company, all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the Company's
results of operations for those periods. Operating results for the three month
period ended March 31, 1996 are not necessarily indicative of the results to
be expected for the year ending December 31, 1996. The historical results are
not necessarily indicative of the results of operations to be expected in the
future.
<TABLE>
<CAPTION>
JANUARY 19, 1994 THREE MONTHS ENDED
(INCEPTION) TO YEAR ENDED MARCH 31,
DECEMBER 31, DECEMBER 31, -------------------
1994 1995 1995 1996
---------------- ------------ --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Software license and main-
tenance................... $ -- $ 2,151 $ 43 $ 710
Consulting and education
services.................. -- 3,919 373 1,671
------- ------- ------- -------
Total revenues........... -- 6,070 416 2,381
Cost of Revenues:
Software license and main-
tenance................... -- 717 22 289
Consulting and education
services.................. -- 2,684 172 974
------- ------- ------- -------
Total cost of revenues... -- 3,401 194 1,263
Gross profit............. -- 2,669 222 1,118
Operating Expenses:
Selling, general and admin-
istrative................. 286 2,108 337 1,701
Research and development... 894 3,182 175 399
Compensation to executive
officer................... -- -- -- 7,515
------- ------- ------- -------
Total operating ex-
penses.................. 1,180 5,290 512 9,615
------- ------- ------- -------
Operating loss........... (1,180) (2,621) (290) (8,497)
Interest Expense, net........ -- (77) -- (18)
------- ------- ------- -------
Net loss................. $(1,180) $(2,698) $ (290) $(8,515)
======= ======= ======= =======
Pro forma net loss per common
and common equivalent
share(1).................... $ (.21) $ (.65)
Pro forma weighted average
number of common and common
equivalent shares
outstanding(1).............. 12,871 13,141
<CAPTION>
DECEMBER 31, PRO FORMA
----------------------------- MARCH 31, MARCH 31,
1994 1995 1996 1996(2)
---------------- ------------ --------- ---------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.... $ -- $ 105 $ 4,822 $ 4,792
Working capital (deficit).... (932) (1,967) (925) (955)
Total assets................. 63 2,626 8,939 8,909
Redeemable convertible pre-
ferred stock................ -- -- 7,380 --
Stockholders' equity (defi-
cit)........................ (868) (2,804) (6,933) 417
</TABLE>
- -------
(1) See Note 1(k) of Notes to Financial Statements for an explanation of the
determination of the number of shares used in computing pro forma net loss
per common and common equivalent share.
(2) Presented on a pro forma basis to give effect to (i) the sale subsequent
to March 31, 1996 of 1,200,000 shares of Series C Preferred Stock and the
receipt of $5,970,000 in net proceeds therefrom, (ii) the repurchase and
retirement subsequent to March 31, 1996 of 800,000 shares of Common Stock
for $6,000,000 and (iii) the automatic conversion of all outstanding
shares of Series C Convertible Preferred Stock into 799,994 shares of
Common Stock and all outstanding shares of Series B Preferred Stock into
975,200 shares of Common Stock, in each case upon the consummation of this
offering and, with respect to the Series B Preferred Stock, assuming an
initial public offering price of $14.00 per share. If the initial public
offering price varies from $14.00 per share, the number of shares of
Common Stock issuable upon conversion of the Series B Preferred Stock is
subject to adjustment from a maximum of 1,103,137 shares of Common Stock
(in the event that the initial public offering price is $12.375 per share
or less) to a minimum of 888,085 shares of Common Stock (in the event that
the initial public offering price is $15.375 per share or greater). See
"Description of Capital Stock--Authorized and Outstanding Capital Stock".
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company was incorporated in Delaware in January 1994 (under the name
Object Power, Incorporated) and changed its name to Business@Web, Inc. in
February 1996 and to OneWave, Inc. in June 1996. In 1994, the Company focused
on research and development and did not generate revenues. In 1995, the
Company began generating revenues through the reselling of software licenses
of a related party and associated maintenance and providing consulting and
education services. These revenues contributed to the funding of increased
research and development and the creation of market awareness for its
OpenScape product line. The Company began shipping OpenScape products in late
December 1995. Total revenues from the sale of OpenScape products in 1995 were
$609,000, which included a sale to Hewlett-Packard of $490,000, or 80% of
total 1995 OpenScape revenues. For the three months ended March 31, 1996, the
Company generated total revenues of $2,381,000, of which $710,000, or 30%,
were software license and maintenance revenues and $1,671,000, or 70%, were
consulting and education services revenues. The OpenScape product line
accounted for 69% of total software license and maintenance revenues for the
three months ended March 31, 1996, with the remaining software license and
maintenance revenues generated through reselling related party software
licenses and maintenance. In June 1996, the Company introduced Version 2.0 of
its OpenScape product, which provides additional capabilities for the
effective development of Internet applications. As a result, the Company
anticipates that its future revenues will depend to a significant degree on
successful introduction and market acceptance of OpenScape Version 2.0.
In 1996, the Company intends to increase its research and development
expenses and selling, general and administrative expenses. The Company's
expected levels of research and development expenditures are based on a plan
for current product enhancements and new product development. Selling and
marketing expenses are expected to increase significantly as a result of
continued expansion of distribution channels, strategic relationships,
headcount, and marketing programs. Increases in general and administrative
expenses are planned as the Company expands its executive management, finance
and administration support, information systems and other administrative
functions required to support the Company's operations.
The Company has a limited operating history upon which an evaluation of the
Company and its prospects can be based. The Company and its prospects must be
considered in light of the risks, expenses and difficulties frequently
encountered by companies in their early stage of development, particularly
companies in new and rapidly evolving markets and technologies. To address
these risks, the Company must, among other things, respond to competitive
developments, continue to attract, retain and motivate qualified management
and other employees, continue to upgrade its technologies and commercialize
products and services which incorporate such technologies, and achieve market
acceptance for its OpenScape products. There can be no assurance that the
Company will be successful in addressing such risks. The Company has achieved
only limited revenues to date and its ability to generate significant revenues
is subject to substantial uncertainty. The limited operating history of the
Company makes the prediction of future results of operations difficult or
impossible, and therefore, there can be no assurance that the Company will
sustain revenue growth or achieve profitability. The Company has incurred net
losses since inception and expects to continue to incur losses on a quarterly
and annual basis for the foreseeable future. Due to all of the foregoing
factors, it is possible that in some future quarter, the Company's operating
results may be below the expectations of public market analysts and investors.
In such event, the price of the Company's Common Stock may be materially
adversely affected.
RESULTS OF OPERATIONS
The following table sets forth certain operational data as a percentage of
total revenues for the year ended December 31, 1995 and the three months ended
March 31, 1995 and 1996. The table does not set forth such operational data as
a percentage of total revenues for the period from inception
17
<PAGE>
to December 31, 1994, as the Company did not generate revenues in such period
and therefore such information is not meaningful.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED MARCH 31,
DECEMBER 31, -------------------
1995 1995 1996
------------ ------- --------
<S> <C> <C> <C>
Revenues:
Software license and maintenance........... 35% 10% 30%
Consulting and education services.......... 65 90 70
--- ------- --------
Total revenues........................... 100 100 100
Cost of Revenues:
Software license and maintenance........... 12 5 12
Consulting and education services.......... 44 41 41
--- ------- --------
Total cost of revenues................... 56 47 53
Gross profit............................. 44 53 47
Operating Expenses:
Selling, general and administrative........ 35 81 71
Research and development................... 52 42 17
Compensation to executive officer.......... -- -- 316
--- ------- --------
Total operating expenses................. 87 123 404
--- ------- --------
Operating loss........................... (43) (70) (357)
Interest Expense, net........................ 1 -- 1
--- ------- --------
Net loss................................. (44)% (70)% (358)%
=== ======= ========
</TABLE>
THREE MONTHS ENDED MARCH 31, 1996 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1995
REVENUES. Total revenues increased $1,965,000 to $2,381,000, for the three
months ended March 31, 1996 from $416,000 for the comparable quarter in 1995.
The increase was due primarily to the introduction and expansion of the
Company's product offerings, including consulting and education services,
related party software licenses and the OpenScape product line. For the three
months ended March 31, 1996, revenues consisted of 30% from software license
and maintenance revenues and 70% from consulting and education services
revenues compared with 10% and 90%, respectively, for the comparable period
for the prior year. For the three months ended March 31, 1996, OpenScape
software license and maintenance revenues were $488,000, representing 69% of
software license and maintenance revenues and 20% of total revenues. For the
three months ended March 31, 1995, the Company's software license and
maintenance revenues consisted solely of sales of software licenses of a
related party and associated maintenance. The Company has achieved only
limited revenues from OpenScape products and there can be no assurance that
the Company will sustain revenue growth or market acceptance for these or
other products which it markets.
COST OF REVENUES. Cost of software license and maintenance revenues consists
of the cost of software and maintenance purchased for resale from a related
party, distribution costs and support personnel costs. The cost of consulting
and education services consists primarily of consulting and support personnel
salaries, related costs and fees to third-party service providers. Total cost
of revenues increased $1,069,000 to $1,263,000 for the three months ended
March 31, 1996 from $194,000 for the comparable prior period. Total cost of
revenues as a percentage of total revenues was 47% and 53% for the three
months ended March 31, 1995 and 1996, respectively. The cost of revenues as a
percentage of associated software license and maintenance revenues for the
three months ended March 31, 1996 and 1995 were 41% and 52%, respectively. The
cost of software license and maintenance revenues as a percentage of
associated revenues has decreased due to an increase in revenues derived from
the sale of the Company's OpenScape products, which have a lower cost of
revenues than the resale of related party software licenses and maintenance.
The cost
18
<PAGE>
of revenues as a percentage of associated consulting and education services
revenues for the three months ended March 31, 1996 and 1995 were 58% and 46%,
respectively. The cost of consulting and education services revenues increased
as a percentage of associated revenues due to the greater costs associated
with consulting services, which the Company commenced offering in the third
quarter of 1995. Consulting service revenues generally have a higher cost of
associated revenue as compared with education service revenues. The Company
believes that cost of revenues comparisons are not meaningful or
representative of future results. In future periods, cost of revenues may be
affected by several factors, including distribution channels, price
reductions, competition, increases in cost of revenues, changes in product mix
and other factors.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses consist of payroll costs related to executive
management, finance, administration, sales and marketing personnel, and costs
for advertising, marketing and related administrative support. Selling,
general and administrative expenses increased to $1,701,000 for the three
months ended March 31, 1996 from $337,000 for the comparable prior period,
representing 71% and 81% of total revenues, respectively. The total dollar
increase reflects the Company's increased sales, marketing and distribution
efforts through increased headcount and related staffing expenditures. The
Company expects such total dollar increases to continue throughout 1996 and
future periods.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
primarily consist of payroll-related costs, fees to independent contractors
and purchases of technology. To date, the Company has expensed all software
development costs as incurred. Research and development expenses increased to
$399,000 for the three months ended March 31, 1996 from $175,000 for the
comparable prior period, representing 17% and 42% of total revenues,
respectively. The total dollar increase is attributable to increased headcount
and related costs which reflect the Company's efforts to enhance the
functionality of its products. The Company believes that it will be necessary
to make continued significant expenditures on research and development to
remain competitive.
COMPENSATION TO EXECUTIVE OFFICER. During the three months ended March 31,
1996, certain of the Company's controlling stockholders sold 960,000 shares of
Common Stock to Klaus Besier for an aggregate purchase price of $1,440,000,
and agreed to make certain payments to Mr. Besier to secure his services as
the Company's Chief Executive Officer. In accordance with generally accepted
accounting principles, the Company recorded a non-cash expense of $7,515,000
relating to these transactions. This non-cash expense consists of: (i)
$5,760,000, which represents the difference between the purchase price paid by
Mr. Besier for the shares of Common Stock that he purchased and the fair
market value of those shares at that time; (ii) $1,000,000, relating to a
payment received by Mr. Besier from one of the Company's controlling
stockholders; and (iii) $755,000, representing the value of a payment that
such stockholder agreed to make to Mr. Besier in the event of a decline in the
value of certain stock appreciation rights held by Mr. Besier on capital stock
of his former employer. In the event of fluctuations in the value of these
stock appreciation rights, the Company may record additional non-cash charges
or credits, which could be significant, through September 30, 1996. See Note
10 of Notes to the Financial Statements.
INTEREST EXPENSE, NET. For the three months ended March 31, 1996, the
Company recorded net interest expense of $18,000. This expense is comprised of
interest on the Company's $1,000,000 notes payable to stockholders and
$2,000,000 advance under its secured term note with a bank, offset by interest
income of approximately $16,000 on the Company's cash and cash equivalents.
The Company did not have any outstanding debt for the comparable period in the
prior year. In March 1996, the outstanding notes payable to stockholders were
repaid in full.
FISCAL YEAR ENDED DECEMBER 31, 1995 COMPARED WITH THE PERIOD FROM INCEPTION
(JANUARY 19, 1994) TO DECEMBER 31, 1994
REVENUES. In 1994, the Company focused on research and development and did
not generate revenues. In 1995, the Company began generating revenues through
the reselling of related-party
19
<PAGE>
software licenses and associated maintenance and providing consulting and
education services. These revenues contributed to the funding of increased
research and development and creation of market awareness for its OpenScape
product line. The Company began shipping OpenScape in late December 1995.
Total revenues in 1995 were $6,070,000, of which 35%, or $2,151,000, were
software license and maintenance revenues and 65%, or $3,919,000, were
consulting and education services revenues. Software license revenues includes
$500,000 from a non-recurring sale of source code for an application unrelated
to the OpenScape product line to a related party. See "Certain Transactions"
and Note 7 of Notes to Financial Statements. In 1995, OpenScape software
license and maintenance revenues were $609,000, which represented 28% of total
software license and maintenance revenues for the year. Total 1995 OpenScape
revenues included a sale to Hewlett-Packard of $490,000, or 80% of total 1995
OpenScape revenues. The Company has achieved only limited revenues from
OpenScape products and there can be no assurance that the Company will sustain
revenue growth or market acceptance for these or other products which it
markets.
COST OF REVENUES. The Company did not generate revenues in 1994 and
therefore did not incur cost of revenues in this period. Total cost of
revenues as a percentage of total revenues was 56% in 1995. Total software
license and maintenance costs and consulting and education services costs as a
percentage of associated revenues were 33% and 68%, respectively, in 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased to $2,108,000 in 1995 from $286,000 for the
prior year. Selling, general and administrative expenses represented 35% of
total revenues in 1995. The total dollar increase in selling, general and
administrative expenses reflected the Company's increased sales, marketing and
distribution efforts from increased headcount and related staffing. The
Company expects such total dollar increases to continue throughout 1996 and
future periods.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased to $3,182,000 in 1995 from $894,000 for the prior year. Research and
development expenses represented 52% of total revenues in 1995. To date, the
Company has expensed all software development costs as incurred. Research and
development expenses in 1994 included $350,000 relating to the purchase of
technology rights and $373,000 for independent contractors. The total dollar
increase is attributable to increased headcount and related costs which
reflect the Company's efforts to enhance the functionality of products. During
1995, the Company recorded non-recurring expenses of $2,550,000 for purchases
of technology rights to incorporate in its OpenScape products. See Note 1 of
Notes to Financial Statements.
INTEREST EXPENSE, NET. For the year ended December 31, 1995, the Company
recorded net interest expense of $77,000. This expense is comprised of
interest on the Company's $1,000,000 debt to stockholders. The Company did not
have any outstanding debt for the period from inception to December 31, 1994.
20
<PAGE>
SELECTED QUARTERLY OPERATING RESULTS
The following table sets forth statement of operations data for each of the
five quarters in the period ended March 31, 1996, as well as the percentage of
the Company's total revenues represented by each item. This unaudited
quarterly information has been prepared on the same basis as the audited
financial statements appearing elsewhere in this Prospectus and in the opinion
of management, all necessary adjustments (consisting only of normal recurring
adjustments) have been included to present fairly the unaudited quarterly
results when read in conjunction with the Company's audited financial
statements and the notes thereto appearing elsewhere in this Prospectus. The
operating results for any quarter are not necessarily indicative of the
results for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------
DEC.
MARCH 31, JUNE 30, SEPT. 30, 31, MARCH 31,
1995 1995 1995 1995 1996
--------- -------- --------- ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Revenues:
Software license and main-
tenance................... $ 43 $ -- $ 400 $ 1,708 $ 710
Consulting and education
services.................. 373 598 1,629 1,319 1,671
----- ----- ------ ------- -------
Total revenues........... 416 598 2,029 3,027 2,381
Cost of Revenues:
Software license and main-
tenance................... 22 -- 208 487 289
Consulting and education
services.................. 172 407 1,170 935 974
----- ----- ------ ------- -------
Total cost of revenues... 194 407 1,378 1,422 1,263
Gross profit............. 222 191 651 1,605 1,118
Operating Expenses:
Selling, general and admin-
istrative................. 337 313 440 1,018 1,701
Research and development... 175 139 331 2,537 399
Compensation to executive
officer................... -- -- -- -- 7,515
----- ----- ------ ------- -------
Total operating ex-
penses.................. 512 452 771 3,555 9,615
Operating loss........... (290) (261) (120) (1,950) (8,497)
Interest Expense, net........ -- 17 20 40 18
----- ----- ------ ------- -------
Net loss................. $(290) $(278) $ (140) $(1,990) $(8,515)
===== ===== ====== ======= =======
<CAPTION>
<S> <C> <C> <C> <C> <C>
PERCENTAGE OF TOTAL REVENUES:
Revenues:
Software license and main-
tenance................... 10% -- % 20% 56% 30%
Consulting and education
services.................. 90 100 80 44 70
----- ----- ------ ------- -------
Total revenues........... 100 100 100 100 100
Cost of Revenues:
Software license and main-
tenance................... 5 -- 10 16 12
Consulting and education
services.................. 41 68 58 31 41
----- ----- ------ ------- -------
Total cost of revenues... 47 68 68 47 53
Gross profit............. 53 32 32 53 47
Operating Expenses:
Selling, general and admin-
istrative................. 81 52 22 34 71
Research and development... 42 23 16 84 17
Compensation to executive
officer................... -- -- -- -- 316
----- ----- ------ ------- -------
Total operating ex-
penses.................. 123 76 38 117 404
Operating loss........... (70) (44) (6) (64) (357)
Interest Expense, net........ -- 3 1 1 1
----- ----- ------ ------- -------
Net loss................. (70)% (46)% (7)% (66)% (358)%
===== ===== ====== ======= =======
</TABLE>
Software license and maintenance revenues and consulting and education
services revenues commenced in the three months ended March 31, 1995, and
increased significantly in the second half
21
<PAGE>
of 1995. Software license and maintenance revenues increased in the three
months ended December 31, 1995 as a result of the $500,000 non-recurring sale
of source code for an application unrelated to the OpenScape product line to a
related party; the $490,000 license of OpenScape to Hewlett-Packard; and
increased revenues from the resale of software licenses from a related party
and associated maintenance. Software license and maintenance revenues for the
three months ended March 31, 1996 decreased from the prior three month period
due to the $500,000 nonrecurring sale in the prior three month period, and a
decrease in revenues from resale activities, partially offset by an increase
in OpenScape software license revenues. Consulting and education services
revenues increased significantly in the three months ended September 30, 1995
primarily as a result of increased consulting activities and to a lesser
extent an increase in education services. Consulting and education services
revenues decreased in the three months ended December 31, 1995 and increased
in the three months ended March 31, 1996, primarily due to seasonal
fluctuations in education service activities, while consulting activities
remained relatively stable. Operating expenses increased in the second half of
1995 primarily due to the increase in personnel and the purchase of technology
in the three months ended December 31, 1995.
The Company may experience significant fluctuations in future quarterly
operating results that may be caused by many factors including, among others,
the timing or introduction of, or enhancement to, the Company's products or
services, the demand for the Company's products or services, the distribution
of the Company's products and services, the timing of introduction of products
or services by the Company's competition, the mix of products and services
that the Company provides, the rate of market acceptance of Internet
technology, the timing and rate at which the Company increases its expenses to
support projected growth, competitive conditions in the industry and general
economic conditions. The Company believes that period-to-period comparisons of
its operating results are not meaningful and should not be relied upon as any
indication of future performance. Due to the foregoing factors, among others,
it is possible that the Company's future quarterly operating results from time
to time will not meet the expectations of market analysts or investors, which
may have an adverse effect on the price of the Company's Common Stock.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has funded its cash requirements principally
through the sale of its equity securities, borrowings from its stockholders
and bank borrowings. From inception through March 31, 1996, the Company had
raised net proceeds of approximately $7,842,000 from the private sale of
equity securities, including approximately $6,780,000 in the three months
ended March 31, 1996. The Company, as of March 31, 1996, had cash and cash
equivalents of $4,822,000 and a working capital deficit of $925,000. In April
1996, the Company issued 1,200,000 shares of Series C Preferred Stock at a
price of $5.00 per share for net proceeds of $5,970,000 and repurchased and
retired 800,000 shares of outstanding Common Stock at $7.50 per share. In
addition, in April 1996, the Company received $100,000 upon the exercise of an
option to purchase 66,666 shares of Common Stock at $1.50 per share.
In February 1996, the Company entered into a financing agreement with a
bank. The agreement provides for a revolving line of credit, an equipment line
of credit and a secured term note. As of May 1, 1996, the Company had no
outstanding balances under the revolving line of credit or the equipment line
of credit. Borrowings under the revolving line of credit are limited to the
lesser of $2,500,000 or 80% of qualified accounts receivable and bear interest
at either the bank's prime rate plus 1% or LIBOR. Borrowings under the
equipment line are limited to $500,000 for the purchase of new equipment.
Advances under the equipment line of credit will be repaid over a three-year
period. Borrowings under the equipment line bear interest at either the bank's
cost of funds plus 3 1/2% or the bank's prime rate plus 1 1/2%. In March 1996,
the Company borrowed the $2,000,000 under the secured term note, which was
used to pay for source code technology purchased from a related party. The
secured term note is repayable on September 30, 1996. Borrowings under the
secured term note bear interest at the bank's prime rate plus 1%. The
revolving line of credit and equipment line of credit
22
<PAGE>
expire on June 30, 1997. The financing agreement contains certain restrictive
covenants regarding, among other items, minimum levels of tangible net worth.
The agreement is collateralized by all assets of the Company and is guaranteed
by certain stockholders.
The Company's operating activities utilized cash and cash equivalents of
approximately $236,000, $1,495,000 and $1,801,000 in the period from inception
to December 31, 1994, the year ended December 31, 1995 and the three months
ended March 31, 1996, respectively.
The Company's investing activities, which consisted of purchases of property
and equipment, utilized cash and cash equivalents of approximately $76,000,
$150,000 and $1,261,000 in the period from inception to December 31, 1994, the
year ended December 31, 1995 and the three months ended March 31, 1996,
respectively.
The Company's financing activities provided cash and cash equivalents of
approximately $312,000, $1,750,000 and $7,780,000 in the period from inception
to December 31, 1994, the year ended December 31, 1995 and the three months
ended March 31, 1996, respectively, primarily from the private issuance of
equity securities, borrowings under its secured term note payable and
borrowings under its long term debt agreements with stockholders.
The Company has agreed to loan to an executive officer up to $2,560,000 for
payment of his anticipated income tax liability resulting from his purchase of
960,000 shares of the Company's Common Stock from a significant stockholder
for a purchase price less than its then current fair market value. The Company
believes that it will fund the amounts under the loan agreement in the first
quarter of 1997. See "Certain Transactions". The Company has no other
significant commitments other than obligations under its secured term note
payable and operating leases.
At December 31, 1995, the Company had net operating loss carryforwards for
federal and state income tax purposes of approximately $3,020,000. These
losses are available to reduce federal and state taxable income, if any, in
future years. See Note 4 of Notes to Financial Statements.
The Company estimates that capital expenditures in 1996 will be
approximately $2,000,000 to $3,000,000. In the event that the public offering
contemplated by this Prospectus is not consummated, the Company believes that
its existing capital resources are adequate to meet its cash requirements
through December 31, 1996. In addition, certain stockholders have committed,
in the event that the public offering is not consummated, to provide the
necessary funding to allow the Company to operate through December 31, 1996 if
the existing capital resources are not sufficient to fund the Company's
operations. See "Certain Transactions".
The Company currently anticipates that the net proceeds of this offering,
existing cash balances and borrowings available under the Company's bank
agreement will be sufficient to meet its anticipated working capital and
capital expenditure requirements for the next 18 months. Thereafter, the
Company may need to raise additional funds. The Company may need to raise
additional funds sooner in order to fund more rapid expansion, to develop new
or enhanced products or services, to respond to competitive pressures or to
acquire complementary businesses or technologies. If additional funds are
raised through the issuance of equity securities, the percentage ownership of
the stockholders of the Company will be reduced, stockholders may experience
additional dilution, or such equity securities may have rights, preferences or
privileges senior to those of the holders of the Company's Common Stock. There
can be no assurance that additional financing will be available when needed on
terms favorable to the Company or at all. If adequate funds are not available
or are not available on acceptable terms, the Company may be unable to develop
or enhance products or services, take advantage of future opportunities, or
respond to competitive pressures, which could have a material adverse effect
on the Company's business, financial condition or operating results.
23
<PAGE>
BUSINESS
OneWave, Inc., formerly Business@Web, Inc. ("OneWave" or the "Company"), is
a provider of "Web-enabled" software for the development and deployment of
mission-critical business applications across an organization's disparate
information technology ("IT") systems and the extension of those applications
to Intranets and the Internet. The Company's OpenScape products enable
organizations to extend their current IT capabilities to conduct new, dynamic
and interactive communication and transactions with key audiences in their
"extended enterprise" including customers, suppliers, distributors and
business partners. OpenScape products provide the high-volume and real-time
performance capabilities required by businesses through the utilization of
standard Internet protocols, component-based, object-oriented technology, a
scaleable, multi-tier architecture and an intuitive point-and-click
development environment. The Company believes that its products will enable
organizations to achieve significant competitive advantages by increasing
responsiveness to changing business conditions, and exploiting the low cost,
flexibility and ease-of-use of Internet technologies.
INDUSTRY BACKGROUND
BUSINESS REENGINEERING AND THE USE OF INFORMATION TECHNOLOGY
In response to increased competitive pressures, businesses in recent years
have engaged in the extensive reengineering of critical business processes in
an attempt to reduce operating costs, shorten product development cycles and
time-to-market, improve product quality and increase responsiveness to the
demands of customers and business partners. To date, these reengineering
efforts have primarily focused on realizing productivity and efficiency gains
within internal business processes, such as finance, order entry,
manufacturing and resource planning. Businesses have begun to shift the focus
of their reengineering efforts from internal to external business processes,
such as supply chain and distribution channel management. A key enabler of
reengineering efforts has been the deployment and effective use of IT systems
to manage critical business processes and information. Historically, most
organizations addressed their IT requirements through legacy systems, which
are highly customized, proprietary mainframe or mini-computer systems. The
limitations of legacy systems, such as cost and lack of flexibility, have led
organizations to utilize powerful and relatively inexpensive personal
computers and networking technologies to deploy departmental client/server IT
systems.
Organizations' ability to develop and deploy effective, enterprise-wide
business applications has been limited by the proliferation of disparate IT
systems. The lack of interoperability across different systems has introduced
inefficiencies by creating isolated islands of information which are
inaccessible from certain locations within an organization. Such problems are
dramatically compounded when organizations attempt to extend business
applications to connect their IT systems with the disparate IT systems of
their "extended enterprise", including customers, suppliers, distributors and
business partners.
THE EMERGENCE OF THE INTERNET AND INTRANETS
The recent emergence of the World Wide Web ("Web") and Internet technologies
offers businesses the opportunity to significantly improve collaboration and
communication both within the enterprise and with the extended enterprise.
Unlike current legacy and client/server IT solutions, Internet technologies
enable data exchange and collaboration based on cost-effective, easily
deployable and non-proprietary technology. The Company believes that
businesses will be able to realize substantial productivity and efficiency
gains by using the Internet to conduct business transactions with key
audiences of the extended enterprise. The Company also believes that
significant gains will be realized by organizations deploying "Intranets",
internal networks that utilize the same
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Internet technologies and protocols. Intranets exploit the openness, ease-of-
use and cross-platform functionality of Internet technologies to facilitate
information dissemination, communication and collaboration within the
enterprise.
MARKET OPPORTUNITY
The Company believes that significant demand exists for a solution which not
only integrates business applications with legacy systems, client/server
systems and databases, but also seamlessly extends those applications across
the enterprise to internal users via Intranets or to users in the extended
enterprise through the Internet. The Company believes that an effective IT
solution must address the following challenges:
. LACK OF ENTERPRISE-WIDE SOLUTIONS FOR THE EXTENDED ENTERPRISE. Current
legacy and client/server systems generally do not adequately integrate
an organization's enterprise-wide business applications with the
constituents of its extended enterprise. Historically, business-to-
business electronic transactions have been limited to inflexible,
platform-specific electronic data interchange ("EDI") links. The
emergence of the Internet has made the development of more dynamic
applications for business-to-business communication and transactions
possible. However, current Internet business applications addressing the
extended enterprise require expertise in multiple, complex Web-related
programming languages, the costly use of multiple Web servers and the
difficult integration of those servers and applications across disparate
IT systems.
. ABSENCE OF FLEXIBLE DEVELOPMENT ENVIRONMENT. Most current development
and application frameworks are designed for specific IT systems and do
not provide a migration path for extending business applications from
one IT infrastructure to another. For example, a business application
developed for a client/server system would typically require substantial
redevelopment in order to be deployed in an Intranet or Internet
environment.
. LACK OF HIGH-PERFORMANCE INTERNET BUSINESS SOLUTIONS. Effective use of
the Internet for mission-critical business processes requires that
existing Web technologies be enhanced to accommodate the high volume and
performance requirements of most business transactions. For example,
most current Web technologies rely on the retrieval of "static" Web
pages from a dedicated Web server. As a result, such technologies do not
allow the development of a business application with a robust, real-
time, direct connection between a business user in the extended
enterprise and the necessary database, application server, legacy or
client/server system within an enterprise, Intranet or Internet
environment.
. SIGNIFICANT CONTINUED USE OF LEGACY SYSTEMS. Many businesses seeking to
implement Web-enabled solutions must do so while preserving their
significant investments in legacy systems. Legacy systems continue to
play an integral role in IT infrastructures of numerous organizations
due to the importance of the functions managed by those systems, the
desire to preserve the integrity and validity of the data in those
systems, and the cost and/or time constraints of migrating those systems
to a client/server framework.
. EXISTENCE OF INACCESSIBLE ISLANDS OF INFORMATION. Businesses with IT
infrastructures based on legacy or client/server frameworks often deploy
several different hardware, software and networking technologies in the
attempt to capture the benefits of the best components from multiple
vendors. Current development environments have limited ability to
address this "best-of-breed" approach, which results in limited
operability across systems and applications and has created isolated
islands of information throughout an organization.
. NEED TO ACCELERATE APPLICATION DEVELOPMENT. Organizations are
increasingly seeking flexible IT solutions that enable the rapid
development and deployment of robust business
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applications. Rapid application development is currently limited by the
need for recoding each time a new application is developed. Object-
oriented computing provides the benefit of reusable software, but is
limited by the necessity of using complex programming languages.
Although current object-oriented application development tools enable
the creation of shareable, reusable software components, few such tools
offer rapid development and deployment capabilities across the
enterprise, Intranet and Internet environments.
THE ONEWAVE SOLUTION
The Company's OpenScape product line enables organizations to develop and
deploy business applications which take advantage of the low cost, ease-of-use
and flexibility of Internet technologies. OpenScape solutions not only
integrate existing legacy systems, client/server systems and databases within
the enterprise, but also extend applications on those systems through Intranet
and Internet environments. The Company's products allow organizations to reach
beyond the enterprise and conduct new, dynamic and interactive transactions
with key audiences in the extended enterprise. The Company believes that its
products and services offer businesses a number of key benefits, including the
following:
. ENABLE RAPID ADOPTION AND MIGRATION OF INTRANET AND INTERNET
STRATEGIES. The Company's OpenScape development environment, based upon
a distributed component, multi-tiered architecture, allows the
development of enterprise-wide applications which can be easily
integrated with disparate legacy and client/server systems, existing
business applications and emerging technologies. The integration and
extension capabilities of OpenScape provide organizations with the
ability to rapidly adopt an Intranet or Internet strategy which is
highly customized to current business needs and flexible enough to be
reconfigured to meet future business requirements and evolving
technology standards.
. SUPPORT HIGH PERFORMANCE INTERNET BUSINESS APPLICATIONS. Unlike current
Web technologies, OpenScape allows development of applications with the
high volume and real-time performance capabilities required by
businesses. For example, using OpenScape and a Web browser, suppliers in
the extended enterprise can directly access the necessary business
application on their manufacturer's legacy or client/server system
without being routed through a Web server. This direct access can
provide the speed and robustness required for high performance business
transactions.
. LEVERAGE EXISTING IT INVESTMENTS. The open, standards-based nature of
the Company's products allows businesses to maximize the value of their
existing IT systems. The Company's "Web-enabled" application framework
provides organizations with an inexpensive and efficient method for
developing new applications and modifying existing applications to
access current legacy and client/server systems and extend those
applications to Intranets and the Internet. The Company's powerful and
easy-to-use development and deployment products also allow organizations
to extend their IT capabilities while preserving investments in training
and personnel.
. CONNECT ISOLATED ISLANDS OF INFORMATION. Through OpenScape's open,
standards-based architecture and its broad, cross-platform operability,
the Company is able to bridge the traditional communication gaps between
disparate systems within an organization. In addition, organizations are
able to rapidly develop and deploy enterprise-wide business applications
that access multiple information sources and business applications
through an Intranet or Internet environment.
. ACCELERATE APPLICATION DEVELOPMENT. The Company's OpenScape development
products utilize distributed component, object-oriented technology which
provides an intuitive point-and-click development environment. These
products enable organizations to rapidly develop
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shareable, reusable software components by utilizing existing skills
without requiring mastery of complex programming languages. Once
business applications have been developed, they can be easily modified
with little or no recoding through component sharing and reuse. The use
of OpenScape components can create competitive advantages for
organizations by reducing the time-to-market of future business
applications, increasing responsiveness to changing business conditions
and increasing return on IT investments.
THE ONEWAVE STRATEGY
OneWave's objective is to be a leading provider of "Web-enabled" software
that supports the development and deployment of mission-critical business
applications across disparate IT systems and extends those applications to
Intranets and the Internet. To achieve this objective, the Company is focusing
on the following key elements of its business strategy:
. CONTINUALLY RELEASE NEW PRODUCTS TO INTEGRATE EMERGING TECHNOLOGIES. The
Company's OpenScape products are able to access a wide variety of
environments and applications. Due to the modular nature of the
Company's core OpenScape technology, the Company can rapidly develop
OpenExtensions--specific add-on products which enable communication with
proprietary environments, such as SAP R/3--and continually integrate new
capabilities such as improved security mechanisms and component
repositories. The Company intends to release OpenExtensions for Baan and
PeopleSoft applications during 1996 and regularly introduce additional
OpenScape products for emerging environments and applications.
. SUPPORT MULTIPLE POINTS OF ENTRY. The Company's OpenScape products have
been designed to provide organizations with a flexible and comprehensive
Internet solution regardless of their current IT infrastructure.
Business applications developed with OpenScape products support multiple
points of entry due to their ability to function in enterprise, Intranet
and Internet environments. The Company's products utilize Internet
protocols and a scalable multi-tier architecture which provide
organizations with the built-in capability of extending an enterprise
solution to an Intranet or the Internet at a later date. This
flexibility allows the Company's solution to be adapted to changing
business needs and the evolving Internet environment.
. LEVERAGE RELATIONSHIPS WITH LEADING TECHNOLOGY COMPANIES. The Company
believes that a key element to the success of delivering a complete Web-
enabled business solution is to leverage the use of its technologies
through the development of strategic relationships with leading
technology companies. To this end, the Company has developed
relationships with third-party technology implementors such as Deloitte
& Touche/ICS, software application vendors such as Baan, PeopleSoft and
SAP, an Internet service provider, BBN, and other technology providers
such as Hewlett-Packard, NEC and Informix. These strategic relationships
provide the Company with the opportunity to market its products to a
large installed base of organizations in need of Web-enabling extensions
and enhancements for their current IT infrastructure.
. DEVELOP MULTIPLE CHANNELS OF DISTRIBUTION. To reach a broad potential
customer base, the Company believes that it must develop multiple
distribution channels. The Company anticipates that its direct sales
force will focus on large and mid-sized customers and leverage the
Company's strategic relationships to access particular vertical markets
of target organizations. Through its strategic relationships with system
integrators, hardware vendors, application providers and database
vendors, the Company expects to gain access to a large installed base of
potential customers. Over time, the Company intends to extend the depth
and breadth of its product penetration by augmenting its direct selling
efforts and strategic relationships with additional indirect
distribution channels, including VARs and ISVs.
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TECHNOLOGY
OVERVIEW
The Company's OpenScape products allow organizations to Web-enable business
applications through the use of a distributed component architecture employing
a multi-tier client/server infrastructure, where presentation, functionality
and data access are developed and deployed as independent layers. In this
multi-tier architecture, each tier may be expanded in a modular fashion by
adding components which are reusable and shareable across applications.
Client-based components are handled by the Company's WebEngine Client and the
server-based components are run using the Company's Distributed WebEngine.
OpenScape components can be partitioned, or split apart, placing the
appropriate application logic on the server or client.
[Graphic depicts a rectangle divided into three segments. There is a small gap
between each of the segments. The front edges of these segments are labeled,
from right to left, "Data Access", "Functionality" and "Presentation". The left
end of the rectangle contains a low brick wall, labeled "Firewall." In the
"Presentation" segment to the left side of the firewall are three personal
computers, labeled "Distributor", "Partner" and "Customer". The screen of each
computer says "Web Browser", and the top of each computer is labeled "OpenScape
WebEngine Client". There are arrows from each computer to the "Firewall". On
the "Presentation" segment to the right of the firewall there are two computers.
One is labeled "OpenScape WebEngine Client", with the words "Web Browser on its
screen, and the other is labeled "OpenScape WebEngine Client" with the words
"Desktop Application" on its screen. There are arrows between the Firewall and
each of these computers to the box on the "Functionality" segment. The
"Functionality" segment is entirely occupied by a box labeled "OpenScape
Distributed WebEngine Data Integration & Analysis". Attached to this box and
extending across the gap and over a small portion of the "Data Access" segment
is a rectangular box with four cylinders extending farther out over the "Data
Access" segment labeled "OpenScape OpenExtension". Placed on the "Data Access"
segment, next to each of these cylinders, are four small rectangular boxes
labeled (from back to front) "Legacy System", "Client/Server System",
"Database" and "Emerging Technologies". There is an arrow from each of the
"OpenExtension" cylinders to the box next to it. Above the "Presentation"
segment is the label "Intranet"; above the "Functionality" segment is the label
"Enterprise; and above the "Data Access" segment is the label "Current IT
System".]
Presentation components within the WebEngine Client run on the client
machine and provide the screens and dialogs needed for highly interactive
applications. When deployed, OpenScape presentation components require minimal
processing power from the client machine, allowing standard desktop PCs to
access an organization's business applications. The presentation layer
implemented in OpenScape may be used in multiple Web browsers as well as other
client environments to allow for support of multiple deployment environments
and migration of enterprise applications towards Web-enabled solutions.
Functionality components implement the business logic of an application and
support several types of requesting clients such as enterprise, Intranet or
Internet users. The separation of the functionality layer from the
presentation and data access layers allows modification of the functionality
layer independent from the other layers. Functionality components run on
either the WebEngine Client or the Distributed WebEngine, but are typically
server-based to simplify management and to leverage the server's processing
capabilities.
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Data access components running in the Distributed WebEngine are used to
retrieve data from databases and other sources such as legacy applications.
Functionality components which utilize this information are not dependent on
the actual data source, but only the results which are supplied by the data
access components. This independence allows data sources to be changed without
requiring modifications to the business logic. The Distributed WebEngine
supports data translation and local calculations with retrieved data, thereby
facilitating the creation of consistent results from different data sources.
To reduce the amount of traffic between the client and the server, and thereby
increase the performance of the Web-enabled application, the Distributed
WebEngine transfers only necessary data to the client.
OpenScape's distributed component architecture allows disparate back-end
information systems to be "plugged-in" to the same application framework. For
example, OneWave products allow development of an application with seamless
access to data from both an SAP R/3 system and a mainframe database. Access to
each system is provided through the Company's Distributed WebEngine, which
regulates, manages and secures all application traffic from the clients. The
Company's OpenExtensions provide pre-configured connectivity to each back-end
system managed by the Distributed WebEngine. The code libraries and processes
that are typically required for integrating with a target back-end IT system
need only reside on the server with the OpenExtension, which simplifies
licensing and management and eliminates the need for installation on the
client machine. Any number of OpenExtensions may be incorporated into an
application as required. OpenExtensions also may be used to support access to
connectivity standards such as Microsoft's OLE (Object Linking and Embedding)
and the Open Software Foundation's DCE (Distributed Computing Environment).
The Company will continually develop additional OpenExtensions to support
connectivity to new systems and standards as they evolve.
DEVELOPMENT
Components for all application tiers are developed and defined within the
OpenScape Workbench, a graphical environment designed to simplify and
accelerate application development by minimizing, and often eliminating,
programming tasks. The OpenScape development environment is extensible to
accommodate rapid changes in technology. OpenScape provides the following
capabilities during the development process:
. RAPID APPLICATION DEVELOPMENT. Components may be run and debugged within
the Workbench to facilitate testing and iterative development. Most
aspects of the OpenScape scripting language and visual components are
compatible with Visual Basic for Applications ("VBA"), allowing an
organization to leverage the existing programming skills of its
application developers.
. VISUAL COMPONENT REUSE. OpenScape utilizes a modular building block
approach to development where complex components are assembled from sets
of more basic components. Once a visual component has been developed for
an application, the same component can be embedded in additional
components or deployed in the original application for use in the
enterprise, Intranet or Internet without any additional recoding.
. EASE OF INTEGRATION. OpenExtensions directly import function definitions
from back-end systems using point-and-click operations. The same
scripting language can be used to access all back-end systems and
components regardless of the original development environment. This
significantly reduces the complexity typically involved in creating
applications with numerous back-end systems.
. LOCAL AND REMOTE TRANSPARENCY. The scripting language used to access a
client-based or server-based component with OpenScape is the same.
Applications that have been configured for a specific environment, such
as Microsoft's desktop environment, do not have to be significantly
rewritten to accommodate a different configuration, such as NetScape's
Navigator.
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. THIRD-PARTY COMPONENTS. Components from other vendors, such as
Microsoft's ActiveX controls, may be used as part of an OpenScape
project for enhanced functionality. In addition, interoperability with
productivity applications, such as Microsoft Excel, allows these
applications to be utilized as part of an OpenScape solution.
DEPLOYMENT
Once developed, an application's components are deployed onto an
organization's server platforms. The visual components of an application are
deployed onto the Web server, and are stored there with the organization's Web
pages. The components in the functionality and data access layers are
typically deployed onto a separate server that hosts the Distributed
WebEngine.
Once an application has been deployed, it can be accessed over the Internet
through an organization's Web site. The visual components are downloaded on
demand to a Web browser using the standard Internet HTTP protocol. This
process ensures that the client always runs the most current version of an
application. To minimize download time, only the necessary components need be
downloaded initially; additional components may be transferred and run by an
application as needed. Multiple browser standards are supported for running
components, such as ActiveX from Microsoft and the plug-in capabilities of
Netscape. An external viewer is also available for browsers that do not
support component standards or to run downloaded applications independently
from a browser. Desktop environments are also supported by OpenScape
components using OLE or OCX standards.
Once the client application is downloaded, the Web server does not need to
be contacted for further application functions. Web page access and delivery
is separated from back-end integration and multiple geographically dispersed
servers may be accessed directly from the client. All application
communication occurs via an encrypted, secure connection between the WebEngine
Client on the Internet client machine and the Distributed WebEngine on the
application server hardware. The Distributed WebEngine supports multiple
security standards for different customer needs and can be expanded to
accommodate additional standards as they emerge. The Distributed WebEngine is
multi-threaded, which enables high performance for many simultaneous users.
While the Company's other current products have certain limited development
capabilities for Internet applications, the Company in June 1996 introduced
OpenScape Version 2.0, which provides additional capabilities for the
effective development of Internet applications. See "Risk Factors-- Recent
Introduction of OpenScape Products; New Releases".
PRODUCTS
DEVELOPMENT PRODUCTS
The Company's development products are designed to facilitate the rapid
development of multi-tiered enterprise, Intranet and Internet applications
from a single platform. OpenScape development products include the following:
OPENSCAPE. OpenScape provides a single environment for building all tiers of
a distributed enterprise, Intranet or Internet business application. OpenScape
includes the OpenScape Workbench, the Visual Component Builder, the
OpenExtension for OLE Automation and the OpenExtension for Open Database
Connectivity ("ODBC"). The OpenScape Workbench acts as a repository for
storing and managing multiple applications while providing the ability to
share and reuse components between applications. The Visual Component Builder
provides a point-and-click development environment for the creation of
reusable graphical user interface screens. The Visual Component Builder's
integrated development environment, with application programming and debugging
features, provides the ability to write application code in a VBA compatible
language. Application components built with the Visual Component Builder can
also incorporate off-the-shelf user interface controls, such as Microsoft's
ActiveX controls, and can integrate with off-the-shelf productivity
applications, such as Microsoft Excel and Lotus Notes. The OpenExtension for
OLE Automation automatically imports function and interface
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information from existing OLE Automation servers. The OpenExtension for ODBC
provides graphical database browsing and query-building tools for quickly
exposing ODBC-compliant data sources as logical components.
OPENSCAPE OPENEXTENSIONS. OpenExtensions communicate with targeted back-end
systems using each system's native protocols, while providing a single,
standard interface to the end-users of integrated OpenScape business
applications. The following environments are currently accessible via
OpenExtensions: Open Software Foundation's DCE, ODBC, OLE Automation, SAP R/3
and Open Environment's Entera. OneWave is currently developing additional
OpenExtensions, which will allow OpenScape applications to communicate with
Baan and PeopleSoft applications, the Illustra multimedia database from
Informix, and CORBA systems.
OPENSCAPE VIRTUAL DATABASE SOLUTION. The OpenScape Virtual Database
solution, available with Version 2.0, allows multiple disparate data sources
to be accessed through a unified view, which simplifies the development and
deployment of applications that access multiple data sources. The Virtual
Database does not rely upon batch feeds or data extracts to provide the common
data view. Instead, live connections are maintained with master production
data to ensure that OpenScape applications access current data.
DEPLOYMENT PRODUCTS
The OpenScape deployment architecture enables reusable components to be
managed, stored and accessed across an enterprise; provides organizations with
the flexibility to create applications on demand through a Web server; and
encrypts application data for transmission over an Intranet or the Internet.
While the Company's other current products have certain limited development
capabilities for Internet applications, the Company in June 1996 introduced
OpenScape Version 2.0, which provides additional capabilities for the
effective development of Internet applications. See "Risk Factors--Recent
Introduction of OpenScape Products; New Releases". OpenScape deployment
products include the following:
OPENSCAPE WEBENGINE CLIENT. The OpenScape WebEngine Client is a freely
distributable runtime library that allows Intranet or Internet users to
execute OpenScape user interfaces within leading Web browsers. The WebEngine
Client also allows OpenScape visual components to run in other desktop
applications, such as Visual Basic and Lotus Notes. In addition, the WebEngine
Client facilitates secure communications over the Internet to and from an
OpenScape visual component. Other key features of the WebEngine Client
include: 16-bit and 32-bit platform support; the exposure of visual components
such as Netscape plug-ins, ActiveX Internet controls or Desktop OLE objects;
the ability of individual users to restrict downloaded applications from
performing unwanted actions (such as local file access); and facilitation of
secure, encrypted Internet connections with Distributed WebEngines.
OPENSCAPE DISTRIBUTED WEBENGINE. The OpenScape Distributed WebEngine is a
server-based runtime process that provides application and integration
services to OpenScape WebEngine Clients. The Distributed WebEngine manages all
network communication in OpenScape applications and facilitates the
appropriate levels of security for applications on the Internet. Because all
WebEngine Clients access information via the Distributed WebEngine, third-
party networking or client software is only necessary on the application
server, and not on Internet client machines. Other key features of the
Distributed WebEngine include: multi-threaded operation for high-performance
and scaleability; the ability to facilitate RSA-encrypted communications with
the Web; the ability to distribute onto multiple application servers for
optimal load-balancing; and the ability to support single-log-on for systems
which integrate multiple enterprise applications and databases. The Company is
also integrating NEC's workflow product that will plug into the Distributed
WebEngine and allow multiple organizations to participate in integrated
workflow processes over the Internet.
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PRICING
OpenScape development license fees are priced on a per developer basis. Each
developer on a corporate application development team is required to purchase
an OpenScape license. Each developer who accesses specific back-end systems is
required to purchase an appropriate OpenExtension license. Total development
license fees are expected to range from $5,000 and $35,000 per named developer
for a specific project.
For enterprise and Intranet applications, OpenScape deployment license fees
are priced on a simultaneous user basis. For Internet applications, OpenScape
deployment license fees are based on server hardware capacity. All costs are
associated with the Distributed WebEngine on the server; there is no
deployment fee for the WebEngine Client. Depending on the size of the system,
the license fees for OpenScape deployment products are expected to range from
$25,000 to $250,000.
CUSTOMER SUPPORT AND MAINTENANCE
The Company offers a wide range of customer support options which can be
packaged to meet the specific needs of customers and business partners. The
Company's Professional Services Group ("PSG") provides technical support to
customers, distributors and strategic partners throughout the implementation
cycle of a OneWave solution as well as on an on-going basis. Support service
offerings include direct telephone consulting support by experienced technical
account representatives, toll-free telephone customer support, 24-hour pager
access, e-mail and fax support, Internet access to the Company's knowledge
repository, case study updates and discussion group access. The Company's
maintenance support services are typically charged at an annual maintenance
fee equal to approximately 20% of the then-current list price of the licensed
products. In addition, this maintenance fee entitles customers to receive
software enhancements to their licensed versions of software.
SERVICES
The Company's consulting and education services are designed to educate the
Company's potential customers and support its customers and strategic alliance
partners in implementing the Company's software solutions. The Company
believes that its services play a significant role in generating demand for
its solutions by demonstrating the capabilities and advantages of its software
solutions. Historically, the Company's consulting and education services have
generated the vast majority of the Company's revenues, representing 65% of the
Company's revenues in 1995. The Company expects that the percentage of its
revenues resulting from sales of software licenses will increase over time,
resulting in a corresponding decrease in the percentage of revenues derived
from its services.
CONSULTING SERVICES
OneWave's consulting services are designed to minimize the implementation
cycle of the Company's software solutions. The range of services offered
includes the scoping, design and implementation of the Company's products and
comprehensive solutions. A critical portion of the Company's consulting
service strategy is to leverage the skills and reach of the Company's
strategic alliance partners, supplemented by the Company's internal consulting
personnel. The Company's consulting services personnel are highly trained and
experienced in identifying and delivering system architecture analysis, design
plans and implementation strategies for organizations worldwide.
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EDUCATION SERVICES
OneWave's education services are used primarily to educate potential
customers on the strategic business benefits of the Company's technologies and
to support current customers at any stage of the implementation cycle of the
Company's software solutions. The Company's education services may be
purchased individually or in a packaged form through open enrollment sessions
or focused programs delivered at on-site customer locations. The Company
anticipates broadening its education services offerings to support future
product releases and target specific industry segments. A key responsibility
of the education services group is to actively engage in certifying third-
party implementation providers to facilitate accelerated adoption of its
software-based business solutions and to assure that the highest quality of
service is provided to the Company's customers.
STRATEGIC RELATIONSHIPS
The Company is actively developing a network of strategic relationships in
order to accelerate the adoption of the Company's products and to assist the
Company in delivering complete business solutions to its customers. The
Company believes that these relationships allow it to focus on developing,
marketing, distributing and supporting its core software products, while also
accelerating the introduction of those products into major customer accounts
and providing those customers with additional sources of established
implementation support and consulting services.
The Company believes that its relationships with hardware systems vendors,
such as Hewlett-Packard and NEC, help to accelerate the introduction of the
Company's products to new customers. For example, Hewlett-Packard trained over
100 of its Information Integration Solutions Practice consultants to deliver
solutions on the Company's software. Additional Hewlett-Packard service groups
are marketing the Company's software in connection with their Internet, Baan,
PeopleSoft and SAP practices. Hewlett-Packard is sponsoring numerous one-day
seminars around the world to market the use of the Company's products to major
Hewlett-Packard customers, and Hewlett-Packard and the Company have jointly
developed service engagements as an immediate follow-on to the seminars. NEC
and the Company are jointly developing workflow application software for the
Internet based on OpenScape and NEC's current workflow application StarOffice.
NEC will be marketing, selling and supporting the installation of this
workflow software in the Pacific Rim. Both Hewlett-Packard and NEC have made
equity investments in the Company.
The Company believes that its relationships with major applications
providers such as Baan, PeopleSoft and SAP will help such providers improve
the speed and flexibility of their implementations. Baan, PeopleSoft and SAP
are educating their organizations on the Company's products, as well as
marketing the products externally to their customers through trade shows, user
group meetings and joint demonstrations. In addition, the Company believes
that these application providers benefit from these relationships because the
Company provides an effective means for them to bring their applications onto
the Web.
The Company is seeking to establish relationships with major and regional
systems integrators. The objective of these alliances with solutions providers
is to establish a large number of trained experts who will incorporate the
Company's products into their business solutions projects. Deloitte &
Touche/ICS, for example, has trained a group of consultants to offer the
Company's solutions to its installed base of SAP users. Deloitte & Touche/ICS
is sponsoring marketing seminars jointly implementing the Company's solutions.
The Company has also entered into an alliance agreement with Computer Sciences
Corporation to jointly market their products.
The Company is seeking to establish relationships with other industry
software leaders. For instance, the Company has developed a sales, marketing
and technology alliance with Informix based upon Informix's new Illustra
server. The Company is engaged in joint development efforts with Informix,
will be showcased at their user conference and plans to introduce their joint
capabilities to Informix channel partners. Informix has made an equity
investment in the Company.
33
<PAGE>
The Company is seeking to establish relationships with major Internet
service providers ("ISPs"). ISPs offer managed Internet access and value-added
services to corporations planning to establish and maintain an Internet
presence. The Company believes that its technology can be published by ISPs as
part of their Internet service, further expanding the reach and reuse of the
Company's component technology. In particular, the Company has a strategic
alliance with BBN and is marketing its capabilities with BBN through a series
of seminars.
SALES AND MARKETING
To reach a broad potential customer base, the Company believes that it must
pursue multiple distribution channels. The Company's direct sales force will
focus on large and mid-sized customers and leverage the Company's strategic
relationships to access target organizations within particular vertical
markets of target organizations. The Company will also seek to develop and
maintain a sales force with expertise in specific industries and intends to
open two additional U.S. regional offices to support its sales force. The
Company's strategic relationships with hardware vendors, systems integrators,
application providers and database vendors are expected to provide the Company
with access to a large installed based of potential customers. The Company
will engage in joint marketing programs and targeted industry events. Over
time, the Company intends to extend the depth and breadth of its product
penetration by augmenting direct selling efforts and strategic relationships
with additional indirect distribution channels including VARs and ISVs. The
Company also intends to promote general awareness for its products and
services among business and trade press and industry analysts and to advertise
in selected business media and target industry press.
CUSTOMERS AND MARKETS
As of May 1, 1996, the Company has sold software, consulting services and
education services to customers in a wide variety of industries. In an effort
to generate demand for its solutions by demonstrating the capabilities and
advantages of its software solutions, the Company has provided consulting and
education services to over 80 customers. Although the Company expects that the
number of purchasers of its software will increase over time, to date the
Company has had limited software sales. In 1994, no individual customer
accounted for more than 10% of the Company's total revenues. In 1995,
approximately 21% and 10% of the Company's revenues were derived from sales of
services and products to Hewlett-Packard and Shell Oil, respectively.
The following examples illustrate how organizations are using OneWave
products to provide "Web-enabled" IT solutions for their extended enterprises:
WHOLESALE SALES AND DISTRIBUTION
Associated Foods, a large, regional food wholesaler and distributor, is
working with the Company to create an on-line Intranet application to analyze
retail sales. The purpose of the application is to provide the wholesaler with
the capability to quickly consolidate store purchase data from the over 700
independent stores which it services and transform the data into useable,
easily accessible information. Using OpenScape's reusable object-oriented
technology, the wholesaler will be able to efficiently distribute an accurate
database of store performance. The application will enable accurate reporting,
providing valuable statistical analysis of buying trends and performance while
presenting the information in a clear, easy-to-use manner for store managers,
regional directors, managers and executives.
EDUCATION
Babson College, a New England college with over 1,600 undergraduate students
and various graduate and executive education programs, is working with the
Company to implement an on-line grading system via an Intranet which will
eliminate all forms and enable faculty members to submit grades
electronically. In addition, the college is implementing a workflow process
which will route the "virtual forms" to the appropriate faculty members for
input and approval. It is anticipated that the workflow application will be
expanded to include a "to do" list of activities that will circulate to
relevant
34
<PAGE>
faculty members as workflow processes are completed. The new system will
interact with the college's existing reengineering initiatives. A college
official anticipates that the new system will improve communication between
departments by sharing existing information, eliminating redundancy of data
and reducing both faculty and administrative time. Currently, the college is
completing the implementation and is expecting a fully operational on-line
grading system in 1996. Following this Intranet implementation, the college
plans to extend the system to the Internet by building an on-line college
handbook that allows any student on or off campus to review course material
and register for classes.
RESEARCH AND DEVELOPMENT
The Company believes that its future success will depend in large part on
its ability to enhance its OpenScape product line, develop new products,
maintain technological leadership, and satisfy continually changing customer
requirements for Web-based business application development. The Company's
product management and development groups are responsible for product
architecture, functionality and quality assurance. This group is also
responsible for expanding OpenScape's ability to integrate with emerging
industry standards, additional third-party application packages and leading
database management systems as well as for new product definition and
development.
The Company has made substantial investments in product development and
technology integration. The OpenScape product line has been developed
primarily by the Company's internal development staff. Certain technologies
also have been purchased and integrated into OpenScape products. The Company
spent approximately $894,000 and $3,182,000 on research and development
activities in 1994 and 1995, respectively (including purchased technology
rights of approximately $350,000 in 1994 and $2,550,000 in 1995). See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".
The Company currently intends to extend OpenScape's functionality by adding
support for Macintosh and UNIX browser platforms, creating additional
OpenExtensions for Baan, PeopleSoft, CORBA and Informix Illustra applications,
and enabling the product to accommodate Japanese character sets. There can be
no assurance that the Company will not experience difficulties that could
delay or prevent the successful development, introduction and marketing of new
products and enhancements, or that its new products and enhancements will
adequately meet the requirements of the marketplace and achieve market
acceptance.
COMPETITION
The market for Internet-based technologies is new, intensely competitive and
subject to rapid technological change. The Company expects competition to
persist and intensify in the future. The Company has experienced and expects
to continue to experience increased competition from current and future
competitors, many of whom have significantly greater financial, technical,
marketing and other resources than the Company. The Company's current and
potential competitors include, among others: software companies which offer
proprietary all-in-one development tools, such as Dynasty, Forte, NeXT, Spider
and Gradient; established client/server tools and database vendors who may
transfer their technology to take advantage of the Internet, such as Borland
(which has recently announced an agreement to acquire Open Environment), Parc
Place and Sybase; companies which develop electronic commerce and automated
service software products and services, such as Edify, Open Market and
Premenos; major systems vendors such as DEC, IBM and Sun Microsystems;
packaged application developers such as Baan and SAP; software industry
leaders such as Microsoft, Netscape and Oracle; and emerging alliances between
industry participants such as the recently announced alliances between
Microsoft and SAP; Digital, MCI and Microsoft; and GE and Netscape.
35
<PAGE>
The Company's competitors may be able to respond more quickly to new or
emerging technologies and changes in customer requirements or devote greater
resources to the development, promotion and sale of their products than the
Company. Also, many current and potential competitors have greater financial
or management resources or name recognition or more extensive customer bases
that could be leveraged, thereby gaining market share to the Company's
detriment. The Company expects to face additional competition as other
established and emerging companies enter the market for Internet-based
technologies and new products and technologies are introduced. Increased
competition could result in price reductions, fewer customer orders, reduced
gross margins and loss of market shares, any of which could materially
adversely affect the Company's business, operating results and financial
condition. In addition, current and potential competitors may make strategic
acquisitions or establish cooperative relationships among themselves or with
third parties, thereby increasing the ability of their products to address the
needs of the Company's prospective customers. Current and potential customers
may also be more successful than the Company in having their products or
technologies accepted as industry standards. Accordingly, it is possible that
new competitors or alliances among current and new competitors may emerge and
rapidly gain significant market share. Such competition could materially
adversely affect the Company's ability to obtain and retain support for the
Company's products and services. There can be no assurance that the Company
will be able to compete successfully against current and future competitors
and the failure to do so could have a material adverse effect upon the
Company's business, operating results and financial condition.
The principal competitive factors affecting the market for the Company's
products and services are ease of application development, deployment and
management functionality and features, product architecture, product
performance, reliability and scaleability, product quality, price and customer
support. The Company believes it presently competes favorably with respect to
each of these factors. However, the Company's market is still evolving and
there can be no assurance that the Company will be able to compete
successfully against current and future competitors. The failure to compete
successfully could have a material adverse affect upon the Company's business,
operating results and financial condition.
PROPRIETARY TECHNOLOGY
The Company relies on a combination of trademark, copyright and trade secret
laws, employee and third-party nondisclosure agreements and other methods to
protect its proprietary rights in its products. Many products are distributed
in object code form only, and all end-user license agreements prohibit the
reverse engineering or decompiling of the Company's software. The Company is
considering the possibility of obtaining patents covering its technology, and
the Company intends to file applications for registration of its various
trademarks in the near future. There can be no assurance that any trademark or
patent applications will result in issued patents or trademarks or that, if
issued, such patents or trademarks would be upheld if challenged.
There can be no assurance that the Company's competitors will not
independently develop technologies that are substantially equivalent or
superior to the Company's technology. There can also be no assurance that the
measures taken by the Company to protect its proprietary rights will be
adequate to prevent misappropriation of its technology or independent
development by others of similar technology. In addition, the laws of various
countries in which the Company's products may be sold may not protect the
Company's products and intellectual property rights to the same extent as the
laws of the United States.
There can be no assurance that third parties will not assert intellectual
property infringement claims against the Company or that any such claims will
not require the Company to enter into royalty arrangements or result in costly
litigation. The Company is not the subject of any legal action alleging that
the Company's products infringe on any copyright or trademark rights of any
person, or of any violation of trade secrets or other proprietary rights
claimed by any third party relating to the Company
36
<PAGE>
or the Company's products. However, the computer software market is
characterized by frequent and substantial intellectual property litigation.
Intellectual property litigation is complex and expensive, and the outcome of
such litigation is difficult to predict.
The Company believes that, due to the rapid pace of technological innovation
for software products, the Company's ability to establish and maintain a
position of technology leadership in the industry is dependent more upon the
skills of its development personnel than upon the legal protections afforded
its existing technology.
Certain of the Company's products contain software that is licensed to the
Company by third parties. There can be no assurance that these third-party
software licenses will continue to be available to the Company on commercially
reasonable terms. The loss of, or inability to maintain, any such software
could result in shipment delays or reductions until equivalent software could
be independently developed or licensed from a third party and integrated,
which could materially adversely affect the Company's business operating
results and financial condition.
EMPLOYEES
As of June 1, 1996, the Company had a total of 114 employees, 33 of whom
were engaged in sales, marketing and alliance management, 32 were in research
and development, 29 were in professional services and 20 were in general and
administration. The Company's future success depends in significant part upon
the continued service of its key technical and senior management personnel and
its continuing ability to attract and retain highly qualified technical and
managerial personnel. Competition for highly qualified personnel is intense
and there can be no assurance that the Company will be able to retain its key
managerial and technical employees or that it will be able to attract and
retain additional and highly technical and managerial personnel in the future.
None of the Company's employees is represented by a labor union. The Company
has not experienced any work stoppages and considers its relations with its
employees to be good.
The rapid execution necessary for the Company to fully exploit the market
opportunity for its products and services requires an effective planning and
management process. The Company's rapid growth has placed, and is expected to
continue to place, a significant strain on the Company's managerial,
operational and financial resources. The senior members of the Company's
management, including Klaus P. Besier, the Company's Chairman of the Board,
President and Chief Executive Officer, John Burke, the Company's Vice
President of Sales, Carolyn LoGalbo, the Company's Vice President of
Marketing, and Joseph Gruttadauria, the Company's Vice President of Support
Services and Quality, joined the Company during 1996. In addition, most of the
Company's development and engineering staff was only recently hired. To manage
its growth, the Company must continue to implement and improve its operational
and financial systems and to expand, train and manage its employee base. The
Company's future operating results also will depend on its ability to expand
its sales and marketing organizations, implement and manage new distribution
channels to penetrate different and broader markets and expand its support
organization commensurate with the increasing base of its installed products.
If the Company is unable to manage growth effectively, the Company's business,
operating results and financial condition could be materially adversely
affected.
FACILITIES
The Company leases approximately 26,000 square feet of office space in
Watertown, Massachusetts under a five-year lease agreement which commenced in
March 1996. Depending on its future growth, the Company may need to expand its
existing facilities or obtain additional space prior to the end of 1996.
Management believes that adequate facilities for expansion will be available,
if necessary, in the greater Boston area at competitive rates.
37
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers, key employees and directors of the Company are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Klaus P. Besier.............. 44 Chairman of the Board, President and
Chief Executive Officer
John Burke................... 36 Vice President of Sales
William Cullen............... 37 Director of Product Development
Joseph Gruttadauria.......... 36 Vice President of Support Services and Quality
Carolyn LoGalbo.............. 45 Vice President of Marketing
Craig Newfield............... 36 General Counsel and Secretary
James Nondorf................ 28 Vice President of Strategic Alliances
Eric Sockol.................. 35 Chief Financial Officer and Treasurer
Albert Carnesale(1).......... 59 Director
Manuel Diaz.................. 62 Director
Stephen R. Levy(2)........... 56 Director
Ofer Nemirovsky(2)........... 38 Director
Sundar Subramaniam(1)........ 30 Director
</TABLE>
- --------
(1) Member of Compensation Committee
(2) Member of Audit Committee
Klaus P. Besier has served as Chairman, President and Chief Executive
Officer of the Company since February 1996. Mr. Besier has more than 20 years
of experience in international management and computer services. From 1994 to
1996, Mr. Besier was the Chief Executive Officer of SAP America, Inc., a
business application software vendor. From 1992 to 1993, Mr. Besier served as
the President of SAP America, Inc. From 1991 to 1992, Mr. Besier was Vice
President of Sales of SAP America, Inc. From 1977 to 1990, Mr. Besier held
various senior management positions, including General Manager and Corporate
Vice President, with various affiliates of Hoechst Celanese in Germany, Italy
and the U.S.
John Burke has served as Vice President of Sales of the Company since April
1996. From 1994 to 1996, Mr. Burke served as Senior Vice President of SAP
America, Inc. and was responsible for the Midwest region. From 1990 to 1994,
Mr. Burke held various senior sales management positions with SAP America,
Inc. From 1981 to 1990, Mr. Burke held management and sales positions at Dun
and Bradstreet Software (formerly Management Science America, Inc.) and
International Business Machines.
William Cullen has served as Director of Product Development of the Company
since May 1995. From May 1994 to April 1995, Mr. Cullen served as a Software
Architect for Progress Software Corporation, a 4GL software tools provider.
From June 1993 to April 1994, Mr. Cullen served as Project Leader/Senior
Software Engineer of Information Resources, Inc. From January 1991 to May
1993, Mr. Cullen was a software consultant at Softbridge Microsystems, Inc.
Joseph Gruttadauria has served as Vice President of Support Services and
Quality of the Company since April 1996. From March 1995 to April 1996, Mr.
Gruttadauria served as Director of Customer Services for SAP America, Inc. Mr.
Gruttadauria was responsible for building and managing SAP America's worldwide
customer service and support organization. From 1989 to 1995, Mr. Gruttadauria
served as Vice President of Services and Manufacturing for SoftSwitch, Inc., a
supplier of enterprise electronic mail products.
38
<PAGE>
Carolyn LoGalbo has served as Vice President of Marketing of the Company
since March 1996. From 1993 to 1995, Ms. LoGalbo served as Chief Marketing
Officer of MFS Intelenet Inc., a wholly owned subsidiary of MFS Communications
Company. From 1990 to 1993, Ms. LoGalbo served as Category Manager at Kraft
General Foods and was responsible for segmented coffee brands. From 1988 to
1990, Ms. LoGalbo served as Group Product Manager at Kraft General Foods and
was responsible for Maxwell House Coffee. Prior to Kraft General Foods, Ms.
LoGalbo served as Marketing Manager at Nestle Corporation.
Craig Newfield has served as General Counsel to the Company since April 1996
and as Secretary of the Company since May 1996. From February 1993 to April
1996, Mr. Newfield served as in-house counsel for Marcam Corporation, a
business application software vendor. From 1990 to 1993, Mr. Newfield was
employed as an associate at the law firm of Jager, Smith, Stetler & Arata,
P.C. From 1987 to 1990, Mr. Newfield was employed as an associate at the law
firm of Brown, Rudnick, Freed & Gesmer.
James Nondorf has served as Vice President of Strategic Alliances of the
Company since February 1996. From 1995 to 1996, Mr. Nondorf served as the
President and a director of the Company. From 1994 to 1996, Mr. Nondorf served
as the Company's Chief Executive Officer. From 1990 to 1994, Mr. Nondorf
served as the Chief Operating Officer of Cambridge Technology Group, a
provider of technology seminars and executive training services. Mr. Nondorf
also serves as a director of Open Environment Corporation.
Eric Sockol has served as Chief Financial Officer and Treasurer of the
Company since October 1995. From May 1995 to October 1995, Mr. Sockol served
as Finance Director for Stream International Inc. (a merger of Corporate
Software and Global Software Services), a manufacturer and reseller of PC
software and related services. From June 1990 to May 1995, Mr. Sockol served
as Finance Director and Corporate Controller for Corporate Software. Mr.
Sockol is a Certified Public Accountant.
Albert Carnesale has served as a director of the Company since April 1996.
Dr. Carnesale is the Don K. Price Professor of Public Policy at Harvard
University. Since July 1994, Dr. Carnesale has been Provost of Harvard
University. From July 1991 through December 1995, Dr. Carnesale served as the
Dean of the John F. Kennedy School of Government at Harvard University. From
1981 to 1991, Dr. Carnesale served as the Academic Dean of the John F. Kennedy
School of Government of Harvard University. Dr. Carnesale has held positions
with Martin Marietta Corporation from 1957 to 1962 and the United States Arms
Control and Disarmament Agency from 1969 to 1972. He is also a member of the
Council on Foreign Relations and of the International Institute for Strategic
Studies. Dr. Carnesale also serves as a director of Open Environment
Corporation and Teradyne, Inc.
Manuel Diaz has served as a director of the Company since May 1996. Since
1993, Mr. Diaz has been a Vice President for Hewlett-Packard Company and
general manager of worldwide sales, marketing and services for its Computer
Systems Organization ("CSO"). Mr. Diaz joined HP Mexicana in Mexico City as
its general manager in 1982, and was promoted to managing director of HP Latin
America in 1986. In 1991, Mr. Diaz was named sales and marketing manager of
CSO for the US, Canada and Latin America, and in 1993 named to his current
position. Prior to joining HP, Mr. Diaz was director general of Infodinamica
S.A. de C.V. in Mexico City, executive vice president of Bancomer, S.A. and
general manager of IBM Corporation's Northern Latin America Region.
Stephen R. Levy has served as a director of the Company since May 1996.
Since 1995, Mr. Levy has been a private investor. Mr. Levy is presently a
director of BBN Corporation (formerly Bolt Beranek and Newman Inc.) and
previously served BBN as President and Chief Executive Officer from 1976 to
1983, as Chairman of the Board and Chief Executive Officer from 1983 to 1993,
as Chairman of the Board, President and Chief Executive Officer in 1993, and
as Chairman of the Board from 1994 to 1995. Mr. Levy also serves as a director
of ThermoOptek Corporation.
39
<PAGE>
Ofer Nemirovsky has served as a director of the Company since March 1996.
Since December 1988, Mr. Nemirovsky has been a Vice President of, and a
general partner of the respective general partners of several investment funds
managed by, Hancock Venture Partners, Inc. ("HVP"). Prior to joining HVP in
1986, Mr. Nemirovsky held various computer sales and marketing positions at
Hewlett-Packard. He is currently a director of NETCOM On-Line Communications
Services, Inc. and AXENT Technologies, Inc., as well as several privately held
companies.
Sundar Subramaniam has been a director of the Company since January 1994.
Since 1994, Mr. Subramaniam has been President of Cambridge Technology
Enterprise, a group of companies which focus on the development of emerging
technology and new markets. He is also Chairman of International Integration
Incorporated ("I-Cube") and of Integrated Computing Engines ("ICE") and
Adjunct Assistant Professor of Finance at Brandeis University. He served as
Chairman of the Company from 1995 to 1996. From 1993 to 1994, Mr. Subramaniam
was President and Chief Executive Officer of Open Environment Corporation, and
from 1990 through 1993 he held various executive and management positions with
Cambridge Technology Group.
Officers of the Company are elected by, and serve at the discretion of, the
Board of Directors.
There are no family relationships among any of the executive officers or
directors of the Company.
BOARD OF DIRECTORS
Each director holds office until that director's successor has been elected
and qualified. The Company's Board of Directors is divided into three classes.
Messrs. Nemirovsky and Subramaniam serve in the class whose term expires in
1997; Messrs. Carnesale and Levy serve in the class whose term expires in
1998; and Messrs. Besier and Diaz serve in the class whose term expires in
1999. Upon expiration of the term of each class of director, directors
comprising such class will be elected for a three-year term at the annual
meeting of stockholders in the year of which such term expires.
Mr. Nemirovsky was nominated and elected to the Board of Directors pursuant
to a voting agreement among certain stockholders of the Company. This
agreement will terminate upon consummation of this offering. See "Certain
Transactions".
The Company's Board of Directors has established an Audit Committee (the
"Audit Committee") and a Compensation Committee (the "Compensation
Committee"). The Audit Committee recommends the firm to be appointed as
independent accountants to audit the Company's financial statements and to
perform services related to the audit, reviews the scope and results of the
audit with the independent accountants, reviews with management and the
independent accountants the Company's year-end operating results and considers
the adequacy of the Company's internal accounting procedures. The Audit
Committee consists of Messrs. Levy and Nemirovsky. The Compensation Committee,
which consists of Messrs. Carnesale and Subramanian, reviews and recommends
the compensation arrangements for all directors and officers and approves such
arrangements for other senior level employees. The Compensation Committee also
administers and takes such other action as may be required in connection with
the incentive plans of the Company, including the 1995 Stock Plan and the 1996
Stock Plan.
DIRECTOR COMPENSATION
Non-employee directors receive $1,250 for each Board of Directors meeting
attended in addition to reimbursement for reasonable out-of-pocket expenses
incurred. Non-employee directors are eligible to participate in the Company's
1996 Stock Plan under which each non-employee director will receive an initial
option to purchase 7,000 shares upon first joining the board and thereafter
receive an automatic grant to purchase 1,700 shares on each January 1,
beginning in 1997, that such director is
40
<PAGE>
a member of the Board of Directors. In addition, all of the current non-
employee directors who joined the Board of Directors in 1996 shall be entitled
to receive an option to purchase 7,000 shares of Common Stock upon
consummation of this offering at a per share exercise price equal to the
initial public offering price. All such options will vest equally over four
years and have an exercise price equal to the fair market value of the Common
Stock on the date of grant. See "--Stock Plans".
EXECUTIVE COMPENSATION
The following table sets forth all compensation paid by the Company during
the fiscal year ended December 31, 1995 to the person who was employed during
the fiscal year ended December 31, 1995 as the Company's Chief Executive
Officer (the "Named Executive Officer"). No officer or employee of the Company
received annual compensation exceeding $100,000 in 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION
COMPENSATION AWARDS(1)
------------ ------------
SECURITIES
UNDERLYING
YEAR SALARY OPTIONS
---- ------------ ------------
<S> <C> <C> <C>
James Nondorf................................... 1995 $39,086 266,666
Former President and Chief Executive Officer(2)
</TABLE>
- --------
(1) The Company did not grant any restricted stock awards or stock
appreciation rights (SARs) or make any long-term incentive plan payouts
during the fiscal year ended December 31, 1995.
(2) Mr. Nondorf became Vice President of Strategic Alliances in February 1996.
His current annual base salary is $110,000.
The following information with regard to executive compensation is provided
for the Company's current Chief Executive Officer and for the four other
current most highly compensated officers of the Company:
Klaus P. Besier joined the Company as Chairman, President and Chief
Executive Officer in February 1996. Mr. Besier's annual salary is set at
$200,000 for the years 1996 through 1998. Mr. Besier has been granted options
to purchase 330,000 shares of Common Stock, at an exercise price of $7.50 per
share, in lieu of receiving cash bonuses for the years 1996 through 1998. The
options vest as follows: (i) an option for 180,000 shares vesting equally over
three years and (ii) an option for 150,000 shares vesting equally in
six annual installments subject, in each case, to accelerated vesting upon the
occurrence of certain events.
In connection with his employment, Mr. Besier purchased 960,000 shares of
Common Stock from a principal stockholder of the Company for an aggregate
purchase price of $1,440,000. At the time of that purchase, the fair market
value of the Common Stock that Mr. Besier purchased exceeded the purchase
price paid by him and the Company agreed to lend Mr. Besier up to $2,560,000
to fund his income tax liability on account of such purchase. See "Certain
Transactions".
Mr. Besier also received (i) a $1,000,000 payment from a principal
stockholder of the Company and (ii) an agreement from such stockholder to
provide him with a payment related to changes in the value of his interest in
the SAP Phantom Convertible Debenture Appreciation Rights 1994/2004 Program.
See "Certain Transactions".
John Burke joined the Company as Vice President of Sales in April 1996. Mr.
Burke's annual salary is set at $200,000 for the years 1996 through 1998. Mr.
Burke has been granted an option to purchase 70,000 shares of Common Stock, at
an exercise price of $7.50 per share, in lieu of receiving
41
<PAGE>
cash bonuses for the years 1996 through 1998. In addition Mr. Burke was
granted an option to purchase 333,333 shares of Common Stock at an exercise
price of $7.50 per share. The options vest as follows: (i) an option for
220,000 shares vesting over three years; and (ii) an option for 183,333 shares
vesting equally in six annual installments subject, in each case, to
accelerated vesting at varying rates upon the occurrence of certain events.
Joseph Gruttadauria joined the Company as Vice President of Support Services
and Quality in April 1996. Mr. Gruttadauria's current base salary is $132,000
with a bonus of $80,000 for 1996. Mr. Gruttadauria was granted an option to
purchase 46,666 shares of Common Stock at an exercise price of $7.50 per
share, of which options for 13,333 shares vest within six months of grant and
the remaining options vest in equal installments over four years.
Carolyn LoGalbo joined the Company as Vice President of Marketing in March
1996. Ms. LoGalbo's annual salary is $175,000 plus a guaranteed cash bonus of
$50,000 for 1996. Ms. LoGalbo was granted an option to purchase, in the
aggregate, 233,333 shares of Common Stock at an exercise price of $7.50 per
share. The options vest as follows: (i) an option for 200,000 shares vesting
over two years and (ii) an option for 33,333 shares vesting equally in six
annual installments subject, in each case, to accelerated vesting upon the
occurrence of certain events.
Craig Newfield joined the Company as General Counsel in March 1996. Mr.
Newfield's current annual base salary is $110,000 plus a potential cash bonus
of $15,000 for 1996. Mr. Newfield was granted an option to purchase 33,333
shares of Common Stock at an exercise price of $7.50 per share. The options
granted have the following vesting provisions: (i) an option for 6,666 shares
vesting in six months and (ii) the remaining option, for 26,667 shares,
vesting over four years beginning on the first anniversary of the grant date.
42
<PAGE>
OPTION GRANTS
The following table sets forth certain information regarding stock options
granted during the fiscal year ended December 31, 1995 by the Company to the
Named Executive Officer. The Company granted no SARs during the fiscal year
ended December 31, 1995.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS(1) FOR OPTION TERM(2)
-------------------------------------------------- -----------------------------
PERCENT OF
NUMBER OF TOTAL OPTIONS EXERCISE
SECURITIES GRANTED PRICE
UNDERLYING TO EMPLOYEES PER EXPIRATION
OPTIONS GRANTED IN FISCAL YEAR SHARE(3) DATE(4) 5% 10%
--------------- -------------- -------- ---------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
James Nondorf........... 66,666 5.41% $1.50 03/01/05 $ 62,889 $ 159,373
200,000 16.22% $4.50 10/01/05 $566,055 $1,434,368
</TABLE>
- --------
(1) All options were granted at an exercise price equal to market value as
determined by the Board of Directors of the Company on the date of grant.
The Board of Directors determined the market value of the Common Stock
based on various factors, including the illiquid nature of an investment
in the Company's Common Stock, the Company's historical financial
performance, the preferences (including liquidation) of the Company's
outstanding Preferred Stock, the Company's future prospects and the price
paid for securities of the Company in arms-length transactions with third
parties.
(2) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based upon assumed rates of share price appreciation set by the
Securities and Exchange Commission of 5% and 10% compounded annually from
the date the respective options were granted to their expiration date. The
gains shown are net of the option exercise price, but do not include
deductions for taxes or other expenses associated with the exercise.
Actual gains, if any, are dependent on the performance of the Common Stock
and the date on which the option is exercised. There can be no assurance
that the amounts reflected will be achieved.
(3) The exercise price equals the fair market value of the Common Stock on the
date of grant as determined by the Company's Board of Directors.
(4) The vesting schedule for the option to purchase 66,666 shares of Common
Stock was accelerated so as to become fully exercisable on February 19,
1996. The option to purchase 200,000 shares of Common Stock became
exercisable with respect to 66,666 shares on March 8, 1996, and with
respect to the remaining 133,333 shares will become exercisable when the
Common Stock is listed for trading on the Nasdaq National Market.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth certain information with respect to the
unexercised stock options held as of December 31, 1995 by the Named Executive
Officer.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED IN-
NUMBER OF UNEXERCISED THE-MONEY
OPTIONS OPTIONS AT DECEMBER 31,
AT DECEMBER 31, 1995(1) 1995(1)
------------------------- -------------------------
NAME
- ---- EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C>
James Nondorf............... 16,666 250,000 $100,000 $900,000
</TABLE>
- --------
(1) Calculated on the basis of the fair market value of the underlying
securities at December 31, 1995 of $7.50 per share, as determined by the
Company's Board of Directors, minus the per share exercise price.
43
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to May 1996, the Company did not have a Compensation Committee and
decisions relating to executive compensation were made by the Board of
Directors. On May 10, 1996, the Board of Directors established a Compensation
Committee, consisting of Messrs. Carnesale and Subramaniam and delegated to
the Compensation Committee responsibility for decisions concerning executive
compensation.
STOCK PLANS
The Company's 1995 Stock Plan (the "1995 Plan") was adopted by the Board of
Directors and approved by the stockholders of the Company in March 1995. The
Company's 1996 Stock Plan (the "1996 Plan", and collectively with the 1995
Plan, the "Stock Plans") was adopted by the Board of Directors in May 1996 and
approved by the stockholders in May 1996. The Company has reserved an
aggregate of 3,500,000 shares of Common Stock for issuance under the Stock
Plans. The Company's Stock Plans permit the grant of (i) options to purchase
shares of Common Stock intended to qualify as incentive stock options under
Section 422 of the Internal Revenue Code of 1986, as amended, (the "Code"),
(ii) options that do not so qualify, and (iii) shares of Common Stock. Each
non-employee director first joining the Board of Directors in the future will
receive an automatic option grant to purchase 7,000 shares of Common Stock
when such director is first elected or appointed to the Board of Directors. In
addition, each non-employee director will receive an automatic option grant to
purchase 1,700 shares of Common Stock on each January 1 that such director is
a member of the Board of Directors. All option shares granted to non-employee
directors will vest in equal annual installments over a four-year period. All
option grants to non-employee directors will be at a per share exercise price
equal to the fair market value of the Common Stock at the time of grant. The
Stock Plans are designed and intended as a performance incentive for officers,
directors, employees, consultants and other key persons performing services
for the Company to encourage such persons to acquire or increase a proprietary
interest in the success of the Company. The Stock Plans are administered by
the Compensation Committee as appointed by the Board of Directors from time to
time. The Compensation Committee determines the terms of each individual stock
option and stock award, subject to the terms of the Stock Plans, including the
exercise price or purchase price of such awards. The exercise price for
incentive stock options must be equal to the fair market value of the Common
Stock on the date of grant. The exercise price for non-qualified stock options
and the purchase price for Common Stock awards is determined at the discretion
of the Compensation Committee. As of May 1, 1996, options to purchase
2,404,133 shares of Common Stock were outstanding and an additional 1,095,867
shares of Common Stock were available for issuance under the Stock Plans.
EMPLOYEE STOCK PURCHASE PLAN
The Company's Employee Stock Purchase Plan ("ESPP") was adopted by the Board
of Directors and approved by the stockholders of the Company in May 1996. The
Company has reserved a total of 150,000 shares of Common Stock for issuance
under the ESPP. The ESPP, which is intended to qualify under Section 423(b) of
the Code permits eligible employees of the Company to purchase Common Stock
through payroll deductions of up to ten percent of their salaries. The price
of Common Stock purchased under the ESPP will be 85% of the lower of the fair
market value of the Common Stock on the first or last day of each six-month
purchase period. The ESPP will be administered by the Compensation Committee
of the Board of Directors. Employees are eligible to participate if they are
customarily employed by the Company or any designated subsidiary for at least
20 hours per week.
44
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth the beneficial ownership of the Company's
Common Stock as of May 1, 1996, and as adjusted to reflect the sale of the
Company's Common Stock offered hereby at an assumed initial public offering
price of $14.00 per share, by (i) each person or entity known to the Company
to own beneficially more than 5% of the outstanding shares of Common Stock and
certain other principal stockholders of the Company, (ii) each of the
Company's directors, (iii) the Named Executive Officer, (iv) all directors and
executive officers of the Company as a group and (v) each of the other Selling
Stockholders. Except as indicated in the footnotes to this table, the Company
believes that the persons named in this table have sole voting and investment
power with respect to the shares of Common Stock indicated.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO THIS OWNED AFTER THIS
OFFERING(1)(2) OFFERING(1)(2)(3)
-------------------- --------------------
NUMBER OF
DIRECTORS, OFFICERS SHARES
AND 5% STOCKHOLDERS NUMBER PERCENTAGE OFFERED NUMBER PERCENTAGE
- ------------------- --------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Sundar Subramaniam(4)..... 3,332,000 28.13% 200,000 3,132,000 21.10%
219 Vassar Street
Cambridge, MA 02139
Harrington Trust Limited,
as Trustee of the Appleby
Trust.................... 3,009,697 25.41 287,574 2,722,123 18.34
Cedar House, 41 Cedar Av-
enue
Hamilton, Bermuda HM 12
J&S Limited Partner-
ship(5).................. 1,100,000 9.29 118,022 981,978 6.61
219 Vassar Street
Cambridge, MA 02139
Legacy Investment Partner-
ship(6).................. 1,333,333 11.26 -- 1,333,333 8.98
219 Vassar Street
Cambridge, MA 02139
Klaus P. Besier........... 1,026,667 8.67 -- 1,026,667 6.92
c/o OneWave, Inc.
One Arsenal Marketplace
Watertown, MA 02172
Entities Managed by
Hancock Venture Partners,
Inc. (7)................ 528,567 4.46 -- 528,567 3.56
One Financial Center,
44th Floor
Boston, MA 02111
James Nondorf(8).......... 66,666 * -- 66,666 *
Albert Carnesale.......... -- -- -- -- --
Manuel Diaz............... -- -- -- -- --
Stephen R. Levy(9)........ 33,333 * -- 33,333 *
Ofer Nemirovsky(10)....... 528,567 4.46 -- 528,567 3.56
All directors and execu-
tive officers as a group
(10 persons)(8).......... 4,987,233 41.87 200,000 4,787,233 32.10
OTHER SELLING STOCKHOLDERS
- --------------------------
Pantio Holding Ltd.(11)... 132,142 1.12 120,337 11,805 *
Lorenzo Cue(12)........... 26,428 * 24,067 2,361 *
</TABLE>
- --------
* Less than one percent (1%).
45
<PAGE>
(1) Beneficial ownership is determined in accordance with rules of the
Securities and Exchange Commission and includes general voting power
and/or investment power with respect to securities. Shares of Common Stock
subject to options currently exercisable or exercisable within 60 days
after May 1, 1996 ("Currently Exercisable Options") are deemed outstanding
for computing the percentage of a person holding such options but are not
deemed outstanding for computing the percentage of any other person. For
purposes of this table, stock options subject to acceleration upon the
occurrence of events other than the passage of time are not deemed to be
Currently Exercisable Options.
(2) The conversion of the Series B Preferred Stock is based on an assumed
initial public offering price of $14.00 per share. If the initial public
offering price varies from $14.00 per share, the number of shares of
Common Stock issuable upon conversion of the Series B Preferred Stock is
subject to adjustment from a maximum of 1,103,137 shares (in the event
that the initial public offering price is $12.375 per share or less) to a
minimum of 888,085 shares (in the event that the initial public offering
price is $15.375 per share or greater).
(3) Assumes no exercise of the Underwriters' over-allotment option.
(4) Does not include 1,100,000 shares held by J&S Limited Partnership in which
Mr. Subramaniam holds a 50% beneficial interest but over which Mr.
Subramaniam exercises no voting or investment power.
(5) John J. Donovan, Sr. is the president and sole stockholder of Controller
Corp., Inc., the general partner of J&S Limited Partnership, and, as such,
may be deemed the beneficial owner of these shares.
(6) John J. Donovan, Jr. is the managing partner of Legacy Investment
Partnership and, as such, has exclusive voting and investment power over
these shares.
(7) Includes (i) 502,139 shares of Common Stock issuable upon conversion of
Series B Preferred Stock held by Hancock Venture Partners IV-Direct Fund
L.P. and (ii) 26,428 shares of Common Stock issuable upon conversion of
Series B Preferred Stock held by Falcon Ventures II L.P. Hancock Venture
Partners, Inc. is the managing general partner of the respective general
partners of such entities.
(8) Includes 66,666 shares of Common Stock which may be purchased within 60
days of May 1, 1996 upon the exercise of stock options.
(9) Includes 33,333 shares of Common Stock issuable upon conversion of Series
C Preferred Stock.
(10) Includes (i) 502,139 shares of Common Stock issuable upon conversion of
Series B Preferred Stock held by Hancock Venture Partners IV-Direct Fund
L.P. and (ii) 26,428 shares of Common Stock issuable upon conversion of
Series B Preferred Stock held by Falcon Ventures II, L.P., of which
partnerships Mr. Nemirovsky is a general partner of the respective
general partners, but as to which Mr. Nemirovsky disclaims beneficial
ownership.
(11) Includes 132,142 shares of Common Stock issuable upon conversion of
Series B Preferred Stock.
(12) Includes 26,428 shares of Common Stock issuable upon conversion of Series
B Preferred Stock.
46
<PAGE>
CERTAIN TRANSACTIONS
Certain of the Company's principal stockholders are affiliated with each
other through family and other relationships. Sundar Subramaniam, a director
of the Company, and John J. Donovan, Sr., are limited partners, and Mr.
Donovan, Sr. is the sole stockholder and president of the corporate general
partner, of J&S Limited Partnership ("J&S"). Mr. Donovan Sr.'s adult children
are the ultimate beneficial owners of the shares of Common Stock held by
Harrington Trust Limited, as Trustee of the Appleby Trust ("Appleby"), and
Legacy Investment Partnership ("Legacy") and one of his sons, John J. Donovan,
Jr., was the President of the Company from its inception through June 1995 and
a director of the Company from its inception through March 1996. See
"Principal and Selling Stockholders".
On May 3, 1995, the Company issued 6% 5-year convertible subordinated notes
to each of J&S (in the original principal amount of $250,000) and Appleby (in
the original principal amount of $750,000). On November 30, 1995, Appleby
converted the promissory note held by it into 1,136,363 shares of Common
Stock. In March 1996, the Company repaid in full the promissory note held by
J&S. On December 29, 1995, Appleby loaned the Company the principal sum of
$750,000 under a 9% 5-year subordinated note. The Company prepaid this note,
in full, in March 1996.
From its inception through March 1, 1996, the Company shared office
facilities in Cambridge, Massachusetts with Cambridge Technology Group, Inc.
("CTGroup"). John J. Donovan, Sr. is the President, sole director and sole
stockholder of CTGroup. During the period from the Company's inception until
December 1995, CTGroup provided a variety of technical and support services
for the Company and, from time to time, advanced funds to meet the Company's
operating expenses. The Company has reimbursed CTGroup, at cost, for all
services rendered and has repaid in full all amounts advanced for its benefit
by CTGroup. For use of the shared office facilities in Cambridge, the Company
reimbursed CTGroup for the Company's pro rata share (based on head count) of
the lease and maintenance costs of the facilities. The Cambridge facilities
are owned by a partnership in which Messrs. Donovan Sr. and Jr. are the
partners. A number of the Company's employees are former employees of CTGroup.
On July 28, 1995, in connection with the establishment by CTGroup of a
credit facility for $2,500,000 with the State Street Bank and Trust Company
("State Street"), the Company gave an unlimited guaranty of all of CTGroup's
obligations to State Street. The Company's obligations under the unlimited
guaranty were terminated on February 16, 1996.
In connection with the establishment by the Company of credit facilities in
the aggregate amount of $5,000,000 with State Street on February 16, 1996,
John J. Donovan, Sr., John J. Donovan, Jr. and J&S each gave an unlimited
guaranty of all of the Company's obligations to State Street. The guaranty of
J&S is secured by a pledge of 520,000 shares of common stock of Open
Environment Corporation ("OEC"). At April 30, 1996, the total amount
outstanding under the Company's credit facilities with State Street was
$2,000,000. Upon completion of this offering, the Company intends to request
that State Street terminate the guaranty obligations of Messrs. Donovan Sr.
and Jr. and J&S. The Company intends to use a portion of the proceeds of this
offering to repay the amounts borrowed under the $2,000,000 term loan portion
of this credit facility upon maturity in September 1996. See "Use of
Proceeds". John J. Donovan, Sr. has also personally guaranteed the performance
by the Company of its obligations under the lease of the Company's
headquarters in Watertown, Massachusetts. Mr. Donovan's obligation under the
lease guaranty will terminate upon consummation of this offering. Legacy, J&S
and Mr. Subramaniam have also agreed with the Company that, in the event this
offering is not successful, they will provide the funding, if any, necessary
to sustain the Company's operations through December 31, 1996. The terms on
which such funding would be provided would be determined by negotiation
between such stockholders and the Company at the time of any such funding.
47
<PAGE>
In connection with the Company's offer of employment to Klaus P. Besier as
President and Chief Executive Officer, J & S made a $1,000,000 payment to Mr.
Besier. The Company incurred no liability for such payment. As a former
employee of SAP America, Mr. Besier continues to be a participant in the SAP
Phantom Convertible Debenture Appreciation Right 1994/2004 Program (the "SAP
Plan") pursuant to which he holds a phantom stock appreciation right
evidencing the right to receive the appreciation in value of a specified
number of shares of SAP Preferred Stock. In connection with the Company's
offer of employment and as an inducement to Mr. Besier, J&S also agreed to pay
Mr. Besier an amount equal to the amount, if any, by which the value of his
stock appreciation right decreases between the date of such offer and
September 30, 1996. The Company has no liability or responsibility to make any
payment to Mr. Besier in connection with the SAP Plan. In addition, Appleby
sold 960,000 shares of Common Stock to Mr. Besier for a purchase price of
$1.50 per share, for an aggregate purchase price of $1,440,000. At the time of
this stock purchase, the Common Stock had a fair market value of $7.50 per
share. As an inducement to Mr. Besier to accept the Company's employment
offer, the Company agreed to lend Mr. Besier up to $2,600,000 to fund the
amount of income tax liability incurred by Mr. Besier in connection with this
stock purchase based upon the difference between the purchase price for the
shares and the fair market value of the shares at the time of such purchase.
The Company and OEC are parties to a Software, Education, Services
Distribution Agreement dated June 21, 1995 (as amended, the "Distribution
Agreement"), pursuant to which the Company is authorized to distribute, on a
non-exclusive basis, worldwide (except Japan) OEC's software products and
services. The Distribution Agreement expires on June 21, 1997, subject to
annual renewals by mutual consent. Under the Distribution Agreement, the
Company purchased, for $260,000, a master copy of OEC's software products and
received the right to make 25 copies of such software for resale during the
term of the Distribution Agreement. The Company is entitled to purchase for
resale additional copies of OEC software products at a discount of 50% below
OEC's list price, and to resell OEC services and education products at a
discount of 25% below OEC's list price. Under the Distribution Agreement, the
Company is prohibited from marketing, reselling or advocating products or
services competitive with the products or services of OEC. At the time the
Company entered into the Distribution Agreement, John J. Donovan, Jr. was
President and a director of the Company and a director of OEC and John J.
Donovan, Sr. was the Chairman of the Board of OEC. Sundar Subramaniam is a
former President and former director of OEC. James G. Nondorf, formerly
President and a director of the Company and currently the Company's Vice
President of Strategic Alliances, is a director of OEC. Appleby, Legacy, J&S
and Mr. Subramaniam are principal stockholders of OEC. A number of the
Company's employees are former employees of OEC.
On October 31, 1995, the Company sold to OEC the source code for certain
software technology relating to the customization and enhancement of SAP
software products. OEC paid the Company an initial fee of $500,000 under the
agreement by which the source code was transferred, and agreed to pay the
Company a royalty in an amount equal to 20% of the first $1,000,000 of sales
revenue recognized by OEC related to products incorporating components of the
transferred source code and 10% of such sales revenues in excess of
$1,000,000. OEC's royalty obligations expire on the earlier of October 1, 1997
or the date on which OEC's aggregate sales revenues related to products
incorporating components of the transferred source code exceed $3,000,000.
The Company and OEC are also parties to an OEM Source Code License Agreement
dated as of December 29, 1995 (the "OEM Agreement"), pursuant to which the
Company holds a perpetual, non-exclusive license to incorporate certain OEC
software products into, or bundle such products with, the Company's software
products and has received the source code for such OEC products. The Company
paid a license fee of $2,200,000 to OEC under the OEM Agreement. The Company
has allocated the cost of the source code to research and development expenses
in 1995.
48
<PAGE>
The Company, from time to time, sub-contracts consulting services from
International Integration Incorporated, in which Sundar Subramanian is a
significant stockholder and the Chairman of the Board of Directors. During the
fiscal year ended December 31, 1995, fees for these consulting services
totaled $662,000.
During April 1996, the Company repurchased an aggregate of 800,000 shares of
Common Stock from four stockholders, at a price of $7.50 per share. Of these
shares, 66,667 shares were repurchased from James Nondorf, a former President
and director of the Company and the current Vice President of Strategic
Alliances, for an aggregate price of $500,000; 233,333 shares were repurchased
from J&S, for an aggregate price of $1,750,000; and 233,333 shares were
repurchased from Appleby, for an aggregate price of $1,750,000. The remaining
266,667 shares were repurchased from Len Hafetz for an aggregate price of
$2,000,000, pursuant to a Stock Purchase Agreement between Mr. Hafetz and John
Donovan, Sr., who assigned his rights and obligations under such agreement to
the Company.
Since February 29, 1996, the Company has sold 1,332,127 shares of Series B
Preferred Stock at a purchase price per share of $5.54 and 1,200,000 shares of
Series C Preferred Stock at a purchase price per share of $5.00. Such shares
of Preferred Stock will be converted into shares of Common Stock as provided
by a formula set forth in the Company's Restated Certificate of Incorporation.
See "Description of Capital Stock--Authorized and Outstanding Capital Stock".
All of the Convertible Preferred Stock has been granted registration rights by
the Company. See "Description of Capital Stock--Registration Rights".
In connection with the purchase of Series B Preferred Stock, certain
purchasers of such stock and certain common stockholders agreed that such
stockholders would vote their shares to elect one director to the Board of
Directors designated by the holders of the Series B Preferred Stock. Pursuant
to such agreement, Ofer Nemirovsky, a general partner of the general partners
of certain investment funds which participated in such offering, was nominated
and elected to the Board of Directors. This Agreement will terminate upon
consummation of this offering.
In connection with its purchase of Series B Preferred Stock, Hewlett-Packard
Company was granted a right of first refusal, for as long as it owns at least
36,603 shares of Common Stock, with respect to securities of the Company which
the Company proposes to sell in private placements to designated computer
hardware manufacturers and other companies that derive a majority of their
revenues from the sale of computer hardware.
49
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The description of the capital stock below is qualified in its entirety by
reference to the Company's Third Amended and Restated Certificate of
Incorporation (the "Restated Certificate of Incorporation") and Amended and
Restated By-Laws ("Restated By-Laws" together with the Restated Certificate of
Incorporation, the "Charter Documents"), copies of which are filed as exhibits
to the Registration Statement of which this Prospectus is a part. See
"Additional Information".
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
Immediately following the consummation of this offering, the authorized
capital stock of the Company will consist of 50,000,000 shares of Common
Stock, par value $.001 per share ("Common Stock"), and 5,000,000 shares of
Preferred Stock, par value $1.00 per share ("Preferred Stock"). Prior to the
commencement of this offering, the Company's authorized capital stock included
the following shares: 30,000,000 shares of Common Stock, of which 10,069,696
shares were issued and outstanding, 1,332,127 shares of Series B Redeemable
Convertible Preferred Stock, par value $1.00 per share ("Series B Preferred
Stock"), of which 1,332,127 shares were issued and outstanding, and 1,220,000
shares of Series C Convertible Preferred Stock, par value $1.00 per share
("Series C Preferred Stock"), of which 1,200,000 were issued and outstanding.
Upon consummation of this offering, all of the issued and outstanding shares
of Series C Preferred Stock will convert into 799,994 shares of Common Stock.
Upon consummation of this offering at an offering price of $14.00 per share,
all of the issued and outstanding shares of Series B Preferred Stock will
convert into 975,200 shares of Common Stock. If the initial public offering
price varies from $14.00 per share, the number of shares of Common Stock
issuable upon conversion of the Series B Preferred Stock is subject to
adjustment from a maximum of 1,103,137 shares (in the event that the initial
public offering price is $12.375 per share or less) to a minimum of 888,085
shares (in the event that the initial public offering price is $15.375 per
share or greater). Immediately following such conversion, all such shares of
the Preferred Stock shall have been cancelled, retired and eliminated from the
Company's authorized capital stock. At May 1, 1996, the Company's Series B
Preferred Stock, Series C Preferred Stock and Common Stock were held of record
by 32 stockholders.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share on all matters to
be voted on by stockholders. Holders of Common Stock are not entitled to
cumulative voting rights. Therefore, the holders of a majority of the shares
voted in the election of directors can elect all of the Directors then
standing for election, subject to the rights of the holders of Preferred
Stock, if and when issued. The holders of Common Stock have no preemptive or
other subscription rights.
The holders of Common Stock are entitled to receive such dividends, if any,
as may be declared from time to time by the Board of Directors from funds
legally available therefor, with each share of Common Stock sharing equally in
such dividends. The possible issuance of Preferred Stock with a preference
over Common Stock as to dividends could impact the dividend rights of holders
of Common Stock. See "Dividend Policy".
There are no redemption or sinking fund provisions with respect to the
Common Stock. All outstanding shares of Common Stock, including the shares
offered hereby, are, or will be upon completion of this offering, fully paid
and non-assessable.
The Restated By-laws provide, subject to the rights of the holders of the
Preferred Stock, if and when issued, that the number of directors shall be
fixed by the Board of Directors. The directors, other than those who may be
elected by the holders of Preferred Stock, if and when issued, are divided
into three classes, as nearly equal in number as possible, with each class
serving for a three-year term,
50
<PAGE>
except with respect to the initial term of each class of directors which shall
be for the period described under "Management--Board of Directors". Subject to
any rights of the holders of Preferred Stock, if and when issued, to elect
directors, and to remove any director whom the holders of any such stock had
the right to elect, any director of the Company may be removed from office
only with cause and by the affirmative vote of at least two-thirds of the
total votes eligible to be cast by stockholders in the election of such
director.
UNDESIGNATED PREFERRED STOCK
Upon consummation of this offering, the Board of Directors of the Company
will be authorized, without further action of the stockholders of the Company,
to issue up to 5,000,000 shares of Preferred Stock in classes or series and to
fix the designation, voting powers, preferences and the relative,
participating optional and other special rights of the shares of each series
and any qualifications, limitations and restrictions thereon as set forth in
the Restated Certificate of Incorporation. Any such Preferred Stock issued by
the Company may rank prior to the Common Stock as to dividend rights,
liquidation preferences or both, may have full or limited voting rights and
may be convertible into shares of Common Stock.
The purpose of authorizing the Board of Directors to issue Preferred Stock
is, in part, to eliminate delays associated with a stockholder vote on
specific issuances. The issuance of Preferred Stock could have the effect of
making it more difficult for a third party to acquire, or of discouraging a
third party from acquiring or seeking to acquire, a significant portion of the
outstanding stock of the Company.
WARRANT
On February 16, 1996, in connection with the establishment of a bank credit
facility, the Company issued to SSB Investments, Inc. a warrant (the
"Warrant") to purchase 23,333 shares of Common Stock at an exercise price per
share of $8.31. The Warrant is exercisable in whole or in part, at any time on
or before February 15, 2003.
CERTAIN PROVISIONS OF THE COMPANY'S CHARTER DOCUMENTS
A number of provisions of the Company's Restated Certificate of
Incorporation and Restated By-laws concern matters of corporate governance and
the rights of stockholders. Certain of these provisions, as well as the
ability of the Board of Directors to issue shares of Preferred Stock and to
set the voting rights, preferences and other terms thereof, may be deemed to
have an anti-takeover effect and may discourage takeover attempts not first
approved by the Board of Directors (including takeovers which certain
stockholders may deem to be in their best interests). These provisions,
together with the classified Board of Directors and the ability of the Board
of Directors to issue Preferred Stock without further stockholder action, also
could delay or frustrate the removal of incumbent directors or the assumption
of control by stockholders, even if such removal or assumption would be
beneficial to stockholders of the Company. These provisions also could
discourage or make more difficult a merger, tender offer or proxy contest,
even if they could be favorable to the interests of stockholders, and could
potentially depress the market price of the Common Stock and deprive
stockholders of an opportunity to receive a premium for their shares. The
Board of Directors of the Company believes that these provisions are
appropriate to protect the interests of the Company and all of its
stockholders. The Board of Directors has no present plans to adopt any other
measures or devices which may be deemed to have an "anti-takeover effect".
MEETINGS OF STOCKHOLDERS. The Restated By-laws provide that a special
meeting of stockholders may be called only by the Board of Directors unless
otherwise required by law. The Restated By-laws provide that only those
matters set forth in the notice of the special meeting may be considered or
acted upon at that special meeting, unless otherwise provided by law. In
addition, the Restated By-laws set forth certain advance notice and
informational requirements and time limitations on any director nomination or
any new business which a stockholder wishes to propose for consideration at an
annual meeting of stockholders.
51
<PAGE>
NO STOCKHOLDER ACTION BY WRITTEN CONSENT. The Restated Certificate of
Incorporation provides that any action required or permitted to be taken by
the stockholders of the Company at an annual or special meeting of
stockholders must be effected at a duly called meeting and may not be taken or
effected by a written consent of stockholders in lieu thereof.
INDEMNIFICATION AND LIMITATION OF LIABILITY. The Restated By-laws provide
that directors and officers of the Company shall be, and in the discretion of
the Board of Directors non-officer employees may be, indemnified by the
Company to the fullest extent authorized by Delaware law, as it now exists or
may in the future be amended, against all expenses and liabilities reasonably
incurred in connection with service for or on behalf of the Company. The
Restated By-laws also provide that the right of directors and officers to
indemnification shall be a contract right and shall not be exclusive of any
other right now possessed or hereafter acquired under any by-law, agreement,
vote of stockholders or otherwise. The Restated Certificate of Incorporation
contains a provision permitted by Delaware law that generally eliminates the
personal liability of directors for monetary damages for breaches of their
fiduciary duty, including breaches involving negligence or gross negligence in
business combinations, unless the director has breached his or her duty of
loyalty failed to act in good faith, engaged in intentional misconduct or a
knowing violation of law, paid a dividend or approved a stock repurchase in
violation of the Delaware General Corporation Law or obtained an improper
personal benefit. This provision does not alter a director's liability under
the federal securities laws. In addition, this provision does not affect the
availability of equitable remedies, such as an injunction or rescission, for
breach of fiduciary duty.
AMENDMENT OF RESTATED CERTIFICATE. The Restated Certificate of Incorporation
provides that an amendment thereof must first be approved by a majority of the
Board of Directors and (with certain exceptions) thereafter approved by the
holders of a majority of the total votes eligible to be cast by holders of
voting stock with respect to such amendment or repeal; provided however, that
the affirmative vote of not less than 80% of the total votes eligible to be
cast by holders of voting stock, voting together as a single class, is
required to amend the provisions described above.
AMENDMENT OF RESTATED BY-LAWS. The Restated Certificate of Incorporation
provides that the Restated By-laws may be amended or repealed by the Board of
Directors or by the stockholders. Such action by the Board of Directors
requires the affirmative vote of a majority of the directors then in office.
Such action by the stockholders requires the affirmative vote of the holders
of at least two-thirds of the total votes eligible to be cast by holders of
voting stock with respect to such amendment or repeal at an annual meeting of
stockholders or a special meeting called for such purpose, unless the Board of
Directors recommends that the stockholders approve such amendment or repeal at
such meeting, in which case such amendment or repeal shall only require the
affirmative vote of a majority of the total votes eligible to be cast by
holders of voting stock with respect to such amendment or repeal.
STATUTORY BUSINESS COMBINATION PROVISION
Upon completion of the offering, the Company will be subject to the
provisions of Section 203 of the Delaware General Corporation Law ("Section
203"). Section 203 provides, with certain exceptions, that a Delaware
corporation may not engage in any of a broad range of business combinations
with a person, or affiliate or associate of such person, who is an "interested
stockholder" for a period of three years from the date that such person became
an interested stockholder unless: (i) the transaction resulting in a person
becoming an interested stockholder, or the business combination, is approved
by the board of directors of the corporation before the person becomes an
interested stockholder, (ii) the interested stockholder acquired 85% or more
of the outstanding voting stock of the corporation in the
52
<PAGE>
same transaction that makes it an interested stockholder (excluding shares
owned by persons who are both officers and directors of the corporation, and
shares held by certain employee stock ownership plans) or (iii) on or after
the date the person becomes an interested stockholder, the business
combination is approved by the corporation's board of directors and by the
holders of at least 66% of the corporation's outstanding voting stock at an
annual or special meeting, excluding shares owned by the interested
stockholder. Under Section 203, an "interested stockholder" is defined (with
certain limited exceptions) as any person that is (i) the owner of 15% or more
of the outstanding voting stock of the corporation or (ii) an affiliate or
associate of the corporation that was the owner of 15% or more of the
outstanding voting stock of the corporation at any time within the three-year
period immediately prior to the date on which it is sought to be determined
whether such person is an interested stockholder.
A corporation may, at its option, exclude itself from the coverage of
Section 203 by amending its certificate of incorporation or by-laws by action
of its stockholders to exempt itself from coverage, provided that such charter
or by-law amendment shall not become effective until twelve months after the
date it is adopted. Neither the Restated Certificate of Incorporation nor the
Restated By-laws of the Company contains any such exclusion, although the
Board of Directors has excluded the stockholders of the Company prior to the
offering from the coverage of Section 203.
REGISTRATION RIGHTS
The holders of the Company's Series B Preferred Stock (the "Series B
Investors") and the holders of the Company's Series C Preferred Stock (with
the Series B Investors, the "Preferred Registration Rights Holders") who
collectively will own a total of 1,630,790 shares of Common Stock (the
"Preferred Registrable Securities") upon the closing of this offering at an
initial offering price of $14.00 per share, and SSB Investments, Inc., the
Warrant Holder (with the Preferred Registration Rights Holders, the
"Registration Rights Holders") who will have the right to under the Warrant to
acquire 23,333 shares of Common Stock (with the Preferred Registrable
Securities, the "Registrable Securities"), are parties to agreements with the
Company under which each has certain rights with respect to the registration
under the Securities Act, for resale to the public, of such Registrable
Securities. If the Company proposes to register any of its securities under
the Securities Act, either for its own account or for the account of other
security holders, the Registration Rights Holders are entitled to notice of
such registration and to include their shares of Registrable Securities
therein, subject to certain conditions and limitations, which include the
right of the managing underwriter of any such offering to exclude some or all
of such shares from such registration. Each of the Preferred Registration
Rights Holders had these so-called "piggy-back" registration rights with
respect to this offering and the shares of Common Stock being sold in this
offering by Pantio Holding Ltd. and Lorenzo Cue have been included pursuant to
the exercise of such rights. Additionally, the Series B Investors have certain
demand registration rights pursuant to which they may require the Company on
two occasions to register all or part of their shares of Registrable
Securities for resale to the public under the Securities Act, subject to
certain conditions and limitations, including the requirement that the
anticipated aggregate price of the shares to be registered exceeds $10,000,000
and the right of the Company not to effect such requested registration within
180 days after the effective date of a registration statement filed by the
Company covering a firm commitment underwritten public offering of the
securities of the Company under the Securities Act. Further, the Series B
Investors may require the Company to file additional registration statements
on Form S-3 if the Company qualifies for the use of such form, subject to
certain conditions and limitations. The Company is required to bear the
expenses of all such registrations (except underwriting discounts and
commissions) and to use its best efforts to effect such registrations.
TRANSFER AGENT AND REGISTRAR
The Company has selected State Street Bank and Trust Company as the transfer
agent and registrar for the Common Stock.
53
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have outstanding
14,844,890 shares of Common Stock (assuming no exercise of outstanding options
after May 1, 1996). Of these shares, the 3,750,000 shares sold in this
offering will be freely transferable without restriction or further
registration under the Securities Act unless purchased by "affiliates" of the
Company as that term is defined in Rule 144 of the Securities Act (an
"Affiliate"), which shares will be subjected to the resale limitations of Rule
144 adopted under the Securities Act. The remaining 11,094,890 shares
outstanding upon completion of this offering and held by existing stockholders
will be "Restricted Securities" as that term is defined under Rule 144 (the
"Restricted Shares"). Restricted Shares may be sold in the public market only
if registered or if they qualify for an exemption from registration under
Rules 144 or 701 promulgated under the Securities Act, which rules are
summarized below. As a result of the contractual restrictions described below,
and the provisions of Rules 144 and 701, additional shares will be available
for sale in the public market as follows: (i) 108,113 shares issuable upon the
exercise of stock options granted under the 1995 Plan and the 1996 Plan that
are vested or will vest and, if exercised, will become eligible for sale
without lock-up restrictions on various dates prior to 180 days following the
date of this Prospectus, (ii) 7,113,978 currently outstanding shares will be
eligible for sale upon expiration of lock-up agreements 180 days after the
date of this Prospectus (as well as 749,111 additional shares issuable upon
the exercise of stock options granted under the 1995 Plan and the 1996 Plan
that will be vested as of such date) and (iii) 3,980,922 additional currently
outstanding shares will be eligible for sale upon expiration of their
respective two-year holding periods, subject in the case of shares held by
affiliates to compliance with certain volume restrictions.
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 two years (and, with respect to non-affiliates of the Company, a
person who has beneficially owned Restricted Securities less than three
years), will be entitled to sell in any three-month period a number of shares
that does not exceed the greater of (i) 1% of the then outstanding shares of
the Company's Common Stock (approximately 148,448 shares immediately after the
offering) or (ii) the average weekly trading volume of the Company's Common
Stock in the Nasdaq National Market during the four calendar weeks immediately
preceding the date on which notice of the sale is filed with the Securities
and Exchange Commission. Such sales pursuant to Rule 144 are subject to
certain requirements relating to manner of sale, notice and availability of
current public information about the Company. A person (or persons whose
shares are aggregated) who is not deemed to have been an affiliate of the
Company at any time during the 90 days immediately preceding the sale and who
has beneficially owned Restricted Shares for at least three years is entitled
to sell such shares pursuant to Rule 144(k) without regard to the limitations
described above. The Securities and Exchange Commission has recently proposed
to reduce the two and three year holding periods under Rule 144 to one and two
years, respectively. If enacted, such modification will have a material effect
on the timing of when certain shares of Common Stock become eligible for
resale.
In addition, following the offering, the holders of 1,630,790 shares of
outstanding Common Stock and 23,333 shares of Common Stock issuable upon
exercise of a certain warrant will have rights under certain circumstances to
require the Company to register their shares for future sale. See "Description
of Capital Stock--Registration Rights".
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 employee, officer or director of or consultant
to the Company who purchased his or her shares pursuant to a written
compensatory plan or contract may be entitled to rely on the resale provisions
of Rule 701. 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
54
<PAGE>
without having to comply with the holding period, public information, volume
limitation or notice provisions of Rule 144. All holders of Rule 701 shares
are required to wait until 90 days after the date of this Prospectus before
selling such shares.
Persons who will hold approximately 10,975,081 shares of the Company's
Common Stock after completion of the offering, including all officers and
directors and certain securityholders of the Company, have agreed with the
Representatives and/or the Company that, for a period of 180 days following
the date of this Prospectus, they will not sell, offer to sell, contract to
sell, grant any option to purchase, make any short sale or otherwise dispose
of any shares of Common Stock of the Company, or any options or warrants to
purchase any shares of Common Stock of the Company, or any securities
convertible into or exchangeable for shares of Common Stock of the Company,
whether now owned or hereinafter acquired, by such holders or with respect to
which they have beneficial ownership within the rules and regulations of the
SEC. The Company has also agreed not to sell, offer to sell, contract to sell,
grant any option to purchase or otherwise dispose of any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock or any rights to acquire Common Stock for a period of 180 days
following the date of this Prospectus without the prior written consent of
Goldman, Sachs & Co. on behalf of the Underwriters, subject to certain limited
exceptions. The lockup agreements may be released at any time as to all or any
portion of the shares subject to such agreements at the sole discretion of
Goldman, Sachs & Co. on behalf of the Underwriters.
Promptly following the consummation of this offering, the Company intends to
file a Registration Statement on Form S-8 to register the shares of Common
Stock issuable upon exercise of options granted under the 1995 Plan, the 1996
Plan and the ESPP. Following the filing of the Form S-8, shares of Common
Stock issued under the 1995 Plan, the 1996 Plan and the ESPP will be available
for sale in the public market upon vesting and exercise of such options,
subject to lock-up restrictions described above and the Rule 144 volume
limitations applicable to affiliates.
Prior to this offering, there has been no prior public market for the Common
Stock and there is no assurance a significant public market for the Common
Stock will develop or be sustained after this offering. Sales of a substantial
amount of Common Stock in the public market could adversely affect the market
price of the Common Stock and could impair the Company's future ability to
raise capital through the sale of its equity securities. See "Risk Factors".
55
<PAGE>
LEGAL MATTERS
The validity of the shares of Common Stock offered by this Prospectus will
be passed upon for the Company and the Selling Stockholders by Peabody &
Arnold, Boston, Massachusetts. Certain other legal matters in connection with
this offering will be passed upon for the Company by Goodwin, Procter & Hoar
llp, Boston, Massachusetts, for the Selling Stockholders by Peabody & Arnold
and for the Underwriters by Hale and Dorr, Boston, Massachusetts.
EXPERTS
The financial statements and schedule for the period from inception (January
19, 1994) to December 31, 1994 and the year ended December 31, 1995 included
in this Prospectus and elsewhere in the Registration Statement have been
audited by Arthur Andersen LLP, independent public accountants, as indicated
in their reports with respect thereto, and are included herein in reliance
upon the authority of said firm as experts in giving said reports.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (of which this Prospectus
is a part) under the Securities Act, with respect to the Common Stock offered
hereby. This Prospectus does not contain all of the information set forth in
the Registration Statement and the exhibits and schedules thereto, certain
parts of which are omitted in accordance with the rules and regulations of the
Commission. For further information about the Company and the securities
offered by this Prospectus, reference is made to the Registration Statement,
including the exhibits and schedules filed as a part thereof. Statements made
in this Prospectus as to the contents of any document referred to are not
necessarily complete, and in each instance, if such document is filed as an
exhibit, reference is made to such exhibit and each such statement is
qualified in its entirety by such reference.
The Registration Statement, including exhibits and schedules thereto, filed
by the Company with the Commission may be inspected, without charge, and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, Room 1024; 7 World Trade Center,
New York, New York 10048, Room 1400; and 500 West Madison Street, Chicago,
Illinois 60661, Suite 1400. Copies of such materials also may be obtained from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, Room 1024, at prescribed rates. In addition, the
Company is required to file electronic versions of these documents with the
Commission through the Commission's Electronic Data Gathering, Analysis, and
Retrieval (EDGAR) system. The Commission maintains a World Wide Web site at
http:/ /www.sec.gov that contains reports, proxy and information statements
and other information regarding registrants that file electronically with the
Commission.
The Company intends to furnish its stockholders with annual reports
containing audited financial statements and an opinion thereon expressed by
independent auditors and with quarterly reports for the first three quarters
of each fiscal year containing unaudited summary financial information.
56
<PAGE>
ONEWAVE, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................................. F-2
Balance Sheets as of December 31, 1994 and 1995, March 31, 1996 (unau-
dited) and
Pro Forma as of March 31, 1996 (unaudited)............................... F-3
Statements of Operations for the Period from Inception (January 19, 1994)
to
December 31, 1994 for the Year Ended December 31, 1995 and for the Three-
Months Ended March 31, 1995 and 1996 (unaudited)......................... F-4
Statements of Redeemable Convertible Preferred Stock and Stockholders'
Equity (Deficit)
for the Period from Inception (January 19, 1994) to December 31, 1994,
for the Year Ended December 31, 1995, for the Three-Months Ended March
31, 1996 (unaudited) and Pro Forma as of March 31, 1996 (unaudited)...... F-5
Statements of Cash Flows for the Period from Inception (January 19, 1994)
to December 31, 1994, for the Year Ended December 31, 1995 and the Three-
Months Ended March 31, 1995 and 1996 (unaudited)......................... F-6
Notes to Financial Statements............................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To OneWave, Inc.:
We have audited the accompanying balance sheets of OneWave, Inc. (a Delaware
corporation, formerly Business@Web, Inc.) as of December 31, 1994 and 1995,
and the related statements of operations, redeemable convertible preferred
stock and stockholders' equity (deficit) and cash flows for the period from
inception (January 19, 1994) to December 31, 1994 and for the year ended
December 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of OneWave, Inc. as of
December 31, 1994 and 1995, and the results of its operations and its cash
flows for the period from inception (January 19, 1994) to December 31, 1994
and for the year ended December 31, 1995, in conformity with generally
accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
March 12, 1996 (except with respect to the
matters discussed in Note 6
as to which the date is May 20, 1996)
F-2
<PAGE>
ONEWAVE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31, 1996
------------------------ --------------------------
PRO FORMA
1994 1995 ACTUAL (NOTE 1)
----------- ----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equiva-
lents (Note 1)......... $ 70 $ 104,622 $ 4,822,127 $ 4,792,127
Accounts receivable,
less reserve of
$100,000 and $150,000
at December 31, 1995
and March 31, 1996,
respectively........... -- 1,908,541 1,775,199 1,775,199
Inventories (Note 1).... -- 292,000 227,000 227,000
Prepaid expenses and
other current assets... -- 157,333 573,329 573,329
Due from affiliates
(Note 7)............... -- -- 168,793 168,793
----------- ----------- ------------ ------------
Total current as-
sets............... 70 2,462,496 7,566,448 7,536,448
----------- ----------- ------------ ------------
Property and Equipment,
at cost (Note 1):
Computer and office
equipment.............. 76,078 226,550 1,074,336 1,074,336
Furniture and fix-
tures.................. -- -- 371,978 371,978
Leasehold improve-
ments.................. -- -- 41,252 41,252
----------- ----------- ------------ ------------
76,078 226,550 1,487,566 1,487,566
Less--Accumulated
depreciation and
amortization........... 12,680 63,118 115,483 115,483
----------- ----------- ------------ ------------
Net property and
equipment.......... 63,398 163,432 1,372,083 1,372,083
----------- ----------- ------------ ------------
Total assets........ $ 63,468 $ 2,625,928 $ 8,938,531 $ 8,908,531
=========== =========== ============ ============
LIABILITIES AND STOCK-
HOLDERS' EQUITY (DEFI-
CIT)
Current Liabilities:
Accounts payable........ $ 275,000 $ 575,575 $ 2,153,072 $ 2,153,072
Note payable to a bank
(Note 2)............... -- -- 2,000,000 2,000,000
Due to affiliates (Note
7)..................... 656,844 2,938,086 553,302 553,302
Accrued expenses........ -- 637,613 3,467,396 3,467,396
Deferred revenues (Note
1)..................... -- 278,572 317,421 317,421
----------- ----------- ------------ ------------
Total current lia-
bilities........... 931,844 4,429,846 8,491,191 8,491,191
----------- ----------- ------------ ------------
Long-Term Debt to
Stockholders (Note 3)... -- 1,000,000 -- --
Commitments (Note 9)
Redeemable Convertible
Preferred Stock (Note
5)...................... -- -- 7,379,984 --
----------- ----------- ------------ ------------
Stockholders' Equity
(Deficit) (Note 6):
Preferred stock, $1.00
par value--
Authorized--5,000,000
shares
Issued and outstand-
ing--no shares....... -- -- -- --
Common stock, $.001 par
value--
Authorized--50,000,000
shares
Issued and
outstanding--
7,933,333 shares at
December 31, 1994,
10,803,030 shares at
December 31, 1995 and
March 31, 1996 and
11,778,224 shares at
March 31, 1996
pro forma............ 7,933 10,803 10,803 11,778
Additional paid-in cap-
ital................... 303,967 1,230,597 8,145,597 15,494,606
Note receivable from
executive officer...... -- -- (2,560,000) (2,560,000)
Deferred compensation... -- (166,594) (135,480) (135,480)
Accumulated deficit..... (1,180,276) (3,878,724) (12,393,564) (12,393,564)
----------- ----------- ------------ ------------
Total stockholders'
equity (deficit)... (868,376) (2,803,918) (6,932,644) 417,340
----------- ----------- ------------ ------------
Total liabilities
and stockholders'
equity (deficit)... $ 63,468 $ 2,625,928 $ 8,938,531 $ 8,908,531
=========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
ONEWAVE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(JANUARY 19, 1994) THREE MONTHS ENDED
TO YEAR ENDED MARCH 31,
DECEMBER 31, DECEMBER 31, ----------------------
1994 1995 1995 1996
------------------ ------------ --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues (Note 1):
Software license and maintenance... $ -- $ 2,150,735 $ 42,940 $ 710,181
Consulting and education services.. -- 3,918,927 373,495 1,670,520
----------- ----------- --------- -----------
Total revenues.................. -- 6,069,662 416,435 2,380,701
----------- ----------- --------- -----------
Cost of Revenues (Note 1):
Software license and maintenance... -- 716,392 22,400 288,980
Consulting and education services.. -- 2,684,216 171,920 974,244
----------- ----------- --------- -----------
Total cost of revenues.......... -- 3,400,608 194,320 1,263,224
----------- ----------- --------- -----------
Gross profit.................... -- 2,669,054 222,115 1,117,477
----------- ----------- --------- -----------
Operating Expenses:
Selling, general and
administrative.................... 285,962 2,107,956 337,488 1,701,196
Research and development (Note 1).. 894,314 3,181,972 174,723 398,592
Compensation to executive officer
(Note 10)......................... -- -- -- 7,515,000
----------- ----------- --------- -----------
Total operating expenses........ 1,180,276 5,289,928 512,211 9,614,788
----------- ----------- --------- -----------
Operating loss.................. (1,180,276) (2,620,874) (290,096) (8,497,311)
Interest Expense, net............... -- 77,574 -- 17,529
----------- ----------- --------- -----------
Net loss........................ $(1,180,276) $(2,698,448) $(290,096) $(8,514,840)
=========== =========== ========= ===========
Pro Forma Net Loss per Common and
Common Equivalent Share (Note 1)... $ (.21) $ (.65)
=========== ===========
Pro Forma Weighted Average Number of
Common and Common Equivalent Shares
Outstanding (Note 1)............... 12,871,554 13,140,961
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
ONEWAVE, INC.
STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
REDEEMABLE
CONVERTIBLE
PREFERRED STOCK
-----------------------
NUMBER
OF CARRYING
SHARES VALUE
---------- -----------
<S> <C> <C>
Initial issuance
of stock at
inception at
$.0015 per
share........... -- $ --
Contribution
from
stockholders
for purchase of
Series A
preferred
stock.......... -- --
Net loss........ -- --
---------- -----------
Balance, December
31, 1994........ -- --
Issuance of
common stock at
$.0015 per
share.......... -- --
Issuance of
Series A
preferred stock
at $1.20 per
share.......... -- --
Conversion of
Series A
preferred stock
into common
stock.......... -- --
Conversion of
long-term debt
to stockholders
into common
stock at $.66
per share...... -- --
Deferred
compensation
related to
grant of stock
options........ -- --
Compensation
expense related
to stock
options........ -- --
Net loss........ -- --
---------- -----------
Balance, December
31, 1995........ -- --
Issuance of
Series B
redeemable
convertible
preferred stock
at $5.54 per
share, net of
issuance costs
of $600,000.... 1,332,127 7,379,984
Compensation
expense to
executive
officer........ -- --
Issuance of note
receivable from
executive
officer........ -- --
Compensation
expense related
to stock
options........ -- --
Net loss........ -- --
---------- -----------
Balance,
March 31, 1996
(Unaudited)..... 1,332,127 7,379,984
Pro forma effect
of issuance of
Series C
convertible
preferred stock
at $5.00 per
share, net of
issuance costs
of $30,000
(unaudited).... -- --
Pro forma effect
of repurchase
and retirement
of common stock
at $7.50 per
share
(unaudited).... -- --
Pro forma effect
of conversion
of redeemable
convertible
preferred stock
and convertible
preferred stock
into common
stock
(unaudited).... (1,332,127) (7,379,984)
---------- -----------
Pro Forma
Balance, March
31, 1996
(Unaudited)..... -- $ --
========== ===========
<CAPTION>
STOCKHOLDERS' EQUITY (DEFICIT)
-----------------------------------------------------------------------------------------------------------------
CONVERTIBLE
PREFERRED STOCK COMMON STOCK NOTE
------------------------ --------------------- RECEIVABLE TOTAL
NUMBER NUMBER ADDITIONAL FROM STOCKHOLDERS'
OF $1.00 OF $.001 PAID-IN EXECUTIVE DEFERRED ACCUMULATED EQUITY
SHARES PAR VALUE SHARES PAR VALUE CAPITAL OFFICER COMPENSATION DEFICIT (DEFICIT)
----------- ------------ ----------- --------- ------------ ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial issuance
of stock at
inception at
$.0015 per
share........... -- $ -- 7,933,333 $ 7,933 $ 3,967 $ -- $ -- $ -- $ 11,900
Contribution
from
stockholders
for purchase of
Series A
preferred
stock.......... -- -- -- -- 300,000 -- -- -- 300,000
Net loss........ -- -- -- -- -- -- -- (1,180,276) (1,180,276)
----------- ------------ ----------- --------- ------------ ------------ ------------ ------------- -------------
Balance, December
31, 1994........ -- -- 7,933,333 7,933 303,967 -- -- (1,180,276) (868,376)
Issuance of
common stock at
$.0015 per
share.......... -- -- 66,667 67 33 -- -- -- 100
Issuance of
Series A
preferred stock
at $1.20 per
share.......... 250,000 250,000 -- -- (250,000) -- -- -- --
Conversion of
Series A
preferred stock
into common
stock.......... (250,000) (250,000) 1,666,667 1,667 248,333 -- -- -- --
Conversion of
long-term debt
to stockholders
into common
stock at $.66
per share...... -- -- 1,136,363 1,136 748,864 -- -- -- 750,000
Deferred
compensation
related to
grant of stock
options........ -- -- -- -- 179,400 -- (179,400) -- --
Compensation
expense related
to stock
options........ -- -- -- -- -- -- 12,806 -- 12,806
Net loss........ -- -- -- -- -- -- -- (2,698,448) (2,698,448)
----------- ------------ ----------- --------- ------------ ------------ ------------ ------------- -------------
Balance, December
31, 1995........ -- -- 10,803,030 10,803 1,230,597 -- (166,594) (3,878,724) (2,803,918)
Issuance of
Series B
redeemable
convertible
preferred stock
at $5.54 per
share, net of
issuance costs
of $600,000.... -- -- -- -- (600,000) -- -- -- (600,000)
Compensation
expense to
executive
officer........ -- -- -- -- 7,515,000 -- -- -- 7,515,000
Issuance of note
receivable from
executive
officer........ -- -- -- -- -- (2,560,000) -- -- (2,560,000)
Compensation
expense related
to stock
options........ -- -- -- -- -- -- 31,114 -- 31,114
Net loss........ -- -- -- -- -- -- -- (8,514,840) (8,514,840)
----------- ------------ ----------- --------- ------------ ------------ ------------ ------------- -------------
Balance,
March 31, 1996
(Unaudited)..... -- -- 10,803,030 10,803 8,145,597 (2,560,000) (135,480) (12,393,564) (6,932,644)
Pro forma effect
of issuance of
Series C
convertible
preferred stock
at $5.00 per
share, net of
issuance costs
of $30,000
(unaudited).... 1,200,000 1,200,000 -- -- 4,770,000 -- -- -- 5,970,000
Pro forma effect
of repurchase
and retirement
of common stock
at $7.50 per
share
(unaudited).... -- -- (800,000) (800) (5,999,200) -- -- -- (6,000,000)
Pro forma effect
of conversion
of redeemable
convertible
preferred stock
and convertible
preferred stock
into common
stock
(unaudited).... (1,200,000) (1,200,000) 1,775,194 1,775 8,578,209 -- -- -- 7,379,984
----------- ------------ ----------- --------- ------------ ------------ ------------ ------------- -------------
Pro Forma
Balance, March
31, 1996
(Unaudited)..... -- $ -- 11,778,224 $11,778 $15,494,606 $(2,560,000) $(135,480) $(12,393,564) $ 417,340
=========== ============ =========== ========= ============ ============ ============ ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
ONEWAVE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
PERIOD FROM INCEPTION YEAR ENDED MARCH 31,
(JANUARY 19, 1994) TO DECEMBER 31, ----------------------
DECEMBER 31, 1994 1995 1995 1996
--------------------- ------------ --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash Flows from Operat-
ing Activities:
Net loss.............. $(1,180,276) $(2,698,448) $(290,096) $(8,514,840)
Adjustments to
reconcile net loss to
net cash provided by
(used in) operating
activities--
Depreciation and
amortization of
property and
equipment.......... 12,680 50,438 6,413 52,365
Compensation expense
to executive
officer............ -- -- -- 7,515,000
Compensation expense
related to stock
options............ -- 12,806 -- 31,114
Changes in operating
assets and
liabilities--
Accounts receiv-
able............. -- (1,908,541) (224,305) 133,342
Inventories....... -- (292,000) -- 65,000
Prepaid expenses
and other current
assets........... -- (157,333) -- (415,996)
Due from affili-
ates............. -- -- -- (168,793)
Accounts payable.. 275,000 300,575 (42,846) 1,577,497
Due to affili-
ates............. 656,844 2,281,242 463,167 (2,384,784)
Accrued expenses.. -- 637,613 104,126 269,783
Deferred reve-
nues............. -- 278,572 -- 38,849
----------- ----------- --------- -----------
Net cash provided
by (used in)
operating
activities...... (235,752) (1,495,076) 16,459 (1,801,463)
----------- ----------- --------- -----------
Cash Flows from Invest-
ing Activities:
Purchases of property
and equipment........ (76,078) (150,472) -- (1,261,016)
----------- ----------- --------- -----------
Net cash used in
investing
activities...... (76,078) (150,472) -- (1,261,016)
----------- ----------- --------- -----------
Cash Flows from Financ-
ing Activities:
Proceeds from (pay-
ments on) long-term
debt to stockhold-
ers.................. -- 1,750,000 -- (1,000,000)
Proceeds from secured
note payable to a
bank................. -- -- -- 2,000,000
Net proceeds from
issuance of preferred
stock................ 300,000 -- -- 6,779,984
Proceeds from issuance
of common stock...... 11,900 100 100 --
----------- ----------- --------- -----------
Net cash provided
by financing
activities...... 311,900 1,750,100 100 7,779,984
----------- ----------- --------- -----------
Net Increase in Cash
and Cash Equivalents.. 70 104,552 16,559 4,717,505
Cash and Cash Equiva-
lents, beginning of
period................ -- 70 70 104,622
----------- ----------- --------- -----------
Cash and Cash Equiva-
lents, end of period.. $ 70 $ 104,622 $ 16,629 $ 4,822,127
=========== =========== ========= ===========
Supplemental Disclosure
of Cash Flow Informa-
tion:
Cash paid during the
period for interest... $ -- $ 25,843 $ -- $ 13,336
=========== =========== ========= ===========
Supplemental Disclosure
of Noncash Financing
Activities:
Conversion of long-
term debt to stock-
holders into common
stock................ $ -- $ 750,000 $ -- $ --
=========== =========== ========= ===========
Issuance of note re-
ceivable from execu-
tive officer......... $ -- $ -- $ -- $ 2,560,000
=========== =========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
ONEWAVE, INC.
NOTES TO FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(1)OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
(a) Organization
OneWave, Inc. (the Company) was incorporated in Delaware (under the
name Object Power, Incorporated) and commenced operations on January
19, 1994 and changed its name to Business@Web, Inc. in February 1996
and to OneWave, Inc. in June 1996. The Company is a provider of "Web-
enabled" software which allows the development and deployment of
mission-critical business applications across an organization's
disparate information technology systems and the extension of those
applications to Intranets and the Internet.
The Company is subject to risks common to rapidly growing, technology-
based companies, including rapid technological change, the need to
raise equity capital, competition from substitute products and larger
companies, and the successful development and marketing of commercial
products and services. At March 31, 1996, the Company had cash and cash
equivalents of approximately $4,822,000 and a working capital deficit
of approximately $925,000. Based upon its current operating plan, the
Company believes that it had sufficient capital resources on hand at
March 31,1996 to sustain operations through December 31, 1996. In
addition, in the event that the proposed initial public offering is not
consummated, certain stockholders have committed to provide the
necessary funding to allow the Company to operate through December 31,
1996 if the existing capital resources are not sufficient to fund the
Company's operations.
(b) Interim Financial Statements
The accompanying balance sheet as of March 31, 1996, the statements of
operations and cash flows for the three months ended March 31, 1995 and
1996, and the statement of redeemable convertible preferred stock and
stockholders' equity (deficit) for the three months ended March 31,
1996 are unaudited, but, in the opinion of management, have been
prepared on a basis substantially consistent with the audited financial
statements and include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the results
of these interim periods. The results of the three months ended March
31, 1996 are not necessarily indicative of the results to be expected
for the year ended December 31, 1996.
(c) Unaudited Pro Forma Presentation
The unaudited pro forma balance sheet and unaudited statement of
redeemable convertible preferred stock and stockholders' equity
(deficit) as of March 31, 1996 reflect (i) the issuance of 1,200,000
shares of Series C convertible preferred stock at $5.00 per share to
new stockholders for net proceeds of $5,970,000; (ii) the repurchase
and retirement of 800,000 shares of common stock from existing
stockholders at $7.50 per share, for an aggregate cost of $6,000,000;
and (iii) the automatic conversion of all outstanding shares of
Series B redeemable convertible preferred stock and Series C
convertible preferred stock into an aggregate of 1,775,194 shares of
common stock, upon the closing of the Company's proposed initial public
offering.
(d)Revenue Recognition
The Company recognizes revenue in accordance with the provisions of
Statement of Position No. 91-1 (SOP 91-1), Software Revenue
Recognition. The Company generates software and maintenance revenues
from licensing the rights to use its software products and the resale
of
F-7
<PAGE>
ONEWAVE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(d)Revenue Recognition (Continued)
software products licensed from a related party (see Note 7(b)). The
Company also generates service revenues from the sale of consulting and
education services.
Revenues from software license fees are recognized upon delivery, net
of estimated returns, provided there are no significant postdelivery
obligations, and payment is due within one year. If acceptance is
required, software license revenues are recognized upon customer
acceptance. Fees for consulting and education services are recognized
upon customer acceptance or over the period in which services are
provided if customer acceptance is not required and the revenues are
fixed and determinable. Maintenance revenues are deferred at the time
of software license revenue recognition and are recognized ratably over
the term of the support period, which is typically one year.
Deferred revenues primarily relate to prepaid maintenance fees.
Cost of software license and maintenance revenues consists of the cost
of software and maintenance purchased for resale from a related party;
distribution costs; and support personnel costs. Cost of consulting and
education services consists primarily of consulting and support
personnel salaries and related costs and fees to third party service
providers.
(e)Cash and Cash Equivalents
The Company classifies all short-term, highly liquid investments with
original maturities at purchase of three months or less as cash
equivalents. The Company accounts for its investments in accordance
with Statement of Financial Accounting Standards (SFAS) No. 115,
Accounting for Certain Investments in Debt and Equity Securities. Under
SFAS No. 115, the Company's cash equivalents are classified as held-to-
maturity securities and recorded at amortized cost. At March 31, 1996,
cash equivalents consisted of an overnight repurchase agreement with a
bank.
(f)Property and Equipment
Property and equipment are stated at cost. Depreciation and
amortization expense is computed using the straight-line method over
the estimated useful lives of the assets (three to five years).
(g)Research and Development and Software Development Costs
In accordance with SFAS No. 86, Accounting for the Costs of Software To
Be Sold, Leased or Otherwise Marketed, the Company has evaluated the
establishment of technological feasibility of its various products
during the development phase. Due to the dynamic changes in the market,
the Company has concluded that it cannot determine technological
feasibility until a fully functional working model is complete. The
time period during which costs could be capitalized from the point of
reaching technological feasibility until the time of general product
release is very short, and consequently, the amounts that could be
capitalized are not material to the Company's financial position or
results of operations. In addition, the Company believes that the
estimated useful life of any potential product is uncertain due to the
rapid
F-8
<PAGE>
ONEWAVE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(g)Research and Development and Software Development Costs (Continued)
technological change in the industry. Therefore, the Company charges
all research and development expenses to operations in the period
incurred. Included in research and development expenses for the period
from inception (January 19, 1994) to December 31, 1994 and the year
ended December 31, 1995 is $350,000 and $2,550,000, respectively,
relating to purchases of technology, of which $2,200,000 was purchased
from a related party in 1995 (see Note 7(b)).
(h)Inventories
Inventories are stated at the lower of cost or market and consist of
purchased software products of a related party held for resale. (See
Note 7(b))
(i)Postretirement Benefits
The Company has no obligations for postretirement benefits.
(j)Concentration of Credit Risk
SFAS No. 105, Disclosure of Information About Financial Instruments
with Off-Balance-Sheet Risk and Financial Instruments with
Concentrations of Credit Risk, requires disclosure of any significant
off-balance-sheet and credit risk concentrations. Financial instruments
that potentially subject the Company to concentrations of credit risk
are accounts receivable. Concentration of credit risk with respect to
accounts receivable is limited to two customers that accounted for 21%
and 10%, respectively, of total revenues in the year ended December 31,
1995. One of these customers accounted for approximately 14% of total
revenues for the three months ended March 31, 1996. In the year ended
December 31, 1995 and the three months ended March 31, 1996, sales
outside the United States accounted for approximately 17% and 11% of
total revenues, respectively. To reduce risk, the Company routinely
assesses the financial strength of its customers and, as a consequence,
believes that its accounts receivable credit risk exposure is limited.
The Company maintains an allowance for potential credit losses but has
not experienced any significant losses related to individual customers
or groups of customers in any particular industry or geographic area.
(k)Pro Forma Net Loss per Common and Common Equivalent Share
For the year ended December 31, 1995 and the three months ended March
31, 1996, pro forma net loss per common and common equivalent share is
computed by dividing the net loss by the pro forma weighted average
number of common and common equivalent shares outstanding during the
period, which consist of (i) the weighted average number of common
shares outstanding, (ii) the number of shares of common stock issuable
upon conversion of all outstanding shares of Series B redeemable
convertible preferred stock and Series C convertible preferred stock,
and (iii) stock options granted after March 31, 1995, which have been
reflected as outstanding for all periods presented using the treasury
stock method as required by the Securities and Exchange Commission.
Common stock equivalents issued in earlier periods have not been
included as their effect would be antidilutive. Historical net loss per
share data have not been presented, as such information is not
considered to be relevant or meaningful.
F-9
<PAGE>
ONEWAVE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(l)Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
(m)New Accounting Standard
In October 1995, the Financial Accounting Standards Board (FASB) issued
SFAS No. 123, Accounting for Stock-Based Compensation. The Company has
determined that it will continue to account for stock-based
compensation for employees under Accounting Principles Board Opinion
No. 25 and elect the disclosure-only alternative under SFAS No. 123.
The Company will be required to disclose the pro forma net income or
loss and per share amounts in the notes to the financial statements
using the fair-value-based method beginning in the year ending
December 31, 1996, with comparable disclosures for the year ended
December 31, 1995. The Company has not determined the impact of these
pro forma adjustments.
(n)Financial Instruments
The estimated fair value of the Company's financial instruments, which
include cash equivalents, accounts receivable and long-term debt,
approximates their carrying value.
(2)BANK AGREEMENT
In February 1996, the Company entered into a financing agreement with a
bank. The agreement provides for a revolving line of credit, an equipment
line of credit and a secured term note. Borrowings under the revolving line
of credit are limited to the lesser of $2,500,000 or 80% of qualified
accounts receivable and bear interest at either the bank's prime rate plus
1%, or LIBOR. Borrowings under the equipment line are limited to $500,000
for the purchase of new equipment. Advances under the equipment line of
credit will be repaid over a three-year period. Borrowings under the
equipment line bear interest at either the bank's cost of funds plus 3 1/2%
or the bank's prime rate plus 1 1/2%. The secured term note of $2,000,000
was used for the repayment of the amount payable for purchased technology
(see Note 7(b)). In March 1996, the Company borrowed the $2,000,000 under
the secured term note. The secured term note is repayable on September 30,
1996. Borrowings under the secured term note bear interest at the bank's
prime rate plus 1%. The revolving line of credit and equipment line of
credit expire on June 30, 1997. The financing agreement contains certain
restrictive covenants, including among other items, minimum levels of
tangible net worth. The agreement is collateralized by all assets of the
Company and is guaranteed by certain stockholders.
(3)LONG-TERM DEBT TO STOCKHOLDERS
In May 1995, the Company issued a $250,000 subordinated note payable to a
stockholder. The note bore interest at 6% per annum and was payable on
April 30, 2000.
In December 1995, the Company issued a $750,000 subordinated note payable
to a stockholder. The note bore interest at 9% per annum and was payable on
December 31, 2000.
Both notes were outstanding as of December 31, 1995 and were repaid in full
in March 1996.
F-10
<PAGE>
ONEWAVE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(4)INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes. Under SFAS No. 109, a deferred tax asset or
liability is measured by the enacted tax rates expected to be in effect
when the differences between the financial statement and tax bases of
assets and liabilities reverse.
As of December 31, 1995, the Company had available net operating loss
carryforwards of approximately $3,020,000 to reduce future federal and
state income taxes, if any. These carryforwards expire through 2010 and are
subject to review and possible adjustment by the Internal Revenue Service.
The Tax Reform Act of 1986 contains provisions that may limit the amount of
net operating loss carryforwards that the Company may utilize in any one
year in the event of certain cumulative changes in ownership over a three
year period in excess of 50%, as defined.
The approximate income tax effect of each type of temporary difference and
carryforward is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- MARCH 31,
1994 1995 1996
-------- ---------- ----------
<S> <C> <C> <C>
Net operating loss carryforwards........... $221,000 $1,208,000 $4,265,000
Other temporary differences................ 268,000 275,000 372,000
-------- ---------- ----------
489,000 1,483,000 4,637,000
Valuation allowance........................ (489,000) (1,483,000) (4,637,000)
-------- ---------- ----------
Net deferred tax asset..................... $ -- $ -- $ --
======== ========== ==========
</TABLE>
It is the Company's objective to become a profitable enterprise and to
realize the benefits of its deferred tax assets. However, in evaluating the
realizability of these deferred tax assets, management has considered the
Company's short operating history, the volatility of the market in which it
competes, and the operating losses incurred to date, and believes that,
given the significance of this evidence, a full valuation reserve against
its deferred tax asset is required as of December 31, 1994 and 1995 and
March 31, 1996.
(5)REDEEMABLE CONVERTIBLE PREFERRED STOCK
In March 1996, the Company authorized and issued 1,332,127 shares of Series
B redeemable convertible preferred stock (Series B Preferred Stock) at
$5.54 per share, less offering costs of $600,000 for net proceeds of
$6,779,984.
The Series B Preferred Stock has the following rights, preferences and
privileges:
Redemption
At any time after December 31, 2002, the holders of a majority of the
outstanding shares of Series B Preferred Stock may require the Company to
redeem all of the outstanding Series B Preferred Stock in three annual
installments of 33 1/3% per year.
The redemption price per share is $5.54 plus any accrued but unpaid
dividends.
F-11
<PAGE>
ONEWAVE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(5)REDEEMABLE CONVERTIBLE PREFERRED STOCK (CONTINUED)
Conversion and Antidilution
The Series B Preferred Stock is convertible into common stock at a rate of
two shares of common stock for every three shares of preferred stock. The
conversion rate of all preferred stock is adjustable for certain dilutive
events, including the issuance of shares below $15.375 in an initial public
offering. Assuming the sale price of the Company's common stock is $14.00
in the proposed initial public offering, the conversion rate of Series B
Preferred Stock adjusts to .732 shares of common stock for each share of
Series B Preferred Stock. The actual number of shares issuable upon
conversion could vary from a maximum of 1,103,137 to a minimum of 888,085
depending on the price at which the shares of common stock are sold in the
proposed initial public offering. The conversion is at the option of a
majority of the outstanding stockholders but becomes automatic upon the
closing of a an initial public offering at a per share price that is at
least $12.375 per share and generates aggregate proceeds to the Company of
at least $15,000,000.
Voting Rights
The holders of the Series B Preferred Stock shall be entitled to vote on
all matters and shall be entitled to the number of votes equal to the
number of shares of common stock into which each share of the Series B
Preferred Stock could be converted.
Dividends
Dividends accrue on outstanding shares of Series B Preferred Stock at an
annual rate of $0.3324 per share. Additional dividends may be paid on the
Series B Preferred Stock when declared by the Board of Directors.
Liquidation Preference
The holders of the preferred stock have preference in the event of
liquidation or dissolution of the Company at a rate of $5.54 per share of
Series B Preferred Stock and thereafter participate with the holders of the
Series C Preferred Stock and common stock on a share for share basis in the
distribution of the remaining assets of the Company, as if there were no
Series C Preferred Stock liquidation preference.
(6)STOCKHOLDERS' EQUITY (DEFICIT)
(a) Authorized Capital Stock
As of March 31, 1996, the Company's authorized capital stock consisted
of 30,000,000 shares of common stock $.001, par value per share, and
3,000,000 of preferred stock, $1.00 par value per share. Of the
preferred stock 1,431,412 shares were designated Series B preferred
stock (Series B Preferred Stock) and 1,568,588 shares were
undesignated. In April 1996, the Company amended its Articles of
Incorporation to decrease the number of designated shares of Series B
Preferred Stock to 1,332,127 shares, to decrease the number of
undesignated shares of preferred stock to 447,873 and to designate
1,220,000 shares for the issuance of Series C convertible preferred
stock (Series C Preferred Stock). All shares of preferred stock that
had been designated Series A convertible preferred stock had been
surrendered for conversion into common stock and retired.
F-12
<PAGE>
ONEWAVE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(6)STOCKHOLDERS' DEFICIT (CONTINUED)
(a) Authorized Capital Stock (Continued)
On May 20, 1996, the Company's stockholders approved an increase in the
number of authorized shares of common stock to 50,000,000 shares, $.001
par value and authorized the issuance of 5,000,000 shares of $1.00 par
value preferred stock.
(b) Common Stock
In May 1995, the Company issued a convertible note payable to a
stockholder for $750,000. In accordance with the provisions of the note
payable agreement, the outstanding principal of the note was converted
into 1,136,362 shares of common stock in November 1995.
(c) Preferred Stock
In December 1994, certain stockholders contributed $300,000 to the
Company for the purchase of 250,000 shares of Series A convertible
preferred stock. The shares of Series A convertible preferred stock
were issued to the stockholders in February 1995 and were subsequently
converted to 1,666,667 shares of common stock in November 1995.
In April 1996, the Company issued 1,200,000 shares of Series C
Preferred Stock at a price of $5.00 per share, less offering costs of
30,000, for net proceeds of $5,970,000.
The Series C Preferred Stock has the following rights, preferences and
privileges:
Conversion and Antidilution
The Series C Preferred Stock is convertible into common stock at a rate
of two shares of common stock for every three shares of preferred
stock. The conversion rate is adjustable for certain dilutive events,
including the issuance of shares below the effective conversion price
of the preferred stock. The conversion is at the option of a majority
of the outstanding stockholders but becomes automatic upon the closing
of a public offering at a per share price that is at least $12.375 per
share and generates aggregate proceeds to the Company of at least
$15,000,000.
Voting Rights
The holders of the Series C Preferred Stock are entitled to vote on all
matters and shall be entitled to the number of votes equal to the
number of shares of common stock into which each share of the preferred
stock could be converted.
Liquidation Preference
The holders of the Series C Preferred Stock have preference in the
event of liquidation or dissolution of the Company at a rate of $5.00
per share of Series C Preferred Stock, payable only after the full
liquidation preference of the holders of Series B Preferred Stock has
been paid or reserved; thereafter the remaining assets of the Company
are to be distributed to the holders of Series C Preferred Stock and
common stock on a share for share basis.
F-13
<PAGE>
ONEWAVE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(6)STOCKHOLDERS' DEFICIT (CONTINUED)
(d)Stock Split
In February 1995, the Company effected a 10-for-1 stock split of the
common stock in the form of a stock dividend. On May 20, 1996, the
Company effected a 2-for-3 reverse stock split. The accompanying
financial statements and notes have been retroactively adjusted to
reflect the stock splits.
(e)1995 Stock Plan
The Company has a stock plan (the 1995 Plan) that provides for the
issuance of incentive stock options (ISOs), nonqualified stock options
and shares of common stock. Under the terms of the 1995 Plan,
nonqualified options may be granted at a price not less than the lesser
of (i) the book value per share of common stock as of the end of the
fiscal year of the Company immediately preceding the date of such
grant, or (ii) 50% of the fair market value per share of common stock
on the date of such grant and, in the case of ISOs, not less than the
fair market value per share at the date of grant. Options generally
vest over a four-year period, commencing one year after the date of the
grant. In 1995, the Company granted an option to purchase 40,000 shares
of common stock to an employee at an exercise price of $.015 per share.
The difference between the estimated fair market value of the common
stock and the aggregate exercise price of $179,400 will be charged to
operations as these options vest. All other options have been granted
at exercise prices that represent the estimated fair market value of
the common stock as determined by the Company's Board of Directors at
the time of the grant and accordingly the Company has not recorded any
compensation on these option grants. In March 1996, the Company granted
options to purchase 366,666 shares of common stock at $7.50 per share
to several key executives which vest ratably over a 6-year period and
are subject to acceleration based on the Company achieving certain
levels of market capitalization. In addition, the vesting of options to
purchase 133,333 shares of Common Stock held by an officer of the
Company will accelerate upon the effectiveness of the Company's
proposed initial public offering.
The following table summarizes incentive and nonqualified stock option
activity under the 1995 Plan:
<TABLE>
<CAPTION>
NUMBER OF PRICE PER
SHARES SHARE
--------- -----------
<S> <C> <C>
Balance, December 31, 1994......................... -- $ --
Options granted.................................... 1,219,533 .015--4.50
--------- -----------
Balance, December 31, 1995......................... 1,219,533 .015--4.50
Options granted.................................... 1,281,333 7.50
Options canceled................................... (23,400) 1.50--4.50
--------- -----------
Balance, March 31, 1996............................ 2,477,467 $.015--7.50
========= ===========
Exercisable, March 31, 1996........................ 199,603 $.015--7.50
========= ===========
</TABLE>
In April 1996, an officer of the Company exercised an option to
purchase 66,666 shares at a price of $1.50 per share.
(f) Warrants
In February 1996, the Company issued a warrant to purchase 23,333
shares of common stock at a price of $8.31 per share in connection with
the Company's financing agreement as discussed in Note 2.
F-14
<PAGE>
ONEWAVE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(6)STOCKHOLDERS' DEFICIT (CONTINUED)
(g)Employee Stock Purchase Plan
On May 17, 1996, the stockholders approved the Company's Employee Stock
Purchase Plan (ESPP). The Company has reserved 150,000 shares for
issuance under the ESPP. The ESPP permits eligible employees of the
Company to purchase common stock through payroll deductions of up to
10% of their total compensation. The price of common stock purchased
under the ESPP will be 85% of the lower of the fair market value of the
common stock on the first or last day of each six-month purchase
period.
(h)1996 Stock Plan
On May 17, 1996, the Board of Directors and stockholders approved the
Company's 1996 Stock Plan (the 1996 Plan). Each nonemployee director
will receive an option grant to purchase 7,000 shares of common stock,
at the then fair market value, when such director is first appointed or
elected to the Board of Directors. In addition, each nonemployee
director will receive an option grant to purchase 1,700 shares of
common stock, at the then fair market value, on each June 30 that such
director is a member of the Board of Directors. The Company has
reserved 3,500,000 shares of Common Stock for issuance under the 1995
Plan and the 1996 Plan.
(7)RELATED-PARTY TRANSACTIONS
(a)Cambridge Technology Group, Inc.
During 1994, 1995 and the first two months of 1996, the Company shared
office space with Cambridge Technology Group, Inc. (CTGroup), a company
under the control of a significant stockholder of the Company. CTGroup
charged the Company for a portion of certain common costs incurred in
addition to any specific items paid by CTGroup on the Company's behalf.
These costs were allocated based on head count or actual cost incurred.
During the years ended December 31, 1994 and 1995 and the three months
ended March 31, 1995 and 1996, CTGroup charged the Company $956,844,
$1,013,142, $271,702 and $117,442, respectively, for these costs.
During 1995, the Company sold software and services to CTGroup
amounting to $104,993. In addition, during 1995 and the three months
ended March 31, 1996, the Company fulfilled certain obligations of
CTGroup under education, service and product contracts, including the
resale of software discussed in Note 7(b), for which the Company
recorded revenues of $2,403,235 and $100,000, respectively.
During the three months ended March 31, 1996, the Company purchased
$125,000 of computer equipment from CTGroup.
In July 1995, the Company gave an unlimited guarantee of all of
CTGroup's obligations under its credit facility. The Company's
obligations under the unlimited guaranty were terminated in February
1996.
Amounts (due to) from CTGroup for these costs were $(656,844),
$(169,939) and $218,793 at December 31, 1994 and 1995 and March 31,
1996, respectively.
The Company believes that the transactions described above were at
terms no less favorable than the Company would have obtained from
unaffiliated third parties.
F-15
<PAGE>
ONEWAVE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(7)RELATED-PARTY TRANSACTIONS (CONTINUED)
(b)Open Environment Corporation
In 1995, the Company entered into a reseller agreement with Open
Environment Corporation (OEC) to license software developed by OEC, an
entity that was founded by significant stockholders of the Company.
These stockholders continue to hold an ownership interest in OEC at
December 31, 1995 and March 31, 1996. In addition, an executive of the
Company serves on OEC's Board of Directors. During the year ended
December 31, 1995 and the three months ended March 31, 1996, the
Company generated software license and maintenance revenues of
$1,111,992 and $222,617, respectively, from the resale of OEC products
and services. Total expenses relating to purchases of OEC software and
OEC software bundled with the Company's product and related maintenance
contracts totaled $716,392 and $288,980, in the year ended December 31,
1995 and the three months ended March 31, 1996, respectively. In
addition, the Company subcontracted consulting services from OEC
totaling $398,271 in 1995.
On December 29, 1995, the Company and OEC entered into a $2,200,000 OEM
source code license agreement which will provide the Company with a
certain source code developed by OEC. At the time of the purchase, the
Company intended to embed this source code into certain of the
Company's future software products which are currently under
development. In accordance with SFAS No. 86, the Company has charged
the cost of this source code to research and development expenses in
the year ended December 31, 1995.
On October 31, 1995, the Company sold to OEC the source code for
certain software technology relating to the customization and
enhancement of SAP software products. OEC paid the Company an initial
software license fee of $500,000 under the agreement by which the
source code was transferred, and agreed to pay the Company a royalty in
an amount equal to 20% of the first $1,000,000 of sales revenue
recognized by OEC related to products incorporating components of the
transferred source code and 10% of such sales revenues in excess of
$1,000,000. OEC's royalty obligations expire on the earlier of October
1, 1997 or the date on which OEC's aggregate sales revenues related to
products incorporating components of the transferred source code exceed
$3,000,000. This amount is included in 1995 software license revenues.
To date the Company has not received any royalties under this
arrangement.
The total accounts payable to OEC at December 31, 1995 and March 31,
1996 was $2,490,133 and $375,288, respectively.
The Company believes that the transactions described above were at
terms no less favorable than the Company would have obtained from
unaffiliated third parties.
(c)International Integration, Incorporated
The Company subcontracted consulting services from International
Integration, Incorporated, a company controlled by a significant
stockholder of the Company. During 1995, these consulting services
totaled $662,000 and are included in cost of revenues. At December 31,
1995 and March 31, 1996, the Company had outstanding accounts payable
to this entity of $274,444 and $174,444, respectively.
The Company believes that the transactions described above were at
terms no less favorable than the Company would have obtained from
unaffiliated third parties.
F-16
<PAGE>
ONEWAVE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(8)EMPLOYEE BENEFIT PLAN
The Company's employees participate in an employee benefit plan under
Section 401(k) of the Internal Revenue Code, sponsored by CTGroup. The plan
is available to substantially all employees. The plan allows for employees
to make contributions up to a specified percentage of their compensation.
For all participants with greater than one year of continuous service, the
Company contributes 25% of the first 6% of employees' pay contributed to
the plan. The Company contributed $1,851 during the year ended December 31,
1995 and $1,741 during the three months ended March 31, 1996.
(9)COMMITMENTS
In March 1996, the Company executed a noncancelable operating lease for
office space. Future minimum rental payments for this lease are as follows:
<TABLE>
<S> <C>
1996........................................................... $ 310,000
1997........................................................... 463,000
1998........................................................... 463,000
1999........................................................... 463,000
2000........................................................... 463,000
Thereafter..................................................... 77,000
----------
Total.......................................................... $2,239,000
==========
</TABLE>
(10)COMPENSATION TO EXECUTIVE OFFICER
In January 1996, a significant stockholder of the Company entered into an
agreement with the Company's Chief Executive Officer (CEO) under which the
CEO purchased 960,000 shares of the Company's common stock held by the
stockholder at a price of $1.50 per share. To fund the purchase, the CEO
entered into a $1,440,000 note payable agreement with the stockholder. The
note payable accrues interest at 6.56% per annum and provides for full
recourse against the CEO. At the time of this sale transaction, the fair
market value of the Company's common stock was $7.50 per share. The Company
has recorded the aggregate difference between the fair market value of the
common stock and the price paid by the CEO, $5,760,000, in compensation to
executive officer in the accompanying statement of operations for the three
months ended March 31, 1996. In connection with this purchase, the Company
agreed to loan the CEO $2,560,000 which represents the CEO's estimated tax
liability resulting from the compensation on the purchase of shares at less
than fair market value. The Company has recorded this commitment as an
accrued expense and a corresponding note receivable from executive officer
in the accompanying balance sheet as of March 31, 1996. The Company expects
to fund this commitment in the first quarter of 1997. Borrowings under the
loan will be secured by shares of Common Stock purchased, will accrue
interest at 6.21% per annum and will be due and payable no later than
December 31, 2001.
In connection with the employment of the CEO in January 1996, the CEO
received a nonrefundable $1,000,000 cash payment from a significant
stockholder. The Company believes the nature of this payment to be a sign-
on bonus. Accordingly, the Company has recorded a $1,000,000 charge to
compensation to executive officer in the accompanying statement of
operations for the three months ended March 31, 1996 with a corresponding
contribution to additional paid-in capital.
F-17
<PAGE>
ONEWAVE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(10)COMPENSATION TO EXECUTIVE OFFICER (CONTINUED)
Also in connection with the employment of the CEO, that significant
stockholder agreed to reimburse the CEO for any potential decline in value
(from January 1996 to the date of exercise) for certain stock appreciation
rights held by the CEO in an unrelated company. At the time this agreement
was entered into, the unrealized appreciation on the stock appreciation
rights was approximately $4,400,000. The stock appreciation rights are
exercisable by the CEO in September 1996. At March 31, 1996, the value of
the stock of the unrelated company had declined to the extent that if the
stock rights were exercised on that date, the stockholder would be required
to reimburse the CEO approximately $755,000 for the decline in
appreciation. Accordingly, the Company has recorded a $755,000 charge to
compensation to executive officer in the accompanying statement of
operations for the three months ended March 31, 1996, with a corresponding
contribution to additional paid-in capital. To the extent that the value of
the stock fluctuates below the value agreed to by the CEO and the
stockholder, the Company will continue to record charges or credits to the
accompanying statement of operations until the stock appreciation right is
exercised by the CEO.
F-18
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company and the Selling Stockholders have agreed to sell to each of the
Underwriters named below, and each of such Underwriters, for whom Goldman,
Sachs & Co. and Hambrecht & Quist LLC are acting as representatives, has
severally agreed to purchase from the Company and the Selling Stockholders,
the respective number of shares of Common Stock set forth opposite its name
below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
COMMON
UNDERWRITER STOCK
----------- ---------
<S> <C>
Goldman, Sachs & Co..................................................
Hambrecht & Quist LLC................................................
---------
Total............................................................... 3,750,000
=========
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the shares offered
hereby, if any are taken.
The Underwriters propose to offer the shares of Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus and in part to certain securities dealers at
such price less a concession of $ per share. The Underwriters may allow, and
such dealers may reallow, a concession not in excess of $ per share to
certain brokers and dealers. After the shares of Common Stock are released for
sale to the public, the offering price and other selling terms may from time
to time be varied by the representatives.
The Company has granted the Underwriters an option exercisable for 30 days
after the date of this Prospectus to purchase up to an aggregate of 562,500
additional shares of Common Stock to cover over-allotments, if any. If the
Underwriters exercise their over-allotment option, the Underwriters have
severally agreed, subject to certain conditions, to purchase approximately the
same percentage thereof that the number of shares to be purchased by each of
them, as shown in the foregoing table, bears to the 3,750,000 shares of Common
Stock offered.
The Company has agreed that, subject to certain exceptions, during the
period beginning from the date of this Prospectus and continuing to and
including the date 180 days after the date of this Prospectus, it will not
offer, sell, contract to sell or otherwise dispose of any securities of the
Company (other than pursuant to employee stock option or purchase plans
existing, or on the conversion or exchange of convertible or exchangeable
securities outstanding on the date of this Prospectus) which are substantially
similar to the shares of Common Stock or which are convertible or exchangeable
into securities which are substantially similar to the shares of Common Stock
without the prior written consent of the representatives, except for the
shares of Common Stock offered in connection with the offering. The Company's
executive officers and directors and certain securityholders of the Company
(including the Selling Stockholders), who in the aggregate will hold
approximately 10,975,081 shares of Common Stock after completion of the
offering, have agreed not to offer, sell, contract to sell or otherwise
dispose of or agree to dispose of any shares of Common Stock or substantially
similar securities owned beneficially by them for a period of 180 days after
the date of this Prospectus, without the prior written consent of the
representatives, except for the shares of Common Stock offered hereby. See
"Shares Eligible for Future Sale".
The representatives of the Underwriters have informed the Company that they
do not expect sales to accounts over which the Underwriters exercise
discretionary authority to exceed five percent of the total number of shares
of Common Stock offered by them.
U-1
<PAGE>
Prior to the offering, there has been no public market for the shares. The
initial public offering price will be negotiated among the Company, the
Selling Stockholders and the representatives. Among the factors to be
considered in determining the initial public offering price of the Common
Stock, in addition to prevailing market conditions, will be the Company's
historical performance, estimates of the business potential and earnings
prospects of the Company, an assessment of the Company's management and the
consideration of the above factors in relation to market valuation of
companies in related businesses.
Application has been made for quotation of the Common Stock on the Nasdaq
National Market under the symbol "OWAV".
The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933.
U-2
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 5
Use of Proceeds.......................................................... 13
Dividend Policy.......................................................... 13
Capitalization........................................................... 14
Dilution................................................................. 15
Selected Financial Data.................................................. 16
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 17
Business................................................................. 24
Management............................................................... 38
Principal and Selling Stockholders....................................... 45
Certain Transactions..................................................... 47
Description of Capital Stock............................................. 50
Shares Eligible for Future Sale.......................................... 54
Legal Matters............................................................ 56
Experts.................................................................. 56
Additional Information................................................... 56
Index to Financial Statements............................................ F-1
Underwriting............................................................. U-1
</TABLE>
THROUGH AND INCLUDING , 1996 (THE 25TH DAY AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER
OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
3,750,000 SHARES
ONEWAVE, INC.
COMMON STOCK
(PAR VALUE $0.001 PER SHARE)
------------------
PROSPECTUS
------------------
GOLDMAN, SACHS & CO.
HAMBRECHT & QUIST
REPRESENTATIVES OF THE UNDERWRITERS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13.OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions payable in connection with the sale of
Common Stock being registered. All amounts are estimates, except the
registration fee, the NASD filing fee and the Nasdaq National Market listing
fee.
<TABLE>
<S> <C>
SEC registration fee........................................... 22,307
NASD filing fee................................................ 6,969
Nasdaq National Market listing fee............................. 50,000
Printing and distribution expenses............................. 100,000
Accounting fees and expenses................................... 175,000
Legal fees and expenses........................................ 400,000
Blue Sky fees and expenses..................................... 20,000
Transfer agent's fees and expenses............................. 10,000
Directors' and Officers' insurance expenses.................... 150,000
Miscellaneous.................................................. 165,724
----------
Total........................................................ $1,100,000
==========
</TABLE>
The Registrant intends to pay all expenses of registration, issuance and
distribution, excluding the Underwriters' discount and commissions, with
respect to shares being sold by the Selling Stockholders.
ITEM 14.INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify a director, officer, employee or agent against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement in respect of or in successful defense of any action, suit or
proceeding if he 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, had no reasonable cause to
believe his conduct was unlawful.
Article VII of the Registrant's Restated Certificate of Incorporation
provides that a director of the Registrant shall not be personally liable to
the Registrant or its stockholders for monetary damages for breach of
fiduciary duty as a director, except (to the extent provided by applicable
law) for liability (i) for any breach of the director's duty of loyalty to the
Registrant or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
pursuant to Section 174 of the Delaware General Corporation Law or any
amendment or successor provisions thereto, or (iv) for any transaction from
which the director derived an improper personal benefit. If the Delaware
General Corporation Law is amended to authorize corporate action further
eliminating or limiting the personal liability of directors, then the
liability of a director of the Registrant shall be eliminated or limited to
the fullest extent permitted by the Delaware General Corporation Law, as so
amended. Any repeal or modification of Article VII of the Registrant's
Restated Certificate of Incorporation shall not adversely affect any right or
protection of a director of the Registrant existing at the time of such repeal
or modification.
Article V of the Registrant's Restated By-laws provides that the Registrant
shall indemnify each 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, officer or employee of the Registrant, or
is or was serving at
II-1
<PAGE>
the request of the Registrant, as a director, officer or employee of any
subsidiary of the Company or in any other capacity with any other corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorney's fees), judgments, fines and amounts paid in settlement
reasonably incurred by him in connection with such action, suit or proceeding
to the maximum extent permitted by the Delaware General Corporation Law. The
terms of Article V substantially incorporate the provisions of Section 145 of
the Delaware General Corporation Law. The indemnification provided for in
Article V is expressly not exclusive of any other rights of indemnification to
which any such director or officer may be entitled under any by-law,
agreement, vote of stockholders or directors or otherwise.
In the Underwriting Agreement relating to the securities being offered
hereby (the form of which is attached as Exhibit 1.1 to this Registration
Statement), the Registrant and the Selling Stockholders have agreed to
indemnify each Underwriter and each person, if any, who controls the
Underwriter within the meaning of the Securities Act of 1933, as amended (the
"Securities Act"), or the Securities Exchange Act of 1934, against certain
types of civil liabilities arising in connection with the Registration
Statement or the Prospectus.
ITEM 15.RECENT SALES OF UNREGISTERED SECURITIES.
Described below are all unregistered securities which have been issued and
sold by the Registrant since the Registrant's incorporation on January 19,
1994. No underwriters were engaged with respect to any of the following
transactions and no underwriting discounts or commissions paid in connection
with the sale of any such securities, except where specifically noted below.
All numbers have been adjusted to give effect to the 2-for-3 reverse stock
split to be effected prior to the effectiveness of this offering.
1. On January 19, 1994, the Registrant sold 3,333,333 shares of Common
Stock to Sundar Subramaniam at a price of $0.0015 per share.
2. On January 19, 1994, the Registrant sold 1,333,333 shares of Common
Stock to J&S Limited Partnership at a price of $0.0015 per share.
3. On January 19, 1994, the Registrant sold 1,333,333 shares of Common
Stock to Legacy Investment Partnership at a price of $0.0015 per share.
4. On January 19, 1994, the Registrant sold 1,666,667 shares of Common
Stock to Harrington Trust Limited, as Trustee of The Appleby Trust at a
price of $0.0015 per share.
5. On January 19, 1994, the Registrant sold 266,667 shares of Common
Stock to Len Hafetz at a price of $0.0015 per share.
6. On January 1, 1995, the Registrant sold 66,667 shares of Common Stock
to James G. Nondorf at a price of $0.0015 per share.
7. On March 1, 1995, the Registrant sold 250,000 shares of Series A
Convertible Preferred Stock to Harrington Trust Limited, as Trustee of The
Appleby Trust, at a price of $1.20 per share. All shares of Series A
Preferred Stock were subsequently surrendered for conversion into Common
Stock (at the rate of 6.67 shares of Common Stock for each share of Series
A Convertible Preferred Stock) and retired. Upon the filing of the
Registrant's Restated Certificate of Incorporation on March 6, 1996, the
series of Preferred Stock designated as Series A Preferred Stock was
cancelled and eliminated from the shares which the Registrant is authorized
to issue.
8. On May 3, 1995, the Registrant sold, at face value of $750,000, a 6%
5-year convertible subordinated note to Harrington Trust Limited, as
Trustee of The Appleby Trust. This Note was converted, at the rate of $0.66
per share, into 1,136,362 shares of Common Stock, on October 30, 1995.
II-2
<PAGE>
9. On May 3, 1995, the Registrant sold, at face value of $250,000, a 6%
5-year convertible subordinated note to J&S Limited Partnership. This Note,
which was convertible into shares of Common Stock at the rate of $0.66 per
share, was subsequently repaid in full on March 1996 and no shares of
Common Stock were issued in respect thereof.
10. On December 29, 1995, the Registrant sold, at face value of $750,000,
a 9% 5-year subordinated note to Harrington Trust Limited, as trustee of
The Appleby Trust. This Note was subsequently repaid in full in March 1996.
11. On February 16, 1996, in connection with the establishment of the
Registrant's credit facility with State Street Bank and Trust Company, the
Registrant issued to SSB Investments, Inc., an affiliate of State Street
Bank and Trust Company, a warrant for the purchase 23,333 shares of Common
Stock at an exercise price of $8.31 per share. The warrant may be
exercised, in whole or in part, at any time on or before February 15, 2003.
12. On March 6, 1996, the Registrant sold an aggregate of 1,146,212
shares of Series B Redeemable Convertible Preferred Stock to Falcon
Ventures II, L.P., Hancock Venture Partners IV-Direct Fund L.P., Pantio
Holding Ltd., Juilliard Investments, Inc., Jan Baan, J.G. Paul Baan,
Lorenzo Cue and Tom C. Tinsley at a price of $8.31 per share. Cowen and
Company acted as the Registrant's placement agent in connection with these
sales and was paid a fee of $500,000.
13. On March 8, 1996, the Registrant sold 180,506 shares of Series B
Redeemable Convertible Preferred Stock to Hewlett-Packard Company at a
price of $5.54 per share.
14. On March 30, 1996, the Registrant sold 5,409 shares of Series B
Redeemable Convertible Preferred Stock to John C. Howe at a price of $5.54
per share.
15. On April 5, 1996, the Registrant sold 66,667 shares of Common Stock
to James G. Nondorf upon the exercise by Mr. Nondorf of an Incentive Stock
Option under the Registrant's 1995 Stock Plan at an exercise price of $1.50
per share.
16. On April 15, 1996, the Registrant sold 1,200,000 shares of Series C
Convertible Preferred Stock to Maritime Capital Partners, L.P., David A.
Duffield Trust, Margaret L. Taylor, Alex. Brown Leasing Services Company,
Stephen R. Levy, Onelux, Inc., Anthony Harris, Les Hayman, Juergan Sattler,
John McKenna, Randa Pehl, Ulrich Schell and Informix Corporation at a price
of $5.00 per share.
17. On April 20, 1996, the Registrant sold 200,000 shares of Series C
Convertible Preferred Stock to NEC Corporation at a price of $5.00 per
share.
All transactions described above were effected in reliance upon the
exemption from registration requirements of the Securities Act contained in
Section 4(2) of the Securities Act and the rules and regulations
promulgated thereunder on the basis that such transactions did not involve
any public offering. All of the foregoing securities are deemed to be
restricted securities for purposes of the Securities Act. Other exemptions
from registration may also be available for such issuances and sales.
18. The Registrant has granted options to purchase shares of its Common
Stock to certain directors, officers, employees and consultants pursuant to
the 1995 Stock Plan as follows:
(a) Incentive Stock Options for an aggregate of 135,166 shares were
granted by the Registrant to twelve employees on March 1, 1995 at an
exercise price of $1.50 per share.
(b) Non-Qualified Stock Options for an aggregate of 136,666 shares
were granted by the Registrant to thirty-seven employees and
consultants on March 1, 1995 at an exercise price of $1.50 per share.
(c) Incentive Stock Options for an aggregate of 166,933 shares were
granted by the Registrant to forty-six employees on August 1, 1995 at
an exercise price of $1.50 per share.
II-3
<PAGE>
(d) Non-Qualified Stock Options for an aggregate of 87,833 shares
were granted by the Registrant to fifteen employees and consultants on
August 1, 1995 of which, 84,500 shares were granted at an exercise
price of $1.50 per share and 3,333 shares were granted at an exercise
price of $4.50 per share.
(e) Non-Qualified Stock Options for an aggregate of 10,000 shares
were granted by the Registrant to three employees of one of the
Registrant's strategic partners on September 13, 1995 at an exercise
price of $3.00 per share. These grants were subsequently rescinded.
(f) Incentive Stock Options for an aggregate of 344,600 shares were
granted by the Registrant to sixty employees (including one director
and executive officer) on October 1, 1995 at an exercise price of $4.50
per share.
(g) Non-Qualified Stock Options for an aggregate of 351,667 shares
were granted by the Registrant to sixty-five officers, employees and
consultants on October 1, 1995, of which 311,667 shares were granted at
an exercise price of $4.50 per share and 40,000 shares were granted at
an exercise price of $0.015 per share. Of these, an option for 3,333
shares granted to an employee of one of the Registrant's strategic
partners was subsequently rescinded.
(h) Incentive Stock Options for an aggregate of 358,000 shares were
granted by the Registrant to seventy-three employees on March 15, 1996
at an exercise price of $7.50 per share.
(i) Non-Qualified Stock Options for an aggregate of 923,333 shares
were granted by the Registrant to fifteen directors, officers,
employees and consultants on March 15, 1996 at an exercise price of
$7.50 per share.
The securities described in paragraphs 18(a) through 18(i) were issued in
reliance upon the exemption from registration under the Securities Act
contained in Rule 701 promulgated thereunder, in that they were offered and
sold pursuant to a written compensatory benefit plan or written contract
relating to compensation; however, other exemptions from registration may also
be available for such issuances and sales.
ITEM 16.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
* 1.1 Proposed Form of Underwriting Agreement
* 3.1 Restated Certificate of Incorporation
* 3.2 Certificate of Amendment to Restated Certificate of Incorporation
** 3.3 Second Amended and Restated Certificate of Incorporation.
** 3.3A Certificate of Amendment to Second Amended and Restated Certificate of
Incorporation
** 3.4 Form of Third Amended and Restated Certificate of Incorporation of the
Registrant to be filed with the Secretary of State of Delaware upon
consummation of the offering
* 3.5 By-Laws of the Registrant
** 3.6 Amended and Restated By-laws of the Registrant
+ 4.1 Specimen Common Stock Certificate
+ 5.1 Opinion of Peabody & Arnold with respect to legality of the Common
Stock
*10.1 1995 Stock Plan, as amended
**10.2 1996 Stock Plan
**10.3 Employee Stock Purchase Plan
*10.4 Lease for One Arsenal Marketplace, Watertown, Massachusetts
**10.5 Source Code License Agreement dated as of August 8, 1995 between the
Registrant and InterGroup Technologies, Inc.
**10.6 Software License Agreement dated as of August 8, 1995 between the
Registrant and InterGroup Technologies, Inc.
**10.6A Agreements dated as of May 21, 1996 and May 22, 1996 amending the
Source Code License Agreement and Software License Agreement between
the Registrant and InterGroup Technologies, Inc.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
**10.7 Source Code License Agreement dated as of February 8, 1996 between
the Registrant and Mentor Communications Limited
**10.8 Software License Agreement dated as of August 10, 1995 between the
Registrant and Mystic River Software, Inc.
+10.9 Software, Education, Services Distribution Agreement dated June 21,
1995 between the Registrant and Open Environment Corporation
+10.10 "SAP Customization Software" Agreement dated October 1, 1995 between
the Registrant and Open Environment Corporation
+10.11 OEM Source License Agreement dated as of December 29, 1995 between
the Registrant and Open Environment Corporation
**10.12 Joint Marketing Agreement effective as of February 27, 1996 between
the Registrant and Hewlett-Packard Company
*10.13 Loan Agreement dated February 16, 1996 between the Registrant and
State Street Bank and Trust Company, together with Guaranty
(unlimited) of J&S Limited Partnership
**10.14 Warrant Purchase Agreement dated as of February 16, 1996 between the
Registrant and SSB Investments, Inc.
**10.15 Common Stock Purchase Warrant dated as of February 16, 1996 issued to
SSB Investments, Inc.
*10.16 Series B Convertible Preferred Stock Purchase Agreement dated
February 27, 1996 between the Company and Hewlett-Packard Company
*10.17 Amendment to Series B Convertible Preferred Stock Purchase Agreement
dated as of March 6, 1996 between the Registrant and Hewlett-Packard
Company
*10.18 Series B Convertible Preferred Stock Purchase Agreement dated March
6, 1996 among the Company and the purchasers named therein
*10.19 Registration Rights Agreement dated March 6, 1996 among the Company
and the investors named therein
*10.20 Co-Sale Rights Agreement dated as of March 6, 1996 among the
investors and holders of shares of the Company's Common Stock named
therein
**10.21 Voting Agreement dated March 6, 1996 among the investors and holders
of shares of the Company's Common Stock named therein
*10.22 Series C Convertible Preferred Stock Purchase Agreement dated as of
March 29, 1996 among the Company and the purchasers named therein
*10.23 Registration Rights Agreement dated as of March 29, 1996 among the
Company and the investors named therein
*10.24 Stock Purchase Agreement dated as of February 1996 between John J.
Donovan and Len Hafetz
*10.25 Assignment and Assumption Agreement dated as of March 15, 1996
between John J. Donovan and the Registrant
*10.26 Stock Repurchase Agreement dated as of April 4, 1996 between the
Registrant and
James Nondorf
*10.27 Stock Repurchase Agreement dated as of April 15, 1996 between the
Registrant and J&S Limited Partnership
*10.28 Stock Repurchase Agreement dated as of April 15, 1996 between the
Registrant and Harrington Trust Limited as Trustee of The Appleby
Trust
*10.29 Five-Year 9% Subordinated Note dated December 29, 1995 issued to
Harrington Trust Limited as Trustee of The Appleby Trust in the
principal amount of 750,000
*10.30 Five-Year 6% Convertible Subordinated Note dated May 3, 1995 issued
to Harrington Trust Limited as Trustee of The Appleby Trust in the
principal amount of $750,000
*10.31 Five-Year 6% Convertible Subordinated Note dated May 3, 1995 issued
to J&S Limited Partnership in the principal amount of $250,000
**10.32 Loan Agreement dated as of March 31, 1996 between Klaus P. Besier and
the Registrant
*11 Statement Regarding Computation of Per Share Earnings
+23.1 Consent of Peabody & Arnold (included in Exhibit No. 5)
**23.2 Consent of Arthur Andersen LLP
*24 Power of Attorney
*27 Financial Data Schedule
</TABLE>
- --------
* Previously filed
** Filed herewith
+ To be filed
II-5
<PAGE>
(B) FINANCIAL STATEMENT SCHEDULES:
Schedule II--Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting
regulations of the Commission are not required under the related instructions
or are not applicable, and therefore have been omitted.
ITEM 17.UNDERTAKINGS
(a) 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.
(b) 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 foregoing provisions, 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 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 Act and will be governed by
the final adjudication of such issue.
(c) 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>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized in the City of
Boston, Commonwealth of Massachusetts, on June 13, 1996.
OneWave, Inc.
/s/ Klaus P. Besier
By: _________________________________
KLAUS P. BESIER
CHAIRMAN OF THE BOARD, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Klaus P. Besier Chairman of the Board,
- ------------------------------------- President and Chief June 13, 1996
KLAUS P. BESIER Executive Officer
(Principal Executive
Officer)
Chief Financial
* Officer and Treasurer June 13, 1996
- ------------------------------------- and Principal
ERIC SOCKOL Accounting Officer)
(Principal Financial
Officer
Director
* June 13, 1996
- -------------------------------------
ALBERT CARNESALE
</TABLE>
II-7
<PAGE>
<TABLE>
<S> <C> <C>
Director
- -------------------------------------
MANUEL DIAZ
Director
* June 13, 1996
- -------------------------------------
STEPHEN LEVY
Director
* June 13, 1996
- -------------------------------------
OFER NEMIROVSKY
Director
* June 13, 1996
- -------------------------------------
SUNDAR SUBRAMANIAM
/s/ Klaus P. Besier
</TABLE>
* By: __________________________
KLAUS P. BESIER, ATTORNEY-IN-FACT
II-8
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To OneWave, Inc:
We have audited, in accordance with generally accepted auditing standards,
the balance sheets of OneWave, Inc. (formerly Business@Web, Inc.) as of
December 1994 and 1995 and the related statements of operations, redeemable
convertible preferred stock and stockholders' equity (deficit) and cash flows
for the period from inception (January 19, 1994) to December 31, 1994 and the
year ended December 31, 1995, included in this Registration Statement, and
have issued our report thereon dated March 12, 1996 (except with respect to
the matters discussed in Note 6, as to which the date is May 20, 1996). Our
audits were made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule listed in S-2 is the responsibility
of the Company's management and is presented for the purposes of complying
with the Securities and Exchange Commission's rules and is not part of the
basic financial statements. This schedule has been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in our
opinion, fairly states in all material respects, the financial data required
to be set forth therein in relation to the basic financial statements taken as
a whole.
Arthur Andersen LLP
Boston, Massachusetts
March 12, 1996 (except with respect to the
matters discussed in 6, as to which
the date is May 20, 1996)
S-1
<PAGE>
SCHEDULE II
ONEWAVE, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING BAD DEBT WRITE- END
ALLOWANCE FOR DOUBTFUL ACCOUNTS OF PERIOD EXPENSE OFFS OF PERIOD
------------------------------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C>
Period from inception (January 19,
1994) to December 31, 1994 ......... $ -- $ -- $ -- $ --
Year ended December 31, 1995 ........ -- 143,000 (43,000) 100,000
</TABLE>
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
* 1.1 Proposed Form of Underwriting Agreement
* 3.1 Restated Certificate of Incorporation
* 3.2 Certificate of Amendment to Restated Certificate of
Incorporation
** 3.3 Second Amended and Restated Certificate of Incorporation
** 3.3A Certificate of Amendment to Second Amended and Restated
Certificate of Incorporation
** 3.4 Form of Third Amended and Restated Certificate of Incorporation
of the Registrant to be filed with the Secretary of State of
Delaware upon consummation of the offering
* 3.5 By-Laws of the Registrant
** 3.6 Amended and Restated By-laws of the Registrant
+ 4.1 Specimen Common Stock Certificate
+ 5.1 Opinion of Peabody & Arnold with respect to legality of the
Common Stock
*10.1 1995 Stock Plan, as amended
**10.2 1996 Stock Plan
**10.3 Employee Stock Purchase Plan
*10.4 Lease for One Arsenal Marketplace, Watertown, Massachusetts
**10.5 Source Code License Agreement dated as of August 8, 1995
between the Registrant and InterGroup Technologies, Inc.
**10.6 Software License Agreement dated as of August 8, 1995 between
the Registrant and InterGroup Technologies, Inc.
**10.6A Agreements dated as of May 21, 1996 and May 22, 1996 amending
the Source Code License Agreement and Software License
Agreement between the Registrant and InterGroup Technologies,
Inc.
**10.7 Source Code License Agreement dated as of February 8, 1996
between the Registrant and Mentor Communications Limited
**10.8 Software License Agreement dated as of August 10, 1995 between
the Registrant and Mystic River Software, Inc.
+10.9 Software, Education, Services Distribution Agreement dated June
21, 1995 between the Registrant and Open Environment
Corporation
+10.10 "SAP Customization Software" Agreement dated October 1, 1995
between the Registrant and Open Environment Corporation
+10.11 OEM Source License Agreement dated as of December 29, 1995
between the Registrant and Open Environment Corporation
**10.12 Joint Marketing Agreement effective as of February 27, 1996
between the Registrant and Hewlett-Packard Company
*10.13 Loan Agreement dated February 16, 1996 between the Registrant
and State Street Bank and Trust Company, together with Guaranty
(unlimited) of J&S Limited Partnership
**10.14 Warrant Purchase Agreement dated as of February 16, 1996
between the Registrant and SSB Investments, Inc.
**10.15 Common Stock Purchase Warrant dated as of February 16, 1996
issued to SSB Investments, Inc.
*10.16 Series B Convertible Preferred Stock Purchase Agreement dated
February 27, 1996 between the Company and Hewlett-Packard
Company
*10.17 Amendment to Series B Convertible Preferred Stock Purchase
Agreement dated as of March 6, 1996 between the Registrant and
Hewlett-Packard Company
*10.18 Series B Convertible Preferred Stock Purchase Agreement dated
March 6, 1996 among the Company and the purchasers named
therein
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
*10.19 Registration Rights Agreement dated March 6, 1996 among the
Company and the investors named therein
*10.20 Co-Sale Rights Agreement dated as of March 6, 1996 among the
investors and holders of shares of the Company's Common Stock
named therein
**10.21 Voting Agreement dated March 6, 1996 among the investors and
holders of shares of the Company's Common Stock named therein
*10.22 Series C Convertible Preferred Stock Purchase Agreement dated
as of March 29, 1996 among the Company and the purchasers
named therein
*10.23 Registration Rights Agreement dated as of March 29, 1996 among
the Company and the investors named therein
*10.24 Stock Purchase Agreement dated as of February 1996 between
John J. Donovan and Len Hafetz
*10.25 Assignment and Assumption Agreement dated as of March 15, 1996
between John J. Donovan and the Registrant
*10.26 Stock Repurchase Agreement dated as of April 4, 1996 between
the Registrant and
James Nondorf
*10.27 Stock Repurchase Agreement dated as of April 15, 1996 between
the Registrant and J&S Limited Partnership
*10.28 Stock Repurchase Agreement dated as of April 15, 1996 between
the Registrant and Harrington Trust Limited as Trustee of The
Appleby Trust
*10.29 Five-Year 9% Subordinated Note dated December 29, 1995 issued
to Harrington Trust Limited as Trustee of The Appleby Trust in
the principal amount of $750,000
*10.30 Five-Year 6% Convertible Subordinated Note dated May 3, 1995
issued to Harrington Trust Limited as Trustee of The Appleby
Trust in the principal amount of $750,000
*10.31 Five-Year 6% Convertible Subordinated Note dated May 3, 1995
issued to J&S Limited Partnership in the principal amount of
$250,000
**10.32 Loan Agreement dated as of March 31, 1996 between Klaus P.
Besier and the Registrant
*11 Statement Regarding Computation of Per Share Earnings
+23.1 Consent of Peabody & Arnold (included in Exhibit No. 5)
**23.2 Consent of Arthur Andersen LLP
*24 Power of Attorney
*27 Financial Data Schedule
</TABLE>
- --------
* Previously filed
** Filed herewith
+ To be filed
<PAGE>
EXHIBIT 3.3
SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
BUSINESS@WEB, INC.
Business@Web, Inc., a corporation organized and existing under the laws of
the State of Delaware (the "Corporation"), hereby certifies as follows:
1. The name of the Corporation is Business@Web, Inc. The date of the
filing of its original Certificate of Incorporation with the Secretary of State
of the State of Delaware was January 19, 1994. The name under which the
Corporation filed its original Certificate of Incorporation was Object Power,
Incorporated.
2. This Second Amended and Restated Certificate of Incorporation amends,
restates and integrates the provisions of the Restated Certificate of
Incorporation of the Corporation filed with the Secretary of State of the State
of Delaware on April 4, 1996, as heretofore amended (the "Certificate of
Incorporation"), and was duly adopted by the Board of Directors of the
Corporation in accordance with the provisions of Sections 141(f), 242 and 245 of
the General Corporation Law of the State of Delaware (the "DGCL") and was duly
adopted by the written consent of the stockholders of the Corporation, with
written notice thereof having been given to all stockholders of the Corporation
who have not given their written consent, all in accordance with the applicable
provisions of Sections 228, 242 and 245 of the DGCL.
3. The text of the Certificate of Incorporation is hereby amended and
restated in its entirety to provide as herein set forth in full.
ARTICLE I
NAME
----
The name of the Corporation is BUSINESS@WEB, INC.
<PAGE>
ARTICLE II
REGISTERED OFFICE
-----------------
The address of the Corporation's registered office in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle. Its registered agent at such address is The
Corporation Trust Company.
ARTICLE III
PURPOSES
--------
The business or purpose of the Corporation is to engage in any lawful
act or activity for which corporations may be organized under the DGCL.
ARTICLE IV
CAPITAL STOCK
-------------
The total number of shares of capital stock which the Corporation
shall have the authority to issue is Fifty-Eight Million (58,000,000) shares of
which (A) Fifty Million (50,000,000) shares shall be Common Stock, par value
$.001 per share (the "Common Stock") and (B) Eight Million (8,000,000) shares
shall be designated preferred stock, $1.00 par value per share, of which One
Million Three Hundred Thirty Two Thousand One Hundred Twenty Seven (1,332,127)
shares shall be designated Series B Convertible Preferred Stock, $1.00 par value
per share (the "Series B Preferred Stock"), One Million Two Hundred Thousand
(1,200,000) shares shall be designated Series C Convertible Preferred Stock,
$1.00 par value per share (the "Series C Preferred Stock" and, together with the
Series B Preferred Stock, the "Convertible Preferred Stock") and Five Million
Four Hundred Sixty Seven Thousand Eight Hundred Seventy Three (5,467,873) shares
shall be undesignated preferred stock, $1.00 par value per share (the
"Undesignated Preferred Stock," and, collectively with the Convertible Preferred
Stock, the "Preferred Stock").
The powers, preferences, rights, qualifications, limitations and
restrictions granted to or imposed upon the Common Stock and the Preferred Stock
are as follows:
2
<PAGE>
A. COMMON STOCK
------------
1. Voting. Each holder of record shall be entitled to one vote for
------
each share of Common Stock standing in his name on the books of the Corporation.
2. Dividends. Subject to applicable law, the holders of Common Stock
---------
shall be entitled to receive dividends out of funds legally available therefor
at such times and in such amounts as the Board of Directors may determine in its
sole discretion, with each share of Common Stock sharing equally, share for
share, in such dividends.
3. Liquidation. Upon any liquidation, dissolution or winding up of
-----------
the Corporation, whether voluntary or involuntary (a "Liquidation Event"), after
the payment or provision for payment of all debts and liabilities of the
Corporation and all preferential amounts to which the holders of Preferred Stock
are entitled with respect to the distribution of assets in liquidation, the
holders of Common Stock shall be entitled to share ratably in the remaining
assets of the Corporation available for distribution.
4. Notices. In the event that the Corporation provides any notice,
-------
report or statement to any holder of Common Stock, the Corporation shall at the
same time provide a copy of any such notice, report or statement to each holder
of outstanding Common Stock.
5. Reverse Stock Split. Upon the filing of this Certificate of
-------------------
Incorporation (the "Effective Date"), there shall be a reverse stock split of
the Common Stock in the ratio of two (2) shares of new Common Stock ("New Common
Stock") for every three (3) shares of previously outstanding Common Stock ("Old
Common Stock"), subject to rounding as hereinafter provided, so that each holder
of shares of Old Common Stock shall receive in exchange for such shares the
number of shares of New Common Stock which equals (x) the product of the number
of shares of Old Common Stock held by such holder immediately prior to the
Effective Date multiplied by two-thirds (2/3), rounded to the nearest whole
number ("Reverse Stock Split"). The terms "New Common Stock" and "Old Common
Stock" are used herein solely to distinguish the Common Stock before and after
the Reverse Stock Split and shall in no way alter the powers, preferences,
rights, qualifications, limitations and restrictions related to such Common
Stock as otherwise defined herein.
(a) As of the Effective Date, the total number of shares of Common
Stock which the Corporation shall have the authority to issue shall continue to
be Fifty Million (50,000,000) shares.
(b) Upon the occurrence of the Reverse Stock Split, each holder of
Old Common Stock shall surrender the certificate or certificates representing
such holder's shares of Old Common Stock at the office of the corporation or of
the transfer agent for the Common
3
<PAGE>
Stock. Thereupon, there shall be issued and delivered to such holder, promptly
at such office and in such holder's name as shown on such surrendered
certificate or certificates, a certificate or certificates for the number of
shares of New Common Stock for which the shares of Old Common Stock surrendered
were exchangeable on the date on which such Reverse Stock Split occurred.
Regardless of whether any holder of Old Common Stock issued prior to the Reverse
Stock Split surrenders the certificate(s) for such Old Common Stock as provided
herein, from and after the date of such Reverse Stock Split, its certificate(s)
for such Old Common Stock shall only represent the right to receive the New
Common Stock for which the Old Common Stock is exchangeable. No fractional
shares of Common Stock shall be issued upon occurrence of the Reverse Stock
Split.
B. SERIES B PREFERRED STOCK
------------------------
1. Liquidation Rights.
------------------
(a) Treatment at Liquidation Dissolution or Winding Up
--------------------------------------------------
(i) Except as otherwise provided in Section 1(b) below, in the
event of any liquidation, dissolution or winding up of the affairs of the
corporation, whether voluntary or involuntary, the holders of Series B Preferred
Stock shall be entitled to be paid first out of the assets of the corporation
available for distribution to holders of the corporation's capital stock of all
classes, before payment or distribution of any of such assets to the holders of
any other class or series of the corporation's capital stock designated to be
junior to the Series B Preferred Stock, an amount equal to $5.54 per share of
Series B Preferred Stock (which amount shall be subject to equitable adjustment
whenever there shall occur a stock dividend, distribution, combination of
shares, reclassification or other similar event with respect to Series B
Preferred Stock and, as so adjusted from time to time, is hereinafter referred
to as the "Base Liquidation Price") plus all dividends thereon accrued but
unpaid, to and including the date full payment shall be tendered to the holders
of Series B Preferred Stock with respect to such liquidation, dissolution or
winding up.
(ii) Following payment in full to the holders of Series B
Preferred Stock of all amounts distributable to them under Section 1(a)(i)
hereof, the remaining assets of the corporation available for distribution to
holders of the corporation's capital stock shall be distributed among the
holders of the Common Stock, the holders of the Series B Preferred Stock, and
the holders of the Series C Preferred Stock, with each holder of a share of
Series B Preferred Stock receiving the amount that would have been payable to
the holder of such share had all shares of Series B Preferred Stock and all
shares of Series C Preferred Stock been converted to Common Stock immediately
following payment in full to the holders of Series B Preferred Stock of all
amounts distributable to them under Section 1(a)(i) hereof, and each
4
<PAGE>
holder of a share of Series C Preferred Stock or a share of Common Stock
receiving the amount payable to the holder of such share as provided in the
terms of the Series C Preferred Stock.
(iii) If the assets of the corporation shall be insufficient
to permit the payment in full to the holders of Series B Preferred Stock of all
amounts distributable to them under Section 1(a)(i) hereof, then the entire
assets of the corporation available for such distribution shall be distributed
ratably among the holders of Series B Preferred Stock.
(b) Treatment of Reorganizations, Consolidations, Mergers and
---------------------------------------------------------
Sales of Assets. A consolidation or merger of the corporation, or a sale of all
- ---------------
or substantially all of the assets of the corporation (other than a merger,
consolidation or sale of all or substantially all of the assets of the
corporation in a transaction in which the shareholders of the corporation
immediately prior to the transaction possess more than 50% of the voting
securities of the surviving entity (or parent, if any) immediately after the
transaction) shall be regarded as a liquidation, dissolution or winding up of
the affairs of the corporation within the meaning of this Section 1.
(c) Distributions Other than Cash. Whenever the distribution
-----------------------------
provided for in this Section 1 shall be payable in property other than cash, the
value of such distribution shall be the fair market value of such property as
determined in good faith by the Board of Directors of the corporation.
2. Conversion. The holders of Series B Preferred Stock shall have
----------
conversion rights as follows (the "Series B Conversion Rights"):
(a) Right to Convert; Conversion Price. Each share of Series B
----------------------------------
Preferred Stock shall be convertible, without the payment of any additional
consideration by the holder thereof and at the option of the holder thereof, at
any time after the date of issuance of such share, at the office of the
corporation or any transfer agent for the Series B Preferred Stock, into such
number of fully paid and nonassessable shares of Common Stock as is determined
by dividing $5.54 by the Series B Conversion Price, determined as hereinafter
provided, in effect at the time of conversion. The Series B Conversion Price
for purposes of calculating the number of shares of Common Stock deliverable
upon conversion without the payment of any additional consideration by the
holder of Series B Preferred Stock (the "Series B Conversion Price") shall
initially be $5.54. Such initial Series B Conversion Price shall be subject to
adjustment, in order to adjust the number of shares of Common Stock into which
Series B Preferred Stock is convertible, as hereinafter provided.
(b) Mechanics of Conversion. Before any holder of Series B
-----------------------
Preferred Stock shall be entitled to convert the same into full shares of Common
Stock, such holder shall
5
<PAGE>
surrender the certificate or certificates therefor, duly endorsed, at the office
of the corporation or of any transfer agent for the Series B Preferred Stock,
and shall give written notice to the corporation at such office that such holder
elects to convert the same and shall state therein the name of such holder or
the name or names of the nominees of such holder in which such holder wishes the
certificate or certificates for shares of Common Stock to be issued. No
fractional shares of Common Stock shall be issued upon conversion of any shares
of Series B Preferred Stock. In lieu of any fractional shares of Common Stock
to which the holder would otherwise be entitled, the corporation shall pay cash
equal to such fraction multiplied by the then effective Series B Conversion
Price. The corporation shall, as soon as practicable thereafter, issue and
deliver at such office to such holder of Series B Preferred Stock, or to such
holder's nominee or nominees, a certificate or certificates for the number of
shares of Common Stock to which such holder shall be entitled as aforesaid,
together with cash in lieu of any fraction of a share. Such conversion shall be
deemed to have been made immediately prior to the close of business on the date
of such surrender of the shares of Series B Preferred Stock to be converted, and
the person or persons entitled to receive the shares of Common Stock issuable
upon conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock on such date.
(c) Automatic Conversion.
--------------------
(i) Each share of Series B Preferred Stock shall
automatically be converted into shares of Common Stock at the then effective
Series B Conversion Price (subject to adjustment as provided in
Section 2(c)(iii)) upon:
(A) the closing of a firm commitment 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 to the public at an initial public offering price per
share of not less than $8.25 (adjusted proportionately to give
effect to any stock dividend, stock distribution or subdivision or
any combination or consolidation of Common Stock after the
Original Issue Date) and with gross proceeds of not less than
$15,000,000 (a "Qualified IPO") or
(B) the written election of the holders of not less than
a majority of the then outstanding shares of Series B Preferred
Stock to require such mandatory conversion.
(ii) Upon the occurrence of an event specified in Section
2(c)(i) hereof, all shares of Series B Preferred Stock shall be converted
automatically without any further action by any holder of such shares and
whether or not the certificate or certificates representing such shares are
surrendered to the corporation or the transfer agent for the Series
6
<PAGE>
B Preferred Stock; provided, however, that the corporation shall not be
obligated to issue a certificate or certificates evidencing the shares of Common
Stock issuable upon such conversion unless the certificate or certificates
evidencing such shares of Series B Preferred Stock being converted are either
delivered to the corporation or the transfer agent of the Series B Preferred
Stock, or the holder notifies the corporation or such transfer agent that such
certificate or certificates have been lost, stolen, or destroyed and executes an
agreement satisfactory to the corporation to indemnify the corporation from any
loss incurred by it in connection therewith and, if the corporation so elects,
provides an appropriate indemnity bond. Upon the automatic conversion of Series
B Preferred Stock, each holder of Series B Preferred Stock shall surrender the
certificate or certificates representing such holder's shares of Series B
Preferred Stock at the office of the corporation or of the transfer agent for
the Series B Preferred Stock. Thereupon, there shall be issued and delivered to
such holder, promptly at such office and in such holder's 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 Series B Preferred
Stock surrendered were convertible on the date on which such automatic
conversion occurred. No fractional shares of Common Stock shall be issued upon
the automatic conversion of Series B Preferred Stock. In lieu of any fractional
shares of Common Stock to which the holder would otherwise be entitled, the
corporation shall pay cash equal to such fraction multiplied by the then
effective Series B Conversion Price.
(iii) In the event of the automatic conversion of shares of Series
B Preferred Stock into shares of Common Stock, pursuant to Section 2(c)(i)(A),
upon the occurrence of a Qualified IPO in which the initial offering price per
share of Common Stock is less than $10.25 (the "Adjustment Trigger Price"), the
Series B Conversion Price in effect immediately prior to the closing of the
Qualified IPO shall be adjusted automatically to the greater of (A) the price
determined by dividing (i) the initial offering price per share of Common Stock
in the Qualified IPO by (ii) 1.85 (the "IPO Adjusted Conversion Price") or (B)
$4.46 (the "Adjustment Floor Price"); provided, however, that there shall be no
adjustment of the Series B Conversion Price pursuant to the foregoing clause if
the Series B Conversion Price resulting from adjustment would be higher than the
Series B Conversion Price in effect immediately prior to the closing of the
Qualified IPO. If, prior to the Qualified IPO, the Series B Conversion Price
shall have been adjusted pursuant to Section 2(d)(vi)(A) in the event of a stock
dividend, stock distribution or subdivision or pursuant to Section 2(d)(vi)(B)
in the event of a combination or consolidation of Common stock, the Adjustment
Trigger Price, the Adjustment Floor Price and the IPO Adjusted Conversion Price
shall be decreased or increased proportionately to give effect to such stock
dividend, stock distribution or subdivision or such combination or
consolidation.
7
<PAGE>
(d) Adjustments to Conversion Price for Diluting Issues.
---------------------------------------------------
(i) Special Definitions. For purposes of this Section 2(d),
-------------------
the following definitions shall apply:
(A) "Option" shall mean rights, options or warrants to
------
subscribe for, purchase or otherwise acquire either Common Stock
or Convertible Securities.
(B) "Original Issue Date" shall mean the date on which a
-------------------
share of Series B Preferred Stock was first issued.
(C) "Convertible Securities" shall mean any evidences of
----------------------
indebtedness, shares (other than Common Stock and Series B
Preferred Stock) or other securities directly or indirectly
convertible into or exchangeable for Common Stock.
(D) "Additional Shares of Common Stock" shall mean all
---------------------------------
shares of Common Stock issued (or, pursuant to Section 2(d)(iii),
deemed to be issued) by the corporation after the Original Issue
Date, other than the following (collectively, "Excluded Shares"):
(I) shares of Common Stock issued or issuable upon
conversion of shares of Series B Preferred Stock; or
(II) shares of Common Stock issued or issuable upon
exercise or conversion of Options or Convertible Securities
outstanding on the Original Issue Date; or
(III) shares of Common Stock issued or issuable to
officers, employees or directors of, or consultants to, the
corporation pursuant to a stock purchase or option plan or
other employee stock bonus arrangement (collectively, the
"Plans") approved by the Board of Directors; provided,
however, that shares of Common Stock issued or deemed issued
to a director of the corporation pursuant to options or other
purchase rights granted after the Original Issue Date shall be
Excluded Shares only if granted at the time of, or in
connection with, such director's initial election to the Board
of Directors; or
(IV) shares of Common Stock issued or issuable
pursuant to warrants issued in connection with the
establishment of
8
<PAGE>
credit facilities for the corporation (including, without
limitation, in connection with equipment leasing
arrangements); or
(V) shares of Common Stock or Convertible
Securities issued with the written consent of the holders of
not less than a majority of the outstanding shares of Series B
Preferred Stock.
(ii) No Adjustment of Conversion Price. No adjustment in the number
---------------------------------
of shares of Common Stock into which a share of Series B Preferred Stock is
convertible shall be made, by adjustment in the Series B Conversion Price in
respect of the issuance of Additional Shares of Common Stock or otherwise: (i)
unless the consideration per share for an Additional Share of Common Stock
issued or deemed to be issued by the corporation is less than the Series B
Conversion Price in effect on the date of, and immediately prior to, the issue
of such Additional Shares of Common Stock or, (ii) if prior to such issuance,
the corporation receives written notice from the holders of a majority of the
then outstanding shares of Series B Preferred Stock agreeing that no such
adjustment shall be made as the result of the issuance of Additional Shares of
Common Stock.
(iii) Issue of Securities Deemed Issue of Additional Shares of Common
---------------------------------------------------------------
Stock.
- -----
(A) Options and Convertible Securities. In the event the
----------------------------------
corporation at any time or from time to time after the Original Issue Date
shall issue any Options or Convertible Securities or shall fix a record
date for the determination of holders of any class of securities entitled
to receive any such Options or Convertible Securities, then the maximum
number of shares (as set forth in the instrument relating thereto without
regard to any provisions contained therein for a subsequent adjustment of
such number) of Common Stock issuable upon the exercise of such Options or,
in the case of Convertible Securities and Options therefor, the conversion
or exchange of such Convertible Securities, shall be deemed to be
Additional Shares of Common Stock issued as of the time of such issue or,
in case such a record date shall have been fixed, as of the close of
business on such record date, provided that Additional Shares of Common
Stock shall not be deemed to have been issued unless the consideration per
share (determined pursuant to Section 2(d)(v) hereof) of such Additional
Shares of Common Stock would be less than the Series B Conversion Price in
effect on the date of and immediately prior to such issue, or such record
date, as the case may be, and provided further that in any such case in
which Additional Shares of Common Stock are deemed to be issued:
(I) no further adjustment in the Series B Conversion Price
shall be made upon the subsequent issue of Convertible Securities or shares of
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<PAGE>
Common Stock upon the exercise of such Options or conversion or exchange of
such Convertible Securities;
(II) if such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any increase or
decrease in the consideration payable to the corporation, or any increase
or decrease in the number of shares of Common Stock issuable upon the
exercise, conversion or exchange thereof, the Series B Conversion Price
computed upon the original issue thereof (or upon the occurrence of a
record date with respect thereto), and any subsequent adjustments based
thereon, shall, upon any such increase or decrease becoming effective, be
recomputed to reflect such increase or decrease insofar as it affects such
Options or the rights of conversion or exchange under such Convertible
Securities;
(III) upon the expiration of any such options or any rights of
conversion or exchange under such Convertible Securities which shall not
have been exercised, the Series B Conversion Price computed upon the
original issue thereof (or upon the occurrence of a record date with
respect thereto), and any subsequent adjustments based thereon, shall, upon
such expiration, be recomputed as if:
(a) in the case of Convertible Securities or Options for
Common Stock the only Additional Shares of Common Stock issued were
the shares of Common Stock, if any, actually issued upon the exercise
of such Options or the conversion or exchange of such Convertible
Securities and the consideration received therefor was the
consideration actually received by the corporation for the issue of
all such Options, whether or not exercised, plus the consideration
actually received by the corporation upon such exercise, or for the
issue of all such Convertible Securities which were actually converted
or exchanged, plus the additional consideration, if any, actually
received by the corporation upon such conversion or exchange; and
(b) in the case of Options of Convertible Securities only
the Convertible Securities, if any, actually issued upon the exercise
thereof were issued at the time of issue of such Options, and the
consideration received by the corporation for the Additional Shares
of Common Stock deemed to have been then issued was the consideration
actually received by the corporation for the issue of all such
Options, whether or not exercised, plus the consideration deemed to
have been received by the corporation (determined pursuant to
Section 2(d)(v))
10
<PAGE>
upon the issue of the Convertible Securities with respect to which
such Options were actually exercised;
(IV) no readjustment pursuant to clause (II) or (III) above
shall have the effect of increasing the Series B Conversion Price to an
amount which exceeds the lower of (a) the Series B Conversion Price on the
original adjustment date, or (b) the Series B Conversion Price that would
have resulted from any issuance of Additional Shares of Common Stock
between the original adjustment date and such readjustment date;
(V) in the case of any Options which expire by their terms
not more than 30 days after the date of issue thereof, no adjustment of the
Series B Conversion Price shall be made until the expiration or exercise of
all such Options, whereupon such adjustment shall be made in the same
manner provided in clause (III) above; and
(VI) if such record date shall have been fixed and such
Options or Convertible Securities are not issued or the date fixed
therefor, the adjustment previously made in the Series B Conversion Price
which became effective on such record date shall be cancelled as of the
close of business on such record date, and thereafter the Series B
Conversion Price shall be adjusted pursuant to this Section 2(d)(iii) as of
the actual date of their issuance.
(B) Stock Dividends, Stock Distributions and Subdivisions. In the
-----------------------------------------------------
event the corporation at any time or from time to time after the Original Issue
Date shall declare or pay any dividend or make any other distribution on the
Common Stock payable in Common Stock or effect a subdivision of the outstanding
shares of Common Stock (by reclassification or otherwise than by payment of a
dividend in Common Stock), then and in any such event, Additional Shares of
Common Stock shall be deemed to have been issued:
(I) in the case of any such dividend or distribution,
immediately after the close of business on the record date for the
determination of holders of any class or securities entitled to receive
such dividend or distribution, or
(II) in the case of any such subdivision, at the close of
business on the date immediately prior to the date upon which corporate
action becomes effective.
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<PAGE>
If such record date shall have been fixed and no part of such dividend
shall have been paid on the date fixed therefor, the adjustment previously
made for the Series B Conversion Price which became effective on such
record date shall be cancelled as of the close of business on such record
date, and thereafter the Series B Conversion Price shall be adjusted
pursuant to this Section 2(d)(iii) as of the time of actual payment of such
dividend.
(iv) Adjustment of Series B Conversion Price Upon Issuance of Additional
-------------------------------------------------------------------
Shares of Common Stock.
- ----------------------
(A) In the event the corporation shall issue Additional Shares of
Common Stock (including, without limitation, Additional Shares of Common
Stock deemed to be issued pursuant to Section 2(d)(iii) but excluding
Additional Shares of Common Stock deemed to be issued pursuant to Section
2(d)(iii)(B), which event is dealt with in Section 2(d)(vi) hereof),
without consideration or for a consideration per share less than the
applicable Series B Conversion Price in effect on the date of and
immediately prior to such issue, then and in such event, such Series B
Conversion Price shall be reduced, concurrently with such issue, to a price
(calculated to the nearest cent) determined by multiplying such Series B
Conversion Price by a fraction, the numerator of which shall be (I) the
number of shares of Common Stock outstanding immediately prior to such
issue plus (II) the number of shares of Common Stock which the aggregate
consideration received or deemed to have been received by the corporation
for the total number of Additional Shares of Common Stock so issued would
purchase at such Series B Conversion Price, and the denominator of which
shall be (I) the number of shares of Common Stock outstanding immediately
prior to such issue plus (II) the number of Additional Shares of Common
Stock so issued or deemed to be issued.
(B) For the purposes of Section 2(d)(iv)(A) hereof, (i) all shares of
Common Stock issuable upon conversion of shares of Series B Preferred
Stock, and upon exercise of options or conversion or exchange of
Convertible Securities which are part of the Excluded Shares, outstanding
immediately prior to any issue of Additional Shares of Common Stock, or any
event with respect to which Additional Shares of Common Stock shall be
deemed to be issued, shall be deemed to be outstanding, and (ii)
immediately after any Additional Shares of Common Stock are deemed issued
pursuant to Section 2(d)(iii), such Additional Shares of Common Stock shall
be deemed to be outstanding.
(C) Notwithstanding anything to the contrary contained herein, the
applicable Series B Conversion Price in effect at the time Additional
Shares of Common Stock are issued or deemed to be issued shall not be
reduced pursuant to
12
<PAGE>
Section 2(d)(iv)(A) hereof at such time if the amount of such reduction
would be an amount less than $0.01, but any such amount shall be carried
forward and reduction with respect thereto made at the time of and together
with any subsequent reduction which, together with such amount and any
other amount or amounts so carried forward, shall aggregate $0.01 or more.
(v) Determination of Consideration. For purposes of this Section
------------------------------
2(d), the consideration received by the corporation for the issue of any
Additional Shares of Common Stock shall be computed as follows:
(A) Cash and Property. Such consideration shall:
-----------------
(I) insofar as it consists of cash, be computed at the
aggregate amount of cash received by the corporation excluding amounts
paid or payable for accrued interest or accrued dividends;
(II) insofar as it consists of property other than cash, be
computed at the fair market value thereof at the time of such issue,
as determined in good faith by the Board of Directors; and
(III) in the event Additional Shares of Common Stock are
issued together with other shares or securities or other assets of the
corporation for consideration which covers both, be the proportion of
such consideration so received, computed as provided in clauses (I)
and (II) above, as determined in good faith by the Board of Directors.
(B) Options and Convertible Securities. The consideration per
----------------------------------
share received by the corporation for Additional Shares of Common Stock
deemed to have been issued pursuant to Section 2(d)(iii)(A), relating to
Options and Convertible Securities, shall be determined by dividing (I) the
total amount, if any, received or receivable by the corporation as
consideration for the issue of such Options or Convertible Securities, plus
the minimum aggregate amount of additional consideration (as set forth in
the instruments relating thereto, without regard to any provision contained
therein for a subsequent adjustment of such consideration) payable to the
corporation upon the exercise of such Options or the conversion or exchange
of such Convertible Securities, or in the case of Options for Convertible
Securities, the exercise of such Options for Convertible Securities and the
conversion or exchange of such Convertible Securities, by (II) the maximum
number of shares of Common Stock (as set forth in the instruments relating
thereto, without regard to any provision contained therein for a subsequent
adjustment or such number) issuable upon the exercise of such Options or
the conversion or exchange of such Convertible Securities.
13
<PAGE>
(vi) Adjustment for Dividends, Distributions, Subdivisions,
------------------------------------------------------
Combinations or Consolidations of Common Stock.
- ----------------------------------------------
(A) Stock Dividends, Distributions or Subdivision. In the event
---------------------------------------------
the corporation shall issue Additional Shares of Common Stock pursuant to
Section 2(d)(iii)(B) in a stock dividend, stock distribution or
subdivision, the Series B Conversion Price in effect immediately prior to
such stock dividend, stock distribution or subdivision shall, concurrently
with the effectiveness of such stock dividend, stock distribution or
subdivision, be proportionately decreased.
(B) Combinations or Consolidations. In the event the outstanding
------------------------------
shares of Common Stock shall be combined or consolidated, by
reclassification or otherwise, into a lesser number of shares of Common
Stock, the Series B Conversion Price in effect immediately prior to such
combination or consolidation shall, concurrently with the effectiveness of
such combination or consolidation, be proportionately increased.
(e) No Impairment. The corporation shall not, by amendment of its
-------------
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the corporation but shall at
all times in good faith assist in the carrying out of all the provisions of this
Section 2 and in the taking of all such action as may be necessary or
appropriate in order to protect the Series B Conversion Rights of the holders of
Series B Preferred Stock against impairment.
(f) Certificate as to Adjustments. Upon the occurrence of each
-----------------------------
adjustment or readjustment of the Series B Conversion Price pursuant to this
Section 2, the corporation at its expense shall promptly compute such adjustment
or readjustment in accordance with the terms hereof and furnish to each affected
holder of Series B Preferred Stock a certificate setting forth such adjustment
or readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The corporation shall, upon the written request at any
time of any affected holder of Series B Preferred Stock, furnish or cause to be
furnished to such holder a like certificate setting forth (i) such adjustments
and readjustments, (ii) the Series B Conversion Price at the time in effect, and
(iii) the number of shares of Common Stock and the amount, if any, of other
property which at the time would be received upon conversion of each share of
Series B Preferred Stock.
(g) Notices of Record Date. In the event of any taking by the
----------------------
corporation 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 (other than a cash dividend which is the same
14
<PAGE>
as cash dividends paid in previous quarters) or other distribution, the
corporation shall mail to each holder of Series B Preferred Stock at least ten
(10) days prior to such record date a notice specifying the date on which any
such record is to be taken for the purpose of such dividend or distribution.
(h) Common Stock Reserved. The corporation shall reserve and keep
---------------------
available out of its authorized but unissued Common Stock such number of shares
of Common Stock as shall from time to time be sufficient to effect the
conversion of all convertible Series B Preferred Stock.
(i) Certain Taxes. The corporation shall pay any issue or transfer
-------------
taxes payable in connection with the conversion of any shares of Series B
Preferred Stock; provided, however, that the corporation shall not be required
to pay any tax which may be payable in respect of any transfer to a name other
than that of the holder of such Series B Preferred Stock.
(j) Closing of Books. The corporation shall at no time close its
----------------
transfer books against the transfer of any Series B Preferred Stock, or of any
shares of Common Stock issued or issuable upon the conversion of any shares of
Series B Preferred Stock, in any manner which interferes with the timely
conversion or transfer of such Series B Preferred Stock.
3. Voting Rights.
-------------
Except as otherwise provided herein or required by law or by the
provisions establishing any other series of Preferred Stock, the holders of
Common Stock and the holders of Series B Preferred Stock shall be entitled to
notice of any stockholders' meeting and shall vote as one class upon any matter
submitted to the stockholders for a vote, on the following basis:
(i) Holders of Common Stock shall have one vote per share of
Common Stock held by them; and
(ii) Holders of Series B Preferred Stock shall have that number of
votes per share of Series B Preferred Stock as is equal to the number of shares
of Common Stock into which each such share of Series B Preferred Stock held by
such holder could be converted on the date for determination of stockholders
entitled to vote at the meeting.
15
<PAGE>
4. Dividend Rights.
---------------
(a) From and after the Original Issue Date, dividends shall accrue on
each share of the Series B Preferred Stock, whether or not funds are legally
available thereof and whether or not declared by the Board of Directors, in the
amount per annum of $0.3324 per share of Series B Preferred Stock (the "Series B
Dividends"). From time to time the Board of Directors of the corporation may
declare and pay dividends or distributions on shares of the Common Stock or on
any other class or series of capital stock of the corporation, but only if all
accrued Series B Dividends shall have been paid in full prior to the date of any
such declaration, payment or distribution.
(b) In the event the Board of Directors of the corporation shall
declare a dividend payable upon the then outstanding shares of the Common Stock
(other than a dividend payable entirely in shares of the Common Stock of the
corporation), the Board of Directors shall declare at the same time a dividend
upon the then outstanding shares of the Series B Preferred Stock, payable at the
same time as the dividend paid on the Common Stock, in an amount equal to the
amount of dividends per share of Series B Preferred Stock, as would have been
payable on the largest number of whole shares of Common Stock into which each
share of Series B Preferred Stock held by each holder thereof if such Series B
Preferred Stock had been converted to Common Stock pursuant to the provisions of
Section 2 hereof as of the record date for the determination of holders of
Common Stock entitled to receive such dividends; and
(c) In the event the Board of Directors of the corporation shall
declare a dividend payable upon any class or series of capital stock of the
corporation other than Common Stock, the Board of Directors shall declare at the
same time a dividend upon the then outstanding shares of Series B Preferred
Stock, payable at the same time as such dividend on such other class or series
of capital stock in an amount equal to (i) in the case of any series or class
convertible into Common Stock, that dividend per share of Series B Preferred
Stock, as would equal the dividend payable on such other class or series
determined as if all such shares of such class or series had been converted to
Common Stock and all shares of Series B Preferred Stock have been converted to
Common Stock on the record date for determination of holders entitled to receive
such dividend or (ii) if such class or series of Capital Stock is not
convertible into Common Stock, at a rate per share of Series B Preferred Stock
determined by dividing the amount of the dividend payable on each share of such
class or series of capital stock by the original issuance price of such class or
series of capital stock and multiplying such fraction by the Base Liquidation
Price then in effect.
16
<PAGE>
5. Redemption.
----------
(a) At the written request, made on or after December 31, 2002, of the
holders of a majority of the then-outstanding shares of Series B Preferred
Stock, the corporation shall on March 31 in each of the three (3) years
immediately following the date of such request (each, a "Redemption Date"), call
for redemption in accordance with Section 5(b) hereof and shall redeem for the
applicable Redemption Amount (as hereinafter defined) from each holder of Series
B Preferred Stock such number of shares of Series B Preferred Stock as shall be
equal to thirty-three and one third percent (33 1/3%) of all of the shares of
Series B Preferred Stock held by such holder on the Redemption Date. For the
purposes of this Section 5, the term "Redemption Amount" means, for each share
of Series B Preferred Stock to be redeemed, the sum of (i) the Base Liquidation
Price plus (ii) an amount equal to any dividends accrued and unpaid thereon at
the time of such redemption.
(b) Call for redemption shall be made by the corporation by notice
sent by first class mail, postage prepaid, to each holder of record of Series B
Preferred Stock to be redeemed, not less than thirty (30) days nor more than
sixty (60) days prior to the Redemption Date set forth therein, at such holder's
address as it appears on the books of the corporation. Such notice shall set
forth (i) the Redemption Date and the place or redemption, (ii) the number of
shares to be redeemed (in accordance with Section 5(a) hereof) and (iii) the
Redemption Amount per share and the aggregate Redemption Amount to be paid with
respect to the shares to be redeemed. The corporation shall be obligated to
redeem shares of Series B Preferred Stock in accordance with Section 5(a) hereof
whether or not any notice of redemption is given as required herein. If, before
the close of business on the relevant Redemption Date, any holder of record of
Series B Preferred Stock shall have surrendered any shares of Series B Preferred
Stock for conversion pursuant to Section 2(a) hereof, the corporation shall
credit against the number of shares of Series B Preferred Stock otherwise
required to be redeemed from such holder, and shall not redeem the number of
shares of Series B Preferred Stock which had been converted by such holder on or
before such Redemption Date and which had not previously been credited against
any redemption.
(c) If, on or before any Redemption Date, the funds necessary for such
redemption shall have been set aside by the corporation and deposited with a
bank or trust company in trust for the pro rata benefit of the holders of Series
B Preferred Stock to be redeemed pursuant to Section 5(a) hereof, then,
notwithstanding that any certificates for such shares of Series B Preferred
Stock to be redeemed shall not have been surrendered for cancellation, the
shares represented thereby shall no longer be deemed outstanding from and after
the Redemption Date, and all rights of holders of such shares shall forthwith,
after the Redemption Date, cease and terminate, excepting only the right to
receive the full redemption funds therefor to which they are entitled. Any
interest accrued on funds so deposited and unclaimed by stockholders entitled
thereto shall be paid to such stockholders at the time their
17
<PAGE>
respective shares are redeemed or to the corporation at the time unclaimed
amounts are paid to it. In case the holders of Series B Preferred Stock to be
redeemed pursuant to Section 5(a) hereof shall not, within five (5) years after
the Redemption Date, claim the amounts so deposited with respect to the
redemption thereof, any such bank or trust company shall, upon demand, pay over
to the corporation such unclaimed amounts and thereupon such bank or trust
company shall be relieved of all responsibility in respect thereof to such
holder and such holder shall look only to the corporation for the payment
thereof. Any funds so deposited with a bank or trust company which shall not be
required for such redemption by reason of the exercise subsequent to the date of
such deposit, of the right of conversion of any shares, or otherwise, shall be
returned to the corporation forthwith.
(d) If the funds of the corporation legally available for redemption
of shares of Series B Preferred Stock on a Redemption Date are insufficient to
redeem the total number of shares of Series B Preferred Stock required to be
redeemed on such date, those funds which are legally available will be used to
redeem the maximum possible number of whole shares of Series B Preferred Stock
pro rata from among all holders of Series B Preferred Stock on the basis of the
aggregate number of shares of Series B Preferred Stock held by each such holder
on the Redemption Date. The shares of Series B Preferred Stock not redeemed
shall remain outstanding and entitled to all rights and preferences provided
herein. At any time thereafter when additional funds of the corporation are
legally available for the redemption of such shares of Series B Preferred Stock,
such funds will be used, at the end of the next succeeding fiscal quarter, to
redeem the balance of such shares, or such portion thereof for which funds are
then legally available.
(e) If the corporation for any reason fails to redeem any shares of
Series B Preferred Stock in accordance with Section 5(a) hereof on or prior to
the Redemption Date specified therein, then from and after such Redemption Date
until such time as the Redemption Amount for such shares of Series B Preferred
Stock has been paid in full, notwithstanding anything to the contrary contained
in this Certificate of Incorporation, the corporation may not incur any
indebtedness for money borrowed (unless the proceeds of such incurrence of
indebtedness are used to make all overdue redemptions) or borrow or reborrow any
amounts under any lines of credit which it may then have outstanding without the
prior written consent of the holders of not less than a majority of the then
outstanding shares of Series B Preferred Stock; provided, however, that the
corporation may incur indebtedness for money borrowed or borrow or reborrow any
amounts under any outstanding lines of credit without the aforesaid approval if
(i) the proceeds of such borrowing are intended to be, and are in fact, used to
pay obligations of the corporation arising in the ordinary course of business as
they become due and payable or otherwise to maintain the operations of the
corporation at the then current level and not to expand the operations of the
corporation in any respect, whether through expansion or enhancement of, or
addition to, the corporation's then current product line, facilities, equipment,
other capital assets or workforce, or otherwise, (ii) the corporation provides
prior
18
<PAGE>
written notice of such borrowing to all holders of Series B Preferred Stock,
which notice shall include a statement of the intended use of the proceeds of
such borrowing and (iii) promptly upon request therefor, the corporation shall
provide to any holder of Series B Preferred Stock a certificate signed by the
President and Chief Financial Officer of the corporation certifying as to the
allocation and use of the proceeds of any such borrowing; and
(f) If the corporation for any reason fails to redeem any shares of
Series B Preferred Stock in accordance with Section 5(a) hereof on or prior to
the Redemption Date specified therein, then from and after such Redemption Date
until such time as the Redemption Amount for such shares of Series B Preferred
Stock has been paid in full, notwithstanding anything to the contrary contained
in this Certificate of Incorporation, the holders of Series B Preferred Stock,
voting as a separate class and not with the holders of Common Stock, shall be
entitled to elect to the Board of Directors the smallest number of directors
which shall constitute a majority of the authorized number of directors, and the
holders of Common Stock, voting as a separate class, shall be entitled to elect
the remaining members of the Board of Directors. Whenever under the provisions
of the preceding sentence the right shall have accrued to the holders of Series
B Preferred Stock as a class to elect directors of the corporation, the Board of
Directors shall promptly call (and in the event the Board of Directors fails to
call, the holders of at least twenty percent (20%) in voting power of the
outstanding shares of Series B Preferred Stock may call) a special meeting of
stockholders for the election of directors. Upon the election by the holders of
the Series B Preferred Stock of the directors, they are entitled to elect as
provided in this Section 5(f), the terms of office of all persons who were
previously members of the Board of Directors shall immediately terminate,
whether or not the holders of Common Stock shall have elected the remaining
members of the Board of Directors. In the case of any vacancy of office
occurring among the directors elected by the holders of Series B Preferred
Stock, the remaining directors elected by the holders of Series B Preferred
Stock, by affirmative vote of a majority thereof, may elect a successor to hold
office for the unexpired term of the director whose place shall be vacant; in
the case of any vacancy of office occurring among the directors elected by the
holders of Common Stock, the remaining directors elected by the holders of
Common Stock, by affirmative vote of a majority thereof, may elect a successor
to hold office for the unexpired term of the director whose place shall be
vacant. Any director who shall have been elected by the holders of Series B
Preferred Stock (or by directors elected by the holders of Series B Preferred
Stock) may be removed during his term of office by, and only by, the affirmative
vote of the holders of the then outstanding shares of Series B Preferred Stock;
any director who shall have been elected by the holders of Common Stock (or by
directors elected by the holders of Common Stock) may be removed during his term
of office by, and only by, the affirmative vote of the holders of the then
outstanding shares of Common Stock. If and when the delinquent Redemption
Amount shall have been paid in full, the holders of Series B Preferred Stock
shall be immediately divested of the special voting rights in case of similar
future delinquency; upon the termination of such voting rights, the Board of
Directors shall
19
<PAGE>
call (and in the event the Board of Directors fails to call, the holders of at
least twenty percent (20%) in voting power of the outstanding shares of Common
Stock may call) a special meeting of stockholders at which all directors shall
be elected in accordance with Section 3, above, and the terms of office of all
persons who are then directors of the corporation shall terminate immediately
upon the election of their successors.
6. Covenants.
---------
(a) So long as at least twenty-five (25%) of the number of shares of
Series B Preferred Stock outstanding on the Original Issue Date shall be
outstanding, the corporation shall not, without first having provided the
written notice of such proposed action to each holder of outstanding shares of
Series B Preferred Stock required by Section 6(b) hereof and having obtained the
affirmative vote or written consent of the holders of a majority of such
outstanding shares of Series B Preferred Stock:
(i) amend, alter or repeal any provision of, or add any
provision to, the corporation's Certificate of Incorporation or by-laws, if such
action would alter or change the preferences, rights, privileges or powers of,
or the restrictions provided for the benefit of, the Series B Preferred Stock;
(ii) reclassify any Common Stock or Preferred Stock into shares
having any preference or priority as to assets superior to or on a parity with
such preference or priority of the Series B Preferred Stock;
(iii) create, authorize or issue any additional shares of Series
B Preferred Stock or any other class or classes of stock or series of Common
Stock or Preferred Stock or any security convertible into or evidencing the
right to purchase shares of any class or series of Common Stock or Preferred
Stock or any capital stock of the corporation senior to or on a parity with the
Series B Preferred Stock; or
(iv) apply with any of its assets to the redemption, retirement,
purchase or other acquisition, directly or indirectly, through subsidiaries or
otherwise, of any shares of Common Stock except at their original purchase price
of shares of Common Stock from officers, employees or directors of, or
consultants to, the corporation upon termination of their status as such
pursuant to agreements containing vesting and/or repurchase provisions approved
by the Board of Directors of the corporation.
(b) Notwithstanding any other provision of this Certificate of
Incorporation or the corporation's by-laws to the contrary, notice of any action
specified in Section 6(a) hereof shall be given by the corporation to each
holder of shares of Series B Preferred Stock by first class mail, postage
prepaid, addressed to such holder at the last address of such holder
20
<PAGE>
as shown by the records of the corporation, at least thirty (30) days before the
date on which the books of the corporation shall close or a record shall be
taken with respect to such proposed action, or, if there shall be no such date,
at least thirty (30) days before the date when such proposed action is scheduled
to take place. Any holder of outstanding shares of Series B Preferred Stock may
waive any notice required by this Section 6(b) by a written document indicating
such waiver.
7. No Reissuance of Series B Preferred Stock. No share or shares of
-----------------------------------------
Series B Preferred Stock acquired by the corporation by reason of redemption,
purchase, conversion or otherwise shall be reissued, and all such shares shall
be cancelled, retired and eliminated from the shares which the corporation shall
be authorized to issue.
8. Residual Rights. All rights accruing to the outstanding shares of
---------------
the corporation not expressly provided for to the contrary herein shall be
vested in the Common Stock.
C. SERIES C PREFERRED STOCK
------------------------
1. Liquidation Rights.
------------------
(a) Treatment at Liquidation, Dissolution or Winding Up.
---------------------------------------------------
(i) In the event of any liquidation, dissolution or winding up
of the affairs of the corporation, whether voluntary or involuntary, after
payment in full of all amounts payable to the holders of the corporation's
Series B Preferred Stock in accordance with Section B.1(a)(i) of Article IV
hereof, and before any payment is made to the holders of any other class or
series of the corporation's capital stock designated to be junior to the Series
C Preferred Stock, including the corporation's Common Stock, the holders of
Series C Preferred Stock shall be entitled to be paid from the assets of the
corporation available for distribution to holders of the Series C Preferred
Stock and the holders of the Common Stock pursuant to Section B.1(a)(ii) of
Article IV hereof, pari passu with the payments required to be made by the
holders of the Series B Preferred Stock in accordance with said Section
1(a)(ii), but allocating all payments otherwise required by the terms of said
Section 1(a)(ii) to be made to the holders of the Common Stock to the holders of
the Series C Preferred Stock, an amount equal to $5.00 per share of Series C
Preferred Stock (which amount shall be subject to equitable adjustment whenever
there shall occur a stock dividend, distribution, combination of shares,
reclassification or other similar event with respect to Series C Preferred Stock
and, as so adjusted from time to time, is hereinafter referred to as the "Base
Liquidation Price") plus all dividends thereon accrued but unpaid, to and
including the date full payment shall be tendered to the holders of Series C
Preferred Stock with respect to such liquidation, dissolution or winding up.
21
<PAGE>
(ii) Following payment in full to the holders of Series C
Preferred Stock of all amounts distributable to them under Section 1(a)(i)
hereof, the remaining assets of the corporation shall be distributed among the
holders of the Common Stock and the holders of the Series C Preferred Stock on a
share for share basis, with each holder of a share of Series C Preferred Stock
receiving the amount that would have been payable to the holder of such share
had all shares of Series C Preferred Stock been converted to Common Stock
pursuant to Section 2(a) hereof immediately following payment in full to the
holders of Series C Convertible Preferred Stock of all amounts distributable to
them under Section 1(a)(i) hereof.
(iii) If the assets of the corporation shall be insufficient
to permit the payment in full to the holders of Series C Preferred Stock of all
amounts distributable to them under Section 1(a)(i) hereof, then the entire
assets of the corporation available for such distribution shall be distributed
ratably among the Series C Preferred Stock.
(iv) In no event shall any payment be made with respect to
any liquidation, dissolution or winding up to the holders of the Series C
Preferred Stock or the holders of any other class or series of the corporation's
capital stock designated to be junior to the Series C Preferred Stock, including
the corporation's Common Stock, if and to the extent that, as a result of such
payment, the amount available for distribution to the holders of the Series B
Preferred Stock would be reduced to an amount less than the amount that would
have been payable to the holders of the Series B Preferred Stock pursuant to
Section B.1 of Article IV hereof had all shares of the Series C Preferred Stock
been converted into shares of Common Stock in accordance with Section 2 hereof
immediately prior to such liquidation, dissolution or winding up.
(b) Treatment of Reorganizations, Consolidations, Mergers and Sales of
------------------------------------------------------------------
Assets. A consolidation or merger of the corporation, or a sale of all or
- ------
substantially all of the assets of the corporation (other than a merger,
consolidation or sale of all or substantially all of the assets of the
corporation immediately prior to the transaction possess more than 50% of the
voting securities of the surviving entity (or parent, if any) immediately after
the transaction) shall be regarded as a liquidation, dissolution or winding up
of the affairs of the corporation within the meaning of this Section 1.
(c) Distributions Other than Cash. Whenever the distribution provided
-----------------------------
for in this Section 1 shall be payable in property other than cash, the value of
such distribution shall be the fair market value of such property as determined
in good faith by the Board of Directors of the corporation.
2. Conversion. The holders of Series C Preferred Stock shall have
----------
conversion rights as follows (the "Series C Conversion Rights"):
22
<PAGE>
(a) Right to Convert; Series C Conversion Price. Each share of Series
-------------------------------------------
C Preferred Stock shall be convertible, without the payment of any additional
consideration by the holder thereof and at the option of the holder thereof, at
any time after the date of issuance of such share, at the office of the
corporation or any transfer agent for the Series C Preferred Stock, into such
number of fully paid and nonassessable shares of Common Stock as is determined
by dividing $5.00 by the Series C Conversion Price, determined as hereinafter
provided, in effect at the time of conversion. The Series C Conversion Price
for purposes of calculating the number of shares of Common Stock deliverable
upon conversion without the payment of any additional consideration by the
holder of Series C Preferred Stock (the "Series C Conversion Price") shall
initially be $5.00. Such initial Series C Conversion Price shall be subject to
adjustment, in order to adjust the number of shares of Common Stock into which
Series C Preferred Stock is convertible, as hereinafter provided.
(b) Mechanics of Conversion. Before any holder of Series C Preferred
-----------------------
Stock shall be entitled to convert the same into full shares of Common Stock,
such holder shall surrender the certificate or certificates therefor, duly
endorsed, at the office of the corporation or of any transfer agent for the
Series C Preferred Stock, and shall give written notice to the corporation at
such office that such holder elects to convert the same and shall state therein
the name of such holder or the name or names of the nominees of such holder in
which such holder wishes the certificate or certificates for shares of Common
Stock to be issued. No fractional shares of Common Stock shall be issued upon
conversion of any shares of Series C Preferred Stock. In lieu of any fractional
shares of Common Stock to which the holder would otherwise be entitled, the
corporation shall pay cash equal to such fraction multiplied by the then
effective Series C Conversion Price. The corporation shall, as soon as
practicable thereafter, issue and deliver at such office to such holder of
Series C Preferred Stock, or to such holder's nominee or nominees, a certificate
or certificates for the number of shares of Common Stock to which such holder
shall be entitled as aforesaid, together with cash in lieu of any fraction of a
share. Such conversion shall be deemed to have been made immediately prior to
the close of business on the date of such surrender of the shares of Series C
Preferred Stock to be converted, and the person or persons entitled to receive
the shares of Common Stock issuable upon conversion shall be treated for all
purposes as the record holder or holders of such shares of Common Stock on such
date.
(c) Automatic Conversion.
--------------------
(i) Each share of Series C Preferred Stock shall automatically be
converted into shares of Common Stock at the then effective Series C Conversion
Price (subject to adjustment as provided in Section 2(c)(iii)) upon:
(A) the closing of a firm commitment underwritten public
offering pursuant to an effective registration statement under the
Securities Act of
23
<PAGE>
1933, as amended, covering the offer and sale of Common Stock to the public
at an initial public offering price per share of not less than $8.25
(adjusted proportionately to give effect to any stock dividend, stock
distribution or subdivision or any combination or consolidation of Common
Stock after the Original Issue Date) and with gross proceeds of not less
than $15,000,000 (a "Qualified IPO") or
(B) the written election of the holders of not less than a
majority of the then outstanding shares of Series C Preferred Stock to
require such mandatory conversion.
(ii) Upon the occurrence of an event specified in Section 2(c)(i)
hereof, all shares of Series C Preferred Stock shall be converted automatically
without any further action by any holder of such shares and whether or not the
certificate or certificates representing such shares are surrendered to the
corporation or the transfer agent for the Series C Preferred Stock; provided,
however, that the corporation shall not be obligated to issue a certificate or
certificates evidencing the shares of Common Stock issuable upon such conversion
unless the certificate or certificates evidencing such shares of Series C
Preferred Stock being converted are either delivered to the corporation or the
transfer agent of the Series C Preferred Stock, or the holder notifies the
corporation or such transfer agent that such certificate or certificates have
been lost, stolen, or destroyed and executes an agreement satisfactory to the
corporation to indemnify the corporation from any loss incurred by it in
connection therewith and, if the corporation so elects, provides an appropriate
indemnity bond. Upon the automatic conversion of Series C Preferred Stock, each
holder of Series C Preferred Stock shall surrender the certificate or
certificates representing such holder's shares of Series C Preferred Stock at
the office of the corporation or of the transfer agent for the Series C
Preferred Stock. Thereupon, there shall be issued and delivered to such holder,
promptly at such office and in such holder's 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 Series C Preferred Stock
surrendered were convertible on the date on which such automatic conversion
occurred. No fractional shares of Common Stock shall be issued upon the
automatic conversion of Series C Preferred Stock. In lieu of any fractional
shares of Common Stock to which the holder would otherwise be entitled, the
corporation shall pay cash equal to such fraction multiplied by the then
effective Series C Conversion Price.
(d) Adjustments to Series C Conversion Price for Diluting Issues.
------------------------------------------------------------
(i) Special Definitions. For purposes of this Section 2(d), the
-------------------
following definitions shall apply:
24
<PAGE>
(A) "Option" shall mean rights, options or warrants to
------
subscribe for, purchase or otherwise acquire either Common Stock or Convertible
Securities.
(B) "Original Issue Date" shall mean the date on which a
-------------------
share of Series C Preferred Stock was first issued.
(C) "Convertible Securities" shall mean any evidences of
----------------------
indebtedness, shares (other than Common Stock and Series C Preferred Stock) or
other securities directly or indirectly convertible into or exchangeable for
Common Stock.
(D) "Additional Shares of Common Stock" shall mean all shares
---------------------------------
of Common Stock issued (or, pursuant to Section 2(d)(iii), deemed to be issued)
by the corporation after the Original Issue Date, other than the following
(collectively, "Excluded Shares"):
(I) shares of Common Stock issued or issuable upon
conversion of shares of Series C Preferred Stock; or
(II) shares of Common Stock issued or issuable upon
exercise or conversion of Options or Convertible Securities outstanding on
the Original Issue Date; or
(III) shares of Common Stock issued or issuable to
officers, employees or directors of, or consultants to, the corporation
pursuant to a stock purchase or option plan or other employee stock bonus
arrangement (collectively, the "Plans") approved by the Board of Directors;
provided, however, that shares of Common Stock issued or deemed issued to a
director of the corporation pursuant to options or other purchase rights
granted after the Original Issue Date shall be Excluded Shares only if
granted at the time of, or in connection with, such director's initial
election to the Board of Directors; or
(IV) shares of Common Stock issued or issuable pursuant
to warrants issued in connection with the establishment of credit
facilities for the corporation (including, without limitation, in
connection with equipment leasing arrangements); or
(V) shares of Common Stock or Convertible Securities
issued with the unanimous consent of the Board of Directors of the
corporation.
25
<PAGE>
(ii) No Adjustment of Series C Conversion Price. No adjustment in the
------------------------------------------
number of shares of Common Stock into which a share of Series C Preferred Stock
is convertible shall be made, by adjustment in the Series C Conversion Price in
respect of the issuance of Additional Shares of Common Stock or otherwise: (i)
unless the consideration per share for an Additional Share of Common Stock issue
or deemed to be issued by the corporation is less than the Series C Conversion
Price in effect on the date of, and immediately prior to, the issue of such
Additional Shares of Common Stock or, (ii) if prior to such issuance, the
corporation receives written notice from the holders of a majority of the then
outstanding shares of Series C Preferred Stock agreeing that no such adjustment
shall be made as the result of the issuance of Additional Shares of Common
Stock.
(iii) Issue of Securities Deemed Issue of Additional Shares of Common
---------------------------------------------------------------
Stock.
- ------
(A) Options and Convertible Securities. In the event the
----------------------------------
corporation at any time or from time to time after the Original Issue Date
shall issue any Options or Convertible Securities or shall fix a record
date for the determination of holders of any class of securities entitled
to receive any such Options or Convertible Securities, then the maximum
number of shares (as set forth in the instrument relating thereto without
regard to any provisions contained therein for a subsequent adjustment of
such number) of Common Stock issuable upon the exercise of such Options or,
in the case of Convertible Securities and Options therefor, the conversion
or exchange of such Convertible Securities, shall be deemed to be
Additional Shares of Common Stock issued as of the time of such issue or,
in case such a record date shall have been fixed, as of the close of
business on such record date, provided that Additional Shares of Common
Stock shall not be deemed to have been issued unless the consideration per
share (determined pursuant to Section 2(d)(v) hereof) of such Additional
Shares of Common Stock would be less than the Series C Conversion Price in
effect on the date of and immediately prior to such issue, or such record
date, as the case may be, and provided further that in any such case in
which Additional Shares of Common Stock are deemed to be issued:
(I) no further adjustment in the Series C Conversion
Price shall be made upon the subsequent issue of Convertible
Securities or shares of Common Stock upon the exercise of such Options
or conversion or exchange of such Convertible Securities;
(II) if such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any increase
or decrease in the consideration payable to the corporation, or any
increase or decrease in the number of shares of Common Stock issuable
upon the exercise,
26
<PAGE>
conversion or exchange thereof, the Series C Conversion Price computed
upon the original issue thereof (or upon the occurrence of a record
date with respect thereto), and any subsequent adjustments based
thereon, shall, upon any such increase or decrease becoming effective,
be recomputed to reflect such increase or decrease insofar as it
affects such Options or the rights of conversion or exchange under
such Convertible Securities;
(III) upon the expiration of any such options or any rights
of conversion or exchange under such Convertible Securities which
shall not have been exercised, the Series C Conversion Price computed
upon the original issue thereof (or upon the occurrence of a record
date with respect thereto), and any subsequent adjustments based
thereon, shall, upon such expiration, be recomputed as if:
(a) in the case of Convertible Securities or Options
for Common Stock the only Additional Shares of Common Stock
issued were the shares of Common Stock, if any, actually
issued upon the exercise of such Options or the conversion or
exchange of such Convertible Securities and the consideration
received therefor was the consideration actually received by
the corporation for the issue of all such Options, whether or
not exercised, plus the consideration actually received by the
corporation upon such exercise, or for the issue of all such
Convertible Securities which were actually converted or
exchanged, plus the additional consideration, if any, actually
received by the corporation upon such conversion or exchange;
and
(b) in the case of Options of Convertible Securities
only the Convertible Securities, if any, actually issued upon
the exercise thereof were issued at the time of issue of such
Options, and the consideration received by the corporation for
the Additional Shares of Common Stock deemed to have been then
issued was the consideration actually received by the
corporation for the issue of all such Options, whether or not
exercised, plus the consideration deemed to have been received
by the corporation (determined pursuant to Section 2(d)(v))
upon the issue of the Convertible Securities with respect to
which such Options were actually exercised;
(IV) no readjustment pursuant to clause (II) or (III)
above shall have the effect of increasing the Series C Conversion
Price to an amount which exceeds the lower of (a) the Series C
Conversion Price on the original adjustment date, or (b) the Series C
Conversion Price that would have resulted
27
<PAGE>
from any issuance of Additional Shares of Common Stock between the
original adjustment date and such readjustment date;
(V) in the case of any Options which expire by their
terms not more than 30 days after the date of issue thereof, no
adjustment of the Series C Conversion Price shall be made until the
expiration or exercise of all such Options, whereupon such
adjustment shall be made in the same manner provided in clause (III)
above; and
(VI) if such record date shall have been fixed and such
Options or Convertible Securities are not issued or the date fixed
therefor, the adjustment previously made in the Series C Conversion
Price which became effective on such record date shall be cancelled
as of the close of business on such record date, and thereafter the
Series C Conversion Price shall be adjusted pursuant to this
Section 2(d)(iii) as of the actual date of their issuance.
(B) Stock Dividends, Stock Distributions and Subdivisions. In
-----------------------------------------------------
the event the corporation at any time or from time to time after the
Original Issue Date shall declare or pay any dividend or make any other
distribution on the Common Stock payable in Common Stock or effect a
subdivision of the outstanding shares of Common Stock (by reclassification
or otherwise than by payment of a dividend in Common Stock), then and in
any such event, Additional Shares of Common Stock shall be deemed to have
been issued:
(I) in the case of any such dividend or distribution,
immediately after the close of business on the record date for the
determination of holders of any class or securities entitled to
receive such dividend or distribution, or
(II) in the case of any such subdivision, at the close of
business on the date immediately prior to the date upon which
corporate action becomes effective.
If such record date shall have been fixed and no part of such
dividend shall have been paid on the date fixed therefor, the
adjustment previously made for the Series C Conversion Price which
became effective on such record date shall be cancelled as of the
close of business on such record date, and thereafter the Series C
Conversion Price shall be adjusted pursuant to this Section
2(d)(iii) as of the time of actual payment of such dividend.
28
<PAGE>
(iv) Adjustment of Series C Conversion Price Upon Issuance of
--------------------------------------------------------
Additional Shares of Common Stock.
- ---------------------------------
(A) In the event the corporation shall issue Additional Shares
of Common Stock (including, without limitation, Additional Shares of Common
Stock deemed to be issued pursuant to Section 2(d)(iii) but excluding
Additional Shares of Common Stock deemed to be issued pursuant to Section
2(d)(iii)(B), which event is dealt with in Section 2(d)(vi) hereof),
without consideration or for a consideration per share less than the
applicable Series C Conversion Price in effect on the date of and
immediately prior to such issue, then and in such event, such Series C
Conversion Price shall be reduced, concurrently with such issue, to a price
(calculated to the nearest cent) determined by multiplying such Series C
Conversion Price by a fraction, the numerator of which shall be (I) the
number of shares of Common Stock outstanding immediately prior to such
issue plus (II) the number of shares of Common Stock which the aggregate
consideration received or deemed to have been received by the corporation
for the total number of Additional Shares of Common Stock so issued would
purchase at such Series C Conversion Price, and the denominator of which
shall be (I) the number of shares of Common Stock outstanding immediately
prior to such issue plus (II) the number of Additional Shares of Common
Stock so issued or deemed to be issued.
(B) For the purposes of Section 2(d)(iv)(A) hereof, (i) all
shares of Common Stock issuable upon conversion of shares of Series C
Preferred Stock, and upon exercise of options or conversion or exchange of
Convertible Securities which are part of the Excluded Shares, outstanding
immediately prior to any issue of Additional Shares of Common Stock, or any
event with respect to which Additional Shares of Common Stock shall be
deemed to be issued, shall be deemed to be outstanding, and (ii)
immediately after any Additional Shares of Common Stock are deemed issued
pursuant to Section 2(d)(iii), such Additional Shares of Common Stock shall
be deemed to be outstanding.
(C) Notwithstanding anything to the contrary contained herein,
the applicable Series C Conversion Price in effect at the time Additional
Shares of Common Stock are issued or deemed to be issued shall not be
reduced pursuant to Section 2(d)(iv)(A) hereof at such time if the amount
of such reduction would be an amount less than $0.01, but any such amount
shall be carried forward and reduction with respect thereto made at the
time of and together with any subsequent reduction which, together with
such amount and any other amount or amounts so carried forward, shall
aggregate $0.01 or more.
29
<PAGE>
(v) Determination of Consideration. For purposes of this Section
------------------------------
2(d), the consideration received by the corporation for the issue of any
Additional Shares of Common Stock shall be computed as follows:
(A) Cash and Property. Such consideration shall:
-----------------
(I) insofar as it consists of cash, be computed at the
aggregate amount of cash received by the corporation excluding amounts
paid or payable for accrued interest or accrued dividends;
(II) insofar as it consists of property other than cash, be
computed at the fair market value thereof at the time of such issue,
as determined in good faith by the Board of Directors; and
(III) in the event Additional Shares of Common Stock are
issued together with other shares or securities or other assets of the
corporation for consideration which covers both, be the proportion of
such consideration so received, computed as provided in clauses (I)
and (II) above, as determined in good faith by the Board of Directors.
(B) Options and Convertible Securities. The consideration per
----------------------------------
share received by the corporation for Additional Shares of Common Stock
deemed to have been issued pursuant to Section 2(d)(iii)(A), relating to
Options and Convertible Securities, shall be determined by dividing (I) the
total amount, if any, received or receivable by the corporation as
consideration for the issue of such Options or Convertible Securities, plus
the minimum aggregate amount of additional consideration (as set forth in
the instruments relating thereto, without regard to any provision contained
therein for a subsequent adjustment of such consideration) payable to the
corporation upon the exercise of such Options or the conversion or exchange
of such Convertible Securities, or in the case of Options for Convertible
Securities, the exercise of such Options for Convertible Securities and the
conversion or exchange of such Convertible Securities, by (II) the maximum
number of shares of Common Stock (as set forth in the instruments relating
thereto, without regard to any provision contained therein for a subsequent
adjustment of such number) issuable upon the exercise of such Options or
the conversion or exchange of such Convertible Securities.
(vi) Adjustment for Dividends, Distributions, Subdivisions,
------------------------------------------------------
Combinations or Consolidations of Common Stock.
- ----------------------------------------------
(A) Stock Dividends, Distributions or Subdivision. In the event
---------------------------------------------
the corporation shall issue Additional Shares of Common Stock pursuant to
Section
30
<PAGE>
2(d)(iii)(B) in a stock dividend, stock distribution or subdivision, the
Series C Conversion Price in effect immediately prior to such stock
dividend, stock distribution or subdivision shall, concurrently with the
effectiveness of such stock dividend, stock distribution or subdivision, be
proportionately decreased.
(B) Combinations or Consolidations. In the event the outstanding
------------------------------
shares of Common Stock shall be combined or consolidated, by
reclassification or otherwise, into a lesser number of shares of Common
Stock, the Series C Conversion Price in effect immediately prior to such
combination or consolidation shall, concurrently with the effectiveness of
such combination or consolidation, be proportionately increased.
(e) No Impairment. The corporation shall not, by amendment of its
-------------
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the corporation but shall at
all times in good faith assist in the carrying out of all the provisions of this
Section 2 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of Series C
Convertible Preferred Stock against impairment.
(f) Certificate as to Adjustments. Upon the occurrence of each
-----------------------------
adjustment or readjustment of the Series C Conversion Price pursuant to this
Section 2, the corporation at its expense shall promptly compute such adjustment
or readjustment in accordance with the terms hereof and furnish to each affected
holder of Series C Preferred Stock a certificate setting forth such adjustment
or readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The corporation shall, upon the written request at any
time of any affected holder of Series C Preferred Stock, furnish or cause to be
furnished to such holder a like certificate setting forth (i) such adjustments
and readjustments, (ii) the Series C Conversion Price at the time in effect, and
(iii) the number of shares of Common Stock and the amount, if any, of other
property which at the time would be received upon conversion of each shares of
Series C Preferred Stock.
(g) Notices of Record Date. In the event of any taking by the
----------------------
corporation 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 (other than a cash dividend which is the same as cash dividends paid in
previous quarters) or other distribution, the corporation shall mail to each
holder of Series C Preferred Stock at least ten (10) days prior to such record
date a notice specifying the date on which any such record is to be taken for
the purpose of such dividend or distribution.
31
<PAGE>
(h) Common Stock Reserved. The corporation shall reserve and keep
---------------------
available out of its authorized but unissued Common Stock such number of shares
of Common Stock as shall from time to time be sufficient to effect the
conversion of all convertible Series C Preferred Stock
(i) Certain Taxes. The corporation shall pay any issue or transfer
-------------
taxes payable in connection with the conversion of any shares of Series C
Preferred Stock; provided, however, that the corporation shall not be required
to pay any tax which may be payable in respect of any transfer to a name other
than that of the holder of such Series C Preferred Stock.
(j) Closing of Books. The corporation shall at no time close its
----------------
transfer books against the transfer of any Series C Preferred Stock, or of any
shares of Common Stock issued or issuable upon the conversion of any shares of
Series C Preferred Stock, in any manner which interferes with the timely
conversion or transfer of such Series C Preferred Stock.
3. Voting Rights.
-------------
Except as otherwise provided herein or required by law or by the
provisions establishing any other series of Preferred Stock, the holders of
Common Stock and the holders of Series C Preferred Stock shall be entitled to
notice of any stockholders' meeting and shall vote, together with the holders of
Common Stock and the holders of any other series of Preferred Stock as one class
upon any matter submitted to the stockholders for a vote. Holders of Series C
Preferred Stock shall have that number of votes per share of Series C Preferred
Stock as is equal to the number of shares of Common Stock into which each such
share of Series C Preferred Stock held by such holder could be converted on the
date for determination of stockholders entitled to vote at the meeting.
4. Covenants.
---------
(a) So long as at least twenty-five (25%) of the number of shares of
Series C Preferred Stock outstanding on the Original Issue Date shall be
outstanding, the corporation shall not, without first having provided the
written notice of such proposed action to each holder of outstanding shares of
Series C Preferred Stock required by Section 4(b) hereof and having obtained the
affirmative vote or written consent of the holders of a majority of such
outstanding shares of Series C Preferred Stock, amend, alter or repeal any
provision of, or add any provision to, the corporation's Certificate of
Incorporation or by-laws, if such action would alter or change the preferences,
rights, privileges or powers of, or the restrictions provided for the benefit
of, the Series C Preferred Stock;
32
<PAGE>
(b) Notwithstanding any other provision of this Certificate of
Incorporation or the corporation's by-laws to the contrary, notice of any action
specified in Section 4(a) hereof shall be given by the corporation to each
holder of shares of Series C Preferred Stock by first class mail, postage
prepaid, addressed to such holder at the last address of such holder as shown by
the records of the corporation, at least thirty (30) days before the date on
which the books of the corporation shall close or a record shall be taken with
respect to such proposed action, or, if there shall be no such date, at least
thirty (30) days before the date when such proposed action is scheduled to take
place. Any holder of outstanding shares of Series C Preferred Stock may waive
any notice required by this Section 4(b) by a written document indicating such
waiver.
5. No Reissuance of Series C Preferred Stock. No share or shares of
-----------------------------------------
Series C Preferred Stock acquired by the corporation by reason of redemption,
purchase, conversion or otherwise shall be reissued, and all such shares shall
be cancelled, retired and eliminated from the shares which the corporation shall
be authorized to issue.
6. Residual Rights. All rights accruing to the outstanding shares of
---------------
the corporation not expressly provided for to the contrary herein shall be
vested in the Common Stock
D. UNDESIGNATED PREFERRED STOCK.
----------------------------
1. Issuance. Subject to any limitations prescribed by law or this
--------
Certificate of Incorporation, the Board of Directors of the Corporation or an
authorized committee thereof is expressly authorized to provide for the issuance
of the shares of Undesignated Preferred Stock in one or more classes or one or
more series of stock within any class, and by filing a certificate pursuant to
applicable law of the State of Delaware, to establish or change from time to
time the number of shares to be included in each such class or series, and to
fix the designation, voting powers, preferences, qualifications, privileges and
rights of the shares of each such class or series and any qualifications,
limitations and restrictions thereof. Any action of the Board of Directors or
an authorized committee thereof under this paragraph D shall require an
affirmative vote of a majority of the Directors then in office or a majority of
the members of such committee. The Board of Directors or an authorized
committee thereof shall have the right to determine or fix one or more of the
following with respect to each class or series of such Undesignated Preferred
Stock to the extent permitted by law:
(a) The distinctive class or serial designation and the number of
shares constituting such class or series;
(b) The dividend rates or the amount of dividends to be paid on the
shares of such class or series, whether dividends shall be cumulative and, if
so, from which date or
33
<PAGE>
dates, the payment date or dates for dividends, and the participating and other
rights, if any, with respect to dividends;
(c) The voting powers, full or limited, if any, of the shares of such
class or series;
(d) Whether the shares of such class or series shall be redeemable
and, if so, the price or prices at which, and the terms and conditions on which,
such shares may be redeemed;
(e) The amount or amounts payable upon the shares of such class or
series and any preferences applicable thereto in the event of voluntary or
involuntary liquidation, dissolution or winding up of the Corporation;
(f) Whether the shares of such class or series shall be entitled to
the benefit of a sinking or retirement fund to be applied to the purchase or
redemption of such shares, and if so entitled, the amount of such fund and the
manner of its application, including the price or prices at which such shares
may be redeemed or purchased through the application of such fund;
(g) Whether the shares of such class or series shall be convertible
into, or exchangeable for, shares of any other class or classes or of any other
series of the same or any other class or classes of stock of the Corporation
and, if so convertible or exchangeable, the conversion price or prices, or the
rate or rates of exchange, and the adjustments thereof, if any, at which such
conversion or exchange may be made, and any other terms and conditions of such
conversion or exchange;
(h) The price or other consideration for which the shares of such
class or series shall be issued;
(i) Whether the shares of such class or series which are redeemed or
converted shall have the status of authorized but unissued shares of Preferred
Stock and whether such shares may be reissued as shares of the same or any other
class or series of stock; and
(j) Such other powers, preferences, rights, qualifications,
limitations and restrictions thereof as the Board of Directors of the
Corporation or an authorized committee thereof may deem advisable.
34
<PAGE>
Subject to the authority of the Board of Directors as set forth in clause
(i) above, any shares of Undesignated Preferred Stock shall, upon reacquisition
thereof by the Corporation, be restored to the status of authorized but unissued
Undesignated Preferred Stock under this paragraph D.
ARTICLE V
STOCKHOLDER ACTION
------------------
Meetings of the stockholders may be taken within or without the State of
Delaware, as the bylaws may provide and may be taken or effected by a written
consent of stockholders in lieu thereof.
ARTICLE VI
DIRECTORS
---------
1. General.
-------
The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors except as otherwise provided
herein or required by law.
2. Election of Directors.
---------------------
Election of Directors need not be by written ballot unless the By-laws
of the Corporation shall so provide.
3. Terms of Directors.
------------------
The number of Directors of the Corporation shall be fixed by
resolution duly adopted from time to time by the Board of Directors. The
Directors, other than those who may be elected by the holders of any series of
Preferred Stock of the Corporation, shall be classified, with respect to the
term for which they severally hold office, into three classes, as nearly equal
in number as possible. The initial Class I Directors of the Corporation shall be
Nemirovsky and Subramaniam; the initial Class II Directors of the Corporation
shall be Carnesale and Levy; and the initial Class III Directors of the
Corporation shall be Besier and Diaz. The initial Class I Directors shall serve
for a term expiring at the annual meeting of stockholders to be held in 1997,
the initial Class II Directors shall serve for a term expiring at the annual
meeting of stockholders to be held in 1998, and the initial Class III Directors
shall serve for a
35
<PAGE>
term expiring at the annual meeting of stockholders to be held in 1999. At each
annual meeting of stockholders, the successor or successors of the class of
Directors whose term expires at that meeting (other than Directors elected by
any series of Preferred Stock) shall be elected by a plurality of the votes cast
at such meeting and shall hold office for a term expiring at the annual meeting
of stockholders held in the third year following the year of their election. The
Directors elected to each class (other than Directors elected by any series of
Preferred Stock) shall hold office until their successors are duly elected and
qualified or until their earlier resignation or removal.
Notwithstanding the foregoing, whenever, pursuant to the provisions of
Article IV of this Second Amended and Restated Certificate of Incorporation, the
holders of any one or more series of Preferred Stock shall have the right,
voting separately as a series or together with holders of other such series, to
elect Directors at an annual or special meeting of stockholders, the election,
term of office, filling of vacancies and other features of such directorships
shall be governed by the terms of this Second Amended and Restated Certificate
of Incorporation and any certificate of designations applicable thereto, and
such Directors so elected shall not be divided into classes pursuant to this
Section 3.
During any period when the holders of any series of Preferred Stock
have the right to elect additional Directors as provided for or fixed pursuant
to the provisions of Article IV hereof, then upon commencement and for the
duration of the period during which such right continues: (i) the then otherwise
total authorized number of Directors of the Corporation shall automatically be
increased by such specified number of Directors, and the holders of such
Preferred Stock shall be entitled to elect the additional Directors so provided
for or fixed pursuant to said provisions, and (ii) each such additional Director
shall serve until such Director's successor shall have been duly elected and
qualified, or until such Director's right to hold such office terminates
pursuant to said provisions, whichever occurs earlier, subject to such
Director's earlier death, disqualification, resignation or removal. Except as
otherwise provided by the Board in the resolution or resolutions establishing
such series, whenever the holders of any series of Preferred Stock having such
right to elect additional Directors are divested of such right pursuant to the
provisions of such stock, the terms of office of all such additional Directors
elected by the holders of such stock, or elected to fill any vacancies resulting
from the death, resignation, disqualification or removal of such additional
Directors, shall forthwith terminate and the total and authorized number of
Directors of the Corporation shall be reduced accordingly.
4. Vacancies.
---------
Subject to the rights, if any, of the holders of any series of
Preferred Stock to elect Directors and to fill vacancies in the Board of
Directors relating thereto, any and all vacancies in the Board of Directors,
however occurring, including, without limitation, by reason of an
36
<PAGE>
increase in size of the Board of Directors, or the death, resignation,
disqualification or removal of a Director, shall be filled solely by the
affirmative vote of a majority of the remaining Directors then in office, even
if less than a quorum of the Board of Directors. Any Director appointed in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the class of Directors in which the new directorship was
created or the vacancy occurred and until such Director's successor shall have
been duly elected and qualified or until his or her earlier resignation or
removal. Subject to the rights, if any, of the holders of any series of
Preferred Stock to elect Directors, when the number of Directors is increased or
decreased, the Board of Directors shall determine the class or classes to which
the increased or decreased number of Directors shall be apportioned; provided,
however, that no decrease in the number of Directors shall shorten the term of
any incumbent Director. In the event of a vacancy in the Board of Directors,
the remaining Directors, except as otherwise provided by law, may exercise the
powers of the full Board of Directors until the vacancy is filled.
5. Removal.
-------
Subject to the rights, if any, of any series of Preferred Stock to
elect Directors and to remove any Director whom the holders of any such stock
have the right to elect, any Director (including persons elected by Directors to
fill vacancies in the Board of Directors) may be removed from office (i) only
with cause and (ii) only by the affirmative vote of at least two-thirds of the
total votes which would be eligible to be cast by stockholders in the election
of such Director. At least 30 days prior to any meeting of stockholders at
which it is proposed that any Director be removed from office, written notice of
such proposed removal shall be sent to the Director whose removal will be
considered at the meeting. For purposes of this Second Amended and Restated
Certificate of Incorporation, "cause," with respect to the removal of any
Director shall include (i) conviction of a felony, (ii) declaration of unsound
mind by order of court, (iii) gross dereliction of duty, (iv) commission of any
action involving moral turpitude, or (v) commission of an action which
constitutes intentional misconduct or a knowing violation of law if such action
in either event results both in an improper substantial personal benefit and a
material injury to the Corporation.
ARTICLE VII
LIMITATION OF LIABILITY
-----------------------
A Director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a Director, except for liability (i) for any breach of the Director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional
37
<PAGE>
misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL or
(iv) for any transaction from which the Director derived an improper personal
benefit. If the DGCL is amended after the effective date of this Second Amended
and Restated Certificate of Incorporation to authorize corporate action further
eliminating or limiting the personal liability of Directors, then the liability
of a Director of the Corporation shall be eliminated or limited to the fullest
extent permitted by the DGCL, as so amended.
Any repeal or modification of this Article VII by either of (i) the
stockholders of the Corporation or (ii) an amendment to the DGCL, shall not
adversely affect any right or protection existing at the time of such repeal or
modification with respect to any acts or omissions occurring before such repeal
or modification of a person serving as a Director at the time of such repeal or
modification.
ARTICLE VIII
AMENDMENT OF BY-LAWS
--------------------
1. Amendment by Directors.
----------------------
Except as otherwise provided by law, the By-laws of the Corporation
may be amended or repealed by the Board of Directors by the affirmative vote of
a majority of the Directors then in office.
2. Amendment by Stockholders.
-------------------------
The By-laws of the Corporation may be amended or repealed at any
annual meeting of stockholders, or special meeting of stockholders called for
such purpose, by the affirmative vote of at least two-thirds of the shares
present in person or represented by proxy at such meeting and entitled to vote
on such amendment or repeal, voting together as a single class; provided,
however, that if the Board of Directors recommends that stockholders approve
such amendment or repeal at such meeting of stockholders, such amendment or
repeal shall only require the affirmative vote of a majority of the shares
present in person or represented by proxy at such meeting and entitled to vote
on such amendment or repeal, voting together as a single class.
38
<PAGE>
ARTICLE IX
AMENDMENT OF CERTIFICATE OF INCORPORATION
-----------------------------------------
The Corporation reserves the right to amend or repeal this Second
Amended and Restated Certificate of Incorporation in the manner now or hereafter
prescribed by statute and this Second Amended and Restated Certificate of
Incorporation, and all rights conferred upon stockholders herein are granted
subject to this reservation. No amendment or repeal of this Second Amended and
Restated Certificate of Incorporation shall be made unless the same is first
approved by the Board of Directors pursuant to a resolution adopted by the Board
of Directors in accordance with Section 242 of the DGCL, and, except as
otherwise provided by law, thereafter approved by the stockholders. Whenever any
vote of the holders of voting stock is required to amend or repeal any provision
of this Second Amended and Restated Certificate of Incorporation, and in
addition to any other vote of holders of voting stock that is required by this
Second Amended and Restated Certificate of Incorporation, or by law, the
affirmative vote of a majority of the shares present in person or represented by
proxy at a duly constituted meeting of stockholders called expressly for such
purpose, which shares are entitled to vote on such amendment or repeal, voting
together as a single class, shall be required to amend or repeal any provisions
of this Second Amended and Restated Certificate of Incorporation; provided,
however, that the affirmative vote of not less than 80% of the shares present in
person or represented by proxy at such meeting and entitled to vote on such
amendment or repeal, voting together a single class, shall be required to amend
or repeal any of the provisions of Article V, Article VI, Article VII or Article
IX of this Second Amended and Restated Certificate of Incorporation.
39
<PAGE>
I, Klaus P. Besier, President of the Corporation, for the purpose of
amending and restating the Corporation's Certificate of Incorporation pursuant
to the General Corporation Law of the State of Delaware, do make this
certificate, hereby declaring and certifying that this is my act and deed on
behalf of the Corporation this 20th day of May, 1996.
/s/ Klaus P. Besier
------------------------------------------
Klaus P. Besier, President and CEO
40
<PAGE>
EXHIBIT 3.3A
BUSINESS@WEB, INC.
Certificate of Amendment
of
Certificate of Incorporation
(Changing the name of the corporation to OneWave, Inc.)
Business@Web, Inc., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware, does hereby
certify:
FIRST: That the board of directors of the corporation, by unanimous
written consent pursuant to the applicable provisions of the General Corporation
Law of the State of Delaware, adopted a resolution authorizing a proposed
amendment to the Certificate of Incorporation of the corporation changing the
name of the corporation to "OneWave, Inc." and declared said amendment to be
advisable. The resolution setting forth the proposed amendment is as follows:
RESOLVED, that the Board of Directors of this Corporation does hereby
declare it advisable that effective as of May 20, 1996, that the
Corporation's name be changed to OneWave, Inc. or any other name as
shall be deemed to be advisable by the officers of the Corporation and
that the officers of the Corporation are authorized to take any and
all actions, including the filing of an amendment to the Certificate
of Incorporation, in order to effect such corporate name change.
SECOND: That the holders of the requisite number of outstanding shares of
the capital stock of the corporation entitled to vote thereon have adopted said
amendment by written consent in accordance with Sections 228 and 242 of the
General Corporation Law of the State of Delaware, and that written notice of
such action has been given to those stockholders who have not consented in
writing as provided in Section 228(d) of the General Corporation Law of the
State of Delaware.
THIRD: Pursuant to approval of the Board of Directors and the holders of
the requisite number of shares of the capital stock of the Corporation, the
Second Amended and Restated Certificate of Incorporation shall be amended by
changing Article I to read in its entirety as follows:
"The name of the Corporation is OneWave, Inc."
<PAGE>
IN WITNESS WHEREOF, Business@Web, Inc. has caused this Certificate to be
signed, under penalties of perjury, by Klaus P. Besier, its President, this 7th
day of June 1996.
BUSINESS@WEB, INC.
By: /s/ Klaus P. Besier
------------------------------------
Klaus P. Besier, President and CEO
2
<PAGE>
EXHIBIT 3.4
FORM OF
THIRD AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ONEWAVE, INC.
OneWave, Inc., a corporation organized and existing under the laws of
the State of Delaware (the "Corporation"), hereby certifies as follows:
1. The name of the Corporation is OneWave, Inc. The date of the
filing of its original Certificate of Incorporation with the Secretary of State
of the State of Delaware was January 19, 1994. The name under which the
Corporation filed its original Certificate of Incorporation was Object Power,
Incorporated.
2. This Third Amended and Restated Certificate of Incorporation amends,
restates and integrates the provisions of the Second Amended and Restated
Certificate of Incorporation of the Corporation filed with the Secretary of
State of the State of Delaware on May 20, 1996, as heretofore amended (the
"Certificate of Incorporation"), and was duly adopted by the Board of Directors
of the Corporation in accordance with the provisions of Sections 141(f), 242 and
245 of the General Corporation Law of the State of Delaware (the "DGCL") and was
duly adopted by the written consent of the stockholders of the Corporation, with
written notice thereof having been given to all stockholders of the Corporation
who have not given their written consent, all in accordance with the applicable
provisions of Sections 228, 242 and 245 of the DGCL.
3. The text of the Certificate of Incorporation is hereby amended and
restated in its entirety to provide as herein set forth in full.
ARTICLE I
NAME
----
The name of the Corporation is ONEWAVE, INC.
<PAGE>
ARTICLE II
REGISTERED OFFICE
-----------------
The address of the Corporation's registered office in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle. Its registered agent at such address is The
Corporation Trust Company.
ARTICLE III
PURPOSES
--------
The business or purpose of the Corporation is to engage in any lawful
act or activity for which corporations may be organized under the DGCL.
ARTICLE IV
CAPITAL STOCK
-------------
The total number of shares of capital stock which the Corporation
shall have the authority to issue is Fifty-Five Million (55,000,000) shares of
which (A) Fifty Million (50,000,000) shares shall be Common Stock, par value
$.001 per share (the "Common Stock") and (B) Five Million (5,000,000) shares
shall be preferred stock, $1.00 par value per share (the "Preferred Stock"). As
set forth in this Article IV, the Board of Directors or any authorized committee
thereof is authorized from time to time to establish and designate one or more
series of Preferred Stock, to fix and determine the variations in the relative
rights and preferences as between the different series of Preferred Stock in the
manner hereinafter set forth in this Article IV, and to fix or alter the number
of shares comprising any such series and the designation thereof to the extent
permitted by law.
The number of authorized shares of the class of Preferred Stock may be
increased or decreased (but not below the number of shares outstanding) by the
affirmative vote of the holders of a majority of the Common Stock entitled to
vote, without a vote of the holders of the Preferred Stock, pursuant to the
resolution or resolutions establishing the class of Preferred Stock or this
Third Amended and Restated Certificate of Incorporation, as it may be amended
from time to time.
The powers, preferences, rights, qualifications, limitations and
restrictions granted to or imposed upon the Common Stock and the Preferred Stock
are as follows:
2
<PAGE>
A. COMMON STOCK
------------
1. Voting. Each holder of record shall be entitled to one vote for
------
each share of Common Stock standing in his name on the books of the Corporation.
2. Dividends. Subject to applicable law, the holders of Common Stock
---------
shall be entitled to receive dividends out of funds legally available therefor
at such times and in such amounts as the Board of Directors may determine in its
sole discretion, with each share of Common Stock sharing equally, share for
share, in such dividends.
3. Liquidation. Upon any liquidation, dissolution or winding up of
-----------
the Corporation, whether voluntary or involuntary (a "Liquidation Event"), after
the payment or provision for payment of all debts and liabilities of the
Corporation and all preferential amounts to which the holders of Preferred Stock
are entitled with respect to the distribution of assets in liquidation, the
holders of Common Stock shall be entitled to share ratably in the remaining
assets of the Corporation available for distribution.
4. Notices. In the event that the Corporation provides any notice,
-------
report or statement to any holder of Common Stock, the Corporation shall at the
same time provide a copy of any such notice, report or statement to each holder
of outstanding Common Stock.
B. PREFERRED STOCK.
---------------
1. Issuance. Subject to any limitations prescribed by law or this
--------
Certificate of Incorporation, the Board of Directors of the Corporation or an
authorized committee thereof is expressly authorized to provide for the issuance
of the shares of Preferred Stock in one or more classes or one or more series of
stock within any class, and by filing a certificate pursuant to applicable law
of the State of Delaware, to establish or change from time to time the number of
shares to be included in each such class or series, and to fix the designation,
voting powers, preferences, qualifications, privileges and rights of the shares
of each such class or series and any qualifications, limitations and
restrictions thereof. Any action of the Board of Directors or an authorized
committee thereof under this paragraph B shall require an affirmative vote of a
majority of the Directors then in office or a majority of the members of such
committee. The Board of Directors or an authorized committee thereof shall have
the right to determine or fix one or more of the following with respect to each
class or series of such Preferred Stock to the extent permitted by law:
(a) The distinctive class or serial designation and the number of
shares constituting such class or series;
3
<PAGE>
(b) The dividend rates or the amount of dividends to be paid on
the shares of such class or series, whether dividends shall be cumulative and,
if so, from which date or dates, the payment date or dates for dividends, and
the participating and other rights, if any, with respect to dividends;
(c) The voting powers, full or limited, if any, of the shares of
such class or series;
(d) Whether the shares of such class or series shall be redeemable
and, if so, the price or prices at which, and the terms and conditions on which,
such shares may be redeemed;
(e) The amount or amounts payable upon the shares of such class or
series and any preferences applicable thereto in the event of voluntary or
involuntary liquidation, dissolution or winding up of the Corporation;
(f) Whether the shares of such class or series shall be entitled
to the benefit of a sinking or retirement fund to be applied to the purchase or
redemption of such shares, and if so entitled, the amount of such fund and the
manner of its application, including the price or prices at which such shares
may be redeemed or purchased through the application of such fund;
(g) Whether the shares of such class or series shall be
convertible into, or exchangeable for, shares of any other class or classes or
of any other series of the same or any other class or classes of stock of the
Corporation and, if so convertible or exchangeable, the conversion price or
prices, or the rate or rates of exchange, and the adjustments thereof, if any,
at which such conversion or exchange may be made, and any other terms and
conditions of such conversion or exchange;
(h) The price or other consideration for which the shares of such
class or series shall be issued;
(i) Whether the shares of such class or series which are redeemed
or converted shall have the status of authorized but unissued shares of
Preferred Stock and whether such shares may be reissued as shares of the same or
any other class or series of stock; and
(j) Such other powers, preferences, rights, qualifications,
limitations and restrictions thereof as the Board of Directors of the
Corporation or an authorized committee thereof may deem advisable.
4
<PAGE>
Subject to the authority of the Board of Directors as set forth in
clause (i) above, any shares of Preferred Stock shall, upon reacquisition
thereof by the Corporation, be restored to the status of authorized but unissued
Preferred Stock under this paragraph B.
ARTICLE V
STOCKHOLDER ACTION
------------------
Any action required or permitted to be taken by the stockholders of
the Corporation at any annual or special meeting of stockholders of the
Corporation must be effected at a duly called annual or special meeting of
stockholders and may not be taken or effected by a written consent of
stockholders in lieu thereof.
ARTICLE VI
DIRECTORS
---------
1. General.
-------
The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors except as otherwise provided
herein or required by law.
2. Election of Directors.
---------------------
Election of Directors need not be by written ballot unless the By-laws
of the Corporation shall so provide.
3. Terms of Directors.
------------------
The number of Directors of the Corporation shall be fixed by
resolution duly adopted from time to time by the Board of Directors. The
Directors, other than those who may be elected by the holders of any series of
Preferred Stock of the Corporation, shall be classified, with respect to the
term for which they severally hold office, into three classes, as nearly equal
in number as possible. The initial Class I Directors of the Corporation shall
be Nemirovsky and Subramaniam; the initial Class II Directors of the Corporation
shall be Carnesale and Levy; and the initial Class III Directors of the
Corporation shall be Besier and Diaz. The initial Class I Directors shall serve
for a term expiring at the annual meeting of stockholders to be held in 1997,
the initial Class II Directors shall serve for a term expiring at the annual
meeting of stockholders to be held in 1998, and the initial Class III Directors
shall serve for a
5
<PAGE>
term expiring at the annual meeting of stockholders to be held in 1999. At each
annual meeting of stockholders, the successor or successors of the class of
Directors whose term expires at that meeting (other than Directors elected by
any series of Preferred Stock) shall be elected by a plurality of the votes cast
at such meeting and shall hold office for a term expiring at the annual meeting
of stockholders held in the third year following the year of their election. The
Directors elected to each class (other than Directors elected by any series of
Preferred Stock) shall hold office until their successors are duly elected and
qualified or until their earlier resignation or removal.
Notwithstanding the foregoing, whenever, pursuant to the provisions of
Article IV of this Third Amended and Restated Certificate of Incorporation, the
holders of any one or more series of Preferred Stock shall have the right,
voting separately as a series or together with holders of other such series, to
elect Directors at an annual or special meeting of stockholders, the election,
term of office, filling of vacancies and other features of such directorships
shall be governed by the terms of this Third Amended and Restated Certificate of
Incorporation and any certificate of designations applicable thereto, and such
Directors so elected shall not be divided into classes pursuant to this Section
3.
During any period when the holders of any series of Preferred Stock
have the right to elect additional Directors as provided for or fixed pursuant
to the provisions of Article IV hereof, then upon commencement and for the
duration of the period during which such right continues: (i) the then otherwise
total authorized number of Directors of the Corporation shall automatically be
increased by such specified number of Directors, and the holders of such
Preferred Stock shall be entitled to elect the additional Directors so provided
for or fixed pursuant to said provisions, and (ii) each such additional Director
shall serve until such Director's successor shall have been duly elected and
qualified, or until such Director's right to hold such office terminates
pursuant to said provisions, whichever occurs earlier, subject to such
Director's earlier death, disqualification, resignation or removal. Except as
otherwise provided by the Board in the resolution or resolutions establishing
such series, whenever the holders of any series of Preferred Stock having such
right to elect additional Directors are divested of such right pursuant to the
provisions of such stock, the terms of office of all such additional Directors
elected by the holders of such stock, or elected to fill any vacancies resulting
from the death, resignation, disqualification or removal of such additional
Directors, shall forthwith terminate and the total and authorized number of
Directors of the Corporation shall be reduced accordingly.
4. Vacancies.
---------
Subject to the rights, if any, of the holders of any series of
Preferred Stock to elect Directors and to fill vacancies in the Board of
Directors relating thereto, any and all vacancies in the Board of Directors,
however occurring, including, without limitation, by reason of an
6
<PAGE>
increase in size of the Board of Directors, or the death, resignation,
disqualification or removal of a Director, shall be filled solely by the
affirmative vote of a majority of the remaining Directors then in office, even
if less than a quorum of the Board of Directors. Any Director appointed in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the class of Directors in which the new directorship was
created or the vacancy occurred and until such Director's successor shall have
been duly elected and qualified or until his or her earlier resignation or
removal. Subject to the rights, if any, of the holders of any series of
Preferred Stock to elect Directors, when the number of Directors is increased or
decreased, the Board of Directors shall determine the class or classes to which
the increased or decreased number of Directors shall be apportioned; provided,
however, that no decrease in the number of Directors shall shorten the term of
any incumbent Director. In the event of a vacancy in the Board of Directors,
the remaining Directors, except as otherwise provided by law, may exercise the
powers of the full Board of Directors until the vacancy is filled.
5. Removal.
-------
Subject to the rights, if any, of any series of Preferred Stock to
elect Directors and to remove any Director whom the holders of any such stock
have the right to elect, any Director (including persons elected by Directors to
fill vacancies in the Board of Directors) may be removed from office (i) only
with cause and (ii) only by the affirmative vote of at least two-thirds of the
total votes which would be eligible to be cast by stockholders in the election
of such Director. At least 30 days prior to any meeting of stockholders at
which it is proposed that any Director be removed from office, written notice of
such proposed removal shall be sent to the Director whose removal will be
considered at the meeting. For purposes of this Third Amended and Restated
Certificate of Incorporation, "cause," with respect to the removal of any
Director shall include (i) conviction of a felony, (ii) declaration of unsound
mind by order of court, (iii) gross dereliction of duty, (iv) commission of any
action involving moral turpitude, or (v) commission of an action which
constitutes intentional misconduct or a knowing violation of law if such action
in either event results both in an improper substantial personal benefit and a
material injury to the Corporation.
ARTICLE VII
LIMITATION OF LIABILITY
-----------------------
A Director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a Director, except for liability (i) for any breach of the Director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional
7
<PAGE>
misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL or
(iv) for any transaction from which the Director derived an improper personal
benefit. If the DGCL is amended after the effective date of this Third Amended
and Restated Certificate of Incorporation to authorize corporate action further
eliminating or limiting the personal liability of Directors, then the liability
of a Director of the Corporation shall be eliminated or limited to the fullest
extent permitted by the DGCL, as so amended.
Any repeal or modification of this Article VII by either of (i) the
stockholders of the Corporation or (ii) an amendment to the DGCL, shall not
adversely affect any right or protection existing at the time of such repeal or
modification with respect to any acts or omissions occurring before such repeal
or modification of a person serving as a Director at the time of such repeal or
modification.
ARTICLE VIII
AMENDMENT OF BY-LAWS
--------------------
1. Amendment by Directors.
----------------------
Except as otherwise provided by law, the By-laws of the Corporation
may be amended or repealed by the Board of Directors by the affirmative vote of
a majority of the Directors then in office.
2. Amendment by Stockholders.
-------------------------
The By-laws of the Corporation may be amended or repealed at any
annual meeting of stockholders, or special meeting of stockholders called for
such purpose, by the affirmative vote of at least two-thirds of the shares
present in person or represented by proxy at such meeting and entitled to vote
on such amendment or repeal, voting together as a single class; provided,
however, that if the Board of Directors recommends that stockholders approve
such amendment or repeal at such meeting of stockholders, such amendment or
repeal shall only require the affirmative vote of a majority of the shares
present in person or represented by proxy at such meeting and entitled to vote
on such amendment or repeal, voting together as a single class.
8
<PAGE>
ARTICLE IX
AMENDMENT OF CERTIFICATE OF INCORPORATION
-----------------------------------------
The Corporation reserves the right to amend or repeal this Third
Amended and Restated Certificate of Incorporation in the manner now or hereafter
prescribed by statute and this Third Amended and Restated Certificate of
Incorporation, and all rights conferred upon stockholders herein are granted
subject to this reservation. No amendment or repeal of this Third Amended and
Restated Certificate of Incorporation shall be made unless the same is first
approved by the Board of Directors pursuant to a resolution adopted by the Board
of Directors in accordance with Section 242 of the DGCL, and, except as
otherwise provided by law, thereafter approved by the stockholders. Whenever any
vote of the holders of voting stock is required to amend or repeal any provision
of this Third Amended and Restated Certificate of Incorporation, and in addition
to any other vote of holders of voting stock that is required by this Third
Amended and Restated Certificate of Incorporation, or by law, the affirmative
vote of a majority of the shares present in person or represented by proxy at a
duly constituted meeting of stockholders called expressly for such purpose,
which shares are entitled to vote on such amendment or repeal, voting together
as a single class, shall be required to amend or repeal any provisions of this
Third Amended and Restated Certificate of Incorporation; provided, however, that
the affirmative vote of not less than 80% of the shares present in person or
represented by proxy at such meeting and entitled to vote on such amendment or
such repeal, voting together a single class, shall be required to amend or
repeal any of the provisions of Article V, Article VI, Article VII or Article IX
of this Third Amended and Restated Certificate of Incorporation.
9
<PAGE>
I, Klaus P. Besier, President of the Corporation, for the purpose of
amending and restating the Corporation's Certificate of Incorporation pursuant
to the General Corporation Law of the State of Delaware, do make this
certificate, hereby declaring and certifying that this is my act and deed on
behalf of the Corporation this ___ day of ______________, 1996.
-------------------------------------
Klaus P. Besier, President and CEO
10
<PAGE>
EXHIBIT 3.6
FORM OF
AMENDED AND RESTATED
BY-LAWS
OF
BUSINESS@WEB, INC.
ARTICLE I
---------
Stockholders
------------
SECTION 1. Annual Meeting. The annual meeting of stockholders shall be
--------------
held at the hour, date and place within or without the United States which is
fixed by the majority of the Board of Directors, the Chairman of the Board, if
one is elected, or the President, which time, date and place may subsequently be
changed at any time by vote of the Board of Directors. If no annual meeting has
been held for a period of thirteen months after the Corporation's last annual
meeting of stockholders, a special meeting in lieu thereof may be held, and such
special meeting shall have, for the purposes of these By-Laws or otherwise, all
the force and effect of an annual meeting. Any and all references hereafter in
these By-Laws to an annual meeting or annual meetings also shall be deemed to
refer to any special meeting(s) in lieu thereof.
SECTION 2. Matters to be Considered at Annual Meetings. At any annual
-------------------------------------------
meeting of stockholders or any special meeting in lieu of annual meeting of
stockholders (the "Annual Meeting"), only such business shall be conducted, and
only such proposals shall be acted upon, as shall have been properly brought
before such Annual Meeting. To be considered as properly brought before an
Annual Meeting, business must be: (a) specified in the notice of meeting, (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 any
holder of record (both as of the time notice of such proposal is given by the
stockholder as set forth below and as of the record date for the Annual Meeting
in question) of any shares of capital stock of the Corporation entitled to vote
at such Annual Meeting who complies with the requirements set forth in this
Section 2.
In addition to any other applicable requirements, for business to be
properly brought before an Annual Meeting by a stockholder of record of any
shares of capital stock entitled to vote at such Annual Meeting, such
stockholder shall: (i) give timely notice as required by this Section 2 to the
Secretary of the Corporation and (ii) be present at such meeting, either in
person or by a representative. For the first Annual Meeting following the
initial public offering of common stock of the Corporation, a stockholder's
notice shall be timely if
<PAGE>
delivered to, or mailed to and received by, the Corporation at its principal
executive office not later than the close of business on the later of (A) the
75th day prior to the scheduled date of such Annual Meeting or (B) the 15th day
following the day on which public announcement of the date of such Annual
Meeting is first made by the Corporation. For all subsequent Annual Meetings, a
stockholder's notice shall be timely if delivered to, or mailed to and received
by, the Corporation at its principal executive office not less than 75 days nor
more than 120 days prior to the anniversary date of the immediately preceding
Annual Meeting (the "Anniversary Date"); provided, however, that in the event
the Annual Meeting is scheduled to be held on a date more than 30 days before
the Anniversary Date or more than 60 days after the Anniversary Date, a
stockholder's notice shall be timely if delivered to, or mailed to and received
by, the Corporation at its principal executive office not later than the close
of business on the later of (A) the 75th day prior to the scheduled date of such
Annual Meeting or (B) the 15th day following the day on which public
announcement of the date of such Annual Meeting is first made by the
Corporation.
For purposes of these By-laws, "public announcement" shall mean: (i)
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service, (ii) a report or other document filed
publicly with the Securities and Exchange Commission (including, without
limitation, a Form 8-K), or (iii) a letter or report sent to stockholders of
record of the Corporation at the time of the mailing of such letter or report.
A stockholder's notice to the Secretary shall set forth as to each matter
proposed to be brought before an Annual Meeting: (i) a brief description of the
business the stockholder desires to bring before such Annual Meeting and the
reasons for conducting such business at such Annual Meeting, (ii) the name and
address, as they appear on the Corporation's stock transfer books, of the
stockholder proposing such business, (iii) the class and number of shares of the
Corporation's capital stock beneficially owned by the stockholder proposing such
business, (iv) the names and addresses of the beneficial owners, if any, of any
capital stock of the Corporation registered in such stockholder's name on such
books, and the class and number of shares of the Corporation's capital stock
beneficially owned by such beneficial owners, (v) the names and addresses of
other stockholders known by the stockholder proposing such business to support
such proposal, and the class and number of shares of the Corporation's capital
stock beneficially owned by such other stockholders, and (vi) any material
interest of the stockholder proposing to bring such business before such meeting
(or any other stockholders known to be supporting such proposal) in such
proposal.
If the Board of Directors or a designated committee thereof determines that
any stockholder proposal was not made in a timely fashion in accordance with the
provisions of this Section 2 or that the information provided in a stockholder's
notice does not satisfy the information requirements of this Section 2 in any
material respect, such proposal shall not be presented for action at the Annual
Meeting in question. If neither the Board of Directors nor such committee makes
a determination as to the validity of any stockholder proposal in the
2
<PAGE>
manner set forth above, the presiding officer of the Annual Meeting shall
determine whether the stockholder proposal was made in accordance with the terms
of this Section 2. If the presiding officer determines that any stockholder
proposal was not made in a timely fashion in accordance with the provisions of
this Section 2 or that the information provided in a stockholder's notice does
not satisfy the information requirements of this Section 2 in any material
respect, such proposal shall not be presented for action at the Annual Meeting
in question. If the Board of Directors, a designated committee thereof or the
presiding officer determines that a stockholder proposal was made in accordance
with the requirements of this Section 2, the presiding officer shall so declare
at the Annual Meeting and ballots shall be provided for use at the meeting with
respect to such proposal.
Notwithstanding the foregoing provisions of this By-Law, a stockholder
shall also comply with all applicable requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and the rules and regulations
thereunder with respect to the matters set forth in this By-Law, and nothing in
this By-Law shall be deemed to affect any rights of stockholders to request
inclusion of proposals in the Corporation's proxy statement pursuant to Rule
14a-8 under the Exchange Act.
SECTION 3. Special Meetings. Except as otherwise required by law and
----------------
subject to the rights, if any, of the holders of any series of Preferred Stock
of the Corporation, special meetings of the stockholders of the Corporation may
be called only by the Board of Directors pursuant to a resolution approved by
the affirmative vote of a majority of the Directors then in office.
SECTION 4. Matters to be Considered at Special Meetings. Only those
--------------------------------------------
matters set forth in the notice of the special meeting may be considered or
acted upon at a special meeting of stockholders of the Corporation, unless
otherwise provided by law.
SECTION 5. Notice of Meetings; Adjournments. A written notice of all
--------------------------------
Annual Meetings stating the hour, date and place of such Annual Meetings shall
be given by the Secretary or an Assistant Secretary (or other person authorized
by these By-Laws or by law) not less than 10 days nor more than 60 days before
the Annual Meeting, to each stockholder entitled to vote thereat and to each
stockholder who, by law or under the Second Amended and Restated Certificate of
Incorporation of the Corporation (as the same may hereafter be amended and/or
restated, the "Certificate") or under these By-Laws, is entitled to such notice,
by delivering such notice to him or by mailing it, postage prepaid, addressed to
such stockholder at the address of such stockholder as it appears on the
Corporation's stock transfer books. Such notice shall be deemed to be delivered
when hand delivered to such address or deposited in the mail so addressed, with
postage prepaid.
Notice of all special meetings of stockholders shall be given in the same
manner as provided for Annual Meetings, except that the written notice of all
special meetings shall state the purpose or purposes for which the meeting has
been called.
3
<PAGE>
Notice of an Annual Meeting or special meeting of stockholders need not be
given to a stockholder if a written waiver of notice is signed before or after
such meeting by such stockholder or if such stockholder attends such meeting,
unless such attendance was for the express purpose of objecting at the beginning
of the meeting to the transaction of any business because the meeting was not
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any Annual Meeting or special meeting of stockholders need be
specified in any written waiver of notice.
The Board of Directors may postpone and reschedule any previously scheduled
Annual Meeting or special meeting of stockholders and any record date with
respect thereto, regardless of whether any notice or public disclosure with
respect to any such meeting has been sent or made pursuant to Section 2 of this
Article I or Section 3 of Article II hereof or otherwise. In no event shall
the public announcement of an adjournment, postponement or rescheduling of any
previously scheduled meeting of stockholders commence a new time period for the
giving of a stockholder's notice under Section 2 of Article I and Section 3 of
Article II of these By-laws.
When any meeting is convened, the presiding officer may adjourn the meeting
if (a) no quorum is present for the transaction of business, (b) the Board of
Directors determines that adjournment is necessary or appropriate to enable the
stockholders to consider fully information which the Board of Directors
determines has not been made sufficiently or timely available to stockholders,
or (c) the Board of Directors determines that adjournment is otherwise in the
best interests of the Corporation. When any Annual Meeting or special meeting
of stockholders is adjourned to another hour, date or place, notice need not be
given of the adjourned meeting other than an announcement at the meeting at
which the adjournment is taken of the hour, date and place to which the meeting
is adjourned; provided, however, that if the adjournment is for more than 30
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote thereat and each stockholder who, by law or under the
Certificate or these By-Laws, is entitled to such notice.
SECTION 6. Quorum. The holders of shares representing a majority of the
------
shares of voting stock issued, outstanding and entitled to vote at a meeting of
stockholders, represented in person or by proxy at such meeting, shall
constitute a quorum; but if less than a quorum is present at a meeting, the
holders of voting stock representing a majority of the voting power present at
the meeting or the presiding officer may adjourn the meeting from time to time,
and the meeting may be held as adjourned without further notice, except as
provided in Section 5 of this Article I. At such adjourned meeting at which a
quorum is present, any business may be transacted which might have been
transacted at the meeting as originally noticed. The stockholders present at a
duly constituted meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum.
4
<PAGE>
SECTION 7. Voting and Proxies. Stockholders shall have one vote for each
------------------
share of stock entitled to vote owned by them of record according to the books
of the Corporation, unless otherwise provided by law or by the Certificate.
Stockholders may vote either in person or by written proxy, but no proxy shall
be voted or acted upon after three years from its date, unless the proxy
provides for a longer period. Proxies shall be filed with the Secretary of the
meeting before being voted. Except as otherwise limited therein or as otherwise
provided by law, proxies shall entitle the persons authorized thereby to vote at
any adjournment of such meeting, but they shall not be valid after final
adjournment of such meeting. A proxy with respect to stock held in the name of
two or more persons shall be valid if executed by or on behalf of any one of
them unless at or prior to the exercise of the proxy the Corporation receives a
specific written notice to the contrary from any one of them. A proxy
purporting to be executed by or on behalf of a stockholder shall be deemed
valid, and the burden of proving invalidity shall rest on the challenger.
SECTION 8. Action at Meeting. When a quorum is present, any matter before
-----------------
any meeting of stockholders shall be decided by the affirmative vote of the
majority of shares of voting stock, present in person or represented by proxy at
such meeting and entitled to vote on such matter, except where a larger vote is
required by law, by the Certificate or by these By-Laws. Any election by
stockholders shall be determined 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, except where a larger vote is required by law, by the
Certificate or by these By-Laws. The Corporation shall not directly or
indirectly vote any shares of its own stock; provided, however, that the
Corporation may vote shares which it holds in a fiduciary capacity to the extent
permitted by law.
SECTION 9. Stockholder Lists. The Secretary or an Assistant Secretary (or
-----------------
the Corporation's transfer agent or other person authorized by these By-Laws or
by law) shall prepare and make, at least 10 days before every Annual Meeting or
special meeting of stockholders, a complete list of the stockholders entitled to
vote at the meeting, arranged in alphabetical order, and 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 10 days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or, if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the hour, date and place of
the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
SECTION 10. Presiding Officer. The Chairman of the Board, if one is
-----------------
elected, or if not elected or in his or her absence, the President, shall
preside at all Annual Meetings or special meetings of stockholders and shall
have the power, among other things, to adjourn such meeting at any time and from
time to time, subject to Sections 5 and 6 of this Article I.
5
<PAGE>
The order of business and all other matters of procedure at any meeting of the
stockholders shall be determined by the presiding officer.
SECTION 11. Voting Procedures and Inspectors of Elections. The
---------------------------------------------
Corporation shall, in advance of any meeting of stockholders, appoint one or
more inspectors to act at the meeting and make a written report thereof. The
Corporation may designate one or more persons as alternate inspectors to replace
any inspector who fails to act. If no inspector or alternate is able to act at
a meeting of stockholders, the presiding officer shall appoint one or more
inspectors to act at the meeting. Any inspector may, but need not, be an
officer, employee or agent of the Corporation. Each inspector, before entering
upon the discharge of his or her duties, shall take and sign an oath faithfully
to execute the duties of inspector with strict impartiality and according to the
best of his or her ability. The inspectors shall perform such duties as are
required by the General Corporation Law of the State of Delaware, as amended
from time to time (the "DGCL"), including the counting of all votes and ballots.
The inspectors may appoint or retain other persons or entities to assist the
inspectors in the performance of the duties of the inspectors. The presiding
officer may review all determinations made by the inspector(s), and in so doing
the presiding officer shall be entitled to exercise his or her sole judgment and
discretion and he or she shall not be bound by any determinations made by the
inspector(s). All determinations by the inspector(s) and, if applicable, the
presiding officer shall be subject to further review by any court of competent
jurisdiction.
ARTICLE II
----------
Directors
---------
SECTION 1. Powers. The business and affairs of the Corporation shall be
------
managed by or under the direction of the Board of Directors except as otherwise
provided by the Certificate or required by law.
SECTION 2. Number and Terms. The number of Directors of the Corporation
----------------
shall be fixed by resolution duly adopted from time to time by the Board of
Directors. The Directors shall hold office in the manner provided in the
Certificate.
SECTION 3. Director Nominations. Nominations of candidates for election
--------------------
as directors of the Corporation at any Annual Meeting may be made only (a) by,
or at the direction of, a majority of the Board of Directors or (b) by any
holder of record (both as of the time notice of such nomination is given by the
stockholder as set forth below and as of the record date for the Annual Meeting
in question) of any shares of the capital stock of the Corporation entitled to
vote at such Annual Meeting who complies with the timing, informational and
other requirements set forth in this Section 3. Any stockholder who has
complied with the timing, informational and other requirements set forth in this
Section 3 and
6
<PAGE>
who seeks to make such a nomination, or his, her or its representative, must be
present in person at the Annual Meeting. Only persons nominated in accordance
with the procedures set forth in this Section 3 shall be eligible for election
as directors at an Annual Meeting.
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 as set forth in this Section 3. For the first Annual Meeting
following the initial public offering of common stock of the Corporation, a
stockholder's notice shall be timely if delivered to, or mailed to and received
by, the Corporation at its principal executive office not later than the close
of business on the later of (A) the 75th day prior to the scheduled date of such
Annual Meeting or (B) the 15th day following the day on which public
announcement of the date of such Annual Meeting is first made by the
Corporation. For all subsequent Annual Meetings, a stockholder's notice shall
be timely if delivered to, or mailed to and received by, the Corporation at its
principal executive office not less than 75 days nor more than 120 days prior to
the Anniversary Date; provided, however, that in the event the Annual Meeting is
scheduled to be held on a date more than 30 days before the Anniversary Date or
more than 60 days after the Anniversary Date, a stockholder's notice shall be
timely if delivered to, or mailed and received by, the Corporation at its
principal executive office not later than the close of business on the later of
(i) the 75th day prior to the scheduled date of such Annual Meeting or (ii) the
15th day following the day on which public announcement of the date of such
Annual Meeting is first made by the Corporation.
A stockholder's notice to the Secretary shall set forth as to each person
whom the stockholder proposes to nominate for election or re-election as a
director: (i) the name, age, business address and residence address of such
person, (ii) the principal occupation or employment of such person, (iii) the
class and number of shares of the Corporation's capital stock which are
beneficially owned by such person on the date of such stockholder notice, and
(iv) the consent of each nominee to serve as a director if elected. A
stockholder's notice to the Secretary shall further set forth as to the
stockholder giving such notice: (i) the name and address, as they appear on the
Corporation's stock transfer books, of such stockholder and of the beneficial
owners (if any) of the Corporation's capital stock registered in such
stockholder's name and the name and address of other stockholders known by such
stockholder to be supporting such nominee(s), (ii) the class and number of
shares of the Corporation's capital stock which are held of record, beneficially
owned or represented by proxy by such stockholder and by any other stockholders
known by such stockholder to be supporting such nominee(s) on the record date
for the Annual Meeting in question (if such date shall then have been made
publicly available) and on the date of such stockholder's notice, and (iii) a
description of all arrangements or understandings between such stockholder and
each nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by such
stockholder.
If the Board of Directors or a designated committee thereof determines that
any stockholder nomination was not made in accordance with the terms of this
Section 3 or that the
7
<PAGE>
information provided in a stockholder's notice does not satisfy the
informational requirements of this Section 3 in any material respect, then such
nomination shall not be considered at the Annual Meeting in question. If
neither the Board of Directors nor such committee makes a determination as to
whether a nomination was made in accordance with the provisions of this Section
3, the presiding officer of the Annual Meeting shall determine whether a
nomination was made in accordance with such provisions. If the presiding
officer determines that any stockholder nomination was not made in accordance
with the terms of this Section 3 or that the information provided in a
stockholder's notice does not satisfy the informational requirements of this
Section 3 in any material respect, then such nomination shall not be considered
at the Annual Meeting in question. If the Board of Directors, a designated
committee thereof or the presiding officer determines that a nomination was made
in accordance with the terms of this Section 3, the presiding officer shall so
declare at the Annual Meeting and ballots shall be provided for use at the
meeting with respect to such nominee.
Notwithstanding anything to the contrary in the second sentence of the
second paragraph of this Section 3, 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 by the Corporation naming all of the nominees for
director or specifying the size of the increased Board of Directors at least 75
days prior to the Anniversary Date, a stockholder's notice required by this
Section 3 shall also be considered timely, but only with respect to nominees for
any new positions created by such increase, if such notice shall be delivered
to, or mailed to and received by, the Corporation at its principal executive
office not later than the close of business on the 15th day following the day on
which such public announcement is first made by the Corporation.
No person shall be elected by the stockholders as a Director of the
Corporation unless nominated in accordance with the procedures set forth in this
Section. Election of Directors at the annual meeting need not be by written
ballot, unless otherwise provided by the Board of Directors or presiding officer
at such annual meeting. If written ballots are to be used, ballots bearing the
names of all the persons who have been nominated for election as Directors at
the annual meeting in accordance with the procedures set forth in this Section
shall be provided for use at the annual meeting.
SECTION 4. Qualification. No Director need be a stockholder of the
-------------
Corporation.
SECTION 5. Vacancies. Subject to the rights, if any, of the holders of
---------
any series of Preferred Stock of the Corporation to elect Directors and to fill
vacancies in the Board of Directors relating thereto, any and all vacancies in
the Board of Directors, however occurring, including, without limitation, by
reason of an increase in size of the Board of Directors, or the death,
resignation, disqualification or removal of a Director, shall be filled solely
by the affirmative vote of a majority of the remaining Directors then in office,
even if less than a quorum of the Board of Directors. Any Director appointed in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the class of Directors in which
8
<PAGE>
the new directorship was created or the vacancy occurred and until such
Director's successor shall have been duly elected and qualified or until his or
her earlier resignation or removal. Subject to the rights, if any, of the
holders of any series of Preferred Stock of the Corporation to elect Directors,
when the number of Directors is increased or decreased, the Board of Directors
shall determine the class or classes to which the increased or decreased number
of Directors shall be apportioned; provided, however, that no decrease in the
number of Directors shall shorten the term of any incumbent Director. In the
event of a vacancy in the Board of Directors, the remaining Directors, except as
otherwise provided by law, may exercise the powers of the full Board of
Directors until the vacancy is filled.
SECTION 6. Removal. Directors may be removed from office in the manner
-------
provided in the Certificate.
SECTION 7. Resignation. A Director may resign at any time by giving
-----------
written notice to the Chairman of the Board, if one is elected, the President or
the Secretary. A resignation shall be effective upon receipt, unless the
resignation otherwise provides.
SECTION 8. Regular Meetings. The regular annual meeting of the Board of
----------------
Directors shall be held, without notice other than this By-Law, on the same date
and at the same place as the Annual Meeting following the close of such meeting
of stockholders. Other regular meetings of the Board of Directors may be held
at such hour, date and place as the Board of Directors may by resolution from
time to time determine without notice other than such resolution.
SECTION 9. Special Meetings. Special meetings of the Board of Directors
----------------
may be called, orally or in writing, by or at the request of a majority of the
Directors, the Chairman of the Board, if one is elected, or the President. The
person calling any such special meeting of the Board of Directors may fix the
hour, date and place thereof.
SECTION 10. Notice of Meetings. Notice of the hour, date and place of all
------------------
special meetings of the Board of Directors shall be given to each Director by
the Secretary or an Assistant Secretary, or in case of the death, absence,
incapacity or refusal of such persons, by the Chairman of the Board, if one is
elected, or the President or such other officer designated by the Chairman of
the Board, if one is elected, or the President. Notice of any special meeting
of the Board of Directors shall be given to each Director in person, by
telephone, or by telex, telecopy, telegram, or other written form of electronic
communication, sent to his or her business or home address, at least 24 hours in
advance of the meeting, or by written notice mailed to his or her business or
home address, at least 48 hours in advance of the meeting. Such notice shall be
deemed to be delivered when hand delivered to such address, read to such
Director by telephone, deposited in the mail so addressed, with postage thereon
prepaid if mailed, dispatched or transmitted if telexed or telecopied, or when
delivered to the telegraph company if sent by telegram.
9
<PAGE>
When any Board of Directors meeting, either regular or special, is
adjourned for 30 days or more, notice of the adjourned meeting shall be given as
in the case of an original meeting. It shall not be necessary to give any
notice of the hour, date or place of any meeting adjourned for less than 30 days
or of the business to be transacted thereat, other than an announcement at the
meeting at which such adjournment is taken of the hour, date and place to which
the meeting is adjourned.
A written waiver of notice signed before or after a meeting by a Director
and filed with the records of the meeting shall be deemed to be equivalent to
notice of the meeting. The attendance of a Director at a meeting shall
constitute a waiver of notice of such meeting, except where a Director attends a
meeting for the express purpose of objecting at the beginning of the meeting to
the transaction of any business because such meeting is not lawfully called or
convened. Except as otherwise required by law, by the Certificate or by these
By-Laws, neither the business to be transacted at, nor the purpose of, any
meeting of the Board of Directors need be specified in the notice or waiver of
notice of such meeting.
SECTION 11. Quorum. At any meeting of the Board of Directors, a majority
------
of the Directors then in office shall constitute a quorum for the transaction of
business, but if less than a quorum is present at a meeting, a majority of the
Directors present may adjourn the meeting from time to time, and the meeting may
be held as adjourned without further notice, except as provided in Section 10 of
this Article II. Any business which might have been transacted at the meeting
as originally noticed may be transacted at such adjourned meeting at which a
quorum is present.
SECTION 12. Action at Meeting. At any meeting of the Board of Directors
-----------------
at which a quorum is present, a majority of the Directors present may take any
action on behalf of the Board of Directors, unless otherwise required by law, by
the Certificate or by these By-Laws.
SECTION 13. Action by Consent. Any action required or permitted to be
-----------------
taken at any meeting of the Board of Directors may be taken without a meeting if
all members of the Board of Directors consent thereto in writing. Such written
consent shall be filed with the records of the meetings of the Board of
Directors and shall be treated for all purposes as a vote at a meeting of the
Board of Directors.
SECTION 14. Manner of Participation. Directors may participate in
-----------------------
meetings of the Board of Directors by means of conference telephone or similar
communications equipment by means of which all Directors participating in the
meeting can hear each other, and participation in a meeting in accordance
herewith shall constitute presence in person at such meeting for purposes of
these By-Laws.
SECTION 15. Committees. The Board of Directors, by vote of a majority of
----------
the Directors then in office, may elect from its number one or more committees,
including, without limitation, an Executive Committee, a Compensation Committee,
and an Audit
10
<PAGE>
Committee, and may delegate thereto some or all of its powers except those which
by law, by the Certificate or by these By-Laws may not be delegated. Except as
the Board of Directors may otherwise determine, any such committee may make
rules for the conduct of its business, but unless otherwise provided by the
Board of Directors or in such rules, its business shall be conducted so far as
possible in the same manner as is provided by these By-Laws for the Board of
Directors. All members of such committees shall hold such offices at the
pleasure of the Board of Directors. The Board of Directors may abolish any such
committee at any time. Any committee to which the Board of Directors delegates
any of its powers or duties shall keep records of its meetings and shall report
its action to the Board of Directors. The Board of Directors shall have power
to rescind any action of any committee, to the extent permitted by law, but no
such rescission shall have retroactive effect.
SECTION 16. Compensation of Directors. Directors shall receive such
-------------------------
compensation for their services as shall be determined by a majority of the
Board of Directors provided that Directors who are serving the Corporation as
employees and who receive compensation for their services as such, shall not
receive any salary or other compensation for their services as Directors of the
Corporation.
ARTICLE III
-----------
Officers
--------
SECTION 1. Enumeration. The officers of the Corporation shall consist of
-----------
a President, a Treasurer, a Secretary and such other officers, including,
without limitation, a Chairman of the Board of Directors and one or more Vice
Presidents (including Executive Vice Presidents or Senior Vice Presidents),
Assistant Vice Presidents, Assistant Treasurers and Assistant Secretaries, as
the Board of Directors may determine.
SECTION 2. Election. At the regular annual meeting of the Board following
--------
the annual meeting of stockholders, the Board of Directors shall elect the
President, the Treasurer and the Secretary. Other officers may be elected by
the Board of Directors at such regular annual meeting of the Board of Directors
or at any other regular or special meeting.
SECTION 3. Qualification. No officer need be a stockholder or a Director.
-------------
Any person may occupy more than one office of the Corporation at any time. Any
officer may be required by the Board of Directors to give bond for the faithful
performance of his or her duties in such amount and with such sureties as the
Board of Directors may determine.
11
<PAGE>
SECTION 4. Tenure. Except as otherwise provided by the Certificate or by
------
these By-Laws, each of the officers of the Corporation shall hold office until
the regular annual meeting of the Board of Directors following the next annual
meeting of stockholders and until his or her successor is elected and qualified
or until his or her earlier resignation or removal.
SECTION 5. Resignation. Any officer may resign by delivering his or her
-----------
written resignation to the Corporation addressed to the President or the
Secretary, and such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some other
event.
SECTION 6. Removal. Except as otherwise provided by law, the Board of
-------
Directors may remove any officer with or without cause by the affirmative vote
of a majority of the Directors then in office.
SECTION 7. Absence or Disability. In the event of the absence or
---------------------
disability of any officer, the Board of Directors may designate another officer
to act temporarily in place of such absent or disabled officer.
SECTION 8. Vacancies. Any vacancy in any office may be filled for the
---------
unexpired portion of the term by the Board of Directors.
SECTION 9. President. Unless otherwise provided by the Board of Directors
---------
or the Certificate, the President shall be the Chief Executive Officer of the
Corporation and shall, subject to the direction of the Board of Directors, have
general supervision and control of the Corporation's business. If there is no
Chairman of the Board or if he or she is absent, the President shall preside,
when present, at all meetings of stockholders and of the Board of Directors.
The President shall have such other powers and perform such other duties as the
Board of Directors may from time to time designate.
SECTION 10. Chairman of the Board. The Chairman of the Board, if one is
---------------------
elected, shall preside, when present, at all meetings of the stockholders and of
the Board of Directors. The Chairman of the Board shall have such other powers
and shall perform such other duties as the Board of Directors may from time to
time designate.
SECTION 11. Vice Presidents and Assistant Vice Presidents. Any Vice
---------------------------------------------
President (including any Executive Vice President or Senior Vice President) and
any Assistant Vice President shall have such powers and shall perform such
duties as the Board of Directors or the Chief Executive Officer may from time to
time designate.
SECTION 12. Treasurer and Assistant Treasurers. The Treasurer shall,
----------------------------------
subject to the direction of the Board of Directors and except as the Board of
Directors or the Chief Executive Officer may otherwise provide, have general
charge of the financial affairs of the Corporation and shall cause to be kept
accurate books of account. The Treasurer shall have
12
<PAGE>
custody of all funds, securities, and valuable documents of the Corporation. He
or she shall have such other duties and powers as may be designated from time to
time by the Board of Directors or the Chief Executive Officer.
Any Assistant Treasurer shall have such powers and perform such duties as
the Board of Directors or the Chief Executive Officer may from time to time
designate.
SECTION 13. Secretary and Assistant Secretaries. The Secretary shall
-----------------------------------
record all the proceedings of the meetings of the stockholders and the Board of
Directors (including committees of the Board) in books kept for that purpose.
In his or her absence from any such meeting, a temporary secretary chosen at the
meeting shall record the proceedings thereof. The Secretary shall have charge of
the stock ledger (which may, however, be kept by any transfer or other agent of
the Corporation). The Secretary shall have custody of the seal of the
Corporation, and the Secretary, or an Assistant Secretary, shall have authority
to affix it to any instrument requiring it, and, when so affixed, the seal may
be attested by his or her signature or that of an Assistant Secretary. The
Secretary shall have such other duties and powers as may be designated from time
to time by the Board of Directors or the Chief Executive Officer. In the
absence of the Secretary, any Assistant Secretary may perform his or her duties
and responsibilities.
Any Assistant Secretary shall have such powers and perform such duties as
the Board of Directors or the Chief Executive Officer may from time to time
designate.
SECTION 14. Other Powers and Duties. Subject to these By-Laws and to such
-----------------------
limitations as the Board of Directors may from time to time prescribe, the
officers of the Corporation shall each have such powers and duties as generally
pertain to their respective offices, as well as such powers and duties as from
time to time may be conferred by the Board of Directors or the Chief Executive
Officer.
ARTICLE IV
----------
Capital Stock
-------------
SECTION 1. Certificates of Stock. Each stockholder shall be entitled to a
---------------------
certificate of the capital stock of the Corporation in such form as may from
time to time be prescribed by the Board of Directors. Such certificate shall be
signed by the Chairman of the Board of Directors, the President or a Vice
President and by the Treasurer or an Assistant Treasurer, or the Secretary or an
Assistant Secretary. The Corporation seal and the signatures by Corporation
officers, the transfer agent or the registrar may be facsimiles. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed on such certificate shall have ceased to be such officer,
transfer agent or registrar before such certificate is issued, it may be issued
by the Corporation with the same effect as if he or she
13
<PAGE>
were such officer, transfer agent or registrar at the time of its issue. Every
certificate for shares of stock which are subject to any restriction on transfer
and every certificate issued when the Corporation is authorized to issue more
than one class or series of stock shall contain such legend with respect thereto
as is required by law.
SECTION 2. Transfers. Subject to any restrictions on transfer and unless
---------
otherwise provided by the Board of Directors, shares of stock may be transferred
only on the books of the Corporation by the surrender to the Corporation or its
transfer agent of the certificate theretofore properly endorsed or accompanied
by a written assignment or power of attorney properly executed, with transfer
stamps (if necessary) affixed, and with such proof of the authenticity of
signature as the Corporation or its transfer agent may reasonably require.
SECTION 3. Record Holders. Except as may otherwise be required by law, by
--------------
the Certificate or by these By-Laws, the Corporation shall be entitled to treat
the record holder of stock as shown on its books as the owner of such stock for
all purposes, including the payment of dividends and the right to vote with
respect thereto, regardless of any transfer, pledge or other disposition of such
stock, until the shares have been transferred on the books of the Corporation in
accordance with the requirements of these By-Laws.
It shall be the duty of each stockholder to notify the Corporation of his
or her post office address and any changes thereto.
SECTION 4. Record Date. 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 or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix 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: (1) in the case of
determination of stockholders entitled to vote at any meeting of stockholders,
shall, unless otherwise required by law, not be more than sixty nor less than
ten days before the date of such meeting and (2) in the case of any other
action, shall not be more than sixty days prior to such other action. If no
record date is fixed: (1) 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 and (2) the record date for determining stockholders
for any other purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto.
SECTION 5. Replacement of Certificates. In case of the alleged loss,
---------------------------
destruction or mutilation of a certificate of stock, a duplicate certificate may
be issued in place thereof, upon such terms as the Board of Directors may
prescribe.
14
<PAGE>
ARTICLE V
---------
Indemnification
---------------
SECTION 1. Definitions. For purposes of this Article:
-----------
(a) "Director" means any person who serves or has served the Corporation as
a director on the Board of Directors of the Corporation.
(b) "Officer" means any person who serves or has served the Corporation as
an officer appointed by the Board of Directors of the Corporation;
(c) "Non-Officer Employee" means any person who serves or has served as an
employee of the Corporation, but who is not or was not a Director or
Officer;
(d) "Proceeding" means any threatened, pending or completed action, suit,
arbitration, alternate dispute resolution mechanism, inquiry,
investigation, administrative hearing or other proceeding, whether civil,
criminal, administrative, arbitrative or investigative;
(e) "Expenses" means all reasonable attorneys' fees, retainers, court
costs, transcript costs, fees of expert witnesses, private investigators
and professional advisors (including, without limitation, accountants and
investment bankers), travel expenses, duplicating costs, printing and
binding costs, costs of preparation of demonstrative evidence and other
courtroom presentation aids and devices, costs incurred in connection with
document review, organization, imaging and computerization, telephone
charges, postage, delivery service fees, and all other disbursements, costs
or expenses of the type customarily incurred in connection with
prosecuting, defending, preparing to prosecute or defend, investigating,
being or preparing to be a witness in, settling or otherwise participating
in, a Proceeding;
(f) "Corporate Status" describes the status of a person who (i) in the case
of a Director, is or was a director of the Corporation and is or was acting
in such capacity, (ii) in the case of an Officer, is or was an officer,
employee or agent of the Corporation or is or was a director, officer,
employee or agent of any other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise which such Officer is or
was serving at the request of the Corporation, and (iii) in the case of a
Non-Officer Employee, is or was an employee of the Corporation or is or was
a director, officer, employee or agent of any other corporation,
partnership, joint venture, trust, employee benefit plan or other
enterprise which such Non-Officer Employee is or was serving at the request
of the Corporation; and
15
<PAGE>
(g) "Disinterested Director" means, with respect to each Proceeding in
respect of which indemnification is sought hereunder, a Director of the
Corporation who is not and was not a party to such Proceeding.
SECTION 2. Indemnification of Directors and Officers. Subject to the
-----------------------------------------
operation of Section 4 of this Article V, each Director and Officer shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the DGCL, as the same exists or may hereafter be amended (but, in
the case of any such amendment, only to the extent that such amendment permits
the Corporation to provide broader indemnification rights than such law
permitted the Corporation to provide prior to such amendment) against any and
all Expenses, judgments, penalties, fines and amounts reasonably paid in
settlement that are incurred by such Director or Officer or on such Director or
Officer's behalf in connection with any threatened, pending or completed
Proceeding or any claim, issue or matter therein, which such Director or Officer
is, or is threatened to be made, a party to or participant in by reason of such
Director or Officer's Corporate Status, if such Director or Officer acted in
good faith and in a manner such Director or Officer reasonably believed to be in
or not opposed to the best interests of the Corporation and, with respect to any
criminal proceeding, had no reasonable cause to believe his or her conduct was
unlawful. The rights of indemnification provided by this Section 2 shall
continue as to a Director or Officer after he or she has ceased to be a Director
or Officer and shall inure to the benefit of his or her heirs, executors,
administrators and personal representatives. Notwithstanding the foregoing, the
Corporation shall indemnify any Director or Officer seeking indemnification in
connection with a Proceeding initiated by such Director or Officer only if such
Proceeding was authorized by the Board of Directors of the Corporation.
SECTION 3. Indemnification of Non-Officer Employees. Subject to the
----------------------------------------
operation of Section 4 of this Article V, each Non-Officer Employee may, in the
discretion of the Board of Directors of the Corporation, be indemnified by the
Corporation to the fullest extent authorized by the DGCL, as the same exists or
may hereafter be amended, against any or all Expenses, judgments, penalties,
fines and amounts reasonably paid in settlement that are incurred by such Non-
Officer Employee or on such Non-Officer Employee's behalf in connection with any
threatened, pending or completed Proceeding, or any claim, issue or matter
therein, which such Non-Officer Employee is, or is threatened to be made, a
party to or participant in by reason of such Non-Officer Employee's Corporate
Status, if such Non-Officer Employee acted in good faith and in a manner such
Non-Officer Employee reasonably believed to be in or not opposed to the best
interests of the Corporation and, with respect to any criminal proceeding, had
no reasonable cause to believe his or her conduct was unlawful. The rights of
indemnification provided by this Section 3 shall continue as to a Non-Officer
Employee after he or she has ceased to be a Non-Officer Employee and shall inure
to the benefit of his or her heirs, personal representatives, executors and
administrators. Notwithstanding the foregoing, the Corporation may indemnify any
Non-Officer Employee seeking indemnification in connection with a Proceeding
initiated by such Non-Officer
16
<PAGE>
Employee only if such Proceeding was authorized by the Board of Directors of the
Corporation.
SECTION 4. Good Faith. Unless ordered by a court, no indemnification
----------
shall be provided pursuant to this Article V to a Director, to an Officer or to
a Non-Officer Employee unless a determination shall have been made that such
person acted in good faith and in a manner such person reasonably believed to be
in or not opposed to the best interests of the Corporation and, with respect to
any criminal Proceeding, such person had no reasonable cause to believe his or
her conduct was unlawful. Such determination shall be made by (a) a majority
vote of the Disinterested Directors, even though less than a quorum of the Board
of Directors, (b) if there are no such Disinterested Directors, or if a majority
of Disinterested Directors so direct, by independent legal counsel in a written
opinion, or (c) by the stockholders of the Corporation.
SECTION 5. Advancement of Expenses to Directors Prior to Final
---------------------------------------------------
Disposition. The Corporation shall advance all Expenses incurred by or on behalf
of any Director in connection with any Proceeding in which such Director is
involved by reason of such Director's Corporate Status within ten days after the
receipt by the Corporation of a written statement from such Director requesting
such advance or advances from time to time, whether prior to or after final
disposition of such Proceeding. Such statement or statements shall reasonably
evidence the Expenses incurred by such Director and shall be preceded or
accompanied by an undertaking by or on behalf of such Director to repay any
Expenses so advanced if it shall ultimately be determined that such Director is
not entitled to be indemnified against such Expenses.
SECTION 6. Advancement of Expenses to Officers and Non-Officer Employees
-------------------------------------------------------------
Prior to Final Disposition. The Corporation may, in the discretion of the Board
- --------------------------
of Directors of the Corporation, advance any or all Expenses incurred by or on
behalf of any Officer or Non-Officer Employee in connection with any Proceeding
in which such Officer or Non-Officer Employee is involved by reason of such
Officer or Non-Officer Employee's Corporate Status upon the receipt by the
Corporation of a statement or statements from such Officer or Non-Officer
Employee requesting such advance or advances from time to time, whether prior to
or after final disposition of such Proceeding. Such statement or statements
shall reasonably evidence the Expenses incurred by such Officer or Non-Officer
Employee and shall be preceded or accompanied by an undertaking by or on behalf
of such Officer or Non-Officer Employee to repay any Expenses so advanced if it
shall ultimately be determined that such Officer or Non-Officer Employee is not
entitled to be indemnified against such Expenses.
SECTION 7. Contractual Nature of Rights. The foregoing provisions of this
----------------------------
Article V shall be deemed to be a contract between the Corporation and each
Director, Officer and Non-Officer Employee who serves in such capacity at any
time while this Article V is in effect, and any repeal or modification thereof
shall not affect any rights or obligations then existing with respect to any
state of facts then or theretofore existing or any Proceeding
17
<PAGE>
theretofore or thereafter brought based in whole or in part upon any such state
of facts. If a claim for indemnification or advancement of Expenses hereunder
by a Director or Officer is not paid in full by the Corporation within (a) 60
days after the Corporation's receipt of a written claim for indemnification, or
(b) in the case of a Director, 10 days after the Corporation's receipt of
documentation of Expenses and the required undertaking, such Director or Officer
may at any time thereafter bring suit against the Corporation to recover the
unpaid amount of the claim, and if successful in whole or in part, such Director
or Officer shall also be entitled to be paid the expenses of prosecuting such
claim. The failure of the Corporation (including its Board of Directors or any
committee thereof, independent legal counsel, or stockholders) to make a
determination concerning the permissibility of such indemnification or
advancement of Expenses (in the case of a Director) under this Article V shall
not be a defense to the action and shall not create a presumption that such
indemnification or advancement is not permissible.
SECTION 8. Non-Exclusivity of Rights. The rights to indemnification and
-------------------------
advancement of Expenses set forth in this Article V shall not be exclusive of
any other right which any Director, Officer or Non-Officer Employee may have or
hereafter acquire under any statute, provision of the Corporation's Certificate
or these By-Laws, agreement, vote of stockholders or Disinterested Directors or
otherwise.
SECTION 9. Insurance. The Corporation may maintain insurance, at its
---------
expense, to protect itself and any Director, Officer or Non-Officer Employee
against any liability of any character asserted against or incurred by the
Corporation or any such Director, Officer or Non-Officer Employee, or arising
out of any such person's Corporate Status, whether or not the Corporation would
have the power to indemnify such person against such liability under the DGCL or
the provisions of this Article V.
ARTICLE VI
----------
Miscellaneous Provisions
------------------------
SECTION 1. Fiscal Year. Except as otherwise determined by the Board of
-----------
Directors, the fiscal year of the Corporation shall end on the last day of
December of each year.
SECTION 2. Seal. The Board of Directors shall have power to adopt and
----
alter the seal of the Corporation.
SECTION 3. Execution of Instruments. All deeds, leases, transfers,
------------------------
contracts, bonds, notes and other obligations to be entered into by the
Corporation in the ordinary course of its business without Director action may
be executed on behalf of the Corporation by the Chairman of the Board, if one is
elected, the President or the Treasurer or any other officer,
18
<PAGE>
employee or agent of the Corporation as the Board of Directors or Executive
Committee may authorize.
SECTION 4. Voting of Securities. Unless the Board of Directors otherwise
--------------------
provides, the Chairman of the Board, if one is elected, the President or the
Treasurer may waive notice of and act on behalf of this Corporation, or appoint
another person or persons to act as proxy or attorney in fact for this
Corporation with or without discretionary power and/or power of substitution, at
any meeting of stockholders or shareholders of any other corporation or
organization, any of whose securities are held by this Corporation.
SECTION 5. Resident Agent. The Board of Directors may appoint a resident
--------------
agent upon whom legal process may be served in any action or proceeding against
the Corporation.
SECTION 6. Corporate Records. The original or attested copies of the
-----------------
Certificate, By-Laws and records of all meetings of the incorporators,
stockholders and the Board of Directors and the stock transfer books, which
shall contain the names of all stockholders, their record addresses and the
amount of stock held by each, may be kept outside the State of Delaware and
shall be kept at the principal office of the Corporation, at the office of its
counsel or at an office of its transfer agent or at such other place or places
as may be designated from time to time by the Board of Directors.
SECTION 7. Certificate. All references in these By-Laws to the
-----------
Certificate shall be deemed to refer to the Second Amended and Restated
Certificate of Incorporation of the Corporation, as amended and in effect from
time to time.
SECTION 8. Amendment of By-Laws.
--------------------
(a) Amendment by Directors. Except as provided otherwise by law, these
----------------------
By-laws may be amended or repealed by the Board of Directors by the affirmative
vote of a majority of the Directors then in office.
(b) Amendment by Stockholders. These By-laws may be amended or repealed
--------------------------
at any annual meeting of stockholders, or special meeting of stockholders called
for such purpose, by the affirmative vote of at least two-thirds of the shares
present in person or represented by proxy at such meeting and entitled to vote
on such amendment or repeal, voting together as a single class; provided,
however, that if the Board of Directors recommends that stockholders approve
such amendment or repeal at such meeting of stockholders, such amendment or
repeal shall only require the affirmative vote of a majority of the shares
present in person or represented by proxy at such meeting and entitled to vote
on such amendment or repeal, voting together as a single class.
Adopted May __, 1996 and effective as of _____________, 1996.
19
<PAGE>
Exhibit 10.2
BUSINESS@WEB, INC.
1996 Stock Plan
1. Purpose. This 1996 Stock Plan (the "Plan") is intended to provide
-------
incentives: (a) to employees of Business@Web, Inc. (the "Company"), any present
or future parent or subsidiaries of the Company and any corporations or other
entities now or hereafter under common control with the Company (collectively,
"Related Corporations") by providing them with opportunities to purchase stock
in the Company pursuant to options granted hereunder which qualify as "incentive
stock options" under Section 422(b) of the Internal Revenue Code of 1986, as
amended (the "Code") ("ISO" or "ISOs"); (b) to directors, officers, employees
and consultants of the Company and Related Corporations by providing them with
opportunities to purchase stock in the Company pursuant to options granted
hereunder which do not qualify as ISOs ("Non-Qualified Option" or Non-Qualified
Options"); (c) to directors, officers, employees and consultants of the Company
and Related Corporations by providing them with opportunities to make direct
purchases of stock in the Company ("Purchases"). Both ISOs and Non-Qualified
Options are referred to hereafter individually as an "Option" and collectively
as "Options". Options, Awards and authorizations to make Purchases are referred
to hereafter collectively as "Stock Rights". As used herein, the terms "parent"
and "subsidiary" mean "parent corporation" and "subsidiary corporation",
respectively, as those terms are defined in Section 424 of the Code.
2. Administration of the Plan.
--------------------------
A. The Plan shall be administered by a stock plan committee (the
"Committee") of not less than two directors of the Company appointed by the
Board of Directors of the Company (the "Board") each of whom is (1) not an
employee of the Company or any Related Corporation and who qualifies as a
"disinterested person" within the meaning of Rule 16b-3(c)(2)(i) promulgated
under the Securities Exchange Act of 1934, as amended, (the "Act") on and after
the effective date of the Company's initial public offering and (2) an "outside
director" within the meaning of Section 162(m) of the Code on and after the date
the Plan becomes subject to such section. Subject to the terms of the Plan, the
Committee shall have the authority to (i) determine the employees of the Company
and Related Corporation (from among the class of employees eligible under
paragraph 4 to receive ISOs) to whom ISOs may be granted, and to determine (from
among the class of individuals and entities eligible under paragraph 4 to
receive Non-Qualified Options and Awards and to make Purchases) to whom Non-
Qualified Options, Awards and authorizations to make Purchases may be granted;
(ii) determine the time or times at which Options or Awards may be granted or
Purchases made; (iii) determine the option price of shares subject to each
Option, which price shall not be less than the minimum price specified in
paragraph 7, and the purchase price of shares subject to each Purchase; (iv)
determine whether each Option granted shall be an ISO or a
<PAGE>
Non-Qualified Option; (v) determine (subject to paragraph 8) the time or times
when each Option shall become exercisable and the duration of the exercise
period; (vi) determine, at the time of grant, what percentage of shares
underlying an Option can be accelerated upon the occurrence of any event set
forth in paragraph 14; (vii) determine whether restrictions such as repurchase
options are to be imposed on shares subject to Options, Awards and Purchases and
the nature of such restrictions, if any, and (viii) interpret the Plan and
prescribe and rescind rules and regulations relating to it. If the Committee
determines to issue a Non-Qualified Option, it shall take whatever actions it
deems necessary, under Section 422 of the Code and the regulations promulgated
thereunder, to ensure that such Option is not treated as an ISO. The
interpretation and construction by the Committee of any provisions of the Plan
or of any Stock Rights granted under it shall be final and binding upon all
parties. The Committee may from time to time adopt such rules and regulations
for carrying out the Plan as it may deem best. No member of the Committee shall
be liable for any action or determination made in good faith with respect to the
Plan or any Stock Right granted under it.
B. The Committee may select one of its members as its chairman, and
shall hold meetings at such time and places as it may determine. Acts by a
majority of the Committee, or acts reduced to or approved in writing by a
majority of the members of the Committee, shall be the valid acts of the
Committee.
3. Option Grants to Non-Employee Directors.
---------------------------------------
A. Each individual who first becomes a member of the Board after the date
of adoption of this Plan by the Board of Directors and is not an employee of the
Company or any Related Corporation (a "Non-Employee Director") shall be granted
on the date such individual first joins the Board a Non-Qualified Option to
acquire 10,000 shares of Common Stock.
B. Each Non-Employee Director who is serving as Non-Employee Director of
the Company on each June 30, beginning with June 30, 1997, shall automatically
be granted on such day a Non-Qualified Option to acquire 2,500 shares of Common
Stock. The exercise price per share for the Common Stock covered by an Option
granted hereunder shall be equal to the "fair market value" of the Common Stock
on the date the Option is granted.
An Option granted under this paragraph 3 shall vest in four equal annual
installments commencing one year following the grant date. No option issued
under this paragraph 3 shall be exercisable after the expiration of ten years
from the date upon which such option is granted.
A. The rights of an Non-Employee Director in an Option granted
under this paragraph 3 shall terminate six months after such Director ceases to
be a Director of the Company or the specified expiration date, if earlier .
2
<PAGE>
B. Any Option granted to a Non-Employee Director and outstanding on
the date of his death may be exercised by the legal representative or legatee of
the optionee for a period of twelve months from the date of death or until the
expiration of the stated term of the option, if earlier.
C. Options granted under this paragraph 3 may be exercised only by
written notice to the Company specifying the number of shares to be purchased.
Payment of the full purchase price of the shares to be purchased may be made by
one or more of the methods specified in paragraph 15. An individual shall have
the rights of a stockholder only as to shares acquired upon the exercise of a
option and not as to unexercised options.
The provisions of this paragraph 3 shall apply only to Options granted or
to be granted to Non-Employee Directors, and shall not be deemed to modify,
limit or otherwise apply to any other provision of this Plan or to any Option
issued under this Plan to an individual who is not an Non-Employee Director of
the Company. To the extent inconsistent with the provisions of any other
paragraph of this Plan, the provisions of this paragraph 3 shall govern the
rights and obligations of the Company and Non-Employee Directors respecting
options granted or to be granted to Non-Employee Directors. The provisions of
this paragraph 3 which affect the price, date of exercisability, option period
or amount of shares of Common Stock under an Option shall not be amended more
than once in any six-month period, other than to comport with changes in the
Code or the Employee Retirement Income Security Act of 1974, as amended.
4. Eligible Employees and Others. ISOs may be granted to any employee of
-----------------------------
the Company or any parent or subsidiary of the Company. Those officers and
directors of the Company who are not employees may not be granted ISOs under the
Plan. Non-Qualified Options, Awards and authorizations to make Purchases may be
granted to any director (whether or not an employee), officer, employee or
consultant of the Company or any Related Corporation. The Committee may take
into consideration a recipient's individual circumstances in determining whether
to grant an ISO, a Non-Qualified Option or an authorization to make a Purchase.
Granting of any Stock Right to any individual or entity shall neither entitle
that individual or entity to, nor disqualify him from, participation in any
other grant of Stock Rights.
5. Stock. The stock subject to Options, Awards and Purchases shall be
-----
authorized but unissued shares of Common Stock, par value $0.001 per share, of
the Company (the "Common Stock"), or shares of Common Stock reacquired by the
Company in any manner. The aggregate number of shares which may be issued
pursuant to the Plan is 5,000,000, and on and after the date the Plan becomes
subject to Section 162(m) of the Code no more than 500,000 Options may be
granted to any one individual participant during any calendar year period. Such
numbers shall be subject to adjustment as provided in paragraph 14. Any shares
issued hereunder may be issued as ISOs, Non-Qualified Options or Awards, or to
persons or
3
<PAGE>
entities making Purchases, so long as the number of shares so issued does not
exceed the aggregate number of shares subject to the Plan. If any Option
granted under the Plan shall expire, be canceled or otherwise terminate for any
reason without having been exercised in full or shall cease for any reason to be
exercisable in whole or in part, or if the Company shall reacquire any unvested
shares issued pursuant to Awards or Purchases, the unpurchased shares subject to
such Options and any unvested shares so reacquired by the Company shall again be
available for grants of Stock Rights under the Plan.
6. Granting of Stock Rights. Stock Rights may be granted under the Plan
------------------------
at any time on or after ___________, 1996 and prior to ___________, 2006. The
date of grant of a Stock Right under the Plan will be the date specified by the
Committee at the time it grants the Stock Right; provided, however, that such
date shall not be prior to the date on which the Committee acts to approve the
grant. The Committee shall have the right, with the consent of the optionee, to
convert an ISO granted under the Plan to a Non-Qualified Option pursuant to
paragraph 17.
7. Minimum Option Price; ISO Limitations.
-------------------------------------
A. The price per share specified in the agreement relating to each
Non-Qualified Option granted under the Plan shall in no event be less than the
lesser of (i) the book value per share of Common Stock as of the end of the
fiscal year of the Company immediately preceding the date of such grant, or (ii)
50 percent of the fair market value per share of Common Stock on the date of
such grant .
B. The price per share specified in the agreement relation to each
ISO granted under the Plan shall not be less than the fair market value per
share of Common Stock on the date of such grant. In the case of an ISO to be
granted to an employee owning stock possessing more than ten percent of the
total combined voting power of all classes of stock of the Company or any
Related Corporation, the price per share specified in the agreement relating to
such ISO shall not be less than 110 percent of the fair market value per share
of Common Stock on the date of grant.
C. In no event shall the aggregate fair market value (determined at
the time an ISO is granted) of Common Stock for which ISOs granted to any
employee are exercisable for the first time by such employee during any calendar
year (under all stock option plans of the Company and any Related Corporation)
exceed $100,000; provided that this paragraph 7(C) shall have no force or effect
if its inclusion in the Plan is not necessary for Options issued as ISOs to
qualify as ISOs pursuant to Section 422(b)(7) of the Code.
D. If, at the time an Option is granted under the Plan, the
Company's Common Stock is publicly traded, "fair market value" shall be
determined as of the last business day for which the prices or quotes discussed
in this sentence are available prior to the
4
<PAGE>
date such Option is granted and shall mean (i) the last reported sale price (on
that date) of the Common Stock on the principal national securities exchange on
which the Common Stock is traded, if the Common Stock is then traded on a
national securities exchange; or (ii) the last reported sale price (on that
date) of the Common Stock on the NASDAQ National Market System, if the Common
Stock is not then traded on a national securities exchange; or (iii) the closing
bid price (or average of bid prices) last quoted (on that date) by an
established quotation service for over-the-counter securities, if the Common
Stock is not reported on the NASDAQ National Market System. However, if the
Common Stock is not publicly traded at the time an Option is granted under the
Plan, "fair market value" shall be deemed to be the fair value of the Common
Stock as determined by the Committee after taking into consideration all factors
which it deems appropriate, including, without limitation, recent sale and offer
prices of the Common Stock in private transactions negotiated at arm's length.
Notwithstanding the foregoing, "fair market value" on the effective date of the
Company's initial public offering shall be the offering price to the public of
the Common Stock on such date.
8. Option Duration. Subject to earlier termination as provided in
---------------
paragraphs 10 and 11, each Option shall expire on the date specified by the
Committee, but not more than (i) ten years and one day from the date of grant in
the case of Non-Qualified Options, (ii) ten years from the date of grant in the
case of ISOs generally, and (iii) five years from the date of grant in the case
of ISOs granted to an employee owning stock possessing more than ten percent of
the total combined voting power of all classes of stock of the Company or any
Related Corporation. Subject to earlier termination as provided in paragraphs
10 and 11, the term of each ISO shall be the term set forth in the original
instrument granting such ISO, except with respect to any part of such ISO that
is converted into a Non-Qualified Option pursuant to paragraph 17.
9. Exercise of Option. Subject to the provisions of paragraphs 10
------------------
through 13, each Option granted under the Plan shall be exercisable as follows:
A. The Option shall either be fully exercisable on the date of grant
or shall become exercisable thereafter in such installments as the Committee may
specify.
B. Once an installment becomes exercisable it shall remain
exercisable until expiration or termination of the Option, unless otherwise
specified by the Committee.
C. Each Option or installment may be exercised at any time or from
time to time, in whole or in part, for up to the total number of shares with
respect to which it is then exercisable.
D. The Committee shall have the right to accelerate the date of
exercise of any installment of any Option; provided that the Committee shall not
accelerate the exercise
5
<PAGE>
date of any installment of any Option granted to any employee as an ISO (and not
previously converted into a Non-Qualified Option pursuant to paragraph 17) if
such acceleration would violate the annual vesting limitation contained in
Section 422(b)(7) of the Code, as described in paragraph 7(C).
10. Termination of Employment. If an ISO optionee ceases to be employed
-------------------------
by the Company and all Related Corporations other than by reason of death or
disability as defined in paragraph 11, no further installments of his ISOs shall
become exercisable, and his ISOs shall terminate after the passage of three
months from the date of termination of his employment, but in no event later
than on their specified expiration dates, except to the extent that such ISOs
(or unexercised installments thereof) have been converted into Non-Qualified
Options pursuant to paragraph 17. Employment shall be considered as continuing
uninterrupted during any bona fide leave of absence such as those attributable
to illness, military obligations or governmental service) provided that the
period of such leave does not exceed 90 days or, if longer, any period during
which such optionee's right to reemployment is guaranteed by statute. A bona
fide leave of absence with the written approval of the Committee shall not be
considered an interruption of employment under the Plan, provided that such
written approval contractually obligates the Company or any parent or subsidiary
of the Company to continue the employment of the optionee after the approved
period of absence. ISOs granted under the Plan shall not be affected by any
change of employment within or among the Company or any parent or subsidiary of
the Company, so long as the optionee continues to be an employee of the Company
or any parent or subsidiary of the Company. Nothing in the Plan shall be deemed
to give any grantee of any Stock Right the right to be retained in employment or
other service by the Company or any Related Corporation for any period of time.
11. Death; Disability.
-----------------
A. If an ISO optionee ceases to be employed by the Company and all
parents and subsidiaries of the Company by reason of his death, any ISO of his
may be exercised, to the extent of the number of shares with respect to which he
could have exercised it on the date of his death by his estate, personal
representative or beneficiary who has acquired the ISO by will or by the laws of
descent and distribution, at any time prior to the earlier of the ISO's
specified expiration date or 360 days from the date of the optionee's death.
B. If an ISO optionee ceases to be employed by the Company and all
parents and subsidiaries of the Company by reason of his disability, he shall
have the right to exercise the ISO held by him on the date of termination of
employment, to the extent of the number of shares with respect to which he could
have exercised it on that date, at any time prior to the earlier of the ISO's
specified expiration date or 360 days from the date of the termination of the
optionee's employment. For the purposes of the Plan, the term "disability"
shall mean "permanent and total disability" as defined in Section 22(e)(3) of
the Code or successor statute.
6
<PAGE>
12. Assignability. No Stock Right shall be assignable or transferable by
-------------
the grantee except by will or by the laws of descent and distribution, and
during the lifetime of the grantee each Stock Right shall be exercisable only by
him. Notwithstanding the foregoing, the Committee may provide in an Option
agreement that the optionee may transfer, without consideration for the
transfer, his Non-Qualified Options to members of his immediate family, to
trusts for the benefit of such family members and to partnerships in which such
family members are the only partners. Shares of Common Stock issued upon
exercise of Stock Rights shall be subject to such rights of first refusal,
repurchase rights and other restrictions on transfer in favor of the Company as
the Committee may determine at the time such Stock Rights are granted.
13. Terms and Conditions of Options. Options shall be evidenced by
-------------------------------
instruments (which need not be identical) in such forms as the Committee may
from time to time approve. Such instruments shall conform to the terms and
conditions set forth in paragraphs 7 and 12 hereof and may contain such other
provisions as the Committee deems advisable which are not inconsistent with the
Plan, including restrictions applicable to shares of Common Stock issuable upon
exercise of Options. In granting any Non-Qualified Option, the Committee may
specify that such Non-Qualified Option shall be subject to the restrictions set
forth herein with respect to ISOs, or to such other termination and cancellation
provisions as the Committee may determine. The Committee may from time to time
confer authority and responsibility on one or more of its own members and/or one
or more officers of the Company to execute and deliver such instruments. The
proper officers of the Company are authorized and directed to take any and all
action necessary or advisable from time to time to carry out the terms of such
instruments.
14. Adjustments. Upon the occurrence of any of the following events, an
-----------
optionee's rights with respect to Options granted to him hereunder shall be
adjusted as hereinafter provided, unless otherwise specifically provided in the
written agreement between the optionee and the Company relating to such Option:
A. If the shares of Common Stock shall be subdivided or combined
into a greater or smaller number of shares or if the Company shall issue any
shares of Common Stock as a stock dividend on its outstanding Common Stock, the
number of shares of Common Stock deliverable upon the exercise of Options shall
be appropriately increased or decreased proportionately, and appropriate
adjustments shall be made in the purchase price per share to reflect such
subdivision, combination or stock dividend.
B. If the Company is to be consolidated with or acquired by another
entity in a merger, sale of all or substantially all of the Company's assets or
otherwise (an "Acquisition"), the Plan and all Stock Rights granted hereunder
shall terminate unless the Committee or the board of directors of any entity
assuming the obligations of the Company hereunder (the "Successor Board"), in
connection with the Acquisition, make provision for the
7
<PAGE>
assumption of Stock Rights heretofore granted, or the substitution of such Stock
Rights with new Stock Rights of the successor entity or parent thereof with
appropriate adjustment as to the number and kind of shares and, if appropriate,
the per share exercise prices. In the event of such termination, each optionee
shall be permitted to exercise for a period of at least 15 days prior to the
date of such termination (1) all Options held by such optionee which are then
exercisable, and (2) such number of additional Options held by such optionee, to
the extent such options are not then exercisable, as may be specified in the
relevant option agreement, if any.
C. In the event of a recapitalization or reorganization of the
Company (other than a transaction described in subparagraph B above) pursuant to
which securities of the Company or of another corporation are issued with
respect to the outstanding shares of Common Stock, an optionee upon exercising
an Option shall be entitled to receive for the purchase price paid upon such
exercise the securities he would have received if he had exercised his Option
prior to such recapitalization or reorganization.
D. Notwithstanding the foregoing, any adjustments made pursuant to
subparagraphs A, B or C with respect to ISOs shall be made only after the
Committee, after consulting with counsel for the Company, determines whether
such adjustments would constitute a "modification" of such ISOs (as that term is
defined in Section 424 of the Code) or would cause any adverse tax consequences
for the holders of such ISOs. If the Committee determines that such adjustments
made with respect to ISOs would constitute a modification of such ISOs, it may
refrain from making such adjustments.
E. In the event of the proposed dissolution or liquidation of the
Company, each Option will terminate immediately prior to the consummation of
such proposed action or at such other time and subject to such other conditions
as shall be determined by the Committee.
F. Except as expressly provided herein, no issuance by the Company
of shares of stock of any class, or securities convertible into shares of stock
of any class, shall affect, and no adjustment by reason thereof shall be made
with respect to, the number or price of shares subject to Options. No
adjustments shall be made for dividends paid in cash or in property other than
securities of the Company.
G. No fractional shares shall be issued under the Plan and the
optionee shall receive from the Company cash in lieu of such fractional shares.
H. Upon the happening of any of the foregoing events described in
subparagraphs A, B or C above, the class and aggregate number of shares set
forth in paragraph hereof that are subject to Stock Rights which previously have
been or subsequently may be granted under the Plan shall also be appropriately
adjusted to reflect the events
8
<PAGE>
described in such subparagraphs. The Committee or the Successor Board shall
determine the specific adjustments to be made under this paragraph 14 and,
subject to paragraph 2, its determination shall be conclusive.
I. If any person or entity owning restricted Common Stock obtained
by exercise of a Stock Right made hereunder receives shares or securities or
cash in connection with a corporate transaction described in subparagraphs A, B
or C above as a result of owning such restricted Common Stock, such shares or
securities or cash shall be subject to all of the conditions and restrictions
applicable to the restricted Common Stock with respect to which such shares or
securities or cash were issued, unless otherwise determined by the Committee or
the Successor Board.
J. The Committee may grant Stock Rights under the Plan in
substitution for stock and stock based awards held by employees of another
corporation who concurrently become employees of the Company or a Related
Corporation as the result of a merger or consolidation of the employing
corporation with the Company or a Related Corporation or the acquisition by the
Company or a Related Corporation of property or stock of the employing
corporation. The Committee may direct that the substitute awards be granted on
such terms and conditions as the Committee considers appropriate in the
circumstances.
15. Means of Exercising Stock Right. A Stock Right (or any part
-------------------------------
or installment thereof) shall be exercised by giving written notice to the
Company at its principal office address. Such notice shall identify the Stock
Right being exercised and specify the number of shares as to which such Stock
Right is being exercised, accompanied by full payment of the purchase price
therefor either (a) in United States dollars in cash or by check, or (b) if
authorized by the applicable Option agreement or at the discretion of the
Committee, through delivery of shares of Common Stock that the optionee has
beneficially owned for more than six months and which the optionee may freely
transfer having a fair market value equal as of the date of the exercise to the
cash exercise price of the Stock Right, or (c) at the discretion of the
Committee, by delivery of the grantee's personal recourse note bearing interest
payable not less than annually at no less than 100% of the lowest applicable
federal rate, as defined in Section 1274(d) of the Code, (d) by the optionee
delivering to the Company a properly executed exercise notice together with
irrevocable instructions to a broker to promptly deliver to the Company cash or
a check payable and acceptable to the Company to pay the purchase price;
provided that in the event the optionee chooses to pay the purchase price as so
provided, the optionee and the broker shall comply with such procedures and
enter into such agreements of indemnity and other agreements as the Committee
shall prescribe as a condition of such payment procedure or (e) at the
discretion of the Committee, by any combination of (a), (b), (c) and (d) above.
If the Committee exercises its discretion to permit payment of the exercise
price of an ISO by means of the methods set forth in clauses (b), (c) or (d) of
the preceding sentence, such discretion shall be exercised in writing at the
time of the grant of the ISO in question. The holder of a Stock Right shall not
have the rights of a shareholder with respect
9
<PAGE>
to the shares covered by his Stock Right until the date of issuance of a stock
certificate to him for such shares. Except as expressly provided above in
paragraph 14 with respect to changes in capitalization and stock dividends, no
adjustment shall be made for dividends or similar rights for which the record
date is before the date such stock certificate is issued.
16. Term and Amendment of Plan.
--------------------------
A. This Plan shall become effective upon approval by the holders of a
majority of the shares of Common Stock of the Company present or represented and
entitled to vote at a meeting of stockholders. Subject to such approval by the
stockholders and to the requirement that no Common Stock may be issued hereunder
prior to such approval, Stock Rights may be granted hereunder on and after
adoption of this Plan by the Board.
B. The Board may terminate or amend the Plan in any respect at any time,
except that, without the approval of the stockholders obtained within 12 months
before or after the Board adopts a resolution authorizing any of the following
actions: (a) the total number of shares that may be issued under the Plan may
not be increased (except by adjustment pursuant to paragraph 14); (b) the
provisions of paragraph 4 regarding eligibility for grants of ISOs may not be
modified; (c) the provisions of paragraph 7(B) regarding the exercise price at
which shares may be offered pursuant to ISOs may not be modified (except by
adjustment pursuant to paragraph 14); (d) the expiration date of the Plan may
not be extended; and (e) if and to the extent determined by the Committee to be
required by the Act to ensure that Stock Rights granted under the Plan are
exempt under Rule 1116b-3 promulgated under the Act, or that ISOs granted under
the Plan are qualified under Section 422 of the Code. Except as provided in the
fourth sentence of this paragraph 16, in no event may action of the Board or
stockholders alter or impair the right of a grantee, without his consent, under
any Stock Right previously granted to him.
17. Conversion of ISOs into Non-Qualified Options; Termination of ISOs.
------------------------------------------------------------------
The Committee, at the written request of any optionee, may in its discretion
take such actions as may be necessary to convert such optionee's ISO (or any
installments or portions of installments thereof) that have been exercised on
the date of conversion into Non-Qualified Options at any time prior to the
expiration of such ISOs, regardless of whether the optionee is an employee of
the Company or a Related Corporation at the time of such conversion. Such
actions may include, but not be limited to, extending the exercise period or
reducing the exercise price of the appropriate installments of such Options. At
the time of such conversion, the Committee (with the consent of the optionee)
may impose such conditions on the exercise of the resulting Non-Qualified
Options as the Committee in its discretion may determine, provided that such
conditions shall not be inconsistent with this Plan. Nothing in the Plan shall
be deemed to give any optionee the right to have such optionee's ISOs converted
into Non-Qualified Options, and no such conversion shall occur until and unless
the Committee
10
<PAGE>
takes appropriate action. The Committee, with the consent of the optionee, may
also terminate any portion of any ISO that has not been exercised at the time of
such termination.
18. Application of Funds. The proceeds received by the Company from the
--------------------
sale of shares pursuant to Options granted and Purchases authorized under the
Plan shall be used for general corporate purposes.
19. Governmental Regulation. The Company's obligation to sell and deliver
-----------------------
shares of the Common Stock under this Plan is subject to the approval of any
governmental authority required in connection with the authorization, issuance
or sale of such shares.
20. Withholding of Additional Income Taxes. Upon the exercise of a Non-
--------------------------------------
Qualified Option, the grant of an Award, the making of a Purchase of Common
Stock for less than its fair market value, or the vesting of restricted Common
Stock acquired on the exercise of a Stock right hereunder, the Company, in
accordance with Section 3402(a) of the Code, may require the optionee, Award
recipient or purchaser to pay additional withholding taxes in respect of the
amount that is considered compensation includable in such person's gross income.
The Committee in its discretion may condition (i) the exercise of an Option,
(ii) the grant of an Award, (iii) the making of a Purchase of Common Stock for
less than its fair market value, or (iv) the vesting of restricted Common Stock
acquired by exercising a Stock Right on the grantee's payment of such additional
withholding taxes.
A. A participant may elect to have his tax withholding obligation
satisfied, in whole or in part, by (i) authorizing the Company to withhold from
shares of Common Stock to be issued pursuant to any Stock Right number of shares
with an aggregate fair market value that would satisfy the withholding amount
due, or (ii) transferring to the Company shares of Common Stock owned by the
participant with an aggregate fair market value that would satisfy the
withholding amount due. With respect to any optionee who is subject to Section
16 of the Act, the following additional restrictions shall apply:
(i) the election to satisfy tax withholding obligations
relating to a Stock Right in the manner permitted by this paragraph shall
be made either (1) during the period beginning on the third business day
following the date of release of quarterly or annual summary statements of
sales and earnings of the Company and ending on the twelfth business day
following such date, or (2) at least six months prior to the date as of
which the receipt of such a Stock Right first becomes a taxable event for
Federal income tax purposes;
(ii) such election shall be irrevocable;
(iii) such election shall be subject to the consent or
disapproval of the Committee; and
11
<PAGE>
(iv) the Common Stock withheld to satisfy tax withholding must
pertain to an option or grant which has been held by the participant
for at least six months from the date of grant of the Stock Right.
Notwithstanding the foregoing, the provisions of paragraph 20(A)(i)(1) shall not
be applicable until the Company has been subject to the reporting requirements
of Section 13(a) of the Act for at least a year prior to the election and has
filed all reports and statements required to be filed pursuant to that Section
for that year.
21. Notice to Company of Disqualifying Disposition. Each employee who
----------------------------------------------
receives an ISO must agree to notify the Company in writing immediately after
the employee makes a Disqualifying Disposition of any Common Stock acquired
pursuant to the exercise of an ISO. A Disqualifying Disposition is any
disposition (including any sale) of such Common Stock before the later of (a)
two years after the date the employee was granted the ISO, or (b) one year after
the date the employee acquired Common Stock by exercising the ISO. If the
employee has died before such stock is sold, these holding period requirements
do not apply and no Disqualifying Disposition can occur thereafter.
22. Governing Law; Construction. The validity and construction of the
---------------------------
Plan and the instruments evidencing Stock Rights shall be governed by the laws
of the State of Delaware. In construing this Plan, the singular shall include
the plural and the masculine gender shall include the feminine and neuter,
unless the context otherwise requires.
12
<PAGE>
EXHIBIT 10.3
BUSINESS@WEB, INC. EMPLOYEE STOCK PURCHASE PLAN
The purpose of the Business@Web, Inc. Employee Stock Purchase Plan ("the
Plan") is to provide eligible employees of Business@Web, Inc. (the "Company")
and certain of its subsidiaries with opportunities to purchase shares of the
Company's common stock, $.001 par value (the "Common Stock"). One hundred and
fifty thousand (150,000) shares of Common Stock in the aggregate have been
authorized for issuance for this purpose. The Plan is intended to constitute an
"employee stock purchase plan" within the meaning of Section 423(b) of the
Internal Revenue Code of 1986, as amended (the "Code"), and shall be interpreted
in accordance with that intent.
1. Administration. The Plan will be administered by the Company's Board
--------------
of Directors (the "Board") or by a committee appointed by the Board for such
purpose (the "Committee"). The Board or the Committee has authority to make
rules and regulations for the administration of the Plan, and its
interpretations and decisions with regard thereto shall be final and conclusive.
No member of the Board or the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any option granted
hereunder.
2. Offerings. The Company will make one or more offerings to eligible
---------
employees to purchase Common Stock under the Plan ("Offerings"). The initial
Offering will begin on the effective date of the Company's initial public
offering and will end on the following December 31 (the "Initial Offering").
Thereafter, an Offering will begin on the first business day occurring on or
after each January 1 and July 1 and will end on the last business day occurring
on or before the following June and December, respectively.
<PAGE>
3. Eligibility. All employees of the Company (including employees who
-----------
are also directors of the Company) and all employees of each Designated
Subsidiary (as defined in Section 11) are eligible to participate in any one or
more of the Offerings under the Plan, provided that as of the first day of the
applicable Offering (the "Offering Date") they are customarily employed by the
Company or a Designated Subsidiary for more than twenty (20) hours a week.
4. Participation. An employee eligible on any Offering Date may
-------------
participate in such Offering by submitting an enrollment form to his appropriate
payroll location at least ten (10) business days before the Offering Date (or by
such other deadline as shall be established for the Offering). The form will
(a) state the amount to be deducted from his Compensation (as defined in Section
11) per pay period, (b) authorize the purchase of Common Stock for him in each
Offering in accordance with the terms of the Plan and (c) specify the exact name
or names in which shares of Common Stock purchased for him are to be issued
pursuant to Section 10. An employee who does not enroll in accordance with
these procedures will be deemed to have waived his right to participate. Unless
an employee files a new enrollment form or withdraws from the Plan, his
deductions and purchases will continue at the same amount of Compensation for
future Offerings, provided he remains eligible. Notwithstanding the foregoing,
participation in the Plan will neither be permitted nor be denied contrary to
the requirements of the Code.
2
<PAGE>
5. Employee Contributions. Each eligible employee may authorize payroll
----------------------
deductions at a minimum of one percent (1%) up to a maximum of ten percent (10%)
of his Compensation for each pay period. The Company will maintain book
accounts showing the amount of payroll deductions made by each participating
employee for each Offering. No interest will accrue or be paid on payroll
deductions.
6. Deduction Changes. An employee may not increase or decrease (except
-----------------
in the context of a withdrawal described in Section 7) his payroll deduction
during any Offering, but may increase or decrease his payroll deduction with
respect to the next Offering (subject to the limitations of Section 5) by filing
a new enrollment form at least ten (10) business days before the next Offering
Date (or by such other deadline as shall be established for the Offering).
7. Withdrawal. An employee may withdraw from participation in the Plan
----------
by delivering a written notice of withdrawal to his appropriate payroll
location. The employee's withdrawal will be effective as of the next business
day. Following an employee's withdrawal, the Company will promptly refund to him
his entire account balance under the Plan (after payment for any Common Stock
purchased before the effective date of withdrawal). Partial withdrawals are not
permitted. The employee may not begin participation again during the remainder
of the Offering, but may enroll in a subsequent Offering in accordance with
Section 4. Each employee who is subject to Section 16(a) or (b) of the
Securities Exchange Act of 1934, as amended, shall make an irrevocable election
to exercise such employee's Option (as hereinafter defined) with respect to any
Offering no later than six (6) months prior to the Exercise Date (as hereinafter
defined) for such Offering.
3
<PAGE>
8. Grant of Options. On each Offering Date, the Company will grant to
----------------
each eligible employee who is then a participant in the Plan an option
("Option") to purchase on the last day of such Offering (the "Exercise Date"),
at the Option Price hereinafter provided for, such number of whole shares of
Common Stock reserved for the purposes of the Plan as does not exceed the number
of shares equal in value to ten percent (10%) of such employee's projected
Compensation for the period of the Offering divided by eighty five percent (85%)
of the Fair Market Value of the Common Stock (as defined in Section 11) on the
Offering Date. The purchase price for each share purchased under such Option
(the "Option Price") will be 85% of the Fair Market Value of the Common Stock on
the Offering Date or the Exercise Date, whichever is less.
Notwithstanding the foregoing, no employee may be granted an option
hereunder if such employee, immediately after the option was granted, would be
treated as owning stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of the Company or any
Parent or Subsidiary (as defined in Section 11). For purposes of the preceding
sentence, the attribution rules of Section 424(d) of the Code shall apply in
determining the stock ownership of an employee, and all stock which the employee
has a contractual right to purchase shall be treated as stock owned by the
employee. In addition, no employee may be granted an Option which permits his
rights to purchase stock under the Plan, and any other employee stock purchase
plan of the Company and its Parents and Subsidiaries, to accrue at a rate which
exceeds $25,000 of the fair market value of such stock (determined on the option
grant date or dates) for each calendar year in which the Option
4
<PAGE>
is outstanding at any time. The purpose of the limitation in the preceding
sentence is to comply with Section 423(b)(8) of the Code.
9. Exercise of Option and Purchase of Shares. Each employee who
-----------------------------------------
continues to be a participant in the Plan on the Exercise Date shall be deemed
to have exercised his Option on such date and shall acquire from the Company
such number of whole shares of Common Stock reserved for the purpose of the Plan
as his accumulated payroll deductions on such date will purchase at the Option
Price, subject to any other limitations contained in the Plan; provided that,
with respect to the Initial Offering, the exercise of each Option shall be
conditioned on the closing of the Company's initial public offering on or before
the Exercise Date. Any balance remaining in an employee's account at the end of
an Offering will be refunded to the employee promptly.
10. Issuance of Certificates. Certificates representing shares of Common
------------------------
Stock purchased under the Plan may be issued only in the name of the employee,
or in the name of the employee and another person of legal age as joint tenants
with rights of survivorship.
11. Definitions.
-----------
The term "Compensation" means the amount of base pay, prior to salary
reduction pursuant to either Section 125 or 401(k) of the Code, but excluding
commissions, overtime, incentive or bonus awards, allowances and reimbursements
for expenses such as relocation allowances or travel expenses, income or gains
on the exercise of Company stock options, and similar items.
The term "Designated Subsidiary" means any present or future Subsidiary (as
defined
5
<PAGE>
below) that is designated from time to time by the Board or the Committee to
participate in the Plan. Subsidiaries may be so designated either before or
after the Plan is approved by the stockholders.
The term "Fair Market Value of the Common Stock" means (i) if the Common
Stock is admitted to quotation on the National Association of Securities Dealers
Automated Quotation System ("NASDAQ") on the date the Option is granted, not
less than the average of the highest bid and lowest asked prices of the Common
Stock on NASDAQ reported for such date, or (ii) if the Common Stock is admitted
to trading on a national securities exchange or the NASDAQ National Market
System on the date the Option is granted, not less than the closing price
reported for the Common Stock on such exchange or system for such date or, if no
sales were reported for such date, for the last date preceding such date for
which a sale was reported. Notwithstanding the foregoing, in the case of the
initial Offering Date under the Plan, the term "Fair Market Value of the Common
Stock" shall mean the offering price to the public of the Common Stock on such
date. In each case, Fair Market Value shall be determined by the Committee in
good faith.
The term "Parent" means a "parent corporation" with respect to the Company,
as defined in Section 424(e) of the Code.
The term "Subsidiary" means a "subsidiary corporation" with respect to the
Company, as defined in Section 424(f) of the Code.
12. Rights on Retirement, Death, or Other Termination of Employment. If
---------------------------------------------------------------
a participating employee's employment terminates for any reason before the
Exercise Date for
6
<PAGE>
any Offering, no payroll deduction will be taken from any pay due and owing to
the employee and the balance in his account will be paid to him or, in the case
of his death, to his designated beneficiary as if he had withdrawn from the Plan
under Section 7. An employee will be deemed to have terminated employment, for
this purpose, if the corporation that employs him, having been a Designated
Subsidiary, ceases to be a Subsidiary, or if the employee is transferred to any
corporation other than the Company or a Designated Subsidiary.
13. Optionees Not Stockholders. Neither the granting of an Option to an
--------------------------
employee nor the deductions from his pay shall constitute such employee a
stockholder of the shares of Common Stock covered by an Option under the Plan
until such shares have been purchased by and issued to him.
14. Rights Not Transferable. Rights under the Plan are not transferable
-----------------------
by a participating employee other than by will or the laws of descent and
distribution, and are exercisable during the employee's lifetime only by the
employee.
15. Application of Funds. All funds received or held by the Company under
--------------------
the Plan may be combined with other corporate funds and may be used for any
corporate purpose.
16. Adjustment in Case of Changes Affecting Common Stock. In the event of
----------------------------------------------------
a subdivision of outstanding shares of Common Stock, stock split, reverse stock
split, payment of a dividend in Common Stock, in each case, effected after June
1, 1996, the number of shares approved for the Plan, and the share limitation
set forth in Section 8, shall be increased proportionately, and such other
adjustment shall be made as may be deemed equitable by the Board or the
Committee. In the event of any other change affecting the Common Stock, such
7
<PAGE>
adjustment shall be made as may be deemed equitable by the Board or the
Committee to give proper effect to such event.
17. Amendment of the Plan. The Board or the Committee may at any time,
---------------------
and from time to time, amend the Plan in any respect, except that without the
approval, within twelve (12) months of such Board or Committee action, by the
holders of a majority of the shares of stock of the Company present or
represented and entitled to vote at a meeting of stockholders, no amendment
shall be made (a) increasing the number of shares approved for the Plan or (b)
changing the designation of corporations or class of corporations whose
employees are eligible to receive Options under the Plan.
18. Insufficient Shares. If the total number of shares of Common Stock
-------------------
that would otherwise be purchased on any Exercise Date plus the number of shares
purchased under previous Offerings under the Plan exceeds the maximum number of
shares issuable under the Plan, the shares then available shall be apportioned
among participants in proportion to the amount of payroll deductions accumulated
on behalf of each participant that would otherwise be used to purchase Common
Stock on such Exercise Date.
19. Termination of the Plan. The Plan may be terminated at any time by
-----------------------
the Board or the Committee. Upon termination of the Plan, all amounts in the
accounts of participating employees shall be promptly refunded.
20. Governmental Regulations. The Company's obligation to sell and
------------------------
deliver Common Stock under the Plan is subject to listing on Nasdaq (or other
national exchange) and obtaining all governmental approvals required in
connection with the authorization, issuance,
8
<PAGE>
or sale of such stock.
The Plan shall be governed by Delaware law except to the extent that such
law is preempted by federal law.
The Plan is intended to comply with the provisions of Rule 16b-3
promulgated under the Securities Exchange Act of 1934, as amended. Any
provision inconsistent with such Rule shall be inoperative and shall not affect
the validity of the Plan. To ensure compliance with such Rule, the Board or the
Committee may limit the right of covered employees to withdraw from the Plan or
to resume participation following withdrawal.
21. Issuance of Shares. Shares may be issued upon exercise of an Option
------------------
from authorized but unissued Common Stock, from shares held in the treasury of
the Company, or from any other proper source.
22. Tax Withholding. Participation in the Plan is subject to any required
---------------
tax withholding on income of the participant in connection with the Plan. Each
employee agrees, by entering the Plan, that the Company and its Subsidiaries
shall have the right to deduct any such taxes from any payment of any kind
otherwise due to the employee, including shares issuable under the Plan.
23. Notification upon Sale of Shares. Each employee agrees, by entering
--------------------------------
the Plan, to give the Company prompt notice of any disposition of shares
purchased under the Plan where such disposition occurs within two years after
the date of grant of the Option pursuant to which such shares were purchased.
24. Effective Date and Approval of Shareholders. The Plan shall take
-------------------------------------------
effect on the
9
<PAGE>
first day of the Company's initial public offering, subject to approval by the
holders of a majority of the shares of stock of the Company present or
represented and entitled to vote at a meeting of stockholders, which approval
must occur within twelve (12) months of the adoption of the Plan by the Board.
10
<PAGE>
EXHIBIT 10.5
INTERGROUP TECHNOLOGIES, INC
SOURCE CODE LICENSE AGREEMENT
The Agreement is made and entered into as of August 8th 1995, by and between
INTERGROUP TECHNOLOGIES, INC., 14205 SE 36th St. Suite 100, WA 98006,
hereinafter referred to as ("INTERGROUP"), and Object Power Incorporated, 219
Vasser St, Cambridge, MA 02139, hereinafter referred to as ("LICENSE").
WHEREAS, INTERGROUP AND LICENSEE have executed a Software License Agreement
under which INTERGROUP will grant an object code license to LICENSEE associated
with INTERGROUP's product, VISUALWARE FOR WINDOWS, hereinafter referred to as
("VISUALWARE").
WHEREAS, LICENSEE desires to have a limited right to access SOURCE CODE of
VISUALWARE.
NOW, THEREFORE, the parties agree:
1. Source Code
-----------
Source Code shall mean the code, written in programming language
employed by computer programmers which must be translated into the
language of a machine before it can be executed, including any
enhancements, modifications, and revisions developed by or for INTERGROUP
from time to time, which is used to create the object code of VISUALWARE,
as described in Exhibit B. Once executed, provided the LICENSEE has paid
the fees set forth in the Software License Agreement INTERGROUP will
provide all updates and enhancements made to the Source Code promptly upon
the availability of such code including all appropriate documentation
associated with such updates and enhancements.
2. License Grant
-------------
INTERGROUP hereby grants LICENSEE a royalty free, non-exclusive, non-
transferable, irrevocable (so long as LICENSEE is not in default per
Section 4, Term and Termination, of this Agreement) license to have and
use a reasonable number of copies of VISUALWARE in source code solely for
its own internal use in order to maintain and enhance (solely as a part of
the Application) its application product licensed and sold in conjunction
with the object code of VISUALWARE and to revise, modify translate,
abridge, condense, expand, recast, transform, or adapt the Source Code
(the "Derivative Works") and to license such Derivative Works (in object
code form) solely as a part of the Application as provided in the Software
License Agreement dated August 8th, 1995. Licensee shall own copyrights in
such Derivative Works. LICENSEE may make all copies necessary for its
normal archiving and backup purposes only. LICENSEE's normal backup and
archiving purposes will be described in writing to INTERGROUP upon
INTERGROUP's written request to LICENSEE.
1
14025 SE 36th St. Suite 100 Bellevue, WA 98006 Tel (206) 643-8089
Fax (206) 643-6977
<PAGE>
2A. Delivery.
InterGroup shall deliver the Source Code along with the object code for
VISUALWARE in accordance with the terms and conditions of Section 2.4 of
the Software License Agreement.
4. Term and Termination
--------------------
4.1 This Agreement and the license granted hereunder shall be effective
on the date the Agreement is signed by the parties hereto and shall
be co-terminous with the Software License Agreement for VISUALWARE,
executed by Licensee dated August 8th, 1995.
4.2 The breach by LICENSEE of the provisions of Section 2, License
Grant; Section 5, No Further Licensing; or, Section 6, Proprietary
Rights shall constitute a default under the terms of this Agreement
and all INTERGROUP to terminate for cause subject to the notice and
cure period set forth in Section 7.
4.3 If this Agreement is so terminated a) the license granted hereunder
shall be terminated and b) LICENSEE shall return or destroy all
copies of Source Code in LICENSEE'S possession and certify in
writing that all copies of Source Code have been destroyed or
returned.
4.4 Notwithstanding any provisions herein to the contrary, following any
termination of this Agreement and for so long thereafter (but not to
exceed 12 months) as is necessary for LICENSEE to satisfy, and
solely to satisfy, its then existing contractual obligations for
maintenance services to its end users, LICENSEE shall have a limited
license to retain copies of and use the VISUALWARE Source Code
solely for such purposes.
5. No Further Licensing
--------------------
LICENSEE shall have no right and shall not sublicense any third party
the right to use VISUALWARE or any modification thereof by LICENSEE, in
Source Code form, or any portion thereof, and shall not deliver or
otherwise provide or disclose to any third party a copy of, or access
to, VISUALWARE or any portion thereof, in Source Code form without the
prior written consent of INTERGROUP, which shall not unreasonably
withheld.
6. Proprietary Rights
------------------
6.1 LICENSEE shall not remove, alter, cover or obfuscate any copyright
notice, other proprietary rights notice or security notices or
coding placed by INTERGROUP in or on the Source Code, whether in
machine language or human-readable form, or any other documentation
related to the Source Code supplied by INTERGROUP to LICENSEE.
LICENSEE shall insure that such notices or coding continue to appear
or exist on the Source Code. LICENSEE shall comply with all
reasonable directions submitted by INTERGROUP from time-to-time
regarding the form and placement of copyright notices, other
proprietary rights notices or security notices, or coding on the
Source Code, or any portion thereof. Affixation of a copyright
notice upon the Source Code, or any portion thereof, shall not,
in itself, be deemed to constitute or acknowledge a publication
thereof.
2
<PAGE>
Customer may, at its option, remove all references to InterGroup and
others from the Product, provided that Customer will include InterGroup's
copyright notice in ASCII text in the object code and will not remove any
such notices from the source code. A static character array defined in
vw.cpp will contain InterGroup's copyright notice. This character array
should be included in any program that includes any source code or object
code from the VISUALWARE system.
6.2 Title to the Source Code and related documentation delivered to LICENSEE
hereunder during the term of this Agreement, shall at all times remain
with INTERGROUP.
6.3 LICENSEE acknowledges and agrees that the Confidential Information shall
at all times be and remain the sole and exclusive property of INTERGROUP.
For the purposes of this Agreement the term "Confidential Information"
shall mean the Source Code, and any modifications made by INTERGROUP
thereof, all versions of the foregoing delivered to LICENSEE by INTERGROUP
and all documentation relating to the Source Code, information,
specifications, programs, Source Code, object code, documentation,
diagrams, flow charts and other materials of any type whatsoever (tangible
or intangible and machine readable or human readable) contained or
revealed in any of the foregoing.
6.4 To the maximum extent permitted by applicable law, LICENSEE agrees to
observe complete confidentiality with regard to Confidential Information,
including but not limited to:
a) not disclosing to or otherwise permitting any third person, or entity,
access to the Confidential Information (or any portion thereof)
without INTERGROUP's prior written permission (except that such
disclosure or access shall be permitted to an employee or consultant
of LICENSEE only on a need-to-know basis); and
b) not making any copies of the Confidential Information (or any portion
thereof) and assuring the LICENSEE's employees or consultants who
receive access to the Confidential Information are advised of its
confidential and proprietary nature and to assure that they are
prohibited from copying or revealing, for any purpose other than in
the performance of duties not inconsistent with the terms of this
Agreement, and
c) notifying INTERGROUP promptly and in writing of any circumstances of
which LICENSEE has knowledge relating to any possession or use of the
Confidential Information (or any part thereof) by any person or entity
other than as authorized herein; and
d) taking, at LICENSEE's expense, any legal or other action necessary to
prevent or stop unauthorized use of the Confidential Information by
any third person or entity that has wrongfully gained access to the
Confidential Information substantially due to the fault or negligence
of LICENSEE or the failure of LICENSEE to perform any of its
obligations hereunder; and
e) prior to disposing of any medial or written forms, assuring that any
program materials and/or Confidential Information has been erased or
otherwise destroyed; and
<PAGE>
f) taking (at the expense of InterGroup) any and all other actions
reasonably deemed necessary or appropriate by INTERGROUP from
time-to-time to insure the continued confidentiality and protection
of the Confidential Information.
6.5 LICENSEE acknowledges and agrees that in permitting the limited right of
access to the Confidential Information set forth above, INTERGROUP is
not waiving any of its rights under this Agreement and LICENSEE is not
relieved of any liability in the event any party to whom such disclosure
is made improperly uses or discloses the Confidential Information.
6.6 Licensee's obligation hereunder shall not extend to information in the
public domain or which enters the public domain not as a result of
LICENSEE's fault or negligence, or information that is disclosed to
Licensee by a third party who had lawfully obtained such information and
without breach of such party's confidentiality obligations, or is
developed independently by Licensee.
6.7 LICENSEE'S obligations and INTERGROUP's rights under this Section 6
shall survive any expiration or termination of this Agreement for any
reason whatsoever.
6.8 INTERGROUP's Confidential Information is unique property of extreme
value to INTERGROUP and breach of any confidential obligation of
LICENSEE under this Agreement may cause INTERGROUP irreparable harm
which cannot be adequately assessed in monetary damages. Accordingly,
LICENSEE agrees INTERGROUP is entitled to seek injunctive, preliminary
or other equitable relief to remedy any actual or threatened breach of
the proprietary rights provisions, or any unauthorized use,
reproduction, marketing, licensing, or distribution of the Source Code
or documentation.
6.9 Upon termination of this Source Code Agreement LICENSEE's right to
possession or use of any of the Confidential Information shall terminate
and LICENSEE shall immediately deliver to INTERGROUP all the
Confidential Information in its possession or under its control. An
officer of LICENSEE shall, upon completion by LICENSEE of such delivery,
certify in writing to INTERGROUP that LICENSEE has fulfilled its
obligations pursuant to this Section 6.
6.10 LICENSEE shall obtain an executed version of a Consultant
Confidentiality Agreement substantially in the form attached as Exhibit
"A" a Nondisclosure and Assignment of Inventions) from each of its
consultants or consultants prior to allowing access to any of the
Confidential Information. Such Confidentiality Agreements shall be
maintained by LICENSEE and made available to INTERGROUP upon
INTERGROUP's request.
6A Limited Warranty and Limitation of Liability
6A1. InterGroup warrants that it has the right to grant this license,
that it is the sole owner of the Source Code and that the Source Code,
in the form delivered by InterGroup and to be delivered by InterGroup,
does not infringe or abridge any third party rights in copyrights,
patent, trademark, trade secret, or other intellectual property rights.
4
<PAGE>
6A2. InterGroup warrants that it has full power and authority to
undertake the obligations set forth in this Agreement and that it has
not entered into any other agreements, nor will it enter into any
other agreements, that would render it incapable of satisfactorily
performing its obligations hereunder.
6A3. EXCEPT AS PROVIDED FOR ABOVE, INTERGROUP DISCLAIMS ALL
WARRANTIES, EXPRESS OR IMPLIED, ARISING OUT OF OR RELATING TO THE
SOURCE CODE OR ANY USE THEREOF, INCLUDING (WITHOUT LIMITATION) ANY
WARRANTY WHATSOEVER AS TO THE FITNESS FOR A PARTICULAR PURPOSE AND
FOR THE MERCHANTABILITY OF THE SOURCE CODE.
6A4. In no event shall InterGroup be liable to Licensee for any
indirect, special, incidental, or consequential damages (including
lost profits).
6B. Indemnification
6B1. If any claim, demand, or action is made against Licensee that the
Source Code infringes or abridges any third-party rights in copyright,
patent, trademark, trade secret, or other intellectual property
rights, InterGroup agrees, at its own expense, to indemnify and hold
harmless Licensee from any and all such claims, demands, or actions.
7. Breach
------
Upon a material breach of a party's obligations under this Agreement and
that party's failure to cure such breach within thirty (30) days after the
receipt of written notification from the other party of said breach, this
Agreement may be terminated. Such termination shall be effective
immediately upon the receipt of a second written notice specifying that the
breach has not been cured in a timely manner. Such termination shall not
constitute a waiver by the terminating party of any right to damages,
injunctive relief or other remedies.
8. Notice
------
Any notice shall be deemed effective ten days after its postmark, provided
it is mailed by receipted courier service, registered or certified mail
postage or fee prepaid, return receipt requested and addressed as follows:
TO INTERGROUP: InterGroup Technologies, Inc.
12819 SE 38th St. Suite 269
Bellevue, WA 98006
Attn: Tom McKenna
TO LICENSEE: Object Power Incorporated
219 Vasser St.
Cambridge, MA 02139
Attn: John Donovan, Jr.
5
<PAGE>
9. Partial Invalidity
------------------
If any term, provision, convenant or condition of this Agreement is
held by a court of competent jurisdiction to be invalid, void, or
unenforceable, the remainder of the provisions shall remain in full
force and effect and shall be in no way affected, impaired or
invalidated.
10. Governing Laws
--------------
This Agreement shall be governed and constructed in accordance with the
laws of The State of Washington.
11. Binding Effect
--------------
This Agreement shall bind both parties and its relevant employees,
agents, and representatives. This Agreement further binds each
affiliated and subsidiary firm, corporation, or other organization and
any person, firm, corporation or other organization with which either
party may enter a joint venture or other cooperative enterprise.
12. Entire Agreement
----------------
This Agreement supersedes all prior agreements and understandings
between the parties relating to the subject matter hereof and is
intended by the parties as the complete and exclusive statement of the
terms of this Agreement. This Agreement may not be modified in any way
without the written consent of both INTERGROUP and LICENSEE.
13. Other Defined Terms
Capitalized terms not defined herein shall have the meaning described to
them in the Software License Agreement dated August 8th, 1995.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement by
their duly authorized representatives.
FOR: Object Power Incorporated FOR: Intergroup Technologies Inc.
By: /s/ John J. Donovan, Jr. By: /s/ Thomas P. McKenna, Jr.
------------------------------ ----------------------------
Title: President Title: President
------------------------------ ----------------------------
Date: Aug. 25, 1995 Date: Aug. 24, 1995
------------------------------ ----------------------------
6
<PAGE>
EXHIBIT "A"
CONSULTANT CONFIDENTIALITY AGREEMENT
------------------------------------
The undersigned is an independent contractor working for OBJECT POWER
INCORPORATED ("Company"). The undersigned acknowledges that Company may enter,
or has entered, into an agreement with INTERGROUP TECHNOLOGIES, INC.
("INTERGROUP") pursuant to which Company may acquire from INTERGROUP certain
limited rights in and to proprietary software know as VISUALWARE for Windows
(the "Licensed Program"). In consideration of the undersigned's work for
Company in a capacity or on projects relating to the Licensed Program, the
undersigned agrees as follows:
1. All documentation and other tangible discoveries, ideas,
concepts, software, designs, drawings, specifications, techniques,
models, data information, Source Code, object code, documentation,
diagrams, flow charts, procedures and "know-how" comprising all or any
portion of, or contained in or describing the Licensed Program or
revealed to the undersigned in connection with the Licensed Program (the
"Proprietary Information") shall at all times remain the sole and
exclusive property of INTERGROUP or Company, according to the Software
License and Source Code License Agreements dated August 8th, 1995.
Information publicly known that is generally employed by the trade at
the time the undersigned first learns of such information shall not be
deemed part of the Proprietary Information hereunder.
2. All notes, data, reference materials, sketches, drawings,
memoranda and records in any way containing any of the Proprietary
Information shall belong exclusively to Company, according to the
Software License and Source Code License Agreements dated August 8th,
1995 and the undersigned agrees to turn over all copies of such
materials in the undersigned's control to INTERGROUP or Company (for
Company's delivery to INTERGROUP, if required) upon completion of the
undersigned's work in connection with the Licensed Program at the
request of INTERGROUP or Company.
3. The undersigned agrees during his work for Company and
thereafter to hold in confidence and not to directly reveal, report,
publish, disclose or transfer any of the Proprietary information for any
purpose, except in the course of the undersigned's work for Company in
connection with the Licensed Program.
4. Because of the unique nature of the Proprietary Information, the
undersigned understands and agrees that INTERGROUP or Company may suffer
irreparable harm in the event that the undersigned breaches his or her
obligations under Section 2 or 3 above and that monetary damages will be
inadequate to compensate INTERGROUP or Company for such breach.
Accordingly, the undersigned agrees that INTERGROUP or Company for such
breach. Accordingly, the undersigned agrees that INTERGROUP or Company
will, in addition to any other remedies available to it at law or in
equity, be entitled to injunctive relief to enforce the terms of
Sections 2 and 3 above.
5. The undersigned acknowledges and agrees that this Consultant
Confidentiality Agreement is for the benefit of and may be enforced
directly by INTERGROUP or Company.
Agreed to and executed this _____________ day of ______________, 19___.
7
<PAGE>
EXHIBIT "B"
Pursuant to Section 1, Source Code, of the Source Code License Agreement, this
Exhibit B defines the source code files that will be supplied to Customer for
the 16 bit Windows Platform version. Please note this list is subject to
change.
Note: The Product to be licensed does not include source code for any VBX or
OCX data controls, which are both components of VISUALWARE.
<TABLE>
<S> <C> <C>
GUI.CPP VWW.CPP RESOURCE.H
COMPILE.CPP VWAPI.CPP PICTURE.H
GUIAPI.CPP SAVEDLG.CPP ITRACK.H
GUIDESGN.CPP PICTURE.CPP MENU.H
GUIMEM.CPP MENUNEW.CPP _VW.H
IOBJ.CPP INFOWND.CPP LIST.H
MASK.CPP MENUWND.CPP VWTYPE.H
RECT.CPP MENU.CPP VWSTRING.H
SCRIPT.CPP MENUDSGN.CPP VWMEM.H
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8
<PAGE>
EXHIBIT 10.6
[LETTERHEAD OF INTERGROUP TECHNOLOGIES, INC APPEARS HERE]
SOFTWARE LICENSE AGREEMENT
This license Agreement ("Agreement") made as of the 8th day of August, 1995
between InterGroup Technologies, Inc ("InterGroup"), a corporation incorporated
under the laws of the State of Washington having its principal place of business
at 14205 SE 36th St. Suite 100, Bellevue, WA 98006 and Object Power Incorporated
("Customer"), a Delaware corporation having its principal place of business at
219 Vasser St. Cambridge, MA 02139.
WITNESSETH
WHEREAS, InterGroup has developed and owns certain computer software known as
VisualWare for Windows herein after referred to as "Product"; and,
WHEREAS, InterGroup desires to license Product to Customer and Customer desires
to license Product from InterGroup on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises, license grant and mutual
covenants contained herein, the parties hereto agree as follows:
Section 1
Definitions
-----------
1.1 "Documentation" - Documentation shall mean the "VisualWare Workbench
Users Guide", the "VisualWare Integrators Reference Manual", the "VisualWare
Control Reference Manual", and the readme.txt file.
1.2 "Product" - Product refers to components of VisualWare for Windows, in
object code form, as described in Exhibit A, and any and all Product Releases
and Maintenance Releases that are supplied to Customer under the terms of this
Agreement, including Documentation. The main Product code shall be provided in
the form of Dynamic Link Libraries (DLLs) as described in Exhibit A.
1.3 "Application" - Application shall mean a software program, developed or
marketed by Customer (whether currently in existence or developed in the future)
which incorporates part or all of the Product as authorized herein and
distributed directly or indirectly by Customer for the 16 bit Windows or the 32
bit Windows Product Platforms (as such platforms exist currently exist or exist
in the future.) The set of current software programs into which Customer may
integrate Product is described in Exhibit C.
1.4 "Customer" - Customer shall mean Object Power Incorporated.
1.5 "Platform" - Platform shall refer to the following operating
environments: Microsoft Windows (herein referred to as 16 bit Windows), Windows
NT and Windows 95 for Intel i86 processors (herein referred to as 32 bit
Windows).
1.6 "Product Platform" - Product Platform shall refer to a copy of the
Product which runs within a Platform.
1
14205 SE 36th St. Suite 100 Bellevue, WA 98006 Tel(206)643-8089 Fax(206)643-6977
<PAGE>
Section 2
License of the Product
----------------------
2.1 InterGroup is providing Customer with the VisualWare system, including a
forms and UI engine, an authoring interface which allows the definition and
creation of forms, together with our OCX interface (the "OCX Wrapper"), which
allows VisualWare to be accessed from other software environments. The
VisualWare system may not be used independently or used merely in conjunction
with a scripting or macro language.
2.2 License. Subject to the terms and conditions of this Agreement, including
-------
the payment of fees (see section 2.2), InterGroup hereby grants to Customer a
personal, non-exclusive, non-transferable, except as set forth in Section 7.7,
perpetual, worldwide license to reproduce and incorporate the Product in the
Customer's Application currently known as the "Object Power Visual Workbench"
(which is a single Application and not a suite of Applications) on the
Platforms, and thereafter to directly or indirectly, use, market, distribute, or
display, license and sub-license, without restriction, the Customer's
Application(s) which incorporate the Product, in whole or in part, and any
modifications, enhancements and alterations made by the Customer thereto.
Without limiting the generality of the foregoing, the Customer may grant its
customers the right to duplicate and distribute, license, and market such
Applications which incorporate the Product in whole or in part. Notwithstanding
the above, the Customer may not sublicense the Product to any third party for
the purpose of embedding the Product into another software product. Additional
restrictions on the use of Product are stated in Exhibit D attached.
2.3 Consideration. The consideration which the Customer shall pay InterGroup
-------------
for the foregoing license of the Product shall be a royalty-free one-time
license fee payable in US dollars as described in Exhibit B of this Agreement.
2.4 Proprietary Rights. The Customer agrees that the Product is and shall
------------------
remain the property of and proprietary to InterGroup including modified versions
of the Product and all derivatives thereof. Nothing in this Agreement shall
diminish or extinguish these rights and no title to or ownership of the product
is transferred to the Customer. InterGroup has no ownership of, or license to,
the Application(s) created by Customer.
2.5 Delivery of Product. Promptly upon execution of this Agreement, InterGroup
-------------------
shall deliver to the Customer a master copy of the 16 Bit Windows Platform
version of the Product (by magnetic diskettes or other media for installation on
the Customer's computers) and such other diskettes, tapes, manuals, routines,
development materials and other information as may relate to or comprise the
Product including without limitation the items described on Exhibit A hereto and
the Documentation. The Product will be shipped to the Customer (at the address
set forth on the signature page or such address specified by the customer in
writing) F.O.B. Cambridge, Massachusetts. InterGroup may package and ship the
Product in any commercially reasonable manner. Future Product shipments will be
delivered in a similar manner.
2.6 Taxes. Prices and fees are exclusive of, and Customer is responsible for,
-----
all applicable sales, use, personal property, exise or other similar taxes or
export and import taxes, duties and charges, however designated. Consequently,
in addition to the payments due hereunder, the amount of any present or future
sales, use, personal property, or other similar tax and export and import taxes,
duties and charges which become due based on the transactions provided for in
this Agreement shall be paid directly by the Customer or reimbursed by the
Customer to InterGroup, as necessary. Provided, however, Customer shall have no
obligation to pay income taxes of InterGroup.
2
<PAGE>
Section 3
Support and Maintenance
-----------------------
3.1 Releases - A Product Release is a major enhancement of Product and
--------
identified with an integer version number e.g. Release 2.0. A Maintenance
Release updates an existing Product Release by correcting documented bugs or
adds minor features and is identified by a decimal integer appended to the
Product Release number, e.g. Release 2.1. Product Releases and Maintenance
Releases shall, among other things, include revisions, enhancements, and
modifications to the object code of the Product to enable operation of the
Product on any and all revisions, enhancements, and modifications to the
Platforms.
3.2 Technical Support InterGroup will provide technical support to assist the
-----------------
Customer in the use of the Product and Product maintenance (Product Releases,
Maintenance Releases and bug fixes) for a period of eighteen months after
Customer acceptance of the 16 bit Windows Platform version at no charge to
Customer. InterGroup will provide technical support to assist the Customer in
the use of the Product and Product maintenance (Product Releases, Maintenance
Releases and bug fixes) for a period of eighteen months after Customer
acceptance of the 32 bit Windows Platform version at no charge to Customer.
InterGroup's technical representatives shall be available to Customer, during
InterGroup's normal business hours, via telephone or Email, to report errors or
other problems with the Product. InterGroup's technical representatives shall
promptly initiate diagnostic or remedial measures to resolve error which prevent
functionality and for which there is no work around. If after five (5) business
days from the initial notice to InterGroup by Customer the reported error or
problem has not been satisfactorily resolved. InterGroup's technical
representatives shall at a fee of one hundred ($100) dollars per hour including
travel time and expenses, provide on-site technical support to Customer to
resolve any errors or other problems in the Product. For a period of twelve
months after execution of this Agreement, InterGroup shall provide any and all
Product Releases and Maintenance Releases to Customer promptly upon
availability. Other support, maintenance, and training to be provided by
InterGroup is specified in Exhibit B. Any other charges associated with
providing maintenance, support, or training are specified in Exhibit B.
Section 4
Covenants
---------
4.1 Confidentiality. Each party hereto covenants that it will keep
---------------
confidential all information relating to the Product or to the other party's
business, finances, marketing and technology which is (a) disclosed in written
or tangible form clearly marked as being confidential or (b) disclosed orally,
provided any such disclosure is summarized and identified as being confidential
in a writing delivered to the other party within 10 days of disclosure and that
it will take all reasonable precautions to protect such confidential information
of the other party or any part thereof from any use, disclosure, or copying,
except to the extent technical information relating to the Product is used, by
the Customer (or its consultants or contractors) for the purpose of (i)
developing Application programs incorporating the Product, (ii) obtaining any
necessary governmental approvals, or (iii) otherwise performing its rights or
obligations as contemplated by this agreement. Confidential information of a
party shall not include information which (i) is or becomes available to the
public through no fault of the other party, (ii) is disclosed to the other party
by a third party who had lawfully obtained such information and without a breach
of such third party's confidentiality obligations, (iii) is developed
independently by the other party, or (iv) the party had given written permission
to the other party to not keep confidential. The Product source code, any
object code file derived in whole or in part from VisualWare source code other
than those created for
3
<PAGE>
distribution to customers, the "VisualWare Integrators Reference Manual", and
the "VisualWare Control Reference Manual" are confidential trade secrets of
InterGroup.
4.2 Injunctive Relief In the event of a breach of any of the provisions of
-----------------
Section 4.1, both parties agree that the other will not have an adequate remedy
at law, and accordingly each party agrees that the other, in addition to any
other available legal or equitable remedies, is entitled to seek injunctive
relief against such breach without any requirement to post a bond as a condition
of such relief.
4.3 Reverse Compiling The Customer shall prohibit its licensees, by appropriate
-----------------
language in its license agreement, from attempting to create, by reverse
compiling or disassembling or otherwise, any part of the source program for the
Product from the object code.
4.4 Copies The Customer may make machine readable copies of the Product and
------
copies of the Documentation and other documents as necessary for the use
authorized in this Agreement. All copies, whether in machine readable, printed,
or other form, are part of the Product and the Customer must include on all such
material InterGroup's notice of its proprietary rights in the form set forth in
the Product as delivered to the Customer. Customer may, at its option, remove
all references to InterGroup and others from the Product, provided that
Customer will include InterGroup's copyright notice in ASCII text in the object
code and will not remove any such notices from the source code. A static
character array defined in vw.cpp will contain InterGroup's copyright notice.
This character array should be included in any program that includes any source
code or object code from the VisualWare system.
4.5 Access The Customer may make the Product accessible to its employees and
------
agents only to the extent needed to exercise the licenses granted hereunder.
4.6 General Payment Terms InterGroup reserves the right to charge interest on
---------------------
past due amounts at a rate equal to twelve percent (12%) annum. In the event
that InterGroup is required to take legal action to collect unpaid amounts and
InterGroup is successful in such action, the Customer shall reimburse all costs
and reasonable attorneys fees incurred by InterGroup in such collection.
InterGroup reserves the right, upon 30 days notice, either generally or with
respect to any specific order by the Customer, to vary, change, or limit the
amount or duration of credit allowed the Customer.
4.7 Software Certification InterGroup may, at any time, require Customer to
----------------------
certify in writing that Customer has performed its obligations pursuant to this
Software License Agreement.
4
<PAGE>
Section 5
Warranty and Indemnification
----------------------------
5.1 Express Warranties. InterGroup hereby represents and warrants to Customer
------------------
that (i) InterGroup has all rights, absolute title and interest in and to the
Product subject to no adverse claim, lien, encumbrance or license or rights of
any nature of any third party, including, but not limited to, ownership, patent,
trademark, copyright or trade secrecy claims or rights of any kind, (ii) the
Product will substantially conform to its published specifications and
Documentation, (iii) the Product is not in the public domain, and (iv)
InterGroup has the full and unrestricted right, power and authority to enter
into this Agreement, to license the Product to the Customer and to consummate
the transactions contemplated hereby.
This warranty is limited and shall not apply to failure of the Product to
satisfy this warranty which results from (i) improper use of the Product,
(ii) operation of the Product outside the environmental conditions specified on
the Documentation, (iii) modifications to the Product not made by InterGroup,
(iv) other conditions external to the Product that occur following delivery of
the Product by InterGroup, or (v) any Release of the Product that is designated
"beta test software" or "pre-release software" by InterGroup. At the time of
execution of Agreement, no part of Product is not of InterGroup origin, less the
tools used (e.g. C compiler) to create Product.
5.2 EXCLUSION OF IMPLIED WARRANTIES. ANY AND ALL OTHER WARRANTIES AS TO THE
-------------------------------
PRODUCT AND DOCUMENTATION, INCLUDING IMPLIED WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE OR USE, ARE SPECIFICALLY EXCLUDED, WAIVED AND
NEGATED. INTERGROUP MAKES NO WARRANTIES AS TO THE ACCURACY OR COMPLETENESS OF
USER DOCUMENTATION OR THAT THE PRODUCT IS ERROR FREE.
5.3 LIMITATION OF LIABILITY. (a) NEITHER INTERGROUP NOR CUSTOMER NOR ANYONE
-----------------------
ELSE WHO HAS BEEN INVOLVED IN THE CREATION, PRODUCTION, OR DELIVERY OR
DISTRIBUTION OF THE PRODUCT SHALL BE LIABLE FOR ANY INDIRECT, INCIDENTAL, OR
CONSEQUENTIAL DAMAGES, SUCH AS, BUT NOT LIMITED TO, LOSS OF ANTICIPATED PROFITS
OR BENEFITS, LOSS RESULTING FROM THE USE OF THE PRODUCT OR ARISING OUT OF ANY
BREACH OF ANY WARRANTY. EXCEPT AS EXPRESSLY PROVIDED ABOVE, AND EXCEPT FOR THE
OBLIGATIONS OF CUSTOMER PURSUANT TO THIS AGREEMENT AND ITS EXHIBITS, NEITHER
PARTY SHALL HAVE ANY LIABILITY FOR ANY CLAIM OF ANY KIND OR NATURE, INCLUDED BUT
NOT LIMITED TO SUCH PARTY'S NEGLIGENCE, ARISING OUT OF OR IN ANY WAY RELATED TO
THIS AGREEMENT, OR IN CONNECTION WITH ANY USE, DISTRIBUTION, OR OTHER EMPLOYMENT
OF ANY PRODUCT LICENSED TO THE CUSTOMER HEREUNDER, WHETHER SUCH LIABILITY ARISES
FROM ANY CLAIM BASED UPON CONTRACT, WARRANTY, OR OTHERWISE, WHICH MAY BE
ASSERTED BY THE CUSTOMER OR INTERGROUP.
(b) INTERGROUP'S LIABILITY TO THE CUSTOMER FOR DIRECT LOSS OR DAMAGE WHETHER IN
NEGLIGENCE, CONTRACT, OR OTHERWISE ARISING OUT OF OR IN CONNECTION WITH THIS
AGREEMENT, OR THE OPERATION OR FAILURE TO OPERATE OF THE PRODUCT, SHALL IN ANY
EVENT BE LIMITED IN RESPECT OF ANY ONE INCIDENT OR SERIES OF CONNECTED INCIDENTS
TO THE SUM OF THE MONIES PAID TO INTERGROUP BY THE CUSTOMER UNDER THIS
AGREEMENT.
(c) The foregoing limitation of liability shall not apply to InterGroup's
indemnification and hold harmless obligations set forth in Section 5.5 hereof.
5
<PAGE>
5.4 Customer Notification. The Customer will notify InterGroup in writing of any
---------------------
claim or other legal proceeding involving the Product promptly after Customer
becomes aware of any such claim or proceeding. The Customer will also report
promptly to InterGroup all claimed or suspected failures of the Product to
conform to the User Documentation promptly after the Customer becomes aware of
any such claimed or suspected failure.
5.5 Indemnification by InterGroup. InterGroup represents and warrants that the
-----------------------------
Product as delivered to the Customer does not infringe any copyright or
trademark, trade secret, patent or other intellectual property right of any
third party. InterGroup will defend, indemnify and hold harmless the Customer
against any claims, demands, costs, and liabilities arising out of infringement
of the aforementioned rights, provided that, subject to Section 5.7 hereof, the
Customer gives InterGroup prompt written notice thereof, grants InterGroup
control of the defense and any related settlement negotiations and cooperates
with InterGroup in the defense of such claim. In the event that use of the
Product is finally enjoined, InterGroup, at its option, will either (i) procure
for Customer the right to use that Product (ii) replace the Product with a
substantially equivalent program the use of which is not so enjoined and
reimburse Customer for the cost of substituting such replacement in all Customer
Applications, or (iii) refund the license fee paid for the Product provided
however, that inasmuch as it is the desire of the parties that the Customer
continue to have use of the Product or of a substantially similar program, in
the event that use of the Product is finally enjoined, InterGroup will not elect
to refund the license fee unless it determines, in good faith, that procuring
for the Customer the right to use the Product or providing and equivalent
replacement program would not be economically feasible. Notwithstanding the
foregoing, InterGroup shall have no liability to Customer if the infringement
results from (a) use of the Product in combination with particular software or
hardware, if such infringement would not have resulted from the use of the
Product with other software or hardware, whether or not such other software or
hardware is capable of performing the same functions as the particular software
or hardware actually used in combination with the Product, (b) modifications to
the Product not made by InterGroup if such infringement would have been avoided
by the absence of such modification, or (c) use of other than the version of the
Product most recently offered to Customer (and if Customer is not then covered
by a maintenance agreement with InterGroup, offered without charge) if such
infringement would have been avoided by use of such a current version. THE
FOREGOING STATES THE ENTIRE LIABILITY OF INTERGROUP WITH RESPECT TO INFRINGEMENT
OF INTELLECTUAL PROPERTY RIGHTS OR CONTRACTUAL RIGHTS OF THIRD PARTIES BY THE
PRODUCT(S) OR ANY PARTS THEREOF.
5.6 Exclusive Remedies. The Customer's exclusive remedies for any claims for
------------------
against InterGroup arising out of the Warranty set forth in Section 5.1 shall be
limited to the following, at the option of InterGroup: (a) replacement by
InterGroup of the Product with software that functions in accordance with the
User Documentation: (b) repair by InterGroup of the Product, by patch or
workaround, so that it functions substantially in accordance with the User
Documentation or, (c) refund by InterGroup of the monies paid by Customer and
received by InterGroup in respect of the Product, provided, however, that
inasmuch as it the desire of the parties that the Customer continue to have use
of the Product in the event of a claim arising out of the Warranty set forth in
Section 5.1, InterGroup will not elect to refund monies unless it determines, in
good faith, that replacing or repairing the Product would not be technologically
or economically feasible. Customer acknowledges that this in Section 5.6 limits
its remedies in the event that InterGroup has breached its obligations to
Customer. WITHOUT LIMITING THE FOREGOING, INTERGROUP AND THE CUSTOMER AGREE THAT
IF ANY REMEDY HEREUNDER IS DETERMINED TO HAVE FAILED OF ITS ESSENTIAL PURPOSE,
ALL LIMITATIONS AND EXCLUSIONS OF LIABILITY SET FORTH HEREIN SHALL REMAIN IN
EFFECT.
5.7 (i) InterGroup shall have the right to defend an indemnification claim made
under Section 5.5 hereof so long as (A) InterGroup provides Customer with
evidence acceptable to Customer that InterGroup will have the financial
resources to defend against the claim and fulfill the indemnification
obligations hereunder (B) InterGroup conducts the defense of the claim actively
6
<PAGE>
indemnification obligations hereunder, (B) InterGroup conducts the defense of
the claim actively and diligently. (ii) So long as InterGroup is conducting the
defense of the claim in accordance with (i) above, (A) Customer may retain
separate co-counsel at its sole cost and expense and participate in the defense
of the claim, (B) Customer will not consent to the entry of any judgement or
enter into any settlement with respect to the claim without the prior written
consent of InterGroup (not to be withheld unreasonably), and (C) InterGroup will
not consent to the entry of any judgement or enter into any settlement with
respect to the claim without the prior written consent of Customer (not to be
withheld unreasonably). (iii) In the event any of the conditions in (i) above is
or becomes unsatisfied (A) Customer may defend against, and consent to the entry
of any judgement or enter into any settlement with respect to, the claim in any
manner it may deem appropriate (and Customer need not consult with, or obtain
any consent from, InterGroup in connection therewith) InterGroup will reimburse
the Customer for Customer's costs of defending against the claim (including
reasonable attorney's fees and expenses).
Section 6
Term and Termination
--------------------
6.1 Term This Agreement and the license granted hereunder shall be effective on
----
the date the Agreement is signed by both parties hereto and unless terminated
earlier in accordance with the provisions of this Section 6 shall continue in
perpetuity.
6.2 Termination for Cause. The occurrence of any of the following events shall
---------------------
entitle InterGroup to terminate this Agreement:
a) The default by Customer in the payment of any amount due hereunder, if any,
after written notice of a thirty (30) day grace period to allow Customer to
cure such default.
b) The breach by Customer of the provisions of Sections 2.1, 2.3, or, 4.1, if
any, after written notice of a thirty (30) day grace period to allow Customer
to cure such breach, if such breach can be cured.
6.3 Effect of Termination If this Agreement is terminated a) the license granted
---------------------
hereunder shall be terminated; b) Customer's right to distribute the licensed
Product shall end immediately; and c) Customer shall return or destroy all
copies of Product in Customer's possession and certify in writing that all
copies of Product have been destroyed or returned.
Notwithstanding any provisions herein to the contrary, following any termination
of this Agreement and for so long as thereafter (but not to exceed 4 years) as
is necessary for Customer to satisfy, and solely to satisfy, its then existing
contractual obligations for maintenance services to its end users, Customer
shall have a limited license to use the Product solely for such purposes.
None of Customer's existing sublicenses to its end users for Product in
Customer's proprietary computer software application(s) shall be affected by any
termination of this Agreement and all such end user sublicenses shall remain in
full force and effect until the end of their then respective terms.
6.4 No Damages for Termination. Neither InterGroup nor Customer shall be liable
--------------------------
to the other for damages of any kind, including but not limited to profits or
incidental, punitive or consequential damages, relative to proper termination of
the licenses granted by this agreement in accordance with section 6.1 or 6.2,
even if advised of the possibility of such damages.
7
<PAGE>
6.5 Survival. Sections 2.3.4.1, all of Section 5, and section 6.3 as well as
--------
Customer's obligations to pay InterGroup all sums due hereunder, shall survive
termination or expiration of this Agreement.
6A.1 InterGroup hereby grants and Customer hereby accepts a license to use the
Trademarks (as hereinafter defined) in connection with the reproduction,
marketing, licensing, sub-licensing, transfer, and distribution of the Product.
All rights in the Trademarks shall remain at all times the sole property of
InterGroup and all use of the Trademarks shall inure to the benefit of
InterGroup. For purposes of this Agreement, the term "Trademark" shall mean the
following names and designations: VisualWare and InterGroup. Customer shall
insure that none of the Trademarks (or any variation thereof) appear in any
portion of Customer's name or any name under which Customer does business.
SECTION 7
Miscellaneous Provisions
------------------------
7.1 Headings. Headings in this Agreement are included solely for convenience of
--------
reference and are not to be considered part of this Agreement.
7.2 No Joint Venture. This is an Agreement between separate legal entities and
----------------
neither is the agent or employee of the other for any purpose whatsoever. The
parties do not intend to create a partnership or joint venture between
themselves. Neither party shall have the right to bind the other to any
Agreement with a third party or to incur any obligation or liability on behalf
of the other party.
7.3 Waiver. The failure of either party to exercise any of its rights under
------
this Agreement or to require the performance of any term or provision of this
Agreement, or the waiver by either party of such breach of this Agreement, shall
not prevent a subsequent exercise or enforcement of such rights or be deemed a
waiver of any subsequent breach of the same or any other term or provision of
this Agreement. Any waiver of the performance of any of the terms or conditions
of this Agreement shall be effective only if in writing and signed by the
party against which such waiver is to be enforced.
7.4 Validity. If any of the terms and provisions of this Agreement are invalid
--------
or unenforceable, such terms or provisions shall not invalidate the rest of the
Agreement which shall remain in full force and effect as if such invalidated or
unenforceable terms or provisions had not been made a part of this Agreement. In
the event this Section 7.4 becomes operative, the parties agree to attempt to
negotiate a settlement that carry out the economic intent of the term(s) found
invalid or unenforceable.
7.5 Force Majeure. If circumstances beyond the control of the parties shall
-------------
temporarily make it impossible for either or both of them to perform their
agreements hereunder, then the principles of force majeure shall apply and the
rights and obligations of the parties shall be temporarily suspended during the
force majeure period to the extent that such performance is reasonably
affected thereby.
7.6 Notices. All notices and other communications herein provided for shall be
-------
sent by postage prepaid, registered or certified mail, return receipt requested,
or delivered personally to the parties at their respective addresses as set
forth on the first page of this Agreement or to such other address as either
party shall give to the other party in the manner provided herein for giving
notice. Notice by mail shall be considered given on the date received. Notice
delivered personally shall be considered given at the time it is delivered.
8
<PAGE>
7.7 Transfer, etc. Neither party may assign, transfer or delegate this Agreement
-------------
or any such party's right and obligation hereunder to any third party hereto,
without the consent of the other party, which consent shall not be unreasonably
withheld. Each party may assign this Agreement and such party's rights and
obligations hereunder to a subsidiary or affiliate so long as such party remains
primarily liable for its obligations hereunder. In addition, either party may
assign this Agreement, and its rights and obligations hereunder, to any party
that acquires substantially all of such party's stock or assets relating to that
portion of such party's business that is related to the subject of this
Agreement. Any attempted assignment, delegation, or transfer in contravention
of this Agreement shall be null and void.
7.8 Successors and Permitted Assigns. This Agreement shall inure to the benefit
--------------------------------
of and be binding upon each of the parties hereto and their respective
successors and permitted assigns.
7.9 Complete Agreement. This Agreement contains the whole Agreement between the
------------------
parties concerning the subject matter hereof and there are no collateral or
precedent representations, agreements or conditions not specifically set forth
herein.
7.10 Modification or Amendment. Any modification or amendment of any provision
-------------------------
of this Agreement must be in writing, signed by the parties hereto and dated
subsequent to the date thereof.
7.11 Laws Governing Agreement. The validity of this Agreement and the rights,
------------------------
obligations and relations of the parties hereunder shall be construed and
determined under and in accordance with the laws of the State of Washington
without giving effect to the conflict of laws of such State.
7.12 No Third Party Beneficiaries. The provisions of the Agreement are solely
---------------------------
for the benefit of the parties hereto, and not for the benefit of any other
person, persons or legal entities.
Object Power Incorporated InterGroup Technologies Inc.
- ------------------------- ----------------------------
Name /s/ John J. Donovan, Jr. Name /s/ Thomas P. McKenna, Jr.
-------------------------- ---------------------------
Title President Title President
-------------------------- ---------------------------
Date Aug 23, 1995 Date Aug 24, 1995
-------------------------- ---------------------------
9
<PAGE>
Exhibit A
Pursuant to Section 1.1, Product, of the Agreement, this Exhibit A defines the
Product and the components of the Product that will be supplied to Customer.
"Product" for the purposes of this Agreement to be delivered to Customer are the
versions of VisualWare for Windowsdesigned for the following "Platforms":
16 Bit Windows Platform
32 Bit Windows Platform including Windows NT and Windows 95 (when
available)
The following will also be supplied for each Product Platform:
1. VisualWare Software Developer's Kit (SDK)
The set of VisualWare software and documentation components necessary to
integrate VisualWare into the Application. This set includes
. software files to build a copy of VisualWare with a Customer specific name
that is different than VW.DLL,
. C headers files and library files for linking VisualWare to the Customer's
Application,
. files containing the VisualWare on-line documentation required for the
integration of the VisualWare help text into the Customer's Application,
. the VisualWare Control Reference Manual in hard copy and machine readable
form.
. the VisualWare Integrators Reference Manual in hard copy and machine readable
form.
. The VisualWare Application Programmer's Interface (API) software which will
implement and conform with the VisualWare Integrators Reference Manual.
. an OCX interface to VisualWare (The "OCX Wrapper") - provided on an "as is"
basis.
2. VisualWare Runtime Disk(s)
Contains all necessary run time files including sample applications.
Note: The Product to be licensed does not include any VBX or OCX data controls.
10
<PAGE>
Exhibit B
1.0 License Fees (All fees are in US Dollars):
1.1 License fee for Windows/Intel Product Platform. Customer shall pay
-----------------------------------------------
InterGroup a royalty free, one time license fee of $200,000 for the 16 bit
Windows Product Platform. The payment schedule is described in Section 1.2
below. The 32 bit Windows Product Platform will be provided at no extra charge
to the Customer in accordance with Exhibit A of this Agreement. This license
will authorize Customer to integrate Product into the Object Power Visual
Workbench on those Product Platforms.
1.2 Payment Schedule: The payment schedule is as follows:
----------------
Payment 1: $100,000.00 - Due within 10 days of execution of this Agreement.
Source code will be delivered no more than three (3) days after Payment 1 is
received.
Payment 2: $50,000.00 - Due no later than September 29, 1995.
Payment 3: $50,000.00 - Due no later than December 30, 1995.
1.3 Press Release - Object Power and InterGroup will issue a mutually acceptable
-------------
co-press release announcing Object Power's licensing of InterGroup's Technology
within two weeks after this Agreement is signed.
2. Maintenance and Support Charges
2.1 For the second, third, fourth, and fifth twelve month periods following the
date of this Agreement, Customer can elect to purchase optional support and
maintenance at the rate of $20,000 per year for the Customer's first Application
using the Product and $20,000 per year for each additional Application per
Product Platform. Payments will be semi-annual in advance. If such support and
maintenance is purchased, there will be no additional charges for Product or
Maintenance Releases during these twelve month periods.
11
<PAGE>
Exhibit C
Customer Application(s)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Application Name Description Scheduled
Release Date
- --------------------------------------------------------------------------------
<S> <C> <C>
Visual Workbench * Application Development Environment N/A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
*Which is a single Application and not a suite of Applications
12
<PAGE>
Exhibit D
Additional Licensing Restrictions
A. Definition of components
------------------------
1. Design Time Software (DESIGNSOFTWARE)
DESIGNSOFTWARE is software or a software component that allows the
creation of applications. DESIGNSOFTWARE contains User interface
elements and a scripting language that allows the specification and
control of an application.
An example of DESIGNSOFTWARE is the Visual Basic development
environment. This environment allows the graphical development of
applications, with a scripting language used to control the behavior of
the application.
DESIGNSOFTWARE is typically licensed to the end user on a per-user
basis. Each user must pay for a copy of DESIGNSOFTWARE.
2. Run Time Software (RUNSOFTWARE)
RUNSOFTWARE is the software or software component that allows
applications created with DESIGNSOFTWARE to run without the application
development functionality provided by the DESIGNSOFTWARE. RUNSOFTWARE
does not provide functionality for users to create other applications.
An example of RUNSOFTWARE is the VBRUN300.DLL that comes with the Visual
Basic development environment. This component allows applications
developed with Visual Basic to be distributed without the need for the
development environment itself.
A licensed end user of DESIGNSOFTWARE usually has the rights to
distribute applications created with DESIGNSOFTWARE, along with a copy
of RUNSOFTWARE, on a royalty-free basis.
3. Control Manipulation Functionality (MANIPULATION)
MANIPULATION functionality consists of those components of VisualWare or
OutReach that allow the creation and manipulation of VBX or OCX control
instances. This includes:
1. Creation of VBX or OCX controls
2. Deletion of VBX or OCX controls
3. Setting properties of VBX or OCX controls
4. Retrieving properties of VBX or OCX controls
5. Moving, sizing and positioning of VBX or OCX controls
6. Showing and hiding of VBX or OCX controls
7. Responding to events that VBX or OCX controls generate
8. Creating, destroying, and interpreting VBX or OCX control data types:
HSZ,HLSTR and PIC.
An example of MANIPULATION functionality in Visual Basic is the ability
through the Basic language to move, size and position VBX or OCX
controls, as well as setting and retrieving their properties through the
Basic language.
13
<PAGE>
4. Model Management functionality (MANAGEMENT)
MANAGEMENT functionality consists of those components of VisualWare or
Outreach that allow for the loading, unloading, and enumeration of VBX or
OCX control files. A VBX or OCX control file is the DLL/VBX/OCX component
that contains the definition of the VBX or OCX model and the code that
supports the functionality of VBX or OCX custom controls.
Specifically, the following VisualWare functions comprise the MANAGEMENT
functionality (note: OutReach function names begin with OEM):
VWRegisterModelFile(VW vw, LPSTR fileName);
VWUnRegisterModelFile(VW vw, LPSTR fileName);
VWCanUnRegisterModelFile(VW vw, LPSTR fileName);
VWGetModel(VW vw, LPSTR modelName);
VWGetControlModel32(VWCONTROL control);
VWGetModelFile(VW vw, LPSTR modelName);
VWGetFirstModel(VW vw);
VWGetNextModel(VW vw, LPSTR modelName);
VWGetPropertyCount(VWMODEL vwModel);
VWGetEventCount(VWMODEL vwModel);
VWGetProperty(VWMODEL vwModel, WORD index);
VWGetEvent(VWMODEL vwModel, WORD index);
MANAGEMENT functionality also includes any functions that are built on,
derived from, or the result of any modifications to these functions.
MANAGEMENT functionality also includes any functions that perform similar
types of functionality, whether these functions are the results of
modifications to the VisualWare or OutReach source code, undocumented
interfaces to the VisualWare or OutReach source code, or other code that is
written, purchased, or developed.
B. Restrictions on use of VisualWare and Outreach
----------------------------------------------
1. Intent of restrictions
These restrictions are intended to protect both InterGroup Technologies and
companies who license the VisualWare or OutReach technology. These
restrictions are the same as those for Visual Basic and other application
development environments that support the use of VBX controls enforce.
These restrictions ensure that only those developers who purchase a
licensed product may create applications that utilize VBX or OCX controls,
while allowing applications that have been created with VBX or OCX controls
to be distributed on a non-royality or reduced price basis.
2. MANIPULATION functionality restrictions
MANIPULATION functionality may only be exposed to users through a User
Interface or a scripting mechanism provided with DESIGNSOFTWARE.
An example of this is Visual Basic, which allows VBX controls to be
manipulated by the property sheet and through the Basic language in the
Visual Basic development environment. Applications generated with Visual
Basic have internal support for manipulating the VBX controls in the
application through the VBRUN300.DLL and the compiled Basic scripts in the
application.
14
<PAGE>
Another example of this is the OUTREACH,DLL that comes with the consumer
version of OutReach for Windows. This DLL can be distributed by licensees
of OutReach for Windows free of charge with their applications. All of the
functionality exposed in this DLL conforms to MANIPULATION functionality.
3. MANAGEMENT functionality restrictions
MANAGEMENT functionality may be exposed only through User Interface
components in the DESIGNSOFTWARE.
MANAGEMENT functionality may only be used within RUNSOFTWARE to the extent
that the RUNSOFTWARE needs to load, unload and enumerate information to
initialize itself based on the VBX control files specified using the
DESIGNSOFTWARE, MANAGEMENT funtionality cannot be used in the RUNSOFTWARE
to allow the loading of VBX or OCX files not defined while using the
DESIGNSOFTWARE.
An example of this is Visual Basic, which allows VBX controls to be loaded
with the Visual Basic development environment through a User Interface
mechanism. The generated application will automatically load the VBX
control files that were specified during the design phase. There is no way
in which to access this functionality through the Basic language, in either
the design phase or the runtime phase.
<PAGE>
EXHIBIT 10.6A
BUSINESS@WEB CONFIDENTIAL
Agreement
---------
This "Agreement" is made as of this 21st day of May, 1996 by and between
Business@Web, Inc., formerly known as Object Power, Incorporated, having its
principal place of business at One Arsenal Marketplace, 2/nd/ Floor, Watertown,
MA 02172 ("Business@Web"), and InterGroup Technologies, Inc., having its
principal place of business at 14205 S.E. 36/th/ Street, Suite 100, Bellevue, WA
98006 ("InterGroup").
Reference is made to the Software License Agreement (the "SLA") and the
Source Code License Agreement (the "SCLA"), each made between Business@Web and
InterGroup dated as of August 8, 1995 (the "Agreements").
1. Maintenance. Business@Web does not want, and InterGroup need not provide,
further maintenance or support, including a copy of the source for VisualWare
for Windows 3.0.
2. Consultant Confidentiality. Business@Web will, within ten (10) days from the
full execution hereof, forward to InterGroup copies of Exhibit A
confidentiality agreements for each consultant who has been allowed access to
the InterGroup source code. Business@Web represents and warrants that no
person other than consultants who signed the agreement, and Business@Web
employees who (in Business@Web's sole judgment) had a need to know, have been
given access to the source code.
3. Brainstorm. Business@Web represents and warrants that Brainstorm is licensed
to use the Business@Web application which contains the InterGroup Product
object code only for testing and evaluation purposes under an agreement which
prohibits its reverse engineering, and Brainstorm is not licensed to embed,
repackage, market, sublicense or distribute the Product.
4. Buying Stock. Business@Web warrants that Business@Web will not, and to the
extent within its control will not permit any of its directors or officers
to, offer to buy the stock of InterGroup unless such stock first becomes
registered and publicly traded.
5. Hiring Employees. Commencing upon full execution of this Agreement,
Business@Web agrees that it will not hire, whether as an employee, an
independent consultant or (to Business@Web's actual knowledge) as an employee
of an independent consultant, any current or former InterGroup employees
during a period of ending the earlier of (a) five years from the date hereof,
or (b) one year from the date of the employee's termination as an employee of
InterGroup.
6. Ritu Gorcsyca. As to "residual" information, or information which InterGroup
claims are its trade secrets, or any actual trade secrets, in the memory of
Ritu Gorczyca and learned by her from studying any material while an employee
of InterGroup or from (at any time) studying the source code licensed to
Business@Web under the SCLA, InterGroup hereby releases, discharges and holds
Business@Web harmless from and against all claims that disclosure to or use
by Business@Web of such information and/or such trade secrets, past or
future, is a misappropriation of InterGroup's confidential information or
trade secrets, and from all damages and liabilities related to or arising out
of such disclosure or use. Business@Web represents and warrants that, to
Business@Web's knowledge based solely on inquires with Ritu, Ritu has not
given to any Business@Web employee any document or file containing any
confidential information of InterGroup. InterGroup will provide Business@Web
with a copy of any written agreement between InterGroup and Ritu which
restricts
Page 1
<PAGE>
BUSINESS@WEB CONFIDENTIAL
her use or disclosure of any information, trade secrets or technology, or
which in any way restricts her ability to perform services to Business@Web.
7. Business@Web Employees with Access to Source. As to "residual" information
of what InterGroup claims are its trade secrets, or any actual trade secrets,
in the memory of any Business@Web employee who, with (as determined solely by
Business@Web) proper need to know, has used, studied or had access to the
VisualWare source code, including Bill Cullen, and learned either under the
SCLA or with InterGroup's authority, InterGroup hereby releases, discharges
and holds Business@Web harmless from all claims that the disclosure to and/or
use of such information by Business@Web, past or future, is a
misappropriation of InterGroup's trade secrets, and from all damages and
liabilities related to or arising out of such disclosure or use. Nothing
contained in the Agreements or in this Agreement shall restrict or prohibit
Business@Web from developing, marketing, distributing or licensing software
which performs the same function(s) or accomplishes the same result(s), as
the InterGroup Products, including without limitation product(s) which
operate on a different (non-Windows) platform(s).
8. Clarification of License. The parties agree to amend the Agreements as
follows:
(a) The language "which is a single application and not a suite of
applications" is deleted wherever it occurs, and replaced by "which may
be any number, or a suite of, Applications including extensions to
Applications; provided, that each Application (with or without
extensions) which is not offered free to the public must include all of
the InterGroup functionality of the least feature-full Application
having a license fee of more than $100".
(b) In the event that any application for a "Lotus GroupScape" type of
product is released by Brainstorm Technologies, Inc. under license from
Business@Web as an OEM, VAR or other agreement, then Business@Web shall
pay a royalty to InterGroup of 10% of the net revenue recognized by
Business@Web from such agreement over the first 5 years of such
agreement, with a non-refundable advance royalty payment of $50,000,
payable prior to the first product ship by Brainstorm (beta or
otherwise).
(c) Business@Web is also licensed to port any licensed Applications
(including without limitation the licensed Windows 16 bit and 32 bit
Applications), and to develop new Applications (which may or may not use
or include the InterGroup Products), to work in conjunction with any
version of Unix, MacIntosh and any other operating system; provided,
that any ported or new Application(s) which are derivative works of the
InterGroup Products will be subject to the restrictions contained in
Exhibit D, and may only be marketed as part of bundled Application(s)
which contain the InterGroup Products and not on a standalone basis;
these restrictions shall not apply to any new product which is not a
derivative work of and is not in fact based upon, the InterGroup
Products.
(d) Business@Web agrees that each Application marketed under the SLA must be
marketed under the trademark "OpenScape" or under a successor mark (or a
successor to a successor, etc.), which must be displayed prominently on
its Application packaging and marketing collateral.
Business@Web may directly or indirectly market, distribute, license and
otherwise deal with the Application(s) which incorporate the InterGroup
Product, under such additional trademarks or
Page 2
<PAGE>
BUSINESS@WEB CONFIDENTIAL
product designations as Business@Web or its distributors see fit;
provided, that before any product is released under such additional
trademark or designation, Business@Web will pay a one-time fee to
InterGroup of $80,000, unless otherwise negotiated.
9. Payment. Business@Web agrees to pay InterGroup a one-time fee in the amount
of $450,000, payable in the following four (4) installments: (i) $200,000
within 5 days, (ii) $150,000 on or before July 31, 1996, (iii) $50,000 on or
before September 30, 1996, and (iv) $50,000 on or before December 31, 1996.
10.General Release. InterGroup hereby permanently, irrevocably releases,
discharges and agrees to hold Business@Web and all of its directors,
officers, employees, predecessors, successors, assigns, subsidiaries,
affiliates, distributors and related parties harmless, from and against any
and all claims, causes of action, damages and liabilities of every kind and
nature, based on facts known to InterGroup to date, arising in any way out of
the Agreements from the beginning of time to date, including without
limitation any and all claims contained or referred to herein or in the
correspondence between the parties to date or which could have been raised
based on the facts or issues raised in such correspondence.
11.No Admission. This Agreement is entered into in compromise and settlement of
a disputed claim, and does not constitute, and cannot be construed as, an
admission of breach, default or liability of either party under the
Agreements or otherwise. Without limiting the foregoing, Business@Web
specifically denies the validity of any claims or assertions made by
InterGroup regarding any trade secrets which InterGroup claims to exist or
relating to any actions alleged to have been taken by Business@Web outside of
the scope of licenses granted under the Agreements, and specifically denies
InterGroup's asserted interpretations of the Source Code Agreement and the
Software License Agreement, and denies having committed any breach(es) under
the Agreement, or having misappropriated any of InterGroup's technology.
12.Confidentiality. Each party agrees that it will not disclose either the fact
that this Agreement has been executed, or the contents, nature, terms or
conditions of this Agreement, except (i) in the case of InterGroup, to Tom
McKenna or Andy Gelfond, or (ii) in the case of Business@Web, to such of its
executive officers and technical employees who have a need to know,
(iii) either party may inform its employees who might be affected concerning
the terms of Section 5, (iv) in each party's case, to such of its
accountants, attorneys, technical and professional advisors and other
professionals to whom such disclosure is necessary in the course of such
party's business and who have agreed to keep such information confidential as
required herein, and (v) as required in order for either party to comply with
audit, reporting, tax, securities, disclosure and other requirements of
Federal, state and local laws, statutes, rules, regulations and legal and
administrative orders. Each party will refrain from making derogatory
statements to third parties concerning the other party's products.
13.Further Assurances. Each party agrees, at the request of the other party, to
negotiate in good faith a definitive agreement which embodies the terms
hereof, and to execute such other amendments, documents, agreements and
instruments, and to take such other actions as may be reasonably required in
order to effect and evidence the transactions contemplated herein.
Page 3
<PAGE>
BUSINESS@WEB CONFIDENTIAL
14. Enforcement. In the event of any legal action between the parties to
enforce the terms of this Agreement or the Agreements, the prevailing party
shall be entitled to recover its reasonable attorney's fees.
15. Amendment. The parties agree that this Agreement contains terms and
conditions which are in addition to and/or modify the terms and conditions
of the Agreements. In the event of a conflict between the terms of this
Agreement and the terms of the Agreements, the terms of this Agreement
shall control. The parties further agree that the breach of any term,
condition or obligation hereof shall be a breach under the Agreements, and
that in the event that either party commits a breach or default hereunder
and fails to cure such breach within 30 days of notice thereof from the
non-breaching party, the non-breaching party, in addition to all of its
other rights and remedies hereunder, at law or in equity, shall be
entitled to exercise its rights and remedies under the Agreements.
IN WITNESS WHEREOF, Business@Web, Inc. and InterGroup
Technologies, Inc. have caused this Agreement to be executed as a document under
seal by their duly authorized representatives as of the date set forth above.
Business@Web, Inc. InterGroup Technologies, Inc.
By: /s/ Eric D. Sockol By:
----------------------------- ----------------------------
Name: Eric D. Sockol Name:
--------------------------- --------------------------
Title: CFO Title:
-------------------------- -------------------------
Date: 5/21/96 Date:
--------------------------- --------------------------
Business@ Web InterGroup Agreement Page 4
<PAGE>
BUSINESS@WEB CONFIDENTIAL
14. Enforcement. In the event of any legal action between the parties to
enforce the terms of this Agreement or the Agreements, the prevailing party
shall be entitled to recover its reasonable attorney's fees.
15. Amendment. The parties agree that this Agreement contains terms and
conditions which are in addition to and/or modify the terms and conditions
of the Agreements. In the event of a conflict between the terms of this
Agreement and the terms of the Agreements, the terms of this Agreement
shall control. The parties further agree that the breach of any term,
condition or obligation hereof shall be a breach under the Agreements, and
that in the event that either party commits a breach or default hereunder
and fails to cure such breach within 30 days of notice thereof from the
non-breaching party, the non-breaching party, in addition to all of its
other rights and remedies hereunder, at law or in equity shall be
entitled to exercise its rights and remedies under the Agreements.
IN WITNESS WHEREOF, Business@Web, Inc. and InterGroup
Technologies, Inc. have caused this Agreement to be executed as a document under
seal by their duly authorized representatives as of the date set forth above.
Business@Web, Inc. InterGroup Technologies, Inc.
By: By: /s/Thomas P. McKenna, Jr.
------------------------------- ------------------------------
Name: Name: Thomas P. McKenna, Jr.
----------------------------- ----------------------------
Title: Title: CEO
---------------------------- ---------------------------
Date: Date: 5/21/96
----------------------------- ---------------------------
Business@Web/InterGroup Agreement Page 4
<PAGE>
Business@Web
------------
May 22, 1996
FACSIMILE and
FEDERAL EXPRESS
Mr. Jeff Haley, Esq.
Graybeal, Jackson, Haley & Johnson
777 108th Ave. N.E., Suite 2460
Bellevue, WA 98004
Dear Jeff:
I am writing as we discussed to clarify a few issues under the Agreement made
between Business@Web, Inc. ("Business@Web") and InterGroup Technologies, Inc.
("InterGroup") dated May 21, 1996 (the "Agreement"). Please confirm that you
agree with the following:
1. InterGroup has withdrawn its notice of breach under the Software License
Agreement as contained in your letter to me dated May 16, 1996. Accordingly,
Business@Web's licenses under the license agreements from InterGroup will
not terminate on June 16, 1996, as provided in such letter, but will remain
in full force and effect in accordance with their terms.
2. Section 12, subparagraph (iii) currently permits disclosure to "such of its
executive officers employees who might be affected concerning the terms of
Section 5". This is amended by adding: "(in the case of Business@Web, such
disclosure is further permitted to such of its officers, directors,
employees and consultants who (as determined by Business@Web) need to know
in order for Business@Web to comply with the restrictions of Sections 4
and/or 5)".
3. Enclosed is a copy of the Exhibit A Consultant Confidentiality Agreement
signed by Mosum, Inc., in fulfillment of Business@Web's obligations under
Section 2 of the Agreement. This agreement, dated May 9, 1996, is accepted
in full compliance of Business@Web's obligations under Paragraph 6.10 of the
Source Code License Agreement with respect to Mosum, Inc.; InterGroup waives
the requirement that such agreement be obtained "prior to" Mosum, Inc.'s
having had access to the InterGroup source code.
Please indicate your agreement and the consent of InterGroup Technologies, Inc.,
to the foregoing matters by signing where indicated below, and by returning a
facsimile today, and an original when received.
I look forward to your reply. AGREED:
------
Very truly yours,
/s/Jeff Haley
/s/Craig Newfield ----------------------------
Craig Newfield Jeff Haley, Esq.
General Counsel Counsel to InterGroup Technologies, Inc.
cc: Bill Cullen
Stephen D. Poss, P.C., Goodwin, Procter, & Hoar LLP
- --------------------------------------------------------------------------------
One Arsenal Marketplace, 2nd Floor * Watertown, MA 02172
Phone: 617/923-6500 * Fax: 617/923-6385 * URL: http://www.busweb.com *
email: [email protected]
6
<PAGE>
EXHIBIT 10.7
SOURCE CODE LICENSE AGREEMENT
-----------------------------
THIS LICENSE AGREEMENT made as of February 8 , 1996, by and between
-------------
Mentor Communications Ltd., a Delaware corporation ("Licensor") and Object
- -------------------------- ------------ --------
Power, Incorporated, a Delaware corporation ("Licensee").
- -------------------- ------------
WHEREAS, Licensor has developed and is the sole owner of certain computer
software described on Exhibit A hereto (the "Software"); and
---------
WHEREAS, Licensee desires the right to use and modify the software solely
in connection with the development and sale of the Permitted Integrated Software
Product ("Permitted Product") (as hereinafter defined); and
WHEREAS, Licensor desires to grant to Licensee a nonexclusive license to
use and modify the Software subject to the terms and conditions hereof;
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
1. Definitions: For the purposes of this Agreement, the following
-----------
definitions shall govern:
(a) "Software" means the Licensor's software product or any portion
thereof, in both source and object code forms, as described on Exhibit A hereto.
---------
The Software shall include source code diskettes, and existing support
documentation.
(b) "Modification(s)" means any adaptation, modification, code rewrite
which performs the same functionality as the Software or any portion thereof,
improvement or enhancement of the Software developed to render the Software
usable or marketable in the Permitted Product, and it includes any composite
computer program developed by the Licensee or by the Licensor for the Licensee
which incorporates the Software, in its original or altered form.
(c) "Printed Listings" means printed copies of the source and object code
forms of the Software in human readable form, as initially provided by the
Licensor to the Licensee, and as produced by the Licensee in the course of its
development in the Permitted Product.
(d) "Modified Printed Listings" means printed copies of the source and
object code forms as a Modification in human readable form, as developed by the
Licensee, or by the Licensor for the Licensee.
<PAGE>
(e) "Permitted Integrated Software Product" ("Permitted Product") is the
product or products resulting from the integration of the licensed Software,
modifications thereto, or any portions thereof into the Licensee software
product(s) developed and/or marketed and sold by Licensee as explicitly defined
in Exhibit D, "Permitted Product". Included in this definition are versions of
the "Permitted Product" which incorporate the licensed Software or portions
and/or modifications thereof including modifications developed by Licensee,
others or others in conjunction with Licensee.
(f) "Permitted Parties" means Licensee employees or contractors assigned
to the development of the Permitted Product with a direct need to know, who have
signed appropriate confidentiality agreements which protect Licensor's rights
herein, and only those employees or contractors who work in the herein
designated Licensee's corporate location on 219 Vassar Street, Cambridge, MA.
2. License Restrictions:
--------------------
(a) Software. Subject to the terms and in consideration of the payment of
--------
the royalty specified in Section 3 hereof, Licensor hereby grants to Licensee,
and Licensee hereby accepts from Licensor, a worldwide, nonexclusive non-
transferable license to execute the Software in the Permitted Product as
described in Exhibit D hereto and to sublicense the Software and/or
modifications only for execution in the Permitted Product developed and sold by
Licensee. Licensee may not license or sublicense the licensed Software or
Modifications thereof as a separate functional module (or Component as defined
in the Permitted Product literature) of the Permitted Product.
(i) Licensee may request from Licensor the right to license or
sublicense the licensed Software or modifications thereof as a
standalone product in executable code form only, and Licensor at its
sole discretion may grant those rights. Licensee must receive
permission from Licensor in writing and specific permission for an
individual case shall not be construed by Licensee as a general
license to sell the licensed Software standalone.
(b) Printed Listings and Machine Readable Source Code. Licensor grants to
-------------------------------------------------
Licensee, and Licensee accepts from Licensor, a nonexclusive license to use
Printed Listings and machine readable source code for the sole purpose of
supporting Licensee's development of Permitted Product(s), Licensee's creation
of Modifications, and Licensee's development of Modified Printed Listings; and
to disclose, solely in accordance with the terms and conditions of this
Agreement Printed Listings or Modified Printed Listings to Permitted Parties.
(c) Ownership of Source Code and Permitted Party Restrictions.
---------------------------------------------------------
(i) Licensee acknowledges that the copyrights to the Software and
Modifications are owned by Licensor,
(ii) That the Software remain the property of Licensor and represent
confidential and valuable property information and trade secrets;
<PAGE>
(iii) That the Listings may be used only for the purpose of
maintaining the Permitted Product(s), or Modifications.
(iv) That any Permitted Party has signed a non-disclosure agreement
acceptable to Licensor and agrees that neither they nor any of their
officers, agents, directors, or employees shall sublicense, publish,
distribute, disclose, disseminate, copy, or reproduce the source code or
Listings thereof other than for use by Permitted Parties directly assigned
to development of the Permitted Product(s), and that they further agree to
take all reasonable and necessary steps to ensure that the confidentiality
of such Listings or machine readable source code is safeguarded and
preserved.
(v) Licensee agrees to maintain a file of all executed non-disclosure
agreements with Permitted Parties.
(vi) Licensee agrees to enforce the provisions and requirements of
these sections 2 (b) and 2 (c) against any Permitted Party to whom a copy
of the Listings or machine readable source code is provided.
(d) Modifications. Licensor hereby grants to Licensee, and Licensee
-------------
accepts from Licensor, a limited license to create Modifications by modifying
the Software for use in the Permitted Product(s) and by including portions of
the Software in object code form only (or a Modification) within composite
programs developed by Licensee for use in the Permitted Product(s), provided
--------
that:
(i) upon termination of this License Agreement, the Software or the
Modification will be completely removed from such programs and treated as
if permission to include the Software or modifications had never been
given;
(ii) the Modifications will be used only on the Permitted Product(s)
sold by License and shall be subject to all other terms and conditions of
this License Agreement;
(iii) Licensee shall include external copyright notices in the
following form: "(C) 199__ [LICENSOR] All rights reserved," or, if
appropriate, "Portions of this program, (C) 199 __ [LICENSOR] All rights
reserved," and internal copyright notices in the following form: "(C) 199
__ [LICENSOR]", or, if appropriate, "Portions of this program, (C) 199 __
[LICENSOR]" For purposes of this Section 2(c)(iii), "external copyright
notices" shall mean affixing such notice to the exterior label of every
diskette or magnetic medium and "internal copyright notice" shall mean
including the notice in the prescribed form in any visually perceptible
listing and including such notice upon a CRT or similar screen at sign on
or initiation of execution. Licensee also agrees to display the Licensor's
name in advertising literature pertaining to the Permitted Product and in
presentations where it is appropriate to display names of software vendors
whose products are included in the Permitted Product.
<PAGE>
(e) Export Restrictions. Licensees shall comply with all applicable laws,
-------------------
including without limitation, the export control laws of the United States and
prevailing regulations which may be issued from time to time by the United
States Department of Commerce and Department of State concerning the exporting
of the Software and Modifications in object code form only. Exporting of the
source code to the Software is expressly forbidden without written permission
from Licensor. Licensee shall, at its sole cost and expense, maintain in effect
all permits, licenses and other consents necessary to the conduct of its
activities hereunder. Without limiting the generality of the foregoing,
Licensee shall not export or re-export any of the Products to any country
without first obtaining the written consent of Licensor and, where necessary,
the United States government.
3. Payments and Royalties.
----------------------
(a) Up Front Payments: Licensee shall pay to Licensor $15,000 upon
-----------------
execution of this agreement, such payment to be made immediately upon execution.
Licensee agrees to pay Licensor an additional $1,000/man-day for any training or
consulting required by Licensee.
(b) Royalties:
---------
It is Licensee's intention to create a suite of products containing
some or all of the LDI's source code bundled with Licensee's code and sold
as integrated products. For each product, the product name, product
description, minimum royalty due to Licensor and percentage (%) royalty due
to Licensor as a percentage of Licensee's product pricing are listed in
Appendix D. From time to time new products which conform to the terms of
this agreement for the sale of integrated products may be added to Appendix
D; at such time a new mutually agreed upon percentage (%) royalty and
minimum royalty due to Licensor for such product will be added to this
agreement. Both parties agree under such conditions to negotiate in good
faith and to use the initially defined royalty calculations as a basis for
new products.
Royalties apply to both development tool licenses and runtime server
licenses. Licensee will provide Licensor with up to date Object Power
price lists.
(c) Maintenance Fees: On the date which is nine (9) months following
----------------
execution of this Agreement, Licensee shall pay Licensor a one-time maintenance
fee in the amount of $25,000. Any royalties previously paid pursuant to Section
3(b) above and 3(d) below will be credited against such maintenance fee. If on
the date which is nine (9) months following execution of the Agreement Licensee
fails to pay to Licensor any additional monies necessary to bring the total
royalties paid to Licensor as defined above up to $25,000, then by doing so they
have caused an Event of Default as defined in Section 9 and Licensor may
terminate the agreement invoking Licensor's Remedies as defined in Section 10 of
this agreement.
(d) Royalty Payments: Royalty payment will be made to Licensor by
----------------
Licensee in United States dollars no later than thirty (30) days from the end of
each quarter. Accompanying such payment will be an accounting of the number of
Permitted Products sold,
<PAGE>
by whom they were sold (in cases in which the Permitted Product was sold by a
reseller), and the prices at which they were sold.
4. Items Provided by Licensor.
--------------------------
(a) Within 10 days of the execution of this Agreement, Licensor shall
provide to Licensee one machine-readable copy of both the source code and the
object code for the Software.
5. Copyright Reservation; Protection of Confidentiality. Licensee
-----------------------------------------------------
acknowledges that the Licensor is the owner of all right, title and interest,
including without limitation copyright, in and to the Software and
Modifications, which Licensee acknowledges are valuable trade secrets of
Licensor, and that the Licensor may use, modify and license the Software and any
Modifications it makes without notice to Licensee. Further, Licensee agrees:
(a) to protect the confidential and proprietary nature of the source and
object code forms of the Software and any Modifications and to take such actions
as Licensor may request to create, perfect or protect Licensor's rights therein,
including without limitation executing such copyright and patent assignments as
may be necessary to effect such purpose;
(b) that neither Licensee nor any of its officers, agents, directors or
employees shall sublicense, publish, distribute, disclose, disseminate, copy or
reproduce the Software or any Modification except in machine readable form and
sold with the Permitted Product(s) or as provided by Section 2(c);
(c) that neither Licensee nor any of its agents or employees shall use the
Software or any Modification, except as expressly permitted herein;
(d) to place internal and external copyright notices in the form specified
in Section 2 hereof in and on copies of the Software and Modifications sold by
Licensee;
(e) not to use the Software or any Modification in any software or system
other than the Permitted Product(s); and
(f) further agrees to treat the Licensed Code in accordance with the
following terms:
(i) Licensee shall maintain, and make available to Licensor for
inspection during normal business hours, a written log of who has had
or is currently accessing the licensed Software.
(ii) The Software shall remain on Licensee's premises at all times.
<PAGE>
(iii) At all times during which any portion of the Software is in
use Licensee shall make reasonable efforts to preclude unauthorized
persons from having access to the licensed Software.
(iv) Licensee shall limit use of, and access to, the Software to
those of its employees who are directly involved in the permitted use
of the Software hereunder and have a need to know the contents of the
Software for the performance of their duties in connection with such
uses.
(v) Licensee shall cause all of its employees who have access to
any Software to observe and comply with all provisions of this
Agreement prohibiting the use or disclosure of the Software.
(vi) Licensee shall not, and shall not permit any of its employees
to, disclose or transmit any Software to any unauthorized Licensee
personnel or to any other individual, firm, corporation or entity.
(vii) Licensee shall not, and shall not permit any of its employees
to, (A) reproduce or copy the Software or any portion thereof without
the prior express written consent of Licensor or (B) remove any
copyright or proprietary notice contained or included in the Software.
(viii) Licensee shall (A) give written notice to Licensor of all
Licensee employees who have been given, or may have, access to the
Software, (B) obtained from all such Licensee employees a
confidentiality agreement substantially in the form of Exhibit [B] and
(C) at Licensor's request, furnish a copy of each such agreement to
Licensor.
(ix) At the request and expense of Licensor, Licensee shall use its
best efforts to assist Licensor in identifying and preventing any use
or disclosure of the Software by any present or former employee of
Licensee in any manner which is not expressly permitted by this
Agreement. Without limitation of the foregoing, Licensee shall
promptly advise Licensor if Licensee learns that any employee or
former employee who has had access to the Software has violated or may
violate any confidential information agreement signed by such employee
pursuant to subparagraph (2.c.iv) above and shall cooperate with
Licensor in seeking injunctive or other equitable relief, in the name
of Licensee or Licensor, against any such employees.
Recognizing and acknowledging that any use or disclosure of the Software in
a manner inconsistent with the provisions of this Agreement may cause Licensor
irreparable damage for which other remedies would be inadequate, Licensee agrees
that Licensor shall have a right to such injunctive or other equitable relief
from a court of competent jurisdiction as may be necessary or appropriate to
prevent any use or disclosure of the Software in any manner which has not been
authorized by Licensor.
<PAGE>
6. NO WARRANTY; LIMITATION ON LIABILITY.
------------------------------------
(a) THE SOFTWARE AND MODIFICATIONS ARE LICENSED TO LICENSEE "AS IS" AND
WITH ALL FAULTS. LICENSOR MAKES NO WARRANTIES, EITHER EXPRESS OR IMPLIED, WITH
RESPECT TO THE SOFTWARE OR MODIFICATIONS, INCLUDING, BUT NOT LIMITED TO, IMPLIED
WARRANTIES OF NONINFRINGEMENT, MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE, AND NEITHER LICENSOR NOR ANY OF ITS SUPPLIERS, DEVELOPERS OR OFFICERS
SHALL BE LIABLE FOR DIRECT, INDIRECT, SPECIAL, OR CONSEQUENTIAL DAMAGES SUCH AS
EQUIPMENT DOWN-TIME, LOSS OF DATA, LOSS OF BUSINESS, LOSS OF PROFITS, OR
INABILITY TO USE THE SOFTWARE OR MODIFICATIONS OR TO MARKET THE PERMITTED CPU,
WHETHER OR NOT FORESEEABLE AND EVEN IF LICENSOR OR ITS REPRESENTATIVE HAS BEEN
NOTIFIED TO THE POSSIBILITY OF SUCH DAMAGES.
(b) LICENSEE SHALL AND DOES HEREBY INDEMNIFY AND HOLD LICENSOR HARMLESS
FROM AND AGAINST ANY AND ALL LIABILITY OF ANY KIND OR NATURE WHATSOEVER TO
LICENSEE'S CUSTOMERS OR OTHER THIRD PARTIES ARISING OUT OF OR RESULTING FROM THE
SOFTWARE OR ANY MODIFICATION OR THE ACT OF LICENSEE WITH RESPECT THERETO OR THIS
AGREEMENT.
(c) The parties acknowledged that Licensor shall have no control over the
specific modifications made by the Licensor. Accordingly, Licensee shall bear
the entire risk that the modified Software, or Software included in any
composite program, infringes on any patent, copyright, trade secret or other
proprietary right of any third person and Licensee shall indemnify and hold
Licensor harmless from and against any such claim.
7. Purchase of Royalty Free License. After four (4) years from the date
--------------------------------
of execution of this agreement Licensee will have the right to purchase a
royalty free license for the originally delivered Software at execution of this
agreement, including Modifications made by Licensor for Licensee or by Licensee,
by paying Licensor any additional sums required to bring the total cumulative
Royalty Payments paid to Licensor (excluding the initial payments of $15,000 for
the sale of the Permitted Product(s)) up to $750,000. Should the Royalty
Payments to Licensor have equaled or exceeded $750,000 by the end of year four
(4) the license may, at the Licensee's request be converted to a royalty free
license. Licensee agrees to pay any legal costs associated with creating the
royalty free license and any fees required to execute the royalty free license.
Licensee agrees that the royalty free license would contain language similar
to that contained herein including but not limited to the language which
obligates Licensee to maintain and protect the confidentiality of the Software
and to limit its access to personnel doing development at the Licensee's
corporate location contained herein. Licensee also agrees that the royalty free
license would contain restrictions which prohibit Licensee and any Permitted
Party from selling, transferring, distributing, sublicensing, publishing,
disclosing, disseminating, copying or reproducing the Software and Modifications
except as provided herein. Licensee also agrees that the terms of the royalty
<PAGE>
free license would also contain similar terms to those contained herein which
require written permission from Licensor to sell the executable form of the
Software and Modifications as a standalone product.
8. Accounting, Reporting and Access.
--------------------------------
(a) Licensee shall keep accurate records as to the Permitted Products in
which it uses the Software or a Modification in connection with any or all of
those Permitted Products. Such records shall clearly and separately set forth
without limitation at least the following information:
(i) the number of Permitted Products produced in each calendar
quarter commencing with the date hereof;
(ii) the number of Permitted Products which constitute work in
progress as of the last day of each calendar quarter, and
(iii) the number of Permitted Products shipped and sold by Licensee
during each such calendar quarter.
(b) Licensee shall submit to Licensor within thirty (30) days after the
close of each calendar quarter a clearly itemized statement setting forth the
information required by Section 7(a).
(c) Licensee shall allow Licensor and its designated agents, upon five (5)
days' written notice, to inspect, audit and analyze all of the Licensee's
records as described in Section 7(a) and all of Licensee's other books, accounts
and records relating to the manufacture, shipping and sales of Permitted
Products during business hours at Licensee's factory and headquarters. Licensor
shall bear the cost of such inspector and audit, unless unauthorized activities
with respect to the Software or any Modification are thereby discovered, in
which case such cost shall be borne by Licensee.
9. Events of Default. The occurrence of any of the following shall
-----------------
constitute an Event of Default:
(a) Licensee fails to comply with any term, condition or covenant
contained herein;
(b) Licensee (i) becomes insolvent or unable to pay its debts generally as
they mature; (ii) suspends its business; (iii) makes a general assignment for
the benefit of creditors; (iv) files a petition in bankruptcy or a petition or
answer seeking a reorganization, arrangement with creditors or composition or
other similar relief under the Bankruptcy laws of the United States or under any
other similar law applicable to Licensee; (v) admits in writing its inability to
pay its debts generally as they mature; (vi) consents to the appointment
<PAGE>
of a trustee or receiver for Licensee or any part of its property; (vii) is
adjudicated a bankrupt under any involuntary petition for bankruptcy or similar
proceeding; (viii) dissolves, winds up, liquidates, terminates, merges or
consolidates or transfers any substantial part of its property; (ix) transfers,
assigns or sells or attempts to transfer, assign or sell its rights hereunder
without the prior written consent of Licensor, which consent may be conditioned
upon the payment to Licensor of additional, increased or advanced royalties,
solely in the discretion of Licensor, (x) loses its rights to produce or sell
the Permitted Product(s); or (xi) has its property or any substantial portion
thereof expropriated, seized or nationalized by any sovereign power.
10. Licensor's Remedies. Upon the occurrence of an Event of Default, in
-------------------
addition to any other remedies available to Licensor under applicable law,
Licensor may after a 30 day period during which Licensor has the opportunity to
correct the default and is actively acting to correct the default, immediately
and without notice or demand (a) terminate this Agreement; (b) declare any
royalties immediately due and payable, (c) retake possession of the Software and
Modifications and all copies thereof in whatever form, including all ROM chips,
with or without process of law, notice or a hearing, each of which Licensee
hereby waives; and (d) enjoin Licensee, its officers, directors, partners,
agents, employees, shareholders or owners from any further use, manufacturing or
sale of the Software, any Modification, any Listings, or any Permitted
Product(s) incorporating the Software or any Modification. All rights of
Licensor hereunder or under any applicable law shall be cumulative and not
alternative. No failure by Licensor to exercise any right shall constitute a
waiver thereof or of any subsequent event of default. Licensee agrees to pay or
reimburse Licensor for all out-of-pocket costs and expenses, including, without
limitation, legal fees and travel costs, paid or incurred by Licensor in
connection with the enforcement of Licensor's rights and remedies upon the
occurrence of an Event of Default.
11. Taxes and Impositions. Licensee shall pay any sales, use, excise,
---------------------
franchise, or personal property taxes (but not any taxes imposed or measured by
Licensor's income) imposed, levied, or assessed, on this Agreement, the
Software, the Modifications, or the use of the Software or Modifications by
Licensee.
12. Payment in US Currency. All royalties payable to Licensor and any
----------------------
other fees, costs or expenses paid or incurred by Licensor for which Licensee is
responsible for reimbursement or payment shall be paid by Licensee in lawful
currency of the United States of America and shall be payable at the address
specified in Section 13 hereof.
13. No Assignment. This Agreement may not be assigned by Licensee without
-------------
the prior written consent of Licensor. For purposes of this Agreement the sale,
issuance or transfer of 10% percent or more of (a) the capital stock of Licensee
(if Licensee is a corporation) or (b) the total interest in capital, profits,
income or surplus of Licensee (if Licensee is a partnership, joint venture or
similar entity), shall constitute an assignment. Subject to the foregoing, this
Agreement shall inure to the benefit of and be binding upon the parties hereto
and their permitted assigns.
<PAGE>
14. Notice. Whenever notice is required or permitted to be given or
------
delivery required to be made under the provisions of this License Agreement,
such notice or delivery shall be given or made to the following addresses for
the following parties:
If to Licensee:
Object Power
---------------------------
219 Vassar Street
---------------------------
Cambridge, MA
---------------------------
If to Licensor:
Mentor Comm. Ltd.
---------------------------
24 N.E. Exec. Park
---------------------------
Burlington, MA 01803
---------------------------
Notice shall be deemed duly given when the same has been (a) sent via
telecopier, (b) deposited with an overnight courier service or (c) deposited in
the United States mail, with postage fully prepaid as certified or registered
mail, addressed to the party at its address as it appears above.
15. Governing Law. This Agreement shall be enforced under and governing
-------------
the laws of the State of MA , U.S.A., excluding the conflict of laws
-----
provisions of such state, with jurisdiction in the State or Federal District
Court in the State of MA . Each party hereto hereby consents to submit to
------
the jurisdiction of such courts and Licensee hereby appoints the Secretary of
State of the State of MA as its agent for the service of process.
------
16. Licensor Development and Consulting Support.
-------------------------------------------
(a) Licensor will provide Licensee with on-going development and
consulting support for the Permitted Product(s) in the event that such support
can be provided on mutually agreeable terms.
17. General.
-------
(a) Any provision of this Agreement which is prohibited or unenforceable
in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions hereof, provided that this Agreement shall not then substantially
--------
deprive either party of the bargained-for performance of the other. Any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
(b) No term or provision of this Agreement may be changed, waived,
discharged or terminated except by a writing signed by duly authorized officers
of the parties hereof.
(c) The making, execution and delivery of this Agreement have been induced
by no representations, statements, warranties or agreements other than those
herein expressed.
<PAGE>
(d) No waiver of any breach of any provision of this Agreement shall
constitute a waiver of any subsequent breach of the same or any other provision
hereof and no waiver shall be effective unless made in writing.
(e) This Agreement embodies the entire understanding of the parties and
there are no further or other agreements or understandings, written or oral, in
effect between the parties, relating to the subject matter hereof.
(f) Licensee shall be deemed an independent contractor hereunder, and as
such, shall not be deemed, nor hold itself out to be, an agent, partner, joint
venturer or employee of Licensor. Under no circumstances shall any of the
employees of a party hereto be deemed to be employees of the other party for any
purpose. This Agreement shall not be construed as authority for either party to
act for the other party in any agency or other capacity, or to make commitments
of any kind for the account of or on behalf of the other except to the extent
and for the purposes provided herein. Licensee is solely responsible for all of
its employees and agents and its labor costs and expenses arising in connection
therewith.
(g) In any action between the parties to enforce any of the terms of this
Agreement, the prevailing party shall be entitled to recover expenses from the
other party, including reasonable attorneys' fees.
(h) The division of this Agreement in paragraphs and sections is only a
matter of convenience for reference and shall not define or limit any of the
terms or provisions thereof.
(i) This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same instrument.
IN WITNESS WHEREOF, the parties have caused this License Agreement to be
executed as of the date first above mentioned by their respective officers who
are duly authorized to so act.
LICENSOR:
Mentor Communications Limited
By: /s/ Leonard Hafetz
------------------------------------
Its: President & CEO
------------------------------------
LICENSEE:
[NAME]
By: /s/ James Nondorf
---------------------------
Its: President
--------------------------
<PAGE>
Exhibit A
---------
SOFTWARE
--------
The source code of LDI.EXE and LDIODBC.DLL in machine readable form and which
provides the general functionality described below and more specifically in the
attached LDI Editor Documentation, LDI Cartographer Documentation, and other
related documentation. The Cartographer for file mapping, as well as components
of the LDI agent and record structure modules which provide ODBC access to files
and applications is specifically omitted.
General Description:
LOGICAL DATA INTEGRATOR (LDI/TM/)
LDI is a software development tool which enables developers to more easily and
productively create applications which require access and integration of data
from the multiple disparate sources of information in an enterprise. These
information sources may have data stored in different forms and residing on
different computers throughout the enterprise. This tool will greatly
facilitate the development effort, is comprehensive in its approach to
supporting the application development process and will require significantly
less expertise to use than current methods.
Central to the theme of LDI is the construction of a logical, more meaningful
and well understood interface to the enterprise wide complex physical data;
e.g., a logical data model (virtual or cached database) comprised of an
arbitrary number of composite dataviews. Each logical dataview which is derived
from the physical data is formulated without the need for database or
programming skills by the developer using LDI. A rich set of tools for creating
the necessary composite logical views is provided. Some of the functions
provided are: multiple types of joins, filtering, renaming, data typing,
editing aggregations, unions, constants, numerical or logical calculations,
conditional statements, concatenation, etc. The logical data model once
constructed insulates the user front-end application developer from the
complexities of the physical data. User applications can be more easily created
since questions of the data in the enterprise are posed against the well
understood and simplified logical data model. Composite views may be formed and
relationships between data from disparate data sources may be studied. New
views may be added at will and/or old views may be modified. The application
developer need not know where the data resides or how it is stored, thereby
eliminating the need for the construction of complex direct queries of the
physical data.
LDI leads the developer through the process of creating the logical model
without requiring programming or database expertise. All the functions,
drivers, and procedures necessary to categorize the data, set up communications
links to the data sources and construct the logical composite data views which
comprise the logical data model are provided through a 'point
<PAGE>
and click' interface. The developer is simply led through the development
process in a manner consistent with the way one would logically think.
Since data may be logically not physically integrated, the data does not have to
be transported into a central repository thereby eliminating the need for
complicated data shadowing to maintain accurate copies of the data. The logical
data model, composed of a set of compromise logical views together with the
physical views imported from the datasources, comprise an ODBC compliant virtual
database managed by LDI. During the construction of the data views LDI creates
and maintains the metadata for the LDI logical database (data model). The
composite tables can be constructed, the data cached according to the LDI
scheduler, refreshed according to this scheduler and exported into a target
relational data base of choice according to the scheduler. User requests may
then be made against the target data base, and/or the virtual data base, or the
cached views in LDI depending on the application needs as well as the need for
live data. LDI also enables the developer to specify how the data in the target
data base is to be refreshed from the sources. The logical model may be easily
maintained and updated as changes to the data sources occur or new use
applications require additional data mapping. In cases where applications
require access to narrow portions of the enterprise data, LDI enables you to
develop these applications by including only those portions in the logical
enterprise which are needed, thereby eliminating the need to map the entire data
enterprise. Also, all the composite views, mappings, etc. are easily viewed and
presented providing the developer with the documentation needed for
understanding and maintaining the applications.
LDI Editor user documents and additional product literature defining LDI are
attached.
<PAGE>
Exhibit B
---------
Form of Licensee Employee Confidentiality Agreement
---------------------------------------------------
AGREEMENT ATTACHED
<PAGE>
CONFIDENTIALITY AND NON-COMPETITION AGREEMENT
This confidentiality and non-competition agreement is made as of the __ day
of _______by and between Object Power, Incorporated, a Delaware corporation
("Company"), and ________________ ("Employee").
WHEREAS, the Company has developed, and the Company and/or Employee may
continue to develop during the period Employee is retained by the Company,
certain Proprietary Information, Inventions and Intellectual Property (as those
terms are hereinafter defined), that the Company wishes to protect and maintain
as confidential;
WHEREAS, the Company from time to time has received, and may continue to
receive during the period Employee is so retained by the Company, the
Proprietary Information of others, and the Company wishes, and is (in certain
circumstances) contractually obligated, to maintain the confidentiality of such
Proprietary Information; and
WHEREAS, the Company has developed, and will continue to develop during
this period Employee is so retained by the Company, goodwill by, among other
things, substantial expenditure of money and effort;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and undertakings contained in this agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledge, IT
IS AGREED:
1. Definitions. As used in this Agreement, the following terms shall
-----------
have the following meanings:
(a) Agreement means this confidentiality and non-competition
---------
agreement, including all exhibits, schedules and annexations, as all may be
amended from time to time in the manner provided in this Agreement.
(b) Employment means the current or anticipated or subsequent
----------
retention of Employee by the Company as a full-time employee, a part-time
employee, a consultant or otherwise, or any other period during which Employee
receives compensation from the company in any capacity.
(c) Intellectual Property means any Invention, writing, trade name,
---------------------
trademark, service mark or any other material registered or otherwise protected
or protectable under state, federal, or foreign patent, trademark, copyright, or
similar laws.
(d) Inventions includes ideas, discoveries, inventions, developments
----------
and improvements, whether or not reduced to practice and whether or not
patentable or otherwise within the definition of Intellectual Property.
(e) Proprietary Information includes any scientific, technical,
-----------------------
trade or business secrets of the Company and any scientific, technical, trade or
business materials that
<PAGE>
the Company treats, or is obligated to treat, as confidential or proprietary,
including, but not limited to, Inventions belonging to the Company and
confidential information obtained by or given to the Company about or belonging
to its suppliers, licensors, licensees, partners, affiliates, customers,
potential customers or others.
The definition of "Proprietary Information" herein shall not include
Proprietary Information which (i) was known by Employee prior to its disclosure
by the Company; (ii) is publicly known through publication or otherwise through
no wrongful act of Employee; (iii) is received from a third party who rightfully
discloses it to Employee without restriction on its subsequent disclosure; or
(iv) is disclosed pursuant to the lawful requirement of a governmental agency or
by order of court of competent jurisdiction.
2. Employee Acknowledgments. The Company has developed and will develop
------------------------
its Proprietary Information and Intellectual Property over a substantial period
of time and at a substantial expense, and its Proprietary Information and
Intellectual Property are integral to the goodwill of the Company. During the
course of employment to the Company, Employee may develop or become aware of
Proprietary Information and/or Intellectual Property. Protection of the
Proprietary Information and Intellectual Property is necessary to the conduct of
the Company's business, and the Company is and shall at all times remain the
sole owner of the Company's Proprietary Information and Intellectual Property.
3. Confidentiality. Employee shall at all times, both during and after
---------------
any termination of Employee's employment by the Company by either the Company or
Employee, maintain in confidence and not utilize the Proprietary Information or
the Intellectual Property of the Company, and/or technology or proprietary
information of others under confidential evaluation by the Company except in
performing services for the Company pursuant to his or her employment.
Maintaining such Proprietary Information and Intellectual Property in confidence
shall include refraining from disclosing such Proprietary Information or
Intellectual Property to any third party (except when duly and specifically
authorized in writing to do so for purpose of furthering the business of the
Company), and refraining from using such Proprietary Information or Intellectual
Property for the account of the Employee or for any other person or business
entity. Employee will not file patents based on the Company's technology or
confidential information, nor seek to make improvements thereon, without the
Company's written approval. Employee agrees not to make any copies of the
Proprietary Information or Intellectual Property of the Company (except when
appropriate for the furtherance of the business of the Company or duly and
specifically authorized to do so) and promptly upon request, whether during or
after the period of employment by the Company, to return to the Company any and
all documentary, machine-readable or other elements of evidence of such
Proprietary Information, Intellectual Property, and any copies of either that
may be in Employee's possession or under Employee's control.
4. Rights to Inventions and Intellectual Property. In connection with
-----------------------------------------------
Employee's employment by the Company, or by use of the resources of the Company,
whether or not Employee is then retained by the Company, Employee may produce,
develop, create, invent, conceive or reduce to practice Inventions and
Intellectual Property related to the business of
<PAGE>
the Company. Employee shall maintain and furnish to the Company complete and
current records of all such Inventions and Intellectual Property. Employee
agrees that all such Inventions and Intellectual Property are and shall be the
exclusive property of the Company, and that the Company may sue or pursue them
without restriction or additional compensation. Employee: (i) hereby assigns,
sets over and transfers to the Company all of his right, title and interest in
and to such Inventions and Intellectual Property; (ii) agrees that Employee and
his agents shall, during and after the period Employee is retained by the
Company, cooperate fully in obtaining patent, trademark, service mark, copyright
or other proprietary protection for such Inventions and Intellectual Property,
all in the name of the Company (but only at Company expense), and, without
limitation, shall execute all requested applications, assignments and other
documents in furtherance of obtaining such protection or registration and
confirming full ownership by the Company of such Inventions and Intellectual
property; and (iii) shall, upon leaving the Company, provide to the Company in
writing a full, signed statement of all Inventions and Intellectual property in
which Employee participated prior to termination of Employee's employment by the
Company. Employee hereby designates the Company as its agent, and grants to the
Company a power of attorney with full substitution, which power or attorney
shall be deemed coupled with an interest, for the purpose of effecting the
foregoing assignments from the Employee to the Company.
5. Non-Solicitation. Employee shall not during the term of his or her
-----------------
employment or at any time during the five (5) years following termination of the
term of his or her employment solicit any person who is employed by a consultant
to the Company or any affiliate or subsidiary. As used herein the term
"solicit" shall include, without limitation, requesting, encouraging, assisting
or causing, directly or indirectly, any such employee or consultant to terminate
such person's employment by or consulting to the Company, affiliate or
subsidiary.
6. Prohibited Competition. Employee recognizes and acknowledges the
-----------------------
competitive and proprietary nature of the Company's business operations.
Employee acknowledges and agrees that a business will be deemed competitive
with the Company if it engages in a line of business in which it performs any of
the services, researches, develops or manufactures or sells any products
provided or offered by the Company or under development by the Company, or any
similar products or products fulfilling the same function, whether or not
similar (the Company's "Field of Interest") (such business to be referred to as
a "competitive business").
Employee further acknowledges that during the course of performing services
for the Company, the Company will furnish, disclose or make available to
Employee confidential and proprietary information related to the Company's
business and that the Company may provide Employee with unique and specialized
training. Employee also acknowledges that such confidential information and the
training to be provided by the Company have been developed and will be developed
by the Company through the expenditure by the Company of substantial time,
effort and money and that all such confidential information and training could
be used by Employee to compete with the Company.
<PAGE>
Accordingly, Employee hereby agrees in consideration of the Company's
agreement to hire Employee and Employee's compensation for services rendered to
the Company and in view of the confidential position to be held by Employee, the
unique and specialized training which the Company may provide Employee and the
confidential nature and proprietary value of the information which the Company
may share with Employee, and for other good and valuable consideration, the
receipt of sufficiency of which are hereby acknowledged, as follows:
During the period during which Employee performs services for or at the
request of the Company (the "Term") and for a period of eighteen months
following the expiration or termination of the Term (the "Restricted Term"),
whether such termination is voluntary or involuntary, Employee shall not,
without the prior written consent of the Company:
(i) For Employee or on behalf of any other, directly or indirectly,
either as principal, agent, stockholder, employee, consultant,
representative or in any other capacity, own, manage, operate or
control, or be concerned, connected or employed by, or otherwise
associate in any manner with, engage in or have a financial interest
in any business whose primary line of business is in the Field of
Interest, or in any other business in which Employee has any direct
operating or scientific responsibility in the Field of Interest
anywhere in the world (the "Restricted Territory"), except that
nothing contained herein shall preclude Employee from purchasing or
owning stock in any such competitive business if such stock is
publicly traded, and provided that Employee's holdings do not exceed
one percent (1%) of the issued and outstanding capital stock of such
business.
(ii) Either individually or on behalf of or through any third party,
solicit, divet or appropriate or attempt to solicit, divert or
appropriate, for the purpose of competing in the Field of Interest
with the Company or any present or future parent, subsidiary or other
affiliate of the Company which is engaged in the Field of Interest,
any joint venture of collaborative research partners, customers or
patrons of the Company, or any prospective customers or patrons with
respect to which the Company has developed or made a presentation for
the use or exploitation of products or processes in the Field of
Interest (or similar offering of services), located within the
Restricted Territory.
Employee further recognizes and acknowledges that (i) the types of
employment which are prohibited by this paragraph are narrow and reasonable in
relation to the skills which represent Employee's principal salable asset both
to the company and to Employee's other prospective employers, and (ii) the
specified but broad geographical scope of the provisions of this paragraph is
reasonable, legitimate and fair to Employee in light of the Company's need to
perform its research and to develop and market its services and to develop and
sell its products in a large geographic area in order to have a sufficient
customer base to make the Company's business profitable and in light of the
limited restrictions on the type of
<PAGE>
employment prohibited herein compared to the types of employment for which
Employee is qualified to earn his or her livelihood.
If any part of this section should be determined by a court of competent
jurisdiction to be unreasonable in duration, geographic area, or scope, then
this section is intended to and shall extend only for such period of time, in
such area and with respect to such activity as is determined to be reasonable.
7. Continued Obligations. Employee's obligations under this Agreement
---------------------
shall not be affected: (i) by any termination of Employee's employment,
including termination upon the Company's initiative; nor (ii) by any change in
Employee's position, title or function with the Company; nor (iii) by any
interruption in employment during which Employee leaves and then rejoins the
Company for any period within a period of one year and for any reason. Nothing
herein shall be construed as constituting an employment agreement or an
undertaking by the Company to retain Employee's services for any stated period
of time.
8. No Conflicting Agreements. Employee represents and warrants that
-------------------------
execution and performance of this Agreement does not and will not violate,
conflict with, or constitute a default under any contract, commitment,
agreement, understanding arrangements, or restriction, or any adjudication,
order, injunction or finding of any kind by any court or agency to which
Employee may be a party or by which Employee may be bound.
9. Remedies. In the event of any breach by Employee of any of the
--------
provisions of this Agreement, the Company shall be entitled, in addition to
monetary damages and to any other remedies available to the Company under this
Agreement and at law, to equitable relief, including injunctive relief, and to
payment by Employee of all costs incurred by the Company in enforcement against
Employee of the provisions of this Agreement, including reasonable attorneys
fees.
10. General Provisions.
------------------
(a) No Waiver. Waiver of any provisions of this Agreement, in
---------
whole or in part, in any one instance shall not constitute a waiver of any other
provision in the same instance, nor any waiver of the same provision in another
instance, but each provision shall continue in full force and effect with
respect to any other then-existing or subsequent breach.
(b) Notice. For purposes of this Agreement, notices and all other
------
communications provided for herein shall be in writing and shall be deemed to
have been duly given when delivered personally or by overnight courier with a
receipt obtained therefor or when mailed by United States registered or
certified mail, return receipt requested, postage prepaid, addressed, if to the
Company, to its chief executive officer at the Company's principal office, and
if to the Employee, at his residence address as shown on the Company's
employment records or to such other address as either party may furnish to the
other in writing in accordance with this Section, except that notices of changes
of address shall be effective upon receipt.
<PAGE>
(c) Severability. If any provision of this Agreement shall be
------------
found to be invalid, inoperative or unenforceable in law or equity, such finding
shall not affect the validity of any other provisions of this Agreement, which
shall be construed, reformed and enforced to effect the purposes of this
Agreement to the fullest extent permitted by law.
(d) Miscellaneous. This Agreement: (i) may be executed in any
-------------
number of counterparts, each of which, when executed by both parties to the
Agreement shall be deemed to be an original, and all of which counterparts
together shall constitute one and the same instrument; (ii) shall be governed by
and construed under the law of the Commonwealth of Massachusetts, without
application of principles of conflicts of laws: (iii) shall constitute the
entire agreement of the parties with respect to the subject matter hereof,
superseding all prior oral and written communications, proposals, negotiations,
representations, understandings, courses of dealing, agreements, contracts, and
the like between the parties in such respect; (iv) may be amended, modified, or
terminated, and any right under this Agreement may be waived in whole or in
part, only by a writing signed by both parties; (v) contains headings only for
convenience, which headings do not form part, and shall not be used in
construction, of this Agreement; (vi) shall bind and inure to the benefit of the
parties and their respective legal representatives, successors and assigns,
except that no party may delegate any of its or his obligations under this
Agreement, or assign this Agreement, without the prior written consent of the
other party, except the Company may assign this Agreement in connection with the
merger, consolidation, or sale of all or substantially all assets of the
Company; and (vii) be enforced only in courts located within the Commonwealth of
Massachusetts and the parties hereby agree that such courts shall have venue and
exclusive subject matter and personal jurisdiction, and consent to service of
process by registered mail, return receipt requested, or by any other manner
provided by law.
Executed under seal of the date first above written.
OBJECT POWER, INCORPORATED
By:__________________________________
_____________________________________
Employee
<PAGE>
Exhibit C
---------
Mentor Communications Limited LDI Product Pricing
-------------------------------------------------
(Effective 4/12/95)
-------------------
LDI:
Server Configuration:
- - Initial Windows or NT server with 10 named* users 5,995
Add $3,500 for each additional group of 10 named users up to 50 users
Add $2,500 for each additional group of 10 named users thereafter
- - Each additional server
Pricing for additional users as shown above
Desktop Configuration:
<TABLE>
<CAPTION>
Number of Desktops Cost Per Desktop
<S> <C>
1-10 $595
11-20 $445
21-50 $345
>50 $295
</TABLE>
- - *Server fee for 10 concurrent users is $10,995.
Add $6,500 for each additional group of 10 concurrent users up to 50
users
Add $4,500 for each additional group of 10 concurrent users thereafter
Each additional server is $6,500 with pricing for additional concurrent
users as above.
- - Site licenses available upon request
STANDARD PACKAGE OF LDI ODBC DRIVERS BUNDLED WITH PRODUCT:
(See attachment for detail)
- Initial package including all drivers on attached sheet No charge
- Additional packages $475
SITE LICENSES:
Available upon request
CONSULTING RATES:
- SHORT TERM
$1,000/day with a half day minimum plus travel and lodging expenses
- LONGER TERM
Quotes available for fixed price or time and material development
contracts
ANNUAL MAINTENANCE FEE
LDI
15% of software list price
LDI-DRIVERS
18% of software list price
<PAGE>
Exhibit D
---------
Permitted Products
------------------
The Object Power Component System ("OPCS") is a set of software components and
graphical tools oriented towards the development of reusable application for the
enterprise and the Internet. It is an integrated environment that supports
design, implementation, and deployment of components for multiple hardware
platforms and operating systems. The OPCS allows visual as well as non-visual
components to be built for complete multi-tiered application creation. It
allows components to access data from multiple databases with graphical query
building and transaction support. The OPCS consists of both design and run-time
components and may be shipped in different configurations.
The OPCS currently consists of the OpenScape Toolkit and OpenExtensions.
The Object Power Component System product overview and pricing is attached.
INTERGRATED PRODUCTS AND ROYALTIES:
- ----------------------------------
1 Product
- ---------
Product Name
------------
OpenExtension for Logical Data Access
Product Description
-------------------
OpenExtension are Object Power's products designed to work in concert with
the OpenScape Toolkit. They allow software components created using
OpenScape to be incorporated into a variety of containers and environments.
Software components are created independently of the application software,
allowing them to be extended and leveraged in a manner that promotes reuse.
The OpenExtension for LDA will allow seamless intergration of multiple data
sources.
Minimum royalty
---------------
$750 per development tool license
$750 per runtime server license
Percentage royalty
33% of OpenExtension for Logical Data Access development tool price
(price list attached)
33% of OpenExtension for Logical Data Access runtime server price (price
list attached)
The extension will be packaged in multiple configurations depending on
customer needs and Object Power product development.
<PAGE>
Attachment to Exhibit D
The OpenScape Product Line from Object Power
The OpenScape product line from the Object Power is the first component-
based development environment transpans both the enterprise and the Internet.
The OpenScape approach allows developers to create shareable, reusable software
components (both visual and logical) for maximum flexibility. These components
can then be assembled in a "plug-and-play" fashion to create:
- - traditional GUI-based client/server applications;
- - dynamic workflow applications that integrate familiar desktop products;
- - graphical Web applications for the corporate intranet;
- - secure, interactive Web applications for the global Internet
The OpenScape product line is offered in three editions: OpenScape Desktop,
OpenScape Workgroup, and OpenScape Enterprise.
OpenScape Desktop: The quickest way to build interactive Web pages
OpenScape Desktop is targeted at individuals who want to build graphical Web
pages using a familiar Visual Basic-style tool (instead of using complex HTML or
Java). A free version of OpenScape Desktop is available for download from
Object Power's Web site (www.opower.com). A Professional version of OpenScape
Desktop is also available for the more serious developer who wants to create
OCXs and OLE controls.
OpenScape Workgroup: Integrating corporate data with secure three tiered
internet applications
OpenScape Workgroup is targeted at small development terms building departmental
applications. In addition to the functionality of OpenScape Desktop, the
Workgroup edition allows development teams to define and build logical business
rule and data access components that can be distributed across a network.
OpenScape Workgroup provides a straightforward method of building secure
applications that expose departmental data to a corporate intranet or the global
Internet.
OpenScape Enterprise: The complete tool for integrating enterprise data and
legacy systems into a distributed component architecture
OpenScape Enterprise is targeted at larger development teams who need
to build secure, robust applications that execute on both the corporate WAN and
the global Internet. In addition to providing the functionality of OpenScape
Workgroup, the Enterprise edition integrates enterprise data from relational
sources and legacy systems. Using optional OpenExtensions, the Enterprise
edition also allows development teams to integrate environments such as SAP R/3
OSF DCE, and CORBA.
<PAGE>
Feature/Function breakdown
<TABLE>
<CAPTION>
===================================================================================================================================
OpenScape OpenScape
Desktop OpenScape Desktop OpenScape OpenScape
(FREE) Desktop (pro) Workgroup Enterprise
<S> <C> <C> <C> <C> <C>
Visual Components Builder (a point-and-click X X X X X
tool for building visual components)
- -----------------------------------------------------------------------------------------------------------------------------------
Component workbench for managing multiple X X X X X
component-based projects
- -----------------------------------------------------------------------------------------------------------------------------------
Component Engines to handle the dynamic X X X X X
interface translation between disparate
environments
- -----------------------------------------------------------------------------------------------------------------------------------
Visual Basic for Applications (VBA) compatible X X X X X
script language
- -----------------------------------------------------------------------------------------------------------------------------------
Place components (as Netscape plug-ins) X X X X X
into HTML documents to create
interactive Web pages
- -----------------------------------------------------------------------------------------------------------------------------------
Execute components as stand-alone X X X X X
applications
- -----------------------------------------------------------------------------------------------------------------------------------
Selectively isolate visual components X X X X X
from other desktop applications (for
Internet security)
- ------------------------------------------------------------------------------------------------------------------------------------
Access Netscape API for V8A scripting X X X X X
language
- -----------------------------------------------------------------------------------------------------------------------------------
Contain OCXs and OLE objects in visual X X X X
components
- -----------------------------------------------------------------------------------------------------------------------------------
Make calls to OLE Automation services X X X X
- -----------------------------------------------------------------------------------------------------------------------------------
Make calls to external DLLs X X X X
- -----------------------------------------------------------------------------------------------------------------------------------
Make DDE calls X X X X
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Make calls to local ODBC driver X X X
- -----------------------------------------------------------------------------------------------------------------------------------
Expose visual components as OCXs or OLE X X X
objects
- -----------------------------------------------------------------------------------------------------------------------------------
Embed visual components inside other visual X X X
components ("form-in-form" capability)
- -----------------------------------------------------------------------------------------------------------------------------------
Create non-visual OCXs with VBA script** X X X
- -----------------------------------------------------------------------------------------------------------------------------------
Access local ODBC result tables* X X X
- -----------------------------------------------------------------------------------------------------------------------------------
Build and execute business rule components on X X
Windows NT
- -----------------------------------------------------------------------------------------------------------------------------------
Create and access "virtual data views" (seamless X X
integration of multiple data sources)"
- -----------------------------------------------------------------------------------------------------------------------------------
Access relational data from Windows NT X X
- -----------------------------------------------------------------------------------------------------------------------------------
Distribute and execute components across X X
multiple machines
- -----------------------------------------------------------------------------------------------------------------------------------
Communicate over SSL for secure Internet X X
applications
- -----------------------------------------------------------------------------------------------------------------------------------
Multi-developer component repository* X
- -----------------------------------------------------------------------------------------------------------------------------------
Automated application and component X
management tool
- -----------------------------------------------------------------------------------------------------------------------------------
Build and execute business rule components on X
UNIX
- -----------------------------------------------------------------------------------------------------------------------------------
Access relational data from UNIX X
- -----------------------------------------------------------------------------------------------------------------------------------
Access legacy data X
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Expose OSF DCE services as logical components X
(requires OpenExtension for DCE)*
- -----------------------------------------------------------------------------------------------------------------------------------
Expose SAP R/3 functionality as logical X
components (requires OpenExtension for SAP)*
- -----------------------------------------------------------------------------------------------------------------------------------
Expose CORBA objects as logical components X
(requires OpenExtensions for CORBA)**
===================================================================================================================================
</TABLE>
*available April 1996
**available June 1996
OpenScape Retail Price List
Development Tools (per concurrent user)
<TABLE>
<CAPTION>
====================================================================================================================================
<S> <C>
OpenScape Desktop (Free version) FREE
- ------------------------------------------------------------------------------------------------------------------------------------
OpenScape Desktop $145.00
- -----------------------------------------------------------------------------------------------------------------------------------
OpenScape Desktop (Professional version) $395.00
- -----------------------------------------------------------------------------------------------------------------------------------
OpenScape Workgroup $3,495.00
- -----------------------------------------------------------------------------------------------------------------------------------
OpenScape Enterprise $23,000.00
- -----------------------------------------------------------------------------------------------------------------------------------
OpenExtension for SAP* $10,000.00
- -----------------------------------------------------------------------------------------------------------------------------------
OpenExtension for DCE* $2,000.00
- -----------------------------------------------------------------------------------------------------------------------------------
OpenExtension for CORBA* $2,000.00
===================================================================================================================================
</TABLE>
*requires OpenScape Enterprise
Runtime Server Licenses
<TABLE>
===================================================================================================================================
<S> <C> <C>
First Server Each additional server
- -----------------------------------------------------------------------------------------------------------------------------------
OpenScape Workgroup (Windows $5,000.00 $3,000.00
NT platform)
- -----------------------------------------------------------------------------------------------------------------------------------
OpenScape Enterprise (UNIX $8,000.00 $5,000.00
platforms)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OpenExtension for SAP $50,000.00 $30,000.00
- -----------------------------------------------------------------------------------------------------------------------------------
OpenExtension for DCE $8,000.00 $5,000.00
- -----------------------------------------------------------------------------------------------------------------------------------
OpenExtension for CORBA $5,000.00 $3,000.00
===================================================================================================================================
</TABLE>
<PAGE>
EXHIBIT 10.8
SOFTWARE LICENSE AGREEMENT
This License Agreement ("Agreement") made as of August 10, 1995, between Mystic
River Software, Inc., a corporation incorporated under the laws of Delaware
having its principal place of business at 125 Cambridge Park Drive, Cambridge,
Massachusetts 02140 ("MRSINC") and Object Power ("Customer") having its
principal place of business at 219 Vassar Street, Cambridge, MA 02139.
WITNESSETH
WHEREAS, MRSINC has developed and owns certain computer software known as
Softbridge Basic Language herein after referred to as "Product"; and,
WHEREAS, MRSINC desires to license Product to Customer and Customer desires to
license Product from MRSINC on the terms and conditions set forth herein.
NOW, THEREFORE, for good valuable consideration, receipt and sufficiency of
which is acknowledged, the parties hereto agree as follows:
Section 1
Definitions
-----------
1.1 "Product" - means any component of the current release of Softbridge Basic
Language ("SBL"), as described in Exhibit A, that is supplied to Customer under
the terms of this Agreement. Product shall be provided in the form of a run-
time version.
1.2 "Documentation" - means the "SBL - Language Reference Manual" and the "SBL
- -API Reference Manual".
1.3 "Product Release" - means a major enhancement of Product which is
identified with an integar version number i.e., Release 2.0.
1.4 "Maintenance Release" - means an update to an existing Product Release
which corrects documented bugs or adds minor features and is identified integer
appended to the Product Release number. i.e. Release 2.1.
1.5 "Customer" - means Object Power and its authorized affiliates and
subsidiaries.
1.6 "Application" - means the set of current software programs into which
Customer wishes to integrate Product, as described in Exhibit C. Should
Customer wish to integrate
1
<PAGE>
Product into future software programs, it shall provide an update Exhibit to C,
and such software programs shall be covered by the terms and conditions of this
Agreement.
1.7 "Product Platform" - means the particular operating environment, (such as,
Microsoft's Windows or IBN's OS/2) in which a Product runs.
Section 2
License of the Product
----------------------
2.1 License (a) Subject to the terms and conditions of this Agreement,
-------
including the payment of fees (see section 2.2), MRSINC hereby grants to
Customer a personal, non-exclusive, non-transferable, worldwide license to
incorporate the Product in Customer's proprietary computer software
Application(s), and thereafter market, license and sub-license, without
restriction, the Customer's Application(s) which incorporate the Product and any
modifications, enhancements and alterations made by the Customer thereto;
provided, that the Customer may not sub-license the Product to any third party
for the purpose of embedding the Product into another software product nor may
the Customer sub-license the Product alone; provided further, that this license
shall apply only to the object code version of the Product.
(b) MRSINC hereby grants to Customer a license to use internally the Product in
source code form and any related documentation thereto pursuant to the terms and
conditions set forth in Exhibit D, which shall govern Customer's rights and
obligations with respect to the source code.
2.2 Consideration The Customer shall pay to MRSINC for the foregoing license
-------------
as provided in Exhibit B of this Agreement.
2.3 Proprietary Rights The Customer agrees that the Product is and shall
------------------
remain the sole property of the proprietary to MRSINC. Nothing in this
Agreement shall diminish or extinguish these rights and no title to or ownership
of the Product is transferred to the Customer. MRSINC agrees that all
modifications, enhancements and alterations made by or exclusively for the
Customer to the Product shall be and remain the sole property of and proprietary
to the Customer. Nothing in the Agreement shall diminish or extinguish these
rights and no rights to such modifications, enhancements and alterations are
granted hereby to MRSINC.
2.4 Delivery of Product Upon the execution of this Agreement MRSINC shall
-------------------
deliver to the Customer the Product, (by magnetic diskettes or other media for
installation on the Customer's computers) and such other diskettes, tapes,
manuals, routines, development materials and other information as may relate to
or comprise the Product including without limitation the items described on
Exhibit A hereto. The Product will be shipped to the Customer (at the address
set forth on the signature page or such other address specified by
2
<PAGE>
the Customer in writing,) F.O.B. Cambridge, Massachusetts. MRSINC may package
and ship the product in any commercially reasonable manner.
2.5 Taxes Prices and fees are exclusive of and Customer is responsible for all
-----
applicable sales, use, personal property, excise or other similar taxes or
export and import taxes, duties and charges, however designated. Consequently,
in addition to the payments due hereunder, the amount of any present or future
sales, use, personal property, or other similar tax and export and import taxes,
duties and charges which become due based on the transactions provided for in
this Agreement shall be paid directly by the Customer or reimbursed by the
Customer to MRSINC, as necessary, without reducing the amount otherwise due to
MRSINC hereunder.
Section 3
Support and Maintenance
-----------------------
3.1 Support MRSINC will provide technical support to assist the Customer in
-------
the use of Product ("Support") pursuant to the terms and conditions set forth in
Exhibit B of this Agreement. Support will be provided through telephone and
electronic consultation during MRSINC's normal business hours, and, shall not
exceed a reasonable amount of hours of support during this period. There will
be a single Customer contact person. MRSINC and Customer will review the amount
of Support being provided to Customer to determine its reasonableness.
Additional Support provided will be a MRSINC's then prevailing consulting rates
plus out-of-pocket expenses.
3.2 Maintenance MRSINC will provide Product Releases and Maintenance Releases
-----------
("Maintenance") pursuant to the terms and conditions set forth in Exhibit B of
this Agreement.
Maintenance Releases will be provided to fix bugs reported by Customer and to
provide minor enhancements to Product. If Customer reports a documented,
reproducible bug that prevents the Product from materially and substantially
operating in accordance with the Documentation, MRSINC will use its best effort
to provide a specific correction within thirty days. If Customer reports a
documented, reproducible bug that so cripples the functionality that the Product
cannot be used, then MRSINC will use its best efforts to provide a specific
correction within 7 business days.
Section 4
Covenants
---------
4.1 Confidentiality Each party hereto covenants that it will keep
---------------
confidential any confidential information relating to the Product or to the
other party's business, finances, marketing and technology to which it obtains
access and which is identified in writing as
3
<PAGE>
confidential or proprietary at the time it obtains access thereto, and that it
will take all reasonable precautions to protect such confidential information of
the other party or any part thereof from any use, disclosure or copying, except
to the extent technical information relating to the Product is used, or copied
by the Customer for the purpose of (i) developing Application programs
incorporating the Product, (ii) obtaining any necessary governmental approvals,
or (iii) otherwise performing its rights or obligations as contemplated by this
Agreement. Confidential information of a party shall not include information
which (i) is or becomes available to the public through no fault of the other
party, (ii) is disclosed to the other party by a third party who had lawfully
obtained such information and without a breach of such third party's
confidentiality obligations, (iii) is developed independently by the other
party, or (iv) the party has given written permission to the other party to not
keep confidential.
4.2 Injunctive Relief In the event of a breach of any of the provisions of
-----------------
Section 4.1, each party agrees that the other party will not have an adequate
remedy at law, and accordingly the parties agree that they, in addition to any
other available legal or equitable remedies, are entitled to seek injunctive
relief against such breach without any requirement to post bond as a condition
of such relief.
4.3 Copyright Protection The Customer shall not publish or distribute the
--------------------
Product in a manner which would jeopardize or preclude protection thereof under
applicable copyright laws, or would diminish the trade secret status of the
Product.
4.4 Reverse Compiling The Customer shall not attempt to create or permit
-----------------
others to attempt to create, by reverse compiling or disassembling or otherwise,
any part of the source program for the Product from the object code or from
other information made available to the Customer.
4.5 Copies The Customer may make machine readable copies of each Product and
------
copies of the Documentation and other documents as necessary for the use
authorized in this Agreement. All copies, whether in machine readable, printed,
or other form, are part of the Product and the Customer must include on all such
material MRSINC's notice of its proprietary rights in the form set forth in the
Product as delivered to the Customer.
4.6 Access The Customer may disclose and make the Product accessible to its
------
employees and agents only to the extent needed to exercise the licenses granted
hereunder.
4.7 General Payment Terms MRSINC reserves the right to charge interest on past
---------------------
due amounts at a rate equal to twelve percent (12%) per annum. In the event that
MRSINC is required to take legal action to collect unpaid amounts and MRSINC is
successful in such action, the Customer shall reimburse all costs and reasonable
attorney's fees incurred by MRSINC in such collection.
4
<PAGE>
4.8 Software Certification The Customer shall, on the request by MRSINC from
----------------------
time to time, certify to MRSINC in writing that Customer has performed its
obligations pursuant to this Software License Agreement.
Section 5
Warranty and Indemnification
----------------------------
5.1 Express Warranties MRSINC hereby warrants to Customer that (i) the
------------------
Product will conform to its published specifications in all material respects,
and (ii) MRSINC has all necessary corporate power and authority to enter into
this Agreement, to license the Product to the Customer and to consummate the
transactions contemplated hereby.
The warranty is limited and shall not apply to: (a) Components of the Product
not of MRSINC origin, or (b) failure of the Product to satisfy this warranty if
determined by MRSINC to result from (i) improper use of the Product, (ii)
operation of the Product outside the environmental conditions specified on the
User Documentation, (iii) modifications to the Product not made by MRSINC, (iv)
other conditions external to the Product that occur following delivery of the
Product by MRSINC, or (v) any Release of the Product that is designated "beta
test software" or "pre-release software" by MRSINC.
MRSINC further represents and warrants to Customer that MRSINC has all licenses
and other rights necessary to sublicense to the Customer on the terms set forth
in this Agreement those components of the Product not of MRSINC origin and that,
to the best knowledge of MRSINC such components conform in all material respects
to the published specifications therefor.
5.2 EXCLUSION OF IMPLIED WARRANTIES ANY AND ALL OTHER WARRANTIES AS TO THE
-------------------------------
PRODUCT AND USER DOCUMENTATION, INCLUDING IMPLIED WARRANTIES OF MERCHANTABILITY
AND FITNESS FOR A PARTICULAR PURPOSE OR USE, ARE SPECIFICALLY EXCLUDED, WAIVED
AND NEGATED. MRSINC makes no warranties as to the accuracy or completeness of
the Documentation or that the Product is error free.
5.3 Limitation of Liability (a) NEITHER MRSINC NOR ANYONE ELSE WHO HAS BEEN
-----------------------
INVOLVED IN THE CREATION, PRODUCTION OR DELIVERY OF THE PRODUCT SHALL BE LIABLE
FOR ANY INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES, SUCH AS, BUT NOT LIMITED
TO, LOSS OF ANTICIPATED PROFITS OR BENEFITS, LOSS RESULTING FROM THE USE OF THE
PRODUCT OR ARISING OUT OF ANY BREACH OF ANY WARRANT. EXCEPT AS EXPRESSLY
PROVIDED IN THIS AGREEMENT, MRSINC SHALL HAVE NO LIABILITY FOR ANY CLAIM OF ANY
KIND OR NATURE, INCLUDING BUT NOT LIMITED TO MRSINC'S NEGLIGENCE, ARISING OUT OF
OR IN ANY WAY RELATED TO THIS AGREEMENT, OR IN CONNECTION WITH ANY SUE OR OTHER
5
<PAGE>
EMPLOYMENT OF ANY PRODUCT LICENSED TO THE CUSTOMER HEREUNDER, WHETHER SUCH
LIABILITY ARISES FROM ANY CLAIM BASED UPON CONTRACT, WARRANTY, OR OTHERWISE,
WHICH MAY BE ASSERTED BY THE CUSTOMER.
(b) EXCEPT FOR CLAIMS ARISING PURSUANT TO SECTION 5.5 MRSINC'S AGGREGATE
LIABILITY TO THE CUSTOMER FOR ALL LOSS AND DAMAGE WHETHER IN NEGLIGENCE,
CONTRACT OR OTHERWISE, ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT, OR
THE OPERATION OR FAILURE TO OPERATE OF THE PRODUCT, SHALL IN ANY EVENT BE
LIMITED TO THE SUM OF THE MONIES PAID TO MRSINC BY THE CUSTOMER UNDER THIS
AGREEMENT.
5.4 Notification Each party shall notify the other in writing of any claim or
------------
other legal proceeding involving the Product promptly after it becomes aware of
any such claim of proceeding. The Customer will also report promptly to MRSINC
all claimed or suspected failures of the Product to conform to the Documentation
promptly after the Customer becomes aware of any such claimed or suspected
failure, during the first year of this Agreement.
5.5 Indemnification by MRSINC MRSINC will defend, indemnify, and hold
-------------------------
harmless the Customer against any claim that the Product infringes any valid
claim of copyright or trademark of any third party, or any valid claim under any
U.S. patent that has issued as of the date of delivery; provided that the
Customer gives MRSINC prompt written notice thereof, grants MRSINC sole control
of the defense and any related settlement negotiations cooperates with MRSINC in
the defense of such claim and does not agree to settle any such claim without
MRSINC's prior written consent. If use of the product is finally enjoined,
MRSINC, at its option, will either (i) procure for Customer the right to use the
Product, (ii) replace the Product with a substantially equivalent program to use
of which is not so enjoined, or (iii) refund the license fee paid for the
Product. Notwithstanding the foregoing, MRSINC shall have no liability to
Customer if the infringement results from (a) use of the Product in combination
with other software or hardware, if the product alone would not have been os
infringing, (b) modifications to the Product not made by MRSINC if such
infringement would have been avoided by the absence of such modifications, or
(c) use of other than the version of the Product most recently offered to
Customer if such infringement would have been avoided by use of such a current
version. THE FOREGOING STATES THE ENTIRE LIABILITY OF MRSINC, AND THE SOLE
REMEDY OF THE CUSTOMER, WITH RESPECT TO INFRINGEMENT OF INTELLECTUAL PROPERTY
RIGHTS OR CONTRACTUAL RIGHTS OF THIRD PARTIES BY THE PRODUCT(S) OR ANY PARTS
THEREOF.
5.6 Exclusive Remedies Except in case of infringement of a third party
------------------
intellectual property right, the customer's exclusive remedies for any claims
against MRSINC arising out of the Agreement shall be limited to the following,
at the option of MRSINC: (a) replacement
6
<PAGE>
by MRSINC of the Product with software that functions substantially in
accordance with the User Documentation; (b) repair by MRSINC of the Product, by
patch or work around, so that it functions substantially in accordance with the
User Documentation or, (c) refund by MRSINC of the monies paid by Customer and
received by MRSINC in respect of the Product. Customer acknowledges that this
Section 5.6 limits its remedies in the event that MRSINC has breached any of its
obligations to Customer. WITHOUT LIMITING THE FOREGOING, MRSINC AND THE
CUSTOMER AGREE THAT IF ANY REMEDY HEREUNDER IS DETERMINED TO HAVE FAILED OF ITS
ESSENTIAL PURPOSE, ALL LIMITATIONS AND EXCLUSIONS OF LIABILITY SET FORTH HEREIN
SHALL REMAIN IN EFFECT.
Section 6
Term and Termination
--------------------
6.1 Term; Termination for Convenience This Agreement shall take effect on the
---------------------------------
date it is executed by MRSINC and shall continue in effect for one year, and
thereafter from year to year, unless and until terminated by Customer on thirty
(30) days prior written notice, or at any time, by mutual written agreement of
the parties.
6.2 Termination for Cause The occurrence of any of the following events shall
---------------------
constitute a default under the terms of this Agreement, and a cause for
termination of this Agreement.
a) The default by Customer in the payment of any amount due hereunder
after receipt of written notice of a thirty (30) day grace period to allow
Customer to cure such default.
b) The failure by Customer to cure any breach from any other term of this
Agreement within thirty (30) days of receipt of written notice thereof.
6.3 Effect of Termination If this Agreement is terminated a) the license
---------------------
granted hereunder shall terminate; b) Customer's right to distribute the
licensed Product shall and immediately; and c) Customer shall return or destroy
all copies of Product in Customer's possession and certify in writing that all
copies of Product have been destroyed or returned.
Notwithstanding any provisions herein to the contrary, following any termination
of this Agreement and for so long thereafter (but not to exceed 12 months) as is
necessary for Customer to satisfy, and solely to satisfy, its then existing
contractual obligations for maintenance services to its end users, Customers
shall have a limited license to use the Product solely for such purposes.
None of the Customer's existing sublicenses to unaffiliated end users for
Product in Customer's proprietary computer software application(s) shall be
affected by any termination
7
<PAGE>
of this Agreement and such licenses shall remain in full force and effect until
the end of their then respective terms.
6.4 No Damages for Termination Neither MRSINC nor Customer shall be liable to
--------------------------
the other for damages of any kind, including but not limited to lost profits or
incidental, punitive or consequential damages, relative to termination of this
Agreement in accordance with Section 6.1 or 6.2, even if advise of the
possibility of such damages.
6.5 Survival Sections 2.3 and 4.1, as well as Customer's obligations to pay
--------
MRSINC all sums due hereunder and all provisions regarding limitations of
liability and remedies, shall survive termination or expiration of this
Agreement.
Section 7
Miscellaneous Provisions
------------------------
7.1 Headings Headings in this Agreement are included solely for convenience
--------
of reference and are not to be considered part of this Agreement.
7.2 No Joint Venture This is an Agreement between separate legal entities and
----------------
neither is the agent or employee of the other for any purpose whatsoever. The
parties do not intend to create a partnership or joint venture between
themselves. Neither party shall have the right to bind the other to any
Agreement with a third party or to incur any obligations or liability on behalf
of the other party.
7.3 Waiver The failure of either party to exercise any of its rights under
------
this Agreement or to require the performance of any term of provision of this
Agreement, or the waiver by either party of such breach of this Agreement, shall
not prevent a subsequent exercise or enforcement of such rights or be deemed ta
waiver of any subsequent breach of the same or any other term or provision of
this Agreement. Any waiver of the performance of any of the terms or conditions
of this Agreement shall be effective only if in writing and signed by the party
against which such waiver is to be enforced.
7.4 Validity If any of the terms and provisions of this Agreement are invalid
--------
or unenforceable, such terms or provisions shall not invalidate the rest of the
Agreement which shall remain in full force and effect as if such invalidated or
unenforceable terms or provision had not been made a part of this Agreement. In
the event this Section 7.4 becomes operative, the parties agree to attempt to
negotiate a settlement that carry out the economic intent of the term(s) found
invalid or unenforceable.
7.5 Force Majeure If circumstances beyond the control of the parties shall
-------------
temporarily make it impossible for either or both of them to perform their
agreements hereunder, then the principles of force majeure shall apply and the
rights and obligations of the parties shall be
8
<PAGE>
temporarily suspended during the force majeure period to the extent that such
performance is reasonably affected thereby.
7.6 Notices All notices and other communications herein provided for such be
-------
sent by postage prepaid, registered or certified mail, return receipt requested,
or delivered personally to the parties at their respective addresses as set
forth on the first page of this Agreement or to such other address as either
party shall give to the other party in the manner provided herein for giving
notice. Notice by mail shall be considered given on the date received. Notice
delivered personally shall be considered given at the time it is delivered.
7.7 Transfer, etc. Neither party may assign, transfer or delegate this
-------------
Agreement or any such party's right and obligation hereunder to any third party
hereto, without the consent of the other party, which consent shall not be
unreasonably withheld. Each party may assign this Agreement and such party's
rights and obligations hereunder to a subsidiary or affiliate so long as such
party remains primarily liable for its obligations hereunder. In addition,
either party may assign this Agreement, and its rights and obligations
hereunder, to any party that acquires substantially all of such party's stock or
assets relating to that portion of such party's business that is related to the
subject of this Agreement. Any attempted assignment, delegation, or transfer in
contravention of this Agreement shall be null and void.
7.8 Successors and Permitted Assigns This Agreement shall inure to the
--------------------------------
benefit of and be binding upon each of the parties hereto and their respective
successors and permitted assigns.
7.9 Complete Agreement This Agreement contains the whole Agreement between
------------------
the parties concerning the subject matter hereof and there are no collateral or
precedent representations, agreements or conditions not specifically set forth
herein.
7.10 Modification or Amendment Any modification or amendment of any provision
-------------------------
of this Agreement must be in writing, signed by the parties hereto and dated
subsequent to the date hereof.
7.11 Laws Governing Agreement The validity of this Agreement and the rights,
------------------------
obligations and relations of the parties hereunder shall be construed and
determined under and in accordance with the laws of the Commonwealth of
Massachusetts without giving effect to the conflict of laws rules of such State.
9
<PAGE>
7.12 No Third Party Beneficiaries The provisions of this Agreement are solely
----------------------------
for the benefit of the parties hereto, and not for the benefit of any other
person, persons or legal entities.
Customer MRSINC
Name: Object Power Name: Jerry Bedrick
------------ ----------------------------
Signature: /s/ John J. Donovan, Jr. Signature: /s/ Jerry Bedrick
---------------------------- ----------------------
Title: President Title: President
--------- ---------
Date: 9/12/95 Date: 9/12/95
------- -------
10
<PAGE>
EXHIBIT A
"Product" for the purposes of this Agreement is defined as the version of SBL
designed for the following platforms:
. Windows
. Windows/NT
. and any other Microsoft Windows 16 or 32-bit derivative operating
systems for which SBL is commercial available.
The following will be supplied for each Product Platform:
SBL Software Development Kit (SDK)
The set of SBL software and documentation components necessary to integrate SBL
into Application. Runtime versions of the SBL components that can be
redistributed with Application.
11
<PAGE>
EXHIBIT B
1. License Fees Customer will pay MRSINC a fee (the "License Fee") of
------------
$150,000 as follows:
$50,000 no later than September 18, 1995
$50,000 no later than December 5, 1995
$50,000 no later than March 10, 1996
Except as provided in this section, no royalty shall be payable by Customer
hereunder. Customer shall not be entitled to any refund in the event of any
termination of this Agreement.
2. Maintenance and Support
-----------------------
2.1 Definitions
-----------
a. "Initial Maintenance and Support Period" - means the twelve (12)
month period beginning on the date of execution of this Agreement.
b. "Stub Maintenance and Support Period" - means the period starting
immediately after the Initial Maintenance and Support Period and
ending at the beginning of Customer's next fiscal quarter. The Stub
Maintenance and Support Period will always be either (i) less than
Customer's one (1) full fiscal quarter; or (ii) none if the Agreement
is executed on the first day of a fiscal quarter of Customer.
c. "Extended Maintenance and Support Period" - means the period
starting immediately after the Stub Maintenance and Support Period (or
after the Initial Maintenance and Support Period if there is no Stub
Maintenance and Support Period).
d. "Maintenance Quarter" - means a fiscal quarter of Customer in
which Maintenance and Support will be provided.
e. "Support" - is defined in Section 3.1 of the Agreement.
f. "Maintenance" - is defined in Section 3.2 of the Agreement.
2.2 Maintenance and Support
-----------------------
12
<PAGE>
a. During the Initial Maintenance and Support Period, MRSINC will
provide Maintenance and Support to Customer without additional charge.
b. During the Stub Maintenance and Support Period, MRSINC will
provide Maintenance and Support to Customer for a fee equal to $5,625
prorated by the length of the Stub Maintenance and Support Period as a
fractional amount of a full fiscal quarter of Customer. Customer
shall pay this fee no later than five (5) business days prior t the
beginning of the Stub Maintenance and Support Period.
c. During the Extended Maintenance and support Period, MRSINC will
provide Maintenance and Support to Customer on a quarterly basis at
the rate of $5,625 per quarter ("Maintenance Fees"). Maintenance Fees
for any Maintenance Quarter are due before the start of that
Maintenance Quarter.
2.3 Maintenance and Support Continuity If Customer fails to pay any
----------------------------------
amount due pursuant to the terms set forth above, and fails to cure such
failure within five (5) business days from receiving a notice of such
failure from MRSINC, Maintenance and Support to Customer will be terminated
without any liability to MRSINC.
13
<PAGE>
EXHIBIT C
Customer Application(s)
-----------------------
<TABLE>
<CAPTION>
========================================================================
Application Name Description Scheduled Release Date
- ------------------------------------------------------------------------
<S> <C> <C>
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
========================================================================
</TABLE>
14
<PAGE>
EXHIBIT D
SOURCE CODE LICENSE
-------------------
To the extend that the Agreement provides Customer with the right to Source
Code, the following shall apply:
1. Source Code
-----------
"Source Code" - shall mean the original works including any enhancements
developed by MRSINC which are used to create the object of the Product, as
described in Attachment 1 to this Exhibit. MRSINC will provide all updates and
enhancements made to the Source Code as they become available including all
appropriate documentation associated with such updates and enhancements.
2. License Grant
-------------
Subject to the terms and conditions of the Agreement, including the payment of
fees pursuant to Section 2.2 of the Agreement, MRSINC hereby grants Customer a
royalty free, non-exclusive, non-transferable, irrevocable (except as provided
below) license (the "Source Code License") to have and use a copy of the Source
Code solely for Customer's own internal use in order to maintain its
Application(s) licensed and sold pursuant to the Agreement. Customer shall have
the right to have not more than one (1) copy of the Source Code in existence at
any time during the term of the Agreement for internal use. Customer may also
make copies as necessary for its normal archiving and backup purposes.
Customer's normal backup and archiving purposes will be described in writing to
MRSINC upon MRSINC's written request to Customer.
3. Term and Termination
--------------------
3.1 The Source Code License granted hereunder shall be effective on the
effective date of the Agreement.
3.2 MRSINC may terminate the Source Code License immediately if (i) Customer
breaches the provisions of Section 2, (License Grant) or Section 4 (No
Further Licensing) or Section 5 (Proprietary Rights) of this Exhibit; (ii)
the Agreement is terminated; or (iii) Customer becomes insolvent or makes
an assignment for the benefit of creditors, or if a received or similar
officer shall be appointed to take charge of all or part of Customer's
assets.
4. No Further Licensing
--------------------
Customer shall have no rights to, and shall not, sublicense any third party the
right to use the Source Code or any modification, or portion thereof, and shall
not deliver or otherwise
15
<PAGE>
provide or disclose to any third party a copy of, or access to, the Source Code
or any modification or portion thereof, without the prior written consent of
MRSINC.
5. Proprietary Rights
------------------
5.1 Customer shall not remove, cover or obfuscate any copyright notice, other
proprietary rights notice of security notice or coding placed by MRSINC in
or on the Source Code and all copies thereof, whether in machine language
or human-readable form, or any other documentation related to the Source
Code supplied by MRSINC to Customer. Customer shall insure that such
notices or coding continue to appear or exist on the Source Code. Customer
shall comply with all reasonable directions submitted by MRSINC from time
to time regarding the form and placement of copyright notices, other
proprietary rights notices or security notices, or coding on the Source
Code, or any portion thereof. Affixation of a copyright notice upon the
Source Code, or any portion thereof, shall not, in itself, be deemed to
constitute or acknowledge a publication thereof.
5.2 Title to the Source Code and related documentation delivered to Customer
hereunder during the term of the Agreement shall at all times remain with
MRSINC.
5.3 Customer acknowledges and agrees that any and all Proprietary Information
shall at all times be and remain the sole and exclusive property of MRSINC.
"Proprietary Information" shall mean the Source Code, and any modifications
made by MRSINC thereof, all versions of the foregoing delivered to Customer
by MRSINC and all data, information, specifications, programs, source code,
object code, documentation, diagrams, flow charts and other materials of
any type whatsoever (tangible or intangible and machine readable or human
readable) contained or revealed in any of the foregoing.
5.4 To the maximum extent permitted by applicable law, Customer agrees to
observe complete confidentiality with regard to all Proprietary
Information, including but not limited to:
a) not disclosing to, or otherwise permitting, any third person, or
entity, access to any Proprietary Information without MRSINC's prior
written permission (except that such disclosure or access shall be
permitted to an employee or consultant of Customer but only on a need-
to-know basis provided such employee or consultant has agreed in
writing to protect the confidentiality thereof); and
b) not making any copies of any Proprietary Information and assuring the
Customer's employees or consultants who receive access to any
Proprietary Information are advised of its confidential and proprietary
nature and to assure that they are prohibited from copying or
revealing, for any purpose other than
16
<PAGE>
in the performance of duties not inconsistent with the terms of the
Agreement; and
c) notifying MRSINC promptly and in writing of any circumstances of which
Customer has knowledge relating to any possession or use of any
Proprietary Information by any person or entity other than as
authorized herein; and
d) taking, at Customer's expense and direction, any legal or other action
necessary to prevent or stop unauthorized use of the Proprietary
Information by any third person or entity that has wrongfully gained
access to any Proprietary Information by or through Customer or its
employees or agents; and
e) prior to disposing of any medial or written forms, assuring that any
program materials and/or Proprietary Information has been erased or
otherwise destroyed: and
f) taking any and all other actions reasonably deemed necessary or
appropriate by MRSINC from time to time to ensure the continued
confidentiality and protection of all Proprietary Information.
5.5 Customer acknowledges and agrees that in permitting the limited right of
access to Proprietary Information set forth above, MRSINC is not waiving
any of its rights under the Source Code License and Customer is not
relieved of any liability in the event any party to whom such disclosure is
made improperly uses or disclose such Proprietary Information.
5.6 Customer's obligation hereunder shall not extend to information in the
public domain or which enters the public domain not as a result of
Customer's fault or negligence.
5.7 Customer's obligations and MRSINC's rights under this Section 5 shall
survive any expiration or termination of the Agreement or the Source Code
license for any reason whatsoever.
5.8 MRSINC's Proprietary Information is unique property of extreme value to
MRSINC and breach of any confidential obligation of Customer under the
Source Code License may cause MRSINC irreparable harm which cannot be
adequately assessed in monetary damages. Accordingly, Customer agrees
MRSINC is entitled to seek injunctive or other equitable relief to remedy
any actual or threatened breach of the proprietary rights provisions, or
any unauthorized use, reproduction, marketing, licensing, or distribution
of any Proprietary Information.
5.9 Upon termination of the Source Code License, Customer's right to possession
or use of any of the Proprietary Information shall terminate and Customer
shall immediately deliver to MRSINC any and all Proprietary Information in
its possession or under its
17
<PAGE>
control. An officer of Customer shall, upon completion by Customer of such
delivery, certify in writing to MRSINC that Customer has fulfilled its
obligations pursuant to this Section 5.
5.10 Notwithstanding any provisions herein to the contrary, following any
termination of the Source Code License and for so long thereafter (but not
to exceed 12 months) as is necessary for Customer to satisfy, and solely to
satisfy, its then existing contractual obligations for maintenance services
to its end users. Customer shall have a limited license to use the Source
code solely for such purposes; provided that at the end of each 12-month
period, Customer shall comply with the procedures set forth in Section 5.9
above.
5.11 Customer shall obtain an executed version of an Consultant Confidentiality
Agreement in the form attached as Attachment 12 to this Exhibit (or
subsequent language as may be approved in writing by MRSINC) from each of
its consultants prior to allowing access to any Proprietary Information.
Such Confidentiality Agreements shall be maintained by Customer and made
available to MRSINC upon MRSINC's request.
18
<PAGE>
Attachment 1 to Exhibit D
Pursuant to Section 1 of Exhibit D (Source Code License), the following
source code files will be supplied to Customer:
SBL
- --------------------------------------------------------------------------------
SBL/COMP
clexit.c codegen.h doadt.c dodialog.h
doexprs.c doflow.c doiexprs.c dosbl.h dostmts.c dotypes.c
keywords.c localvar.c meta.c regbit.c sbll.l sblout.c
sblout.h sbyy.c sbyy.y symbol.c symout.c ytab.h
yyhelp.c yyin.c _sbcl.h
SBL/INTERP
b1tio.c breakpt.c builtins.c dlg.c
globvars.c initopco.c interp.c module.c optext.c abldebug.c
sbldescr.c sbldump.c sblsys.c thread.c
SBL/INCLUDE
bltio.h builtins.h crc32.h debug.h
dlg.h hash.h incl.h interp.h lstuff.h makecrc.h
mathops.h module.h msdir.h namelist.h opcodes.h optext.h
safelib.h sbl.h sblass.h sbldescr.h sblerr.h sblfiles.h
sblglob.h sblio.h sblmem.h sblparms.h sblsys.h types.h
SBL/UTIL
ansiutil.c crc32.c hash.c makecrc.c
misc.c namelist.c nl_incl.h printf.c safelib.c sblass.c
sblerr.c sblfiles.c sblhelp.c sblio.c sblmem.c sbltek.c
utilexcl.h _nlist.h _sblio.h
SBL/SBL
libentry.asm sbl.c sbl.def sbl.rc
- --------------------------------------------------------------------------------
19
<PAGE>
Attachment 2 to Exhibit D
CONSULTANT CONFIDENTIALITY AGREEMENT
------------------------------------
The undersigned is an independent contractor working for ___________________
("Company"). The undersigned acknowledges that Company may enter, or has
entered, into an agreement with Mystic River Software, Inc. ("MRSINC") pursuant
to which Company may acquire from MRSINC certain limited rights in and to
proprietary software known as Softbridge Basic Language (the "Licensed
Program"). In consideration of the undersigned's work for Company in a capacity
or on projects relating to the Licensed Program, the undersigned agrees as
follows:
1. All documentation and other tangible or intangible discoveries, ideas,
concepts, software, designs, drawings, specifications, techniques, models, data
information, source code, object code, documentation, diagrams, flow charts,
procedures and "know-how" comprising all or any portion of, or contained in or
describing the Licensed Program or revealed to the undersigned in connection
with the Licensed Program (the "Proprietary Information:) shall at all times
remain the sole and exclusive property of MRSINC or Company, pursuant to the
Software License Agreement dated (Date of Agreement Here). Information publicly
known that is generally employed by the trade at the time the undersigned first
learns of such information shall not be deemed part of the Proprietary
Information below.
2. All notes, data, reference materials, sketches, drawings, memoranda and
records in any way related to any of the Proprietary Information shall belong
exclusively to MRSINC or Company, pursuant to the Software License Agreement
dated (Date of Agreement Here), and the undersigned agrees to deliver all copies
of such materials in the undersigned's control to MRSINC or Company (or
Company's delivery to MRSINC, if required) upon completion of the undersigned's
work in connection with the Licensed Program at the request of MRSINC or
Company.
3. The undersigned agrees during his or her work for Company and thereafter to
hold in confidence and not to directly or indirectly reveal, report, publish,
disclose or transfer any of the Proprietary Information for any purpose, or use
any Proprietary Information for the undersigned's own benefit, except in the
course of the undersigned's work for Company in connection with the Licensed
Program.
4. Because of the unique nature of the Proprietary Information, the
undersigned understands and agrees that MRSINC or Company may suffer irreparable
harm in the event that the undersigned breaches his or her obligations under
Section 2 or 3 above and that monetary damages will be inadequate to compensate
MRSINC or Company for such breach. Accordingly, the undersigned agrees that
MRSINC or Company will, in addition to any other remedies available to it at law
or in equity, be entitled to injunctive relief to enforce the terms of Section 2
and 3 above.
20
<PAGE>
5. The undersigned acknowledges and agrees that this Consultant
Confidentiality Agreement is for the benefit of, and may be enforced directly
by, MRSINC or Company.
IN WITNESS WHEREOF, the parties have duly executed this Confidentiality
Agreement as a sealed instrument, as of this ______ day of _______________ 1996.
Consultant Company
Name:_____________________________ Name:_____________________________
Signature:________________________ Signature:________________________
Title:____________________________ Title:____________________________
Date:_____________________________ Date:_____________________________
21
<PAGE>
EXHIBIT 10.12
AMENDMENT NO. 1 TO
SERIES B CONVERTIBLE PREFERRED
STOCK PURCHASE AGREEMENT
This Amendment No. 1 to the Series B Convertible Preferred Stock Purchase
Agreement dated as of February 27, 1996 (the "Purchase Agreement") is made as of
the 7th day of June, 1996, by and between Business@Web, Inc., a Delaware
corporation (the "Company"), and Hewlett-Packard Company, a California
corporation (the "Purchaser"). Capitalized terms used and not defined herein
shall have the respective meanings ascribed to them in the Purchase Agreement.
W I T N E S S E T H:
-------------------
WHEREAS, the parties desire to amend the Purchase Agreement in certain
respects as set forth herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements hereinafter set forth, the parties agree as follows:
1. Right of First Refusal. Section 5.09 of the Purchase Agreement is
----------------------
hereby amended to read in its entirety as follows:
"As long as the Purchaser holds at least 50,000 Preferred Shares or
Conversion Shares, in the event the Company proposes to issue any of its
securities (other than debt securities with no equity feature) (whether such
securities are to be registered under the Securities Act of 1933, as amended, or
are to be unregistered) directly to, or to any subsidiary or affiliate, of (i)
Digital Equipment Corporation, International Business Machines Corporation,
Silicon Graphics, Inc., Sun Microsystems, Inc., or Unisys Corp. (each, a
"Hardware Manufacturing Competitor") or (ii) any other person which derives at
least fifty percent (50%) of its revenue from the manufacture or sale of
computer hardware (a "Hardware Manufacturer") in a transaction which is
negotiated directly with a Hardware Manufacturing Competitor or Hardware
Manufacturer (the "Direct Issuance"), the Company shall offer to the Purchaser,
by written notice, the right, for a period of 20 days (in the case of a Hardware
Manufacturing Competitor) or ten days (in the case of a Hardware Manufacturer),
to purchase all, but not less than all, of such securities at the same price and
on the same terms as those on which the Company proposes to issue such
securities to the Hardware Manufacturing Competitor or Hardware Manufacturer.
The Company's written notice to the Purchaser shall identify the Hardware
Manufacturing Competitor or Hardware Manufacturer to whom the proposed Direct
Issuance will be made and shall describe the securities proposed to be issued
and specify the number, price and payment terms. The Purchaser may accept the
Company's offer as to the full number of securities offered to it, but not for
any lesser number, by written notice thereof given by it to the Company prior to
the expiration of the aforesaid 20-day or 10-day period (whichever is
applicable) and prior to 120 days after the date of its notice of offer to the
Purchaser to offer
<PAGE>
and sell to the identified Hardware Manufacturing Competitor or Hardware
Manufacturer the offered securities at a price and on payment terms no less
favorable to the Company than those specified in the notice of offer to the
Purchaser. However, if such sale to the identified Hardware Manufacturing
Competitor or Hardware Manufacturer is not consummated within such period, the
Company shall not sell such securities as shall not have been purchased within
such period without again complying with this Section 5.09."
2. Ratification of Purchase Agreement. The Purchase Agreement, as amended
----------------------------------
by this Amendment No.1, is hereby ratified, approved and confirmed in each and
every respect. Except as specifically amended or modified herein, the Purchase
Agreement shall continue in full force and effect in accordance with the terms
thereof. As used in the Purchase Agreement, the terms "this Agreement,'
"herein," "hereinafter," "hereto" and words of similar import shall be deemed to
refer from and after the date hereof to the Purchase Agreement as amended by
this Amendment No.1.
IN WITNESS WHEREOF, the parties hereto have executed or caused this
Agreement to be executed as of the date set forth above.
BUSINESS@WEB, INC.
By: /s/ Craig Newfield
------------------
Name: Craig Newfield
Title: Secretary and General Counsel
HEWLETT-PACKARD COMPANY
By: __________________
Name:
Title:
2
<PAGE>
and sell to the identified Hardware Manufacturing Competitor or Hardware
Manufacturer the offered securities at a price and on payment terms no less
favorable to the Company than those specified in the notice of offer to the
Purchaser. However, if such sale to the identified Hardware Manufacturing
Competitor or Hardware Manufacturer is not consummated within such period, the
Company shall not sell such securities as shall not have been purchased within
such period without again complying with this Section 5.09."
2. Ratification of Purchase Agreement. The Purchase Agreement, as amended
----------------------------------
by this Amendment No.1, is hereby ratified, approved and confirmed in each and
every respect. Except as specifically amended or modified herein, the Purchase
Agreement shall continue in full force and effect in accordance with the terms
thereof. As used in the Purchase Agreement, the terms "this Agreement,'
"herein," "hereinafter," "hereto" and words of similar import shall be deemed to
refer from and after the date hereof to the Purchase Agreement as amended by
this Amendment No.1.
IN WITNESS WHEREOF, the parties hereto have executed or caused
this Agreement to be executed as of the date set forth above.
BUSINESS@WEB, INC.
By: __________________
Name:
Title:
HEWLETT-PACKARD COMPANY
By: /s/ Ann O. Baskins
------------------
Name: Ann O. Baskins
Title: Assistant Secretary
and Managing Counsel
3
<PAGE>
Exhibit 10.14
WARRANT PURCHASE AGREEMENT
with Registration Rights
AGREEMENT, made as of the 16th day of February 1996 by and between
SSB Investments, Inc. (the "Purchaser"), and Business@Web, Inc., a Delaware
corporation (the "Company").
WHEREAS, the Purchaser wishes to purchase from the Company, and the Company
wishes to issue and sell to the Purchaser, a Common Stock Purchase Warrant in
the form attached hereto as Exhibit A (the "Warrant") entitling the Purchaser to
purchase, at any time on or before February 15, 2003, at a purchase price of
$5.54 per share (subject to adjustments as provided in the Warrant) 35,000
shares (subject to adjustments as provided in the Warrant) of the Common Stock
of the Company (the "Shares") on the terms and subject to the conditions set
forth in this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained in this Agreement, the parties agree as follows:
1. Sale and Delivery of the Warrant. Subject to the terms and conditions
--------------------------------
hereinafter set forth, the Company hereby agrees to issue and sell to the
Purchaser, and the Purchaser hereby agrees to purchase from the Company, the
Warrant at the purchase price of $100.
2. Representations and Warranties of the Company. The Company represents
---------------------------------------------
and warrants to the Purchaser as follows:
(a) The Company is a duly organized and validly existing corporation under
the laws of the State of Delaware. The Company has the corporate power,
authority and capacity to own, lease and operate its properties, and to carry on
its business as the same is now being conducted.
(b) The Company has all necessary power and authority and has taken all
action required to make all the provisions of this Agreement and the Warrant the
valid and enforceable obligations they purport to be. The Shares have been duly
reserved for issuance upon exercise of the Warrant and, when issued in
accordance with the Warrant, will be duly authorized and validly issued, fully
paid and nonassessable, free of all liens, encumbrances, options, rights of
first refusal or other restrictions on transfer created by or through the
Company.
(c) No authorization, consent, approval, license, exemption of, or filing
or registration with, any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, having jurisdiction over
the Company under any applicable law, rules or regulations now in effect, is or
will be necessary for, or in connection with, the offer, issuance or sale of the
Warrant and the Shares, or the execution or delivery by the Company of, or for
the performance by it of its obligations under, this Agreement.
<PAGE>
(d) The Company is in compliance in all material respects with the terms
and provisions of the Restated Certificate of Incorporation and the By-laws of
the Company. Neither the execution and delivery of this Agreement, the issuance
and sale of the Warrant or the Shares, nor the consummation of any transaction
contemplated hereby has constituted or resulted in or will constitute or result
in a default or violation of any term or provision of the Restated Certificate
of Incorporation or the By-laws of the Company.
(e) Neither the Company nor anyone acting on its behalf has offered or will
offer to sell the Warrant or the Shares to, or solicit offers with respect
thereto from, or enter into any preliminary conversations or negotiations
relating thereto with, any person, so as to bring the sale of the Warrant or the
issuance of the Shares upon exercise of the Warrant under the registration
provisions of the Securities Act of 1933, as amended (the "1933 Act").
3. Representations and Warranties of the Purchaser. The Purchaser
-----------------------------------------------
represents and warrants to the Company as follows:
(a) The Purchaser is purchasing the Warrant and, upon exercise of the
Warrant will acquire the Shares for investment and has no present intent of
engaging in a distribution (as such term is defined in the 1933 Act) of the
Warrant or such Shares.
(b) The Purchaser is knowledgeable and experienced in businesses of the
sort conducted by the Company. The Company has made available to the Purchaser,
during the course of this transaction and prior to the purchase of the Warrant,
the opportunity to ask questions and receive answers concerning the terms and
conditions of the offering, and to obtain any additional information necessary
to verify the information provided to the Purchaser or otherwise relative to the
financial data and business of the Company, to the extent that the Company
possesses such information or can acquire it without unreasonable effort or
expense.
(c) The Purchaser understands that the Purchaser may have to bear the
economic risk of its investment indefinitely; that neither the Warrant nor the
Shares have been registered under the 1933 Act and, therefore, cannot be resold
unless they are subsequently registered under the 1933 Act or unless an
exemption from such registration is available; that the Purchaser agrees not to
resell or otherwise dispose of all or any part of the Warrant or the Shares
issuable upon exercise of the Warrant, except as permitted by law, including,
without limitation, any and all applicable regulations under the 1933 Act; that
the Company does not have any present intention of registering the Warrant or
the Shares under the 1933 Act or of supplying the information which may be
necessary to enable the Purchaser to sell the Shares in the public market; and
that Rule 144 under the 1933 Act (Rule 144) may not be available as a basis for
exemption from registration of the Shares thereunder.
(d) The purchase of the Warrant by the Purchaser is consistent with the
general investment objectives of the Purchaser.
-2-
<PAGE>
4. Covenant of the Company. The Company covenants and agrees that it
-----------------------
shall at all times that the Warrant remains outstanding and exercisable keep the
Shares reserved for issuance upon exercise of the Warrant.
5. Registration Rights.
-------------------
(a) Following the effective date of the Company's initial public offering
of its Common Stock pursuant to an effective registration statement under the
1933 Act and for so long as the Purchaser holds the Warrant or any Shares issued
upon exercise of the Warrant, on each occasion on which the Company proposes to
register any of its Common Stock or other securities under the 1933 Act in
connection with the public offering of such securities solely for cash (other
than a registration relating solely to the sale of securities to participants in
a Company stock plan, or a registration on any form which would not permit
registration of the Shares), the Company shall, at such time, promptly give the
Purchaser written notice of such registration. Upon the written request of the
Purchaser given within twenty (20) days after mailing of such written notice by
the Company, the Company shall, subject to the conditions and limitations set
forth below, use its best efforts to cause to be registered under the 1933 Act
all of the Shares that the Purchaser has requested to be registered.
Notwithstanding the foregoing, the Company shall not be required to give the
Purchaser notice of a proposed registration or to cause any Shares to be
registered if (i) on any previous occasion, the registration of any Shares for
sale for the account of the Purchaser has been effected under this Section 5 or
(ii) the Shares are eligible for resale by the Purchaser to the public without
restriction pursuant to Rule 144(k) promulgated under the 1933 Act.
(b) Whenever required under this Section 5 to use its best efforts to
effect the registration of any Shares, the Company shall, as expeditiously as
reasonably possible:
(i) Prepare and file with the Securities and Exchange Commission
(the "SEC") a registration statement with respect to such Shares and
use its best efforts to cause such registration statement to become
effective.
(ii) 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 1933 Act with respect to the
disposition of all securities covered by such registration statement.
(iii) Furnish to the Purchaser such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the 1933 Act, and such other documents as the
Purchaser may reasonably request in order to facilitate the
disposition of Shares owned by him.
(iv) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or
Blue Sky laws of
-3-
<PAGE>
such states as shall be reasonably requested by the Purchaser,
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.
(v) In the event of an underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual
and customary form, with the managing underwriter of such offering.
As a condition to the Purchaser's participation in such underwriting,
the Purchaser shall also enter into and perform his obligations under
such an agreement provided that such underwriting agreement.
(vi) Notify the Purchaser at any time when a prospectus relating
to a registration statement covering Shares being registered for sale
by the Purchaser is required to be delivered under the 1933 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.
(c) It shall be a condition precedent to the obligations of the Company to
take any action pursuant to this Section 5 with respect to the Shares that the
Purchaser shall furnish to the Company and the managing underwriter such
information regarding itself and the Shares held by it as the Company or the
managing underwriter may reasonably request.
(d) The Company shall bear and pay all expenses incurred in connection
with any registration, filing, or qualification of Shares with respect to the
registration pursuant to this Section 5 for the Purchaser), including (without
limitation) all registration, filing, and qualification fees, printers and
accounting fees relating or apportionable thereto, but excluding underwriting
discounts and commissions relating to the Shares being sold by the Purchaser and
the fees and disbursements of counsel for the Purchaser.
(e) In connection with any offering involving an underwriting of
securities being issued by the Company, the Company shall not be required under
this Section 5 to include any of the Purchaser's Shares in such underwriting
unless the Purchaser accepts the terms of the underwriting as agreed upon
between the Company and the underwriters selected by it, and then only in such
quantity as will not, in the opinion of the underwriters, jeopardize the success
of the offering by the Company. If the total amount of securities, including
the Shares, to be included in such offering for the account of parties other
than the Company exceeds the amount of securities that the underwriters in their
sole discretion believe compatible with the success of the offering, then the
Company shall be required to include in the offering only that number of Shares
which the underwriters believe will not jeopardize the success of the offering.
The Company may apportion the securities to be included in such
-4-
<PAGE>
offering among selling shareholders (including the Purchaser) as the Company, in
its sole discretion, may determine; the Purchaser acknowledges that the Company
may, from time to time, enter into agreements with other holders of the
Company's securities granting to such holders registration rights superior to
the rights of the Purchaser hereunder including, without limitation, preference
as to inclusion of such holders' shares of Common Stock in any registration.
(f) The Purchaser shall not have any right to obtain or seek an injunction
restraining or otherwise delaying any registration as the result of any
controversy that might arise with respect to the interpretation or
implementation of this Section 5.
(g) In the event any Shares are included in a registration statement under
this Section 5, to the extent permitted by law, the Purchaser will indemnify and
hold harmless the Company, any underwriter (as defined in the 1933 Act), any
other selling shareholder and each person, if any, who controls such underwriter
or selling shareholder within the meaning of the 1933 Act or the Securities
Exchange Act of 1934, as amended (the "1934 Act"), against any losses, claims,
damages, or liabilities (joint or several) to which they may become subject
under the 1933 Act, the 1934 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 untrue statement or alleged untrue statement of any
material fact contained in the registration statement under which such Shares
were registered under the Securities Act, any prospectus related thereto and any
amendment or supplement thereto (the "Registration Statement and Prospectus") or
any omission or alleged omission to state in the Registration Statement and
Prospectus a material fact required to be stated therein or necessary to make
the statements therein not misleading (collectively a "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 the Purchaser
expressly for use in connection with such registration; and the Purchaser will
pay, as incurred, any legal or other expenses reasonably incurred by any person
intended to be indemnified pursuant to this Section 5(g), in connection with
investigating or defending any such loss, claim, damage, liability, or action;
provided, however, that the indemnity agreement contained in this Section 5(g)
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
Purchaser, which consent shall not be unreasonably withheld.
(h) In the event any Shares are included in a registration statement under
this Section 5, to the extent permitted by law, the Company will indemnify and
hold harmless the Purchaser and each person, if any, who controls the Purchaser
within the meaning of the 1933 Act or the 1934 Act against any losses, claims,
damages, or liabilities (joint or several) to which the Purchaser may become
subject under the 1933 Act, the 1934 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 Violation, in each case to the extent (and
only to the extent) that such Violation does not occur in reliance upon and in
conformity with written information furnished to the Company by the Purchaser or
any other person on behalf
-5-
<PAGE>
of the Company expressly for use in connection with such registration; and the
Company will pay, as incurred, any legal or other expenses reasonably incurred
by any person intended to be indemnified pursuant to this Section 5(h), in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
in this Section 5(h) 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.
6. Brokers. Each of the Company and the Purchaser represents and
-------
warrants to the other that it has not engaged any broker or other person who
would be entitled to any brokerage fee or commission with respect to the
execution of this Agreement or the consummation of the transactions contemplated
hereby (including the sale of the Shares). Each of the Company and the
Purchaser agrees to exonerate, indemnify and hold the other harmless against and
in respect of any and all liabilities or expenses which may be incurred by the
other as a result of claims asserted against the indemnified party by any broker
or other person claiming brokerage commissions or finder's fees on behalf of the
indemnifying party in connection with this Agreement or the transactions
contemplated hereby.
7. Successors and Assigns. This Agreement shall be binding upon and
----------------------
shall inure to the benefit of the undersigned parties and their respective
successors and assigns; provided, however, that the registration rights set
forth in Section 5 may not be assigned by the Purchaser without the prior
written consent of the Company, which consent may be withheld by the Company in
its sole discretion.
8. Entire Agreement and Amendments. This document represents the entire
-------------------------------
agreement of the parties with respect to the subject matter hereof, and no other
prior written or oral representation or understanding of the parties with
respect to such subject matter shall have any further force or effect. Each of
the Purchaser and the Company represents and warrants to the other that, in
entering this Agreement, it has relied on no statements, representations,
inducements or promises made by or on behalf of the other party except as are
expressly set forth in this Agreement. This Agreement may be modified only by a
subsequent writing signed by both the Purchaser and the Company.
9. Governing Law. This Agreement shall be governed by, and construed in
-------------
accordance with, the laws of the State of Delaware.
-6-
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
day and year first above written.
BUSINESS@WEB, INC. SSB INVESTMENTS, INC.
By: /s/ James G. Nondorf By: /s/
--------------------------- ------------------------------
-7-
<PAGE>
Exhibit 10.15
Business@Web, Inc.
Common Stock Purchase Warrant
Business@Web, Inc., a Delaware corporation (the "Company"), hereby
certifies that, for value received, SSB INVESTMENTS, INC., or assigns, is
entitled, subject to the terms set forth below, to purchase from the Company at
any time or from time to time on or prior to February 15, 2003, at the Purchase
Price hereinafter set forth, 35,000 shares of the fully paid and nonassessable
Common Stock, par value $0.001 per share, of the Company. The number and
character of such shares of Common Stock and the Purchase Price are subject to
adjustment as provided herein.
The purchase price per share of Common Stock issuable upon exercise of this
Warrant (the "Purchase Price") shall initially be $5.54; provided, however, that
the Purchase Price shall be adjusted from time to time as provided in (S)5,
below.
As used herein the following terms, unless the context otherwise requires,
have the following respective meanings:
(a) The term "Company" shall include Business@Web, Inc. and any
corporation that shall succeed or assume the obligations of the Company
hereunder.
(b) The term "Common Stock" includes (a) the Company's Common Stock,
par value $0.001 per share, (b) any other capital stock of any class or
classes (however designated) of the Company, authorized on or after such
date, 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 the holders of which shall
ordinarily, in the absence of contingencies, be entitled to vote for the
election of a majority of directors of the Company (even though the right
so to vote has been suspended by the happening of such a contingency) and
(c) any other securities into which or for which any of the securities
described in (a) or (b) may be converted or exchanged pursuant to a plan of
recapitalization, reorganization, merger, sale of assets or otherwise.
(c) The term "Other Securities" refers to any stock (other than Common
Stock) and other securities of the Company or any other person (corporate
or otherwise) that 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 that at any time shall be
issuable or shall have been issued in exchange for or in replacement of
Common Stock or Other Securities pursuant to (S)4 or otherwise.
(S)1. Exercise of Warrant.
-------------------
(S)1.1. Method of Exercise. This Warrant may be exercised in whole or in
------------------
part (but not as to a fractional share of Common Stock) by the holder hereof by
surrender of this Warrant,
<PAGE>
with the form of subscription at the end hereof duly executed by such holder, to
the Company at its principal office, accompanied by payment of the Purchase
Price multiplied by the number of shares of Common Stock for which this Warrant
is being exercised (the "Exercise Price"). Payment of the Exercise Price may be
made (i) by check or bank draft payable to the order of the Company, (ii) by
cancellation of indebtedness of the Company to the holder hereof at the time of
exercise, (iii) by cancellation as of the date of exercise of a portion of this
Warrant (calculated at the net fair market value of such cancelled portion at
the time of exercise), or (iv) by any combination of the foregoing. The net
fair market value of any portion of this Warrant cancelled in full or partial
payment of the Exercise Price shall be determined by (x) multiplying (a) the
number of shares of Common Stock for which the portion of this Warrant to be
cancelled was exercisable by (b) the fair market value of a share of Common
Stock as of the close of trading on the date of cancellation and (y) subtracting
from such product the aggregate Exercise Price of the shares of Common Stock for
which the portion of this Warrant to be cancelled was exercisable. For purposes
of this calculation, the fair market value of a share of Common Stock as of any
date shall be the last reported sale price of the Common Stock on such date on
the NASDAQ National Market or the exchange where the Common Stock is primarily
traded or, if the Common Stock is not traded on the NASDAQ National Market or an
exchange, the Common Stock shall be valued at the closing bid price (or average
of bid prices) on such date as reported by an established quotation service for
over-the counter securities, or if the Common Stock is not publicly traded, the
Common Stock shall be valued by the Company's Board of Directors in good faith,
based upon all relevant factors, including, without limitation, the current
financial position and current and historical operating results of the Company
and sales prices of recent public and private transactions in the Common Stock.
If the amount of the payment received by the Company is less than the Exercise
Price, the holder will be notified of the deficiency and shall make payment in
that amount within three days. In the event the payment exceeds the Exercise
Price, the Company will refund the excess to the holder within three days of
receipt. Upon exercise, the holder shall be entitled to receive, promptly after
payment in full, one or more certificates, issued in the holder's name or in
such name or names as the holder may direct, subject to the limitations on
transfer contained herein, for the number of shares of Common Stock so
purchased. The shares so purchased shall be deemed to be issued as of the close
of business on the date on which this Warrant shall have been exercised.
(S)1.2. Company Acknowledgment. The Company will, at the time of the
----------------------
exercise of this Warrant, upon the request of the holder hereof, acknowledge in
writing its continuing obligation to afford to such holder any rights to which
such holder shall continue to be entitled after such exercise in accordance with
the provisions of this Warrant. If the holder shall fail to make any such
request, such failure shall not affect the continuing obligation of the Company
to afford to such holder any such rights.
(S)2. Delivery of Stock Certificates, etc., on Exercise. As soon as
-------------------------------------------------
practicable after the exercise of this Warrant, and in any event within 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 may direct, a certificate or certificates
for the number of fully paid and nonassessable shares of Common Stock (or Other
Securities) to which such holder shall be entitled on such exercise, plus, in
lieu of any fractional share to which such holder would otherwise be entitled,
cash equal to such fraction multiplied by the then applicable Purchase Price,
together with any other stock or other securities and property
<PAGE>
-3-
(including cash, where applicable) to which such holder is entitled upon such
exercise pursuant to (S)1 or otherwise.
(S)3. Adjustment for Dividends in Other Stock, Property, etc.;
--------------------------------------------------------
Reclassification, etc. In case at any time or from time to time, the holders of
- ---------------------
Common Stock (or Other Securities) 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,
(a) other or additional stock or other securities or property
(other than cash) by way of dividend, or
(b) any cash (excluding cash dividends payable solely out of
earnings or earned surplus of the Company), or
(c) other or additional stock or other securities or property
(including cash) by way of spin-off, split-up, reclassification,
recapitalization, combination of shares or similar corporate rearrangement,
other than additional shares of Common Stock (or Other Securities) issued as a
stock dividend or in a stock split (adjustments in respect of which are provided
for in (S)5), then and in each such case the holder of this Warrant, on the
exercise hereof as provided in (S)1, shall be entitled to receive the amount of
stock and other securities and property (including cash in the cases referred to
in subdivisions (b) and (c) of this (S)3) that such holder would hold 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 cases referred to in
subdivisions (b) and (c) of this (S)3) receivable by him as aforesaid during
such period, giving effect to all adjustments called for during such period by
(S)(S)4 and 5.
(S)4. Adjustment for Reorganization, Consolidation, Merger, etc.
---------------------------------------------------------
(S)4.1. Reorganization, etc. In case at any time or from time to time,
-------------------
the Company shall (a) effect a reorganization, (b) consolidate with or merge
into any other person, or (c) 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 (S)1 at any time
after the consummation of such reorganization, 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 such 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 (S)(S)3 and 5.
(S)4.2. 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
<PAGE>
at its expense deliver or cause to be delivered the stock and other securities
and property (including cash, where applicable) receivable by the holder of this
Warrant after the effective date of such dissolution pursuant to this (S)4 to a
bank or trust company, as trustee for the holder or holders of this Warrant.
(S)4.3. Continuation of Terms. Upon any reorganization, consolidation,
---------------------
merger or transfer (and any dissolution following any transfer) referred to in
this (S)4, 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 (S)6.
(S)5. Adjustment for Extraordinary Events. In the event that the
-----------------------------------
Company shall (i) issue additional shares of the Common Stock as a dividend or
other distribution on outstanding Common Stock, (ii) subdivide its outstanding
shares of Common Stock, or (iii) combine its outstanding shares of the Common
Stock into a smaller number of shares of the Common Stock, then, in each such
event, the Purchase Price shall, simultaneously with the happening of such
event, be adjusted by multiplying the then Purchase Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such event and the denominator of which shall be the number
of shares of Common Stock outstanding immediately after such event, and the
product so obtained shall thereafter be the Purchase Price then in effect. The
Purchase Price, as so adjusted, shall be readjusted in the same manner upon the
happening of any successive event or events described herein in this (S)5. The
holder of this Warrant shall thereafter, on the exercise hereof as provided in
(S)1, be entitled to receive that number of shares of Common Stock determined
by multiplying the number of shares of Common Stock that would otherwise (but
for the provisions of this (S)5) be issuable on such exercise by a fraction of
which (i) the numerator is the Purchase Price that would otherwise (but for the
provisions of this (S)5) be in effect, and (ii) the denominator is the Purchase
Price in effect on the date of such exercise.
(S)6. No Impairment. The Company will not, by amendment of its
-------------
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the 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 this
Warrant against impairment. Without limiting the generality of the foregoing,
the Company (a) will not increase the par value of any shares of stock
receivable on the exercise of this Warrant above the amount payable therefor on
such exercise, (b) will take all such action as may be necessary or appropriate
in order that the Company may validly and legally issue fully paid and
nonassessable shares of stock on the exercise of this Warrant, and (c) will not
transfer all or substantially all of its properties and assets to any other
person (corporate or otherwise), or consolidate with or merge into any other
person or permit any such person to consolidate with or merge into the Company
<PAGE>
-5-
(if the Company is not the surviving person), unless such other person shall
expressly assume in writing and will be bound by all the terms of this Warrant.
(S)7. Accountants' Certificate as to Adjustments. In each case of any
------------------------------------------
adjustment or readjustment in the shares of Common Stock (or Other Securities)
issuable on the exercise of this Warrant, the Company at its expense will
promptly cause independent certified public accountants of recognized standing
selected by the Company to compute such adjustment or readjustment in accordance
with the terms of this Warrant and prepare a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based, including a statement of (a) the
consideration received or receivable by the Company for any additional shares of
Common Stock (or Other Securities) issued or sold or deemed to have been issued
or sold, (b) the number of shares of Common Stock (or Other Securities)
outstanding or deemed to be outstanding, and (c) the Purchase Price and the
number of shares of Common Stock to be received upon exercise of this Warrant,
in effect immediately prior to such issue or sale and as adjusted and readjusted
as provided in this Warrant. The Company will forthwith mail a copy of each
such certificate to the holder of this Warrant, and will, on the written request
at any time of the holder of this Warrant, furnish to such holder a like
certificate setting forth the Purchase Price at the time in effect and showing
how it was calculated.
(S)8. Notices of Record Date, etc. In the event of
----------------------- ---
(a) any taking by the Company of a record of the holders of any
class or 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
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,
then and in each such event the Company will mail or cause to be mailed to the
holder of this Warrant 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, and
(ii) the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding-up is to take place, and the time, if any is to be fixed, as of which
the holders of record of Common Stock (or 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. Such notice shall be mailed at least 20 days prior to the date
specified in such notice on which any such action is to be taken.
<PAGE>
-6-
(S)9. Reservation of Stock, etc., 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, all shares of Common Stock (or Other
Securities) from time to time issuable on the exercise of this Warrant.
(S)10. Exchange of Warrant. On surrender for exchange of this Warrant,
-------------------
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 of like tenor, in
the name of such holder or as such holder (on payment by such holder of any
applicable transfer taxes) may direct, calling in the aggregate on the face or
faces thereof for the number of shares of Common Stock called for on the face of
the Warrant so surrendered.
(S)11. Replacement of Warrant. On receipt of evidence reasonably
----------------------
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of any such loss, theft or destruction of this
Warrant, on delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of this Warrant, the Company at its
expense will execute and deliver, in lieu thereof, a new Warrant of like tenor.
(S)12. 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.
(S)13. Negotiability, etc. This Warrant is issued upon the following
-------------- ---
terms, to all of which each holder or owner hereof by the taking hereof consents
and agrees:
(a) title to this Warrant may be transferred by endorsement (by
the holder hereof executing the form of assignment at the end hereof) and
delivery in the same manner as in the case of a negotiable instrument
transferable by endorsement and delivery;
(b) any person in possession of this Warrant properly endorsed is
authorized to represent himself as absolute owner hereof and is empowered
to transfer absolute title hereto by endorsement and delivery hereof to a
bona fide purchaser hereof for value; each prior taker or owner waives and
renounces all of his equities or rights in this Warrant in favor of each
such bona fide purchaser, and each such bona fide purchaser shall acquire
absolute title hereto and to all rights represented hereby; and
(c) until this Warrant is transferred on the books of the
Company, the Company may treat the registered holder hereof as the
absolute owner hereof for all purposes, notwithstanding any notice to the
contrary.
(S)14. Notices, etc. 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,
<PAGE>
-7-
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.
(S)15. Miscellaneous. This Warrant and any term hereof may be changed,
-------------
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. This Warrant shall be construed and enforced in accordance with and
governed by the internal laws of the State of Delaware. 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 is being executed as an instrument
under seal. The invalidity or unenforceability of any provision hereof shall in
no way affect the validity or enforceability of any other provision.
Dated: As of February 16, 1996 BUSINESS@WEB, INC.
By: /s/James G. Nondorf
_________________________________
[Corporate Seal] James G. Nondorf, President
Attest:
By: /s/ William E. Kelly
________________________________
William E. Kelly, Secretary
<PAGE>
-8-
FORM OF FULL SUBSCRIPTION
(To be signed only on exercise in full of Warrant)
TO BUSINESS@WEB, INC.
The undersigned, the holder of the within Warrant, hereby irrevocably elects
to exercise this Warrant for, and to purchase thereunder, ....... shares of
Common Stock of Business@Web, Inc. and herewith makes payment of $.........
therefor, representing the Purchase Price of $......... per share in effect
at this date, by cash or certified check, and requests that the certificates for
such shares be issued in the name of, and delivered to .................,
whose address is....................................
Dated: ...................
(Signature must conform to name of holder as
specified on the face of this Warrant)
.........................
(Address)
________________________
FORM OF PARTIAL SUBSCRIPTION
(To be signed only on partial exercise of Warrant)
TO BUSINESS@WEB, INC.
The undersigned, the holder of the within Warrant, hereby irrevocably elects
to exercise this Warrant for, and to purchase thereunder, ........ shares of
Common Stock of Business@Web, Inc. and herewith makes payment of $.........
therefor, representing the Purchase Price of $......... per share in effect
at this date, by cash or certified check, and requests that the certificates for
such shares and a new Warrant of like tenor and date for the balance of the
shares not subscribed for be issued in the name of, and delivered to
......................, whose address is ......................................
(The following paragraph need be completed only if the Purchase Price and number
of shares of Comon Stock specified in the within Warrant have been adjusted
pursuant to the provisions hereof.)
The shares hereby subscribed for constitute .............. shares of Common
Stock (to the nearest whole share) resulting from adjustment of ...............
shares of the total of .................. shares of Common Stock covered by the
within Warrant, as such shares were constituted at the date of this Warrant,
leaving a balance of ................ shares of Common Stock , as constituted at
the date of this Warrant, to be covered by the new Warrant.
Dated: .....................
(Signature must conform to name of
holder as specified on the face of
this Warrant)
...................................
(Address)
<PAGE>
-9-
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 Common Stock of Business@Web, Inc. to which the
within Warrant relates, and appoints ....................... Attorney to
transfer such right on the books of Business@Web, Inc. with full power of
substitution in the premises.
Dated: ..................
(Signature must conform to name of holder as
specified on the face of this Warrant)
...........................
(Address)
Signed in the presence of:
.................................
<PAGE>
EXHIBIT 10.21
VOTING AGREEMENT
This VOTING AGREEMENT, made as of the 6th day of March, 1996 by and among
those investors listed on Schedule A hereto (the "Investors") and the holders
of shares of the Common Stock, $0.001 par value (the "Common Stock") of
Business@Web, Inc., a Delaware corporation (the "Company") listed on Schedule B
hereto (the "Principal Shareholders").
WHEREAS, the Investors are purchasing shares of Series B Convertible
Preferred Stock, $1.00 par value ("Preferred Stock"), of the Company pursuant
to that certain Series B Convertible Preferred Stock Purchase Agreement dated
March 6, 1996 (the "Purchase Agreement") among the Company and the Investors;
and
WHEREAS, in order to induce the Investors to consummate the transactions
contemplated by the Purchase Agreement, the Shareholders have agreed to vote the
voting securities of the Company held by them as set forth herein.
NOW, THEREFORE, in consideration of the foregoing, the parties hereto agree
as follows:
1. Election of the Investor Director. In any and all elections of
---------------------------------
directors of the Company (whether at a meeting or by written consent in lieu of
a meeting), each Principal Shareholder and each Investor shall vote or cause to
be voted the Shares owned by such Principal Shareholder or Investor, as the case
may be, or over which such Principal Shareholder or Investor has voting control,
and otherwise use his, her or its best efforts, so as to elect as a director of
the Company one person designated by written notice from the holders of a
majority of the shares of Preferred Stock or Common Stock issued upon conversion
of Preferred Stock held by all Investors. The person to be elected as a
director of the Company at the designation of the Investors (the "Investor
Director") shall initially be Ofer Nemirovsky. As used herein, the term "Shares"
shall refer to shares of Preferred Stock, Common Stock, and all other voting
securities of the Company.
2. Removal of the Investor Director. No Principal Shareholder (either as
--------------------------------
a shareholder or as a director of the Company) shall vote to remove any Investor
Director, except (i) for bad faith or willful misconduct or (ii) with or without
cause at the written direction of the holders of a majority of the shares of
Preferred Stock or Common Stock issued upon conversion of Preferred Stock held
by all Investors. At the written direction of the holders of a majority of the
shares of Preferred Stock or Common Stock issued upon conversion of Preferred
Stock held by all Investors, each Principal Shareholder shall take any necessary
action to cause any Investor Director previously elected at the designation of
the Investors to be removed from office. In the event any Investor Director is
so removed, or if a vacancy is created by the death, resignation or removal of
any Investor Director, the vacancy so created shall be filled in accordance
with Section 1 hereof by a designee selected by the Investors.
<PAGE>
3. Voting on Other Matters. Except as provided in Sections 1 and 2,
-----------------------
above, each Principal Shareholder and the Investor may vote the Shares held by
him, her or it on any and all matters presented to the stockholders of the
Company (including, without limitation, the election of directors of the
Company) as he, she or it may, in his, her or its sole discretion, determine.
Nothing herein shall be deemed to create any ownership interest on the part of
any Investor in any Shares held by the Principal Shareholders.
4. Termination; Suspension Upon Redemption Default. This Agreement
-----------------------------------------------
shall terminate upon the earlier to occur of (i) December 31, 2005 or (ii) the
consummation of a firm commitment underwritten public offering of Common Stock
pursuant to an effective registration statement under the Securities Act
covering the offer and sale of Common Stock to the public at an initial public
offering price of not less than $8.25 per shares and with gross proceeds of not
less than $15,000,000. The obligations of the Principal Shareholders under this
Agreement shall be suspended in the event and for so long as, following a
default in redemption of the Preferred Stock pursuant to the terms of the
Company's Certificate of Incorporation, as amended, the holders of the Preferred
Stock are entitled to elect a majority of the members of the Company's Board of
Directors.
5. Specific Performance. In addition to any and all other remedies that
--------------------
may be available at law in the event of any breach of this Agreement, the
Investors shall be entitled to specific performance of the agreements and
obligations of the Principal Shareholders hereunder and to such other injunctive
or other equitable relief as may be granted by a court of competent
jurisdiction.
6. Notices. All notices, requests, consents and other communications
-------
hereunder shall be in writing and shall be deemed delivered (i) when delivered
in person or (ii) one business day after being mailed by certified or registered
mail, return receipt requested, or sent by a recognized overnight courier
service, addressed as follows:All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed delivered (i)
when delivered in person or (ii) one business day after being mailed by
certified or registered mail, return receipt requested, or sent by a recognized
overnight courier service, addressed as follows:
if to any Investor, at the address of such Investor set forth on Exhibit A
hereto;
if to any Principal Shareholder, at the address of such Principal
Shareholder set forth on Exhibit B hereto;
or, in any case, at such other address or addresses as shall have been furnished
in writing to the Investors (in the case of a Principal Shareholder) or to the
Principal Shareholders (in the case of an Investor) in accordance with the
provisions of this Paragraph 6.
7. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Delaware.
8. Amendment; Modification; Waiver. This Agreement may not be amended or
-------------------------------
modified, and no provision hereof may be waived, without the written consent of
both (i)
2
<PAGE>
Principal Shareholders holding at least a majority of the Shares held by
Principal Shareholders and (ii) Investors holding at least a majority of the
Shares held by Investors.
9. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10. Illegality, etc. If any provision of this Agreement shall be held to
---------------
be illegal, invalid or unenforceable, such illegality, invalidity or
unenforceability shall attach only to such provision and shall not in any manner
affect or render illegal, invalid or unenforceable any other provision of this
Agreement, and this Agreement shall be carried out as if any such illegal,
invalid or unenforceable provision were not contained herein.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be duly executed as an instrument under seal by its officer thereunto duly
authorized as of the date first above written.
INVESTORS:
FALCON VENTURES II, L.P.
By: Back Bay Partners XIII L.P.
By: Hancock Venture Partners, Inc.
/s/ Robert Wadsworth
By:___________________________
HANCOCK VENTURE PARTNERS
IV-DIRECT FUND L.P.
By: Back Bay Partners XII L.P.
By: Hancock Venture Partners, Inc.
/s/ Robert Wadsworth
By:____________________________
PANTIO HOLDING LTD.
/s/ Marlene Buesch - Weber
By:_____________________________
Marlene Buesch - Weber, Secretary
3
<PAGE>
JUILLIARD INVESTMENTS, INC.
/s/ Javier Baz
By:______________________________
Javier Baz
/s/ Jan Baan
_________________________________
Jan Baan
/s/ J.G. Paul Baan
__________________________________
J.G. Paul Baan
/s/ Lorenzo Cue
__________________________________
Lorenzo Cue
/s/ Tom C. Tinsley
__________________________________
Tom C. Tinsley
PRINCIPAL SHAREHOLDERS:
J&S LIMITED PARTNERSHIP
By: Controller Corp., Inc.,
General Partner
/s/ John J. Donovan
By:_______________________________
President
LEGACY INVESTMENT PARTNERSHIP
/s/ John J. Donovan Jr.
By:_______________________________
Managing Partner
4
<PAGE>
HARRINGTON TRUST LIMITED as Trustee of
The Appleby Trust
/s/ John Campbell
By:_________________________________
Director
/s/ Sundar Subramaniam
____________________________________
Sundar Subramaniam
/s/ Klaus Besier
______________________________
Klaus Besier
5
<PAGE>
SCHEDULE A
INVESTORS
Name and Address
- ----------------
Hancock Venture Partners
IV-Direct Fund L.P.
One Financial Center
Boston, MA 02111
Falcon Ventures II L. P.
One Financial Center
Boston, MA 02111
Pantio Holding Ltd.
Omar Hodge Building
Wyckam's Cay
Road Town, Tortolla
British Virgin Islands
copy to:
CISSA
13, avenue de Bude
1202 Geneva
Switzerland
Lorenzo Cue
1451 Montgomery Street
San Francisco, CA 94133
Juilliard Investments, Inc.
Palm Bay Towers
26 S. 720 NE 69th Street
Miami, FL 33138
Jan Baan
Baan Company N.V.
Zonneoordlaan 17
6718 GK Ede
Netherlands
6
<PAGE>
J.G. Paul Baan
Baan Company N.V.
Zonneoordlaan 17
6718 GK Ede
Netherlands
Tom C. Tinsley
Baan Company N.V.
Zonneoordlaan 17
6718 GK Ede
Netherlands
7
<PAGE>
SCHEDULE B
PRINCIPAL SHAREHOLDERS
Name and Address
- ----------------
J&S Limited Partnership
219 Vassar Street
Cambridge, Massachusetts 02139
Legacy Investment Partnership
219 Vassar Street
Cambridge, Massachusetts 02139
Harrington Trust Limited as Trustee
of The Appleby Trust
Cedar House
41 Cedar Avenue
Hamilton HM 12, Bermuda
Sundar Subramaniam
333 Commonwealth Avenue
Boston, Massachusetts 02116
Klaus Besier
25 Hedgerow Lane
Phoenixville, Pennsylvania 19460
8
<PAGE>
EXHIBIT 10.32
LOAN AGREEMENT
--------------
AGREEMENT dated as of March 31, 1996 by and between Business@Web, Inc., a
corporation established under the laws of Delaware (the "Company"), and Mr.
Klaus P. Besier ("Besier").
WHEREAS, in connection with the Company's offer to Besier to become its
President and Chief Executive Officer, Harrington Trust Limited, as the trustee
of The Appleby Trust, a significant stockholder of the Company (the "Seller"),
was willing to sell to Besier and Besier was willing to purchase from the Seller
shares of the common stock, $.001 par value per share (the "Stock") of the
Company; and
WHEREAS, Besier purchased (the "Stock Purchase") One Million Four Hundred
Forty Thousand (1,440,000) shares (the "Shares") of the Stock from the Seller as
of January 1, 1996 for a purchase price of One Dollar ($1.00) per share (the
"Purchase Price"), for an aggregate purchase price of One Million Four Hundred
Forty Thousand Dollars ($1,440,000); and
WHEREAS, Besier and the Company acknowledge and agree that on January 1,
1996, the fair market value of the Stock was $5.00 per share; and
WHEREAS, the Company is desirous of obtaining Besier's services and is
willing as an inducement to Besier, to lend Besier an amount equal to his
federal, state and local income tax in respect of the $4.00 valuation
differential between the fair market value of the Shares and the Purchase Price
in an amount not to exceed $2,560,000.
NOW, THEREFORE, in consideration of the premises contained herein, and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
1. Income Tax. The Company hereby agrees to lend Besier an amount equal
----------
to the Tax Differential (as hereinafter defined) attributable to the Stock
Purchase. The "Tax Differential" shall be equal to the excess of (x) the actual
aggregate federal, state and local tax liability of Besier for the taxable year
in which Besier is taxable on the Stock Purchase under Section 83 of the
Internal Revenue Code of 1986, as amended (the "Inclusion Year"), over (y) the
aggregate federal, state and local tax liability that Besier would have incurred
for such taxable year if Besier had not made the Stock Purchase, provided that
such amount shall not exceed $2,560,000. The Company shall promptly lend the
Tax Differential to Besier at the time or times Besier is obligated to pay taxes
attributable to the Stock Purchase, but only after Besier has (i) submitted
appropriate documentation to the Company that permits the Company to verify the
amount of the Tax Differential payment requested by Besier, (ii) executed a
promissory note (the "Note") in a form satisfactory to the Company and (iii)
executed a Stock Pledge Agreement in a form satisfactory to the Company
providing the Company with a first priority lien on the Shares. If there is a
final determination by a tax authority that increases Besier's tax liability for
the Inclusion Year, the Company shall lend Besier at that time (i) any
<PAGE>
increase in the Tax Differential resulting from the redetermination of his tax
liability for the Inclusion Year, plus (ii) on an after-tax basis, any interest,
penalties or additions to tax that would not have been payable by Besier but for
the fact of the Stock Purchase, provided that, in the aggregate, the Company
shall have no obligation to lend Besier an amount in excess of $2,560,000.
2. Terms of Purchase. Subject to the terms and conditions herein set
-----------------
forth, Besier shall issue and sell to the Company and the Company shall purchase
from Besier the Note. The aggregate principal amount of the Note to be issued
shall be up to $2,560,000. The Note shall be secured by a perfected, first
priority security interest in the Shares. Except for the security interest in
the Shares, the Note shall be non-recourse to Besier. The Note shall mature and
all principal of, and accrued but unpaid interest on, the Note shall be due and
payable on the earlier to occur of: (i) December 31, 2001, (ii) one year after
the termination of Mr. Besier's employment with the Company as a result of his
death or disability, (iii) 90 days after the termination of Mr. Besier's
employment with the Company for any reason other than his death or disability
(the "Maturity Date"). The payment of the principal amount of, and interest on,
the Note shall also be subject to acceleration upon: (x) the insolvency,
bankruptcy, commencement of bankruptcy proceedings or the assignment for the
benefit of creditors with respect to Mr. Besier, or (y) any material breach of
the Pledge Agreement which is not cured within 15 days of written notice
thereof. The Note shall bear interest, computed on the basis of actual days
elapsed and a year of 365 days, on the unpaid principal amount thereof at the
rate of 6.21% per annum, compounded quarterly. The interest shall be due and
payable in connection with any payment of the principal of the Note, whether on
the Maturity Date or as a result of the acceleration or prepayment of the Note
or otherwise. The Note may be prepaid by Besier at any time without penalty.
The proceeds of the Note shall be used to pay any income tax for Besier
related to the Tax Differential.
3. Representations and Warranties of Besier. Besier represents and
----------------------------------------
warrants to the Company as follows:
(a) Capital Stock. Besier is the lawful, record and beneficial owner
-------------
of the Shares, and Besier has the full power and authority to grant a first
priorty security interst in such Shares to the Company. All of the Shares have
been, to the best knowledge of Besier, validly issued and are fully paid and
nonassessable; and no person has any present or future right (conditional,
preemptive or otherwise) to acquire, vote, register or restrict the transfer of
any of the Shares.
(b) No Breach or Conflict. The encumbrance of the Shares
---------------------
contemplated by this Agreement does not conflict with, or result in a breach of,
or a default under, or give rise to a right of acceleration under, any agreement
or instrument to which Besier is a party.
2
<PAGE>
(c) Truth and Completeness of Representations and Warranties. None
--------------------------------------------------------
of the information contained in the representations and warranties of Besier set
forth in this Agreement contains any untrue statement of a material fact or
omits or will omit to state a material fact necessary to make the statements
contained herein or therein not misleading.
4. Entire Agreement. This Agreement represents the entire agreement of
----------------
the parties, and no other prior written or oral representation or understanding
of the parties shall have any further force or effect. This Agreement shall not
be modified or discharged in whole or in part except by an agreement in writing
signed by the parties hereto.
5. Assignment. This Agreement is personal and shall in no way be subject
----------
to assignment by Besier. The Company's obligations under this Agreement shall
inure to the benefit of the successors of the Company by way of merger,
consolidation or transfer of substantially all of the assets of the Company.
6. Notices. All notices and other communications in connection with this
-------
Agreement shall be in writing and shall be sent to the respective parties at the
following addresses, or to such other addresses as may be designated by the
parties in writing from time to time in accordance with this Section, by
registered or certified air mail, postage prepaid, or by express courier
service, service fee prepaid, or by telefax with a hard copy to follow via air
mail or express courier service in accordance with this Section.
TO COMPANY: Business@Web, Inc.
One Arsenal Marketplace
Watertown, Massachusetts 02172
Attention: Craig Newfield, Esq.
With copy to: Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109
Attention: John J. Egan III, Esq.
TO BESIER: Mr. Klaus Besier
25 Hedgegrow Lane
Phoenixville, PA 19469
3
<PAGE>
7. Counterparts. This Agreement may be executed in counterparts, each of
------------
which shall be deemed to be an original and all of which together shall be
deemed to be one and the same instrument.
8. Applicable Law. This Agreement is intended to be and shall be
--------------
governed by and construed in all respects by the law of the State of Delaware.
4
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement under seal as
of the date first set forth above.
THE COMPANY:
BUSINESS@WEB, INC.
By: /s/ Eric Sockol
------------------------------
Title: CFO, Eric D. Sockol
BESIER:
/s/ Klaus P. Besier
------------------------------
Klaus P. Besier
5
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To OneWave, Inc.:
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
Registration Statement.
Arthur Andersen LLP
Boston, Massachusetts
June 11, 1996
