<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 2, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
------------------------
BLUESTONE SOFTWARE, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7372 22-2964141
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
------------------------
1000 BRIGGS ROAD
MOUNT LAUREL, NEW JERSEY 08054
(856) 727-4600
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
------------------------------
P. KEVIN KILROY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
BLUESTONE SOFTWARE, INC.
1000 BRIGGS ROAD
MOUNT LAUREL, NEW JERSEY 08054
(856) 727-4600
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
WILLIAM A. SCARI, ESQUIRE WILLIAM J. GRANT, JR., ESQUIRE
PAUL T. PORRINI, ESQUIRE WILLKIE FARR & GALLAGHER
PEPPER HAMILTON LLP 787 SEVENTH AVENUE
1235 WESTLAKES DRIVE, SUITE 400 NEW YORK, NEW YORK 10019
BERWYN, PENNSYLVANIA 19312 (212) 728-8000
(610) 640-7800
</TABLE>
------------------------
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 of 1933, 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 of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / / ______
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / ______
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
AGGREGATE OFFERING AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED PRICE (1) (2) REGISTRATION FEE
<S> <C> <C>
Common Stock, $.001 par value........................................................... $46,000,000 $12,788
</TABLE>
(1) Estimated solely for purposes of determining the registration fee in
accordance with Rule 457(o) under the Securities Act of 1933.
(2) Includes amount subject to the over-allotment option granted to the
Underwriters.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
PROSPECTUS SUBJECT TO COMPLETION
1999
SHARES
[LOGO]
COMMON STOCK
------------------
We are a leading provider of software that permits businesses to extend
information over the World Wide Web in a highly scalable and controlled manner.
We are offering shares of common stock in an initial public
offering. We have made application to list our common stock for quotation on the
Nasdaq National Market under the symbol "BLSW." We expect that the initial
public offering price will be between $ and $ per share. The market
price of the shares of common stock after this offering may be higher or lower
than the initial public offering price.
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 5.
---------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
---------- ----------
<S> <C> <C>
Public Offering Price..................................................................... $ $
Underwriting Discount..................................................................... $ $
Proceeds to Bluestone..................................................................... $ $
</TABLE>
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
We and certain selling stockholders have granted the underwriters a 30-day
option to purchase up to additional shares of common stock at the
initial public offering price to cover any over-allotments.
We expect to issue these shares on , 1999.
DEUTSCHE BANC ALEX / / BROWN
SOUNDVIEW TECHNOLOGY GROUP
C.E. UNTERBERG, TOWBIN
LEGG MASON WOOD WALKER
INCORPORATED
, 1999
<PAGE>
[INSIDE FRONT COVER OF PROSPECTUS]
GRAPHIC:
Single page graphic of a billboard against a blue sky with white clouds. Written
in the top right corner of the graphic in the sky is the following text: "XML
and EJB Support Since 8/98. Bluestone XML Suite-TM- Now Available!" In the
billboard is the following statement: "BLUESTONE APP SERVER JUDGED "HEAD AND
SHOULDERS" ABOVE THE REST." The right corner of the billboard contains the
Bluestone logo followed by the following text: "Bluestone Software, Enterprise
Interaction Management, Get (EIM)powered."
Under the graphic of the billboard is the following text, beginning with a
graphic of a circular blue stone:
"Some of the most prestigious application server software companies in the world
recently competed in an independent study. The results were clear: "Bluestone's
Sapphire/Web-Registered Trademark- stood head and shoulders above the others in
performance, scalability and fault tolerance."*
Bluestone is an industry leader in providing end-to-end, enterprise-class
Internet commerce solutions.
Bluestone's software for Enterprise Interaction Management (EIM)--the controlled
exchange of enterprise information in a highly secure environment, gives
businesses the power to develop, deploy, integrate and manage applications that
extend their information over the Internet, intranets and extranets.
Get Informed, get (EIM)powered."
The lower center of the page contains the text: "BLUESTONE." Above that text and
to the right is the following text: "NetworkWorld--10 Companies To Watch." Below
the text "BLUESTONE," to the left is Bluestone's Web site address,
"www.bluestone.com" and, to the right is the text, "Get (EIM)powered."
The following text is found on the bottom of the page above the list of
Bluestone's trademarks: *The application server test was conducted by Doculabs
Inc., and is described in "Measuring Up App Servers," PC WEEK, April 5, 1999.
- --------------------------------------------------------------------------------
Bluestone-Registered Trademark- and Sapphire/Web-Registered Trademark- are
registered trademarks of Bluestone Software, Inc. Sapphire/ Universal Business
Server-TM- (UBS), Sapphire/Enterprise Deployment Kit-TM- (EDK), Sapphire/
Application Manager-TM- (SAM), Sapphire/Integration Modules-TM- (SIMS),
Enterprise Interaction Management-TM-, Bluestone iCommerce Suite-TM-,
Sapphire/Developer-TM-, Sapphire/Developer Enterprise Edition-TM-, Bluestone XML
Suite-TM-, Bluestone XML-Contact-TM-, Bluestone XML-Server-TM-, XwingML-TM-,
Bluestone Visual-XML-TM-, Hot Versioning-TM-, and IQS-TM- (Internet Quality of
Service) are trademarks of Bluestone Software, Inc.
<PAGE>
PROSPECTUS SUMMARY
YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS AND NOTES APPEARING ELSEWHERE IN THIS
PROSPECTUS. GENERALLY, THE INFORMATION IN THIS PROSPECTUS ASSUMES THAT THE
OVER-ALLOTMENT OPTION GRANTED TO THE UNDERWRITERS BY BLUESTONE AND CERTAIN
SELLING STOCKHOLDERS IS NOT EXERCISED. THIS PROSPECTUS GIVES EFFECT TO THE
AUTOMATIC CONVERSION OF ALL SHARES OF OUR OUTSTANDING SERIES A, SERIES B AND
SERIES C CONVERTIBLE PREFERRED STOCK INTO AN AGGREGATE OF SHARES OF
COMMON STOCK WHICH WILL OCCUR IMMEDIATELY UPON COMPLETION OF THIS OFFERING. THE
TERMS "BLUESTONE," "WE," "US," AND "OUR" REFER TO BLUESTONE SOFTWARE, INC. FOR
AN EXPLANATION REGARDING SOME OF THE TERMS USED IN THIS PROSPECTUS, SEE
"GLOSSARY" BEGINNING ON PAGE 61.
BLUESTONE
We are a leading provider of software for "Enterprise Interaction
Management," which enables businesses to extend information over the Web in a
controlled manner and supports high volumes of users and interactions. Our
flagship product, Sapphire/Web, is currently in Release 6 and has expanded to a
product family that we believe is the leading JAVA/Web application server
framework in the world. We believe that we are the only Web application server
vendor to adequately address the four defining elements of Enterprise
Interaction Management--development, deployment, integration and management--and
therefore provide the most complete overall solution to our customers. In
January 1999, we released Bluestone XML-Server, which represents a new breed of
specialized Web application server focused on Internet Commerce.
OUR INDUSTRY
Businesses are rapidly adopting Web technology to upgrade their enterprise
and client-server applications. Starting in the second half of 1998, businesses
have shifted information technology resources from the implementation of a
simple Web site to the deployment of complex enterprise applications over the
Web. To date, most businesses have used Internet technology by employing Web
servers to provide marketing material on their Web sites, but have not been able
to take full advantage of the potential of the Internet. The existing
information technology infrastructure of most companies leaves them unable to
utilize, integrate or deploy existing information technology assets for Internet
Commerce or use over the Web. Web servers are inherently limited because they
are unable to reliably and securely handle a high volume of complicated
interactions across the Internet, intranets or extranets.
Deploying Web application servers allows dynamic access to complex
information through the Web that is otherwise only available internally in an
organization through its own applications and legacy databases. This enables a
much broader and diverse audience to utilize and interact with a business' core
systems and information. Uses of this capability include:
- broad dissemination and more effective use of management information for
decision support;
- employee self-service applications that improve internal efficiencies;
- customer relationship management activities that enhance service levels;
- supply chain functions that increase coordination among trading partners;
and
- Internet Commerce initiatives that create entirely new revenue streams and
business models.
Demand for these capabilities has resulted in significant growth in the
market for Web application servers. In an August 1998 report, Forrester Research
estimated that the market for application server software would be approximately
$700 million in 1999 and grow to approximately $1.8 billion by 2001,
representing a compound annual growth rate of approximately 60%. Another
independent technology research organization, Ovum, estimated in a June 1999
report that the market for application server
1
<PAGE>
technologies, which Ovum defines in a manner that more closely resembles our
addressable market, will grow to $17 billion by 2004. As this market develops,
businesses are recognizing that a broader set of facilities, beyond simple
deployment alone, are required to capture the substantial benefits that Internet
computing can provide.
OUR SOLUTION
We provide a comprehensive framework that enables businesses to deploy
information across the Internet, intranets and extranets to employees,
customers, suppliers and partners. Our solution furnishes businesses with the
ability to Web-enable legacy systems, develop new Web-centric applications,
provide enterprise application integration and enable Internet Commerce. Our
deployment solution is 100% Pure JAVA and therefore operates in all enterprise
computing environments. We believe our solution is the only one available that
allows organizations to develop, deploy, integrate and manage enterprise-scale,
mission-critical applications. In particular, our solution offers the following
facilities:
- robust development environment and toolset that is open and highly
adaptable and has many features that increase the speed and reduce the
cost of systems development;
- open, high-performance deployment that enables implementation of systems
with high reliability, security and flexibility and supports very high
volumes of interactions;
- extensive integration capabilities that facilitate the integration of a
business' overall computing environment; and
- comprehensive management features that provide the necessary means to
monitor, administer and report on a business' entire Web infrastructure.
OUR GROWTH STRATEGY
Our goal is to maintain and extend our position as a leading provider of Web
application server technology, enterprise application integration and Internet
Commerce solutions. Our key growth strategies are to:
- maintain and extend technological leadership;
- expand product offerings;
- continue to focus on enterprise-scale solutions;
- increase marketing and direct sales efforts; and
- further develop indirect channels, partners and alliances.
OUR CUSTOMERS
Our solutions are applicable to a wide variety of industries and are used by
many of the world's leading businesses, including:
- three of the top five FORTUNE 500 companies in the electronics industry;
- five of the top ten FORTUNE 500 companies in the computer equipment
industry;
- four of the top five FORTUNE 500 companies in the aerospace industry;
- seven out of the top ten FORTUNE 500 companies in the telecommunications
industry;
- three of the top four FORTUNE 500 companies in the entertainment industry;
and
- five of the top ten FORTUNE 500 companies in the pharmaceuticals industry.
2
<PAGE>
We market our products and services through our direct sales force and a
network of value added resellers, independent software vendors, and systems
integrators. Since 1996, we have sold our Sapphire/Web software products to over
500 customers. Our customers include ARI, AT&T, Deutsche Bank, Dreyfus
Corporation, Eli Lilly, Hewlett-Packard, Houghton Mifflin Company, Just For
Feet, MCI WorldCom, OpenConnect, Reliance National and Time, Inc.
We were originally incorporated in 1989. Our executive offices are located
at 1000 Briggs Road, Mount Laurel, New Jersey 08054. Our telephone number is
(856) 727-4600. Information contained on our Web site at www.bluestone.com does
not constitute a part of this prospectus.
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by Bluestone............ shares
Common stock outstanding after this
offering................................... shares
Use of proceeds.............................. product development, sales and marketing
and working capital
Proposed Nasdaq National Market symbol....... "BLSW"
</TABLE>
Common stock outstanding after this offering is based on the number of
shares outstanding as of March 31, 1999, pro forma to include our outstanding
Series C preferred stock. It excludes:
- 7,014,585 shares of common stock issuable upon exercise of options and
warrants at a weighted average exercise price of $0.99 per share and
700,000 shares of common stock issuable upon the conversion of a
convertible note at a conversion price of $0.71 per share.
- 3,858,621 shares reserved for future grants under our stock option and
directors' compensation plans.
3
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following table sets forth certain of our historical, pro forma and
adjusted financial data. The pro forma balance sheet data presented below
reflects the sale of 9,191,176 shares of Series C preferred stock for $2.72 per
share on May 25, 1999 and the conversion of all outstanding preferred stock,
including the Series C preferred stock, and accrued dividends on preferred stock
into common stock. The pro forma net loss per share amounts presented below
reflect the outstanding preferred stock during each period presented on an as
converted basis. The adjusted balance sheet data presented below gives effect to
the receipt of the net proceeds from the sale of shares of common stock offered
by us at an assumed offering price of $ per share, after deducting the
estimated underwriting discounts and commissions and our estimated offering
expenses.
In April 1997, in connection with our sale of Series A preferred stock, we
spun off our consulting division to our then sole stockholder. The consulting
division spin-off has been reported as a discontinued operation. In April 1998,
we decided to focus on internally developed software products and curtail the
licensing and services related to third party products. No material license
revenues from third party products were recognized after March 31, 1998.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------- --------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Software license fees.................................................. $ 1,475 $ 2,337 $ 3,391 $ 432 $ 2,257
Services............................................................... 43 2,179 3,620 937 1,020
Third party products and related services.............................. 6,555 5,225 1,107 785 --
--------- --------- --------- --------- ---------
Total revenues..................................................... 8,073 9,741 8,118 2,154 3,277
Cost of revenues:
Software license fees.................................................. 113 202 259 39 57
Services............................................................... 305 2,516 4,433 985 1,337
Third party products and related services.............................. 4,261 2,798 643 437 --
--------- --------- --------- --------- ---------
Total cost of revenues............................................. 4,679 5,516 5,335 1,460 1,395
--------- --------- --------- --------- ---------
Gross profit............................................................. 3,394 4,225 2,783 694 1,882
Operating expenses:
Sales and marketing.................................................... 3,005 5,131 9,551 1,544 2,826
Product development.................................................... 702 1,295 2,474 360 904
General and administrative............................................. 1,515 1,616 2,316 447 635
--------- --------- --------- --------- ---------
Total operating expenses........................................... 5,222 8,042 14,341 2,352 4,365
--------- --------- --------- --------- ---------
Loss from operations..................................................... (1,828) (3,817) (11,558) (1,658) (2,483)
Interest expense, net.................................................... (50) (80) (47) (41) (48)
--------- --------- --------- --------- ---------
Loss from continuing operations.......................................... (1,878) (3,896) (11,605) (1,699) (2,531)
Income (loss) from discontinued operations............................... (738) 99 -- -- --
--------- --------- --------- --------- ---------
Net loss................................................................. (2,616) (3,798) (11,605) (1,699) (2,531)
Accretion of preferred stock redemption value............................ -- (240) (846) (84) (264)
--------- --------- --------- --------- ---------
Net loss available to common stockholders................................ $ (2,616) $ (4,038) $ (12,451) $ (1,783) $ (2,795)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Basic and diluted net income (loss) per share:
Continuing operations.................................................. $ (0.21) $ (0.43) $ (1.29) $ (0.19) $ (0.28)
Discontinued operations................................................ (0.08) 0.01 -- -- --
Accretion of preferred stock redemption value.......................... -- (0.03) (0.09) (0.01) (0.03)
--------- --------- --------- --------- ---------
$ (0.29) $ (0.45) $ (1.38) $ (0.20) $ (0.31)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Shares used in computing basic and diluted net income (loss) per share... 9,000 9,000 9,005 9,001 9,009
Pro forma basic and diluted net loss per share from continuing
operations............................................................. $ $ $ $
--------- --------- --------- ---------
--------- --------- --------- ---------
Shares used in computing pro forma basic and diluted net loss per
share..................................................................
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1999
---------------------------------
ACTUAL PRO FORMA ADJUSTED
--------- --------- -----------
(IN THOUSANDS, UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents....................................... $ 598 $ 23,903
Working capital (deficit)....................................... (2,866) 20,440
Total assets.................................................... 3,877 27,182
Long-term obligations, net of current portion................... 1,765 1,765
Mandatorily redeemable convertible preferred stock.............. 17,678 --
Total stockholders' equity (deficit)............................ (20,941) 20,042
</TABLE>
4
<PAGE>
RISK FACTORS
THIS SECTION HIGHLIGHTS SPECIFIC RISKS WITH RESPECT TO AN INVESTMENT IN OUR
BUSINESS. INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. WE ALSO
CAUTION YOU THAT THIS PROSPECTUS INCLUDES FORWARD-LOOKING STATEMENTS THAT ARE
BASED ON MANAGEMENT'S BELIEFS AND ASSUMPTIONS AND ON INFORMATION CURRENTLY
AVAILABLE TO MANAGEMENT. YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW
AND THE OTHER INFORMATION IN THIS PROSPECTUS BEFORE PURCHASING THE COMMON STOCK.
WE HAVE HAD RECENT LOSSES AND MAY NOT BECOME PROFITABLE.
We have incurred significant net losses since 1996, including losses of
approximately $3.8 million and $11.6 million for the years ended December 31,
1997 and 1998, respectively. Our losses have resulted in an accumulated deficit
of approximately $21.0 million as of March 31, 1999. Any significant shortfall
of revenues in relation to our expectations or any material delay of customer
orders would have an immediate adverse effect on our business, operating results
and financial condition. We may not be profitable in any future period. Our
future operating results will depend on many factors, including:
- the overall growth rate for the markets in which we compete;
- the level of market acceptance of, and demand for, our software products;
- the level of product and price competition;
- our ability to establish strategic marketing relationships, develop and
market new and enhanced products, and control costs;
- our ability to implement our business plan;
- our ability to expand our direct sales force and indirect distribution
channels;
- our ability to integrate acquired businesses and product lines;
- our ability to develop and maintain awareness of our brands; and
- our ability to attract, train and retain consulting, technical and other
key personnel.
OUR FUTURE OPERATING RESULTS DEPEND ON THE INTERNET, GROWTH IN ELECTRONIC
COMMERCE AND INTERNET INFRASTRUCTURE DEVELOPMENT.
Our future sales and any future profits are substantially dependent upon the
widespread acceptance and use of the Internet as an effective medium of commerce
by consumers and businesses. Rapid growth in the use of the Internet and other
online services is a recent development and we are unsure whether that
acceptance and use will continue to develop or that a sufficiently broad base of
consumers will adopt and continue to use the Internet and other online services
as a medium of commerce. To be successful, we must rely on consumers and
businesses, who have historically used traditional means of commerce to purchase
products, accepting and utilizing new ways of conducting business and exchanging
information over the Internet.
In addition, the Internet may not be accepted as a viable commercial
marketplace for a number of reasons, including potentially inadequate
development of the necessary network infrastructure or delayed development of
enabling technologies and Web performance improvements. If the Internet
continues to experience significant growth in the number of users, frequency of
use or an increase in bandwidth requirements, the Internet's infrastructure may
not be able to support the demands placed upon it. In addition, the Internet
could lose its viability due to delays in the development or adoption of new
standards and protocols required to handle increased levels of Internet
activity, or due to increased governmental regulation. If Congress, or other
governing bodies both within and outside the
5
<PAGE>
United States, decides to alter materially the current approach to, and level
of, regulation of the Internet, we may need to adapt our technology. Any
required adaptation could cause us to spend significant amounts of time and
money. If use of the Internet does not continue to grow or grows more slowly
than expected, if the infrastructure for the Internet does not effectively
support growth that may occur, if government regulations change, or if the
Internet does not become a viable commercial marketplace, our business could
suffer.
WE DEPEND ON SAPPHIRE/WEB AND ARE NOT SURE WHETHER THE MARKET FOR THESE PRODUCTS
WILL CONTINUE TO GROW.
We derive most of our software license revenues from our Sapphire/Web
software. We expect to continue to be dependent upon the Sapphire/Web software
products in the future, and any factor adversely affecting the market for Web
application server software in general, or our software in particular, would
adversely affect our ability to generate revenues. The market for Web
application server software is competitive, highly fragmented and characterized
by rapid technological change. Our future financial performance will depend in
large part on the successful development, introduction and customer acceptance
of our new products and product enhancements in a timely and cost effective
manner. After the offering, we expect to commit significant resources to market
and further develop the Sapphire/Web software products and enhance the brand
awareness of Sapphire/Web products. The market for our software may not continue
to grow or may grow at a slower rate than we expect. Furthermore, the market may
not accept our products. If this market fails to grow or grows more slowly than
we anticipate, or if the market fails to accept our products, our business could
suffer.
OUR RESULTS WILL DEPEND UPON THE MARKET'S ACCEPTANCE AND ADOPTION OF JAVA AND
XML SERVER TECHNOLOGIES.
Our Sapphire/Web product is 100% Pure JAVA. Therefore, its continued
acceptance in the marketplace depends on JAVA's acceptance as a standard
programming language. If Sun Microsystems were to make significant changes to
the JAVA language or fail to correct defects and limitations in its products,
our ability to continue to improve and ship our products could be impaired. In
the future, our customers may also require the ability to deploy our products on
platforms for which technically acceptable JAVA implementations either do not
exist or are not available on commercially reasonable terms.
In January 1999, we introduced a product based on XML, or extensible mark-up
language. We cannot be sure that XML technology will be adopted as a standard,
that XML-based products will achieve broad market acceptance, that our XML
products will be accepted or that other superior technologies will not be
developed. The failure of XML technology to become a standard or the failure of
our XML products to achieve broad acceptance could adversely affect our ability
to generate revenues. The XML server technology is one of several competing
technologies used in information exchange and Internet Commerce. We intend to
continue to invest substantial resources in our XML products.
COMPETITION COULD REDUCE OUR MARKET SHARE AND HARM OUR BUSINESS.
The market for our products is intensely competitive, highly fragmented,
characterized by rapid technological change and significantly affected by new
product introductions. Recent acquisitions of several of our competitors by
large software companies and other market activities of industry participants
have increased the competition in our market. Our competitors consist of a
number of private and public companies including, among others: BEA Systems
which acquired WebLogic; IBM; Microsoft; Oracle; and Sun Microsystems, which
acquired NetDynamics and the rights to Netscape's Application Server. In
addition, we face competition from in-house software developers who may develop
some or all of the functionality that our products provide. Many of our
competitors have
6
<PAGE>
longer operating histories, significantly greater financial, technical,
marketing and other resources, greater name recognition, a broader range of
products to offer and a larger installed base of customers than us, any of which
could provide them with a significant competitive advantage.
We expect to face increased competition in the future from our current
competitors. In addition, new competitors, or alliances among existing and
future competitors, may emerge and rapidly gain significant market share. We
also may face increased competition from existing large business application
software vendors that may broaden their product offerings to include Web
application server software. Their significant installed customer bases and
abilities to offer a broad solution and price these new products as incremental
add-ons to existing systems could provide them with a significant competitive
advantage.
OUR CUSTOMERS ARE CONCENTRATED AND THE LOSS OF ONE OF OUR LARGEST CUSTOMERS
COULD CAUSE OUR REVENUES TO DROP QUICKLY AND UNEXPECTEDLY.
Our top ten customers for the year ended December 31, 1998 and the quarter
ended March 31, 1999 in the aggregate accounted for approximately 39% and 72%,
respectively, of our revenues. Hewlett-Packard accounted for more than 10% of
our revenues for the year ended December 31, 1998 and OpenConnect accounted for
more than 10% of our revenues for the quarter ended March 31, 1999. We expect
that a small number of customers will continue to account for a substantial
portion of revenues in any given quarter in the foreseeable future, although it
is unusual for the same customer to account for a substantial amount of revenues
in each of several quarters. As a result, our inability to secure major
customers during a given period or the loss of any one major customer could
cause our revenues to drop quickly and unexpectedly.
OUR SUCCESS DEPENDS UPON THE DEVELOPMENT OF NEW PRODUCTS AND SERVICES IN THE
FACE OF RAPIDLY EVOLVING TECHNOLOGY.
The market for Web application server systems is subject to rapid
technological change, changing customer needs, frequent new product
introductions and evolving industry standards that may render existing products
and services obsolete. Our growth and future operating results will depend in
part upon our ability to enhance existing applications and develop and introduce
new applications or components that:
- meet or exceed technological advances in the marketplace;
- meet changing customer requirements;
- achieve market acceptance;
- integrate successfully with third party software; and
- respond to competitive products.
Our product development and testing efforts have required, and are expected
to continue to require, substantial investment. We may not possess sufficient
resources to continue to make the necessary investments in technology. In
addition, we may not successfully identify new software opportunities and
develop and bring new software to market in a timely and efficient manner. If we
are unable, for technological or other reasons, to develop and introduce new and
enhanced software in a timely manner, we may lose existing customers and fail to
attract new customers, resulting in a decline in revenues.
Complex software, like our products, frequently contains undetected errors
or "bugs" when first introduced or when new versions are released that, despite
testing, are discovered only after a product has been installed and used by
customers. Our software may contain errors and these errors may result
7
<PAGE>
in a delay or loss of revenues, the diversion of development resources, damage
to our reputation, increased service and warranty costs and impaired market
acceptance of these products.
OUR STOCK HAS NOT TRADED PUBLICLY, AND AFTER THIS OFFERING ITS MARKET PRICE MAY
FLUCTUATE WIDELY.
Prior to this offering, there has been no public market for our common
stock. The market price of our common stock could fluctuate substantially due
to:
- quarterly fluctuations in operating results;
- announcements of new products or product enhancements by us or our
competitors;
- technological innovations by us or our competitors;
- general market conditions or market conditions specific to our or our
customers' industries; and
- changes in earnings estimates or recommendations by analysts.
Quarterly fluctuations in operating results may be caused by:
- changes in the growth rate of Internet usage;
- fluctuations in the demand for our products and services;
- the level of product and price competition in our markets;
- the timing and market acceptance of new product introductions and upgrades
by us or our competitors;
- our success in expanding our customer support and marketing and sales
organizations;
- the size and timing of individual transactions;
- delays in, or cancellations of, customer implementations;
- customers' budget constraints;
- the level of product development expenditures;
- our ability to control costs; and
- general economic conditions.
Many of these factors are not in our control. In addition, we also
experience seasonality which causes us to typically recognize a
disproportionately greater amount of our revenues for any fiscal year in our
fourth quarter and a disproportionately lesser amount in our first quarter, due
largely to sales force quota practices in the software industry and to customer
budgeting processes.
Stock prices of technology companies, especially Internet-related companies,
have been highly volatile. Our initial public offering price may not be
indicative of the price of our stock that will prevail in the trading market. In
the past, following periods of volatility in the market price of a company's
securities, securities class action litigation has at times been instituted
against that company. If we become subject to securities litigation, we could
incur substantial costs and experience a diversion of management's attention and
resources.
WE NEED TO MANAGE OUR GROWTH EFFECTIVELY OR WE MAY NOT SUCCEED.
Our ability to manage our growth will depend in large part on our ability to
generally improve and expand our operational and sales and marketing
capabilities, to develop the management skills of our managers and supervisors,
and to train, motivate and manage both our existing employees and the additional
employees that may be required. Additionally, we may not adequately anticipate
all of the
8
<PAGE>
demands that growth may impose on our systems, procedures and structure. Any
failure to adequately anticipate and respond to these demands or manage our
growth effectively would have a material adverse effect on our future prospects.
THE DEVELOPMENT OF INTERNATIONAL OPERATIONS WILL CAUSE US TO FACE ADDITIONAL
RISKS.
We expect to expand our international operations and international sales and
marketing efforts. We have limited experience in marketing, selling and
distributing our products and services internationally. International operations
are subject to inherent risks, including the following:
- recessions in foreign economies;
- political and economic instability;
- fluctuations in currency exchange rates;
- difficulties and costs of staffing and managing foreign operations;
- potentially adverse tax consequences;
- reduced protection for intellectual property rights in some countries; and
- changes in regulatory requirements.
OUR SUCCESS DEPENDS ON ONGOING SALES THROUGH A LIMITED NUMBER OF INDIRECT
CHANNELS.
We derive a significant portion of our revenues through a limited number of
independent software vendors, systems integrators, distributors and resellers.
Although we intend to increase our marketing and direct sales efforts, we expect
that a limited number of these indirect channels will continue to account for a
significant portion of our revenues in any given quarter in the foreseeable
future. To be successful, we must continue to foster and maintain our existing
indirect channels, as well as develop new relationships. The loss of, or
reduction in orders through, existing indirect channels or the failure to
develop new indirect channel relationships could cause our revenues to decline
and have a material adverse effect on our business.
IF WE LOSE OUR KEY PERSONNEL, OR FAIL TO ATTRACT AND RETAIN ADDITIONAL
PERSONNEL, THE SUCCESS AND GROWTH OF OUR BUSINESS MAY SUFFER.
A significant portion of our senior management team has been in place for a
relatively short period of time. Our success will depend to a significant extent
on their ability to gain the trust and confidence of our other employees and to
work effectively as a team.
Our future success will also depend significantly on our ability to attract,
integrate, motivate and retain additional highly skilled technical, managerial,
sales, marketing, and services personnel. Competition for skilled personnel is
intense, and we may not be successful in attracting, motivating and retaining
the personnel required to grow and operate profitably. Failure to attract,
integrate, motivate and retain highly skilled personnel could adversely affect
our business, especially our ability to develop new products and enhance
existing products.
OUR SAPPHIRE/WEB PRODUCT IS SUBJECT TO LENGTHY AND VARIABLE SALES CYCLES.
Our Sapphire/Web software is generally used for mission-critical or
enterprise-wide purposes and involves a significant commitment of resources by
our customers. A customer's decision to license our Sapphire/Web software
generally involves the evaluation of the available alternatives by a significant
number of personnel in various functional and geographic areas, each often
having specific and conflicting requirements. Accordingly, we typically must
expend substantial resources educating prospective customers about the value of
our Sapphire/Web software solutions. For these reasons, the
9
<PAGE>
length of time between the date of initial contact with the potential customer
and the execution of a software license agreement typically ranges from three to
six months, and is subject to delays over which we have little or no control. As
a result, our ability to forecast the timing and amount of specific sales is
limited and the delay or failure to complete one or more large license
transactions could cause our operating results to vary significantly from
quarter to quarter.
IMPLEMENTATION OF OUR SAPPHIRE/WEB SOFTWARE IS COMPLEX AND REQUIRES SIGNIFICANT
COMMITMENT BY CUSTOMERS.
Implementation of our Sapphire/Web software often involves a significant
commitment of financial and other resources by our customers. The customer's
implementation cycle can be lengthy due to the size and complexity of their
systems and operations. In addition, our customers rely heavily on third party
systems integrators to assist them with the installation of the Sapphire/Web
software. Our failure or the failure of our alliance partners, our customers or
our third party integrators to implement successfully our Sapphire/Web software
could result in dissatisfied customers which could adversely affect our
reputation.
WE MAY REQUIRE FUTURE ADDITIONAL FUNDING TO STAY IN BUSINESS.
Over time, we may require additional financing for our operations.
Additionally, we periodically review other companies' product lines and
technologies for potential acquisition. Any material acquisitions or joint
ventures could require additional financing. This additional financing may not
be available to us on a timely basis if at all, or, if available, on terms
acceptable to us. Moreover, additional financing may cause dilution to existing
stockholders.
CAPACITY RESTRICTIONS COULD REDUCE THE DEMAND AND UTILITY OF OUR PRODUCTS.
Concurrency restrictions can limit Internet deployment and use capacity. The
boundaries of our Sapphire/Web software and Bluestone XML server capacity, in
terms of numbers of concurrent users or interactions, are unknown because, to
date, no customer or testing environment has reached these boundaries. The
Sapphire/Web software's or the Bluestone XML server's capacity boundaries may,
at some future time, be reached and, when reached, may be insufficient to enable
our customers to achieve their desired levels of information deployment and
exchange. We may lose customers or fail to gain new customers if either of the
Sapphire/Web software's or the Bluestone XML server's capacity boundary limits
the ability of our customers to achieve expected levels of information
deployment and exchange or Internet Commerce transactions.
WE HAVE A LIMITED ABILITY TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS AND OTHERS
COULD INFRINGE ON OR MISAPPROPRIATE OUR PROPRIETARY RIGHTS.
Our success and ability to compete are substantially dependent on our
internally developed technologies and trademarks, which we protect through a
combination of copyright, trademark and trade secret laws, confidentiality
procedures and contractual provisions.
Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our products or obtain and use information that
we regard as proprietary. Policing unauthorized use of our products is difficult
and, though we are unable to determine the extent to which piracy of our
software products exists, we expect software piracy to be a problem. In
addition, the laws of some foreign countries do not protect our proprietary
rights to the same extent as the laws of the United States. Furthermore, our
competitors may independently develop technology similar to ours.
10
<PAGE>
The number of intellectual property claims in our industry may increase as
the number of competing products grows and the functionality of products in
different industry segments overlaps. Although we are not aware that any of our
products infringe upon the proprietary rights of third parties, there can be no
assurance that third parties will not claim infringement by us with respect to
current or future products. Any of these claims, with or without merit, could be
time consuming to address, result in costly litigation, cause product shipment
delays or require us to enter into royalty or license agreements. These royalty
or license agreements might not be available on terms acceptable to us or at
all, which could have a material adverse effect on our business.
OUR FAILURE TO OBTAIN OR MAINTAIN THIRD PARTY LICENSES COULD HARM OUR BUSINESS.
We have in the past and may in the future, resell, under license, certain
third party software that enables our software to interact with other software
systems or databases. In addition, we license certain software technology used
to develop our software. The loss or inability to maintain any of these software
licenses could result in delays or reductions in product shipments until
equivalent software could be identified and licensed or compiled, which could
adversely affect our business.
WE MAY BE SUBJECT TO FUTURE PRODUCT LIABILITY CLAIMS AND OUR PRODUCTS'
REPUTATIONS MAY SUFFER.
Many of our installations involve projects that are critical to the
operations of our customers' businesses and provide benefits that may be
difficult to quantify. Any failure in a customer's system could result in a
claim for substantial damages against us, regardless of our responsibility for
the failure. Although our license agreements with our customers typically
contain provisions designed to limit contractually our liability for damages
arising from negligent acts, errors, mistakes or omissions, it is possible that
these provisions will not be enforceable in certain instances or would otherwise
not protect us from liability for damages. Although we maintain general
liability insurance coverage, this coverage may not continue to be available on
reasonable terms or at all, or may be insufficient to cover one or more large
claims.
We have entered into and plan to continue to enter into agreements with
strategic alliance partners whereby we license our software products for
integration with the alliance partners' software. If an alliance partner's
software fails to meet customer expectations or causes a failure in its
customer's systems, the reputation of our software products could be materially
and adversely affected even if our software products performed in accordance
with their functional specifications.
YEAR 2000 PROBLEMS MAY DISRUPT OUR BUSINESS.
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date field. Beginning in the year 2000,
these date fields will need to accept four digit entries to distinguish
twenty-first century dates from twentieth century dates. As a result, over the
next several months, computer systems and/or software used by many companies may
need to be upgraded to comply with these "Year 2000" requirements. Significant
uncertainty exists in the software industry concerning the potential effects
associated with compliance. While our software products are not time/ date
sensitive, many of the third party software applications run by our customers
are time/date sensitive. In addition, we have in the past resold third party
software that may not be Year 2000 compliant. We may therefore be exposed to
potential business disruption or claims, whether with or without merit,
resulting from system problems associated with the century change. It is not
clear whether our insurance coverage would cover or be adequate to offset these
and other business risks related to the Year 2000.
If our internal computer systems are not Year 2000 compliant then we or our
customers may suffer system failures or miscalculations that could cause
disruptions of operations, including, among other
11
<PAGE>
things, a temporary inability to process transactions, to send invoices or to
engage in similar normal business activities.
In addition, we believe that the purchasing patterns of customers and
potential customers may be affected by Year 2000 issues in a variety of ways.
Many companies are expending significant resources to correct or patch their
current software systems for Year 2000 compliance. These expenditures may result
in reduced funds available to purchase software products such as those offered
by us. Potential customers may also choose to defer purchasing Year 2000
compliant products until they believe it is absolutely necessary, thus
potentially resulting in stalled sales within the industry. Conversely, Year
2000 issues may cause other companies to accelerate purchases, thereby causing
an increase in short-term demand and a consequent decrease in long-term demand
for software products.
OUR EXECUTIVE OFFICERS AND DIRECTORS AND THEIR AFFILIATES WILL OWN A LARGE
PERCENTAGE OF OUR VOTING STOCK AND WILL HAVE THE ABILITY TO MAKE DECISIONS THAT
COULD ADVERSELY AFFECT OUR STOCK PRICE.
Following the completion of this offering, our executive officers, directors
and their affiliates will beneficially own approximately % of the
outstanding shares of common stock, or % if the underwriters over
allotment option is exercised in full. As a result, these stockholders will be
able to control all matters requiring stockholder approval and, thereby, our
management and affairs. Matters that require stockholder approval include:
- election of directors;
- approval of mergers or consolidations; and
- sale of all or substantially all of our assets.
This concentration of ownership may delay, deter or prevent acts that would
result in a change of control of Bluestone, which in turn could reduce the
market price of our common stock.
INVESTORS IN THIS OFFERING WILL INCUR IMMEDIATE DILUTION PER SHARE OF THE COMMON
STOCK BASED ON ITS BOOK VALUE AFTER THE OFFERING.
The anticipated initial public offering price is substantially higher than
the book value of our common stock. At the initial offering price of $ per
share, the book value of the common stock after the offering will be $ per
share. This represents an immediate and substantial dilution per share of the
common stock. The dilution per share represents the difference between the
amount per share paid by the purchasers of shares of common stock in this
offering and the net tangible book value per share of common stock immediately
after the completion of this offering. In addition, to the extent outstanding
options are exercised, there will be further dilution to new investors.
OUR CHARTER AND BYLAWS AND DELAWARE LAW CONTAIN PROVISIONS THAT COULD DISCOURAGE
A TAKEOVER.
At the time we complete this offering, our charter and our bylaws, in
conjunction with Delaware law, will contain provisions that could make it more
difficult for a third party to obtain control of Bluestone even if doing so
would be beneficial to stockholders. For example, we anticipate that our charter
will provide for a classified board of directors and restrict the ability of
stockholders to call a special meeting. Our bylaws will allow the board of
directors to expand its size and fill any vacancies without stockholder
approval.
FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE.
The market price of our common stock could decline as a result of sales by
our existing stockholders or the perception that those sales may occur. These
sales could also make it more difficult
12
<PAGE>
for us to raise funds through equity offerings in the future at a time and at a
price that we think is appropriate.
After completion of this offering, the current holders of most of our common
stock and all of our preferred stock outstanding prior to this offering, as well
as the holders of outstanding warrants, will be entitled to registration rights
with respect to their common stock or the common stock underlying their
convertible securities. If these holders, by exercising their registration
rights, cause a large number of securities to be registered and sold in the
public market, these sales could have an adverse effect on the market price for
our common stock. If we were to include, in a registration statement initiated
by us, shares held by these holders pursuant to the exercise of their
registration rights, these sales may have an adverse effect on our ability to
raise needed capital.
FORWARD-LOOKING STATEMENTS
Some statements in this prospectus constitute forward-looking statements.
Forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause our actual results, performance or achievements or
industry results to be materially different from any future results, performance
or achievements expressed or implied by these forward-looking statements. Such
factors include those described in "Risk Factors." The forward-looking
statements included in this prospectus may prove to be inaccurate. In light of
the significant uncertainties inherent in these forward-looking statements, you
should not consider this information as a representation by us or any other
person that our objectives and plans will be achieved.
USE OF PROCEEDS
The net proceeds to us from the sale of shares of common stock,
at an assumed initial public offering price of $ per share, will be
approximately $ million, or $ million if the underwriters'
over-allotment option is exercised in full, after deducting underwriting
discounts and commissions and estimated offering expenses payable by us. We
currently intend to use the net proceeds of this offering for product
development, sales and marketing and working capital.
Pending application of the net proceeds as described above, we intend to
invest the net proceeds of the offering in short-term, investment-grade,
interest-bearing securities.
DIVIDEND POLICY
We intend to retain any future earnings to support operations and to finance
the growth and development of our business, and we do not anticipate paying cash
dividends for the foreseeable future. Under our current credit facility, we are
prohibited from paying dividends except those accruing to outstanding preferred
stock. As of May 31, 1999, there were $1.4 million in accrued dividends on our
convertible preferred stock. Upon the conversion of the preferred stock into
common stock, we are required to pay to the holders of the preferred stock being
converted all accumulated and unpaid cash dividends, whether or not declared,
with respect to the preferred stock. However, if requested by any holder of the
shares of preferred stock being converted and approved by the holders of a
majority of the then outstanding shares of common stock, the holder may exchange
all or any portion of the accumulated and unpaid cash dividends into shares of
common stock at the then fair market value of the common stock.
13
<PAGE>
CAPITALIZATION
The following table sets forth our unaudited total capitalization as of
March 31, 1999;
- on an actual basis;
- on a pro forma basis to reflect the sale of 9,191,176 shares of Series C
preferred stock on May 25, 1999 at $2.72 per share and the conversion of
all outstanding shares of preferred stock and accrued dividends on
preferred stock into shares of common stock; and
- on an adjusted basis to give effect to the receipt of the net proceeds
from our sale of shares of common stock in this offering at an
assumed public offering price of $ per share, after deducting
estimated underwriting discounts and commissions and estimated offering
expenses.
You should read this information together with our financial statements and
the notes thereto included elsewhere in this prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1999
---------------------------------
ACTUAL PRO FORMA ADJUSTED
--------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Short-term borrowings, including current portion of long-term
debt........................................................ $ 910 $ 910 $ 910
Long-term debt, less current portion.......................... 1,765 1,765 1,765
--------- ----------- ---------
Total debt.................................................. 2,675 2,675 2,675
--------- ----------- ---------
Mandatorily redeemable convertible preferred stock............ 17,678 -- --
--------- ----------- ---------
Stockholders' equity (deficit)(1):
Common Stock, par value $0.001; 53,000,000 shares
authorized, 9,008,875 shares issued and outstanding
actual; shares issued and outstanding pro forma;
shares issued and outstanding adjusted.............. 9
Common stock warrants....................................... -- 1,900
Additional paid-in capital.................................. 6
Accumulated deficit......................................... (20,956) (22,057)
--------- ----------- ---------
Total stockholders' equity (deficit)........................ (20,941) 20,042
--------- ----------- ---------
Total capitalization........................................ $ (588) $ 22,717 $
--------- ----------- ---------
--------- ----------- ---------
</TABLE>
- ------------------------
(1) Excludes (a) 700,000 shares of common stock issuable upon the conversion of
a convertible note payable to Mark Baiada, a former director, in the
principal amount of $500,000; (b) 6,061,553 shares of common stock issuable
upon the exercise of outstanding stock options granted as of March 31, 1999
under our Amended and Restated 1996 Incentive and Non-Qualified Stock Option
Plan and 3,358,621 shares reserved for issuance under such plan; (c) 500,000
shares reserved for issuance under our Director Compensation Plan; (d)
31,250 shares of common stock issuable upon the exercise of a warrant to
purchase common stock issued to Silicon Valley Bank; (e) 481,434 shares of
common stock issuable upon the exercise of a warrant to purchase common
stock issued to Deutsche Bank Securities Inc.; and (f) 440,348 shares of
common stock issuable upon the exercise of warrants issued to certain
holders of the preferred stock.
14
<PAGE>
DILUTION
Our pro forma net tangible book value as of March 31, 1999 was $20.0 million
or $ per share of common stock. We determined our pro forma net tangible book
value per share by subtracting our total liabilities from our total tangible
assets and dividing that number by pro forma shares of common stock
outstanding as of March 31, 1999. The pro forma information provided immediately
above and in the two tables below gives effect to:
- the issuance of 9,191,176 shares of Series C preferred stock on May 25,
1999;
- the conversion of all outstanding shares of preferred stock, including the
Series C preferred stock, into common stock; and
- the conversion of accrued dividends on preferred stock into common stock.
Dilution in net tangible book value per share represents the difference
between the amount per share paid by purchasers of shares of our common stock in
this offering and the net tangible book value per share of our common stock
immediately following this offering. Assuming an initial offering price of
$ per share after giving effect to our sale of shares of common stock in
this offering and after deducting the estimated underwriting discount and
commissions and our estimated offering expenses, our pro forma net tangible book
value as of March 31, 1999 would have been $ or $ per share of
common stock. This represents an immediate increase in net tangible book value
of $ per share to existing stockholders and an immediate dilution of
$ per share to new investors. The following table illustrates this per
share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share......... $
Pro forma net tangible book value per share as of
March 31, 1999...................................... $
Increase per share attributable to new investors......
---------
Adjusted pro forma net tangible book value per share as
of March 31, 1999.....................................
---------
Dilution per share to new investors..................... $
---------
---------
</TABLE>
The following table summarizes on a pro forma basis as of March 31, 1999 the
difference between the existing stockholders and new investors with respect to
the number of shares of common stock purchased from us, the total consideration
paid to us, and the average price per share paid. The information presented is
based upon an assumed initial public offering price of $ per share, before
deducting estimated underwriting discounts and commissions and estimated
offering expenses.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
---------------------- -------------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
--------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders..................................... % $ 42,910,000 % $
New investors............................................. % %
--------- ----- ------------- -----
Total..................................................... 100% 100%
--------- ----- ------------- -----
--------- ----- ------------- -----
</TABLE>
The tables above assume no exercise of outstanding stock options or warrants
and exclude: (a) 700,000 shares of common stock issuable upon the conversion of
a convertible note payable to Mark Baiada, a former director, in the principal
amount of $500,000; (b) 6,061,553 shares of common stock issuable upon the
exercise of outstanding stock options granted as of March 31, 1999 under our
option plan with a weighted average exercise price of $0.88 per share and
3,358,621 shares reserved for issuance under the option plan; (c) 500,000 shares
reserved for issuance under our director compensation plan; (d) 31,250 shares of
common stock issuable upon the exercise of a warrant to purchase common stock
issued to Silicon Valley Bank with an exercise price of $0.80 per share; (e)
481,434 shares of common stock issuable upon the exercise of a warrant to
purchase common stock issued to Deutsche Bank Securities Inc. exercisable at
$2.72 per share; and (f) 440,348 shares of common stock issuable upon the
exercise of warrants issued to certain holders of the preferred stock with a
weighted average exercise price of $0.64 per share. To the extent that
outstanding options or warrants are exercised or the convertible note is
converted, there will be further dilution to new investors.
15
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below as of December 31, 1997 and 1998
and for each of the three years in the period ended December 31, 1998 have been
derived from our audited financial statements included elsewhere in this
prospectus. The selected financial data set forth below as of December 31, 1995
and 1996 and for the year ended December 31, 1995 have been derived from our
audited financial statements not included in this prospectus. The selected
financial data as of and for the year ended December 31, 1994 and for the three
months ended March 31, 1998 and 1999 have been derived from unaudited financial
statements which, in the opinion of management, include all adjustments
necessary for a fair presentation of our financial position and results of
operations. The pro forma balance sheet data reflects the sale of 9,191,176
shares of Series C preferred stock for $2.72 per share on May 25, 1999 and the
conversion of all outstanding preferred stock, including the Series C preferred
stock, and accrued dividends on preferred stock into common stock. The pro forma
net loss per share amounts reflect the outstanding preferred stock during each
period presented on an as converted basis. The selected financial data are not
necessarily indicative of results to be expected for any future period and
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our financial statements,
including the notes thereto included elsewhere in this prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- --------------------
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Software license fees.......................... $ -- $ -- $ 1,475 $ 2,337 $ 3,391 $ 432 $ 2,257
Services....................................... -- -- 43 2,179 3,620 937 1,020
Third party products and related services...... 6,074 6,950 6,555 5,225 1,107 785 --
--------- --------- --------- --------- --------- --------- ---------
Total revenues............................. 6,074 6,950 8,073 9,741 8,118 2,154 3,277
Cost of revenues:
Software license fees.......................... -- -- 113 202 259 39 57
Services....................................... -- -- 305 2,516 4,433 985 1,337
Third party products and related services...... 3,502 3,975 4,261 2,798 643 437 --
--------- --------- --------- --------- --------- --------- ---------
Total cost of revenues..................... 3,502 3,975 4,679 5,516 5,335 1,460 1,395
--------- --------- --------- --------- --------- --------- ---------
Gross profit..................................... 2,572 2,975 3,394 4,225 2,783 694 1,882
Operating expenses:
Sales and marketing............................ 1,226 1,836 3,005 5,131 9,551 1,544 2,826
Product development............................ 246 458 702 1,295 2,474 360 904
General and administrative..................... 724 841 1,515 1,616 2,316 447 635
--------- --------- --------- --------- --------- --------- ---------
Total operating expenses................... 2,196 3,135 5,222 8,042 14,341 2,352 4,365
--------- --------- --------- --------- --------- --------- ---------
Income (loss) from operations.................... 376 (160) (1,828) (3,817) (11,558) (1,658) (2,483)
Interest expense, net............................ (30) (41) (50) (80) (47) (41) (48)
--------- --------- --------- --------- --------- --------- ---------
Income (loss) from continuing operations......... 346 (201) (1,878) (3,896) (11,605) (1,699) (2,531)
Income (loss) from discontinued operations....... 300 497 (738) 99 -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net income (loss)................................ 646 296 (2,616) (3,798) (11,605) (1,699) (2,531)
Accretion of preferred stock redemption value.... -- -- -- (240) (846) (84) (264)
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) available to common
stockholders................................... $ 646 $ 296 $ (2,616) $ (4,038) $ (12,451) $ (1,783) $ (2,795)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Basic and diluted net income (loss) per share:
Continuing operations.......................... $ 0.04 $ (0.02) $ (0.21) $ (0.43) $ (1.29) $ (0.19) $ (0.28)
Discontinued operations........................ 0.03 0.05 (0.08) 0.01 -- -- --
Accretion of preferred stock redemption
value........................................ -- -- -- (0.03) (0.09) (0.01) (0.03)
--------- --------- --------- --------- --------- --------- ---------
$ 0.07 $ 0.03 $ (0.29) $ (0.45) $ (1.38) $ (0.20) $ (0.31)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Shares used in computing net income (loss) per
share.......................................... 9,000 9,000 9,000 9,000 9,005 9,001 9,009
Pro forma basic and diluted net loss per share
from continuing operations..................... $ $ $ $
--------- --------- --------- ---------
--------- --------- --------- ---------
Shares used in computing pro forma basic and
diluted net loss per share.....................
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF MARCH 31, 1999
----------------------------------------------------- ----------------------
1994 1995 1996 1997 1998 ACTUAL PRO FORMA
--------- --------- --------- --------- --------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents..................... $ 120 $ 146 $ 1,086 $ 2,330 $ 2,535 $ 598 $ 23,903
Working capital (deficit)..................... 1,119 1,205 (640) (48) (340) (2,866) 20,440
Total assets.................................. 3,303 4,888 6,734 5,815 7,536 3,877 27,182
Long-term obligations, net of current
portion..................................... 519 184 191 1,270 1,876 1,765 1,765
Mandatorily redeemable convertible preferred
stock....................................... -- -- -- 5,331 17,415 17,678 --
Total stockholders' equity (deficit).......... 1,098 1,375 (1,269) (5,703) (18,147) (20,941) 20,042
</TABLE>
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
We were incorporated in 1989 as Bluestone Consulting, Inc. Our primary
business initially consisted of general information technology consulting on the
UNIX platform and information technology staffing. In January 1991, we entered
the software business and became a value added reseller for third party software
products. We also began to develop software internally for sale to customers as
part of our software business. In October 1995, our proprietary product,
Sapphire/Web 1.0, was released. In April 1997, we spun off our consulting
business and focused exclusively on our software business. Immediately after the
spin-off, our business consisted of two product lines, (1) Sapphire/Web, our
proprietary software product, and (2) third party graphical user interface
software products, which we resold to our customers. For the year ended December
31, 1997, the Sapphire/Web products and related services generated approximately
$4.5 million in revenues, while third party products and related services
contributed approximately $5.2 million.
In 1998, we decided to focus on internally developed software products and
curtail the licensing and services related to third party products. Beginning in
March 1998, we increased our sales and marketing efforts and hired new
management. We hired a significant number of sales personnel throughout the
country in order to develop a nationwide presence and generate increased
revenue. The positioning and feature set of the Sapphire/Web product was shifted
from a low-cost development tool to an enterprise-wide software solution for
Internet, intranet and extranet environments. In January 1999, we released
Bluestone XML-Server, which represents a new breed of specialized Web
application server focused on Internet Commerce. In May 1999, Release 6 of
Sapphire/Web was made generally available.
OVERVIEW
Our fiscal year end is December 31. References to 1996, 1997 or 1998 mean
the fiscal year ended December 31 unless otherwise indicated.
We generate revenue from two principal sources: (1) license fees for our
software products and (2) professional services and support revenue derived from
consulting, training and maintenance services related to our software products.
In 1998, one customer accounted for 11% of our total product and services
revenues and in the quarter ended March 31, 1999, one customer accounted for 57%
of our total product and services revenues. Our top 10 customers represented
34%, 39% and 72% of total revenues in 1997, 1998 and three months ended March
31, 1999, respectively.
SOFTWARE LICENSE FEES. Typically, our customers pay an up-front, one-time
fee for a perpetual license of our software. The amount of the fee is based on
the number of developer seats and server interactions. A pricing model based on
the number of processors within a server is also available. We also sell annual
and multi-year licenses, primarily to independent software vendors. We generally
require a written license contract that typically provides for an initial
payment within 30-60 days of contract signing. Certain multi-year license
contracts contain payment terms that extend beyond one year. Pursuant to the
American Institute of Certified Public Accountants' Statement of Position 97-2,
any amounts due under contract beyond one year are not deemed to be fixed and
determinable and therefore are deferred and recognized as revenue when the
payments become due.
Prior to 1998, software licenses were principally the result of direct sales
to end-users. Beginning in 1998, we began to focus on channel marketing. This
has resulted in significant sales of products sold through independent software
vendors, resellers and systems integrators. We believe that these partner
arrangements have helped to maximize our exposure in the marketplace.
Furthermore, we have experienced, and expect to continue to experience,
significant variation in the size of individual
17
<PAGE>
licensing transactions, ranging from small sales of perpetual developer licenses
to large, multi-year licensing arrangements with independent software vendors.
We generally recognize license fee revenue when a formal agreement exists,
delivery of the product has occurred, no production, modification, customization
or implementation obligations remain, the license fee is deemed fixed and
determinable and collectibility is probable. Revenue from arrangements with
distributors and resellers is not recognized until our product is delivered to
the end-user.
SERVICES REVENUE. Services revenue consists principally of revenue derived
from consulting services provided to customers during implementation and
integration of our software products, training of customers' employees and fees
for ongoing maintenance, which consists of customer technical support services
and unspecified product enhancements. Consulting and training services are
typically delivered on a time and material basis and are typically completed
within one month following license contract signing. Consulting services
generally consist of simple installations and configurations. We recognize
services revenue as the services are performed. Maintenance revenue is generally
invoiced in advance and is recognized ratably over the term of the maintenance
agreement, which is generally 12 months.
COST OF SOFTWARE LICENSE FEES. Cost of software license fees consists
primarily of the costs associated with the purchase of product CDs and related
documentation and duplication costs.
COST OF SERVICES. Cost of services consist primarily of salary and benefit
costs of our consulting, support and training organizations, and are expensed
when incurred. Additionally, from time to time we engage outside consultants to
meet peaks in customer demand.
SALES AND MARKETING. We license our products primarily through our indirect
channels and direct sales force. Sales and marketing expenses consist primarily
of personnel costs, commissions to employees, office facilities, travel and
promotional events such as trade shows, advertising and public relations
programs.
PRODUCT DEVELOPMENT. We maintain an in-house development staff to enhance
our existing products and to develop new ones. Product development expenditures
are generally charged to operations as incurred. Statement of Financial
Accounting Standards No. 86 requires the capitalization of certain software
development costs subsequent to the establishment of technological feasibility.
We establish technological feasibility upon the completion of a working model.
To date, we have expensed all software development costs due to the minimal
level of development costs incurred subsequent to the establishment of
technological feasibility.
GENERAL AND ADMINISTRATIVE. General and administrative expenses include our
personnel and other costs of our finance, human resources and information
services activities.
STOCK BASED COMPENSATION. The amount by which the fair market value of our
common stock exceeded the exercise price of stock options on the date of grant
is recorded as deferred compensation and is amortized to stock based
compensation expense as the options vest.
18
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth statement of operations data for the periods
indicated as a percentage of total revenues:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------- --------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
(AS A PERCENTAGE OF TOTAL REVENUES)
<S> <C> <C> <C> <C> <C>
Revenues:
Software license fees............................ 18% 24% 42% 20% 69%
Services......................................... 1 22 44 44 31
Third party products and related services........ 81 54 14 36 --
--- --- --- --- ---
Total revenues............................... 100 100 100 100 100
Cost of revenues:
Software license fees............................ 1 2 3 2 2
Services......................................... 4 26 55 46 41
Third party products and related services........ 53 29 8 20 --
--- --- --- --- ---
Total cost of revenues....................... 58 57 66 68 43
--- --- --- --- ---
Gross profit....................................... 42 43 34 32 57
Operating expenses:
Sales and marketing.............................. 37 53 118 72 86
Product development.............................. 9 13 30 17 28
General and administrative....................... 19 17 29 21 19
--- --- --- --- ---
Total operating expenses..................... 65 83 177 109 133
--- --- --- --- ---
Loss from operations............................... (23) (39) (142) (77) (76)
Interest expense, net.............................. (1) (1) (1) (2) (1)
--- --- --- --- ---
Loss from continuing operations.................... (23)% (40)% (143)% (79)% (77)%
--- --- --- --- ---
--- --- --- --- ---
</TABLE>
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
SOFTWARE LICENSE FEES
Sapphire/Web license fees were $2.3 million and $432,000 for the three
months ended March 31, 1999 and 1998, respectively. This increase of 422.5% was
due to our increased presence in the marketplace, and a shift in product
position from a low-priced development tool to a high-end, high-priced
enterprise software solution. This change in product position has resulted in
increased revenues per customer. Additionally, we were able to concentrate
solely on our Sapphire/Web products and services once we terminated our
graphical user interface product line in April 1998. In addition, we received
payment under an extended license fee arrangement with one customer in February
1999, which accounted for approximately $1.9 million of our license fee revenue
during the quarter ended March 31, 1999.
SERVICES REVENUE
Sapphire/Web services revenue was $1.0 million and $937,000 for the three
months ended March 31, 1999 and 1998, respectively. Services revenue remained
relatively constant between the two periods due to a strategic change in the use
of our professional staff. During the end of 1998, the main focus of the
services organization shifted to concentrate on short-term, installation-type
engagements, usually 2-3 days in duration, rather than long-term implementation
activities. These implementation activities are now performed primarily by
systems integrators with which we have strategic alliances.
19
<PAGE>
THIRD PARTY PRODUCTS AND RELATED SERVICES REVENUE
Third party products and related services revenue was zero and $785,000 for
the three months ended March 31, 1999 and 1998, respectively. This decrease was
due to our decision in 1998 to curtail the licensing and services related to
third party products and to focus on our proprietary products.
GROSS MARGIN--LICENSE FEES
Our license fee gross margin increased to 97.5% for the three months ended
March 31, 1999 from 91.0% for the same period in 1998. This increase was
primarily due to the increase in revenue per customer. Our focus on positioning
the product as an enterprise-wide solution has increased the revenue associated
with each sale, while the cost of sales for the product has remained relatively
constant.
GROSS MARGIN--SERVICES REVENUE
Our services gross margin decreased to (31.1)% for the three months ended
March 31, 1999 from (5.1)% for the same period in 1998. This was primarily due
to the hiring and training of additional services personnel in advance of
anticipated services revenue growth.
SALES AND MARKETING
Sales and marketing expenses were $2.8 million and $1.5 million for the
three months ended March 31, 1999 and 1998, respectively, an increase of 83.0%.
These costs as a percentage of revenue increased to 86.2% from 71.7% for the
three months ended March 31, 1999 and 1998, respectively. These increases were
primarily due to increases in payroll and related costs, recruiting costs and
travel costs as a result of the growth in the number of sales personnel and
increased commissions expense as a result of higher sales volume. We have
increased our spending on sales and marketing because we believe that our sales
and marketing efforts are essential for us to increase our market position and
our product acceptance. The average number of sales and marketing employees for
the three months ended March 31, 1999 was 49 compared to 41 for the three months
ended March 31, 1998. We also incurred increases in variable marketing expenses
due to increased trade show participation, direct mail campaigns and advertising
in order to increase market awareness and gain market acceptance of our
products.
PRODUCT DEVELOPMENT
Product development expenses increased 151.1% to $904,000 for the three
months ended March 31, 1999 from $360,000 for the same period in 1998. These
costs as a percentage of revenue increased to 27.6% from 16.7% for the three
months ended March 31, 1999 and 1998, respectively. These increases were
primarily associated with the development of Sapphire/Web Release 6 and the
release of the Bluestone XML Suite. We believe that our product development
investment is essential for us to maintain our market and technological
competitiveness. Average development headcount for the three months ended March
31, 1999 and 1998 was 27 and 18, respectively.
GENERAL AND ADMINISTRATIVE
General and administrative expenses were $635,000 and $447,000 for the three
months ended March 31, 1999 and 1998, respectively. This increase of 42.1% was
primarily due to payroll and related costs resulting from the addition of
personnel to support the growth of our business. These costs as a percentage of
revenue remained relatively constant at 19.4% for the three months ended March
31, 1999 and 20.8% for the three months ended March 31, 1998. The average number
of general and administrative employees for the three months ended March 31,
1999 and 1998 was 28 and 21, respectively.
20
<PAGE>
1998 COMPARED TO 1997
SOFTWARE LICENSE FEES
Sapphire/Web license fees were $3.4 million and $2.3 million for 1998 and
1997, respectively. The increase of 45.1% was due to increased market acceptance
of the Sapphire/Web software suite.
SERVICES REVENUE
Sapphire/Web services revenue was $3.6 million and $2.2 million for 1998 and
1997, respectively. This increase of 66.1% was due to the increase in the number
of consulting and training engagements associated with our growing customer
base.
THIRD PARTY PRODUCTS AND RELATED SERVICES REVENUE
Third party products and related services revenue was $1.1 million and $5.2
million for 1998 and 1997, respectively. This decrease was due to our decision
in 1998 to curtail the sale of third party products and services.
GROSS MARGIN--LICENSE FEES
Our license fee gross margin was 92.4% in 1998 and 91.4% in 1997, remaining
relatively constant.
GROSS MARGIN--SERVICES REVENUE
Our services gross margin decreased to (22.5)% in 1998 from (15.5)% in 1997.
This decrease in the gross margin was primarily due to the hiring and training
of additional personnel to support our growing installed base of customers and
anticipated increase in future revenues.
SALES AND MARKETING
Sales and marketing expenses were $9.6 million and $5.1 million in 1998 and
1997, respectively, an increase of 86.1%. These costs as a percentage of revenue
increased to 117.7% from 52.7% for 1998 and 1997, respectively. These increases
were primarily due to an increase in the number of sales and marketing personnel
between March and September 1998, including the addition of a new Senior Vice
President, Sales and a Senior Vice President, Marketing, as well as three Sales
Vice Presidents. In 1998, we opened seven new remote sales offices in Georgia,
California, Texas, Colorado and Illinois. Beginning in March 1998, we focused
our marketing efforts on achieving market awareness of Bluestone and acceptance
of our products, and subsequently incurred significant costs for trade show
participation, advertising and direct mail campaigns.
PRODUCT DEVELOPMENT
Product development expenses were $2.5 million and $1.3 million for 1998 and
1997, respectively, an increase of 91.0%. These costs as a percentage of revenue
increased to 30.5% from 13.3% for 1998 and 1997, respectively. These increases
were primarily due to increased recruiting and payroll and related costs for the
hiring of additional developers, as well as significant capital expenditures for
software, hardware and equipment.
GENERAL AND ADMINISTRATIVE
General and administrative expenses were $2.3 million and $1.6 million for
1998 and 1997, respectively. This increase of 43.3% was primarily due to
increases in staff to support our growth. These costs as a percentage of revenue
increased to 28.5% from 16.6% for 1998 and 1997, respectively.
21
<PAGE>
1997 COMPARED TO 1996
SOFTWARE LICENSE FEES
Sapphire/Web license revenue was $2.3 million and $1.5 million for 1997 and
1996, respectively. The increase of 58.4% was due to increased market acceptance
of the Sapphire/Web software suite.
SERVICES REVENUE
Sapphire/Web services revenue was $2.2 million and $43,000 for 1997 and
1996, respectively. This increase of $2.1 million was primarily due to an
increase in the number of consulting and training engagements associated with
our growing customer base.
THIRD PARTY PRODUCTS AND RELATED SERVICES REVENUE
Third party products and related services revenue was $5.2 million and $6.6
million for 1997 and 1996, respectively. This decrease was due to a shift in our
attention from third party products and services towards proprietary products
and services.
GROSS MARGIN--LICENSE FEES
Our license fee gross margin was 91.4% in 1997 and 92.3% in 1996,
respectively, remaining relatively constant.
GROSS MARGIN--SERVICES REVENUE
Our services gross margin increased to (15.5%) in 1997 from (609.3%) in
1996. This increase was primarily due to a significant increase in the sales of
our product and the related consulting, training and maintenance services. We
began to offer our maintenance services in 1996.
SALES AND MARKETING
Sales and marketing expenses were $5.1 million and $3.0 million for 1997 and
1996, respectively. This increase of 70.7% was primarily due to increases in the
number of sales and marketing personnel and an increase in our marketing
campaign expenditures during the fourth quarter of 1997. These costs as a
percentage of revenue increased to 52.7% in 1997 from 37.2% in 1996.
PRODUCT DEVELOPMENT
Product development expenses were $1.3 million and $702,000 for 1997 and
1996, respectively, an increase of 84.5%. These costs as a percentage of revenue
increased to 13.3% in 1997 from 8.7% in 1996. These increases were primarily due
to increased recruiting and payroll and related costs for the hiring of
additional developers, as well as significant capital expenditures for software,
hardware and equipment.
22
<PAGE>
GENERAL AND ADMINISTRATIVE
General and administrative expenses were $1.6 million and $1.5 million for
1997 and 1996, respectively. This increase of 6.7% was primarily due to
increases in staff to support our growth. These costs as a percentage of revenue
decreased to 16.6% in 1997 from 18.8% in 1996.
SELECTED QUARTERLY RESULTS OF OPERATIONS
The following table sets forth unaudited quarterly statement of operations
data for periods indicated. We derived this data from our unaudited financial
statements, and, in our opinion, they include all adjustments necessary to
present fairly the financial results for the periods. Results of operations for
any previous fiscal quarter do not necessarily indicate what results may be for
any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------------
3/31/97 6/30/97 9/30/97 12/31/97 3/31/98 6/30/98 9/30/98 12/31/98 3/31/99
------- ------- ------- -------- ------- ------- ------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Software license fees................. $ 430 $ 530 $ 523 $ 854 $ 432 $ 760 $ 1,354 $ 845 $ 2,257
Services.............................. 283 563 624 708 937 769 1,029 885 1,020
Third party software and related
services............................ 1,597 1,176 1,181 1,272 785 147 114 61 --
------- ------- ------- -------- ------- ------- ------- -------- -------
Total revenues.................... 2,310 2,269 2,328 2,834 2,154 1,676 2,497 1,791 3,277
Cost of revenues:
Software license fees................. 35 23 67 78 39 57 113 50 57
Services.............................. 346 624 682 865 985 1,093 1,192 1,163 1,338
Third party software and related
services............................ 845 647 621 683 436 98 73 35 --
------- ------- ------- -------- ------- ------- ------- -------- -------
Total cost of revenues............ 1,226 1,294 1,370 1,626 1,460 1,248 1,378 1,248 1,395
------- ------- ------- -------- ------- ------- ------- -------- -------
Gross profit............................ 1,084 975 958 1,208 694 428 1,119 543 1,882
Operating expenses:
Sales and marketing................... 1,036 1,099 1,398 1,598 1,545 2,203 2,930 2,874 2,826
Product development................... 282 299 338 376 360 544 704 866 904
General and administrative............ 361 381 434 439 447 502 666 701 635
------- ------- ------- -------- ------- ------- ------- -------- -------
Total operating expenses.......... 1,679 1,779 2,170 2,413 2,352 3,249 4,300 4,441 4,365
------- ------- ------- -------- ------- ------- ------- -------- -------
Loss from operations.................... (595) (804) (1,212) (1,205) (1,658) (2,821) (3,181) (3,898) (2,483)
Interest income (expense), net.......... (41) (22) 12 (29) (41) 8 42 (56) (48)
------- ------- ------- -------- ------- ------- ------- -------- -------
Loss from continuing operations......... $ (636) $ (826) $(1,200) $(1,234) $(1,699) $(2,813) $(3,139) $(3,954) $(2,531)
------- ------- ------- -------- ------- ------- ------- -------- -------
------- ------- ------- -------- ------- ------- ------- -------- -------
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------------------------
3/31/97 6/30/97 9/30/97 12/31/97 3/31/98 6/30/98 9/30/98 12/31/98 3/31/99
------- ------- ------- -------- ------- ------- ------- -------- -------
(AS A PERCENTAGE OF TOTAL REVENUES)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Software license fees.............. 19% 23% 22% 30% 20% 45% 54% 47% 69%
Services........................... 12 25 27 25 44 46 41 49 31
Third party software and related
services......................... 69 52 51 45 36 9 5 3 --
------- ------- ------- --- ------- ------- ------- --- -------
Total revenues................. 100 100 100 100 100 100 100 100 100
Cost of revenues:
Software license fees.............. 2 1 3 3 2 3 5 3 2
Services........................... 15 28 29 31 46 65 48 65 41
Third party software and related
services......................... 37 29 27 24 20 6 3 2 --
------- ------- ------- --- ------- ------- ------- --- -------
Total cost of revenues......... 53 57 59 57 68 74 55 70 43
------- ------- ------- --- ------- ------- ------- --- -------
Gross profit......................... 47 43 41 43 32 26 45 30 57
Operating expenses:
Sales and marketing................ 45 48 60 56 72 131 117 160 86
Product development................ 12 13 15 13 17 32 28 48 28
General and administrative......... 16 17 19 15 21 30 27 39 19
------- ------- ------- --- ------- ------- ------- --- -------
Total operating expenses....... 73 78 93 85 109 194 172 248 133
------- ------- ------- --- ------- ------- ------- --- -------
Loss from operations................. (26) (35) (52) (43) (77) (168) (127) (218) (76)
Interest income (expense), net....... (2) (1) 1 (1) (2) -- 2 (3) (1)
------- ------- ------- --- ------- ------- ------- --- -------
Loss from continuing operations...... (28)% (36)% (52)% (44)% (79)% (168)% (126)% (221)% (77)%
------- ------- ------- --- ------- ------- ------- --- -------
------- ------- ------- --- ------- ------- ------- --- -------
</TABLE>
23
<PAGE>
Our quarterly operating results have varied in the past and may vary
significantly in the future depending on many factors including, among others:
- the size, timing and recognition of revenue from significant orders;
- increases in operating expenses required for product development and
marketing;
- the timing and market acceptance of new products and product enhancements;
- customer budget constraints;
- our success in expanding our sales and marketing programs; and
- general economic conditions.
Furthermore, we believe that the purchase of our products is relatively
discretionary and generally involves a significant commitment of capital. As a
result, purchases of our products may be deferred or canceled in the event of a
downturn in any potential customer's business or the economy in general.
LIQUIDITY AND CAPITAL RESOURCES
From our incorporation in 1989 through 1996, we primarily financed our
operations and met our capital expenditure requirements through funds generated
from operations and funds borrowed from a lending institutions. From April 1997
through May 1999, we raised approximately $41.6 million of venture capital
funding in order to expand the sales and marketing and product development
efforts of the business. Including the proceeds of our sale of Series C
Convertible Preferred Stock on May 25, 1999, our primary sources of liquidity
consisted of cash in excess of $20 million and available borrowings under our
$1.75 million revolving line of credit, which is secured by substantially all of
our assets. As of May 31, 1999, the balance outstanding on our line of credit
was $671,000. Borrowings under the line of credit are subject to a borrowing
base of 80% of eligible accounts receivable. Interest on our line of credit is
payable monthly at rates of prime plus .75%. We believe that our existing
capital resources are sufficient to meet our capital requirements for the next
12 months.
Net cash used for operating activities was $3.0 million in 1997, $10.3
million in 1998 and $1.8 million for the three months ended March 31, 1999. The
cash used for operating activities was attributable primarily to net losses of
$3.8 million, $11.6 million and $2.5 million in 1997, 1998 and the three months
ended March 31, 1999, respectively.
Net cash used in investing activities was $872,000 in 1997, $1.2 million in
1998 and $34,000 for the three months ended March 31, 1999. The cash used in
investing activities related primarily to purchases of computers and software
for internal use.
Net cash provided by financing activities amounted to $5.1 million in 1997,
$11.7 million in 1998 and a use of $64,000 for the three months ended March 31,
1999. In 1997, $4.8 million was provided from the sale of Series A preferred
stock to certain venture capital investors, $920,000 was provided from
borrowings under the available credit lines and $250,000 was provided from
borrowings from a related party. In April 1998, approximately $11.2 million was
provided from the sale of Series B preferred stock to certain venture capital
investors. In May 1999, we sold 9,191,176 shares of Series C preferred stock for
gross proceeds of $25.0 million, $1.35 million of which was comprised of the
conversion of indebtedness under bridge financing incurred earlier in 1999. For
more information on the bridge financing, see "Certain Transactions--Bridge
Financing."
YEAR 2000 ISSUES
GENERAL. Year 2000 issues relate to computer programs or hardware that have
date-sensitive software or embedded chips that may recognize a date using "00"
as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculation causing disruption of operations, including,
24
<PAGE>
among other things, a temporary inability to process transactions, send invoices
or engage in other normal business activities.
The term "computer programs and hardware" includes accounting, data
processing and telephone/ PBX systems, in addition to other miscellaneous
systems. These systems may contain imbedded technology, which complicates our
identification, assessment, remediation and testing efforts.
STATE OF READINESS. We have designed the current versions of our software
products to be Year 2000 compliant, and do not anticipate any Year 2000 issues
related to these products. However, some older versions of our software products
that we no longer sell may not be Year 2000 compliant. Any customer using an
older version of one of our products that is not Year 2000 compliant may need to
upgrade to a newer, compatible version or discontinue using the software prior
to January 1, 2000.
Based on our identification and assessment efforts to date, we believe that
the majority of the computer programs and hardware we currently use in our own
internal operations will not require replacement or modification as a result of
the Year 2000 issue. In the ordinary course of replacing computer programs and
hardware, over the past two to three years, we have obtained replacements that
we believe are Year 2000 compliant.
We believe that our significant vendors and service providers are Year 2000
compliant. In the event that one or more of our significant vendors or service
providers are not Year 2000 compliant, we believe that our results of operations
will not be materially adversely affected and that our relationships with
customers, vendors and others will not be materially adversely affected.
COST AND RISK. We have not incurred any significant costs to date related
to Year 2000 issues and do not expect the cost of future Year 2000 issues to be
material. Furthermore, we believe that Year 2000 issues will not pose
significant operational problems for us.
However, if all Year 2000 issues are not properly identified or if Year 2000
issues that are identified are not assessed, remediated and tested in a timely
fashion, the Year 2000 issue may adversely impact our results of operations or
adversely affect our relationships with customers, vendors or others.
Additionally, we cannot predict whether the Year 2000 issues of third parties
will have a material adverse impact on our systems or results of operations.
The costs and completion dates of our Year 2000 identification, assessment,
remediation and testing efforts are based upon management's best estimates,
which were derived using numerous assumptions regarding future events. These
estimates may prove to be inaccurate and actual results could differ materially
from those currently anticipated. Specific factors that could cause these
material differences include, but are not limited to, the ability to identify,
assess, remediate and test all relevant products and services purchased from or
by third parties and other similar uncertainties. In addition, variability of
definitions of "compliance with Year 2000," and the myriad of different products
and services and combinations thereof, used by our customers in connection with
our products may lead to claims against us which we cannot currently estimate.
The aggregate cost of defending and resolving such claims, if any, may adversely
impact our results of operations.
Year 2000 issues may affect the purchasing patterns of current and potential
customers in a variety of ways. Many companies are expending significant
resources to replace or remedy their current hardware and software systems for
Year 2000 compliance. These expenditures may result in reduced funds available
to purchase software products such as those offered by us. Furthermore, our
customers could be forced to postpone installations of our products due to
dedication of resources to their own Year 2000 issues. We do not believe that
there is any practical way to ascertain the extent of, and have no plan to
address problems associated with, any reduction in purchasing resources of our
customers. Any resulting reduction could have a material adverse effect on our
business.
25
<PAGE>
CONTINGENCIES. We have not yet completed an analysis of the operational
problems and costs, including loss of revenues, that would be reasonably likely
to result from our failure and the failure of certain third parties to complete
efforts necessary to achieve Year 2000 compliance on a timely basis. We plan to
identify the most likely worst case scenario and, if a contingency plan is
required, finalize our plan by September 1999.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We develop our products in the U.S. and have sold them primarily in North
America. As a result, our financial results have not been affected by factors
such as changes in foreign currency exchange rates or weak economic conditions
in foreign markets. In the future, we expect to increase our international
operations which could increase our exposure to these factors.
Our future interest income will be sensitive to changes in the general level
of U.S. interest rates. However, we plan to invest our excess cash in
short-term, investment-grade, interest-bearing securities and we have concluded
that there is no material market risk exposure relating to these investments.
26
<PAGE>
BUSINESS
OUR COMPANY
We are a leading provider of software for "Enterprise Interaction
Management," which enables businesses to extend information over the Web in a
controlled manner and support a high volume of users and interactions. Our
flagship product, Sapphire/Web, is currently in Release 6 and has expanded to a
product family that we believe is the leading JAVA/Web application server
framework in the world. We believe that we are the only Web application server
vendor to adequately address the four defining elements of Enterprise
Interaction Management--development, deployment, integration and management--and
therefore provide the most complete overall solution to our customers. In
December 1998 at the Giga Information Group's Emerging Technology Conference, we
demonstrated that our solution can meet the needs of virtually any enterprise by
conducting a live simulation of an Internet Commerce site running at a rate of
over 100 million interactions per day. In January 1999, we released Bluestone
XML-Server, which represents a new breed of specialized Web application server
focused on Internet Commerce.
We participate in the following three separate markets:
- THE MARKET FOR JAVA/WEB APPLICATION SERVERS. In this market sector,
enterprises employ our solutions to "Web-enable legacy systems," or to
deploy their existing information technology assets for use in a Web
environment, and to create new Web-enabled enterprise applications. We are
currently recognized as a leader in this market.
- THE MARKET FOR eXTENDING THE SUPPLY CHAIN. In this market sector, our
products enable the "virtual corporation" by allowing an enterprise to
integrate its information assets with those of its partners, vendors and
customers to improve collaboration utilizing Web and XML technology in a
highly secure and scalable environment.
- THE MARKET FOR ENTERPRISE APPLICATION INTEGRATION. In this market sector,
our products facilitate the integration of disparate computer systems
within an enterprise. We believe we are particularly well positioned in
this market, since the necessary capabilities, including standardizing
corporate data formats and providing access to legacy systems, are two of
the core strengths of our JAVA/ Web application server technology.
Our solutions are used by some of the world's leading companies, including
ARI, AT&T, Deutsche Bank, Dreyfus Corporation, Eli Lilly, Hewlett-Packard,
Houghton Mifflin Company, Just For Feet, MCI WorldCom, OpenConnect, Reliance
National and Time, Inc.
OUR INDUSTRY
GROWTH IN INTERNET RELATED SOFTWARE
The Internet has experienced dramatic growth, both in terms of the number of
users and as a means of conducting commercial transactions, and is expected to
continue to grow rapidly. According to a report prepared by International Data
Corporation, the number of Internet users increased from approximately 14
million in 1995 to approximately 97 million in 1998, and is expected to grow to
more than 320 million by 2002.
The increase of users and business activities on the Web has created a large
and growing market for Web application software as existing businesses and new
Web-based enterprises foster new revenue streams, significantly broaden
information deployment, enable inter-enterprise collaboration and strive to
reduce the cost of maintaining an ever-changing technology infrastructure.
According to a Gartner Group survey of selected U.S. corporate information
technology users, approximately 92% of all respondents planned to increase
spending on Internet, intranet and extranet applications in 1998, as
corporations enable legacy applications with Web technology and shift business
activities to the Web.
27
<PAGE>
An International Data Corporation report estimates that Internet-centric
software, which accounted for less than $1.0 billion in revenue in 1996, will
approach $10.0 billion in revenue by 2000 due to aggressive corporate adoption.
THE RISE OF THE ENTERPRISE APPLICATION SERVER
To date, most companies' use of Internet technology has consisted of
employing Web servers to provide marketing material through their Web sites.
These Web servers allow the presentation of relatively simple information to
users, such as pictures and text, through static HTML documents. This static
information must be preformatted with the information to be displayed, then
manually changed when information is to be updated. Web server technology is
still heavily in use today, but cannot sufficiently meet the quickly growing
needs of companies to provide complex and dynamic information to their users.
The existing information technology infrastructure of most companies leaves them
unable to utilize, integrate or deploy existing information technology assets
for Internet Commerce or use over the Web. These companies are recognizing that
a broader set of facilities is required to capture the substantial benefits
offered by Internet computing. These facilities include development capabilities
that are specifically geared to a Web-based environment, interaction
environments that are scalable and reliable, integration faculties that allow
seamless linkages between the Internet and an enterprise's existing information
infrastructure, and the ability to effectively monitor and manage Web-based
applications and infrastructure. Web application servers have emerged to provide
these facilities.
Web application servers, by design, allow scalable, secure dynamic access to
complex information through the Web that is otherwise only available internally
in an organization through its own applications and legacy databases by
providing:
- load balancing--spreading the workload across multiple processors;
- transaction management--tracking and assuring the completion of
transactions;
- integration to multiple back-end sources--making all enterprise
information available for use;
- an integrated development environment--a graphical tool to assist software
developers;
- application management--monitoring and reporting on all application server
activity; and
- multiple user support--the ability to individually serve a community of
disparate users.
Demand for these capabilities has resulted in significant growth in the
market for Web application servers. In an August 1998 report, Forrester Research
estimated that the market for Application Server software would be approximately
$700 million in 1999 and would grow to approximately $1.8 billion by 2001,
representing a compound annual growth rate of approximately 60%. Another
independent technology research organization, Ovum, estimated in June 1999 that
the market for application server technologies, which they define in a manner
that more closely resembles our addressable market, will grow to $17 billion by
2004.
OUR SOLUTION
We provide a comprehensive framework that enables businesses to deploy
information across the Internet, intranets and extranets to employees,
customers, suppliers and partners. Our solution furnishes businesses with the
ability to Web-enable legacy systems, develop new Web-based applications, and
enable Internet Commerce. Our deployment solution is certified as 100% Pure JAVA
and therefore operates in all enterprise computing environments. We have
recently introduced the capability to support "Hot Swapping," which enables the
movement of applications from one computer to another, and "Hot Versioning,"
which enables software programs to be updated between user clicks. These
features allow businesses to upgrade or fix their hardware and software without
interrupting user interactions permitting true 24x7 operations. This is
particularly critical for companies engaged in
28
<PAGE>
Internet Commerce where down time can be very costly. We believe our solution is
the only one available that provides the features and capabilities necessary for
use in enterprise-scale, mission-critical applications. In particular, our
solution offers the following facilities:
ROBUST DEVELOPMENT ENVIRONMENT AND TOOLSET. Our solution allows for maximum
use of best-of-breed development tools due to its open and highly adaptable
environment. Development speed increases from automated routines to generate
user interfaces and the ability to import existing user interfaces from other
sources. Our solution includes an integrated development environment that can
use industry-standard components to easily assemble applications and provides
improved support for users with varying skill levels.
SCALABLE, OPEN, HIGH-PERFORMANCE DEPLOYMENT. The Web application server
framework within our solution enables deployment of systems with high
reliability, security and flexibility. Our Web application server supports very
high volumes of interactions and high numbers of concurrent users with caching,
load balancing and fault-tolerance features, which optimize response times and
ensure the integrity of applications. In addition, our standards-based, 100%
Pure JAVA architecture allows for a high level of flexibility in operating
systems, programming languages, and database access and communication protocols,
with no proprietary technology lock-in.
EXTENSIVE INTEGRATION CAPABILITIES. Our solution goes beyond Application
Programming Interfaces, or APIs, to facilitate integration of a business'
overall computing environment, with pre-built modules for Web-enabling today's
dominant applications and protocols, such as SAP, PeopleSoft, Tuxedo, MQ Series,
CICS, Open Market, LDAP and e-mail. Our solution also includes tools that allow
users to rapidly build new integration modules for other applications, and
generally enable complex information answers to be generated from any data
source within the enterprise, no matter how remote or proprietary. These
capabilities allow businesses to marry existing systems to new information
delivery platforms, thereby preserving legacy investments.
COMPREHENSIVE MANAGEMENT. Our solution provides the necessary means to
monitor, administer and report on a business' entire Web infrastructure. These
advanced features provide the means to perform administrative and management
tasks easily and quickly, allow for dynamic reconfiguration of the information
infrastructure, assure minimum and/or differentiated levels of service, and
integrate with system management utilities such as CA Unicenter, IBM Tivoli, BMC
Patrol and HP OpenView. Our solution automatically generates alarms, alerts and
reports, which allows for optimal performance of and powerful insight into a
business' Web infrastructure.
OUR GROWTH STRATEGY
Our goal is to maintain and extend our position as a leading provider of Web
application server technology, enterprise application integration and Internet
Commerce solutions. Our key growth strategies are to:
MAINTAIN AND EXTEND TECHNOLOGICAL LEADERSHIP. We believe that our
technology, solution and features represent a significant competitive advantage
and provide customer benefits that are not available from other solutions.
Highly advanced technological elements incorporated in our solutions
collectively contribute to the speed, scalability, reliability, manageability,
flexibility and extensibility of our product set. For more information on these
technological elements, see "--Technology." We believe that our consistent
record of technological industry firsts, as demonstrated recently by the release
of the industry's first dynamic XML Server, will continue into the future.
EXPAND PRODUCT OFFERINGS. We intend to continue to develop new products and
enhancements to existing products to fuel continued growth. Recently, we
introduced our XML suite of products, which expands the markets and applications
for our technology, with a focus on Internet Commerce and
29
<PAGE>
inter-enterprise information exchange. Upcoming enhancements to the Sapphire/Web
suite consist of enhanced Internet Commerce services including Internet Quality
of Service (IQS), improved content and presentation management capabilities, and
significantly increased bandwidth, transaction processing and security.
Additional upcoming enhancements will include improved high-end management
features, new business application capabilities and increased ease of use. We
expect to continue to make considerable investments in product development to
maintain this pace of innovation.
CONTINUE TO FOCUS ON ENTERPRISE-SCALE SOLUTIONS. An April 5, 1999 article
in PCWEEK ONLINE reported on an independent evaluation of our Web application
server framework against two competitive products. The evaluation employed a
simulated E-Commerce site developed by Doculabs, an independent information
advisory company. In this evaluation, our solution posted throughput and
response time results that were 50% higher than our nearest competitor. In
addition, our solution was the only product able to meet the fault-tolerance
requirements of mission-critical and E-Commerce applications. At the December
1998 Emerging Technology Conference sponsored by Giga Information Group, we
performed a live demonstration based on a PCWEEK Labs-designed benchmark and
successfully processed a variety of complex transactions at a rate of over 100
million interactions per day. Consequently, we believe that we are uniquely
positioned as a performance leader in our industry and will benefit as an
increasing number of large mission-critical systems move to the Web and as
Internet Commerce grows.
INCREASE MARKETING AND DIRECT SALES EFFORTS. We intend to leverage our
previous customer successes by devoting significant marketing and direct sales
resources to specific industry verticals, including telecommunications,
insurance, brokerage, pharmaceuticals and E-Commerce. We intend to increase the
number of field sales offices and field sales representatives over the next 12
months. Our direct sales organization is organized around named accounts,
geographic regions and, increasingly, industry verticals. As of March 31, 1999,
we had 49 employees in marketing and sales, 19 of which were quota-carrying
field sales representatives.
FURTHER DEVELOP INDIRECT CHANNELS, PARTNERS AND ALLIANCES. Our sales
efforts are leveraged by indirect channels and partners, and we intend to
continue to foster these relationships to fuel additional growth. These
channels, partners and alliances significantly extend our market reach and
overall opportunity set, and include the following:
- independent software vendors, including Hewlett-Packard, Sanchez Computer
Associates and Platinum technology;
- systems integrators, including American Management Systems, Grant
Thornton, KPMG, PricewaterhouseCoopers and approximately 65 others; and
- value added distributors (VADs) and value added resellers (VARs),
including Intraware and Merisel.
OUR PRODUCTS
SAPPHIRE/WEB SUITE
SAPPHIRE/DEVELOPER. Sapphire/Developer delivers the capability to build
Web-enabled applications that can find, access and deliver enterprise-class
information to users. It connects any back-end data source to any front-end data
user. It supports a wide variety of technology, including XML, HTML, JAVA,
ActiveX, HDML, DHTML, Cascading Style Sheets, JAVAScript and VBScript, that can
be bound to any database, flat file, mainframe customer information control
systems (CICS) transactions or other enterprise applications.
Sapphire/Developer's ability to incorporate new technology, tools and
development approaches allows increased productivity and faster deployment of
Web applications.
30
<PAGE>
SAPPHIRE/DEVELOPER ENTERPRISE EDITION. Sapphire/Developer Enterprise
Edition incorporates the Sapphire/Developer Enterprise Deployment Kit (EDK), a
software tool kit that provides the flexibility to choose from a variety of
distributed computing models, with Sapphire/Developer. EDK allows a company to
use any or all existing object models: CORBA, COM, DCOM, JAVA Beans or
Enterprise JAVA Beans (EJB). This allows customers to utilize any combination of
Microsoft, Sun and/or IBM technologies, among others.
SAPPHIRE/UNIVERSAL BUSINESS SERVER (UBS). UBS is the Web application server
deployment architecture of Sapphire/Web. UBS creates a dynamic, Web-enabled
environment that scales applications to meet fluctuating needs, balances loads
to prevent performance decline and manages transactions across the Web
infrastructure. UBS delivers scalability and high application availability to
mission-critical, enterprise-class Web applications.
SAPPHIRE/APPLICATION MANAGER (SAM). SAM is a management engine that
proactively collects and provides real-time performance and status information
on a company's entire Web infrastructure, including all components of the
Sapphire/Web application server framework. SAM monitors all user interactions
and bolsters the quality, performance and integrity of work being performed over
the Web using the Sapphire/Web application server.
SAPPHIRE/INTEGRATION MODULES (SIMS). SIMs provide a solution for
integrating a company's existing information assets without the need for
extensive and costly re-engineering of applications and infrastructure. SIMs
create reusable objects that access all of a company's information resources and
make them easily available to the development and deployment environments. We
provide SIMs to popular applications and protocols, such as SAP, PeopleSoft,
CICS and MQ Series.
THE BLUESTONE XML SUITE
BLUESTONE XML-SERVER. Our Bluestone XML-Server, released in January 1999,
is a specialized application server that automatically converts back-end data
sources to XML documents and then uses the XML documents to communicate with
other applications. This enables independent software vendors and businesses in
the areas of business-to-business data interaction, Internet Commerce,
application integration and supply chain integration to distribute and deploy
XML applications.
BLUESTONE VISUAL-XML. Our Bluestone Visual-XML product, announced in
February 1999 and released in May 1999, is a tool kit designed to allow business
users to develop XML-based applications through a graphical drag-and-drop
environment.
XWINGML. Our XwingML product is an open source application that was
released in February 1999 and is used to create JAVA graphical user interfaces
based on XML documents.
BLUESTONE XML-CONTACT. Our Bluestone XML-Contact is open source software
that lets Palm Computing device users exchange contact information with any
corporate database, turning personal productivity tools into corporate
information resources with the power of XML.
SERVICES AND SUPPORT
We offer short-term mentoring, consulting and customer training services
through our Advanced Technology Group. We use our Advanced Technology Group
resources to assist our partners and clients in the early implementation
efforts, which tend to be less than one month in duration, and rely on our
systems integration partners to deliver longer-term professional integration
services. This strategy allows us to offer a higher degree of pre- and
post-sales support to our prospects, partners and licensees in support of
furthering the sales of our software products.
31
<PAGE>
We have a Customer Support Group that provides ongoing maintenance and
support to customers through maintenance contracts. We furnish support through
the telephone and e-mail, as well as through a portion of our Web site called
Explore Web, which provides users with access to a comprehensive knowledge base
of the Sapphire/Web and XML suite solutions.
We offer extensive training and certification for Sapphire/Web products as
well as course training in related topics, such as JAVA, JAVAScript, XML and the
Web in general. Additionally, we also offer formal instruction through
"Interactive Distance Learning," which furnishes instruction through an
innovative mix of video, computer-based training and e-mail. We provide ongoing
technical support on a contractual basis to our licensees with annual
maintenance agreements.
SALES AND MARKETING
As of March 31, 1999, our sales and marketing organization consisted of 49
individuals, all of whom were based in North America. We had 19 field sales
representatives and 15 inside sales representatives, all of whom carry quotas.
The sales force is comprised of three primary organizations: Named Accounts,
Direct Sales and Indirect Sales. We have diversified our sales activities to
support a target distribution of 70% indirect and 30% direct.
We have sales offices in Sacramento, Los Angeles, Atlanta, Dallas, Chicago,
Boulder, San Francisco, Toronto and Mount Laurel, New Jersey. Sales outside
North America are generated by third party resellers in London, Seoul and
Sydney. We expect to open regional offices in Europe and Asia Pacific by the end
of 1999.
We support our sales efforts through corporate and field marketing
initiatives in North America. Our marketing organization focuses on creating
market awareness, generating leads, promoting our technology leadership and
educating independent research analysts. These efforts include public relations,
advertising, trade shows, alliance programs, seminars, direct mail,
telemarketing and marketing collateral that includes a Web site, brochures,
white papers and demonstrations.
STRATEGIC ALLIANCES
We are building and maintaining significant working relationships with
complementary vendors that we believe will contribute to our ongoing success.
These relationships fall into four categories: strategic technology alliances,
independent software vendors, systems integrators and value added distributors
and resellers. Within our strategic technology alliances, we engage in
collaborative technology exchanges with BEA Systems, Computer Associates,
Informix, IBM, Level III Communications/PKS SI, Microsoft, Netscape,
OpenConnect, Oracle, Platinum technology, Sanchez Computer Associates and Sun
Microsystems, among others.
We have relationships with independent software vendors, including
Hewlett-Packard, Platinum technology, OpenConnect, Sanchez Computer Associates
and Foundation Technologies. These partners deliver their application software
products with some element of our technology embedded therein. We maintain a
close working relationship with these partners and will continue to develop
relationships of this nature.
We also maintain relationships with third party systems integrators who
deliver services to our end-user clients. These companies have been recruited to
deliver long term project support and are required to maintain a level of
proficiency in our products. These relationships include American Management
Systems, KPMG, Grant Thornton, PricewaterhouseCoopers and Level III
Communications/PKS SI.
We have entered into formal two-tier distribution agreements with Intraware
and Merisel to deliver our suite of software products. These agreements provide
Intraware and Merisel with the right to distribute our products in North
America.
We are a member in good standing of the Enterprise JAVA Bean Council, the
World Wide Web Consortium (W3C), the Object Management Group (OMG) and the
Enterprise Integration Council.
32
<PAGE>
CUSTOMERS
From 1996 through 1998, we sold licensed copies of our Sapphire/Web software
to more than 500 customers. Most of these customers began using our Sapphire/Web
products to Web-enable separate departmental systems and many of them are now
expanding their usage of Sapphire/Web to a company-wide basis. Accordingly, we
have observed a recent shift by our customers from creating Web applications to
creating enterprise applications that are Web-enabled.
Our solutions are applicable to a wide variety of industries and are used by
many of the world's leading businesses. For example, Sapphire/Web users include:
- three of the top five FORTUNE 500 companies in the electronics industry;
- five of the top ten FORTUNE 500 companies in the computer equipment
industry;
- four of the top five FORTUNE 500 companies in the aerospace industry;
- seven out of the top ten FORTUNE 500 companies in the telecommunications
industry;
- three of the top four FORTUNE 500 companies in the entertainment industry;
and
- five of the top ten FORTUNE 500 companies in the pharmaceuticals industry.
Our customers include ARI, AT&T, Deutsche Bank, Dreyfus Corporation, Eli
Lilly, Hewlett-Packard, Houghton Mifflin Company, Just For Feet, MCI WorldCom,
OpenConnect, Reliance National and Time, Inc.
Examples of successful Sapphire/Web implementations include the following:
- We helped ARI, a large international leasing company, establish its first
Web application in 1998. That application enabled ARI's customers to
inquire directly into ARI's leasing system to manage delivery and
maintenance information for ARI's fleet.
- Reliance National, a major insurance company, has been using Sapphire/Web
software since 1997. Reliance National began with small departmental
solutions. In 1998, Reliance National expanded its usage to include a
system that decentralized its operations by communicating its risk
management system to all of its associated brokers, thereby significantly
expanding the speed in which the broker can prepare premium quotes and the
manner in which Reliance National serves its customers.
- AT&T and MCI WorldCom have each chosen our products to be used in customer
loyalty and retention programs. These companies have engaged in projects
to Web-enable their billing and reporting systems, thereby allowing their
customers to review and approve bills through their Web site.
- Several major publishers have used our products to further their Internet
Commerce initiatives. For example, Time, Inc. has utilized the
Sapphire/Web solution to Web-enable the acquisition of pictures from its
large database so that its customers can search for and purchase the
images from its Web site. In another example, Houghton Mifflin Company, a
text book publisher, has utilized the Sapphire/Web solution to provide an
index of products available on its Web site, thereby considerably
enhancing its customer service capabilities.
- Several independent software vendors have entered into licensing
arrangements with us in which our Sapphire/Web software becomes a core
component for the next generation of their respective software products.
For example, Platinum technology uses Sapphire/Web software as its next
generation technology to move beyond the Web extension of legacy
applications. In another example, Sanchez Computer Associates, a banking
software provider, uses the Sapphire/ Web software as a foundation for its
voice response and ATM systems. Additionally, Hewlett-Packard, a workflow
and process management software vendor, uses Sapphire/Web software as its
application integration engine, thereby giving it access to back-end
legacy applications.
33
<PAGE>
COMPETITION
The market for our products is intensely competitive, highly fragmented and
characterized by rapid technological change and new product introductions.
Recently, several of our competitors have been acquired by large software
companies. Our competitors consist of a number of private and public companies
including, among others:
- BEA Systems, which acquired WebLogic;
- IBM;
- Microsoft;
- Oracle; and
- Sun Microsystems, which acquired NetDynamics and the rights to Netscape's
Application Server.
In addition, we face competition from in-house software developers. Many of
our competitors have longer operating histories, significantly greater
financial, technical, marketing and other resources, greater name recognition, a
broader product range and a larger base of installed customers than us.
We expect to face increased competition in the future from our current
competitors. In addition, new competitors, or alliances among existing and
future competitors, may emerge and rapidly gain significant market share. We may
also face increased competition in the future from existing large business
application and Internet software vendors that may broaden their product
offerings to include Web application server software. To the extent these
vendors are able to offer systems that are functionally comparable or superior
to our products, their significant installed customer bases, ability to offer a
broad solution and ability to price their products as incremental add-ons to
existing systems could provide them with a significant competitive advantage
over us.
TECHNOLOGY
Our technology is based upon two concepts: (1) binding front-end objects to
back-end objects and (2) providing a level of abstraction that protects the
customers and our code from being locked-in to a particular implementation.
Specific technology features of the Bluestone Solution include:
100% PURE JAVA APPLICATION SERVER. The JAVA platform offers enormous
benefits to us and our customers. These products run on any platform where JAVA
is available and has been verified on Windows95, Windows98, WindowsNT, all UNIX
platforms including Sun, IBM and HP as well as Linux, the IBM OS400 and
Mainframe OS390. JAVA has also brought large productivity gains to our
development team, decreasing development time, eliminating porting costs and
speeding time to market.
LOAD BALANCING. This is the fundamental technology that provides the high
performance and scalability for large applications and contributes to the fault
tolerant design of the applications. A Load Balance Broker runs in any number of
Web servers in a Web server farm and manages the load across any number of
Sapphire/UBS instances in that server farm. In addition, the Load Balance Broker
can be deployed as a JAVA Bean or an Enterprise JAVA Bean to allow utilization
from non-Web based applications. The Load Balance Broker has a unique
competitive advantage with a zero-feedback loop design that provides maximum
speed and no practical limits in terms of numbers of Load Balance Brokers and
Web application servers deployed.
PERSISTENT STATE SERVER. The persistent state server is also a key
component of fault tolerance. State servers are where "shopping cart"
information is held on Internet Commerce sites while a user is shopping. It is
important that even if one of the application servers fails, the state
information is still
34
<PAGE>
available. A recent PCWEEK test substantiated Sapphire/Web's significant lead in
this high performance implementation of fault tolerance.
FAULT TOLERANT DESIGN. Sapphire/Web has been designed to provide fault
tolerance in a Web environment. There are two key pieces to this technology.
First, in the event of an application server failure, the Load Balance Broker
will redirect any requests from Web browsers to other application servers.
Second, the Persistent State Server will make the user state information
continuously available, even if the application servers fail.
LIVE OBJECT CACHE. The Live Object Cache provides very high performance for
Internet Commerce applications. The Live Object Cache holds objects within the
memory of the application server, saving overhead of database access for
frequently used data. It is also designed to contribute to fault tolerance by
working in conjunction with the persistent state server.
CONTENT GENERATION OBJECTS. Sapphire/Web has a powerful template processing
facility to generate Web pages dynamically. Content Generation Objects are
reusable JAVA classes that can create content in a consistent manner. This
increases programmer productivity and provides Web developers a simple mechanism
to maintain a consistent look and feel to their Web pages.
SAPPHIRE/DEVELOPER DESIGN ENVIRONMENT. This provides developers a highly
productive design environment for binding front-end objects to back-end objects.
Sapphire/Developer also maintains an open environment for integrating other
industry leading tools.
BLUESTONE XML-SERVER COMMUNICATIONS SERVICES. This program recognizes the
protocol of incoming communications and translates it to a request for service
to the XML-Server. XML documents can be passed to and from the XML server from
any combination of HTTP, SSL, FTP, e-mail, JAVA Beans, Enterprise JAVA Beans,
RMI, IIOP and others. This separates the communications from the processing of
XML documents, so additional communications services can be added without
changing any code.
BLUESTONE XML-SERVER DOCUMENT HANDLER SERVICES. Bluestone's Document
Handlers are the JAVA programs that process XML documents. The Bluestone
XML-Server is unique in its ability to handle any XML document type via this
mechanism and its ability to dynamically load new document handler classes.
BLUESTONE VISUAL-XML DESIGN ENVIRONMENT. This open tool provides easy to
use creation of Bluestone XML-Server applications and creates XML documents in a
stand-alone mode. This tool is available on all platforms including Linux, UNIX
and Windows. We believe this tool expands the XML market to non-programmers.
HOT VERSIONING AND HOT SWAPPING. These new capabilities of Sapphire/Web
Release 6 are unique in providing companies the ability to run a full 24x7 Web
site. Hot Versioning allows Web applications to be upgraded between user clicks
with no session interruption. It includes testing in a production environment
and roll-forward and roll-back capabilities for versions of an application.
Sapphire/Web Release 6 also supports Hot Swapping so that applications can be
moved from server to server without interrupting service to the user.
INTERNET QUALITY OF SERVICE. This innovative capability provides for
differentiation of service based on each particular user. This allows for
priority customers to always get performance preference over other visitors to a
Web site.
35
<PAGE>
PRODUCT DEVELOPMENT
Historically, we have invested heavily in product development. Our future
success depends in large part on our ability to enhance existing products and
create new products that maintain and expand our technology lead. Accordingly,
we intend to continue to invest heavily in product development.
As of March 31, 1999, we had 29 people in the product development group,
which includes a core group of senior developers and product development
leaders, junior developers, quality assurance and documentation personnel. Our
development team is located at our headquarters in Mount Laurel, New Jersey.
Almost all of our software is being developed in JAVA, thereby improving
productivity and reducing porting and testing costs.
In an attempt to move our products at Internet-speed, we employ a small-team
approach with an interactive design/development/testing methodology that has
evolved over the past five years. To date, our product development group has
benefitted from a very low turnover rate.
We are currently developing new releases to our Sapphire/Web and XML product
families. We anticipate that these new releases will bring even stronger
Internet Commerce, high-end management, and ease of use capabilities, together
with integrated Internet Commerce solutions for SAP and PeopleSoft in joint
development with our systems integration partners. We expect these new releases
to continue to position our products as the most "feature-rich" in the market.
EMPLOYEES
As of March 31, 1999, we had 153 employees, of which 49 were employed in
sales and marketing, 45 were employed in services, 29 were employed in product
development and 30 were employed in general and administrative positions. None
of our employees are represented by unions. We believe that our relations with
our employees are good.
PROPERTIES
Our principal executive and administrative offices are located in
approximately 41,000 square feet of office space in Mount Laurel, New Jersey. We
also maintain sales offices in Sacramento, Los Angeles, Atlanta, Dallas,
Chicago, Boulder, San Francisco, Toronto and Mount Laurel, New Jersey. Annual
lease payments on the Mount Laurel facility are approximately $480,000. This
lease expires in November 2003. We do not own any real property.
LEGAL PROCEEDINGS
We are from time to time a party to litigation arising in the ordinary
course of our business. We are not currently a party to any material litigation.
36
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------- --- ------------------------------------------------------------------
<S> <C> <C>
P. Kevin Kilroy........................ 45 President, Chief Executive Officer and Director
S. Craig Huke.......................... 37 Senior Vice President and Chief Financial Officer
Robert W. Bickel....................... 42 Senior Vice President, Products
John H. Capobianco..................... 47 Senior Vice President, Marketing
Joseph K. Krivickas.................... 37 Senior Vice President, Worldwide Sales
Mel Baiada............................. 41 Chairman of the Board of Directors and Founder
Gregory M. Case........................ 36 Director
William C. Hulley...................... 40 Director
Anton Simunovic........................ 33 Director
Andrew J. Filipowski................... 48 Director
Paul E. Blondin........................ 48 Director
</TABLE>
P. KEVIN KILROY has served as our President since January 5, 1999 and our
Chief Executive Officer since June 10, 1999. From March 1998 to January 4, 1999,
Mr. Kilroy served as our Senior Vice President, Worldwide Sales. Before joining
Bluestone, Mr. Kilroy served as the Senior Vice President of Worldwide
Distribution for Seer Technologies, Inc., an application development software
company, from March 1996 to March 1998. From April 1993 to October 1995, Mr.
Kilroy served as President of Mantech Systems Corporation and Mantech Solutions
Corporation and Vice President of Mantech International Corporation.
S. CRAIG HUKE has served as our Senior Vice President and Chief Financial
Officer since April 15, 1999. Before joining Bluestone, Mr. Huke was Vice
President, Finance of MetroNet Communications Corp., a broadband
telecommunications services provider, from April 1998 to April 1999. Prior to
joining MetroNet he was Vice President and Corporate Controller of Seer
Technologies, Inc. from November 1994 to April 1998. From September 1991 through
October 1994, Mr. Huke held several positions with Legent Corporation, a
publicly held software development company, including Director of Financial
Planning and Analysis and Assistant Controller.
ROBERT W. BICKEL has served as our Senior Vice President, Products since
January 1998. From April 1997 to January 1998, Mr. Bickel served as our Chief
Operating Officer, and from May 1992 to April 1997, as the Director of Products
at Bluestone Consulting, Inc., a New Jersey corporation and our predecessor.
JOHN H. CAPOBIANCO has served as our Senior Vice President, Marketing since
February 1998. Before joining Bluestone, Mr. Capobianco served as a Senior Vice
President of Marketing at SAP America from March 1997 to February 1998. From
1996 to March 1997, Mr. Capobianco served as the Vice President, Corporate
Marketing of Sybase, Inc., from 1995 to 1996 as Vice President, Marketing of
PRIMAVERA Systems, Inc. and from 1985 to 1995 as Vice President, Marketing of
Computer Associates International, Inc.
JOSEPH K. KRIVICKAS has served as our Senior Vice President, Worldwide Sales
since May 1999. From August, 1998 to May 1999 Mr. Krivickas was Vice President,
Sales and Service for E-Commerce products at Sanga International. From January
1996 to July 1997, Mr. Krivickas was co-founder and
37
<PAGE>
served as Chief Technology Officer for Kazz Digital Studios. From 1988 to 1995,
Mr. Krivickas held various sales and marketing management positions at Sun
Microsystems.
MEL BAIADA has served as our Chairman of the Board of Directors since our
incorporation. From April 1997 to January 1999, Mr. Baiada served as our
President and Chief Executive Officer. From April 1989 to April 1997, Mr. Baiada
served as the President and Chief Executive Officer of Bluestone Consulting
Inc., a New Jersey corporation and our predecessor. Mr. Baiada also serves as
the President and a director of Bluestone Consulting, Inc., a Delaware
corporation spun off from us in April 1997.
GREGORY M. CASE has served as a director of Bluestone since April 1997. Mr.
Case has been a Managing Director of Patricof & Co. Ventures, Inc. since May
1995 and a Vice President of Patricof & Co. Managers, Inc. since May 1996. From
January 1994 through May 1995, Mr. Case served as a Vice President of Patricof &
Co. Ventures, Inc.
WILLIAM C. HULLEY has served as a director of Bluestone since April 1997.
Mr. Hulley co-founded Adams Capital Management, Inc. in 1994 and is a Vice
President and General Partner. Adams Capital Management, Inc. is a Managing
Partner of several venture capital partnerships, including Adams Capital
Management, L.P. and the P/A Fund. From 1989 through December 1994, Mr. Hulley
was employed by Fostin Capital Corp and has been a General Partner of Fostin
Capital Partners II, L.P. since 1993. Mr. Hulley is a director of On Technology
Corporation, a publicly traded company.
ANTON SIMUNOVIC has served as director of Bluestone since April 1998. Mr.
Simunovic is a Senior Vice President of the Equity Capital Group at General
Electric Capital Corporation and has served as such since September 1996. From
June 1993 through August 1996, Mr. Simunovic served as Manager at Barents Group
LLC.
ANDREW J. FILIPOWSKI has served as director of Bluestone since June 1999.
Mr. Filipowski is currently the Chief Executive Officer of Divine Interventures,
Inc. Mr. Filipowski was the co-founder, Chairman of the Board, President and
Chief Executive Officer of Platinum technology, inc. since its formation in
April 1987 until its sale to Computer Associates in May 1999. Mr. Filipowski is
a director of System Software Associates, Inc., Blue Rhino and Platinum
Entertainment, Inc., all publicly traded companies.
PAUL E. BLONDIN has served as a director of Bluestone since June 1999. Mr.
Blondin has been the President and Chief Executive Officer of IP Highway since
February 1999. From January 1998 until February 1999, Mr. Blondin was President
and Chief Executive Officer of Netect, Ltd., an Israeli Company. Prior thereto,
he served as Chairman of the Board of Open Development Corporation until October
1997. From March 1993 until May 1997, Mr. Blondin served as the Vice President,
Finance and Administration, Chief Financial Officer and Treasurer of Cascade
Communications.
KEY EMPLOYEE
MARK S. NIGRO, age 40, has served as our Senior Vice President and Chief
Technology Officer since October 1997. From September 1996 to October 1997, Mr.
Nigro served as Chief Technology Officer for us and our predecessor, Bluestone
Consulting Inc., a New Jersey corporation. From June 1993 to September 1996 he
served as our predecessor's Lead Product Developer.
CLASSIFICATION OF DIRECTORS
Following the closing of this offering, our certificate of incorporation
will classify the board of directors into three classes. The directors' terms
will be staggered by class.
38
<PAGE>
BOARD COMMITTEES
The Audit Committee consists of Mel Baiada, Paul E. Blondin and Gregory M.
Case. The Audit Committee makes recommendations to the board of directors
regarding the selection of independent public accountants, reviews the results
and scope of the audit and other services provided by our independent public
accountants and reviews and evaluates our control functions.
The Compensation Committee consists of Andrew J. Filipowski, William C.
Hulley and P. Kevin Kilroy. The Compensation Committee administers the issuance
of stock options under our stock option plan, makes recommendations regarding
nonqualified stock options and various incentive compensation and benefit plans
and determines salaries for the executive officers and incentive compensation
for our employees and consultants.
DIRECTOR ELECTION RIGHTS
Pursuant to our certificate of incorporation, the board of directors is
required to consist of seven members. General Electric Capital Corporation, a
holder of preferred stock, is entitled to designate one member to the board of
directors. The holders of Series A preferred stock, as a class, are entitled to
designate two members to the board of directors. The holders of common stock, as
a class, are entitled to designate one member to the board of directors. The
holders of common stock and preferred stock, as a class, are entitled to
designate three members to the board of directors. These director election
rights are in effect until immediately prior to the closing of this offering,
after which time the board of directors will be elected by the holders of common
stock.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mel Baiada, our chairman and former chief executive officer, was a member of
our compensation committee in 1998. Mr. Baiada is a director, executive officer
and a member of the compensation committee of Bluestone Consulting, Inc. For
additional information regarding Bluestone Consulting, Inc., its spin-off from,
and relationship with, us and Mr. Baiada's transactions with us and Bluestone
Consulting, Inc., see "Certain Transactions."
DIRECTOR COMPENSATION
On June 10, 1999, the board of directors adopted the Directors' Compensation
Plan and reserved 500,000 shares of common stock to be used in connection with
the plan. The plan provides that non-employee directors will receive options at
the intervals and for the number of shares of common stock as follows:
- 20,000 shares upon the initial election to the board of directors;
- 10,000 shares upon the anniversary date each year after their election,
provided there is continuous service;
- 2,500 shares upon appointment to serve on the Compensation, Audit or other
duly constituted committee of the board of directors, plus an additional
2,500 shares on each anniversary date of their appointment, provided there
is continuous service on the committee; and
- 10,000 shares upon appointment to serve as the chairperson of the board of
directors.
The options will be fully vested upon issuance. In addition to these option
grants, non-employee directors shall be entitled to compensation as follows:
- $4,000 for in-person board meetings, of which four are anticipated each
year;
- $1,000 for telephone board meetings, of which six are anticipated each
year; and
39
<PAGE>
- $500 for Audit and Compensation Committee meetings, if held independently
of an in-person board meeting.
In addition, reasonable travel and related expenses shall be paid to
non-employee directors for attending board of director meetings or while on
Bluestone approved business.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table summarizes the compensation paid to or earned by
Bluestone's Chief Executive Officer and all other executive officers whose
salary and bonus for services rendered in all capacities to Bluestone for the
fiscal year ended December 31, 1998 exceeded $100,000. We will use the term
"named executive officers" to refer collectively to these individuals later in
this prospectus.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION -------------
--------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION (1) OPTIONS COMPENSATION (2)
- --------------------------------------- ---------- --------- ---------------- ------------- -------------------
<S> <C> <C> <C> <C> <C>
P. Kevin Kilroy, President and Chief
Executive Officer (3)................ $ 148,077 $ 9,140 $ 83,509 468,022 $ 260
Mel Baiada, Chairman of the Board
(4).................................. 158,654 22,215 -- -- 2,715
John H. Capobianco, Senior Vice
President, Marketing................. 170,077 74,294 -- 456,690 218
Robert W. Bickel, Senior Vice
President, Products.................. 151,730 19,554 -- 181,690 796
Enrico J. Ballezzi (5)................. 123,557 19,992 -- 128,346 600
</TABLE>
- ------------------------
(1) Represents commissions paid in 1998.
(2) Includes amounts paid by us in 1998 with respect to life insurance premiums
for the benefit of the named executive officers and our contributions to the
401(k) accounts of these officers as follows: (a) Mr. Kilroy, $260 for life
insurance premiums; (b) Mr. Baiada, $2,715 for life insurance premiums; (c)
Mr. Capobianco, $218 for life insurance premiums; (d) Mr. Bickel, $600 in
401(k) contributions and $196 for life insurance premiums; and (e) Mr.
Ballezzi, $600 in 401(k) contributions.
(3) During 1998, Mr. Kilroy served as our Senior Vice President, Worldwide
Sales. He became President on January 5, 1999 and Chief Executive Officer on
June 10, 1999.
(4) During 1998, Mr. Baiada served as our Chairman, President and Chief
Executive Officer.
(5) During 1998, Mr. Ballezzi served as our Chief Financial Officer.
40
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table summarizes the options granted to each of our named
executive officers during the fiscal year ended December 31, 1998.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
INDIVIDUAL GRANTS ANNUAL
---------------------------------------------------------------------------- RATES OF STOCK PRICE
PERCENT OF TOTAL APPRECIATION FOR
NUMBER OF OUR SHARES OPTIONS GRANTED TO OPTION TERM (2)
UNDERLYING OPTIONS OUR EMPLOYEES IN EXERCISE PRICE EXPIRATION ----------------------
NAME GRANTED FISCAL YEAR PER SHARE (1) DATE 5% 10%
- ---------------------------- --------------------- ----------------------- --------------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
P. Kevin Kilroy............. 200,000 8% $ 0.70 2/28/08 $ 228,045 $ 363,124
157,741 6 0.96 5/18/08 246,666 392,774
57,000 2 0.96 10/13/08 89,133 141,930
53,281 2 0.96 12/31/08 83,318 132,669
Mel Baiada.................. -- -- -- -- --
John H. Capobianco.......... 300,000 12 0.70 2/21/08 342,068 544,686
156,690 6 0.96 5/18/08 245,022 390,157
Robert W. Bickel............ 156,690 6 0.96 5/18/08 245,022 390,157
25,000 1 0.96 10/13/08 39,093 62,250
Enrico J. Ballezzi.......... 128,345 5 0.96 5/18/08 200,698 319,578
</TABLE>
- ------------------------
(1) The exercise price equals the fair market value of the common stock as of
the grant date as determined by the board of directors.
(2) The potential realizable value is calculated based on the term of the option
at the time of the grant (10 years). Assumed stock price appreciation of 5%
and 10% is based on the fair market value at the time of the grant.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table presents information with respect to stock options owned
by the named executive officers at December 31, 1998 and with respect to stock
options exercised by the named executive officers during the fiscal year ended
December 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS IN-THE-MONEY OPTIONS
AT DECEMBER 31, 1998 AT DECEMBER 31, 1998 (1)
-------------------------- ----------------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------- ----------- ------------- ----------------- ---------------------
<S> <C> <C> <C> <C>
P. Kevin Kilroy........................................... -- 468,022
Mel Baiada................................................ -- --
John H. Capobianco........................................ -- 456,690
Robert W. Bickel.......................................... 240,845 240,845
Enrico J. Ballezzi........................................ 114,173 114,172
</TABLE>
- ------------------------
(1) There was no public trading market for the common stock as of December 31,
1998. Accordingly, these values have been calculated on the basis of the
assumed initial public offering price of $ per share, less the
applicable exercise price per share, multiplied by the number of shares
underlying these options.
41
<PAGE>
EMPLOYMENT AGREEMENTS
We entered into an employment agreement with Mel Baiada in April 1997 which
was modified in January 1999 and which expired without being renewed on June 30,
1999. Under this agreement, in 1998 we paid Mr. Baiada a salary of $158,654 and
a $22,215 bonus. This agreement imposes a one year period after termination in
which Mr. Baiada may not compete against us. This agreement also provides that
Mr. Baiada will retain a position on the board of directors until the later of
(1) the date his ownership interest in our outstanding common stock, assuming
conversion of all outstanding convertible securities, drops below 10%, and (2)
June 30, 2000. For the twelve months commencing on July 1, 1999, Mr. Baiada will
receive $150,000 plus customary benefits and tax reimbursements as severance
under his agreement. On July 1, 1999, Mr. Baiada's shares of common stock deemed
to be contingent under his stock repurchase agreement dated April 18, 1997
became vested. For more information about Mr. Baiada's stock repurchase
agreement see "Certain Transactions--Stock Repurchase Agreement."
We also entered into an employment agreement with Robert Bickel in April
1997 which may be terminated by us or Mr. Bickel at any time, with or without
cause. Under this agreement, in 1998 we paid Mr. Bickel a base salary of
$155,330 and a bonus of $19,554. Future increases to these amounts are at the
discretion of the board of directors. This employment agreement calls for the
payment of customary fringe benefits. Under this employment agreement, Mr.
Bickel has agreed not to compete against us for a period of one year after the
termination of his employment. In addition, as part of this employment
agreement, we granted to Mr. Bickel an option to purchase 300,000 shares of
common stock at an exercise price of $0.70 per share, the fair market value of
the common stock on the date of grant. The option vests in 16 equal installments
on a quarterly basis over a four-year period beginning as of the date of grant.
SEVERANCE AGREEMENTS
Messrs. Kilroy, Bickel, Capobianco and Ballezzi are parties to separate
severance agreements with us which call for the following payments and benefits
to be received upon the termination of their employment other than for cause:
- 12 months of salary and benefits;
- accrued vacation;
- 6 months of outplacement services up to $12,000; and
- 50% vesting on all outstanding unvested options and the extension of the
exercise period on all vested options to five years.
EMPLOYEE CONFIDENTIALITY AGREEMENTS
We enter into agreements with all of our employees containing provisions
regarding confidentiality and assignment of inventions.
STOCK OPTION PLAN
On July 1, 1998, the board of directors adopted the Amended and Restated
Bluestone Software, Inc. 1996 Incentive and Non-Qualified Stock Option Plan,
which replaced all of our previous plans. Our option plan is administered by our
board of directors or a committee of at least two persons appointed by the board
of directors. The option plan permits the payment of the exercise price to be in
the form of cash, check, cashless exercise and such other consideration and
method of payment as the administrator of the plan may, from time to time
determine. Optionees are required to execute a stock purchase and restriction
agreement at the time he or she exercises any options.
42
<PAGE>
Under the option plan, a total of 9,429,049 shares of common stock are
authorized for issuance to directors, officers, employees and consultants
selected by the administrator of the plan. As of March 31, 1999, 6,061,553
shares of common stock were issuable upon the exercise of stock options granted
under the option plan. No individual is permitted to receive over the term of
the option plan options to acquire more than 2,500,000 of the total shares
authorized under the option plan. Until the option plan terminates, any
unpurchased shares of common stock underlying all options that expire, are
terminated or become unexercisable for any reason, are returned to the option
plan and become available for future grants. The number of shares of common
stock underlying an option, the total number of shares of common stock
authorized under the option plan but for which no options have been granted, and
the exercise price per share of the common stock underlying all outstanding
options are proportionately adjusted for any increase or decrease in the number
of outstanding shares of common stock resulting from stock splits, reverse stock
splits, stock dividends, reclassifications and recapitalizations.
The option plan provides for the grant of either incentive stock options
("ISOs") or non-qualified stock options ("NQSOs"), except that consultants of
Bluestone who are not also employees are not entitled to receive ISOs under the
option plan. Exercise prices for ISOs may not be less than the fair market value
per share of common stock on the date of grant, or 110% of the fair market value
in the case of ISOs granted to any person who owns our stock possessing 10% or
more of the total voting power of all of our capital stock. Exercise prices for
NQSOs may be less than the fair market value per share, but must be at least
$0.01 per share. Until there is an established market for the common stock, the
board of directors, at its discretion, determines the fair market value of a
share of common stock. Unless otherwise specified by the terms of an option
agreement, options granted under the option plan vest at a rate of 25% of the
shares underlying the option per year during the consecutive 4 year period
beginning on the date of grant and expire 10 years after the date of grant, or 5
years after the date of grant with respect to ISOs granted to any person who
owns our stock possessing 10% or more of the total voting power of all of our
capital stock. The number of shares of common stock covered by ISOs granted to
any optionee is limited such that the total fair market value of stock,
determined as of the date of grant, with respect to which ISOs are exercisable
for the first time by such optionee in any calendar year does not exceed
$100,000. Any options in excess of such limits would be treated as NQSOs.
In the event of a sale of Bluestone, as defined in the option plan, 50% of
all options that have not vested as of the date of the sale become immediately
vested and exercisable. All remaining options vest in accordance with the
vesting schedule set forth in the applicable option agreement. In the event of a
change in control of Bluestone, as defined in the option plan, the board of
directors has the right, in its sole discretion, to accelerate the vesting of
all options that have not vested as of the date of the change in control or
establish an earlier date for the expiration of the exercise of an option or
both. In addition, in the event of a change in control of Bluestone, the board
of directors may, in its sole discretion, subject to and conditioned upon a sale
of Bluestone, arrange for the successor entity to assume all of the rights and
obligations under the option plan. Alternatively, the board of directors may, in
its sole discretion, terminate the option plan and (a) with respect to those
options that are vested as of the date of the sale of Bluestone, pay an amount
equal to the amount over which the fair market value of a share of common stock,
exceeds the underlying exercise price for those options, (b) arrange for the
exchange of all options for options to purchase common stock in the successor
entity, or (c) distribute to each optionee other property in an amount equal to
and in the same form as the optionee would have received from the successor
entity if the optionee had owned the shares of common stock underlying options
that were vested as of the date of the sale of Bluestone rather than the option
at the time of the sale of Bluestone. In this instance, the fair market value
will be determined as of the termination date of the option plan. The form of
payment or distribution to the optionee is to be determined by the board of
directors, in its sole discretion.
43
<PAGE>
401(k) PLAN
We maintain a 401(k) Plan/Profit Sharing Plan. Under our 401(k) plan, a
participant may contribute, subject to some limitations contained in the
Internal Revenue Code, up to 15% of his or her compensation to the 401(k) plan.
Employees who are at least 21 years old are eligible to participate after six
consecutive months of employment with Bluestone.
We may make discretionary matching contributions into participants' accounts
of an annually determined percentage. This percentage is subject to a maximum of
6% of a participant's total eligible compensation. In addition, we may make
additional annual discretionary profit sharing contributions to participants'
accounts each year at the discretion of the board of the directors. Any profit
sharing allocations made are allocated in the ratio that a participant's total
eligible compensation bears to the total eligible compensation of all eligible
participants for the applicable 401(k) plan year. To be eligible for a
discretionary profit sharing contribution, a participant must be employed with
Bluestone on the last day of the applicable 401(k) plan year and must have
completed at least 500 hours of service for Bluestone during that year.
The portion of a participant's account attributable to his or her own
contributions is 100% vested. The portion of the account attributable to our
contributions vests as to 20% of these contributions each year over 5 years
beginning after completion of 2 years of service with us and ending after 6
years of service with us. Distributions from the 401(k) plan may be made in the
form of installment distributions or lump-sum cash payments.
LIMITATION OF LIABILITY OF DIRECTORS AND INDEMNIFICATION OF DIRECTORS AND
OFFICERS
As permitted by the Delaware General Corporation Law, as amended, our
certificate of incorporation provides that our directors shall not be liable to
us or our stockholders for monetary damages for breach of fiduciary duty as
directors to the fullest extent permitted by the Delaware General Corporation
Law as it now exists or as it may be amended. The Delaware General Corporation
Law permits limitations of liability for a director's breach of fiduciary duty
other than liability:
- for any breach of the director's duty of loyalty to us or our
stockholders;
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law; or
- for any transaction from which the director derived an improper personal
benefit.
In addition, our bylaws provide that we shall indemnify all of our
directors, officers, employees and agents for acts performed on our behalf.
44
<PAGE>
CERTAIN TRANSACTIONS
REINCORPORATION MERGER; SPIN-OFF OF CONSULTING BUSINESS
We are the successor by merger to Bluestone Consulting Inc., a New Jersey
corporation (the "Former New Jersey Corporation"). The Former New Jersey
Corporation was incorporated on March 17, 1989. On March 13, 1997, for the sole
purpose of enabling the Former New Jersey Corporation to change its state of
incorporation from New Jersey to Delaware and to change its name to "Bluestone
Software, Inc.," we were formed as a Delaware corporation. On March 13, 1997,
the Former New Jersey Corporation merged with and into us. We were the surviving
corporation in the merger. For purposes of this description of the
reincorporation merger and spin-off of the consulting business, references to
"Bluestone," "we," "us," and "our" include the Former New Jersey Corporation for
periods prior to March 13, 1997.
All of the issued and outstanding stock of the Former New Jersey Corporation
was owned by Mel Baiada, and, at the time of and as a result of the merger, all
of the issued and outstanding common stock of Bluestone was owned by Mel Baiada.
At the time of the merger, we had two operating businesses, (1) the software
products business and (2) the professional consulting services business. In
order to enable investors to provide capital in connection with the software
products business, we separated the services business and the products business
by spinning off the services business to Mel Baiada.
To accomplish the spin-off, we created Bluestone Consulting, Inc., a newly
formed Delaware corporation ("BCI") and entered into a Contribution and
Distribution Agreement dated April 17, 1997 with BCI. Pursuant to the
Contribution and Distribution Agreement, among other things, we contributed to
BCI those assets and liabilities that constituted the services business in
exchange for all of the stock of BCI. We then distributed all of the stock of
BCI to Mel Baiada. At the time of the distribution, both Bluestone and BCI were
"S" corporations for federal income tax purposes.
On April 18, 1997, we issued the Series A preferred stock, after which Mel
Baiada held more than a 50% interest in our outstanding stock and a 100%
interest in the outstanding stock of BCI.
We, as successor to the Former New Jersey Corporation, began our active
involvement in the services business in 1989, and continued it without
interruption through the date of the spin-off, when it was continued by BCI.
MARK BAIADA CONVERTIBLE SUBORDINATED NOTE
In connection with the spin-off, we agreed to assume one-half of the $1.0
million principal amount of a convertible note payable by the Former New Jersey
Corporation to Mark Baiada, a former director of Bluestone and the brother of
Mel Baiada. BCI retained the liability for the other one-half of the note. We
effected this assumption by issuing an Amended and Restated Convertible
Subordinated Note dated April 17, 1997 to Mark Baiada in the principal amount of
$500,000. The note payable to Mark Baiada bears interest at a rate of 10% per
annum, compounded annually. We are required to make interest payments in arrears
on each anniversary date of this note until paid in full. The principal amount
of the note is payable in full on December 31, 2002. We are permitted to prepay
the note in whole or in part without penalty or premium.
The amount outstanding under the note is convertible into 700,000 shares of
our common stock at any time prior to the time it matures or the date paid in
full at a rate equal to $0.71 per share, subject to proportionate adjustment in
the event we pay out stock dividends in shares of common stock and subdivisions
and combinations of our outstanding common stock.
45
<PAGE>
MEL BAIADA PROMISSORY NOTE AND PURCHASE OF SERIES A PREFERRED STOCK
As part of the spin-off, Mel Baiada agreed to cancel a promissory note in
the principal amount of $403,066 originally issued by the Former New Jersey
Corporation in exchange for (1) our issuance of a promissory note to Mel Baiada
in the principal amount of $250,000 and (2) BCI's issuance of a promissory note
in the principal amount of $107,495. Concurrently with our issuance of the
Series A preferred stock on April 17, 1997, Mel Baiada contributed the note
payable to him to our capital in exchange for 263,158 shares of Series A
preferred stock.
PROMISSORY NOTE TO BCI
As part of the spin-off, we issued a subordinated promissory note dated
April 17, 1997 in favor of BCI in the principal amount of $500,000. That note
bears interest at a rate of 10% per annum. We are required to make interest
payments in arrears on each anniversary date of the note until paid in full. The
principal amount of the note is payable in full on December 31, 2005. We are
permitted to prepay the note in whole or in part without penalty or premium.
TAX ALLOCATION AND INDEMNITY AGREEMENT
As part of the spin-off, Bluestone, BCI, Mel Baiada and the holders of the
Series A preferred stock entered into a Tax Allocation and Indemnity Agreement
dated as of April 18, 1997. The parties entered into this agreement to set forth
their respective rights and obligations with respect to taxes and liabilities
that may be imposed upon them and to determine how taxes were to be allocated
upon the termination of our status as an "S" corporation for federal and state
income tax purposes by reason of our issuance of Series A preferred stock.
We agreed with BCI to allocate (1) certain taxes ("Other Taxes"), other than
income taxes and taxes for which one or more of the bases for determining the
tax due is net income or profit ("Income Taxes") and (2) state corporate income
taxes between us and BCI to the extent it is mutually determined by us and BCI.
If any Other Taxes or state corporate income taxes paid are later adjusted by
any taxing authority, then appropriate adjustment is to be made to the amount of
Other Taxes or state corporate income taxes paid by BCI. If any Other Taxes or
state corporate income taxes are refunded or repaid to Bluestone, then we are
required to repay BCI the portion of the refund or repayment that we and BCI
determine is attributable to BCI.
We agreed to indemnify and defend Mel Baiada from and against all losses
with respect to (a) Income Taxes imposed upon Mr. Baiada resulting from any
increase in items of income or gain or any decrease in items of loss, deduction
or credit reported to Mr. Baiada by Bluestone (including the Former New Jersey
Corporation) for the period during which we were taxed as an "S" corporation for
federal and state income tax purposes and (b) any excess Income Tax liability
imposed upon Mr. Baiada as a result of the invalidity or termination of our
status as an "S" corporation for federal and state income tax purposes on or
before April 18, 1997 (other than by reason of our issuance of Series A
preferred stock). Our indemnification obligations to Mr. Baiada with respect to
the items described in (a) above are applicable only to the extent of (1) an
increase in an item of income or gain with respect to a taxable year within the
period when we were taxed as an "S" corporation (an "S Year") and in a
corresponding decrease in an item of income or gain with respect to a taxable
year that we were not taxed as an "S" corporation (a "C Year"), or (2) a
decrease in any item of loss, deduction or credit with respect to an S Year and
in a corresponding increase of any item of loss, deduction or credit with
respect to a C Year.
Mr. Baiada agreed to indemnify and defend us from and against all losses
with respect to Income Taxes imposed upon Bluestone as a result of (a) an
increase in an item of our income or gain in any C Year and a corresponding
decrease in an item of income or gain reported to Mr. Baiada with respect to an
S Year, (b) a decrease in an item of loss, deduction or credit reported to Mr.
Baiada in any C
46
<PAGE>
Year and a corresponding increase in an item of loss, deduction or credit
reportable by Mr. Baiada with respect to an S Year, and (c) the invalidity or
termination of our status as an "S" corporation for federal and state income tax
purposes on or before April 18, 1997, other than by reason of our issuance of
Series A preferred stock. Mr. Baiada's indemnification obligations with respect
to any of the events described in (a), (b), or (c) above are applicable only to
the extent that Mr. Baiada has received a tax benefit and we suffered a tax
detriment as a result of the applicable event.
SERVICE MARK LICENSE AGREEMENT
As part of the spin-off, we entered into a Service Mark License Agreement
dated April 17, 1997 with BCI. Under this license agreement, we granted BCI a
non-exclusive, perpetual, worldwide royalty-free license to use some of our
registered and unregistered trade marks in connection with any services
performed by BCI. We have the right to terminate the license agreement upon (1)
certain events of default by BCI or (2) upon a change in control of BCI, subject
to BCI's right to continue the license agreement for a period of not more than 1
year from the date of the change in control.
RESELLER AGREEMENT WITH BCI
We are a party to a reseller agreement with BCI, dated January 1, 1998,
under which BCI sells our software products.
SUBLEASE AGREEMENT WITH BCI
As part of the spin-off, we entered into a sublease agreement with BCI,
effective as of April 30, 1997. BCI subleases approximately 7,780 square feet of
our Mount Laurel facility. BCI pays us an annual base rent of $94,000, which is
paid in equal monthly installments in advance on the first day of every calendar
month during the term of the BCI sublease. BCI also pays us 19% of all taxes,
common area costs, utility costs and other services paid for by us under our
lease. The BCI sublease expires when our lease expires or is terminated for any
reason, including our default under our lease.
ISSUANCE OF SERIES A PREFERRED STOCK
On the day immediately after the date of the spin-off, and pursuant to a
Stock Purchase Agreement dated April 18, 1997, we issued 5,526,316 shares of
Series A preferred stock for a total purchase price of $5.25 million or $0.95
per share, including 263,158 shares of Series A preferred stock to Mel Baiada.
STOCK REPURCHASE AGREEMENT
As part of our issuance of shares of Series A preferred stock, we entered
into a Stock Repurchase Agreement dated April 18, 1997 with Mel Baiada. Pursuant
to the repurchase agreement, 1,350,000 shares of the 9,000,000 shares of common
stock then held by Mr. Baiada were designated as "contingent shares." At the
beginning of each calender quarter, beginning with the third calender quarter of
1997 and until the second calender quarter of 2001, 84,375 of the contingent
shares were to be designated as "vested shares." This increased the total number
of "vested shares" by 84,375 at the beginning of each calender quarter. Because
Mr. Baiada's employment agreement was not renewed all outstanding contingent
shares automatically became vested shares. Prior to his shares becoming vested,
if Mr. Baiada had ceased to be employed by us for any reason other than his
death or disability, then we would have had the right to purchase all, but not
less than all, of the contingent shares as of the date upon which Mel Baiada
ceased to be employed at a purchase price equal to the fair market value per
share as determined by our board of directors.
47
<PAGE>
SALE OF MEL BAIADA SERIES A PREFERRED STOCK
On April 22, 1998, Mel Baiada sold all 263,158 of his shares of Series A
preferred stock to certain of the then existing holders of Series A preferred
stock for a total purchase of $341,053 or $1.296 per share.
ISSUANCE OF SERIES B PREFERRED STOCK
Pursuant to a stock purchase agreement dated April 22, 1998, we issued
8,782,695 shares of Series B preferred stock for a total purchase price of $11.4
million or $1.296 per share.
BRIDGE FINANCING
On January 21, 1999, we entered into the Note and Warrant Purchase Agreement
with substantially all of the holders of the Series B preferred stock. Under the
Note and Warrant Purchase Agreement, the Series B preferred stockholders agreed
to provide subordinated secured debt financing of up to $5.0 million. To the
extent this financing was utilized, we would have been obligated to issue 10%
Convertible Subordinated Secured Notes and warrants to purchase up to 1,612,903
shares of common stock at an exercise price equal to $0.62 per share to the
Series B preferred stockholders. We were permitted to draw on the Committed
Principal Amount at any time until May 30, 1999.
As of May 25, 1999, we had drawn down approximately $1.35 million of the
$5.0 million available and issued 440,348 warrants to the Series B preferred
stockholders. This outstanding $1.35 million debt was converted into Series C
preferred stock as part of our issuance of 9,191,176 shares of Series C
preferred stock at $2.72 per share on May 25, 1999.
The issuance of the warrants to the Series B preferred stockholders
triggered anti-dilution protection afforded to Silicon Valley Bank pursuant to
an antidilution agreement between us and Silicon Valley Bank dated November 24,
1997 whereby the number of shares of common stock underlying the warrant issued
to Silicon Valley Bank and the exercise price under the Silicon Valley Bank
warrant were readjusted. See "--Silicon Valley Bank Warrant."
ISSUANCE OF SERIES C PREFERRED STOCK
Pursuant to a stock purchase agreement dated May 25, 1999, we issued
9,191,176 shares of Series C preferred stock for a total purchase price of $25.0
million or $2.72 per share.
REGISTRATION RIGHTS
Pursuant to the Second Restated Investors' Rights Agreement dated May 25,
1999 by and among us and our preferred stockholders, the holders of preferred
stock are entitled to certain rights with respect to the registration under the
Securities Act for resale to the public of the common stock issuable upon the
conversion of preferred stock. The Second Restated Investors' Rights Agreement
permits the preferred stockholders to twice require us, whether or not we
propose to register our common stock for sale, to register all or part of those
preferred stockholders' common stock, issued upon conversion of the preferred
stock, so long as the securities that would be covered by the registration
statement have an aggregate gross offering price of at least $20.0 million. If
any registration involves an underwritten offering, preferred stockholders that
wish to participate in that offering must enter into customary agreements with
us and the underwriter. The underwritten offering will be subject to certain
limitations and restrictions that may be imposed by the underwriters thereof,
including, the right of the underwriters to exclude a portion of the securities
owned by the preferred stockholders from the offering.
The Second Restated Investors' Rights Agreement also provides demand
registration rights to the preferred stockholders requiring us to register all
or part of the registrable securities on Form S-3,
48
<PAGE>
provided, that, among other things: (1) Form S-3 is available to us and the
preferred stockholders for this offering; (2) the offering price of the
securities to be registered by the preferred stockholders, together with
securities of held by other persons entitled to participate in the registration,
is at least $1.0 million in the aggregate, net of any underwriters' discounts or
commissions; and (3) the board of directors determines that the registration
would not be seriously detrimental to us and our stockholders at that time. In
this event, the registration of such securities may be delayed for up to 60
days.
Pursuant to the Second Restated Investors' Rights Agreement, the preferred
stockholders have the right, subject to certain exceptions, to have their
registrable securities included in any registration statement filed by us. Each
preferred stockholder that wishes to participate in the offering must enter into
a customary agreement with us and the underwriter, which agreement may limit in
whole or in part the inclusion of that preferred stockholder's registrable
securities in the registration statement, as determined by the underwriters in
their sole discretion.
We are required to pay all expenses relating to any of these registrations
other than underwriting discounts and commissions relating to shares sold by the
preferred stockholders. The registration rights provided in the Second Restated
Investors' Rights Agreement extend for a period of five years following this
offering.
SILICON VALLEY BANK WARRANT
In connection with our credit facility with Silicon Valley Bank, we issued
to Silicon Valley Bank a warrant dated November 24, 1997 to purchase up to
31,250 shares of common stock at an exercise price equal to $0.80 per share. The
warrant may be exercised at any time prior to November 24, 2004. The exercise
price of the warrant and the number of shares of common stock into which the
warrant is exercisable are subject to proportionate adjustment in the event of
stock dividends payable in shares of common stock and combinations and splits of
common stock. In addition, pursuant to an antidilution agreement between us and
Silicon Valley Bank dated November 24, 1997, the exercise price of the warrant
and the number of shares of common stock into which the warrant is exercisable
are subject to adjustment on a broad-based weighted average basis for issuance
of securities after November 24, 1997 for less than the then applicable exercise
price for the warrant.
Pursuant to a registration rights agreement between us and Silicon Valley
Bank dated November 24, 1997, Silicon Valley Bank has the right, subject to
certain exceptions, to have its shares of common stock issuable upon the
exercise of its warrant included in any of our registration statements. We will
pay all expenses relating to any registration other than underwriting discounts
and commissions relating to shares sold by Silicon Valley Bank.
FILIPOWSKI CONSULTING AGREEMENT
We entered into a consulting agreement with Andrew Filipowski in May 1999
under which Mr. Filipowski will provide consulting services to us from that date
until May 2001. In consideration of these consulting services, we granted to Mr.
Filipowski a fully vested option to purchase 70,000 shares of our common stock
at an exercise price of $1.29 per share.
FUTURE AFFILIATE TRANSACTIONS
All future transactions, including loans, between us and our officers,
directors, principal stockholders and their affiliates, will be approved by a
majority of the board of directors, including a majority of the independent and
disinterested outside directors on the board of directors, and will be on terms
no less favorable to us than could be obtained from unaffiliated third parties.
49
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information as of May 31, 1999
regarding the beneficial ownership of our common stock by: (1) each person,
entity or group known by us to own beneficially more than 5% of our outstanding
common stock; (2) each director; (3) each of the named executive officers; and
(4) all directors and executive officers as a group. The ownership amounts are
calculated as if the outstanding preferred stock was fully converted into common
stock as of May 31, 1999. Unless otherwise indicated, the address of each person
identified is c/o Bluestone Software, Inc., 1000 Briggs Road, Mount Laurel, New
Jersey 08054.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
PRIOR TO OFFERING AFTER OFFERING
---------------------- ----------------------
NAME AND ADDRESS NUMBER PERCENT(1) PERCENT (1)
- -------------------------------------------------------------------------------- ---------- ---------- ----------------------
<S> <C> <C> <C>
Mel Baiada (2).................................................................. 9,000,000 21.4%
General Electric Capital Corporation(3)......................................... 8,913,663 21.1%
Entities affiliated with Patricof & Co. Ventures, Inc. (4)...................... 17,247,266 40.7%
Fostin Capital Partners II, L.P. (5)............................................ 5,233,947 12.4%
P. Kevin Kilroy (6)(7).......................................................... 350,000 *
Enrico J. Ballezzi (6).......................................................... 159,775 *
Robert W. Bickel (6)............................................................ 505,562 1.2%
John H. Capobianco (6).......................................................... 179,525 *
Gregory M. Case (8)............................................................. 17,247,266 40.7%
William C. Hulley (9)........................................................... 5,233,947 12.4%
Anton Simunovic (10)............................................................ 8,913,663 21.1%
Andrew J. Filipowski (6)(11).................................................... 90,000 *
Paul E. Blondin (6)(12)......................................................... 20,000 *
All directors and executive officers as a group (11 persons) (13)............... 36,306,016 83.1%
</TABLE>
- ------------------------
* Represents less than 1% of the outstanding shares of Common Stock.
(1) The percentages shown are based on 42,110,289 shares of common stock
outstanding prior to the offering and shares of common stock
outstanding after the offering and does not include the conversion of the
accrued dividends on preferred stock. Pursuant to Rule 13d-3 under the
Exchange Act, shares of common stock which a person has the right to acquire
pursuant to the exercise of stock options and warrants held by that holder
that are exercisable within 60 days are deemed outstanding for the purpose
of computing the percentage ownership of that person, but are not deemed
outstanding for computing the percentage ownership of any other person.
(2) Includes 1,800,000 shares of common stock held in two trusts in which Mr.
Baiada is the sole trustee and 511,890 shares of common stock held in a
trust in which Mr. Baiada's wife is a co-trustee. Mr. Baiada intends to
grant the underwriters the right to purchase shares pursuant to the
underwriters' over-allotment option.
(3) The address for General Electric Capital Corporation is 260 Long Ridge Road,
Stamford, CT 06927. Includes 3,858,025 shares of Series B preferred stock
which is convertible into 8,075,078 shares of common stock, 676,524 shares
of Series C preferred stock convertible into an equivalent amount of common
stock, and 162,061 shares of common stock underlying warrants. General
Electric Capital Corporation is a subsidiary of the General Electric
Company. General Electric Capital Corporation intends to grant the
underwriters the right to purchase shares pursuant to the underwriters'
over-allotment option.
50
<PAGE>
(4) The address for Patricof & Co. Ventures, Inc. ("Patricof") is 445 Park
Avenue, New York, NY 10022. The share amount is comprised of:
(A) shares held by the P/A Fund, L.P., consisting of 2,372,034 shares of
Series A preferred stock convertible into an equivalent amount of common
stock, 1,247,585 shares of Series B preferred stock convertible into
2,611,270 shares of common stock, 202,205 shares of Series C preferred stock
convertible into an equivalent amount of common stock, and 48,438 shares of
common stock underlying warrants. Fostin Capital Partners II, L.P. and APA
Pennsylvania Partners II, L.P. (a Patricof affiliate) are the general
partners of The P/A Fund, L.P. The address of the P/A Fund, L.P. is 455
South Gulph Road, Suite 410, King of Prussia, PA 19406. The P/A Fund intends
to grant the underwriters the right to purchase shares pursuant
to the underwriters' over-allotment option.
(B) shares held by APA Excelsior IV, L.P., consisting of 2,629,437
shares of Series A preferred stock convertible into an equivalent amount of
common stock, 3,069,060 shares of Series B preferred stock convertible into
6,423,727 shares of common stock, 802,529 shares of Series C preferred stock
convertible into an equivalent amount of common stock and 192,245 shares of
common stock underlying warrants. Patricof & Co. Managers, Inc. is the
general partner of APA Excelsior IV Partners, which is the general partner
of APA Excelsior IV, L.P. The address of APA Excelsior IV, L.P. is 445 Park
Avenue, New York, NY 10022. APA Excelsior IV, L.P. intends to grant the
underwriters the right to purchase shares pursuant to the
underwriters' over-allotment option.
(C) shares held by APA Excelsior IV/Offshore, L.P., consisting of
464,019 shares of Series A preferred stock convertible into an equivalent
amount of common stock, 541,599 shares of Series B preferred stock
convertible into 1,133,599 shares of common stock, 141,623 shares of Series
C preferred stock convertible into an equivalent amount of common stock and
33,927 shares of common stock underlying warrants. Patricof & Co. Managers,
Inc. is the general partner of APA Excelsior IV Partners, which is the
general partner of APA Excelsior IV/Offshore, L.P. The address of APA
Excelsior IV/Offshore, L.P. is c/o Patricof & Co. Ventures, Inc. 445 Park
Avenue, New York, NY 10022. APA Excelsior IV/Offshore, L.P. intends to grant
the underwriters the right to purchase shares pursuant to the
underwriters' over-allotment option.
(D) shares held by Patricof Private Investment Club, L.P. including
50,300 shares of Series A preferred stock convertible into an equivalent
amount of common stock, 58,710 shares of Series B preferred stock
convertible into 122,884 shares of common stock, 15,352 shares of Series C
preferred stock convertible into an equivalent amount of common stock and
3,677 shares of common stock underlying warrants. Patricof & Co. Managers,
Inc. is the general partner of APA Excelsior IV Partners, which is the
general partner of Patricof Private Investment Club, L.P. The address of
Patricof Private Investment Club, L.P. is 445 Park Avenue, New York, NY
10022. Patricof Private Investment Club, L.P. intends to grant the
underwriters the right to purchase shares pursuant to the
underwriters' over-allotment option.
(5) Fostin Capital Partners II, L.P. is a general partner of The P/A Fund, L.P.
The address for Fostin Capital Partners II, L.P. is 518 Broad Street,
Sewickley, PA 15143.
(6) Represents the total number of shares of our common stock issuable upon
exercise of stock options which are currently exercisable and which are
exercisable within 60 days after May 31, 1999.
(7) Mr. Kilroy intends to grant the underwriters the right to purchase
shares pursuant to the underwriters' over-allotment option.
(8) The address for Mr. Case is c/o Patricof & Co. Ventures, Inc., 455 South
Gulph Road, Suite 410, King of Prussia, PA 19406. Mr. Case is a Vice
President of Patricof & Co. Managers, Inc., the
51
<PAGE>
general partner of each of APA Excelsior IV, L.P., APA Excelsior
IV/Offshore, L.P. and Patricof Private Investment Club, L.P. Mr. Case is a
Managing Director of Patricof & Co. Ventures, Inc., the investment advisor
of APA Excelsior IV/Offshore, L.P. Mr. Case is a general partner of APA
Pennsylvania Partners II, L.P., a general partner of The P/A Fund, L.P. Mr.
Case shares voting and investment powers with respect to the shares owned by
these funds. Mr. Case does not own any of our outstanding securities as an
individual.
(9) The address for Mr. Hulley is c/o The P/A Fund, L.P., 578 Broad Street,
Sewickley, PA 15143. Mr. Hulley is a general partner of Fostin Capital
Partners II, L.P., which is a general partner of The P/A Fund L.P. Mr.
Hulley shares voting and investment powers with respect to the shares owned
by The P/A Fund L.P. Mr. Hulley does not own any of our outstanding
securities as an individual.
(10) The address for Mr. Simunovic is c/o General Electric Capital Corporation,
260 Long Ridge Road, Stamford, CT 06927. Mr. Simunovic is a Senior Vice
President of the Equity Capital Group at General Electric Capital
Corporation, a subsidiary of General Electric Company. Mr. Simunovic shares
voting and investment powers with respect to the shares owned by General
Electric Capital Corporation. Mr. Simunovic does not own any of our
outstanding securities as an individual.
(11) Mr. Filipowski was appointed as a director on June 10, 1999. The address
for Mr. Filipowski is c/o Platinum technology, inc., 1815 South Meyers Road,
Oakbrook Terrace, IL 60181.
(12) Mr. Blondin was appointed as a director on June 16, 1999. The address for
Mr. Blondin is 50 Battery Street, Boston, MA 02109.
(13) Includes 1,035,087 shares of our common stock issuable upon the exercise of
stock options which are currently exercisable and which are exercisable
within 60 days after May 31, 1999.
52
<PAGE>
DESCRIPTION OF SECURITIES
Our current authorized capital stock consists of 53,800,000 shares of common
stock, $0.001 per share and 23,500,187 shares of preferred stock, $0.001 per
share, of which 5,526,316 shares are designated as "Series A preferred stock,"
8,782,695 shares are designated as "Series B preferred stock", and 9,191,176
shares are designated as "Series C preferred stock." Immediately prior to the
closing of this offering, we will authorize additional shares of common and
preferred stock and all of the outstanding preferred stock will automatically
convert to common stock.
The following is a summary of certain provisions of our common stock, our
preferred stock and our third amended and restated certificate of incorporation.
COMMON STOCK
As of May 31, 1999, there were 9,010,089 shares of common stock held of
record by 6 stockholders. Holders of common stock, together with the holders of
the preferred stock, who are entitled to vote on an "as converted" basis as
described below, are entitled to one vote for each share held on all matters
submitted to a vote of stockholders and do not have cumulative voting rights.
Subject to the applicable provisions of the Delaware General Corporation Law,
stockholders holding a majority of the issued and outstanding shares entitled to
vote constitute a quorum for the purposes of convening a stockholders' meeting.
Accordingly, a majority of a quorum may elect directors standing for election,
subject to the director election rights of the stockholders described below.
Holders of common stock are entitled to receive ratably any dividends as may be
declared on the common stock by the board of directors. Upon liquidation,
dissolution or winding up of Bluestone, holders of common stock are entitled to
receive ratably the net assets of Bluestone available for distribution after the
payment of all debts and other liabilities subject to the prior and superior
liquidation preference rights of holders of preferred stock, if any are
outstanding. Holders of common stock have no preemptive or subscription rights
with respect to other issuances of securities. Our common stock has no
conversion rights and is not redeemable.
PREFERRED STOCK
All of our presently authorized preferred stock is outstanding. Immediately
prior to this offering's closing, all outstanding preferred stock will
automatically convert into common stock as follows:
- Series A: one share for one share;
- Series B: one share of Series B for 2.09 shares of common stock; and
- Series C: one share for one share.
Holders of our outstanding preferred stock are entitled to receive annual
dividends as follows:
- Series A: $0.057 per share;
- Series B: $0.078 per share; and
- Series C: $0.1632 per share.
The Series A preferred stock dividends have accrued since April 17, 1997,
the Series B preferred stock dividends have accrued since April 22, 1998 and the
Series C preferred stock dividends have accrued since May 25, 1999. Aggregate
accrued dividends on the preferred stock as of May 31, 1999 amounted to
approximately $1.4 million.
We are required to pay any federal or state income taxes to which the
holders of preferred stock may be subject with respect to the accrued and unpaid
cash dividends, whether or not earned or declared. Accumulated but unpaid
dividends will be reduced by these tax payments. Upon the
53
<PAGE>
conversion of our preferred stock into common stock, we are required to pay to
the holders of the preferred stock being converted all accumulated and unpaid
cash dividends, whether or not declared, with respect to the preferred stock.
However, if requested by any holder of the shares of preferred stock being
converted and approved by the holders of a majority of the then outstanding
shares of common stock, the holder may exchange all or any portion of the
accumulated and unpaid cash dividends into shares of common stock at the then
fair market value of the common stock.
ANTI-TAKEOVER EFFECTS OF BLUESTONE'S CERTIFICATE OF INCORPORATION AND BYLAWS AND
PROVISIONS OF DELAWARE LAW
Following the closing of this offering, our certificate of incorporation and
bylaws and provisions of Delaware corporate law may hinder or delay a third
party's attempt to acquire us. They may also make it difficult for the
stockholders to remove incumbent management.
CLASSIFIED BOARD OF DIRECTORS; VACANCIES. Following the closing of this
offering, the certificate of incorporation will divide the board of directors
into three classes. The directors' terms will be staggered by class. Our
classified board of directors is intended to provide continuity and stability in
board membership and policies. However, the classified board of directors makes
it more difficult for stockholders to change the board composition quickly. In
addition, a majority of the directors then in office can increase the size of
the board of directors and fill board of directors vacancies and newly created
directorships resulting from any increase in the size of the board of directors.
This is true even if those directors do not constitute a quorum or if only one
director is left in office. These provisions could prevent stockholders,
including parties who want to take over or acquire us, from removing incumbent
directors without cause and filling the resulting vacancies with their own
nominees.
ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER PROPOSALS AND STOCKHOLDER
NOMINATIONS OF DIRECTORS. The bylaws will establish an advance notice procedure
regarding nominations of directors by stockholders and other stockholder
proposals. The advance notice procedure will not apply to nominations of
directors by the board of directors. For matters a stockholder wishes to bring
before an annual meeting of stockholders, the stockholder must deliver to us a
notice not less than 90 days nor more than 120 days before the first anniversary
of the preceding year's annual meeting of nominations and other business to be
brought before our annual meeting. The stockholder must put information in the
notice regarding:
- the stockholder and its holdings;
- the background of any nominee for director;
- the written consent to being named as a nominee and to serving as a
director if elected;
- any business desired to be brought before the meeting;
- the reasons for conducting the business at the meeting; and
- any material interest of the stockholder in the business proposed.
At a special meeting of stockholders called to elect directors, stockholders
can make a nomination only if they deliver to us a notice that complies with the
above requirements no later than the tenth day following the day on which public
announcement of the special meeting is made. The bylaws could preclude a
nomination for the election of directors or the conduct of certain business at a
particular meeting if the proper procedures are not followed. This may
discourage or deter a third party from conducting a solicitation of proxies to
elect its own slate of directors or otherwise attempting to obtain control of
us.
SPECIAL STOCKHOLDERS' MEETINGS. Our certificate of incorporation and bylaws
will permit special meetings of the stockholders to be called only by the board
of directors, the chief executive officer or
54
<PAGE>
the president or holders of at least 75% of our securities that are outstanding
and entitled to vote in an election of directors.
AUTHORIZED BUT UNISSUED SHARES. We will be able to issue shares of common
stock without stockholder approval, up to the number of shares authorized for
issuance in its certificate of incorporation, except as limited by Nasdaq rules.
We could use these additional shares for a variety of corporate purposes. These
purposes include future public offerings to raise additional capital, corporate
acquisitions and employee benefit plans. Our ability to issue these additional
shares could make it more difficult or discourage an attempt to obtain control
of us by means of a proxy contest, tender offer, merger or otherwise.
SECTION 203 OF DELAWARE LAW. After this offering is completed, Section 203
of the Delaware General Corporation Law will apply to us. This section will
prohibit us from engaging in a "business combination" with an "interested
stockholder." This restriction will apply for three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. A "business
combination" includes (1) mergers, (2) asset sales and (3) other transactions
resulting in a financial benefit to an interested stockholder. Generally, an
"interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years did own, 15% or more of our voting
stock. Section 203 could delay, defer or prevent a change in control of us. It
might also reduce the price that investors might be willing to pay in the future
for shares of common stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is .
LISTING
We have applied for listing our common stock on the Nasdaq National Market
under the trading symbol "BLSW."
55
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock. Upon completion of this offering, we will have outstanding an aggregate
of shares of our common stock, assuming no exercise of the
underwriters' over-allotment option and no exercise of outstanding options. Of
these shares, all of the shares sold in this offering will be freely tradable
without restriction or further registration under the Securities Act, unless
such shares are purchased by "affiliates" as that term is defined in Rule 144
under the Securities Act. The remaining shares of common stock to be
held by existing stockholders will be "restricted securities" as that term is
defined in Rule 144 under the Securities Act. Restricted securities may be sold
in the public market only if registered or if they qualify for an exemption from
registration under Rule 144 or Rule 701 promulgated under the Securities Act,
which rules are summarized below.
As a result of the lock up agreements described below and the provisions of
Rule 144, additional shares will be available for sale in the public market as
follows:
- 6,250 shares of common stock currently outstanding will be available for
sale into the public market following the effectiveness of this
registration statement;
- 6,058,553 shares of common stock issuable upon exercise of currently
outstanding options will be eligible for sale as the options vest and
following the effectiveness of a registration statement on Form S-8
covering the stock options, which we expect to file shortly after the
completion of this offering; and
- the remainder of the restricted securities will be eligible for sale from
time to time after the expiration of the lock up period and upon
expiration of their respective one-year holding periods.
LOCK-UP AGREEMENTS
All of our officers and directors and some of our stockholders are expected
to enter into lock-up agreements under which they agreed not to transfer or
otherwise dispose of, directly or indirectly, without the consent of Deutsche
Bank Securities Inc., any shares of our common stock or any securities
convertible into or exchangeable or exercisable for shares of our common stock
for a period of 180 days following the effective date of the registration
statement of which this prospectus is a part.
Transfers or dispositions can be made during the lock-up periods in the case
of gifts for estate planning purposes where the donee signs a lock-up agreement.
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this registration statement, a person who has beneficially owned
shares of our common stock for at least one year would be entitled to sell
within any three-month period a number of shares that does not exceed the
greater of:
- 1% of the number of shares of common stock then outstanding, which will
equal approximately shares immediately after this offering; or
- the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 of the sale with the SEC.
Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
us.
56
<PAGE>
RULE 144(k)
Under Rule 144(k), a person who is not deemed to have been one of our
affiliates at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner other than an affiliate, is
entitled to sell their shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144. Therefore,
unless otherwise restricted, "144(k) shares" may be sold immediately upon the
completion of this offering.
RULE 701
In general, under Rule 701 of the Securities Act as currently in effect, any
of our employees, consultants or advisors who purchases shares from us in
connection with a compensatory stock or option plan or other written agreement
are eligible to resell their shares 90 days after the effective date of this
offering in reliance on Rule 144, but without compliance with some restrictions,
including the holding period, contained in Rule 144.
REGISTRATION RIGHTS
After this offering, the holders of shares of our common stock,
or their transferees, as well as the holders of outstanding warrants, will be
entitled to rights to register their common stock or the common stock underlying
their warrants under the Securities Act. After registration, those shares will
be freely tradable without restriction under the Securities Act.
STOCK OPTIONS
Shortly after completion of this offering, we plan to file a registration
statement on Form S-8 under the Securities Act covering shares of common stock
reserved for issuance under our stock option and director compensation plans. As
of March 31, 1999, options to purchase 6,058,553 shares of common stock were
issued and outstanding, 2,929,275 of which are vested. This registration
statement is expected to be filed and become effective as soon as practicable
after the date of this prospectus. Accordingly, shares registered under the S-8
registration statement will, subject to lock-up agreements, vesting provisions
and Rule 144 volume limitations applicable to our affiliates, be available for
sale in the open market immediately after the registration statement becomes
effective.
57
<PAGE>
PLAN OF DISTRIBUTION
Subject to the terms and conditions of the underwriting agreement, the
underwriters, named below through their representatives Deutsche Bank Securities
Inc., SoundView Technology Group, Inc., C.E. Unterberg, Towbin and Legg Mason
Wood Walker, Incorporated have severally agreed to purchase from us the
following respective numbers of shares of common stock at the initial public
offering price less the underwriting discounts and commissions set forth on the
cover page of this prospectus.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- --------------------------------------------------------------------------- -----------------
<S> <C>
Deutsche Bank Securities Inc...............................................
SoundView Technology Group, Inc............................................
C.E. Unterberg, Towbin.....................................................
Legg Mason Wood Walker, Incorporated.......................................
-----------------
Total....................................................................
-----------------
-----------------
</TABLE>
The underwriting agreement provides that the obligations of the underwriters
are subject to conditions precedent and that the underwriters will purchase all
of the shares of common stock offered hereby if any of such shares are
purchased.
We have been advised by the representatives of the underwriters that the
underwriters propose to offer the shares of our common stock to the public at
the initial public offering price set forth on the cover page of this prospectus
and to certain dealers at that price less a concession not in excess of
$ per share. The underwriters may allow to some other dealers, and those
dealers may reallow, a concession not in excess of $ per share. After the
initial public offering, the offering price and other selling terms may be
changed by the representatives of the underwriters.
We and certain stockholders have granted the underwriters an option,
exercisable not later than 30 days after the date of this prospectus, to
purchase up to additional shares of common stock at the initial
public offering price less the underwriting discounts and commissions set forth
on the cover page of this prospectus. To the extent that the underwriters
exercise this option, each of the underwriters will have a firm commitment to
purchase approximately the same percentage of the option shares that the number
of shares of common stock to be purchased by it in the above table bears to
. The underwriters may exercise this option only to cover
over-allotments made in connection with the sale of the common stock offered in
this offering. If purchased, the underwriters will offer the additional shares
on the same terms as those on which the shares are being offered.
We and the selling stockholders have agreed to indemnify the underwriters
against specified liabilities, including liabilities under the Securities Act.
We have agreed not to offer, sell, sell short, transfer, hypothecate, pledge
or otherwise dispose of any shares of our common stock or other securities
convertible into or exchangeable or exercisable for shares of our common stock
or derivatives of our common stock, or enter into an agreement for our common
stock, for a period of 180 days after the date of our registration statement, of
which this prospectus is a part, directly or indirectly, by us or otherwise,
except as consideration for business acquisitions, on exercise of currently
outstanding stock options or on the issuance of options to key employees and
directors under our stock option plans and the exercise of such options, without
the prior written consent of Deutsche Bank Securities Inc.
58
<PAGE>
All of our officers and directors and certain of our stockholders have
entered into lock-up agreements under which they agreed not to transfer or
otherwise dispose of, directly or indirectly, without the consent of Deutsche
Bank Securities Inc. any shares of our common stock or any securities
convertible into or exchangeable or exercisable for shares of our common stock
for a period of 180 days following the date of this registration statement.
Transfers or dispositions can be made during the lock-up periods in the case
of gifts for estate planning purposes where the donee signs a lock-up agreement.
The representatives of the underwriters have advised us that the
underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority.
To facilitate this offering, the underwriters may engage in transactions
that stabilize, maintain or otherwise affect the market price of our common
stock. Specifically, the underwriters may over-allot shares of our common stock
in connection with this offering, creating a short position in the underwriters'
syndicate account. Additionally, to cover the over-allotments or to stabilize
the market price of our common stock, the underwriters may bid for, and
purchase, shares of our common stock in the open market. Any of these activities
may maintain the market price of our common stock at a level above that which
might otherwise prevail in the open market. The underwriters are not required to
engage in these activities and may end any of these activities at any time. The
representatives of the underwriters, on behalf of the syndicate of underwriters,
also may reclaim selling concessions allowed to an underwriter or dealer if the
syndicate repurchases shares distributed by that underwriter or dealer.
The underwriters and their respective affiliates may be lenders to, engage
in transactions with and perform services for us in the ordinary course of
business. We paid $1.4 million and issued a warrant to purchase up to 481,434
shares of common stock at an exercise price of $2.72 per share to Deutsche Bank
Securities Inc. for providing placement agent services to us in connection with
the offering of Series C preferred stock that was consummated on May 25, 1999.
The amount paid for these services was determined by arms' length negotiations
between us and Deutsche Bank Securities Inc. We believe that this amount is
within standard industry parameters for a transaction of that nature.
Prior to this offering, there has been no public market for our common
stock. Consequently, the initial public offering price for our common stock will
be determined by negotiations between us and the representatives of the
underwriters. Among the factors to be considered in these negotiations will be
prevailing market conditions, the results of our operations in recent periods,
the market capitalizations and stages of development of other companies which we
and the representatives of the underwriters believe to be comparable to us,
estimates of our business potential, the present state of our development and
other factors deemed relevant.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for us by Pepper Hamilton LLP. Some legal matters related to this offering
will be passed upon for the underwriters by Willkie Farr & Gallagher.
EXPERTS
Our financial statements as of December 31, 1997 and 1998, and for the years
ended December 31, 1996, 1997 and 1998 included in this prospectus and
registration statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and are
included herein upon the authority of said firm as experts in giving said
reports.
59
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-l pursuant to
the Securities Act with respect to the common stock offered in this offering.
The prospectus, which is part of the registration statement, does not contain
all the information set forth in the registration statement. Statements
contained in the prospectus as to the contents of any contract, agreement or
other document filed with the registration statement as exhibits are necessarily
summaries of such documents, but are complete in all material respects, and are
qualified in their entirety by reference to the copy of the applicable document
filed as an exhibit to the registration statement. For further information about
us and the securities offered in this offering, reference is made to the
registration statement and to the financial statements, schedules and exhibits
filed as a part of the registration statement.
Upon completion of the offering, we will be subject to the information
requirements of the Exchange Act, and, in accordance therewith, will file
reports and other information with the SEC. The registration statement, the
exhibits and schedules forming a part of the registration statement and the
reports and other information filed by us with the SEC in accordance with the
Exchange Act may be inspected without charge at the public reference facilities
maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 and at
the following regional offices of the SEC: 7 World Trade Center, Suite 1300, New
York, New York 10048; and Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois, 60661-2511. Copies of these materials may also be
obtained from the Public Reference Room of the SEC, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. You may obtain information
regarding the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. The SEC also maintains an Internet Web site at
http://www.sec.gov that contains reports, proxy statements and other
information.
60
<PAGE>
GLOSSARY
ACTIVEX: A brand name from Microsoft for various technologies based on its
Component Object Model (COM), many of which are targeted for the Internet.
API: Application Program Interface--A language or message format prescribed by
a computer application, program or operating system to communicate with another
computer application, program or operating system.
CACHE: An area of memory that stores most recently accessed or most frequently
requested instructions and data. When a computer needs data once, chances are it
will need it again soon. Computer designers therefore realized they could speed
up the computer by storing the most recently accessed data in a high-speed
storage area.
There are several types of cache on your computer:
- DISK CACHE. It reserves an area of Random Access Memory (RAM) to store
data that has been accessed from the hard drive.
- BROWSER CACHE. Storage area for recently accessed websites. The browser
retrieves data from the cache instead of taking the time to get it from
the Internet.
- APPLICATION CACHE. This type of cache is similar to the others, except it
is application specific. For example, an application may access a database
and cache the data it retrieves for subsequent use as the application
executes.
- PROCESSOR CACHE. An area of memory located inside a processor or printed
circuit board.
CASCADING STYLE SHEET: (CSS)--A styling language that defines in great detail
the physical appearance of text on web pages. For example, you can say that all
headings should be displayed in a sans-serif font, or "special" text is to be
displayed in italic times-roman 12-point text, or this page should use this
color scheme with this background image. CSS can completely replace older HTML
tags like [font] and [i] although the older tags are still supported for
backward compatibility.
COM: Component Object Model--Microsoft's software architecture to facilitate
the development of interoperable software modules known as "objects". The COM
architecture is essentially a set of interfaces that allows client and server
software components to communicate within the same computer. It runs on
Windows95, Windows98 or WindowsNT.
CORBA: Common Object Request Broker--An architecture and specification for
creating, distributing, and managing distributed program objects on a network.
It allows programs at different locations and developed by different vendors to
communicate in a network through an "interface broker." CORBA was developed by a
consortium of vendors through the Object Management Group (OMG). Note: CORBA and
DCOM (or COM+) are competing distributed computing architectures.
DCOM: Distributed Component Object Model--Microsoft's approach to distributed
object computing. DCOM is a set of program interfaces in which objects or
software modules can request services from programs on other computers within a
network. DCOM can be used on a network within an enterprise or on other networks
such as the Internet.
ENTERPRISE JAVA BEANS: Also referred to as EJBs or EJB components. Software
modules that abide by the EJB Specification. The EJB specification defines how
components interact with other software programs, thereby providing a common way
to access and run applications in a distributed manner.
EXTRANET: An extranet is a network application that uses the Internet protocols
and the public telecommunication system to securely share part of a business's
information or operations with
61
<PAGE>
suppliers, vendors, partners, customers, or other businesses. Whereas an
intranet resides behind a firewall and is accessible only to people who are
members of the same company or organization, an extranet provides various levels
of accessibility to outsiders.
FAULT TOLERANT: Fault Tolerance is a means of protecting data and services from
hardware or software failure. A fault tolerant system provides for non-stop
operations and protects against the loss of both data and time. Fault tolerant
systems are built into hardware, software, and network architectures using
various techniques including proactive system monitoring, artificial
intelligence, automatic load balancing, dynamic restart of hardware and software
components, and hardware and software redundancy.
FTP: File Transfer Protocol--A protocol used to transport files over a TCP/IP
network such as the Internet.
HDML: Hand Held Device Markup Language--A simple language used to define
content and applications for hand-held devices with small displays such as
cellular phones, pagers, and wireless PDA's. HDML is designed to leverage the
infrastructure and protocols of the World Wide Web.
HTML: HyperText Markup Language--A set of symbols or "tags" inserted in a file
intended for display on a World Wide Web browser. The "tags" tell the Web
browser how to display a Web page's words and images for the user. Uniform
Resource Locators (URLs), the global address of documents and other resources on
the World Wide Web are frequently inserted between HTML "tags" to form hypertext
links to other Web pages.
HTTP: HyperText Transfer Protocol--The underlying protocol used by the World
Wide Web. HTTP defines how messages are formatted and transmitted, and what
actions Web Servers and browsers should take in response to various commands.
For example, when you enter a URL in your browser, this actually sends an HTTP
command to the Web server directing it to fetch and transmit the requested Web
page. HTTP only supports the transmission of text and is called a stateless
protocol because each command is executed independently, without any knowledge
of the commands that came before it. These are the main reasons that it is
difficult to implement Web Sites that react intelligently to user input.
IIOP: Internet Inter-ORB Protocol--A protocol developed by the Object
Management Group (OMG) to implement CORBA solutions over the World Wide Web.
IIOP enables browsers and servers to exchange integers, arrays, and more complex
objects unlike HTTP, which only supports transmission of text.
INTRANET: A network belonging to an organization, usually a corporation,
accessible only by the organization's members, employees, or others with
authorization, that is based on the same communications protocol as the
Internet. Intranet sites look and act just like any other Web sites, but the
firewall surrounding an intranet prevents unauthorized access. Like the Internet
itself, intranets are used to share information.
JAVA: An object-oriented programming language developed by Sun Microsystems
that is an open, standard, universal platform for network computing that scales
from the simplest consumer devices to mission-critical applications. JAVA was
modeled after the C++ programming language but unlike C++ is designed to run
using small amounts of memory and is thus optimized for web application
programming. JAVA code is compiled into "byte code" (so a computer can read it)
which can not be run by itself without a JAVA Virtual Machine or JVM. JVM's can
run on a variety of computers and devices including mobile phones, desktop
computers with JAVA-enabled browsers or applications, network computers, and
servers with JAVA applications or servlets. The JVM is essentially a translator
that turns compiled JAVA instructions into commands that make the devices do
their work. Like other programming languages, JAVA is royalty free to
developers. However the JVM, which executes JAVA applications, is licensed to
the companies that incorporate it into their browsers and servers.
62
<PAGE>
JAVA BEANS: JAVA Beans are portable, platform-independent application
components written in the JAVA programming language. JAVA Beans enable
developers to write reusable application components once and run them anywhere.
JAVA Beans act as reusable software components and can be manipulated visually
by JAVA programming tools. JAVA Beans can be combined to create traditional
applications, or smaller web-oriented applets.
LDAP: LDAP is a client-server protocol for accessing a directory service. A
directory service is like a database and can store text, photos, URLs, pointers
to whatever, binary data, public key certificates, etc. The information in a
directory is generally read much more often than it is written. As a
consequence, directories don't usually implement the complicated transaction or
roll-back schemes regular databases use for doing high-volume complex updates
but instead use the simpler LDAP protocol.
LEGACY DATA: Existing organizational data stored in mainframes and miniframes,
known as legacy systems like DB2, CICS, IMS, or VSAM technologies.
LINUX: A derivative of the Unix operating system, which runs on x86, Alpha and
Power PC machines. Linux is freeware.
LOAD BALANCING: The ability of a computer system, application server, network
or disk subsystem to evenly distribute the data and processing load across
available resources including servers, processors, network hubs and disk arrays.
MQ SERIES: A software product from IBM that provides a scalable,
industrial-strength messaging and information infrastructure. MQ Series is the
most widely used message-queuing software used to address business integration
issues, especially by financial services companies. MQ Series provides
connectivity and real-time delivery of messages between various sites and
business partners.
PURE JAVA: Refers to initiatives from Sun Microsystems that specify 100%
compliance with its JAVA specification. The goal is to maintain a consistent,
single interface for JAVA so that all JAVA Virtual Machines can run all JAVA
programs.
RMI: Remote Method Invocation. A standard from Sun Microsystems for distributed
objects written in JAVA. RMI is a remote procedure call that allows JAVA objects
stored on the network to be run remotely and communicate. The RMI system
operates only in the environment of the JAVA Virtual Machine.
SCALABLE: Refers to a computer, product or systems ability to expand and adapt
to changing load conditions.
SSL: Secure Sockets Layer. Data passed on the web is encrypted using Secure
Sockets Layer (SSL) technology, the industry-standard method for protecting web
communications developed by Netscape Communications Corporation. The SSL
security protocol provides data encryption, server authentication, message
integrity, and optional client authentication for a TCP/IP connection.
TCP/IP: (Transmission Control Protocol/Internet Protocol). A communication
protocol developed under contract from the U.S. Department of Defense to
internetwork dissimilar systems. TCP/IP is the standard protocol of the Internet
and has become the global standard for communications.
THIN CLIENT: A data processing scheme, whereby very little data processing is
performed at the client or the device employed directly by a user. The client
processes only keyboard input and screen output, while all application
processing is performed by one or more servers. In a thin client architecture,
it is typical for no application code to reside at the client.
63
<PAGE>
UNIX: A multi-user, multi-tasking operating system that is widely used on
workstations and servers and competes directly with Microsoft's WindowsNT
operating system. There are many derivative versions of Unix on the market and
almost every hardware and software vendor offers Unix support for their
respective products.
VBSCRIPT: Visual Basic Script. This programming language based on Microsoft's
Visual Basic product is optimized for web delivery and thus consumes less
memory. VBScript components are delivered to the desktop via Microsoft's ActiveX
technology.
WEB SERVER: A computer that provides access to web pages via the HTTP protocol.
The term also refers to the software that accepts requests from web browsers.
XML: Extensible Markup Language. A document format for the Web that is more
flexible than HTML. While HTML uses only predefined tags to describe elements
within the page, XML allows tags to be defined by the developer of the page.
Thus, tags for virtually any data items, such as product, sales representative
and amount due, can be used for specific applications, allowing Web pages to
function like database records.
64
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Public Accountants................................................................... F-2
Balance Sheets............................................................................................. F-3
Statements of Operations................................................................................... F-4
Statements of Mandatorily Redeemable Preferred Stock and Stockholders' Equity (Deficit).................... F-5
Statements of Cash Flows................................................................................... F-6
Notes to Financial Statements.............................................................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Bluestone Software, Inc.:
We have audited the accompanying balance sheets of Bluestone Software, Inc.
(a Delaware corporation), formerly Bluestone Consulting, Inc., as of December
31, 1997 and 1998, and the related statements of operations, mandatorily
redeemable convertible preferred stock and stockholders' equity (deficit) and
cash flows for each of the three years in the period ended December 31, 1998.
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 Bluestone Software, Inc. as
of December 31, 1997 and 1998 and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles.
Philadelphia, PA /s/ Arthur Andersen LLP
March 31, 1999 (except with
respect to matters discussed
in Note 2, as to which the
date is May 25, 1999)
F-2
<PAGE>
BLUESTONE SOFTWARE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31, 1999
------------------------- ---------------------------
1997 1998 ACTUAL PRO FORMA
---------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents... $2,330,372 $ 2,534,819 $ 597,549 $ 23,902,648
Restricted certificate of
deposit................... 400,000 -- -- --
Accounts receivable, net of
allowance of $37,012,
$44,473 and $70,314....... 1,747,672 3,369,514 1,530,542 1,530,542
Prepaid expenses and
other..................... 312,011 149,318 381,563 381,563
Due from related party...... 79,011 -- -- --
---------- ------------ ------------ ------------
Total current assets.... 4,869,066 6,053,651 2,509,654 25,814,753
---------- ------------ ------------ ------------
PROPERTY AND EQUIPMENT:
Equipment................... 1,465,570 2,418,590 2,452,196 2,452,196
Furniture and fixtures...... 86,852 183,767 183,767 183,767
Leasehold improvements...... 20,552 131,845 131,845 131,845
---------- ------------ ------------ ------------
1,572,974 2,734,202 2,767,808 2,767,808
Less--Accumulated
depreciation and
amortization.............. (640,741) (1,284,921) (1,435,842) (1,435,842)
---------- ------------ ------------ ------------
Net property and
equipment............. 932,233 1,449,281 1,331,966 1,331,966
---------- ------------ ------------ ------------
DEPOSITS...................... 13,744 32,997 35,377 35,377
---------- ------------ ------------ ------------
$5,815,043 $ 7,535,929 $ 3,876,997 $ 27,182,096
---------- ------------ ------------ ------------
---------- ------------ ------------ ------------
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
CURRENT LIABILITIES:
Line of credit.............. $1,610,561 $ 473,365 $ 473,365 $ 473,365
Current portion of long-term
debt...................... 83,971 356,728 436,648 436,648
Accounts payable............ 781,703 1,094,286 1,224,027 1,224,027
Accrued wages............... 478,970 579,371 846,228 846,228
Other accrued expenses...... 401,468 477,246 548,644 548,644
Due to related parties...... -- 188,898 155,082 155,082
Deferred revenues........... 1,560,632 3,223,338 1,691,307 1,691,307
---------- ------------ ------------ ------------
Total current
liabilities........... 4,917,305 6,393,232 5,375,301 5,375,301
---------- ------------ ------------ ------------
LONG-TERM DEBT................ 269,676 875,642 765,051 765,051
---------- ------------ ------------ ------------
SUBORDINATED NOTES DUE TO
RELATED PARTIES............. 1,000,000 1,000,000 1,000,000 1,000,000
---------- ------------ ------------ ------------
MANDATORILY REDEEMABLE SERIES
A CONVERTIBLE PREFERRED
STOCK....................... 5,330,727 5,672,339 5,756,663 --
---------- ------------ ------------ ------------
MANDATORILY REDEEMABLE SERIES
B CONVERTIBLE PREFERRED
STOCK....................... -- 11,742,212 11,921,443 --
---------- ------------ ------------ ------------
COMMITMENTS AND CONTINGENCIES
(Note 12)
STOCKHOLDERS' EQUITY
(DEFICIT):
Common stock, $.001 par
value, 53,000,000 shares
authorized, 9,000,000,
9,008,125, 9,008,875 and
shares issued and
outstanding............... 9,000 9,008 9,009 []
Common stock warrants....... -- -- -- 1,900,000
Additional paid-in
capital................... -- 5,679 6,324 []
Accumulated deficit......... (5,711,665) (18,162,183) (20,956,794) (22,056,794)
---------- ------------ ------------ ------------
Total stockholders'
equity (deficit)...... (5,702,665) (18,147,496) (20,941,461) 20,041,744
---------- ------------ ------------ ------------
$5,815,043 $ 7,535,929 $ 3,876,997 $ 27,182,096
---------- ------------ ------------ ------------
---------- ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
BLUESTONE SOFTWARE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
YEAR ENDED DECEMBER 31, 31,
---------------------------------------- -------------------------
1996 1997 1998 1998 1999
----------- ----------- ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET REVENUES:
Software license
fees............ $ 1,475,368 $ 2,337,199 $ 3,391,226 $ 431,980 $ 2,256,567
Services.......... 42,908 2,178,664 3,619,997 937,353 1,020,272
Third party
products and
related
services........ 6,555,095 5,225,429 1,106,688 784,814 --
----------- ----------- ------------ ----------- -----------
Total
revenues.... 8,073,371 9,741,292 8,117,911 2,154,147 3,276,839
COST OF REVENUES:
Software license
fees............ 112,732 202,219 258,572 38,638 57,420
Services.......... 305,109 2,516,451 4,433,309 984,936 1,337,370
Third party
products and
related
services........ 4,261,078 2,797,656 643,120 436,766 --
----------- ----------- ------------ ----------- -----------
Total cost of
revenues.... 4,678,919 5,516,326 5,335,001 1,460,340 1,394,790
----------- ----------- ------------ ----------- -----------
Gross profit.... 3,394,452 4,224,966 2,782,910 693,807 1,882,049
OPERATING EXPENSES:
Product
development..... 701,789 1,295,148 2,473,771 360,245 904,132
Sales and
marketing....... 3,004,760 5,130,799 9,551,284 1,544,492 2,825,578
General and
administrative... 1,515,456 1,615,787 2,316,017 447,053 635,006
----------- ----------- ------------ ----------- -----------
Total
operating
expenses.... 5,222,005 8,041,734 14,341,072 2,351,790 4,364,716
----------- ----------- ------------ ----------- -----------
Operating
loss........ (1,827,553) (3,816,768) (11,558,162) (1,657,983) (2,482,667)
Interest expense,
net............... (50,458) (79,701) (46,520) (41,085) (48,389)
----------- ----------- ------------ ----------- -----------
Loss from continuing
operations........ (1,878,011) (3,896,469) (11,604,682) (1,699,068) (2,531,056)
Income (loss) from
discontinued
operations........ (737,699) 98,898 -- -- --
----------- ----------- ------------ ----------- -----------
Net loss............ (2,615,710) (3,797,571) (11,604,682) (1,699,068) (2,531,056)
Accretion of
preferred stock
redemption
value............. -- (240,399) (845,836) (84,324) (263,555)
----------- ----------- ------------ ----------- -----------
Net loss available
to common
stockholders...... $(2,615,710) $(4,037,970) $(12,450,518) $(1,783,392) $(2,794,611)
----------- ----------- ------------ ----------- -----------
----------- ----------- ------------ ----------- -----------
BASIC AND DILUTED
NET LOSS PER
SHARE:
Continuing
operations...... $ (0.21) $ (0.43) $ (1.29) $ (0.19) $ (0.28)
Discontinued
operations...... (0.08) 0.01 -- -- --
Accretion of
preferred stock
redemption
value........... -- (0.03) (0.09) (0.01) (0.03)
----------- ----------- ------------ ----------- -----------
$ (0.29) $ (0.45) $ (1.38) $ (0.20) $ (0.31)
----------- ----------- ------------ ----------- -----------
----------- ----------- ------------ ----------- -----------
Shares used in
computing net
loss per
share........... 9,000,000 9,000,000 9,005,137 9,000,833 9,008,717
----------- ----------- ------------ ----------- -----------
----------- ----------- ------------ ----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
BLUESTONE SOFTWARE, INC.
STATEMENTS OF MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
STOCKHOLDERS' DEFICIT
----------------------------------------------------------
SERIES A SERIES B
CONVERTIBLE CONVERTIBLE COMMON STOCK ADDITIONAL
PREFERRED PREFERRED ----------------- PAID-IN- ACCUMULATED
STOCK STOCK SHARES AMOUNT CAPITAL DEFICIT TOTAL
----------- ----------- --------- ------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995.............. $ -- $ -- 9,000,000 $9,000 $ -- $ 1,366,254 $ 1,375,254
Distribution of foreign tax credits... -- -- -- -- -- (28,501) (28,501)
Net loss.............................. -- -- -- -- -- (2,615,710) (2,615,710)
----------- ----------- --------- ------ ---------- ------------ ------------
BALANCE, DECEMBER 31, 1996.............. -- -- 9,000,000 9,000 -- (1,277,957) (1,268,957)
Spin-off of consulting division to
majority stockholder................ -- -- -- -- -- (395,738) (395,738)
Issuance of Preferred stock, net of
financing costs..................... 5,090,328 -- -- -- -- -- --
Accretion of Preferred stock
redemption value.................... 240,399 -- -- -- -- (240,399) (240,399)
Net loss.............................. -- -- -- -- -- (3,797,571) (3,797,571)
----------- ----------- --------- ------ ---------- ------------ ------------
BALANCE, DECEMBER 31, 1997.............. 5,330,727 -- 9,000,000 9,000 -- (5,711,665) (5,702,665)
Issuance of Preferred stock, net of
financing costs..................... -- 11,237,988 -- -- -- -- --
Accretion of preferred stock
redemption value.................... 341,612 504,224 -- -- -- (845,836) (845,836)
Exercise of common stock options...... -- -- 8,125 8 5,679 -- 5,687
Net loss.............................. -- -- -- -- -- (11,604,682) (11,604,682)
----------- ----------- --------- ------ ---------- ------------ ------------
BALANCE, DECEMBER 31, 1998.............. 5,672,339 11,742,212 9,008,125 9,008 5,679 (18,162,183) (18,147,496)
Accretion of preferred stock
redemption value (unaudited)........ 84,324 179,231 -- -- -- (263,555) (263,555)
Exercise of common stock options
(unaudited)......................... -- -- 750 1 645 -- 646
Net loss (unaudited).................. -- -- -- -- -- (2,531,056) (2,531,056)
----------- ----------- --------- ------ ---------- ------------ ------------
BALANCE, MARCH 31, 1999 (unaudited)..... $ 5,756,663 $11,921,443 9,008,875 $9,009 $6,324 $(20,956,794) $(20,941,461)
----------- ----------- --------- ------ ---------- ------------ ------------
----------- ----------- --------- ------ ---------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
BLUESTONE SOFTWARE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------- ------------------------
1996 1997 1998 1998 1999
----------- ----------- ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss.................................................. $(2,615,710) $(3,797,571) $(11,604,682) $(1,699,068) $(2,531,056)
Adjustments to reconcile net loss to net cash used in
operating activities-
Depreciation and amortization........................... 302,010 239,835 656,654 48,554 152,528
Provision for doubtful accounts......................... 94,217 95,883 32,800 12,761 25,964
Accrued interest on subordinated notes.................. 30,048 103,109 109,352 24,900 25,000
Changes in operating assets and liabilities--
Accounts receivable................................... (975,630) (310,896) (1,654,641) 230,103 1,813,008
Prepaid expenses and other assets..................... (81,801) (84,169) 130,619 74,289 (236,233)
Accounts payable and accrued expenses................. 1,308,129 408,822 379,410 (345,394) 442,996
Deferred revenues..................................... 221,186 314,263 1,662,706 (148,769) (1,532,031)
----------- ----------- ------------ ----------- -----------
Net cash used in operating activities............... (1,717,551) (3,030,724) (10,287,782) (1,802,624) (1,839,824)
----------- ----------- ------------ ----------- -----------
INVESTING ACTIVITIES:
Purchases of property and equipment....................... (273,936) (871,717) (1,160,882) (169,171) (33,605)
----------- ----------- ------------ ----------- -----------
FINANCING ACTIVITIES:
Net proceeds from (repayments of) line of credit.......... 2,190,000 604,311 (1,137,196) 729,161 --
Proceeds from long-term debt.............................. 54,000 315,620 919,481 -- --
Proceeds from subordinated notes.......................... 750,000 250,000 -- -- --
Repayments of long-term debt.............................. (63,030) (122,056) (40,758) (15,509) (30,671)
Proceeds from issuance of Preferred stock, net............ -- 4,840,328 11,237,988 -- --
Restricted cash........................................... -- (400,000) 400,000 -- --
Spin-off of consulting division to sole stockholder....... -- (274,538) -- -- --
Net advances from (repayments to) related party........... -- (66,532) 267,909 37,472 (33,816)
Proceeds from exercise of common stock options............ -- -- 5,687 -- 646
----------- ----------- ------------ ----------- -----------
Net cash provided by (used in) financing
activities........................................ 2,930,970 5,147,133 11,653,111 751,124 (63,841)
----------- ----------- ------------ ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 939,483 1,244,692 204,447 (1,220,671) (1,937,270)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............. 146,197 1,085,680 2,330,372 2,330,372 2,534,819
----------- ----------- ------------ ----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $ 1,085,680 $ 2,330,372 $ 2,534,819 $ 1,109,701 $ 597,549
----------- ----------- ------------ ----------- -----------
----------- ----------- ------------ ----------- -----------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest.................................... $ 169,870 $ 133,409 $ 170,232 $ 40,253 $ 148,371
----------- ----------- ------------ ----------- -----------
----------- ----------- ------------ ----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
BLUESTONE SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
1. BACKGROUND:
Bluestone Software, Inc. (the "Company"), formerly Bluestone Consulting,
Inc., was incorporated in New Jersey on March 17, 1989. The Company develops,
markets and supports web application server software products that enable its
customers to deploy information across the Internet, intranets and extranets. On
April 17, 1997, in connection with the sale of Series A Convertible Preferred
Stock (see Note 7), the Company spun off its consulting division to its then
sole stockholder for no consideration. The Company reincorporated in Delaware as
Bluestone Software, Inc. The consulting division, Bluestone Consulting, Inc.
("BCI") provides its clients information technology staffing resources and in
1997 provided the Company with certain administrative services under a shared
services agreement (see Note 11). The consulting division spin-off is reported
in the accompanying financial statements as a discontinued operation (see Note
3).
2. LIQUIDITY:
The Company has recurring operating losses that have continued subsequent to
year-end. The losses are primarily due to product development costs, marketing
expenditures and administrative infrastructure costs related to the expansion of
the Company's business.
On January 21, 1999, the Company and substantially all of the Series B
Preferred stockholders (collectively, the "Investors") entered into the Note and
Warrant Purchase Agreement, whereby the Company could, from time to time before
May 30, 1999, request that the Investors purchase 10% convertible subordinated
secured notes totaling an aggregate of $5 million. Upon the purchase of a note,
the Investors would be granted a warrant to purchase the number of shares of the
Company's Common stock equal to the note amount multiplied by .32258, at an
exercise price of $0.62 per share. The Company issued warrants to purchase an
aggregate of 435,483 shares of common stock in connection with notes purchased
in April 1999 and May 1999. The Company also issued warrants to purchase an
aggregate of 4,865 shares of common stock at an exercise price of $2.72 per
share related to interest on the notes. The notes were converted into 496,322
shares of Series C Preferred stock on May 25, 1999 (see below).
On March 31, 1999, the Company amended its bank loan agreement, which had
expired on February 7, 1999. The amendment extended the Company's credit
facility through April 1, 2000 and reset certain financial covenants. The
amended agreement provides for the interest rate on the credit facility to
increase by 0.50% and for certain quarterly fees to be paid if the Company does
not meet certain quarterly net revenue requirements, as defined in the
amendment.
On May 25, 1999, the Company sold 9,191,176 shares of Series C Convertible
Preferred Stock to certain venture capital investors, including certain Series B
Preferred investors for $25 million in cash. The Series C Preferred will be
senior to the Series A Preferred and Series B Preferred and is automatically
convertible into Common stock upon a public stock offering, as defined.
Dividends on the Series C Preferred are cumulative at $0.1632 per share per
annum. The Series C Preferred stockholders participate in Common stock dividends
and have Common stock voting rights on an as converted basis.
The Company believes that the proceeds from the sale of the Series C
Convertible Preferred Stock and borrowing availability under its amended credit
facility will provide adequate funding to sustain the
F-7
<PAGE>
BLUESTONE SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
Company's operations through 1999. However, there is no assurance that the
funding will be sufficient to sustain operations until the Company begins
generating positive cash flows.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INTERIM FINANCIAL STATEMENTS
The financial statements as of March 31, 1999 and for the three months ended
March 31, 1998 and 1999 are unaudited and, in the opinion of management, include
adjustments necessary for a fair presentation of results for those interim
periods. The results of operations for the three months ended March 31, 1998 and
1999 are not necessarily indicative of the results to be expected for the entire
year.
PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma balance sheet as of March 31, 1999 reflects the sale
of 9,191,176 shares of Series C Preferred stock for $2.72 per share on May 25,
1999 and the conversion of all outstanding preferred stock, including the Series
C, and all accrued preferred stock dividends as of March 31, 1999 into common
stock immediately before the completion of the contemplated public offering. The
proceeds from the sale of the Series C Preferred stock are net of $2,494,901 of
transaction costs, which include a warrant to purchase 481,434 shares of common
stock at $2.72 per share issued to the placement agent that was valued at
$800,000. The pro forma balance sheet also reflects warrants to purchase 440,348
shares of common stock at a weighted average exercise price of $0.64 per share
issued in connection with the bridge notes (see Note 2) that were valued at
$1,100,000 and will be charged to operations during the three months ended June
30, 1999.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of certain assets and liabilities
and related disclosures at the date of the financial statements and the reported
amounts of certain revenues and expenses during the reporting periods. Actual
results could differ from these estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
PREPAID EXPENSES AND OTHER
Prepaid expenses and other at December 31, 1997 includes $243,834 of
deferred costs related to support contracts purchased from third parties for
resale in connection with the sale of third party product.
F-8
<PAGE>
BLUESTONE SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Depreciation is provided using
accelerated methods over the estimated useful lives of the related assets,
generally three to seven years. Leasehold improvements are amortized over the
lease term.
PRODUCT DEVELOPMENT
Product development expenditures are charged to operations as incurred.
Statement of Financial Accounting Standards ("SFAS") No. 86, "Accounting for the
Costs of Computer Software to be Sold, Leased or Otherwise Marketed," requires
the capitalization of certain software development costs subsequent to the
establishment of technological feasibility. The Company has determined that
technological feasibility for its products is generally achieved upon completion
of a working model. Since software development costs have not been significant
after the completion of a working model, all such costs have been charged to
product development expense.
REVENUE RECOGNITION
The Company sells perpetual licenses to end-users and annual and multi-year
licenses primarily to independent software vendors. The Company also sells its
software through value added resellers and system integrators. The Company
derives its services revenues from annual maintenance agreements, which consist
of customer technical support services and unspecified product enhancements, and
consulting and training services.
License fee revenue is generally recognized when a formal agreement exists,
delivery of the product has occurred, the license fee is deemed fixed and
determinable and collectibility is probable. License revenue from arrangements
with resellers and system integrators is not recognized until the product is
delivered to end-users. Maintenance revenue is recognized on a straight-line
basis over the term of the contract. Revenues from training and consulting
services are recognized as services are performed.
Deferred revenues generally consist of advance customer payments on
maintenance contracts. Certain of the Company's multi-year license agreements
provide for payment terms that extend beyond 12 months. Revenue on such
long-term arrangements are recognized when payments become due. Included in
accounts receivable and deferred revenues at December 31, 1998 is $1,865,294
related to an extended term license fee where the Company received payment and
recorded revenue in February 1999.
CONCENTRATION OF CREDIT RISK
One customer accounted for approximately 11% of the Company's net revenues
for the year ended December 31, 1998 and one customer accounted for
approximately 55% of net accounts receivable at December 31, 1998. One customer
accounted for approximately 57% of net revenues for the three months ended March
31, 1999. No one customer accounted for greater than 10% of net revenues for the
years ended December 31, 1996 and 1997 or greater than 10% of net accounts
receivable at December 31, 1996 and 1997.
F-9
<PAGE>
BLUESTONE SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
ADVERTISING COSTS
The Company expenses advertising costs as incurred. Advertising expense for
continuing operations for the years ended December 31, 1996, 1997 and 1998 and
the three months ended March 31, 1998 and 1999 was $781,634, $615,374, $882,761,
$105,406 and $378,074, respectively, including $394,808, $251,640, $549,487,
$100,714 and $77,428, respectively, related to attending trade shows.
INCOME TAXES
Prior to April 17, 1997, the Company was taxed as a subchapter S corporation
under the Internal Revenue Code for federal and state income tax purposes.
Accordingly, all S Corporation taxable income or losses were included in the
sole stockholder's tax return. In connection with the Series A Convertible
Preferred Stock sale (see Note 7), the Company's subchapter S election was
terminated.
Deferred tax assets and liabilities are determined based on differences
between the financial reporting and tax bases of assets and liabilities and are
measured using enacted tax rates. The Company accounts for certain income and
expense items for financial reporting purposes differently than for income tax
purposes. The principal differences relate to the Company's conversion to the
accrual basis of accounting for income taxes and certain financial statement
reserves that are not currently deductible for income tax purposes.
STOCK COMPENSATION
The Company has elected to follow Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations in accounting for its employee stock options. Under APB No. 25,
if the exercise price of the Company's employee stock options equals or exceeds
the market price of the underlying stock on the date of the grant, no
compensation expense is recognized. If the exercise price of an option is below
the market price of the underlying stock on the date of grant, compensation cost
is recorded and is recognized in the statements of operations over the vesting
period (see Note 9).
EARNINGS PER SHARE
The Company follows SFAS No. 128, "Earnings Per Share," which requires a
dual presentation of "basic" and "diluted" earnings per share ("EPS") on the
face of the statements of operations. Basic EPS is computed by dividing net
income (loss) by the weighted average number of shares of common stock
outstanding for the period. Diluted EPS includes the dilutive effect, if any,
from the potential exercise or conversion of securities like stock options,
which would result in the issuance of additional shares of common stock. For
each of the three years in the period ended December 31, 1998 and the three
months ended March 31, 1998 and 1999, the impact of stock options was not
considered as their effect on EPS would be anti-dilutive.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash, accounts receivable, prepaid expenses, accounts payable and accrued
expenses are reflected in the accompanying financial statements at fair value
due to the short-term nature of those instruments. The carrying amount of
long-term debt obligations approximate fair value at the balance sheet dates.
F-10
<PAGE>
BLUESTONE SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income." SFAS No. 130 is effective for fiscal years
beginning December 31. 1997, SFAS No. 130 establishes standards for the
reporting and display of comprehensive income in a set of financial statements.
Comprehensive income is defined as the change in net assets of a business
enterprise during a period from transactions generated from non-owner sources.
It includes all changes in equity during a period except those resulting from
investments by owners and distributions to owners. The Company has no other
comprehensive income items, therefore, the adoption of SFAS No. 130 had no
impact on the financial statements.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." SFAS No.
131 applies to all public companies and is effective for fiscal years beginning
after December 15, 1997. SFAS No. 131 requires that business segment financial
information be reported in the financial statements utilizing the management
approach. The management approach is defined as the manner in which management
organizes the segments within the enterprise for making operating decisions and
assessing performance. Subsequent to the spin-off of the consulting segment,
management believes the Company operates in one business segment, therefore, the
adoption of SFAS No. 131 had no impact on the financial statements.
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." The Company adopted SOP 98-1
in January 1999. The adoption had no material effect on the Company's financial
position or results of operations.
DISCONTINUED OPERATIONS
On April 17, 1997, in connection with the sale of Series A Convertible
Preferred Stock (see Note 7), the Company spun off its consulting division,
which operated as a separate segment, to its then sole stockholder for no
consideration. The spin-off, which included cash of $274,538, has been recorded
as a deemed distribution in the accompanying financial statements. The
discontinued operation generated net revenues of $13,369,459 and $4,537,147 for
the years ended December 31, 1996 and 1997, respectively.
RECLASSIFICATIONS
Prior year financial statements have been reclassified to conform with the
current year presentation.
4. LINE OF CREDIT:
On December 8, 1997, the Company entered into an agreement with a bank that
provides for a $1,750,000 revolving line of credit and a $500,000 equipment line
(see Note 5). The revolver is collateralized by substantially all of the
Company's assets and a $400,000 certificate of deposit at December 31, 1997.
Borrowings under the line are subject to a borrowing base of 80% of eligible
accounts receivable, as defined. The restricted certificate of deposit was sold
in 1998 as it was no longer required collateral. The line bore interest at prime
plus 1.5%, through August 16, 1998 at which date the interest rate was changed
to prime plus .75% in conjunction with the equipment line modification
F-11
<PAGE>
BLUESTONE SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
(see Note 5), and expired on December 7, 1998. In December 1998, the Company and
the bank agreed to extended the term of the credit facility to February 7, 1999.
The line is cross-defaulted and cross-collateralized with the equipment line
with the bank (see Note 5). The loan agreement also requires the Company to
maintain certain financial and nonfinancial covenants, as defined.
On March 31, 1999, the Company amended its bank loan agreement. The
amendment extended the Company's credit facility through April 1, 2000 and reset
certain financial covenants. The amended agreement provides for the interest
rate on the credit facility to increase to prime plus 1.25% and for certain
quarterly fees to be paid if the Company does not meet certain quarterly net
revenue requirements, as defined in the amendment. At March 31, 1999, no
additional borrowings were available under the line.
A warrant to purchase 31,250 shares of the Company's Common stock at $.80
per share, as adjusted was issued to the bank in December 1997 in conjunction
with the loan agreement. The warrant is fully exercisable, has a seven-year term
and is subject to an anti-dilution provision, as defined. No value has been
assigned to the warrant as it is not material to the Company's financial
statements.
5. LONG-TERM DEBT:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 31,
1997 1998 1999
---------- ------------ ------------
<S> <C> <C> <C>
Equipment line with bank.................................................. $ 237,620 $ 1,157,101 $ 1,137,186
Capital leases............................................................ 116,027 75,269 64,513
---------- ------------ ------------
353,647 1,232,370 1,201,699
Less- Current portion..................................................... (83,971) (356,728) (436,648)
---------- ------------ ------------
$ 269,676 $ 875,642 $ 765,051
---------- ------------ ------------
---------- ------------ ------------
</TABLE>
At December 31, 1997, the Company's equipment line provided for borrowings
of up to $500,000 for approved capital expenditures, as defined and interest
payable monthly on the outstanding balance at a rate of prime plus 1.5%. In June
1998, the outstanding borrowings as of that date of $237,620 converted to a term
note payable in 36 monthly installments. On August 16, 1998, the Company and the
bank modified the equipment line to provide for additional borrowings of up to
$1,762,380 for approved capital expenditures, as defined. Interest is payable
monthly on the outstanding balance at a rate of prime plus 1.25%. On March 31,
1999, in connection with the loan agreement amendment, the then outstanding
balance of $959,086 was converted to a term note payable in 36 monthly
installments and no additional borrowings are available under the equipment
line. The equipment line is secured by equipment and is cross-defaulted and
cross-collateralized with the Company's line of credit (see Note 4).
F-12
<PAGE>
BLUESTONE SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
6. SUBORDINATED NOTES DUE TO RELATED PARTIES:
<TABLE>
<S> <C>
Note payable to Bluestone Consulting, Inc..................................................................... $ 500,000
Convertible subordinated note to related party................................................................ 500,000
----------
$1,000,000
----------
----------
</TABLE>
In January 1996, the Company entered into a $1,000,000, subordinated 10%
loan agreement with the brother of the Company's founder. The agreement, as
amended in connection with the BCI spin-off, provided for the loan to be
structured as a $500,000 convertible note with the Company and a $500,000
convertible note with BCI. Also in connection with the BCI spin-off, the Company
issued BCI a $500,000, 10% note. Interest on both notes is payable annually.
Principal on the convertible note is due on December 31, 2002 and principal on
the note with BCI is due on December 31, 2005. At December 31, 1997 and 1998 and
March 31, 1999 other accrued expenses includes $97,526, $206,878 and $124,600,
respectively, related to interest on the notes. The $500,000 convertible
subordinated note is convertible into 700,000 shares of the Company's Common
stock at the option of the holder.
7. MANDATORILY REDEEMABLE SERIES A CONVERTIBLE PREFERRED STOCK:
On April 18, 1997, the Company sold 5,526,316 shares of $0.001 par value
Series A Convertible Preferred Stock to certain venture capital investors, an
individual investor and the Company's former sole shareholder for $5,250,000.
This includes 263,158 shares sold to the former sole stockholder in exchange for
canceling a $250,000 note payable due him. The Series A Preferred stock is
convertible into an equal number of shares of Common stock, subject to
adjustment, as defined, and is automatically convertible upon a public stock
offering, as defined.
Dividends on the Series A Preferred are cumulative at $0.057 per share per
annum and the Series A Preferred has a liquidation preference of $0.95 per
share. At December 31, 1997 and 1998 cumulative dividends accrued but not
declared were $222,658 and $537,658, respectively. Beginning in April 2003, the
holders may require the Company to redeem the Preferred at $0.95 per share plus
accrued dividends over a three-year period. The Series A Preferred stockholders
participate in Common stock dividends and have Common stock voting rights on an
as converted basis.
8. MANDATORILY REDEEMABLE SERIES B CONVERTIBLE PREFERRED STOCK:
On April 23, 1998, the Company sold 8,782,695 shares of Series B Convertible
Preferred Stock to certain venture capital investors, including its original
investors (see Note 7) for approximately $11.4 million in cash. The Series B
Preferred is senior to the Series A Preferred and was originally convertible
into an equal number of shares of Common stock. In 1998, in accordance with the
original terms of the Series B Preferred stock purchase agreement, the
conversion ratio was adjusted so that each share of Series B Preferred is
convertible into 2.093 shares of Common stock. In addition, the Series B
Preferred is automatically convertible upon a public stock offering, as defined.
Dividends on the Series B Preferred are cumulative at $0.078 per share per
annum and the Series B Preferred has a liquidation preference of $1.296 per
share. At December 31, 1998, cumulative dividends accrued but not declared were
$476,720. Beginning in October 2001, the holders may require the Company to
redeem the Preferred at $1.296 per share plus accrued dividends over an
eighteen-month period. The Series B Preferred stockholders participate in Common
stock dividends and have Common stock voting rights on an as converted basis.
F-13
<PAGE>
BLUESTONE SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
9. STOCK OPTION AND EMPLOYEE BENEFIT PLANS:
STOCK OPTION PLAN
In 1996, the Company adopted the 1996 Incentive and Non-Qualified Stock
Option Plan (the "1996 Plan") under which incentive and nonstatutory stock
options to acquire shares of the Company's Common stock may be granted to
officers, employees and consultants of the Company. Incentive stock options must
be issued at an exercise price not less than the fair market value of the
underlying shares on the date of grant. Options granted under the 1996 Plan are
exercisable over a period of time, not to exceed ten years, and are subject to
other terms and conditions specified in the individual option grants. In April
1997, in connection with the sale of Series A Convertible Preferred Stock (see
Note 7), the 1996 Plan was amended and restated, increasing the total shares
available under the plan to 2,500,000. On August 7, 1997, all outstanding
options granted under the 1996 Plan were canceled and 483,900 were reissued at
an exercise price of $0.70 per share. In April 1998, in connection with the sale
of Series B Convertible Preferred Stock (see Note 8), the 1996 Plan was amended
and restated, increasing the total shares available under the plan to 4,500,000.
In March 1999, the 1996 Plan was amended to increase the total shares available
under the plan to 9,429,049.
Information relative to the 1996 Plan is as follows:
<TABLE>
<CAPTION>
WEIGHTED
RANGE OF AGGREGATE AVERAGE
EXERCISES EXERCISE EXERCISE
SHARES PRICES PRICE PRICE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Outstanding January 1, 1996................................... -- $ -- $ -- $ --
Granted................................................... 762,100 2.00 1,524,200 2.00
----------- ----------- ----------- -----
Outstanding December 31, 1996................................. 762,100 2.00 1,524,200 2.00
Granted................................................... 1,640,143 0.70-3.00 1,279,200 0.78
Canceled.................................................. (1,071,000) 0.70-3.00 (1,871,530) 1.75
----------- ----------- ----------- -----
Outstanding December 31, 1997................................. 1,331,243 0.70 931,870 0.70
Granted................................................... 2,518,776 0.70-0.96 2,249,416 0.89
Exercised................................................. (8,125) 0.70 (5,688) 0.70
Canceled.................................................. (59,275) 0.70 (41,493) 0.70
----------- ----------- ----------- -----
Outstanding December 31, 1998................................. 3,782,619 0.70-0.96 3,134,105 0.83
Granted................................................... 2,348,727 0.96 2,254,778 0.96
Exercised................................................. (750) 0.70-0.96 (646) 0.86
Canceled.................................................. (69,043) 0.70-0.96 (61,405) 0.89
----------- ----------- ----------- -----
Outstanding March 31, 1999.................................... 6,061,553 $ 0.70-0.96 $ 5,326,832 $ 0.88
----------- ----------- ----------- -----
----------- ----------- ----------- -----
</TABLE>
There were options to purchase 2,929,275 shares of common stock exercisable
as of March 31, 1999. In addition, as of March 31, 1999, there were options to
purchase 3,358,621 shares of common stock available for grant under the 1996
Plan.
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," and the related interpretations, in accounting
for its stock option plan. Had compensation cost for the 1996 Plan been
determined based upon the fair value of the options at the
F-14
<PAGE>
BLUESTONE SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
date of grant, as prescribed under SFAS 123, the Company's net loss for the
years ended December 31, 1997 and 1998 would have increased to the following pro
forma amount:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1998
------------- --------------
<S> <C> <C>
Net loss, as reported.............................................................. $ (3,797,571) $ (11,604,682)
------------- --------------
------------- --------------
Pro forma net loss................................................................. $ (3,871,550) $ (11,764,529)
------------- --------------
------------- --------------
</TABLE>
The weighted average fair value of the options granted are estimated as
$0.25 to $0.28 per share on the date of grant using the Black-Scholes
option-pricing model with the following assumptions: no expected dividend yield,
a volatility of 0.0%, risk-free interest rates ranging from 4.514% to 6.738%
based on the rates in effect on the date of grant, and an expected life of seven
years.
RETIREMENT SAVINGS PLAN
The Company has a retirement savings plan (the "Plan") that qualifies under
Section 401(k) of the Internal Revenue Code. Eligible employees may contribute
up to 15% of their annual compensation, as defined by the Plan. The Company
contributes to the Plan at a rate of 10% of the employee's contributions up to a
maximum of 6% of the employee's salary. The Company's contributions to the Plan
were $10,452, $22,009, $31,807, $7,317 and $11,075 for the years ended December
31, 1996, 1997 and 1998, and the three months ended March 31, 1998 and 1999,
respectively.
10. INCOME TAXES:
The income tax provision consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997 1998
----------- -----------
<S> <C> <C>
Current provision...................................................................... $ -- $ --
Deferred benefit....................................................................... (64,000) (81,000)
Net operating loss not benefited....................................................... (1,134,000) (4,410,000)
Termination of S corporation status.................................................... (121,000) --
Increase in valuation allowance........................................................ 1,319,000 4,491,000
----------- -----------
$ -- $ --
----------- -----------
----------- -----------
</TABLE>
The tax effect of the differences that give rise to deferred income taxes is
as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1997 1998
----------- -----------
<S> <C> <C>
Net operating loss
carryforwards............... $ 1,134,000 $ 5,544,000
Accounts receivable........... 15,000 18,000
Accrued expenses.............. 71,000 174,000
Property and equipment........ 24,000 24,000
Deferred revenue adjustment... 315,000 252,000
Cash-to-accrual adjustment.... (240,000) (202,000)
----------- -----------
1,319,000 5,810,000
Less-Valuation allowance...... (1,319,000) (5,810,000)
----------- -----------
$ -- $ --
----------- -----------
----------- -----------
</TABLE>
F-15
<PAGE>
BLUESTONE SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
The Company has established a valuation allowance for the full amount of the
net deferred tax asset due to the limited operating history of the Company and
uncertainty surrounding realizability. At December 31, 1998, the Company had a
net operating loss carryforward of approximately $14 million beginning to expire
in 2012 for federal tax purposes and in 2004 for state tax purposes.
11. TRANSACTIONS WITH BCI:
On April 17, 1997, in connection with the sale of the Series A Convertible
Preferred Stock (see Note 7), the Company spun off its consulting division, BCI,
to its then sole stockholder, who is currently a director of the Company.
In connection with the spin-off, the Company entered into the Intercompany
Services Agreement with BCI, whereby the Company allows BCI access to certain
technology at no charge and BCI provided the Company certain administrative
services and access to certain computer systems at an allocated cost based on
actual cost and usage. For the year ended December 31, 1997, general and
administrative expense includes $871,784 for such services provided by BCI.
The Company also sells certain software products and services to BCI and
purchases certain consulting services from BCI. For the years ended December 31,
1997 and 1998 and for the three months ended March 31, 1998 and 1999, the
Company's sales to BCI totaled $40,448, $58,607, $22,606 and $9,320,
respectively, and total purchases from BCI were $47,088, $351,739, $185,555 and
$44,960, respectively. At December 31, 1997 and 1998 and March 31, 1999,
accounts receivable includes $5,217, $23,299 and $19,660, respectively, due from
BCI and accounts payable includes $43,889, $77,097 and $29,760, respectively,
payable to BCI.
On March 31, 1998, the Company decided to no longer sell non-proprietary
software products. In addition, the Company agreed to allow BCI to commence the
sale and support of this product line, and sub-contracted support services to
BCI related to previously sold maintenance contracts. The Company paid BCI
$450,000 in 1998 and paid BCI $150,000 in 1999, for the sub-contracted support
services.
The Company also sub-leases a portion of its operating facility to BCI (see
Note 12). Amounts charged to BCI, which reduced the Company's rent expense for
the years ended December 31, 1997 and 1998 and the three months ended March 31,
1998 and 1999, totaled $130,588, $74,165, $19,702 and $23,434, respectively.
During the year ended December 31, 1998 and the three months ended March 31,
1998 and 1999, the Company rented certain equipment from BCI, totaling $89,489,
$15,938 and $23,907, respectively.
In connection with the Series A Convertible Preferred Stock sale and
spin-off of BCI, the Company issued a $500,000, 10% note payable to BCI (see
Note 6).
F-16
<PAGE>
BLUESTONE SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
12. COMMITMENTS AND CONTINGENCIES:
The Company has operating leases on its office facilities (see Note 11) and
certain equipment. Future minimum lease payments under such noncancelable
operating leases are summarized as follows, as of December 31, 1998:
<TABLE>
<S> <C>
1999.......................................................................................................... $ 739,851
2000.......................................................................................................... 598,608
2001.......................................................................................................... 502,980
2002.......................................................................................................... 502,980
2003.......................................................................................................... 454,662
----------
$2,799,081
----------
----------
</TABLE>
Rent expense for continuing operations was $263,079, $551,832, $691,615,
$131,849 and $205,671 for the years ended December 31, 1996, 1997 and 1998 and
the three months ended March 31, 1998 and 1999, respectively.
The Company is involved in certain legal actions arising in the ordinary
course of business. Management believes that the outcome of such actions will
not have a material adverse effect on the Company's financial position or
results of operations.
F-17
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Bluestone Software, Inc.
We have audited, in accordance with generally accepted auditing standards, the
financial statements of Bluestone Software, Inc. included in this registration
statement and have issued our report thereon dated March 31, 1999. Our audit was
made for the purpose of forming an opinion on the basic financial statements
taken as a whole. The accompanying financial statement schedule is the
responsibility of the Company's management and is presented for 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 the audit 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.
/s/ Arthur Andersen LLP
Philadelphia, PA
March 31, 1999
S-1
<PAGE>
BLUESTONE SOFTWARE, INC.,
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
Allowance for Doubtful Accounts:
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO SPIN-OFF OF BALANCE AT
BEGINNING OF COSTS AND CONSULTING END OF
PERIOD EXPENSES DIVISION WRITE-OFFS PERIOD
------------ ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
1998.............................................. $ 37,012 $ 32,800 $ -- $ (25,339) $ 44,473
1997.............................................. 77,090 95,883 (104,372) (31,589) 37,012
1996.............................................. 69,073 94,217 -- (86,200) 77,090
</TABLE>
S-2
<PAGE>
[INSIDE BACK COVER OF PROSPECTUS]
GRAPHIC:
Single page graphic containing five stones arranged one on top of the other and
descending in size from top to bottom. The bottom three stones are flat and grey
in color. The top two stones are circular, with the penultimate stone colored
grey and the top stone colored blue. The middle right side of the graphic,
positioned to the right of the middle stone, contains the statement "Bluestone
rocks."
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
You may rely only on the information contained in this prospectus. We have
not authorized anyone to provide information different from that contained in
this prospectus. Neither the delivery of this prospectus nor the sale of common
stock means that information contained in this prospectus is correct after the
date of the prospectus. This prospectus is not an offer to sell or solicitation
of an offer to buy these shares of common stock in any circumstances under which
the offer or solicitation is unlawful.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary.............................. 1
Risk Factors.................................... 5
Forward-looking Statements...................... 13
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........................................ 27
Management...................................... 37
Certain Transactions............................ 45
Principal and Selling Stockholders.............. 50
Description of Securities....................... 53
Shares Eligible For Future Sale................. 56
Plan of Distribution............................ 58
Legal Matters................................... 59
Experts......................................... 59
Where You Can Find More Information............. 60
Glossary........................................ 61
Index to Financial Statements................... F-1
</TABLE>
------------------------
UNTIL , 1999 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
THAT BUY, SELL OR TRADE THESE SHARES OF COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
SHARES
[LOGO]
COMMON STOCK
---------------------
PROSPECTUS
---------------------
DEUTSCHE BANC ALEX / / BROWN
SOUNDVIEW TECHNOLOGY GROUP
C.E. UNTERBERG, TOWBIN
LEGG MASON WOOD WALKER
INCORPORATED
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee................................ $ 12,788
NASD and Blue Sky fees and expenses................................................
Nasdaq National Market listing fee.................................................
Accountants' fees and expenses.....................................................
Legal fees and expenses............................................................
Transfer Agent's fees and expenses.................................................
Printing and engraving expenses....................................................
Miscellaneous......................................................................
---------
Total Expenses.....................................................................
---------
---------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law permits each Delaware
business corporation to indemnify its directors, officers, employees and agents
against liability for each such person's acts taken in his or her capacity as a
director, officer, employee or agent of the corporation if such actions were
taken in good faith and in a manner which he or she reasonably believed to be in
or not opposed to the best interests of the corporation, and with respect to any
criminal action, if he or she had no reasonable cause to believe his or her
conduct was unlawful. Section 23.1 of Bluestone's bylaws provides that
Bluestone, to the full extent permitted by Section 145 of the Delaware General
Corporation Law, shall indemnify all past and present directors, officers,
employees and agents of Bluestone who were or are parties or are threatened to
be made parties to or are involved in any action, suit or proceeding against all
expenses, liability and losses in connection with such proceeding. Such expenses
may be paid by Bluestone in advance of the final disposition of the action upon
receipt of an undertaking to repay the advance if it is ultimately determined
that such person is not entitled to indemnification.
As permitted by Section 102(b)(7) of the Delaware General Corporation Law,
Article VIII of Bluestone's certificate of incorporation provides that no
director of Bluestone shall be liable to Bluestone 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 Bluestone or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) for the unlawful payment of dividends on or
redemption of Bluestone's capital stock, or (iv) for any transaction from which
the director derived an improper personal benefit.
Bluestone has obtained a policy insuring it and its directors and officers
against certain liabilities, including liabilities under the Securities Act.
It is anticipated that the Underwriting Agreement to be filed as Exhibit 1.1
to this Registration Statement will provide for indemnification by the
Underwriters of the Registrant and its officers and directors for certain
liabilities arising under the Securities Act or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, the Registrant has sold the securities set
forth below which were not registered under the Securities Act:
Pursuant to a stock purchase agreement dated April 18, 1997, the Registrant
issued 5,526,316 shares of Series A preferred stock to institutional and
accredited investors for a total purchase price of $5.25 million or $0.95 per
share, including 263,158 shares of Series A preferred stock to Mel Baiada. No
underwriters were used for such offering.
II-1
<PAGE>
In connection with the Registrant's credit facility with Silicon Valley
Bank, the Registrant issued to Silicon Valley Bank a warrant dated November 24,
1997 to purchase up to 31,250 shares of common stock at an exercise price equal
to $0.80 per share. The warrant may be exercised at any time prior to November
24, 2004. The exercise price of the warrant and the number of shares of common
stock into which the warrant is exercisable are subject to proportionate
adjustment in the event of stock dividends payable in shares of common stock and
combinations and splits of common stock. In addition, pursuant to an
antidilution agreement between the Registrant and Silicon Valley Bank dated
November 24, 1997, the exercise price of the warrant and the number of shares of
common stock into which the warrant is exercisable are subject to adjustment on
a broad-based weighted average basis for issuance of securities after November
24, 1997 for less than the then applicable exercise price for the warrant.
Pursuant to a stock purchase agreement dated April 22, 1998, the Registrant
issued 8,782,695 shares of Series B preferred stock to institutional and
accredited investors for a total purchase price of $11.4 million or $1.296 per
share.
On January 21, 1999, the Registrant entered into the Note and Warrant
Purchase Agreement with substantially all of the holders of the Series B
preferred stock (the "Investors"). Under the Note and Warrant Purchase
Agreement, the Investors agreed to provide subordinated secured debt financing
of up to $5.0 million (the "Committed Principal Amount"). The Registrant drew
down $1.35 million of such debt and issued 10% Convertible Subordinated Secured
Notes and warrants to purchase up to 435,483 shares of common stock at an
exercise price equal to $0.62 per share to the Investors. The outstanding $1.35
million of the Committed Principal Amount was converted into Series C preferred
stock as part of our issuance of 9,191,176 shares of Series C preferred stock at
$2.72 per share on May 25, 1999.
Pursuant to a stock purchase agreement dated May 25, 1999, the Registrant
issued 9,191,176 shares of Series C preferred stock to institutional and
accredited investors for a total purchase price of $25.0 million, or $2.72 per
share. Deutsche Bank Securities Inc. acted as the placement agent for such
offering for which it received $1.4 million and a warrant to purchase up to
481,434 shares of common stock at $2.72 per share.
Bluestone believes that the transactions described above were exempt from
registration under Section 3(b) or 4(2) of the Securities Act because the
subject securities were sold to a limited group of persons, each of whom was
believed to have been a sophisticated, accredited investor or to have had a
pre-existing business or personal relationship with Bluestone or its management
and to have been purchasing for investment without a view to further
distribution. In addition, the recipients of securities in each such transaction
represented their intentions to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution thereof and
appropriate legends were affixed to the share certificates issued in such
transactions. All recipients had adequate access to information about Bluestone.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following exhibits are filed herewith or incorporated herein by
reference:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement.
2.1 Contribution and Distribution Agreement, dated April 17, 1997, between Bluestone and Bluestone
Consulting, Inc.
3.1 Third Amended and Restated Certificate of Incorporation of Bluestone, as amended.
3.2 Bylaws of Bluestone.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------------
<C> <S>
3.3* Form of Fourth Amended and Restated Certificate of Incorporation of Bluestone.
3.4* Form of Amended and Restated Bylaws of Bluestone.
4.1* Specimen Stock Certificate of Bluestone.
5.1* Opinion of Pepper Hamilton LLP.
10.1+ 1996 Incentive and Non-Qualified Stock Option Plan of Bluestone, as amended, including forms of Incentive
Stock Option Agreement, Non-Qualified Stock Option Agreement and Stock Purchase and Restriction
Agreement.
10.2*+ Directors Compensation Plan of Bluestone.
10.3+ Forms of Employee Confidentiality Agreements of Bluestone.
10.4+ Executive Employment Agreement, dated April 18, 1997, between Mel Baiada and Bluestone.
10.5+ First Amendment to Executive Employment Agreement, dated January 13, 1999, between Mel Baiada and
Bluestone.
10.6+ Executive Employment Agreement, dated April 24, 1997, between Robert Bickel and Bluestone.
10.7+ Severance Agreement, dated September 17, 1998, between P. Kevin Kilroy and Bluestone.
10.8+ Severance Agreement, dated September 17, 1998, between Robert Bickel and Bluestone.
10.9+ Severance Agreement, dated September 17, 1998, between John H. Capobianco and Bluestone.
10.10+ Severance Agreement, dated September 17, 1998, between Enrico J. Ballezzi and Bluestone.
10.11 Consulting Agreement between Bluestone and Andrew J. Filipowski dated as of May 3, 1999.
10.12* Reseller Agreement, dated January 1, 1998, between Bluestone and Bluestone Consulting, Inc.
10.13 Subcontract Agreement, dated April 23, 1998, between Bluestone and Bluestone Consulting, Inc.
10.14 Intercompany Services Agreement, dated April 17, 1997, between Bluestone and Bluestone Consulting, Inc.
10.15 Service Mark License Agreement, dated April 17, 1997, between Bluestone and Bluestone Consulting, Inc.
10.16 $500,000 Amended and Restated Convertible and Subordinated Note, dated April 17, 1997, by Bluestone in
favor of Mark Baiada.
10.17 $500,000 Promissory Note, dated April 17, 1997, by Bluestone in favor of Bluestone Consulting, Inc.
10.18* Sublease Agreement dated as of April 18, 1997 between Bluestone (as sublandlord) and Bluestone
Consulting, Inc. (as subtenant).
10.19* Equipment Lease, dated September 5, 1997, between Bluestone and Colonial Pacific Leasing.
10.20 Loan and Security Agreement, dated as of December 8, 1997, between Silicon Valley Bank and Bluestone.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------------
<C> <S>
10.21 First Loan Modification Agreement, dated as of August 16, 1998, between Silicon Valley Bank and
Bluestone.
10.22 Second Loan Modification Agreement, dated as of January 21, 1999, between Silicon Valley Bank and
Bluestone.
10.23 Third Loan Modification Agreement, dated as of March 30, 1999, between Silicon Valley Bank and Bluestone.
10.24 Negative Pledge Agreement, dated as of August 16, 1998, between Silicon Valley Bank and Bluestone.
10.25 Warrant to purchase 31,250 shares of Common Stock of Bluestone, dated as of November 24, 1997, issued by
Bluestone to Silicon Valley Bank, as amended.
10.26 Antidilution Agreement, dated as of November 24, 1997, between Silicon Valley Bank and Bluestone.
10.27 Registration Rights Agreement, dated as of November 24, 1997, between Silicon Valley Bank and Bluestone.
10.28 Form of Warrant to purchase 481,434 shares of Common Stock of Bluestone, dated as of May 25, 1999, issued
by Bluestone to Deutsche Banc Alex. Brown
10.29 Series A Preferred Stock Purchase Agreement, dated as of April 18, 1997, between Bluestone and the
investors listed therein.
10.30 Series B Preferred Stock Purchase Agreement, dated as of April 22, 1998, between Bluestone and the
investors listed therein.
10.31 Convertible Subordinated Secured Note and Warrant Purchase Agreement, dated as of January 21, 1999,
between Bluestone and the investors listed therein.
10.32 Form of Warrant issued to the investors under the Convertible Subordinated Secured Note and Warrant
Purchase Agreement dated January 21, 1999.
10.33 Preferred Stock Purchase Agreement relating to the sale of Series C Preferred Stock, dated as of May 25,
1999, between Bluestone and the purchasers listed therein.
10.34 Second Restated First Refusal and Co-Sale Agreement, dated as of May 25, 1999, between Bluestone and the
investors and stockholders listed therein.
10.35 Second Restated Investors' Rights Agreement, dated as of May 25, 1999, between Bluestone and the
investors and stockholders listed therein, as amended by the First Amendment dated as of June 16, 1999.
10.36 Restated Voting Agreement, dated as of April 23, 1998, between Bluestone and the investors and founders
listed therein, as amended by the First Amendment dated as of June 16, 1999.
10.37 Lease for headquarters space at 1000 Briggs Road, Mount Laurel, New Jersey, dated September 27, 1993,
with Liberty Property Limited Partnership (successor to Briggs Properties Partnership) as landlord.
10.38* Sublease Agreement between Bluestone and Bluestone Consulting, Inc. dated as of April 18, 1997.
23.1 Consent of Arthur Andersen LLP.
23.2* Consent of Pepper Hamilton LLP (included in Exhibit 5.1).
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------------
<C> <S>
24.1 Powers of Attorney (included in the signature page to the Registration Statement).
27.1 Financial Data Schedule (in electronic format only).
</TABLE>
- ------------------------
* To be filed by amendment.
+ Management contract or compensatory plan.
(b) The following financial statement schedule and the report related
thereto are included with this Registration Statement:
1. Schedule II--Valuation and Qualifying Accounts of Bluestone.
2. Report of Arthur Andersen LLP on financial statement schedule.
Schedules, other than those referred to above, are omitted as non-applicable
or not required, or the required information is shown in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreements
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 Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(c) The Registrant hereby undertakes that:
(i) 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 the 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 the
Registration Statement as of the time it was declared effective.
(ii) For purposes 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-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Mount Laurel, New Jersey on the 2nd
day of July, 1999.
BLUESTONE SOFTWARE, INC.
By: /s/ P. KEVIN KILROY
-----------------------------------------
P. Kevin Kilroy
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears
below constitutes and appoints P. Kevin Kilroy and Craig Huke, and each or any
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and other registration statements and
amendments thereto relating to the Offering contemplated by this Registration
Statement (including registration statements under Rule 462 promulgated under
the Securities Act of 1933, as amended), and to file the same, with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their,
his substitutes or substitute, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
<C> <S> <C>
/s/ P. MELAN BAIADA Chairman of the Board of
- ------------------------------ Directors July 2, 1999
P. Melan Baiada
President and Chief
/s/ P. KEVIN KILROY Executive Officer and
- ------------------------------ Director (Principal July 2, 1999
P. Kevin Kilroy Executive Officer)
Senior Vice President Chief
/s/ S. CRAIG HUKE Financial Officer
- ------------------------------ (Principal Financial and July 2, 1999
S. Craig Huke Accounting Officer)
/s/ GREGORY M. CASE Director
- ------------------------------ July 2, 1999
Gregory M. Case
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
<C> <S> <C>
/s/ WILLIAM C. HULLEY Director
- ------------------------------ July 2, 1999
William C. Hulley
/s/ ANTON SIMUNOVIC Director
- ------------------------------ July 2, 1999
Anton Simunovic
/s/ ANDREW J. FILIPOWSKI Director
- ------------------------------ July 2, 1999
Andrew J. Filipowski
/s/ PAUL E. BLONDIN Director
- ------------------------------ July 2, 1999
Paul E. Blondin
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement.
2.1 Contribution and Distribution Agreement, dated April 17, 1997, between Bluestone and Bluestone
Consulting, Inc.
3.1 Third Amended and Restated Certificate of Incorporation of Bluestone, as amended.
3.2 Bylaws of Bluestone.
3.3* Form of Fourth Amended and Restated Certificate of Incorporation of Bluestone.
3.4* Form of Amended and Restated Bylaws of Bluestone.
4.1* Specimen Stock Certificate of Bluestone.
5.1* Opinion of Pepper Hamilton LLP.
10.1+ 1996 Incentive and Non-Qualified Stock Option Plan of Bluestone, as amended, including forms of
Incentive Stock Option Agreement, Non-Qualified Stock Option Agreement and Stock Purchase and
Restriction Agreement.
10.2*+ Directors Compensation Plan of Bluestone.
10.3+ Forms of Employee Confidentiality Agreements of Bluestone.
10.4+ Executive Employment Agreement, dated April 18, 1997, between Mel Baiada and Bluestone.
10.5+ First Amendment to Executive Employment Agreement, dated January 13, 1999, between Mel Baiada and
Bluestone.
10.6+ Executive Employment Agreement, dated April 24, 1997, between Robert Bickel and Bluestone.
10.7+ Severance Agreement, dated September 17, 1998, between P. Kevin Kilroy and Bluestone.
10.8+ Severance Agreement, dated September 17, 1998, between Robert Bickel and Bluestone.
10.9+ Severance Agreement, dated September 17, 1998, between John H. Capobianco and Bluestone.
10.10+ Severance Agreement, dated September 17, 1998, between Enrico J. Ballezzi and Bluestone.
10.11 Consulting Agreement between Bluestone and Andrew J. Filipowski dated as of May 3, 1999.
10.12* Reseller Agreement, dated January 1, 1998, between Bluestone and Bluestone Consulting, Inc.
10.13 Subcontract Agreement, dated April 23, 1998, between Bluestone and Bluestone Consulting, Inc.
10.14 Intercompany Services Agreement, dated April 17, 1997, between Bluestone and Bluestone Consulting, Inc.
10.15 Service Mark License Agreement, dated April 17, 1997, between Bluestone and Bluestone Consulting, Inc.
10.16 $500,000 Amended and Restated Convertible and Subordinated Note, dated April 17, 1997, by Bluestone in
favor of Mark Baiada.
10.17 $500,000 Promissory Note, dated April 17, 1997, by Bluestone in favor of Bluestone Consulting, Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
10.18* Sublease Agreement dated as of April 18, 1997 between Bluestone (as sublandlord) and Bluestone
Consulting, Inc. (as subtenant).
10.19* Equipment Lease, dated September 5, 1997, between Bluestone and Colonial Pacific Leasing.
10.20 Loan and Security Agreement, dated as of December 8, 1997, between Silicon Valley Bank and Bluestone.
10.21 First Loan Modification Agreement, dated as of August 16, 1998, between Silicon Valley Bank and
Bluestone.
10.22 Second Loan Modification Agreement, dated as of January 21, 1999, between Silicon Valley Bank and
Bluestone.
10.23 Third Loan Modification Agreement, dated as of March 30, 1999, between Silicon Valley Bank and
Bluestone.
10.24 Negative Pledge Agreement, dated as of August 16, 1998, between Silicon Valley Bank and Bluestone.
10.25 Warrant to purchase 31,250 shares of Common Stock of Bluestone, dated as of November 24, 1997, issued
by Bluestone to Silicon Valley Bank, as amended.
10.26 Antidilution Agreement, dated as of November 24, 1997, between Silicon Valley Bank and Bluestone.
10.27 Registration Rights Agreement, dated as of November 24, 1997, between Silicon Valley Bank and
Bluestone.
10.28 Form of Warrant to purchase 481,434 shares of Common Stock of Bluestone, dated as of May 25, 1999,
issued by Bluestone to Deutsche Banc Alex. Brown
10.29 Series A Preferred Stock Purchase Agreement, dated as of April 18, 1997, between Bluestone and the
investors listed therein.
10.30 Series B Preferred Stock Purchase Agreement, dated as of April 22, 1998, between Bluestone and the
investors listed therein.
10.31 Convertible Subordinated Secured Note and Warrant Purchase Agreement, dated as of January 21, 1999,
between Bluestone and the investors listed therein.
10.32 Form of Warrant issued to the investors under the Convertible Subordinated Secured Note and Warrant
Purchase Agreement dated January 21, 1999.
10.33 Preferred Stock Purchase Agreement relating to the sale of Series C Preferred Stock, dated as of May
25, 1999, between Bluestone and the purchasers listed therein.
10.34 Second Restated First Refusal and Co-Sale Agreement, dated as of May 25, 1999, between Bluestone and
the investors and stockholders listed therein.
10.35 Second Restated Investors' Rights Agreement, dated as of May 25, 1999, between Bluestone and the
investors and stockholders listed therein, as amended by the First Amendment dated as of June 16, 1999.
10.36 Restated Voting Agreement, dated as of April 23, 1998, between Bluestone and the investors and founders
listed therein, as amended by the First Amendment dated as of June 16, 1999.
10.37 Lease for headquarters space at 1000 Briggs Road, Mount Laurel, New Jersey, dated September 27, 1993,
with Liberty Property Limited Partnership (successor to Briggs Properties Partnership) as landlord.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
10.38* Sublease Agreement between Bluestone and Bluestone Consulting, Inc. dated as of April 18, 1997.
23.1 Consent of Arthur Andersen LLP.
23.2* Consent of Pepper Hamilton LLP (included in Exhibit 5.1).
24.1 Powers of Attorney (included in the signature page to the Registration Statement).
27.1 Financial Data Schedule (in electronic format only).
</TABLE>
- ------------------------
* To be filed by amendment.
+ Management contract or compensatory plan.
<PAGE>
Exhibit 2.1
CONTRIBUTION AND DISTRIBUTION AGREEMENT
between
BLUESTONE SOFTWARE, INC.
and
BLUESTONE CONSULTING, INC.
Dated April 17, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I
DEFINITIONS.......................................................................................................2
1.1 Definitions.........................................................................................2
ARTICLE II
THE REORGANIZATION................................................................................................6
2.1 Transfer of Contributed Assets......................................................................6
2.2 Assumption of Liabilities...........................................................................6
2.3 Retained Liabilities................................................................................6
2.4 Dispute Resolution..................................................................................6
2.5 Issuance of Services Common Stock...................................................................7
2.6 Nonassignable Contracts.............................................................................7
2.7 Closing Balance Sheet; Opening Balance Sheet........................................................7
ARTICLE III
THE DISTRIBUTION..................................................................................................8
3.1 Distribution of Contribution Shares.................................................................8
ARTICLE IV
OTHER AGREEMENTS..................................................................................................8
4.1 Mark Baiada Convertible Note........................................................................8
4.2 Replication of Stock Option Plan....................................................................8
4.3 Transfer of Employees...............................................................................9
4.4 Intercompany Services...............................................................................9
4.5 Intellectual Property...............................................................................9
4.6 Customer and Prospect Database......................................................................9
4.7 Shareholder Notes...................................................................................9
4.8 Intercompany Notes..................................................................................9
4.9 PNC Debt...........................................................................................10
ARTICLE V
CLOSING..........................................................................................................10
5.1 Closing............................................................................................10
5.2 Deliveries and Proceedings at Closing..............................................................10
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF THE SERVICES COMPANY...........................................................11
6.1 February Balance Sheet.............................................................................11
ARTICLE VII
INDEMNIFICATION..................................................................................................12
7.1 Indemnification....................................................................................12
7.2 Third Party Claim Indemnification Procedures.......................................................12
7.3 Remedies Cumulative................................................................................14
ARTICLE VIII
TAX AND EXPENSE MATTERS..........................................................................................14
8.1 Certain Taxes and Expenses.........................................................................14
8.2 Tax Returns and Other Filings......................................................................14
8.3 Tax Allocations....................................................................................14
8.4 Representations, Warranties and Covenants..........................................................14
8.5 Failure to Qualify.................................................................................15
ARTICLE IX
ADDITIONAL MATTERS...............................................................................................15
9.1 Access to Information..............................................................................15
ARTICLE X
MISCELLANEOUS....................................................................................................16
10.1 Construction......................................................................................16
10.2 Notices...........................................................................................16
10.3 Successors and Assigns............................................................................16
10.4 Governing Law; Jurisdiction.......................................................................17
10.5 Entire Agreement..................................................................................17
10.6 Further Assurances................................................................................17
10.7 Amendment and Waiver..............................................................................17
10.8 Counterparts......................................................................................17
10.9 Headings..........................................................................................17
</TABLE>
-ii-
<PAGE>
TABLE OF EXHIBITS AND SCHEDULES
Exhibit 4.4 - Intercompany Services Agreement
Exhibit 4.5(i) - Intellectual Property Assignment
Exhibit 4.5(ii) - Service Mark Licence Agreement
Exhibit 5.2(a)(i) - Bill of Sale
Exhibit 5.2(b)(iii) - Assumption Agreement
Exhibit 8.2 - Tax Allocation Agreement
Schedule 1.1(a) - Contributed Assets
Schedule 1.1(b) - Retained Assets
Schedule 2.1 - Permitted Encumbrances
Schedule 2.2 - Assumed Liabilities
Schedule 2.3 - Retained Liabilities
Schedule 2.6 - Nonassignable Contracts
-iii-
<PAGE>
CONTRIBUTION AND DISTRIBUTION AGREEMENT
THIS CONTRIBUTION AND DISTRIBUTION AGREEMENT (this
"Agreement") dated April 17, 1997, is made by and between BLUESTONE SOFTWARE,
INC., a Delaware corporation (the "Products Company"), and BLUESTONE CONSULTING,
INC., a Delaware corporation (the "Services Company"). Capitalized terms shall
have the meanings set forth in Article I hereof unless otherwise defined in a
particular Section in which they are used.
BACKGROUND
A. The Prior Corporation was formed as a New Jersey
corporation, all of the issued and outstanding stock of which was owned by the
Shareholder. For the sole purpose of enabling the Prior Corporation to change
its state of incorporation, the Products Company was formed as a Delaware
corporation and, on March 25, 1997, the Prior Corporation merged with and into
the Products Company, with the Products Company as the surviving corporation.
All of the issued and outstanding common stock of the Products Company is owned
by the Shareholder.
B. In order to enable the Products Company to obtain venture
capital financing and as a condition thereof, the Board of Directors of the
Products Company has determined to transfer or cause to be transferred to the
Services Company substantially all of the assets of the Products Company used
primarily in or primarily related to, the Services Business, to cause the
assumption by the Services Company of the Assumed Liabilities and to cause the
issuance to the Products Company of all of the shares of Common Stock of the
Services Company (the "Contribution"), which Contribution in conjunction with
the Distribution defined below is intended to qualify for federal income tax
purposes as a reorganization pursuant to Section 368(a)(1)(D) of the Code.
C. Immediately after the Contribution and as part of the same
plan, the Products Company shall distribute or cause to be distributed to the
Shareholder all of the shares of Common Stock of the Services Company owned by
the Products Company (the "Distribution") in a distribution that is intended to
be tax-free to the Shareholder and the Products Company pursuant to Sections
355(a) and 361(c) of the Code, respectively.
D. The Products Company and the Services Company have
determined that it is desirable to set forth the principal corporate
transactions required to effect the Contribution and the Distribution and to set
forth other agreements that will govern certain other matters prior to or
following the Distribution.
NOW, THEREFORE, in consideration of the mutual covenants
contained herein and intending to be legally bound hereby, the parties hereto
agree as follows:
<PAGE>
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS. As used in this Agreement, the following terms shall
have the respective meanings ascribed to them in this Section:
"Affiliate" means a person that directly or indirectly through
one or more intermediaries, controls, is controlled by or is under common
control with, the person specified; provided that the Products Company and the
Services Company (after giving effect to the Reorganization) shall not be deemed
to be Affiliates of each other for purposes of this Agreement.
"Assumed Liabilities" has the meaning set forth in Section 2.2
hereof.
"Assumption Agreement" has the meaning set forth in Section
5.2(b)(iii) hereof.
"Bill of Sale" has the meaning set forth in Section 5.2(a)(i)
hereof.
"Business Day" means any day other than a Saturday, Sunday, or
a day on which banking institutions in the State of Delaware are authorized or
obligated by law or executive order to close.
"Closing" means the consummation of the Reorganization.
"Closing Balance Sheet" has the meaning set forth in Section
2.7 hereof.
"Closing Date" has the meaning set forth in Section 5.1
hereof.
"Code" means the Internal Revenue Code of 1986, as amended.
"Contributed Assets" means all right, title, and interest of
the Products Company on the date hereof in all assets, properties and rights
used primarily in or primarily related to the Services Business (other than the
Retained Assets), wherever such assets are located and whether real, personal or
mixed, tangible or intangible, and whether or not any of such assets have any
value for accounting purposes or are carried or reflected on or specifically
referred to in its books or financial statements, and set forth on SCHEDULE 1.1
hereto (except for consumable assets and other similar assets which are not
listed on such Schedule).
"Contribution" has the meaning set forth in the "Background"
section.
"Contribution Date" means the time immediately prior to the
Distribution Date.
"Contribution Shares" has the meaning set forth in Section 2.5
hereof.
-2-
<PAGE>
"Damages" means any and all losses, liabilities, damages
(including, without limitation, any governmental fines or penalties or punitive
damages and costs of investigation), settlement payments, deficiencies,
judgments, interest, costs and expenses (including, without limitation,
attorneys' fees and expenses) including without limitation any of the foregoing
relating to, resulting from or arising out of any commenced or threatened
action, suit, administrative proceeding, investigation, audit or other
proceeding by any person or entity and any settlement or compromise thereof.
"Distribution" has the meaning set forth in the "Background"
section.
"Distribution Date" means the date as of which the
Distribution shall be effected as determined by the Board of Directors of the
Products Company.
"February Balance Sheet" has the meaning set forth in Section
6.1 hereof.
"Former Convertible Note" means the $1 million convertible
promissory note issued by the Prior Corporation to Mark Baiada and convertible
into 700,000 shares of common stock of the Prior Corporation.
"Former Options" has the meaning set forth in Section 4.2
hereof.
"Former Shareholder Note" has the meaning set forth in Section
4.7 hereof.
"GAAP" has the meaning set forth in Section 2.7 hereof.
"Indemnified Party" has the meaning set forth in Section
7.2(a) hereof.
"Indemnifying Party" has the meaning set forth in Section
7.2(a) hereof.
"Intellectual Property Assignment" has the meaning set forth
in Section 4.5 hereof.
"Intercompany Services Agreement" has the meaning set forth in
Section 4.4 hereof.
"ISOs" has the meaning set forth in Section 4.2 hereof.
"Lien" has the meaning set forth in Section 2.1 hereof.
"Litigation Conditions" has the meaning set forth in Section
7.2(b) hereof.
"Opening Balance Sheet" has the meaning set forth in Section
2.7 hereof.
"Permitted Encumbrances" has the meaning set forth in Section
2.1 hereof.
-3-
<PAGE>
"PNC Debt" means the indebtedness of the Products Company
under the $3 million line of credit, the $235,000 term note and the $300,000
Convertible Software Note, each as reflected on the February Balance Sheet.
"Prior Corporation" means Bluestone Consulting, Inc., a New
Jersey corporation, which merged with and into the Products Company on March 25,
1997.
"Products Business" means the business engaged in by the
Products Company prior to the Closing Date in connection with its software
products operations, and includes the products, training, marketing, consulting
and support groups.
"Products Company" means Bluestone Software, Inc., a Delaware
corporation, successor to the Prior Corporation.
"Products Common Stock" means common stock, par value $.001
per share, of the Products Company.
"Products Intercompany Note" has the meaning set forth in
Section 4.8 hereof.
"Products Options" has the meaning set forth in Section 4.2
hereof.
"Products Shareholder Note" has the meaning set forth in
Section 4.7 hereof.
"Products Stock Option Plan" has the meaning set forth in
Section 4.2 hereof.
"Products Company Tax Liabilities" means the liabilities of
the Products Company set forth in the Tax Allocation Agreement.
"Products Transaction Documents" means this Agreement, the
Bill of Sale, the Intellectual Property Assignment, the Service Mark Licence
Agreement, the Intercompany Services Agreement and the Tax Allocation Agreement.
"Reorganization" means collectively, the transactions
contemplated pursuant to the provisions of Article II and Article III hereof.
"Retained Assets" means those assets, properties and rights of
the Products Company that are used in, to be used in, useful to or related to
the Services Business which are not intended to be contributed to the Services
Company as set forth on SCHEDULE 1.1(B) hereto.
"Retained Liabilities" shall have the meaning set forth in
Section 2.3 hereof.
"Service Mark Licence Agreement" has the meaning set forth in
Section 4.5 hereof.
-4-
<PAGE>
"Services Business" means the business engaged in by the Prior
Corporation prior to the Closing Date in connection with its professional
consulting services group and which also includes the central group (accounting,
finance, information systems and human resources).
"Services Common Stock" means common stock, par value $.001
per share, of the Services Company.
"Services Company" means Bluestone Software, Inc., a Delaware
corporation.
"Services Options" has the meaning set forth in Section 4.2
hereof.
"Services Intercompany Note" has the meaning set forth in
Section 4.8 hereof.
"Services Records" has the meaning set forth in Section 9.1
hereof.
"Services Shareholder Note" has the meaning set forth in
Section 4.7 hereof.
"Services Stock Option Plan" has the meaning set forth in
Section 4.2 hereof.
"Services Company Tax Liabilities" means the liabilities of
the Services Company set forth in the Tax Allocation Agreement.
"Services Transaction Documents" means this Agreement, the
Service Mark Licence Agreement, the Intercompany Services Agreement and the
Assumption Agreement.
"Shareholder" means Mr. Mel Baiada.
"Stock Purchase Agreement" means the Series A Preferred Stock
Purchase Agreement among the Products Company and the investors listed therein.
"Tax Allocation Agreement" has the meaning set forth in
Section 8.2 hereof.
"Taxes" means any federal, state, local and foreign income,
payroll, withholding, excise, sales, use, personal property, use and occupancy,
business and occupation, mercantile, real estate, gross receipts, license,
employment, excise, severance, stamp, premium, windfall profits, social
security, unemployment, disability, transfer, registration, value added,
alternative, or add-on minimum, estimated, or capital stock and franchise and
other tax or governmental charge of any kind whatsoever, including any interest,
penalty or addition thereto, whether disputed or not.
"Tax Returns" means returns, reports, or information returns
or statements relating to Taxes (including amendments thereto) required to be
filed with the appropriate United States, state, local or foreign tax authority
or agency thereof.
"Third Party Claim" has the meaning set forth in Section
7.2(a) hereof.
-5-
<PAGE>
ARTICLE II
THE REORGANIZATION
2.1 TRANSFER OF CONTRIBUTED ASSETS. Subject to the terms and conditions
of this Agreement and effective as of the Contribution Date, the Products
Company hereby assigns, transfers, delivers and conveys to the Services Company,
as a capital contribution, all of its right, title and interest in and to the
Contributed Assets, free and clear of all mortgages, pledges, liens,
restrictions, encumbrances, tenancies, licenses, encroachments, covenants,
rights of way, easements, claims, security interests, charges or any other
matter affecting title (collectively "Liens"), except (a) minor imperfections of
title, none of which, individually or in the aggregate, materially detracts from
the value of or impairs the use of the affected properties or impairs the
operations of the Products Company, (b) liens for current taxes not yet due and
payable, or (c) as disclosed on SCHEDULE 2.1 hereto (collectively, "Permitted
Encumbrances").
2.2 ASSUMPTION OF LIABILITIES. Except for the Retained Liabilities
referred to in Section 2.3 hereof, the Services Company hereby assumes and
agrees to pay, fully satisfy when due and fully perform when required, all of
the Assumed Liabilities. For purposes of this Agreement, "Assumed Liabilities"
shall mean all of the liabilities and obligations, whether primary or secondary,
direct or indirect, absolute or contingent, arising out of or relating to the
Contributed Assets or the Services Business, whether now existing or hereafter
arising and whether arising out of occurrences, events or incidents occurring
prior to the Closing Date or thereafter, including any liabilities set forth on
SCHEDULE 2.2 hereto.
2.3 RETAINED LIABILITIES. Except for the Assumed Liabilities referred
to in Section 2.2 hereof, the Products Company hereby retains and agrees to pay,
fully satisfy when due and fully perform when required, all of the Retained
Liabilities. For purposes of this Agreement, "Retained Liabilities" shall mean
all of the liabilities and obligations, whether primary or secondary, direct or
indirect, absolute or contingent, arising out of or relating to the Products
Business, whether now existing or hereafter arising and whether arising out of
occurrences, events or incidents occurring prior to the Closing Date or
thereafter, including any liabilities set forth on SCHEDULE 2.3 hereto.
2.4 DISPUTE RESOLUTION. In the event that (i) the parties are unable to
agree on whether an asset is a Contributed Asset or (ii) the parties are unable
to agree on whether a liability is, in whole or part, an Assumed Liability or a
Retained Liability, then (x) the Boards of Directors of the Services Company and
the Products Company shall meet and attempt in good faith to resolve the
differences between the parties, and if no resolution is reached after fifteen
(15) days, (y) the parties shall settle the matter by arbitration before a
single arbitrator in the County of Philadelphia (or such other place agreed to
by the parties) in accordance with the Commercial Arbitration Rules of the
American Arbitration Association, and judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction thereof. All costs
-6-
<PAGE>
associated with such arbitration shall be borne equally by the parties to the
dispute, except that each party shall bear the costs of its own attorneys and
experts.
2.5 ISSUANCE OF SERVICES COMMON STOCK. Contemporaneously with the
transfer of the Contributed Assets and the assumption of the Assumed Liabilities
contemplated herein, the Services Company shall issue, transfer and deliver to
the Products Company, as its initial issuance, nine million (9,000,000) shares
of Services Common Stock free and clear of all Liens, such transfer to be
accomplished by a certificate or certificates registered in the Products
Company's name, which will, immediately after such issuance, constitute all of
the Services Company's issued and outstanding common stock (the "Contribution
Shares").
2.6 NONASSIGNABLE CONTRACTS. Nothing in this Agreement shall be
construed as an attempt to assign any contract, agreement, permit, franchise or
claim included in the Contributed Assets which is by its terms or by law
nonassignable and are set forth on SCHEDULE 2.6 hereto, without the consent of
the other party or parties thereto, unless such consent shall have been given,
or as to which all the remedies for the enforcement thereof enjoyed by the
Products Company would, as a matter of law, pass to the Services Company as an
incident of the assignments provided for by this Agreement. In order, however,
to provide the Services Company the full realization and value of every
contract, agreement, permit, franchise and claim of the character described in
the immediately preceding sentence, the Products Company agrees that on and
after the Closing, it will, at the request and under the direction of the
Services Company, in the name of the Products Company or otherwise as the
Services Company shall specify, take all reasonable actions and do or cause to
be done all such things as shall in the reasonable opinion of the Services
Company or its counsel be necessary or proper (a) to assure that the rights of
the Products Company under such contracts, agreements, permits, franchises and
claims shall be preserved for the benefit of the Services Company and (b) to
facilitate receipt of the consideration to be received by the Products Company
in and under every such contract, agreement, permit, franchise or claim, which
consideration shall be held for the benefit of, and shall be delivered to, the
Services Company.
2.7 CLOSING BALANCE SHEET; OPENING BALANCE SHEET.
(a) Within sixty (60) days after the Closing, the parties
hereto will use their best efforts to have prepared and delivered to the
Products Company an audited balance sheet (the "Closing Balance Sheet") of the
Products Company as of the close of business on the Closing Date, which balance
sheet shall be prepared in accordance with generally accepted accounting
principles applied in the United States of America ("GAAP"). The Closing Balance
Sheet shall be accompanied by an opinion from Arthur Andersen LLP that the
Closing Balance Sheet fairly presents in all material respects the assets and
liabilities of the Products Company as of the close of business on the Closing
Date in accordance with GAAP.
(b) Within sixty (60) days after the Closing, the parties
hereto will use their best efforts to have prepared and delivered to the
Services Company an audited balance sheet (the "Opening Balance Sheet") of the
Services Company as of the close of business on the Closing Date, which balance
sheet shall be prepared in accordance with GAAP. The Opening
-7-
<PAGE>
Balance Sheet shall be accompanied by an opinion from Arthur Andersen LLP that
the Opening Balance Sheet fairly presents in all material respects the assets
and liabilities of the Services Company as of the close of business on the
Closing Date in accordance with GAAP.
ARTICLE III
THE DISTRIBUTION
3.1 DISTRIBUTION OF CONTRIBUTION SHARES. On the Distribution Date, the
Products Company shall distribute to Shareholder, a duly executed certificate or
certificates representing the Contribution Shares, so that immediately following
the distribution, the Shareholder shall be the sole shareholder of the Services
Company.
ARTICLE IV
OTHER AGREEMENTS
4.1 MARK BAIADA CONVERTIBLE NOTE. The Services Company has agreed that
one-half of the principal amount of the Former Convertible Note shall be an
Assumed Liability under Section 2.2 hereof. Accordingly, at Closing (i) the
Former Convertible Note shall be amended and restated to reflect that the
principal amount due thereunder shall be in the amount of $500,000 as evidenced
by an amended and restated convertible and subordinated note issued by the
Products Company, such note to be convertible into 700,000 shares of Products
Common Stock; and (ii) the Services Company shall issue a convertible and
subordinated note in the principal amount of $500,000, which note shall be
convertible into 700,000 shares of Services Common Stock.
4.2 REPLICATION OF STOCK OPTION PLAN. Prior to the Closing Date, the
1996 Incentive and Non-Qualified Stock Option Plan of the Prior Corporation (the
"1996 Plan") will be assumed by the Products Company (the "Products Stock Option
Plan"). On or prior to the Closing Date, the Services Company will adopt a stock
option plan (the "Services Stock Option Plan") substantially similar to the
Products Stock Option Plan. In exchange for agreeing to the cancellation of
outstanding options granted by the Prior Corporation pursuant to the terms of
the 1996 Plan (the "Former Options") and agreeing to execute new confidentiality
agreements, holders of Former Options shall be granted (i) options to purchase
the same number of shares of Products Common Stock as under the Former Options
("Products Options") and (ii) options to purchase the same number of shares of
Services Common Stock as under the Former Options (the "Services Options").
Option holders who are employed by the Products Company after the Closing Date
shall receive Products Options that are intended to be incentive stock options
within the meaning of Section 422 of the Code ("ISOs") and Services Options that
are non-qualified stock options. Option holders who are employed by the Services
Company after the Closing Date shall receive Services Options that are intended
to be ISOs and Products Options that are non-qualified stock options.
-8-
<PAGE>
4.3 TRANSFER OF EMPLOYEES. Effective as of the Closing Date, each
employee of the Services Business shall cease to be an employee of the Products
Company, and shall become an employee of the Services Company unless he or she
choose not to accept such employment in which case his or her employment shall
terminate altogether. The Services Company shall establish and maintain such
compensation and benefit arrangements as it may determine from time to time. The
Services Company and Products Company shall cooperate in the transfer of
employee records, coordination of compensation systems, and continuity of
benefit arrangements, including vacation, 401(k) and profit sharing, sick pay
and disability, health plans, and all other material benefit arrangements.
4.4 INTERCOMPANY SERVICES. As a condition to the execution of this
Agreement and simultaneous herewith, the Products Company and the Services
Company shall enter into and execute an Intercompany Services Agreement,
substantially in the form of EXHIBIT 4.4 hereto (the "Intercompany Services
Agreement").
4.5 INTELLECTUAL PROPERTY. As condition to the execution of this
Agreement and simultaneous herewith, the Products Company and the Services
Company shall enter into and execute an Intellectual Property Assignment,
substantially in the form of EXHIBIT 4.5(I) hereto (the "Assignment"), and an
Service Mark Licence Agreement, substantially in the form of EXHIBIT 4.5(II)
hereto (the "License Agreement").
4.6 CUSTOMER AND PROSPECT DATABASE. During the one (1) year period
following the Closing, each of the Products Company and the Services Company
shall use its best efforts to equitably separate and divide ownership of the
customer and prospect database (known internally as "BEDROCK") jointly owned by
the parties hereto. After such division, each company shall have sole right,
title and interest to its database.
4.7 SHAREHOLDER NOTES. On the Closing Date, the $403,066.37 Promissory
Note, dated as of December 31, 1994, issued by the Prior Corporation to the
Shareholder (the "Former Shareholder Note") will be canceled, and in
consideration therefore (a) the Services Company will issue to the Shareholder a
$107,495 promissory note (the "Services Shareholder Note"), and (b) the Products
Company will issue to the Shareholder a $250,000 promissory note (the "Products
Shareholder Note"). The Products Shareholder Note will subsequently be
contributed to capital of the Products Company in exchange for the issuance of
263,158 shares Series A Preferred Stock in accordance with the Stock Purchase
Agreement.
4.8 INTERCOMPANY NOTES. On the Closing Date, the Products Company will
issue to the Services Company a $500,000 promissory note (the "Products
Intercompany Note") in connection with the allocation of indebtedness for
borrowed money between the companies. On the closing of the Stock Purchase
Agreement, the Services Company will issue to the Products Company a promissory
note in the amount of the fees and expenses incurred and payable by the Services
Company in accordance with Section 8.1 hereof (the "Services Intercompany
Note"), which fees and expenses will be paid by the Products Company on the
Services Company's behalf.
-9-
<PAGE>
4.9 PNC DEBT. On the Closing Date, the Services Company and the
Products Company shall enter into an assignment and assumption agreement
assigning to the Services Company its allocable portion of the PNC Debt, in the
amounts set forth on SCHEDULE 2.2 hereto. The Products Company shall retain the
PNC Debt in the amounts set forth on SCHEDULE 2.3 hereto. Subsequent to the
assignment and assumption of the PNC Debt, each of the parties will enter into
amended and restated financing documents with PNC reflecting the allocation of
the PNC Debt.
ARTICLE V
CLOSING
5.1 CLOSING. Subject to the terms and conditions of this Agreement, the
closing under this Agreement (the "Closing") will take place concurrently with
the execution and delivery of this Agreement, at 10:00 a.m. on the date of this
Agreement, at the offices of Pepper, Hamilton & Scheetz, 1235 Westlakes Drive,
Suite 400, Berwyn, Pennsylvania 19312, or at such other time, date or location
as shall be agreed upon by the parties hereto. The date at which the Closing
occurs is sometimes referred to herein as the "Closing Date".
5.2 DELIVERIES AND PROCEEDINGS AT CLOSING.
(a) DELIVERIES TO THE SERVICES COMPANY. The Products Company
hereby delivers to the Services Company the following:
(i) a Bill of Sale and instrument of Assignment with
respect to the Contributed Assets, duly executed by the Products Company,
substantially in the form of EXHIBIT 5.2(A)(I) hereto (the "Bill of Sale");
(ii) the Intercompany Services Agreement, duly
executed by the Products Company;
(iii) the Assignment, duly executed by the Products
Company;
(iv) the License Agreement, duly executed by the
Products Company; (v) the Tax Allocation Agreement, duly executed by the
Products Company; and
(vi) all such other instruments of conveyance as
shall, in the reasonable opinion of the Services Company and its counsel, be
necessary to vest in the Services Company good, valid and, marketable title to
the Contributed Assets in accordance with Section 2.1 hereof.
-10-
<PAGE>
(b) DELIVERIES BY THE SERVICES COMPANY TO THE PRODUCTS
COMPANY. The Services Company hereby delivers to the Products Company the
following:
(i) a stock certificate or certificates representing
the Services Common Stock, free and clear of all Liens, registered in the name
of the Products Company and appropriately legended;
(ii) the Intercompany Services Agreement, duly
executed by the Services Company;
(iii) an assumption agreement, duly executed by the
Services Company, substantially in the form of EXHIBIT 5.2(B)(III) hereto (the
"Assumption Agreement");
(iv) the License Agreement, duly executed by the
Services Company; and
(v) the Tax Allocation Agreement, duly executed by
the Services Company.
(c) DELIVERIES BY THE PRODUCTS COMPANY TO THE SHAREHOLDER. The
Products Company shall deliver to the Shareholder a duly executed certificate or
certificates representing the Contribution Shares, duly registered in the
Shareholder's name and appropriately legended.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF THE SERVICES COMPANY
The Services Company hereby represents and warrants to the Products
Company as follows:
6.1 FEBRUARY BALANCE SHEET. The unaudited balance sheet of the Prior
Corporation as of February 28, 1997 (the "February Balance Sheet") fairly
presents the financial condition of the Prior Corporation as of such date,
subject to normal year-end adjustments. The February Balance Sheet has been
prepared in accordance with GAAP applied on a consistent basis, except that the
February Balance Sheet may not contain all footnotes required by GAAP. Since the
date of the February Balance Sheet, the Products Company has not incurred any
material liabilities, contingent or otherwise, other than (i) liabilities
incurred in the ordinary course of business consistent with past practices
(other than extensions of trade payables), (ii) liabilities incurred under the
PNC financing documents, or (iii) as disclosed in the Disclosure Letter to the
Series A Preferred Stock Purchase Agreement among the Products Company and the
investors listed therein.
-11-
<PAGE>
ARTICLE VII
INDEMNIFICATION
7.1 INDEMNIFICATION.
(a) INDEMNIFICATION BY THE PRODUCTS COMPANY. The Products
Company shall indemnify the Services Company and its directors, officers and
other Affiliates and hold the Services Company and its directors, officers and
other Affiliates harmless from and against any and all Damages relating to,
arising out of or resulting from:
(i) any material misrepresentation or any material
breach of any representation or warranty made by the Products Company in this
Agreement or any material failure to comply with any covenant made by the
Products Company in this Agreement;
(ii) any Retained Liabilities; or
(iii) any Products Company Tax Liabilities.
(b) INDEMNIFICATION BY THE SERVICES COMPANY. The Services
Company shall indemnify the Products Company and its directors, officers and
other Affiliates, and hold the Products Company and its directors, officers and
other Affiliates harmless from and against any and all Damages relating to,
arising out of or resulting from:
(i) any material breach of any representation or
warranty made by the Services Company in this Agreement or any material failure
to comply with any covenant made by the Services Company in this Agreement;
(ii) any Assumed Liabilities; or
(iii) any Services Company Tax Liabilities.
(c) LIMITATION OF INDEMNIFICATION. Notwithstanding anything to
the contrary contained herein, no claim for indemnification under this Article
VII may be brought after the second anniversary of the Closing Date.
7.2 THIRD PARTY CLAIM INDEMNIFICATION PROCEDURES.
(a) A party seeking indemnification pursuant to this Article
VII (an "Indemnified Party") shall give prompt notice to the party from whom
such indemnification is sought (the "Indemnifying Party") of the assertion of
any claim, or the commencement of any action, suit or proceeding by a third
party in respect of which indemnity may be sought hereunder (a "Third Party
Claim"), and will give the Indemnifying Party such information with respect
thereto as the Indemnifying Party may reasonably request, but failure to give
such notice shall not
-12-
<PAGE>
relieve the Indemnifying Party of any liability hereunder except to the extent
that the Indemnifying Party is actually prejudiced thereby.
(b) The Indemnifying Party shall have the right, exercisable
by written notice to the Indemnified Party within thirty (30) days of receipt of
notice from the Indemnified Party of the commencement of or assertion of any
Third Party Claim in respect of which indemnity may be sought hereunder, to
assume and conduct the defense of such Third Party Claim with counsel selected
by the Indemnifying Party and reasonably acceptable to the Indemnified Party;
provided that: (i) such Third Party Claim involves (and continues to involve)
solely monetary damages; (ii) the defense of such Third Party Claim by the
Indemnifying Party will not, in the reasonable judgment of the Indemnified
Party, have a material adverse effect on the Indemnified Party; (iii) the
Indemnifying Party makes adequate provision to satisfy reasonably the
Indemnified Party of the Indemnifying Party's ability to satisfy the amount of
any adverse monetary judgment that is reasonably likely to result, (the
conditions set forth in clauses (i), (ii) and (iii) are collectively referred to
as the "Litigation Conditions"); and (iv) the Indemnifying Party expressly
agrees in writing that as between the Indemnifying Party and the Indemnified
Party, the Indemnifying Party shall be solely obligated to satisfy and discharge
the Third Party Claim. If the Indemnifying Party does not assume the defense of
such Third Party Claim in accordance with this Section, then the Indemnified
Party may continue to defend the Third Party Claim. If the Indemnifying Party
has assumed the defense of a Third Party Claim as provided in this Section
7.2(b), then the Indemnifying Party will not be liable for any legal expenses
subsequently incurred by the Indemnified Party in connection with the defense
thereof; provided however that if (A) the Litigation Conditions cease to be met,
or (B) the Indemnifying Party fails to take reasonable steps necessary to defend
diligently such Third Party Claim within ten (10) calendar days (or such shorter
period as may be required to defend diligently such Third Party Claim) after
receiving written notice from the Indemnified Party that the Indemnified Party
believes the Indemnifying Party has failed to take such steps, then the
Indemnified Party may assume its own defense, and the Indemnifying Party will be
liable for all reasonable costs or expenses paid or incurred in connection
therewith.
(c) The Indemnifying Party or the Indemnified Party, as the
case may be, shall have the right to participate in (but not control), at its
own expense, the defense of any Third Party Claim which the other is defending
as provided in this Agreement.
(d) The Indemnifying Party, if it shall have assumed the
defense of any Third Party Claim as provided in this Agreement, shall not,
without the prior written consent of the Indemnified Party, consent to a
settlement of, or the entry of any judgment arising from, any such Third Party
Claim which does not include as an unconditional term thereof the giving by the
claimant or the plaintiff to the Indemnified Party a complete release from all
liability in respect of such Third Party Claim, or which grants any injunctive
or equitable relief. The Indemnified Party shall have the right to settle any
Third Party Claim, the defense of which has not been assumed by the Indemnifying
Party, with the written consent of the Indemnifying Party, which consent shall
not be unreasonably withheld or delayed.
-13-
<PAGE>
(e) Whether or not the Indemnifying Party chooses to defend or
prosecute any Third Party Claim, all the parties hereto shall cooperate in the
defense or prosecution thereof and shall furnish such records, information and
testimony, and attend such conferences, discovery proceedings, hearings, trials
and appeals, as may be reasonably requested in connection therewith.
7.3 REMEDIES CUMULATIVE. Except as herein expressly provided, the
remedies provided herein shall be cumulative and are not exclusive and shall not
preclude assertion by any party hereto of any other rights or the seeking of any
other remedies against any other party hereto.
ARTICLE VIII
TAX AND EXPENSE MATTERS
8.1 CERTAIN TAXES AND EXPENSES. The Services Company shall pay all
sales, use, transfer, real property transfer, documentary stamp, recording and
other similar taxes with respect to transfer of the Contributed Assets. The
Products Company shall pay the audit fees of Arthur Andersen LLP in connection
with the audit of the financial statements for the fiscal years ended December
31, 1995 and 1996. The Products Company shall pay the fees and expenses of Ernst
& Young LLP and Blank Rome Comisky & McCauley for the applicable accounting and
legal services rendered in connection with the transactions contemplated by this
Agreement and the Stock Purchase Agreement. The Services Company shall pay the
fees and expenses of Arthur Andersen LLP (other than the audit fees) and the
fees and expenses of Pepper, Hamilton & Scheetz LLP for the applicable
accounting and legal services rendered in connection with the transactions
contemplated by this Agreement and the Stock Purchase Agreement. At the Closing
the Products Company shall pay all transaction fees incurred by each of the
Products Company and the Services Company and referred to in this Section 8.1.
The Services Company shall concurrently therewith issue to the Products Company
the Services Intercompany Note.
8.2 TAX RETURNS AND OTHER FILINGS. Each of the Services Company and the
Products Company shall agree: (i) to report the Contribution and Distribution as
a transaction described in Section 368(a)(1)(D) of the Code and the Distribution
as a transaction described in Section 355 of the Code on all Tax Returns and
other filings, (ii) to take no position inconsistent therewith or with the
consummation of such transactions, and (iii) to file or cause to be filed all
Tax Returns for which it is responsible hereunder on a timely basis (including
any extensions thereof).
8.3 TAX ALLOCATIONS. As a condition of the execution of this Agreement,
the Parties shall execute a tax allocation agreement, substantially in the same
form of EXHIBIT 8.2 hereto (the "Tax Allocation Agreement"), which agreement
shall set forth the manner in which taxes shall be allocated between the
parties.
8.4 REPRESENTATIONS, WARRANTIES AND COVENANTS. Each of the Services
Company and the Products Company represents, warrants and covenants to the other
that it has no present plan or
-14-
<PAGE>
intention to take any action (including without limitation, in the case of the
Services Company, the cessation of the Services Business or the sale or
disposition of the Contributed Assets other than in the ordinary course of
business, and in the case of the Products Company, the cessation of the Products
Business or the sale or disposition of the Retained Assets or the assets of the
Products Company other than in the ordinary course of business) or cause any
condition to exist, that would disqualify (i) the Contribution and Distribution
as a transaction described in Section 368(a)(1)(D) of the Code; or (ii) the
Distribution as a tax-free distribution under Section 355 of the Code.
8.5 FAILURE TO QUALIFY. If any of the transactions fails to qualify as
tax-free under the applicable Code Section as a result of a breach or violation
of a representation, warranty or covenant set forth in this Agreement by a party
hereto, then the party breaching or violating the representation, warranty or
covenant shall be solely responsible for any taxes resulting from such breach or
violation.
ARTICLE IX
ADDITIONAL MATTERS
9.1 ACCESS TO INFORMATION.
(a) On the Closing Date, or as soon thereafter as practicable,
the Products Company will deliver to the Services Company all original
agreements, documents, books, records and files relating solely to the Services
Business (collectively, "Services Records") in its possession, except that the
Products Company may retain any federal Tax Returns. After the Closing, the
Services Company will retain all Services Records required to be retained
pursuant to obligations imposed by any applicable law. On the Closing Date, or
as soon thereafter as practicable, the Products Company will deliver to the
Services Company copies of all agreements, documents, books, records and files
relating that are common to both the Services Business and the Products
Business.
(b) After the Closing, upon reasonable notice, each party
hereto will give, or cause to be given, to the representatives, employees,
counsel and accountants of the other parties hereto access, during normal
business hours, to Services Records, relating to periods prior to or including
the Closing, and will permit such persons to examine and copy such Services
Records, in each case only to the extent reasonably requested by such other
parties in connection with Tax and financial reporting matters (including
without limitation any Tax Return relating to state or local real property
transfer or gains taxes), legal proceedings or governmental investigations;
provided, however, that nothing herein will obligate any party to take actions
that would unreasonably disrupt the normal course of its business, violate the
terms of any contract to which it is a party or to which it or any of its assets
is subject or grant access to any of its proprietary, confidential or classified
information. The parties hereto will cooperate with each other in the conduct of
any tax audit, claim for refund of income taxes, or similar proceedings
involving or otherwise relating to any of the Contributed Assets (or the income
therefrom or
-15-
<PAGE>
assets thereof) with respect to any Tax and each will execute and deliver such
powers of attorney and other documents as are necessary to carry out the intent
of this Section 9.1.
ARTICLE X
MISCELLANEOUS
10.1 CONSTRUCTION. The parties hereto have jointly participated in the
negotiation and drafting of this Agreement and the instruments of transfer
contemplated hereby. In the event any ambiguity or question of intent or
interpretation arises, this Agreement and the instruments of transfer
contemplated hereby shall be construed as if drafted jointly by and between the
Services Company and the Products Company and no presumption or burden of proof
shall arise favoring or disfavoring any party by virtue of the authorship of any
of the provisions of this Agreement. Any reference to any federal, state, local
or foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. Nothing in the
Schedules hereto shall be deemed adequate to disclose an exception to a
representation or warranty made herein unless the exception is described on the
Schedule with reasonable particularity.
10.2 NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
personally delivered by facsimile transmission (with confirmation postmarked on
the same day), by overnight courier service or, if mailed, when mailed by United
States first-class, certified or registered mail, postage prepaid, to the other
party at the following addresses (or at such other address as shall be given in
writing by any party to the other):
If to the Products Company:
Bluestone Software, Inc.
1000 Briggs Road
Mount Laurel, NJ 08054
Fax: (609) 727-3833
Attention: Mr. Mel Baiada
If to the Services Company, to:
Bluestone Consulting, Inc.
1000 Briggs Road
Mount Laurel, NJ 08054
Fax: (609) 727-3833
Attention: Mr. Thomas Ballezzi, Chief Operating Officer
10.3 SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns; provided, however, that no party may assign, delegate or
otherwise transfer any of its rights or
-16-
<PAGE>
obligations under this Agreement without the consent of the other party hereto,
except that either party may assign its rights hereunder.
10.4 GOVERNING LAW; JURISDICTION. This Agreement shall be governed by
and construed in accordance with the laws of the State of Delaware. In
connection with any dispute arising between the parties under this Agreement,
and without limiting Section 2.4 hereof, each party hereto consents to the
exclusive jurisdiction and venue of any federal or state court located in the
State of New Jersey, and each party hereby waives any claim it may have at any
time to FORUM NON CONVENIENS with respect to such venue.
10.5 ENTIRE AGREEMENT. This Agreement, together with the Schedules and
Exhibits hereto, constitutes the entire understanding of the parties with
respect to the subject matter hereof, supersedes any prior agreements or
understandings, written or oral, between the parties with respect to the subject
matter hereof, and is not intended to confer upon any person other than the
parties hereto any benefit, right or remedy.
10.6 FURTHER ASSURANCES. Each party shall cooperate and take such
action as may be reasonably requested by any other party hereto in order to
carry out the provisions and purposes of this Agreement and the transactions
contemplated hereby. To the extent payments are received by any party hereto
that properly belong to any other party hereto on or after the date hereof, the
parties hereto agree to promptly remit such amounts to the appropriate party.
10.7 AMENDMENT AND WAIVER. The parties may, by mutual agreement, amend
this Agreement in any respect, and any party, as to such party, may extend the
time for the performance of any of the obligations of the other party; waive any
inaccuracies in representations and warranties by the other party; waive
compliance by the other party with any of the agreements contained herein and
performance of any obligations by the other party; and waive the fulfillment of
any condition that is precedent to the performance by such party of any of its
obligations under this Agreement. To be effective, any such amendment or waiver
must be in writing and be signed by the party against whom enforcement of the
same is sought.
10.8 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but which together
shall constitute one and the same instrument.
10.9 HEADINGS. The headings preceding the text of the sections and
subsections hereof are inserted solely for convenience of reference, and shall
not constitute a part of this Agreement nor shall they affect its meaning,
construction or effect.
[SIGNATURE PAGE FOLLOWS]
-17-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed on the day and year first written above.
BLUESTONE CONSULTING, INC.
By /s/ Mel Baiada
--------------------------
Name: Mel Baiada
Title: President
BLUESTONE SOFTWARE, INC.
By /s/ Mel Baiada
--------------------------
Name: Mel Baiada
Title: President
-18-
<PAGE>
Exhibit 3.1
CERTIFICATE OF AMENDMENT
OF THE
THIRD AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
BLUESTONE SOFTWARE, INC.
Bluestone Software, Inc. (the "Corporation"), a corporation organized
and existing under, and by virtue of, the General Corporation Law of the State
of Delaware (the "DGCL"), does hereby certify:
FIRST: That the Board of Directors of the Corporation, by written
consent filed with the minutes of proceedings of the board, duly adopted a
resolution declaring advisable the amendment of the Certificate of Incorporation
of the Corporation and submitting the same to the stockholders of the
Corporation for approval. The resolution setting forth the proposed amendment is
as follows:
RESOLVED, that the Board hereby deems it advisable and in the best interest of
the Company to amend the Company's Certificate of Incorporation as follows:
(a) The first clause of "Authorized Capital
Stock"of Article FOURTH shall be amended to
read as follows:
The Corporation shall have the
authority to issue an aggregate
77,300,187 shares of capital stock
which shall be divided into
53,800,000 shares of Common Stock,
par value $.001 per share ("Common
Stock")
(b) Section B.4(d)(i)(C)(2) shall be amended
such that the reference to "stock option
plan" shall be replaced with "stock option
plans (including the Director's Compensation
Plan)"
(c) The first sentence of Section E.1(a) of
Article FOURTH shall be replaced with the
following:
Subject to Section E.2(a) of this
Article IV, the Board shall consist
of seven (7) members.
(d) The fifth sentence of Section E.1(a) of
Article FOURTH shall be replaced with the
following:
The holders of the Series A
Preferred Stock and the Series B
Preferred Stock and the Common
Stock, voting together as a
<PAGE>
class, shall be entitled to elect,
three (3) members of the Board at
each meeting or pursuant to each
consent of the Corporation's
stockholders for the election of
directors.
(e) Section E.4(d)(iii) of Article FOURTH shall
be amended such that the reference to "1996
Incentive and Non-Qualified Stock Option
Plan" shall be replaced with "1996 Incentive
and Non-Qualified Stock Option Plan or the
Corporation's Directors' Compensation Plan"
SECOND: That the stockholders of the Corporation duly consented in
writing to the aforesaid amendment in accordance with the provisions of
Section 228 of the DGCL.
THIRD: That the amendment was duly adopted in accordance with the
provisions of Section 242 of the DGCL.
IN WITNESS WHEREOF, Bluestone Software, Inc. has caused this
Certificate to be signed by Kevin Kilroy, its President and Chief Executive
Officer, this 15th day of June, 1999.
BLUESTONE SOFTWARE, INC.
/s/ Kevin Kilroy
-----------------------------
Kevin Kilroy
President and Chief Executive Officer
-2-
<PAGE>
Exhibit 3.1
BLUESTONE SOFTWARE, INC.
THIRD AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
MAY 24, 1999
<PAGE>
BLUESTONE SOFTWARE, INC.
THIRD AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
Bluestone Software, Inc., a Delaware corporation (the "Corporation"),
does hereby certify that:
FIRST: The present name of the Corporation is "Bluestone Software,
Inc.," which is the name under which the Corporation was originally
incorporated. The date of filing of the original Certificate of Incorporation of
the Corporation with the Secretary of State of the State of Delaware was March
13, 1997.
SECOND: This Third Amended and Restated Certificate of Incorporation
(this "Certificate") amends and restates in its entirety the present Second
Amended and Restated Certificate of Incorporation of the Corporation, as
amended. This Certificate has been duly adopted and approved by the board of
directors of the Corporation and the stockholders of the Corporation in
accordance with the provisions of Section 141(f), 228 and 242 of the General
Corporation Law of the State of Delaware.
THIRD: This Certificate shall become effective immediately upon its
filing with the Secretary of State of the State of Delaware.
FOURTH: Upon the filing with the Secretary of State of the State of
Delaware of this Certificate, the Second Amended and Restated Certificate of
Incorporation of the Corporation, as amended, shall be amended and restated in
its entirety to read as set forth in Exhibit "A" hereto.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
executed by a duly authorized officer this 24th day of May, 1999.
BLUESTONE SOFTWARE, INC.
By: /s/ S. Craig Huke
-------------------------------------
S. Craig Huke, Sr. Vice President
<PAGE>
Exhibit A
BLUESTONE SOFTWARE, INC.
THIRD AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
ARTICLE I
NAME. The name of the corporation is Bluestone Software, Inc. (the
"Corporation").
ARTICLE II
REGISTERED OFFICE AND AGENT. The address of the registered office of
the Corporation in the State of Delaware is 1201 Market Street, Suite 1600,
Wilmington, DE 19801. The name of its registered agent at such address is PHS
Corporate Services, Inc.
ARTICLE III
PURPOSE. The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of Delaware.
ARTICLE IV
AUTHORIZED CAPITAL STOCK. The Corporation shall have the authority to
issue an aggregate 76,800,187 shares of capital stock which shall be divided
into 53,300,000 shares of Common Stock, par value $.001 per share ("Common
Stock"), as more fully described in Section A of this Article IV below,
5,526,316 shares of Series A Convertible Preferred Stock, par value $.001 per
share, as more fully described in Section B of this Article IV below (the
"Series A Preferred Stock"), 8,782,695 shares of Series B Convertible Preferred
Stock, par value $.001 per share, as more fully described in Section C of this
Article IV below (the "Series B Preferred Stock"), and 9,191,176 shares of
Series C Convertible Preferred Stock, par value $.001 per share, as more fully
described in Section D of this Article IV below (the "Series C Preferred
Stock"), (collectively, with the Series A Preferred Stock and the Series B
Preferred Stock, the "Preferred Stock").
A. COMMON STOCK.
1. DIVIDEND RIGHTS. Subject to the prior rights of holders of
all classes of stock at the time outstanding having prior right as to dividends,
the holders of the Common Stock shall be entitled to receive, when and as
declared by the Board of Directors of the Corporation (the "Board"), out of any
assets of the Corporation legally available therefor, such dividends as may be
declared from time to time by the Board.
<PAGE>
2. LIQUIDATION RIGHTS. Upon the liquidation, dissolution or
winding up of the Corporation, subject to the preferential rights of the
outstanding shares of Preferred Stock, the holders of shares of Common Stock and
Series B Preferred Stock shall be entitled to receive the remaining assets and
funds of the Corporation available for distribution to its stockholders ratably
in proportion to the number of shares of Common Stock held by such stockholders
and into which their shares of Series B Preferred Stock are convertible as of
the date fixed for the determination of the amounts available for distribution.
3. REDEMPTION. The Common Stock is not redeemable.
4. VOTING RIGHTS. Subject to Section E of this Article IV and
except otherwise provided by law or in this Third Amended and Restated
Certificate of Incorporation, the holder of each share of Common Stock shall
have the right to one vote, and shall be entitled to notice of any stockholders'
meeting in accordance with the bylaws of the Corporation (the "Bylaws"), and
shall be entitled to vote upon such matters and in such manner as may be
provided by law.
B. SERIES A PREFERRED STOCK. The Series A Preferred Stock shall have
the preferences, powers, qualifications, limitations and restrictions applicable
thereto as follows:
1. DIVIDENDS.
(a) Subject to the prior rights of holders of the
Series C Preferred Stock, the holders of the Series A Preferred Stock shall be
entitled to receive dividends, out of any assets legally available therefor,
prior and in preference to any declaration or payment of any dividend (payable
other than in Common Stock or other securities and rights convertible into or
entitling the holder thereof to receive, directly or indirectly, additional
shares of Common Stock of the Corporation) on the Common Stock of the
Corporation at the rate of $.057 per share per annum for the Series A Preferred
Stock, commencing on the date of issuance of such share of Series A Preferred
Stock (the "Series A Original Issue Date"), payable when and as declared by the
Board. Such dividends shall accrue on each share from the Series A Original
Issue Date of such share, and shall accrue thereafter from day to day, whether
or not earned or declared. Such dividends shall be cumulative so that, if all or
any portion of such dividends in respect of any previous or current annual
dividend period, at the annual rate specified above, shall not have been paid,
then the deficiency shall first be fully paid before any dividend or other
distribution shall be paid on or declared and set apart for the Common Stock. No
dividend or distribution in cash, shares of stock or other property on the
Series B Preferred Stock shall be declared or paid or set apart for payment
unless, at the same time, a dividend or distribution is declared or paid or set
apart, as the case may be, on the Series A Preferred Stock payable on the same
date, in an amount which bears the same proportion to the amount of such
dividend or distribution on the Series B Preferred Stock as the amount of the
annual cash dividend on the Series A Preferred Stock specified in the first
sentence of this Section B.1(a) bears to the annual cash dividend on the Series
B Preferred Stock specified in the first sentence of Section C.1(a), and any
cash dividend or distribution so paid to the holders of Series A Preferred Stock
shall be credited against the cash dividend otherwise payable under the first
sentence of this Section B.1(a). The payment of any dividend on the Series A
Preferred Stock may be waived or delayed, in whole or in part, upon the
affirmative vote or written consent of the holders of at least 75% of the then
outstanding shares of Series A Preferred Stock. Any accumulation of dividends on
the Series A Preferred Stock shall not bear interest. Upon conversion of the
Series A Preferred Stock into shares of Common Stock in accordance with Section
B.4: (i) the Corporation shall pay to the holders of shares of
2
<PAGE>
Series A Preferred Stock so converted all accumulated and unpaid dividends
(whether or not declared) with respect to such shares of Series A Preferred
Stock to the extent assets are legally available therefor; or (ii) at the
election of the holder of Series A Preferred Stock so converted, and subject to
the approval of the holders of at least a majority of the then outstanding
shares of Common Stock, such holder shall have the right to exchange any and all
accumulated and unpaid dividends (whether or not declared) with respect to such
shares of Series A Preferred Stock for shares of Common Stock at the then fair
market value as determined in good faith by the unanimous vote of the Board or,
if the Board is unable to unanimously agree on the fair market value, by an
independent appraiser selected by the unanimous vote of the Board. Any
accumulated dividends (whether or not declared) on the Series A Preferred Stock
that become payable but were not paid because assets were not legally available
therefor shall be paid promptly as assets become legally available therefor, and
any partial payment shall be made pro rata among the holders of such shares.
(b) In addition to the dividends set forth in Section
B.1(a), in the event that the Corporation shall declare a non-cash dividend or
distribution upon its Common Stock, including, without limitation, any
distribution of capital stock (other than Common Stock) of the Corporation,
stock or other securities of other persons, evidences of indebtedness issued by
the Corporation or other persons, other assets or options or rights (excluding
options to purchase and rights to subscribe for Common Stock or other securities
of the Corporation convertible into or exchangeable for Common Stock), the
holders of Series A Preferred Stock shall be entitled to a proportionate share
of any such distribution as though they were the holders of the number of shares
of Common Stock into which their shares of Series A Preferred Stock are
convertible as of the date fixed for the determination of the holders of Common
Stock entitled to receive such distribution.
(c) Subject to the prior rights of the Series C
Preferred Stock, in the event that it is determined that the holders of shares
of the Series A Preferred Stock are subject to the payment of federal or state
income tax with respect to any accrued but unpaid dividends (whether or not
declared) or otherwise prior to the payment of any dividends, then the
Corporation shall pay to such holders, out of funds legally available therefor,
dividends in an amount equal to such tax determined at the highest marginal rate
then in effect. The amount of any dividends actually paid from time to time
pursuant to this Section B.1(c) shall reduce the amount of accumulated but
unpaid dividends under Section B.1(a).
2. LIQUIDATION, DISSOLUTION OR WINDING UP.
(a) In the event of any liquidation, dissolution, or
winding up of the affairs of the Corporation, whether voluntary or involuntary,
after payment or provision for the payment of the debts and other liabilities of
the Corporation, and subject to the preferential rights of the outstanding
shares of Series C Preferred Stock and Series B Preferred Stock, the holders of
Series A Preferred Stock shall be entitled to receive the amount of $.95 per
share (the "Series A Original Issue Price") (as adjusted for any stock
dividends, combinations or splits with respect to such shares), plus an amount
equal to all accrued but unpaid dividends, without interest, before any payment
or distribution of the assets and funds of the Corporation shall be made to or
set apart pursuant to paragraph (b) below; provided, however, that if after the
payment or provision for the payment of the debts and other liabilities of the
Corporation, and after the payment to the holders of Series C Preferred Stock
and Series B Preferred Stock of the amounts set forth in Section D.2(a) and
Section C.2(a), respectively, the assets and funds of the Corporation shall be
insufficient to pay in full the preferential amounts to which the holders of
Series A Preferred Stock are entitled under this Section B.2(a), then: (i) the
entire remaining assets and funds of the Corporation shall
3
<PAGE>
be distributed ratably to the holders of Series A Preferred Stock in proportion
to the full amounts to which they are entitled under this Section B.2(a); and
(ii) the holders of Common Stock and Series B Preferred Stock shall in no event
be entitled to participate in the distribution of such assets and funds pursuant
to paragraph (b) below.
(b) After the payment to the holders of Series C
Preferred Stock of the amounts set forth in Section D.2(a) and the holders of
Series B Preferred Stock of the amounts set forth in Section C.2(a) and the
holders of Series A Preferred Stock of the amounts set forth in Sections B.2(a),
the holders of Series B Preferred Stock and Common Stock shall be entitled to
receive the remaining property, securities or other consideration available for
distribution to its stockholders ratably in proportion to the number of shares
of Common Stock held by such stockholders or into which their shares of Series B
Preferred Stock are convertible as of the date fixed for the determination of
the amounts available for distribution.
(c) For purposes of this Section B.2, any transaction
which is described in Section C.2(d) or Section D.2(d) (but only if so
determined by the holders of not less than 75% of the outstanding shares of
either the Series B Preferred Stock or the Series C Preferred Stock pursuant to
such respective sections) shall be treated as a liquidation, dissolution or
winding up of the Corporation and shall entitle the holders of Series A
Preferred Stock and Common Stock to receive at the closing in cash, securities
or other property the amounts specified in Section B.2(a).
(d) Whenever the distribution provided for in this
Section B.2 shall be payable in securities or property other than cash, the
value of such distribution shall be the fair market value of such securities or
other property as determined in good faith by the unanimous vote of the Board
or, if the Board is unable to unanimously agree on the fair market value, by an
independent appraiser selected by the unanimous vote of the Board.
3. REDEMPTION.
(a) The Corporation shall redeem, from any source of
funds legally available therefor, the Series A Preferred Stock in three annual
installments, beginning on April 18, 2003 and thereafter on April 18, 2004 and
on April 18, 2005 (each a "Series A Redemption Date"), whereupon the remaining
shares of Series A Preferred Stock outstanding shall be redeemed; provided that
no shares of Series A Preferred Stock shall be redeemed pursuant to this Section
B.3(a) unless and until all outstanding shares of Series B Preferred Stock and
Series C Preferred Stock have been redeemed and all payments of the Series B
Redemption Price and the Series C Redemption Price (as defined herein) in
respect of the Series B Preferred Stock and the Series C Preferred Stock,
respectively, have been made. The Corporation shall redeem the Series A
Preferred Stock on the applicable Series A Redemption Dates by paying in cash in
exchange for shares of the Series A Preferred Stock to be redeemed on such
Series A Redemption Date an amount equal to $.95 per share of Series A Preferred
Stock (as adjusted for any stock dividends, combinations or splits with respect
to such shares) plus all accumulated but unpaid dividends (whether or not
declared) on such share (as to a Series A Redemption Date, the "Series A
Redemption Price"). The number of shares of Series A Preferred Stock that the
Corporation shall be required under this Section B.3(a) to redeem on any one
Series A Redemption Date shall be equal to the amount determined by dividing (i)
the aggregate number of shares of Series A Preferred Stock outstanding
immediately prior to the Series A Redemption Date, by (ii) the number of
remaining Series A Redemption Dates (including the Series A Redemption Date to
which such calculation applies). The
4
<PAGE>
redemption of the Series A Preferred Stock required by this Section B.3(a) may
be waived or delayed, in whole or in part, upon the affirmative vote or written
consent of the holders of at least 75% of the outstanding shares of Series A
Preferred Stock.
(b) As used herein and in Section B.3(c) below, the
term "Series A Redemption Date" shall refer to each "Series A Redemption Date."
At least thirty (30) but no more than sixty (60) days prior to each Series A
Redemption Date, written notice shall be mailed, first class postage prepaid, to
each holder of record (at the close of business on the business day next
preceding the day on which notice is given) of the Series A Preferred Stock to
be redeemed, at the address last shown on the records of the Corporation for
such holder, notifying such holder of the redemption to be effected, specifying:
the number of shares to be redeemed from such holder; the Series A Redemption
Date; the Series A Redemption Price; the place at which payment may be obtained;
and calling upon such holder to surrender to the Corporation, in the manner and
at the place designated, such holder's certificate or certificates representing
the shares to be redeemed (the "Series A Redemption Notice"). Except as provided
in Section B.3(c), on or after the Series A Redemption Date, each holder of
Series A Preferred Stock to be redeemed shall surrender to the Corporation the
certificate or certificates representing such shares, in the manner and at the
place designated by the Corporation, and thereupon the Series A Redemption Price
of such shares shall be payable to the order of the person whose name appears on
such certificate or certificates as the owner thereof and each surrendered
certificate shall be canceled. In the event less than all the shares represented
by any such certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares.
(c) From and after the Series A Redemption Date,
unless there shall have been a default in payment of the Series A Redemption
Price, all rights of the holders of shares of Series A Preferred Stock
designated for redemption in the Series A Redemption Notice (except the right to
receive the Series A Redemption Price of such shares without interest upon
surrender of their certificate or certificates) shall cease with respect to such
shares, and such shares shall not thereafter be transferred on the books of the
Corporation or be deemed to be outstanding for any purpose whatsoever. If the
funds of the Corporation legally available for redemption of shares of Series A
Preferred Stock on any Series A Redemption Date are insufficient to redeem the
total number of shares to be redeemed on such date, those funds which are
legally available will be used to redeem the maximum possible number of such
shares ratably among the holders of such shares to be redeemed based upon the
number of shares of Series A Preferred held by each such holder. The shares of
the Series A Preferred Stock not redeemed shall remain outstanding and entitled
to all the rights and preferences provided in this Certificate of Incorporation.
At any time thereafter when additional funds of the Corporation are legally
available for the redemption of shares of the Series A Preferred Stock, such
funds will immediately be used to redeem the balance of the shares that the
Corporation has become obliged to redeem on any Series A Redemption Date but
which the Corporation has not redeemed.
4. CONVERSION. The holders of the Series A Preferred Stock
shall have conversion rights as follows (the "Series A Conversion Rights"):
(a) RIGHT TO CONVERT. Subject to Section B.4(b)
hereof, each share of Series A Preferred Stock shall be convertible, at the
option of the holder thereof, at any time after the Series A Original Issue Date
of such share and prior to the close of business on the day prior to the Series
A Redemption Date, if any, as may have been fixed in any Series A Redemption
Notice with respect to such share of Series A Preferred Stock, at the office of
the Corporation or any transfer agent for such stock,
5
<PAGE>
into such number of fully paid and nonassessable shares of Common Stock as is
determined by dividing the Series A Original Issue Price by the Series A
Conversion Price, determined as hereafter provided, in effect on the date the
certificate with respect to such share of Series A Preferred Stock is
surrendered for conversion. The initial Series A Conversion Price per share for
shares of Series A Preferred Stock shall be the Series A Original Issue Price;
provided, however, that the Series A Conversion Price for the Series A Preferred
Stock shall be subject to adjustment as set forth in this Section B.4. The
Series A Conversion Price as of May 25, 1999 is $.95 per share.
(b) AUTOMATIC CONVERSION. Each share of Series A
Preferred Stock shall automatically be converted into shares of Common Stock at
the Series A Conversion Price at the time in effect for such Series A Preferred
Stock, upon the earlier of (i) the date specified by the affirmative vote or
written consent of holders of at least 75% of the then outstanding shares of
Series A Preferred Stock, or (ii) immediately upon the Corporation's sale of its
Common Stock in a firm commitment underwritten public offering pursuant to a
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), the gross public offering price of which is at least 150% of
the Series C Conversion Price, at the time in effect, per share and $20,000,000
in the aggregate (a "Qualified Public Offering") (except as provided below in
Section B.4(c)).
(c) MECHANICS OF CONVERSION. Before any holder of
Series A Preferred Stock shall be entitled to convert the same into 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 such stock, and shall give written notice to the Corporation at its
principal corporate office, of the election to convert the same and shall state
therein the name or names in which the certificate or certificates for shares of
Common Stock are to be issued. The Corporation shall, as soon as practicable
thereafter, issue and deliver at such office to such holder of Series A
Preferred Stock, or to the nominee or nominees of such holder, a certificate or
certificates for the number of shares of Common Stock to which such holder shall
be entitled as aforesaid. 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 A Preferred Stock to be converted, and the person or persons
entitled to receive the shares of Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder or holders of such share
of Common Stock as of such date. If the conversion is in connection with an
underwritten public offering of securities pursuant to the Securities Act, the
conversion may, at the option of any holder tendering shares of Series A
Preferred Stock for conversion, be conditioned upon the closing with the
underwriters of the sale of securities pursuant to such offering, in which event
the person(s) entitled to receive the Common Stock upon conversion of the Series
A Preferred Stock shall not be deemed to have converted such Series A Preferred
Stock until immediately prior to the closing of such sale of securities.
(d) ADJUSTMENTS TO THE SERIES A CONVERSION PRICE FOR
CERTAIN DILUTIVE ISSUES.
(i) SPECIAL DEFINITIONS. For purposes of
this Section B.4(d), Section C.4(d) and Section D.4(d), the following
definitions apply:
(A) "Options" shall mean rights,
options, or warrants to subscribe for, purchase or otherwise acquire either
Common Stock or Convertible Securities (defined below).
6
<PAGE>
(B) "Convertible Securities" shall
mean any evidences of indebtedness, shares (other than Common Stock and
Preferred Stock) or other securities convertible into or exchangeable for Common
Stock.
(C) "Additional Shares of Common
Stock" shall mean all shares of Common Stock issued (or, pursuant to Section
B.4(d)(iii), C.4(d)(ii), or D.4(d)(ii) deemed to be issued) by the Corporation
after the Series A Original Issue Date for the initial shares of Series A
Preferred Stock or the Series B Original Issue Date for the initial shares of
Series B Preferred Stock or the Series C Original Issue Date for the initial
shares of Series C Preferred Stock, as the case may be, other than shares of
Common Stock issued or issuable:
(1) upon conversion of
shares of Preferred Stock;
(2) to officers, directors,
employees or consultants of the Corporation pursuant to stock options granted
pursuant to the Corporation's stock option plan on terms approved by the Board,
but not exceeding 6,297,354 shares of Common Stock (or such greater number
approved by the Board) (net of any repurchases of such shares or cancellations
or expirations of options), subject to adjustment for all subdivisions and
combinations;
(3) as a dividend or
distribution on Preferred Stock;
(4) for which adjustment of
the Series A Conversion Price, the Series B Conversion Price or the Series C
Conversion Price is made pursuant to Section B.4(e), C.4(e) or D.4(e);
(5) upon the conversion of
the convertible term note held by Mark Baiada in the principal amount of
$500,000, subject to adjustment for all subdivisions and combinations;
(6) to Silicon Valley Bank
pursuant to a warrant granted to it but not exceeding 31,250 shares of Common
Stock, subject to adjustment for all subdivisions and combinations; or
(7) upon exercise or
conversion of warrants and convertible subordinated secured notes to be issued
to investors under the Convertible Subordinated Secured Note and Warrant
Purchase Agreement by and among the Corporation and the investors listed
therein, or Common Stock issued or issuable upon the conversion of the Series B
Preferred Stock or the Series C Preferred Stock or other convertible securities
received by the investors upon conversion of the convertible subordinated
secured notes.
(ii) NO ADJUSTMENT OF THE SERIES A
CONVERSION PRICE. Any provision herein to the contrary notwithstanding, no
adjustment in the Series A Conversion Price shall be made in respect of the
issuance of Additional Shares of Common Stock unless the consideration per share
(determined pursuant to Section B.4(d)(v) hereof) for the Additional Shares of
Common Stock issued or deemed to be issued by the Corporation is less than the
Series A Conversion Price in effect on the date of, and immediately prior to,
such issue.
7
<PAGE>
(iii) DEEMED ISSUE OF ADDITIONAL SHARES OF
COMMON STOCK. In the event the Corporation at any time or from time to time
after the Series A 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 then 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 designed to
protect against dilution) of Common Stock issuable upon the exercise of such
Options or, in the case of Convertible Securities and Options therefor, upon the
conversion or exercise of such Convertible Securities and Options therefor, and
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 in any such case in which Additional Shares of
Common Stock are deemed to be issued:
(A) no further adjustments in the
Series A Conversion Price for the Series A Preferred Stock 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;
(B) 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
decrease or increase in the number of shares of Common Stock issuable, upon the
exercise, conversion or exchange thereof, the Series A 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 (provided, however,
that no such adjustment of the Series A Conversion Price shall affect Common
Stock previously issued upon conversion of any shares of the Series A Preferred
Stock);
(C) 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 A 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:
(1) 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
(2) in the case of Options
for Convertible Securities, only the Convertible Securities, if any, actually
issued upon the exercise thereof were issued
8
<PAGE>
at the time 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 B.4(d)(iii)) upon
the issue of the Convertible Securities with respect to which such Options were
actually exercised;
(D) no readjustment pursuant to
clause (B) or (C) above shall have the effect of increasing the Series A
Conversion Price to an amount which exceeds the lower of (a) the Series A
Conversion Price on the original adjustment date, or (b) the Series A Conversion
Price that would have resulted from any issuance of Additional Shares of Common
Stock between the original adjustment date and such readjustment date; and
(E) 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 A 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 (C) above.
(iv) ADJUSTMENT OF THE SERIES A CONVERSION
PRICE UPON ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK. In the event the
Corporation, at any time after the Series A Original Issue Date, shall issue
Additional Shares of Common Stock (including Additional Shares of Common Stock
deemed to be issued pursuant to Section B.4(d)(iii)) without consideration or
for a consideration per share less than the Series A Conversion Price in effect
on the date of and immediately prior to such issue, then and in such event, the
Series A Conversion Price shall be reduced, concurrently with such issue, to a
price (calculated to the nearest cent) determined by multiplying such Series A
Conversion Price by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such issue plus the
number of shares of Common Stock which the aggregate consideration received by
the Corporation for the total number of Additional Shares of Common Stock so
issued would purchase at such Series A Conversion Price in effect immediately
prior to such issuance, and the denominator of which shall be the number of
shares of Common Stock outstanding immediately prior to such issue plus the
number of such Additional Shares of Common Stock so issued. For the purpose of
the above calculation, the number of shares of Common Stock outstanding
immediately prior to such issue shall be calculated on a fully as-converted
basis, as if all shares of Series A Preferred Stock and all Convertible
Securities had been fully converted into shares of Common Stock immediately
prior to such issuance and any outstanding warrants, options or other rights for
the purchase of shares of stock or convertible securities had been fully
exercised immediately prior to such issuance (and the resulting securities fully
converted into shares of Common Stock if so convertible) as of such date, but
not including in such calculation any additional shares of Common Stock issuable
with respect to shares of Series A Preferred Stock, Convertible Securities, or
outstanding options, warrants or other rights for the purchase of shares of
stock or convertible securities, solely as a result of the adjustment of the
Series A Conversion Price for the Series A Preferred Stock (or other conversion
ratios) resulting from the issuance of the Additional Shares of Common Stock
causing the adjustment in question.
(v) DETERMINATION OF CONSIDERATION. For
purposes of this Section B.4(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:
9
<PAGE>
(1) 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;
(2) insofar as it consists
of property other than cash, be computed at the fair value thereof at the time
of such issue, as determined in good faith by the Board; and
(3) in the event Additional
Shares of Common Stock are issued together with the other shares or securities
or other assets of the Corporation for consideration which covers both types of
securities, be the proportion of such consideration so received, computed as
provided in clauses (1) and (2) above, with respect to the Additional Shares of
Common Stock as determined in good faith by the Board.
(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
B.4(d)(iii), relating to Options and Convertible Securities shall be determined
by dividing:
(1) 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 designed to protect against
dilution) 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
(2) the maximum number of
shares of Common Stock (as set forth in the instruments relating thereto,
without regard to any provision contained therein designed to protect against
the dilution) issuable upon the exercise of such Options or conversion or
exchange of such Convertible Securities.
(e) ADJUSTMENTS TO CONVERSION PRICES FOR STOCK
DIVIDENDS AND FOR COMBINATIONS OR SUBDIVISIONS OF COMMON STOCK. In the event
that the Corporation at any time or from time to time after the Series A
Original Issue Date shall declare or pay, without consideration, any dividend on
the Common Stock payable in Common Stock or in any right to acquire Common Stock
for no consideration, or shall effect a subdivision of the outstanding shares of
Common Stock into a greater number of shares of Common Stock (by stock split,
reclassification or otherwise than by payment of a dividend in Common Stock or
in any right to acquire Common Stock), or 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, then the Series A
Conversion Price for the Series A Preferred Stock in effect immediately prior to
such event shall, concurrently with the effectiveness of such event, be
proportionately decreased or increased, as appropriate. In the event that this
Corporation shall declare or pay, without consideration, any dividend on the
Common Stock payable in any right to acquire Common Stock for no consideration,
then the Corporation shall be deemed to have made a dividend payable in
10
<PAGE>
Common Stock in an amount of shares equal to the maximum number of shares
issuable upon exercise of such rights to acquire Common Stock.
(f) ADJUSTMENTS FOR RECLASSIFICATION AND
REORGANIZATION. If the Common Stock issuable upon conversion of the Series A
Preferred Stock shall be changed into the same or a different number of shares
of any other class of classes of stock, whether by capital reorganization,
reclassification or otherwise (other than a subdivision or combination of shares
provided for in Section B.4(e) or a merger or other reorganization referred to
in Section B.2(c)), the Conversion Price for the Series A Preferred Stock then
in effect shall, concurrently with the effectiveness of such reorganization or
reclassification, be proportionately adjusted so that the Series A Preferred
Stock shall be convertible into, in lieu of the number of shares of Common Stock
which the holders would otherwise have been entitled to receive, a number of
shares of such other class or classes of stock equivalent to the number of
shares of Common Stock that would have been subject to receipt by the holders
upon conversion of the Series A Preferred Stock immediately before that change.
(g) NO IMPAIRMENT. The Corporation 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 to be observed or performed hereunder by the
Corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Section B.4 and in the taking of all such action as
may be necessary or appropriate in order to protect the Series A Conversion
Rights against impairment.
(h) CERTIFICATES AS TO ADJUSTMENTS. Upon the
occurrence of each adjustment or readjustment of any Series A Conversion Price
pursuant to this Section B.4, the Corporation at its expense shall promptly
compute such adjustment or readjustment in accordance with the terms hereof and
prepare and furnish to each holder of Series A Preferred Stock a certificate
executed by the Corporation's President or Chief Financial Officer setting forth
such adjustment or readjustment. The Corporation shall, upon the written request
at any time of any holder of Series A Preferred Stock, furnish or cause to be
furnished to such holder a like certificate setting forth (i) such adjustments
and readjustments, (ii) the Series A 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 the conversion of the Series A
Preferred Stock.
(i) NOTICES OF RECORD DATE. In the event that the
Corporation shall propose at any time: (i) to declare any dividend or
distribution upon its Common Stock, whether in cash, property, stock or other
securities, whether or not a regular cash dividend and whether or not a regular
cash dividend and whether or not out of earnings or earned surplus; (ii) to
offer for subscription pro rata to the holders of any class or series of its
stock any additional shares of stock of any class or series or other rights;
(iii) to effect any reclassification or recapitalization of its Common Stock
outstanding involving a change in the Common Stock; or (iv) to merge or
consolidate with or into any other corporation, or sell, lease or convey all or
substantially all of its assets, or to liquidate, dissolve or wind up; then, in
connection with each such event, the Corporation shall send to the holders of
Series A Preferred Stock, unless waived in writing by each such holder:
(1) at least twenty (20)
days' prior written notice of the date on which a record shall be taken for such
dividend, distribution or subscription rights (and
11
<PAGE>
specifying the date on which the holders of Common Stock shall be entitled
thereto) or for determining rights to vote, if any, in respect of the matters
referred to in (iii) and (iv) above; and
(2) in the case of the
matters referred to in (iii) and (iv) above, at least twenty (20) days' prior
written notice of the date when the same shall take place (and specifying the
date on which the holders of Common Stock shall be entitled to exchange their
Common Stock for securities or other property deliverable upon the occurrence of
such event).
(j) ISSUE TAXES. The Corporation shall pay any and
all issue and other transfer taxes that may be payable in respect of any issue
or delivery of shares of Common Stock on conversion of the Series A Preferred
Stock pursuant hereto; provided, however, that the Corporation shall not be
obligated to pay any transfer taxes resulting from any transfer requested by any
holder in connection with any such conversion.
(k) RESERVATION OF STOCK ISSUABLE UPON CONVERSION.
The Corporation shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the shares of the Series A Preferred Stock, such
number of its shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all outstanding shares of the Series A Preferred Stock;
and if at any time the number of authorized but unissued shares of Common Stock
shall not be sufficient to effect the conversion of all then outstanding shares
of the Series A Preferred Stock, the Corporation will take such corporate action
as may, in the opinion of its counsel, be necessary to increase its authorized
but unissued shares of Common Stock to such number of shares as shall be
sufficient for such purpose, including, without limitation, engaging in best
efforts to obtain the requisite stockholder approval of any necessary amendment
to this Third Amended and Restated Certificate of Incorporation.
(l) FRACTIONAL SHARES. No fractional share shall be
issued upon the conversion of any share or shares of Series A Preferred Stock.
All shares of Common Stock (including fractions thereof) issuable upon
conversion of more than one share of Series A Preferred Stock by a holder
thereof shall be aggregated for purposes of determining whether the conversion
would result in the issuance of any fractional share. If, after the
aforementioned aggregation, the conversion would result in the issuance of a
fraction of a share of Common Stock, the Corporation shall, in lieu of issuing
any fractional share, pay the holder otherwise entitled to such fraction a sum
in cash equal to the fair market value of such fraction on the date of
conversion (as determined in good faith by the Board).
(m) NOTICES. Any notice required by the provisions of
this Section B.4 to be given to the holders of shares of Series A Preferred
Stock shall be deemed given if deposited in the United States mail, postage
prepaid, or if sent by facsimile or delivered personally by hand or nationally
recognized courier and addressed to each holder of record at such holder's
address or facsimile number appearing in the records of the Corporation.
5. VOTING RIGHTS.
(a) Subject to Sections B.5(b) and E of this Article
IV, the holders of each share of Series A Preferred Stock shall have the right
to one vote for each share of Common Stock into which such Series A Preferred
Stock could then be converted, and with respect to such vote, such holder shall
have full voting rights and powers equal to the voting rights and powers of the
holders of Common
12
<PAGE>
Stock (except as otherwise expressly provided herein or as required by law), and
shall be entitled, notwithstanding any provision hereof, to notice of any
stockholders' meeting in accordance with the bylaws of the Corporation, and
shall be entitled to vote, together with the holders of Common Stock and Series
B Preferred Stock and Series C Preferred Stock, with respect to any question
upon which holders of Common Stock have the right to vote. Fractional votes
shall not, however, be permitted and any fractional voting rights available on
an as-converted basis (after aggregating all shares of Common Stock into which
shares of Series A Preferred Stock held by each holder could be converted) shall
be rounded to the nearest whole number (with one-half being rounded upward).
(b) Notwithstanding the foregoing, so long as any
shares of Series A Preferred Stock shall be outstanding, the Corporation shall
not, without first obtaining the affirmative vote or written consent of the
holders of at least 75% of the then outstanding shares of Series A Preferred
Stock:
(i) alter or change the rights, preferences
or privileges of the shares of Series A Preferred Stock;
(ii) increase or decrease (other than by
redemption or conversion) the total number of authorized shares of Series A
Preferred Stock or issue, or obligate itself to issue, shares of Series A
Preferred Stock; or
(iii) authorize or issue, or obligate itself
to issue, any other equity security, including any other security convertible
into or exercisable for any equity security, senior to or on parity with the
Series A Preferred Stock with respect to voting rights, dividend rights,
redemption rights or liquidation preferences.
6. STATUS OF CONVERTED OR REDEEMED STOCK. In the event any
shares of Series A Preferred Stock shall be redeemed or converted pursuant to
Section B.3 or Section B.4 hereof or otherwise purchased or acquired by the
Corporation, the shares so converted, redeemed, purchased or otherwise acquired
shall be canceled and shall not be issuable by the Corporation. The Third
Amended and Restated Certificate of Incorporation of the Corporation shall be
appropriately amended to effect the corresponding reduction in the Corporation's
authorized capital stock.
C. SERIES B PREFERRED STOCK. The Series B Preferred Stock shall have
the preferences, powers, qualifications, limitations and restrictions applicable
thereto as follows:
1. DIVIDENDS.
(a) Subject to the prior rights of holders of the
Series C Preferred Stock, the holders of Series B Preferred Stock shall be
entitled to receive dividends, out of any assets legally available therefor,
prior and in preference to any declaration or payment of any dividend (payable
other than in Common Stock or other securities and rights convertible into or
entitling the holder thereof to receive, directly or indirectly, additional
shares of Common Stock of the Corporation) on the Common Stock of the
Corporation at the rate of $.078 per share per annum for the Series B Preferred
Stock, commencing on the date of issuance of such share of Series B Preferred
Stock (the "Series B Original Issue Date"), payable when and as declared by the
Board. Such dividends shall accrue on each share from the Series B Original
Issue Date of such share, and shall accrue thereafter from day to day, whether
13
<PAGE>
or not earned or declared. Such dividends shall be cumulative so that, if all or
any portion of such dividends in respect of any previous or current annual
dividend period, at the annual rate specified above, shall not have been paid,
then the deficiency shall first be fully paid before any dividend or other
distribution shall be paid on or declared and set apart for the Common Stock. No
dividend or distribution in cash, shares of stock or other property on the
Series A Preferred Stock (other than in respect of dividends for periods prior
to the Series B Original Issue Date) shall be declared or paid or set apart for
payment unless, at the same time, a dividend or distribution is declared or paid
or set apart, as the case may be, on the Series B Preferred Stock payable on the
same date, in an amount which bears the same proportion to the amount of such
dividend or distribution on the Series A Preferred Stock as the amount of the
annual cash dividend on the Series A Preferred Stock specified in the first
sentence of Section B.1(a) bears to the annual cash dividend on the Series B
Preferred Stock specified in the first sentence of this Section C.1(a), and any
cash dividend or distribution so paid to the holders of Series B Preferred Stock
shall be credited against the cash dividend otherwise payable under the first
sentence of this Section C.1(a). The payment of any dividend on the Series B
Preferred Stock may be waived or delayed, in whole or in part, upon the
affirmative vote or written consent of the holders of at least 75% of the then
outstanding shares of Series B Preferred Stock. Any accumulation of dividends on
the Series B Preferred Stock shall not bear interest. Upon conversion of the
Series B Preferred Stock into shares of Common Stock in accordance with Section
C.4: (i) the Corporation shall pay to the holders of shares of Series B
Preferred Stock so converted all accumulated and unpaid dividends (whether or
not declared) with respect to such shares of Series B Preferred Stock to the
extent assets are legally available therefor; or (ii) at the election of the
holder of the Series B Preferred Stock so converted, and subject to the approval
of the holders of at least a majority of the then outstanding shares of Common
Stock, such holder shall have the right to exchange any and all accumulated and
unpaid dividends (whether or not declared) with respect to such shares of Series
B Preferred Stock for shares of Common Stock at the then fair market value as
determined in good faith by the unanimous vote of the Board or, if the Board is
unable to unanimously agree on the fair market value, by an independent
appraiser selected by the unanimous vote of the Board. Any accumulated dividends
(whether or not declared) on the Series B Preferred Stock that become payable
but were not paid because assets were not legally available therefor shall be
paid promptly as assets become legally available therefor, and any partial
payment shall be made pro rata among the holders of such shares.
(b) In addition to the dividends set forth in Section
C.1(a), in the event that the Corporation shall declare a non-cash dividend or
distribution upon its Common Stock including, without limitation, any
distribution of capital stock (other than Common Stock) of the Corporation,
stock or other securities of other persons, evidences of indebtedness issued by
the Corporation or other persons, other assets or options or rights (excluding
options to purchase and rights to subscribe for Common Stock or other securities
of the Corporation convertible into or exchangeable for Common Stock), the
holders of Series B Preferred Stock shall be entitled to a proportionate share
of any such distribution as though they were the holders of the number of shares
of Common Stock into which their shares of Series B Preferred Stock are
convertible as of the date fixed for the determination of the holders of Common
Stock entitled to receive such distribution.
(c) Subject to the prior rights of the Series C
Preferred Stock, in the event that it is determined that the holders of shares
of Series B Preferred Stock are subject to the payment of federal or state
income tax with respect to any accrued but unpaid dividends (whether or not
declared) or otherwise prior to the payment of any dividends, then the
Corporation shall pay to such holders, out of funds legally available therefor,
dividends in an amount equal to such tax determined at the highest
14
<PAGE>
marginal rate then in effect. The amount of any dividends actually paid from
time to time pursuant to this Section C.1(c) shall reduce the amount of
accumulated but unpaid dividends under Section C.1(a).
2. LIQUIDATION, DISSOLUTION OR WINDING UP.
(a) In the event of any liquidation, dissolution, or
winding up of the affairs of the Corporation, whether voluntary or involuntary,
after payment or provision for the payment of the debts and other liabilities of
the Corporation, and subject to the preferential rights of the outstanding
shares of Series C Preferred Stock, the holders of Series B Preferred Stock
shall be entitled to receive the amount of $1.296 per share (the "Series B
Original Issue Price") (as adjusted for any stock dividends, combinations or
splits with respect to such shares), plus interest thereon accruing daily and
compounding annually at 8.5% per annum [prime rate as of the closing date], plus
an amount equal to all accrued but unpaid dividends, without interest, before
any payment or distribution of the assets and funds of the Corporation shall be
made to or set apart for the holders of any other capital stock in respect of
their shares of such class or series of stock (except payments to satisfy the
preferential amounts due to the Series C Preferred Stock); provided, however,
that if after the payment or provision for the payment of the debts and other
liabilities of the Corporation and the payments to satisfy the preferential
amounts due to the Series C Preferred Stock, the assets and funds of the
Corporation shall be insufficient to pay in full the preferential amounts to
which the holders of Series B Preferred Stock are entitled under this Section
C.2(a), then: (i) the entire remaining assets and funds of the Corporation shall
be distributed ratably to the holders of Series B Preferred Stock in proportion
to the full amounts to which they are entitled under this Section C.2(a); and
(ii) the holders of the Series A Preferred Stock and the Common Stock shall in
no event be entitled to participate in the distribution of such assets and funds
in respect of their Series A Preferred Stock or Common Stock, as the case may
be.
(b) After the payment to the holders of Series C
Preferred Stock of the amounts set forth in Section D.2(a) and the holders of
Series B Preferred Stock of the amounts set forth in Section C.2(a), the holders
of Series A Preferred Stock shall be paid the amounts set forth in Section
B.2(a) and then the holders of Series B Preferred Stock and the Common Stock
shall be entitled to receive the remaining assets and funds of the Corporation
available for distribution to its stockholders ratably in proportion to the
number of shares of Common Stock held by such stockholders or into which their
shares of Series B Preferred Stock are convertible as of the date fixed for the
determination of the amounts available for distribution.
(c) Notwithstanding the provisions of Sections C.2(a)
and C.2(b) above, if the total value of property, securities or other
consideration to be distributed and/or received per share of Common Stock
(assuming the conversion of all shares of Series A Preferred Stock and Series B
Preferred Stock into Common Stock) pursuant to Sections C.2(a) and C.2(b) is
equal to or greater than $2.60 per share (as adjusted for any stock dividends,
combinations or splits with respect to such shares), then the holders of Series
A Preferred Stock and Series B Preferred Stock and Common Stock will receive
such property, securities or other consideration ratably in proportion to the
number of shares of Common Stock held by such stockholders or into which their
shares of Series A Preferred Stock and Series B Preferred Stock are convertible
as of the date fixed for the determination of the amounts available for
distribution.
(d) For purposes of this Section C.2, at the sole
discretion of the holders of not less than 75% of the outstanding shares of
Series B Preferred Stock: (i) any acquisition of the
15
<PAGE>
Corporation by another entity by means of any transaction or series of related
transactions (including, without limitation, any reorganization, merger or
consolidation, but excluding any merger effected exclusively for the purpose of
changing the domicile of the Corporation) in which all or substantially all of
the outstanding shares of the Corporation are exchanged for securities or other
consideration issued by the acquiring entity or its subsidiary; (ii) the
acquisition by any person or group of persons of "beneficial ownership" within
the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as amended,
of 75% or more of the ordinary voting power of the outstanding shares of capital
stock of the Corporation; or (iii) any sale of all or substantially all of the
assets of the Corporation, shall be treated as a liquidation, dissolution or
winding up and shall entitle the holders of the Series C Preferred Stock, the
Series B Preferred Stock, the Series A Preferred Stock and the Common Stock to
receive at the closing, in cash, securities or other property the amounts
specified in Sections A.2, B.2(a), B.2(b), C.2(a), C.2(b), C.2(c) and D.2(a).
(e) Whenever the distribution provided for in this
Section C.2 shall be payable in securities or property other than cash, the
value of such distribution shall be the fair market value of such securities or
other property as determined in good faith by the unanimous vote of the Board
or, if the Board is unable to unanimously agree on the fair market value, by an
independent appraiser selected by the unanimous vote of the Board.
3. REDEMPTION.
(a) Subject to the preferential rights of the
outstanding shares of Series C Preferred Stock, the Corporation shall redeem,
from any source of funds legally available therefor, the Series B Preferred
Stock, in priority and preference over the Series A Preferred Stock, in four
semi-annual installments, beginning on October 18, 2001 and thereafter on April
18, 2002, October 18, 2002 and on April 18, 2003 (each a "Series B Redemption
Date"), whereupon the remaining shares of Series B Preferred Stock outstanding
shall be redeemed. The Corporation shall redeem the Series B Preferred Stock on
the applicable Series B Redemption Dates by paying in cash in exchange for
shares of the Series B Preferred Stock to be redeemed on such Series B
Redemption Date an amount equal to $1.296 per share of Series B Preferred Stock
(as adjusted for any stock dividends, combinations or splits with respect to
such shares), plus interest thereon accruing daily and compounding annually at
8.5% per annum, plus all accumulated but unpaid dividends (whether or not
declared) on such share (as to a Series B Redemption Date, the "Series B
Redemption Price"). The number of shares of Series B Preferred Stock that the
Corporation shall be required under this Section C.3(a) to redeem on any one
Series B Redemption Date shall be equal to the amount determined by dividing (i)
the aggregate number of shares of Series B Preferred Stock outstanding
immediately prior to the Series B Redemption Date, by (ii) the number of
remaining Series B Redemption Dates (including the Series B Redemption Date to
which such calculation applies). The redemption of the Series B Preferred Stock
required by this Section C.3(a) may be waived or delayed, in whole or in part,
upon the affirmative vote or written consent of the holders of at least 75% of
the outstanding shares of Series B Preferred Stock.
(b) As used herein and in Section C.3(c) below, the
term "Series B Redemption Date" shall refer to each "Series B Redemption Date."
At least thirty (30) but no more than sixty (60) days prior to each Series B
Redemption Date, written notice shall be mailed, first class postage prepaid, to
each holder of record (at the close of business on the business day next
preceding the day on which notice is given) of the Series B Preferred Stock to
be redeemed, at the address last shown on the records of the Corporation for
such holder, notifying such holder of the redemption to be effected,
16
<PAGE>
specifying: the number of shares to be redeemed from such holder; the Series B
Redemption Date; the Series B Redemption Price; the place at which payment may
be obtained; and calling upon such holder to surrender to the Corporation, in
the manner and at the place designated, such holder's certificate or
certificates representing the shares to be redeemed (the "Series B Redemption
Notice"). Except as provided in Section C.3(c), on or after the Series B
Redemption Date, each holder of Series B Preferred Stock to be redeemed shall
surrender to the Corporation the certificate or certificates representing such
shares, in the manner and at the place designated by the Corporation, and
thereupon the Series B Redemption Price of such shares shall be payable to the
order of the person whose name appears on such certificate or certificates as
the owner thereof and each surrendered certificate shall be canceled. In the
event less than all the shares represented by any such certificate are redeemed,
a new certificate shall be issued representing the unredeemed shares.
(c) From and after the Series B Redemption Date,
unless there shall have been a default in payment of the Series B Redemption
Price, all rights of the holders of shares of Series B Preferred Stock
designated for redemption in the Series B Redemption Notice (except the right to
receive the Series B Redemption Price of such shares without interest upon
surrender of their certificate or certificates) shall cease with respect to such
shares, and such shares shall not thereafter be transferred on the books of the
Corporation or be deemed to be outstanding for any purpose whatsoever. If the
funds of the Corporation legally available for redemption of shares of Series B
Preferred Stock on any Series B Redemption Date are insufficient to redeem the
total number of shares to be redeemed on such date, those funds which are
legally available will be used to redeem the maximum possible number of such
shares ratably among the holders of such shares to be redeemed based upon the
number of shares of Series B Preferred Stock held by each such holder. The
shares of the Series B Preferred Stock not redeemed shall remain outstanding and
entitled to all the rights and preferences provided in this Third Amended and
Restated Certificate of Incorporation. Subject to the preferential rights of the
Series C Preferred Stock, at any time thereafter when additional funds of the
Corporation are legally available for the redemption of shares of the Series B
Preferred Stock, such funds will immediately be used to redeem the balance of
the shares that the Corporation has become obliged to redeem on any Series B
Redemption Date but which the Corporation has not redeemed.
4. CONVERSION. The holders of the Series B Preferred Stock
shall have conversion rights as follows (the "Series B Conversion Rights"):
(a) RIGHT TO CONVERT. Subject to Section C.4(b)
hereof, each share of Series B Preferred Stock shall be convertible, at the
option of the holder thereof, at any time after the Series B Original Issue Date
of such share and prior to the close of business on the day prior to the Series
B Redemption Date, if any, as may have been fixed in any Series B Redemption
Notice with respect to such share of Series B Preferred Stock, at the office of
the Corporation or any transfer agent for such stock, into such number of fully
paid and nonassessable shares of Common Stock as is determined by dividing the
Series B Original Issue Price by the Series B Conversion Price, determined as
hereafter provided, in effect on the date the certificate with respect to such
share of the Series B Preferred Stock is surrendered for conversion. The initial
Series B Conversion Price per share shall be the Series B Original Issue Price;
provided, however, that the Series B Conversion Price shall be subject to
adjustment as set forth in this Section C.4. The Series B Conversion Price as of
May 25, 1999 is $.62 per share.
(b) AUTOMATIC CONVERSION. Each share of Series B
Preferred Stock shall automatically be converted into shares of Common Stock at
the Series B Conversion Price at the time in
17
<PAGE>
effect, upon the earlier of (i) the date specified by the affirmative vote or
written consent of holders of at least 75% of the then outstanding shares of
Series B Preferred Stock, or (ii) immediately upon a Qualified Public Offering
of the Corporation's Common Stock (except as provided below in Section C.4(c)).
(c) MECHANICS OF CONVERSION. Before any holder of
Series B Preferred Stock shall be entitled to convert the same into 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 such stock, and shall give written notice to the Corporation at its
principal corporate office, of the election to convert the same and shall state
therein the name or names in which the certificate or certificates for shares of
Common Stock are to be issued. The Corporation shall, as soon as practicable,
thereafter, issue and deliver at such office to such holder of Series B
Preferred Stock, or to the nominee or nominees of such holder, a certificate or
certificates for the number of shares of Common Stock to which such holder shall
be entitled as aforesaid. 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 such conversion
shall be treated for all purposes as the record holder or holders of such share
of Common Stock as of such date. If the conversion is in connection with a
Qualified Public Offering of securities pursuant to the Securities Act, the
conversion may, at the option of any holder tendering shares of Series B
Preferred Stock for conversion, be conditioned upon the closing with the
underwriters of the sale of securities pursuant to such offering, in which event
the person(s) entitled to receive the Common Stock upon conversion of the Series
B Preferred Stock shall not be deemed to have converted such Series B Preferred
Stock until immediately prior to the closing of such sale of securities.
(d) ADJUSTMENTS TO CONVERSION PRICE FOR CERTAIN
DILUTIVE ISSUES.
(i) NO ADJUSTMENT OF THE SERIES B CONVERSION
PRICE. Any provision herein to the contrary notwithstanding, no adjustment in
the Series B Conversion Price shall be made in respect of the issuance of
Additional Shares of Common Stock unless the consideration per share (determined
pursuant to Section C.4(d)(iv) hereof) for the Additional Shares 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, such issue.
(ii) DEEMED ISSUE OF ADDITIONAL SHARES OF
COMMON STOCK. In the event the Corporation at any time or from time to time
after the Series B 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 then 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 designed to
protect against dilution) of Common Stock issuable upon the exercise of such
Options or, in the case of Convertible Securities and Options therefor, upon the
conversion or exercise of such Convertible Securities and Options therefor, and
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 in any such case in which Additional Shares of
Common Stock are deemed to be issued:
18
<PAGE>
(A) no further adjustments in the
Series B 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;
(B) 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
decrease or increase 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 (provided, however,
that no such adjustment of the Series B Conversion Price shall affect Common
Stock previously issued upon conversion of any shares of the Series B Preferred
Stock);
(C) 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:
(1) 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
(2) in the case of Options
for Convertible Securities, only the Convertible Securities, if any, actually
issued upon the exercise thereof were issued at the time 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 C.4(d)(iii)) upon the issue of the
Convertible Securities with respect to which such Options were actually
exercised;
(D) no readjustment pursuant to
clause (B) or (C) 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; and
(E) 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
19
<PAGE>
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 (C) above.
(iii) ADJUSTMENT OF CONVERSION PRICE UPON
ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK. In the event the Corporation, at
any time after the Series B Original Issue Date, shall issue Additional Shares
of Common Stock (including Additional Shares of Common Stock deemed to be issued
pursuant to Section C.4(d)(ii)) without consideration or for a consideration per
share less than the Series B Conversion Price in effect on the date of and
immediately prior to such issue, then and in such event, the 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 the number of shares of Common Stock
outstanding immediately prior to such issue plus the number of shares of Common
Stock which the aggregate consideration received by the Corporation for the
total number of Additional Shares of Common Stock so issued would purchase at
such Series B Conversion Price in effect immediately prior to such issuance, and
the denominator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issue plus the number of such Additional
Shares of Common Stock so issued. For the purpose of the above calculation, the
number of shares of Common Stock outstanding immediately prior to such issue
shall be calculated on a fully as-converted basis, as if all shares of Series B
Preferred Stock and all Convertible Securities had been fully converted into
shares of Common Stock immediately prior to such issuance and any outstanding
warrants, options or other rights for the purchase of shares of stock or
convertible securities had been fully exercised immediately prior to such
issuance (and the resulting securities fully converted into shares of Common
Stock if so convertible) as of such date, but not including in such calculation
any additional shares of Common Stock issuable with respect to shares of Series
B Preferred Stock, Convertible Securities, or outstanding options, warrants or
other rights for the purchase of shares of stock or convertible securities,
solely as a result of the adjustment of the Series B Conversion Price (or other
conversion ratios) resulting from the issuance of the Additional Shares of
Common Stock causing the adjustment in question.
(iv) DETERMINATION OF CONSIDERATION. For
purposes of this Section C.4(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:
(1) 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;
(2) insofar as it consists
of property other than cash, be computed at the fair value thereof at the time
of such issue, as determined in good faith by the Board; and
(3) in the event Additional
Shares of Common Stock are issued together with the other shares or securities
or other assets of the Corporation for consideration which covers both types of
securities, be the proportion of such consideration so received, computed as
provided in clauses (1) and (2) above, with respect to the Additional Shares of
Common Stock as determined in good faith by the Board.
20
<PAGE>
(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
C.4(d)(ii), relating to Options and Convertible Securities shall be determined
by dividing:
(1) 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 designed to protect against
dilution) 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
(2) the maximum number of
shares of Common Stock (as set forth in the instruments relating thereto,
without regard to any provision contained therein designed to protect against
the dilution) issuable upon the exercise of such Options or conversion or
exchange of such Convertible Securities.
(e) ADJUSTMENTS TO CONVERSION PRICES FOR STOCK
DIVIDENDS AND FOR COMBINATIONS OR SUBDIVISIONS OF COMMON STOCK. In the event
that the Corporation at any time or from time to time after the Series B
Original Issue Date shall declare or pay, without consideration, any dividend on
the Common Stock payable in Common Stock or in any right to acquire Common Stock
for no consideration, or shall effect a subdivision of the outstanding shares of
Common Stock into a greater number of shares of Common Stock (by stock split,
reclassification or otherwise than by payment of a dividend in Common Stock or
in any right to acquire Common Stock), or 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, then the Series B
Conversion Price in effect immediately prior to such event shall, concurrently
with the effectiveness of such event, be proportionately decreased or increased,
as appropriate. In the event that this Corporation shall declare or pay, without
consideration, any dividend on the Common Stock payable in any right to acquire
Common Stock for no consideration, then the Corporation shall be deemed to have
made a dividend payable in Common Stock in an amount of shares equal to the
maximum number of shares issuable upon exercise of such rights to acquire Common
Stock.
(f) ADJUSTMENTS FOR RECLASSIFICATION AND
REORGANIZATION. If the Common Stock issuable upon conversion of the Series B
Preferred Stock shall be changed into the same or a different number of shares
of any other class or classes of stock, whether by capital reorganization,
reclassification or otherwise (other than a subdivision or combination of shares
provided for in Section C.4(e) or a merger or other reorganization referred to
in Section C.2(d)), the Series B Conversion Price then in effect shall,
concurrently with the effectiveness of such reorganization or reclassification,
be proportionately adjusted so that the Series B Preferred Stock shall be
convertible into, in lieu of the number of shares of Common Stock which the
holders would otherwise have been entitled to receive, a number of shares of
such other class or classes of stock equivalent to the number of shares of
Common Stock that would have been subject to receipt by the holders upon
conversion of the Series B Preferred Stock immediately before that change.
21
<PAGE>
(g) NO IMPAIRMENT. The Corporation will not, by
amendment of its Third Amended and Restated 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 will at all times in good faith
assist in the carrying out of all the provisions of this Section C.4 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 the Series B Preferred Stock
against impairment.
(h) CERTIFICATES AS TO ADJUSTMENTS. Upon the
occurrence of each adjustment or readjustment of any Series B Conversion Price
pursuant to this Section C.4, the Corporation at its expense shall promptly
compute such adjustment or readjustment in accordance with the terms hereof and
prepare and furnish to each holder of Series B Preferred Stock a certificate
executed by the Corporation's President or Chief Financial Officer setting forth
such adjustment or readjustment. The Corporation shall, upon the written request
at any time of any 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 the conversion of the Series B
Preferred Stock.
(i) NOTICES OF RECORD DATE. In the event that the
Corporation shall propose at any time: (i) to declare any dividend or
distribution upon its Common Stock, whether in cash, property, stock or other
securities, whether or not a regular cash dividend and whether or not a regular
cash dividend and whether or not out of earnings or earned surplus; (ii) to
offer for subscription pro rata to the holders of any class or series of its
stock any additional shares of stock of any class or series or other rights;
(iii) to effect any reclassification or recapitalization of its Common Stock
outstanding involving a change in the Common Stock; or (iv) to merge or
consolidate with or into any other corporation, or sell, lease or convey all or
substantially all of its assets, or to liquidate, dissolve or wind up; then, in
connection with each such event, the Corporation shall send to the holders of
Series B Preferred Stock, unless waived in writing by each such holder:
(1) at least twenty (20)
days' prior written notice of the date on which a record shall be taken for such
dividend, distribution or subscription rights (and specifying the date on which
the holders of Common Stock shall be entitled thereto) or for determining rights
to vote, if any, in respect of the matters referred to in (iii) and (iv) above;
and
(2) in the case of the
matters referred to in (iii) and (iv) above, at least twenty (20) days' prior
written notice of the date when the same shall take place (and specifying the
date on which the holders of Common Stock shall be entitled to exchange their
Common Stock for securities or other property deliverable upon the occurrence of
such event).
(j) ISSUE TAXES. The Corporation shall pay any and
all issue and other transfer taxes that may be payable in respect of any issue
or delivery of shares of Common Stock on conversion of the Series B Preferred
Stock pursuant hereto; provided, however, that the Corporation shall not be
obligated to pay any transfer taxes resulting from any transfer requested by any
holder in connection with any such conversion.
22
<PAGE>
(k) RESERVATION OF STOCK ISSUABLE UPON CONVERSION.
The Corporation shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the shares of the Series B Preferred Stock, such
number of its shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all outstanding shares of the Series B Preferred Stock;
and if at any time the number of authorized but unissued shares of Common Stock
shall not be sufficient to effect the conversion of all then outstanding shares
of the Series B Preferred Stock, the Corporation will take such corporate action
as may, in the opinion of its counsel, be necessary to increase its authorized
but unissued shares of Common Stock to such number of shares as shall be
sufficient for such purpose, including, without limitation, engaging in best
efforts to obtain the requisite stockholder approval of any necessary amendment
to this Third Amended and Restated Certificate of Incorporation.
(l) FRACTIONAL SHARES. No fractional share shall be
issued upon the conversion of any share or shares of Series B Preferred Stock.
All shares of Common Stock (including fractions thereof) issuable upon
conversion of more than one share of Series B Preferred Stock by a holder
thereof shall be aggregated for purposes of determining whether the conversion
would result in the issuance of any fractional share. If, after the
aforementioned aggregation, the conversion would result in the issuance of a
fraction of a share of Common Stock, the Corporation shall, in lieu of issuing
any fractional share, pay the holder otherwise entitled to such fraction a sum
in cash equal to the fair market value of such fraction on the date of
conversion (as determined in good faith by the Board).
(m) NOTICES. Any notice required by the provisions of
this Section C.4 to be given to the holders of shares of Series B Preferred
Stock shall be deemed given if deposited in the United States mail, postage
prepaid, or if sent by facsimile or delivered personally by hand or nationally
recognized courier and addressed to each holder of record at such holder's
address or facsimile number appearing in the records of the Corporation.
5. VOTING RIGHTS.
(a) Subject to Sections C.5(b) and E of this Article
IV, the holders of each share of Series B Preferred Stock shall have the right
to one vote for each share of Common Stock into which such Series B Preferred
Stock could then be converted, and with respect to such vote, such holder shall
have full voting rights and powers equal to the voting rights and powers of the
holders of Common Stock (except as otherwise expressly provided herein or as
required by law), and shall be entitled, notwithstanding any provision hereof,
to notice of any stockholders' meeting in accordance with the bylaws of the
Corporation, and shall be entitled to vote, together with holders of Common
Stock, with respect to any question upon which holders of Common Stock have the
right to vote. Fractional votes shall not, however, be permitted and any
fractional voting rights available on an as-converted basis (after aggregating
all shares of Common Stock into which shares of Series B Preferred Stock held by
each holder could be converted) shall be rounded to the nearest whole number
(with one-half being rounded upward).
(b) Notwithstanding the foregoing, so long as any
shares of Series B Preferred Stock shall be outstanding, the Corporation shall
not, without first obtaining the affirmative vote or written consent of the
holders of at least 75% of the then outstanding shares of Series B Preferred
Stock:
23
<PAGE>
(i) alter or change the rights, preferences
or privileges of the shares of Series B Preferred Stock;
(ii) increase or decrease (other than by
redemption or conversion) the total number of authorized shares of Series B
Preferred Stock or issue, or obligate itself to issue, shares of Preferred
Stock; or
(iii) authorize or issue, or obligate itself
to issue, any other equity security, including any other security convertible
into or exercisable for any equity security, senior to or on parity with the
Series B Preferred Stock with respect to voting rights, dividend rights,
redemption rights or liquidation preferences.
6. STATUS OF CONVERTED OR REDEEMED STOCK. In the event any
shares of Preferred Stock shall be redeemed or converted pursuant to Section C.3
or Section C.4 hereof or otherwise purchased or acquired by the Corporation, the
shares so converted, redeemed, purchased or otherwise acquired shall be canceled
and shall not be issuable by the Corporation. The Third Amended and Restated
Certificate of Incorporation of the Corporation shall be appropriately amended
to effect the corresponding reduction in the Corporation's authorized capital
stock.
D. SERIES C PREFERRED STOCK. The Series C Preferred Stock shall have
the preferences, powers, qualifications, limitations and restrictions applicable
thereto as follows:
1. DIVIDENDS.
(a) The holders of Series C Preferred Stock shall be
entitled to receive dividends, out of any assets legally available therefor,
prior and in preference to any declaration or payment of any dividend (payable
other than in Common Stock or other securities and rights convertible into or
entitling the holder thereof to receive, directly or indirectly, additional
shares of Common Stock of the Corporation) on the Common Stock of the
Corporation at the rate of $.1632 per share per annum for the Series C Preferred
Stock, commencing on the date of issuance of such share of Series C Preferred
Stock (the "Series C Original Issue Date"), payable when and as declared by the
Board. Such dividends shall accrue on each share from the Series C Original
Issue Date of such share, and shall accrue thereafter from day to day, whether
or not earned or declared. Such dividends shall be cumulative so that, if all or
any portion of such dividends in respect of any previous or current annual
dividend period, at the annual rate specified above, shall not have been paid,
then the deficiency shall first be fully paid before any dividend or other
distribution shall be paid on or declared and set apart for the Series B
Preferred Stock, the Series A Preferred Stock or the Common Stock. The payment
of any dividend on the Series C Preferred Stock may be waived or delayed, in
whole or in part, upon the affirmative vote or written consent of the holders of
at least 75% of the then outstanding shares of Series C Preferred Stock. Any
accumulation of dividends on the Series C Preferred Stock shall not bear
interest. Upon conversion of the Series C Preferred Stock into shares of Common
Stock in accordance with Section D.4: (i) the Corporation shall pay to the
holders of shares of Series C Preferred Stock so converted all accumulated and
unpaid dividends (whether or not declared) with respect to such shares of Series
C Preferred Stock to the extent assets are legally available therefor; or (ii)
at the election of the holder of the Series C Preferred Stock so converted, and
subject to the approval of the holders of at least a majority of the then
outstanding shares of Common Stock, such holder shall have the right to exchange
any and all accumulated and unpaid dividends (whether or not declared) with
respect to such shares of Series C
24
<PAGE>
Preferred Stock for shares of Common Stock at the then fair market value as
determined in good faith by the unanimous vote of the Board or, if the Board is
unable to unanimously agree on the fair market value, by an independent
appraiser selected by the unanimous vote of the Board. Any accumulated dividends
(whether or not declared) on the Series C Preferred Stock that become payable
but were not paid because assets were not legally available therefor shall be
paid promptly as assets become legally available therefor, and any partial
payment shall be made pro rata among the holders of such shares.
(b) In addition to the dividends set forth in Section
D.1(a), in the event that the Corporation shall declare a non-cash dividend or
distribution upon its Common Stock including, without limitation, any
distribution of capital stock (other than Common Stock) of the Corporation,
stock or other securities of other persons, evidences of indebtedness issued by
the Corporation or other persons, other assets or options or rights (excluding
options to purchase and rights to subscribe for Common Stock or other securities
of the Corporation convertible into or exchangeable for Common Stock), the
holders of Series C Preferred Stock shall be entitled to a proportionate share
of any such distribution as though they were the holders of the number of shares
of Common Stock into which their shares of Series C Preferred Stock are
convertible as of the date fixed for the determination of the holders of Common
Stock entitled to receive such distribution.
(c) In the event that it is determined that the
holders of shares of Series C Preferred Stock are subject to the payment of
federal or state income tax with respect to any accrued but unpaid dividends
(whether or not declared) or otherwise prior to the payment of any dividends,
then the Corporation shall pay to such holders, out of funds legally available
therefor, dividends in an amount equal to such tax determined at the highest
marginal rate then in effect. The amount of any dividends actually paid from
time to time pursuant to this Section D.1(c) shall reduce the amount of
accumulated but unpaid dividends under Section D.1(a).
2. LIQUIDATION, DISSOLUTION OR WINDING UP.
(a) In the event of any liquidation, dissolution, or
winding up of the affairs of the Corporation, whether voluntary or involuntary,
after payment or provision for the payment of the debts and other liabilities of
the Corporation, the holders of Series C Preferred Stock shall be entitled to
receive the amount of $2.72 per share (the "Series C Original Issue Price") (as
adjusted for any stock dividends, combinations or splits with respect to such
shares), plus interest thereon accruing daily and compounding annually at 8.5%
per annum, plus an amount equal to all accrued but unpaid dividends, without
interest, before any payment or distribution of the assets and funds of the
Corporation shall be made to or set apart for the holders of any other capital
stock in respect of their shares of such class or series of stock; provided,
however, that if after the payment or provision for the payment of the debts and
other liabilities of the Corporation, the assets and funds of the Corporation
shall be insufficient to pay in full the preferential amounts to which the
holders of Series C Preferred Stock are entitled under this Section D.2(a),
then: (i) the entire remaining assets and funds of the Corporation shall be
distributed ratably to the holders of Series C Preferred Stock in proportion to
the full amounts to which they are entitled under this Section D.2(a); and (ii)
the holders of the Series A Preferred Stock, the Series B Preferred Stock and
the Common Stock shall in no event be entitled to participate in the
distribution of such assets and funds in respect of their Series A Preferred
Stock, Series B Preferred Stock or Common Stock, as the case may be.
25
<PAGE>
(b) For purposes of this Section C.2, at the sole
discretion of the holders of not less than 75% of the outstanding shares of
Series C Preferred Stock: (i) any acquisition of the Corporation by another
entity by means of any transaction or series of related transactions (including,
without limitation, any reorganization, merger or consolidation, but excluding
any merger effected exclusively for the purpose of changing the domicile of the
Corporation) in which all or substantially all of the outstanding shares of the
Corporation are exchanged for securities or other consideration issued by the
acquiring entity or its subsidiary; (ii) the acquisition by any person or group
of persons of "beneficial ownership" within the meaning of Rule 13d-3 under the
Securities Exchange Act of 1934, as amended, of 75% or more of the ordinary
voting power of the outstanding shares of capital stock of the Corporation; or
(iii) any sale of all or substantially all of the assets of the Corporation,
shall be treated as a liquidation, dissolution or winding up and shall entitle
the holders of Series C Preferred Stock, Series A Preferred Stock, Series B
Preferred Stock and Common Stock to receive at the closing, in cash, securities
or other property the amounts specified in Sections A.2, B.2(a) and B.2(b),
C.2(a), and C.2(b), and D.2(a).
(c) Whenever the distribution provided for in this
Section D.2 shall be payable in securities or property other than cash, the
value of such distribution shall be the fair market value of such securities or
other property as determined in good faith by the unanimous vote of the Board
or, if the Board is unable to unanimously agree on the fair market value, by an
independent appraiser selected by the unanimous vote of the Board.
3. REDEMPTION.
(a) The Corporation shall redeem, from any source of
funds legally available therefor, the Series C Preferred Stock, in priority and
preference over the Series B Preferred Stock and the Series A Preferred Stock,
in four semi-annual installments, beginning on October 18, 2001 and thereafter
on April 18, 2002, October 18, 2002 and on April 18, 2003 (each a "Series C
Redemption Date"), whereupon the remaining shares of Series C Preferred Stock
outstanding shall be redeemed. The Corporation shall redeem the Series C
Preferred Stock on the applicable Series C Redemption Dates by paying in cash in
exchange for shares of the Series C Preferred Stock to be redeemed on such
Series C Redemption Date an amount equal to $2.72 per share of Series C
Preferred Stock (as adjusted for any stock dividends, combinations or splits
with respect to such shares), plus interest thereon accruing daily and
compounding annually at 8.5% per annum, plus all accumulated but unpaid
dividends (whether or not declared) on such share (as to a Series C Redemption
Date, the "Series C Redemption Price"). The number of shares of Series C
Preferred Stock that the Corporation shall be required under this Section D.3(a)
to redeem on any one Series C Redemption Date shall be equal to the amount
determined by dividing (i) the aggregate number of shares of Series C Preferred
Stock outstanding immediately prior to the Series C Redemption Date, by (ii) the
number of remaining Series C Redemption Dates (including the Series C Redemption
Date to which such calculation applies). The redemption of the Series C
Preferred Stock required by this Section D.3(a) may be waived or delayed, in
whole or in part, upon the affirmative vote or written consent of the holders of
at least 75% of the then outstanding shares of Series C Preferred Stock.
(b) As used herein and in Section D.3(c) below, the
term "Series C Redemption Date" shall refer to each "Series C Redemption Date."
At least thirty (30) but no more than sixty (60) days prior to each Series C
Redemption Date, written notice shall be mailed, first class postage prepaid, to
each holder of record (at the close of business on the business day next
preceding the day on which notice is given) of the Series C Preferred Stock to
be redeemed, at the address last shown on the
26
<PAGE>
records of the Corporation for such holder, notifying such holder of the
redemption to be effected, specifying: the number of shares to be redeemed from
such holder; the Series C Redemption Date; the Series C Redemption Price, the
place at which payment may be obtained; and calling upon such holder to
surrender to the Corporation, in the manner and at the place designated, such
holder's certificate or certificates representing the shares to be redeemed (the
"Series C Redemption Notice"). Except as provided in Section D.3(c), on or after
the Series C Redemption Date, each holder of Series C Preferred Stock to be
redeemed shall surrender to the Corporation the certificate or certificates
representing such shares, in the manner and at the place designated by the
Corporation, and thereupon the Series C Redemption Price of such shares shall be
payable to the order of the person whose name appears on such certificate or
certificates as the owner thereof and each surrendered certificate shall be
canceled. In the event less than all the shares represented by any such
certificate are redeemed, a new certificate shall be issued representing the
unredeemed shares.
(c) From and after the Series C Redemption Date,
unless there shall have been a default in payment of the Series C Redemption
Price, all rights of the holders of shares of Series C Preferred Stock
designated for redemption in the Series C Redemption Notice (except the right to
receive the Series C Redemption Price of such shares without interest upon
surrender of their certificate or certificates) shall cease with respect to such
shares, and such shares shall not thereafter be transferred on the books of the
Corporation or be deemed to be outstanding for any purpose whatsoever. If the
funds of the Corporation legally available for redemption of shares of Series C
Preferred Stock on any Series C Redemption Date are insufficient to redeem the
total number of shares to be redeemed on such date, those funds which are
legally available will be used to redeem the maximum possible number of such
shares ratably among the holders of such shares to be redeemed based upon the
number of shares of Series C Preferred Stock held by each such holder. The
shares of the Series C Preferred Stock not redeemed shall remain outstanding and
entitled to all the rights and preferences provided in this Third Amended and
Restated Certificate of Incorporation. At any time thereafter when additional
funds of the Corporation are legally available for the redemption of shares of
the Series C Preferred Stock, such funds will immediately be used to redeem the
balance of the shares that the Corporation has become obliged to redeem on any
Series C Redemption Date but which the Corporation has not redeemed.
4. CONVERSION. The holders of the Series C Preferred Stock
shall have conversion rights as follows (the "Series C Conversion Rights"):
(a) RIGHT TO CONVERT. Subject to Section D.4(b)
hereof, each share of Series C Preferred Stock shall be convertible, at the
option of the holder thereof, at any time after the Series C Original Issue Date
of such share and prior to the close of business on the day prior to the Series
C Redemption Date, if any, as may have been fixed in any Series C Redemption
Notice with respect to such share of Series C Preferred Stock, at the office of
the Corporation or any transfer agent for such stock, into such number of fully
paid and nonassessable shares of Common Stock as is determined by dividing the
Series C Original Issue Price by the Series C Conversion Price, determined as
hereafter provided, in effect on the date the certificate with respect to such
share of Series C Preferred Stock is surrendered for conversion. The initial
Series C Conversion Price per share shall be the Series C Original Issue Price;
provided, however, that the Series C Conversion Price shall be subject to
adjustment as set forth in this Section D.4.
(b) AUTOMATIC CONVERSION. Each share of Series C
Preferred Stock shall automatically be converted into shares of Common Stock at
the Series C Conversion Price at the time in
27
<PAGE>
effect, upon the earlier of (i) the date specified by the affirmative vote or
written consent of holders of a majority of the then outstanding shares of
Series C Preferred Stock, or (ii) immediately upon a Qualified Public Offering
of the Corporation's Common Stock (except as provided below in Section D.4(c)).
(c) MECHANICS OF CONVERSION. Before any holder of
Series C Preferred Stock shall be entitled to convert the same into 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 such stock, and shall give written notice to the Corporation at its
principal corporate office, of the election to convert the same and shall state
therein the name or names in which the certificate or certificates for shares of
Common Stock are to be issued. The Corporation shall, as soon as practicable,
thereafter, issue and deliver at such office to such holder of Series C
Preferred Stock, or to the nominee or nominees of such holder, a certificate or
certificates for the number of shares of Common Stock to which such holder shall
be entitled as aforesaid. 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 such conversion
shall be treated for all purposes as the record holder or holders of such share
of Common Stock as of such date. If the conversion is in connection with a
Qualified Public Offering, the conversion may, at the option of any holder
tendering shares of Series C Preferred Stock for conversion, be conditioned upon
the closing with the underwriters of the sale of securities pursuant to such
offering, in which event the person(s) entitled to receive the Common Stock upon
conversion of the Series C Preferred Stock shall not be deemed to have converted
such Series C Preferred Stock until immediately prior to the closing of such
sale of securities.
(d) ADJUSTMENTS TO CONVERSION PRICE FOR CERTAIN
DILUTIVE ISSUES.
(i) NO ADJUSTMENT OF SERIES C CONVERSION
PRICE. Any provision herein to the contrary notwithstanding, no adjustment in
the Series C Conversion Price shall be made in respect of: (i) any future
issuance of Options (or upon the issuance of Common Stock upon the exercise of
such Options) to employees of the Corporation so long as the exercise price of
such Options equals or exceeds the fair market value per share of Common Stock
on the date of grant as determined in good faith by the Board; or (ii) the
issuance of Additional Shares of Common Stock unless the consideration per share
(determined pursuant to Section D.4(d)(iv) hereof) for the Additional Shares of
Common Stock issued 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,
such issue.
(ii) DEEMED ISSUE OF ADDITIONAL SHARES OF
COMMON STOCK. In the event the Corporation at any time or from time to time
after the Series C 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 then 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 designed to
protect against dilution) of Common Stock issuable upon the exercise of such
Options or, in the case of Convertible Securities and Options therefor, upon the
conversion or exercise of such Convertible Securities and Options therefor, and
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 in any such case in which Additional Shares of
Common Stock are deemed to be issued:
28
<PAGE>
(A) no further adjustments 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;
(B) 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
decrease or increase in the number of shares of Common Stock issuable, upon the
exercise, 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 (provided, however,
that no such adjustment of the Series C Conversion Price shall affect Common
Stock previously issued upon conversion of any shares of the Series C Preferred
Stock);
(C) 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:
(1) 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
(2) in the case of Options
for Convertible Securities, only the Convertible Securities, if any, actually
issued upon the exercise thereof were issued at the time 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 D.4(d)(iii)) upon the issue of the
Convertible Securities with respect to which such Options were actually
exercised;
(D) no readjustment pursuant to
clause (B) or (C) 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 from any issuance of Additional Shares of Common
Stock between the original adjustment date and such readjustment date; and
(E) 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
29
<PAGE>
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 (C) above.
(iii) ADJUSTMENT OF CONVERSION PRICE UPON
ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK. Except for Series C Preferred
Stock held by persons that exercise fully their rights of first offer pursuant
to Section E.4 (each, a "Fully-Exercising Holder") in connection with the
issuance of Additional Shares of Common Stock (including Additional Shares of
Common Stock deemed to be issued pursuant to Section D.4(2)(ii)), in the event
the Corporation, at any time after the Series C Original Issue Date, shall issue
Additional Shares of Common Stock (including Additional Shares of Common Stock
deemed to be issued pursuant to Section D.4(d)(ii)) without consideration or for
a consideration per share less than the Series C Conversion Price in effect on
the date of and immediately prior to such issue, then and in such event, the
Series C Conversion Price of all shares of Series C Preferred Stock (except
those shares held by Fully-Exercising Holders) 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 the number of shares of Common Stock outstanding immediately prior to
such issue plus the number of shares of Common Stock which the aggregate
consideration received by the Corporation for the total number of Additional
Shares of Common Stock so issued would purchase at such Series C Conversion
Price in effect immediately prior to such issuance, and the denominator of which
shall be the number of shares of Common Stock outstanding immediately prior to
such issue plus the number of such Additional Shares of Common Stock so issued.
For the purpose of the above calculation, the number of shares of Common Stock
outstanding immediately prior to such issue shall be calculated on a fully
as-converted basis, as if all shares of Series C Preferred Stock and all
Convertible Securities had been fully converted into shares of Common Stock
immediately prior to such issuance and any outstanding warrants, options or
other rights for the purchase of shares of stock or convertible securities had
been fully exercised immediately prior to such issuance (and the resulting
securities fully converted into shares of Common Stock if so convertible) as of
such date, but not including in such calculation any additional shares of Common
Stock issuable with respect to shares of Series C Preferred Stock, Convertible
Securities, or outstanding options, warrants or other rights for the purchase of
shares of stock or convertible securities, solely as a result of the adjustment
of the Series C Conversion Price (or other conversion ratios) resulting from the
issuance of the Additional Shares of Common Stock causing the adjustment in
question. The Series C Conversion Price for shares of Series C Preferred Stock
held by Fully-Exercising Holders shall be adjusted concurrently with such issue
to become the per share price of the Additional Shares of Common Stock issued.
(iv) DETERMINATION OF CONSIDERATION. For
purposes of this Section D.4(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:
(1) 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;
(2) insofar as it consists
of property other than cash, be computed at the fair value thereof at the time
of such issue, as determined in good faith by the Board; and
30
<PAGE>
(3) in the event Additional
Shares of Common Stock are issued together with the other shares or securities
or other assets of the Corporation for consideration which covers both types of
securities, be the proportion of such consideration so received, computed as
provided in clauses (1) and (2) above, with respect to the Additional Shares of
Common Stock as determined in good faith by the Board.
(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
D.4(d)(ii), relating to Options and Convertible Securities shall be determined
by dividing:
(1) 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 designed to protect against
dilution) 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
(2) the maximum number of
shares of Common Stock (as set forth in the instruments relating thereto,
without regard to any provision contained therein designed to protect against
the dilution) issuable upon the exercise of such Options or conversion or
exchange of such Convertible Securities.
(e) ADJUSTMENTS TO CONVERSION PRICES FOR STOCK
DIVIDENDS AND FOR COMBINATIONS OR SUBDIVISIONS OF COMMON STOCK. In the event
that the Corporation at any time or from time to time after the Series C
Original Issue Date shall declare or pay, without consideration, any dividend on
the Common Stock payable in Common Stock or in any right to acquire Common Stock
for no consideration, or shall effect a subdivision of the outstanding shares of
Common Stock into a greater number of shares of Common Stock (by stock split,
reclassification or otherwise than by payment of a dividend in Common Stock or
in any right to acquire Common Stock), or 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, then the Series C
Conversion Price in effect immediately prior to such event shall, concurrently
with the effectiveness of such event, be proportionately decreased or increased,
as appropriate. In the event that this Corporation shall declare or pay, without
consideration, any dividend on the Common Stock payable in any right to acquire
Common Stock for no consideration, then the Corporation shall be deemed to have
made a dividend payable in Common Stock in an amount of shares equal to the
maximum number of shares issuable upon exercise of such rights to acquire Common
Stock.
(f) ADJUSTMENTS FOR RECLASSIFICATION AND
REORGANIZATION. If the Common Stock issuable upon conversion of the Series C
Preferred Stock shall be changed into the same or a different number of shares
of any other class or classes of stock, whether by capital reorganization,
reclassification or otherwise (other than a subdivision or combination of shares
provided for in Section D.4(e) or a merger or other reorganization referred to
in Section D.2(b)), the Series C Conversion Price then in effect shall,
concurrently with the effectiveness of such reorganization or reclassification,
be
31
<PAGE>
proportionately adjusted so that the Series C Preferred Stock shall be
convertible into, in lieu of the number of shares of Common Stock which the
holders would otherwise have been entitled to receive, a number of shares of
such other class or classes of stock equivalent to the number of shares of
Common Stock that would have been subject to receipt by the holders upon
conversion of the Series C Preferred Stock immediately before that change.
(g) NO IMPAIRMENT. The Corporation will not, by
amendment of its Second Amended and Restated 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 will at all times in good faith
assist in the carrying out of all the provisions of this Section D.4 and in the
taking of all such action as may be necessary or appropriate in order to protect
the Series C Conversion Rights of the holders of the Series C Preferred Stock
against impairment.
(h) CERTIFICATES AS TO ADJUSTMENTS. Upon the
occurrence of each adjustment or readjustment of any Series C Conversion Price
pursuant to this Section D.4, the Corporation at its expense shall promptly
compute such adjustment or readjustment in accordance with the terms hereof and
prepare and furnish to each holder of Series C Preferred Stock a certificate
executed by the Corporation's President or Chief Financial Officer setting forth
such adjustment or readjustment. The Corporation shall, upon the written request
at any time of any holder of Series C Preferred Stock, furnish or cause to be
furnished to such holder a like certificate setting forth (i) such adjustments
and readjustments, (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 the conversion of the Series C
Preferred Stock.
(i) NOTICES OF RECORD DATE. In the event that the
Corporation shall propose at any time: (i) to declare any dividend or
distribution upon its Common Stock, whether in cash, property, stock or other
securities, whether or not a regular cash dividend and whether or not a regular
cash dividend and whether or not out of earnings or earned surplus; (ii) to
offer for subscription pro rata to the holders of any class or series of its
stock any additional shares of stock of any class or series or other rights;
(iii) to effect any reclassification or recapitalization of its Common Stock
outstanding involving a change in the Common Stock; or (iv) to merge or
consolidate with or into any other corporation, or sell, lease or convey all or
substantially all of its assets, or to liquidate, dissolve or wind up; then, in
connection with each such event, the Corporation shall send to the holders of
Series C Preferred Stock, unless waived in writing by each such holder:
(1) at least twenty (20)
days' prior written notice of the date on which a record shall be taken for such
dividend, distribution or subscription rights (and specifying the date on which
the holders of Common Stock shall be entitled thereto) or for determining rights
to vote, if any, in respect of the matters referred to in (iii) and (iv) above;
and
(2) in the case of the
matters referred to in (iii) and (iv) above, at least twenty (20) days' prior
written notice of the date when the same shall take place (and specifying the
date on which the holders of Common Stock shall be entitled to exchange their
Common Stock for securities or other property deliverable upon the occurrence of
such event).
32
<PAGE>
(j) ISSUE TAXES. The Corporation shall pay any and
all issue and other transfer taxes that may be payable in respect of any issue
or delivery of shares of Common Stock on conversion of Series C Preferred Stock
pursuant hereto; provided, however, that the Corporation shall not be obligated
to pay any transfer taxes resulting from any transfer requested by any holder in
connection with any such conversion.
(k) RESERVATION OF STOCK ISSUABLE UPON CONVERSION.
The Corporation shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the shares of the Series C Preferred Stock, such
number of its shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all outstanding shares of the Series C Preferred Stock;
and if at any time the number of authorized but unissued shares of Common Stock
shall not be sufficient to effect the conversion of all then outstanding shares
of the Series C Preferred Stock, the Corporation will take such corporate action
as may, in the opinion of its counsel, be necessary to increase its authorized
but unissued shares of Common Stock to such number of shares as shall be
sufficient for such purpose, including, without limitation, engaging in best
efforts to obtain the requisite stockholder approval of any necessary amendment
to this Third Amended and Restated Certificate of Incorporation.
(l) FRACTIONAL SHARES. No fractional share shall be
issued upon the conversion of any share or shares of Series C Preferred Stock.
All shares of Common Stock (including fractions thereof) issuable upon
conversion of more than one share of Series C Preferred Stock by a holder
thereof shall be aggregated for purposes of determining whether the conversion
would result in the issuance of any fractional share. If, after the
aforementioned aggregation, the conversion would result in the issuance of a
fraction of a share of Common Stock, the Corporation shall, in lieu of issuing
any fractional share, pay the holder otherwise entitled to such fraction a sum
in cash equal to the fair market value of such fraction on the date of
conversion (as determined in good faith by the Board).
(m) NOTICES. Any notice required by the provisions of
this Section D.4 to be given to the holders of shares of Series C Preferred
Stock shall be deemed given if deposited in the United States mail, postage
prepaid, or if sent by facsimile or delivered personally by hand or nationally
recognized courier and addressed to each holder of record at such holder's
address or facsimile number appearing in the records of the Corporation.
5. VOTING RIGHTS.
(a) Subject to Section D.5(b), the holders of each
share of Series C Preferred Stock shall have the right to one vote for each
share of Common Stock into which such Series C Preferred Stock could then be
converted, and with respect to such vote, such holder shall have full voting
rights and powers equal to the voting rights and powers of the holders of Common
Stock (except as otherwise expressly provided herein or as required by law), and
shall be entitled, notwithstanding any provision hereof, to notice of any
stockholders' meeting in accordance with the bylaws of the Corporation, and
shall be entitled to vote, together with the holders of Common Stock and the
Series A Preferred Stock and Series B Preferred Stock, with respect to any
question upon which holders of Common Stock have the right to vote. Fractional
votes shall not, however, be permitted and any fractional voting rights
available on an as-converted basis (after aggregating all shares of Common Stock
into which shares of Series C Preferred Stock held by each holder could be
converted) shall be rounded to the nearest whole number (with one-half being
rounded upward).
33
<PAGE>
(b) Notwithstanding the foregoing, so long as 20% or
more of the shares of Series C Preferred Stock shall be outstanding, the
Corporation shall not, without first obtaining the affirmative vote or written
consent of the holders of at least a majority of the then outstanding shares of
Series C Preferred Stock:
(i) authorize or issue any class or series
of equity security having equal or superior rights as to payment upon
liquidation, dissolution or a winding up of the Corporation;
(ii) redeem or repurchase any outstanding
capital stock except for any stock held by any employee, officer, director,
consultant or affiliate that is subject to repurchase rights (or rights of first
refusal) in favor of the Corporation;
(iii) enter into any agreement that would
restrict the Corporation's ability to perform under the Preferred Stock Purchase
Agreement entered into in connection with the offer and sale of the Series C
Preferred Stock by the Corporation;
(iv) amend this Third Amended and Restated
Certificate of Incorporation or the Corporation's By-Laws in any way, or file a
certificate of designation, that would adversely affect the rights and
preferences of the holders of the Series C Preferred Stock as a class (except
that the Corporation may complete a reverse split of its Common Stock without
the consent of the holders of the Series C Preferred Stock);
(v) authorize or effect the payment of
dividends or other distributions on any capital stock of the Corporation; or
(vi) if the total consideration per share
received by the holders of the Series C Preferred Stock, directly or in
liquidation or distributions, less the value of all previous dividends and
distributions, is less than 150% of the Series C Conversion Price, at the time
in effect:
(A) sell, license or otherwise
dispose of all, or substantially all, of the assets or business of the
Corporation or authorize any winding up or liquidation of the Corporation, or
(B) execute any transaction such as
a sale, merger, or other change of control transaction.
6. STATUS OF CONVERTED OR REDEEMED STOCK. In the event any
shares of Preferred Stock shall be redeemed or converted pursuant to Section D.3
or Section D.4 hereof or otherwise purchased or acquired by the Corporation, the
shares so converted, redeemed, purchased or otherwise acquired shall be canceled
and shall not be issuable by the Corporation. The Third Amended and Restated
Certificate of Incorporation of the Corporation shall be appropriately amended
to effect the corresponding reduction in the Corporation's authorized capital
stock.
E. CERTAIN VOTING RIGHTS; DIRECTORS; RIGHT OF FIRST OFFER.
1. BOARD OF DIRECTORS.
34
<PAGE>
(a) Subject to Section E.2(a) of this Article IV, the
Board shall consist of six (6) members. For so long as General Electric Capital
Corporation ("GE Capital") holds shares of the Corporation's capital stock, GE
Capital shall be entitled to elect one (1) member of the Board at each meeting
or pursuant to each consent of the Corporation's stockholders for the election
of directors. The holders of Series A Preferred Stock, as a class, shall be
entitled to elect two (2) members of the Board at each meeting or pursuant to
each consent of the Corporation's stockholders for the election of directors.
The holders of the Common Stock, as a class, shall be entitled to elect one (1)
member of the Board at each meeting or pursuant to each consent of the
Corporation's stockholders for the election of directors. The holders of the
Series A Preferred Stock and the Series B Preferred Stock and the Common Stock,
voting together as a class, shall be entitled to elect, two (2) members of the
Board at each meeting or pursuant to each consent of the Corporation's
stockholders for the election of directors. In addition, for so long as each of
Patricof & Co. Ventures (which term refers to the group of funds that include
APA Excelsior IV, L.P., Coutts & Co. (Cayman) Ltd., Cust. for APA Excelsior
IV/Offshore, L.P., The P/A Fund, L.P. and Patricof Private Investment Club,
L.P.) and GE Capital holds shares of the Corporation's capital stock, Patricof &
Co. Ventures and GE Capital shall each be entitled to have one observer selected
by Patricof & Co. Ventures or GE Capital, as the case may be, present at all
meetings (whether in person, by telephone or video conference) of the Board and
such observers shall have the same access to information concerning the business
and operations of the Corporation and at the same time as directors of the
Corporation and shall be entitled to participate in discussions and consult with
the Board at each such meeting, without voting.
(b) In the case of any vacancy in the office of a
director occurring among the directors elected by GE Capital or the holders of
the Series A Preferred Stock or Common Stock pursuant to the second, third and
fourth sentences of Section D.1(a) hereof, the remaining director so elected by
the holders of the Series A Preferred Stock, in the case of a vacancy in the
office of a director elected by the holders of the Series A Preferred Stock, or
if there is no such director remaining, the holders of the Series A Preferred
Stock by the affirmative vote of the holders of a majority of such shares, or,
in the case of a vacancy in the office of a director elected by GE Capital or by
the holders of the Common Stock, GE Capital or the holders of the Common Stock
by the affirmative vote of the holders of a majority of such shares, as the case
may be, may elect a successor or successors to hold the office for the unexpired
term of the director or directors whose place or places shall be vacant. Any
director who shall have been elected by the holders of the Series A Preferred
Stock or Common Stock or GE Capital or any director so elected as provided in
the preceding sentence hereof, may be removed during the aforesaid term of
office, whether with or without cause, only by the affirmative vote of the
holders of a majority of the Series A Preferred Stock, or Common Stock or by GE
Capital, as the case may be.
2. DEFAULT RIGHTS.
(a) So long as any shares of Series A Preferred Stock
or Series B Preferred Stock remain outstanding, in the event that the
Corporation (i) materially breaches its representations or warranties in (1) the
Stock Purchase Agreement, dated April 22, 1998, between the Corporation and
certain purchasers of the Series B Preferred Stock, or (2) the Stock Purchase
Agreement, dated April 18, 1997, between the Corporation and certain purchasers
of the Series A Preferred Stock, or (ii) materially breaches or fails to perform
its agreements in the Second Restated Investors' Rights Agreement, dated May 25,
1999, between the Corporation and certain purchasers of the Preferred Stock, or
(iii) fails to pay any dividends required to be paid in respect of any shares of
Series A Preferred Stock or Series B
35
<PAGE>
Preferred Stock or to redeem any shares of Series A Preferred Stock or Series B
Preferred Stock required to be redeemed under this Article IV ("Events of
Default"), then the holders of the Series A Preferred Stock and the Series B
Preferred Stock shall (immediately upon the giving of written notice to the
Corporation by the holders of at least 75% of the then outstanding shares of
Series A Preferred Stock and Series B Preferred Stock) be entitled to elect a
majority of the members of the Board of the Corporation, and the holders of the
Common Stock shall be entitled to elect the remaining members of the Board.
Whenever such right shall become operative, (i) the Corporation shall increase
the number of directors comprising the Board to such number or, alternatively,
procure the removal or resignation of such number of incumbent directors, as may
be necessary to allow the holders of the Series A Preferred Stock and the Series
B Preferred Stock to exercise such right, and (ii) the Corporation shall take
any and all such further actions as may be necessary to allow the holders of the
Series A Preferred Stock and the Series B Preferred Stock to exercise such
right. If, after the election of a new Board pursuant to this Section E.2(a),
all Events of Default are cured, then the holders of the Series A Preferred
Stock and the Series B Preferred Stock shall be divested of the special voting
rights specified in this Section E.2(a). The special voting rights of this
Section E.2(a) shall again accrue to the holders of the Series A Preferred Stock
and the Series B Preferred Stock in case of any later occurrence of an Event of
Default. Upon the termination of any such special voting rights as provided in
this Section E.2(a), the Board shall promptly call a special meeting of the
stockholders at which all directors will be elected, and the terms of office of
all persons who are then directors of the Corporation shall terminate
immediately upon the election of their successors.
(b) Whenever under the provisions of Section E.2(a)
hereof, the right shall have accrued to the holders of the Series A Preferred
Stock and the Series B Preferred Stock to vote to elect a majority of the
Corporation's directors, the Board shall, within ten (10) days after delivery to
the Corporation at its principal office of a request to such effect by the
holders of at least 75% of the then outstanding shares of Series A Preferred
Stock and Series B Preferred Stock, call a special meeting of stockholders for
the election of directors, to be held upon not less than ten (10) nor more than
twenty (20) days' notice to such holders. If such notice of meeting is not given
within the ten (10) days required above, the holders of the Series A Preferred
Stock and the Series B Preferred Stock requesting such meeting may also call
such meeting and for such purposes shall have access to the stock books and
records of the Corporation. At any meeting so called or at any other meeting
held while the holders of shares of Series A Preferred Stock and Series B
Preferred Stock shall have the voting power provided in Section E.2(a), the
holders of a majority of the shares of Series A Preferred Stock and Series B
Preferred Stock present in person or by proxy or voting by written consent,
shall be sufficient to constitute a quorum for the election of directors as
herein provided. In the case of any vacancy in the office of a director
occurring among the directors elected by the holders of the Series A Preferred
Stock and the Series B Preferred Stock pursuant to Section E.2(a), the remaining
directors so elected by such stockholders may, by the affirmative vote of a
majority thereof (or the remaining director so elected if there be but one),
elect a successor or successors to hold office for the unexpired term of the
director or directors whose place or places shall be vacant, provided that if
there are no remaining directors so elected by such stockholders, the vacancies
may be filled by the affirmative vote of the holders of at least 75% of the
shares of Series A Preferred Stock and Series B Preferred Stock then outstanding
given either at a special meeting of such stockholders duly called for that
purpose or pursuant to a written consent of stockholders. Any directors who
shall have been elected by the holders of the Series A Preferred Stock and the
Series B Preferred Stock or by any directors so elected as provided in the
immediately preceding sentence may be removed during their term of office,
either with or without cause, by, and only by, the affirmative vote of the
holders of at least 75% of the shares of Series A Preferred Stock and Series B
36
<PAGE>
Preferred Stock then outstanding, given either at a special meeting of such
stockholders duly called for that purpose, or pursuant to a written consent of
stockholders, and any vacancy thereby created may be filled by the holders of
the Series A Preferred Stock and the Series B Preferred Stock represented at
such meeting or pursuant to such written consent.
3. RESTRICTIONS AND LIMITATIONS.
So long as any shares of Series A Preferred Stock or Series B
Preferred Stock shall be outstanding, the Corporation shall not, without first
obtaining the affirmative vote or written consent of the holders of at least 75%
of the then outstanding shares of Series A Preferred Stock and Series B
Preferred Stock (voting as one class on a fully-diluted basis):
(i) sell, convey, lease, transfer or
otherwise dispose of or encumber all or substantially all of its assets or
business or merge with or into or consolidate with any other corporation (other
than a wholly-owned subsidiary corporation or to effectuate a reincorporation
for the purpose of changing domicile) or effect any transaction or series of
related transactions in which more than twenty percent (20%) of the voting power
of the Corporation is disposed of;
(ii) amend the Corporation's Certificate of
Incorporation or the Bylaws;
(iii) declare or pay any dividend or
distribution of cash, shares or other assets or funds of the Corporation;
(iv) repurchase, redeem or otherwise acquire
for value (or pay into or set aside for a sinking fund for such purpose) any
shares of Series A Preferred Stock or Series B Preferred Stock except pursuant
to the redemption provisions in Section B.3 or C.3 hereof or pursuant to the
conversion provisions in Section B.4 or C.4 hereof;
(v) repurchase, redeem or otherwise acquire
for value (or pay into or set aside for a sinking fund for such purpose) any
shares of Common Stock except pursuant to the repurchase provisions contained in
the Second Restated Right of First Refusal and Co-Sale Agreement or pursuant to
the Corporation's stock option plan on terms approved by the Board;
(vi) permit any subsidiary to issue or sell,
or obligate itself to issue or sell, except to the Corporation or any
wholly-owned subsidiary, any stock of such subsidiary; or
(vii) increase the number of shares of
Common Stock available for option grants under the Corporation's stock option
plan.
4. RIGHT OF FIRST OFFER. Subject to the terms and conditions
specified in this Section E.4, the Corporation hereby grants to each holder of
Preferred Stock (a "Holder") a right of first offer with respect to future sales
by the Corporation of its Shares (as hereinafter defined). Each time the
Corporation proposes to offer any shares of, or securities convertible into or
exercisable for any shares of, any class of its capital stock ("SHARES"), the
Corporation shall first make an offering of such Shares to each Holder in
accordance with the following provisions:
37
<PAGE>
(a) The Corporation shall deliver a notice by
certified mail ("NOTICE") to the Holders stating (i) its bona fide intention to
offer such Shares, (ii) the number of such Shares to be offered, and (iii) the
price and terms, if any, upon which it proposes to offer such Shares.
(b) Within twenty (20) calendar days after receipt of
the Notice, the Holder may elect to purchase or obtain, at the price and on the
terms specified in the Notice, up to that portion of such Shares which equals
the proportion that number of shares of Common Stock issuable or issued (i) upon
conversion of the Series A Preferred Stock, the Series B Preferred Stock or the
Series C Preferred Stock issued or issuable by the Corporation or (ii) upon
exercise of the warrants to purchase shares of the Corporation's Common Stock
issued pursuant to the Convertible Subordinated Secured Note and Warrant
Purchase Agreement, dated as of January 21, 1999, by and between the Corporation
and the investors signatory thereto or (iii) as a result of a dividend or
distribution or stock split or reclassification of the Series A Preferred Stock,
the Series B Preferred Stock or the Series C Preferred Stock or the Common Stock
issued or issuable upon conversion thereof ("Registrable Securities") issued and
held by such Holder bears to the total number of shares of Common Stock of the
Corporation then outstanding (assuming full conversion and exercise of all
convertible or exercisable securities). The Corporation shall promptly in
writing, inform each Fully-Exercising Holder (i.e, a Holder that purchases all
of the shares available to it) of any other Holder's failure to do likewise.
During the ten-day period commencing after receipt of such information, each
Fully-Exercising Holder shall be entitled to obtain that portion of the Shares
for which the Holders were entitled to subscribe but that were not subscribed
for by the Holders that is equal to the proportion that the number of shares of
the Registrable Securities then held by such Fully-Exercising Holder bears to
the total number of shares of the Registrable Securities issued and held by all
Fully-Exercising Holders who wish to purchase some of the unsubscribed shares.
(c) If all Shares that the Holders are entitled to
obtain pursuant to Section E.4(b) are not elected to be obtained as provided in
Section E.4(b) hereof, the Corporation may, during the 30-day period following
the expiration of the period provided in Section E.4(b) hereof, offer the
remaining unsubscribed portion of such Shares to any person or persons at a
price not less than, and upon terms no more favorable to the offeree than those
specified in the Notice. If the Corporation does not enter into an agreement for
the sale of the Shares within such period, or if such agreement is not
consummated within thirty (30) days of the execution thereof, the right provided
hereunder shall be deemed to be revived and such Shares shall not be offered
unless first reoffered to the Holders in accordance herewith.
(d) The right of first offer in this Section E.4
shall not be applicable (i) to the issuance or sale of 700,000 shares of Common
Stock upon conversion of the convertible term note held by Mark Baiada in the
principal amount of $500,000, or (ii) to the issuance or sale of shares of
Common Stock upon exercise of the outstanding options of the Corporation to be
issued to Bob Bickel on or after April 18, 1997 in the amount of 300,000, or
(iii) to the issuance or grant of options (and the issuance and sale of Common
Stock upon exercise of such options) to employees of the Corporation pursuant to
the Corporation's Amended and Restated 1996 Incentive and Non-Qualified Stock
Option Plan or any successor plan so long as such issuance has been approved by
the Board of Directors of the Corporation, or (iv) the issuance of Series A
Preferred Stock or Series B Preferred Stock and the issuance of Common Stock on
conversion or exercise thereof, or (v) the issuance of Common Stock as a stock
dividend to holders of Common Stock upon any subdivision or combination of
shares of Common Stock, or (vi) shares of Common Stock issued in connection with
a Qualified Public Offering, or (vii) the
38
<PAGE>
issuance of securities pursuant to the conversion or exercise of convertible
securities, or (viii) the issuance of securities in connection with a bona fide
business acquisition of or by the Corporation, whether by merger,
reincorporation, consolidation, sale of assets, sale or exchange of stock or
otherwise so long as such issuance has been approved by at least a majority of
the Registrable Securities then outstanding, or (ix) the issuance of stock,
warrants or other securities or rights to persons or entities with which the
Corporation has business relationships, provided such issuances have been
approved by the Corporation's Board and are for other than primarily equity
financing purposes and provided that at the time of any such issuance, the
aggregate of such issuance and similar issuances in the preceding twelve month
period do not exceed two percent (2%) of the then outstanding Common Stock of
the Corporation (assuming full conversion and exercise of all convertible
securities).
(e) The right of first offer set forth in this
Section E.4 may not be assigned or transferred, except that (i) such right is
assignable, in whole or in part, by each Holder to any wholly owned subsidiary,
parent or partner of, or to any corporation, person or entity that is, within
the meaning of the Act, controlling, controlled by or under common control with,
any such Holder, and (ii) such right is assignable, in whole or in part, between
and among any of the Holders, and (iii) such right is assignable, in whole or in
part, by the Holder to the ancestors, descendants, siblings or spouse of the
Holder or to trusts for the benefit of such persons, provided any such assignee
shall agree, in writing, to be bound by and comply with all the provisions of
this Certificate, the Second Restated First Refusal and Co-Sale Agreement by and
among the Corporation and certain stockholders dated May 25, 1999 and the
Restated Voting Agreement by and among the Corporation and certain stockholders
dated April 23, 1998 as if any such shares purchased by the Holder had been
purchased by the assign.
39
<PAGE>
ARTICLE V
BYLAWS. In furtherance and not in limitation of the powers conferred by
statute, the Board shall have the power, subject to the provisions of Sections
B.5, C.5, D.5 and E of Article IV, to adopt, amend, repeal or otherwise alter
the Bylaws of the Corporation without any action on the part of the
stockholders; provided, however, that the grant of such power to the Board shall
not divest the stockholders of nor limit their power, subject to the provisions
of Sections B.5, C.5, D.5 and E of Article IV, to adopt, amend, repeal or
otherwise alter the Bylaws.
ARTICLE VI
ELECTION OF DIRECTORS. Elections of directors need not be by written
ballot unless the Bylaws of the Corporation shall so provide.
ARTICLE VII
AMENDMENT AND REPEAL. The Corporation reserves the right to adopt,
repeal, rescind or amend in any respect any provisions contained in this
Certificate of Incorporation in the manner now or hereafter prescribed by
applicable law, and all rights conferred on stockholders herein are granted
subject to this reservation.
ARTICLE VIII
DIRECTOR LIABILITY. A director of the Corporation shall, to the full
extent permitted by the Delaware General Corporation Law as it now exists or as
it may hereafter be amended, not be liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.
Neither any amendment nor repeal of this Article VIII, nor the adoption of any
provisions of this Certificate of Incorporation inconsistent with this Article
VIII, shall eliminate or reduce the effect of this Article VIII in respect of
any matter occurring, or any cause of action, suit or claim that, but for this
Article VIII, would accrue or arise, prior to such amendment, repeal or adoption
of an inconsistent provision.
* * * * * *
40
<PAGE>
Exhibit 3.2
BY-LAWS OF
BLUESTONE SOFTWARE INC.
1. OFFICES:
1.1. The Corporation may have an office or offices at such
places as the Board of Directors may from time to time designate.
2. MEETING OF STOCKHOLDERS:
2.1. The annual meeting of stockholders for the election of
directors shall be held at such time and date as may be fixed by the Board of
Directors.
2.2. Special meetings of the stockholders may be called at any
time by the president and shall be called by the president or secretary on the
request in writing or by vote of a majority of the directors or at the request
in writing of stockholders of record owning a majority in amount of the capital
stock outstanding and entitled to vote.
2.3. All meetings of the stockholders shall be held at such
place or places, within or without the State of Delaware, as may from time to
time be fixed by the Board of Directors or as shall be specified and fixed in
the respective notices or waiver of notice thereof.
3. DIRECTORS:
3.1. The property and business of the Corporation shall be
managed by or under the direction of its Board of Directors, consisting of one
or more directors, as determined from time to time by resolution of the Board of
Directors.
3.2. The directors shall hold office until the next annual
election and until their successor is elected and qualified. Directors shall be
elected by the stockholders, except that vacancies in the Board by reason of
death, resignation or otherwise and newly created directorships may be filled
for the unexpired term by the remaining directors, though less than a quorum, by
a majority vote.
4. POWER OF DIRECTORS:
4.1. The Board of Directors shall have such general and
specific powers as are conferred upon corporations by the General Corporation
Law of the State of Delaware, as amended from time to time, subject only to the
provisions of the statutes, Certificate of Incorporation, and these By-Laws,
which may restrict or deny such powers.
<PAGE>
5. MEETING OF DIRECTORS:
5.1. After each annual election of directors, the newly
elected directors may meet for the purpose of organization, the election of
officers, and the transaction of other business, at such place and time as shall
be fixed by the stockholders at the annual meeting, and if a majority of the
directors be present at such place and time, no prior notice of such meeting
shall be required to be given to the directors. The place and time of such
meeting may also be fixed by written consent of the directors. Regular meetings
of the directors may be held without notice at such time and at such place as
shall from time to time be determined by the Board of Directors.
5.2. Special meetings of the directors may be called by the
president on five (5) days notice in writing or on two (2) days notice by
telephone to each director and shall be called by the president in like manner
on the written request of two directors.
5.3. Special meetings of the directors may be held within or
without the State of Delaware at such place as is indicated in the notice or
waiver of notice thereof.
5.4. A majority of the directors shall constitute a quorum,
but a smaller number may adjourn from time to time, without further notice,
until a quorum is secured.
6. EXECUTIVE AND OTHER COMMITTEES:
6.1. The Board of Directors may, by resolution or resolutions
passed by a majority of the whole Board, designate an executive committee and
one or more other committees each to consist of two or more of the directors of
the Corporation.
6.2. The executive committee shall not have authority to make,
alter or amend the By-Laws, but shall exercise all other powers of the Board of
Directors between the meetings of said Board, except the power to fill vacancies
in their own membership, which vacancies shall be filled by the Board of
Directors.
6.3. The executive committee and such other committees shall
meet at stated times or on notice to all by any of their own number. They shall
fix their own rules of procedure. A majority shall constitute a quorum, but the
affirmative vote of a majority of the whole committee shall be necessary in
every case.
6.4. Such other committees shall have and may exercise the
powers of the Board of Directors to the extent as provided in such resolution or
resolutions.
2
<PAGE>
7. OFFICERS OF THE CORPORATION:
7.1. The officers of the Corporation may be a president, one
or more vice-presidents, secretary, treasurer, and such other officers as may
from time to time be chosen by the Board of Directors.
7.2. The officers of the Corporation shall hold office until
their successors are chosen and qualify in their stead. Any officer chosen or
appointed by the Board of Directors may be removed either with or without cause
at any time by the affirmative vote of a majority of the whole Board of
Directors. If the office of any officer or officers becomes vacant for any
reason, the vacancy shall be filled by the affirmative vote of a majority of the
whole Board of Directors.
8. DUTIES OF THE PRESIDENT:
8.1. The President shall be the chief executive officer of the
Corporation. It shall be his duty to preside at all meetings of the
stockholders; to have general and active management of the business and the
Corporation; to see that all orders and resolutions of the Board of Directors
are carried into effect; to execute all contracts, agreements, deeds, bonds,
mortgages and other obligations and instruments, in the name of the Corporation,
and to affix the corporate seal thereto when authorized by the Board of
Directors or the executive committee.
8.2. He shall have the general supervision and direction of
the other officers of the Corporation and shall see that their duties are
properly performed.
8.3. He shall be ex-officio a member of all standing
committees and shall have the general duties and powers of supervision and
management usually vested in the office of the President of a Corporation.
9. VICE PRESIDENT:
9.1. The Vice-Presidents, in the order designated by the Board
of Directors, shall be vested with all powers and required to perform all the
duties of the President in his absence or disability and shall perform such
other duties as may be prescribed by the Board of Directors.
10. PRESIDENT PRO TEM:
10.1. In the absence or disability of the President and the
Vice-President, the Board may appoint from their own number a president pro tem.
11. SECRETARY:
11.1. The Secretary shall attend all meetings of the
Corporation, the Board of Directors, the executive committee and standing
committees. He shall act as clerk thereof and shall
3
<PAGE>
record all of the proceedings of such meetings in a book kept for that purpose.
He shall give proper notice of meetings of stockholders and directors and shall
perform such other duties as shall be assigned to him by the President or the
Board of Directors.
12. TREASURER:
12.1. The Treasurer shall have custody of the funds and
securities of the Corporation and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors.
12.2. He shall disburse the funds of the Corporation as may be
ordered by the Board, executive committee or President, taking proper vouchers
for such disbursements, and shall render to the President and directors,
whenever they may require it, an account of all his transactions as treasurer,
and of the financial condition of the Corporation, and at the regular meeting of
the Board next preceding the annual stockholders' meeting, a like report for the
preceding year.
12.3. He shall keep an account of stock registered and
transferred in such manner and subject to such regulations as the Board of
Directors may prescribe.
12.4. He shall give the Corporation a bond, if required by the
Board of Directors, in such sum and in form and with security satisfactory to
the Board of Directors for the faithful performance of the duties of his office
and the restoration to the Corporation, in case of his death, resignation or
removal from office, of all books, papers, vouchers, money and other property of
whatever kind in his possession, belonging to the Corporation. He shall perform
such other duties as the Board of Directors or executive committee may from time
to time prescribe or require.
13. DUTIES OF OFFICERS MAY BE DELEGATED:
13.1. In case of the absence or disability of any officer of
the Corporation or for any other reason deemed sufficient by a majority of the
Board, the Board of Directors may delegate his powers or duties to any other
officer or to any director for the time being.
14. CERTIFICATES OF STOCK:
14.1. Certificates of stock shall be signed by the President
or a Vice-President and either the treasurer, assistant treasurer, secretary or
assistant secretary. If a certificate of stock be lost or destroyed, another may
be issued in its stead upon proof of loss or destruction and the giving of a
satisfactory bond of indemnity in an amount sufficient to indemnify the
Corporation against any claim. A new certificate may be issued without requiring
bond when, in the judgment of the directors, it is proper to do so.
4
<PAGE>
15. TRANSFER OF STOCK:
15.1. Upon surrender to the Corporation or the transfer agent
of the Corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignation or authority to transfer, it shall be
the duty of the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction on its books.
16. STOCKHOLDERS OF RECORD:
16.1. The Corporation shall be entitled to treat the holder of
record of any share or shares of stock as the holder in fact thereof and
accordingly shall not be bound to recognize any equitable or other claim to or
interest in such share on the part of any other person whether or not it shall
have express or other notice thereof, save as expressly provided by the laws of
Delaware.
17. FISCAL YEAR:
17.1. The fiscal year of the Corporation shall be determined
by the Board of Directors.
18. DIVIDENDS:
18.1. Dividends upon the capital stock may be declared by the
Board of Directors at any regular or special meeting and may be paid in cash or
property or in shares of the capital stock. The directors may set apart out of
any of the funds of the Corporation available for dividends a reserve or
reserves for any proper purposes and may alter or abolish any such reserve or
reserves.
19. CHECKS FOR MONEY:
19.1. All checks, drafts or orders for the payment of money
shall be signed by the treasurer or by such other officer or officers as the
Board of Directors may from time to time designate. No check shall be signed in
blank.
20. BOOKS AND RECORDS:
20.1. The books, records and accounts of the Corporation
except as otherwise required by the laws of the State of Delaware, may be kept
within or without the State of Delaware, at such place or places as may from
time to time be designated by the By-Laws or by resolution of the directors.
5
<PAGE>
21. NOTICES:
21.1. Except as otherwise specifically provided herein or
required by law, all notices required to be given to any stockholder, director,
officer, employee or agent shall be in writing and may in every instance be
effectively given by hand delivery to the recipient thereof, by depositing such
notice in the mails, postage paid, or by sending such notice by facsimile
transmission. Any such notice shall be addressed to such stockholder, director,
officer, employee or agent at his or her last known address as the same appears
on the books of the Corporation. The time when such notice is received, if hand
delivered, or dispatched, if delivered through the mails or by facsimile
transmission, shall be the time of the giving of the notice.
21.2. A written waiver of any notice, signed by a stockholder,
director, officer, employee or agent, whether before or after the time of the
event for which notice is to be given, shall be deemed equivalent to the notice
required to be given to such stockholder, director, officer, employee or agent.
Neither the business nor the purpose of any meeting need be specified in such a
waiver.
22. AMENDMENT:
22.1. These By-Laws may be amended, altered, repealed or added
to at any regular meeting of the stockholders or Board of Directors or at any
special meeting called for that purpose, by affirmative vote of a majority of
the stock issued and outstanding and entitled to vote or of a majority of the
whole board of directors, as the case may be.
23. INDEMNIFICATION:
23.1. Right to Indemnification:
Each person who was or is a party or is threatened to be made
a party to or is involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative ("Proceeding"), including without
limitation Proceedings by or in the right of the Corporation to procure a
judgment in its favor, by reason of the fact that he or she or a person for whom
he or she is the legal representative is or was a director or officer, employee
or agent of the corporation or is or was serving at the request of the
corporation as a director or officer, employee or agent of another corporation,
or of a partnership, joint venture, trust or other enterprise, including service
with respect to employee benefit plans, whether the basis of such Proceeding is
alleged action in an official capacity as a director, officer, employee or agent
or in any other capacity while serving as a director, officer, employee or
agent, shall be indemnified and held harmless by the corporation to the fullest
extent authorized by the General Corporation Law of the State of Delaware, as
the same exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent such amendment permits the corporation to provide
broader indemnification rights than said law permitted the corporation to
provide prior to such amendment) against all expenses, liability and loss
(including attorneys' fees, judgments, fines, ERISA excise taxes or penalties
and amounts paid or
6
<PAGE>
to be paid in settlement) reasonably incurred or suffered by such person in
connection therewith. Such right shall be a contract right and shall include the
right to be paid by the corporation for expenses incurred in defending any such
Proceeding in advance of its final disposition; provided, however, that the
payment of such expenses incurred by a director or officer of the corporation in
his or her capacity as a director or officer (and not in any other capacity in
which service was or is rendered by such person while a director or officer,
including, without limitation, service to an employee benefit plan) in advance
of the final disposition of such Proceeding, shall be made only upon delivery to
the corporation of an undertaking, by or on behalf of such director or officer,
to repay all amounts so advanced if it should be determined ultimately that such
director or officer is not entitled to be indemnified under this section or
otherwise.
23.2. Right of Claimant to Bring Suit:
If a claim under Section 1 is not paid in full by the
corporation within ninety (90) days after a written claim has been received by
the corporation, the claimant may at any time thereafter bring suit against the
corporation to recover the unpaid amount of the claim, and if successful in
whole or in part, the claimant shall be entitled to be paid also the expense of
prosecuting such claim. It shall be a defense to any such action (other than an
action brought to enforce a claim for expenses incurred in defending any
Proceeding in advance of its final disposition where the required undertaking
has been tendered to the corporation) that the claimant has not met the
standards of conduct which make it permissible under the General Corporation Law
of the State of Delaware for the corporation to indemnify the claimant for the
amount claimed, but the burden of proving such defense shall be on the
corporation. Neither the failure of the corporation (including its Board of
Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in the General Corporation Law of the
State of Delaware, nor an actual determination by the corporation (including its
Board of Directors, independent legal counsel, or its stockholders) that the
claimant had not met such applicable standard of conduct, shall be a defense to
the action or create a presumption that claimant had not met the applicable
standard of conduct.
23.3. Non-Exclusivity of Rights:
The rights conferred by Sections 1 and 2 shall not be
exclusive of any other right which such person may have or hereafter acquire
under any statute, provision of the Certificate of Incorporation, by-law,
agreement, vote of stockholders or disinterested directors or otherwise.
23.4. Insurance:
The corporation may maintain insurance, at its expense, to
protect itself and any such director, officer, employee or agent of the
corporation or another corporation, partnership, joint
7
<PAGE>
venture, trust or other enterprise against any such expense, liability or loss,
whether or not the corporation would have the power to indemnify such person
against such expense, liability or loss under the General Corporation Law of the
State of Delaware.
DATED: March 13, 1997
8
<PAGE>
Exhibit 10.1
BLUESTONE SOFTWARE, INC.
1996 INCENTIVE AND NON-QUALIFIED
STOCK OPTION PLAN
AS AMENDED AND RESTATED EFFECTIVE MARCH 11, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 1. Name and Purposes................................................................................... 1
Section 2. Definitions......................................................................................... 1
Section 3. Administration...................................................................................... 5
Section 4. Eligibility......................................................................................... 7
Section 5. Stock Subject to the Plan........................................................................... 7
Section 6. Terms and Conditions of Options..................................................................... 8
Section 7. Fair Market Value of Common Stock................................................................... 11
Section 8. Adjustments......................................................................................... 12
Section 9. Rights as a Stockholder............................................................................. 12
Section 10. Forfeiture.......................................................................................... 12
Section 11. Time of Granting Options............................................................................ 13
Section 12. Modification, Extension, Renewal of Option.......................................................... 13
Section 13. Transferability..................................................................................... 13
Section 14. Power of Board if Change of Control................................................................. 13
Section 15. Amendment or Termination of the Plan................................................................ 14
Section 16. Application of Funds................................................................................ 14
Section 17. No Obligation to Exercise Option.................................................................... 14
Section 18. Approval of Stockholders............................................................................ 14
Section 19. Conditions Upon Issuance of Shares.................................................................. 15
Section 20. Reservation of Shares............................................................................... 15
Section 21. Other Agreements.................................................................................... 16
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Section 22. Taxes, Fees, Expenses and Withholding.............................................................. 16
Section 23. Notices............................................................................................ 16
Section 24. No Enlargement of Employee Rights.................................................................. 17
Section 25. Information to Optionees........................................................................... 17
Section 26. Availability of Plan............................................................................... 17
Section 27. Invalid Provisions................................................................................. 17
Section 28. Applicable Law..................................................................................... 17
Section 29. Board Action....................................................................................... 18
Section 30. Miscellaneous...................................................................................... 18
INCENTIVE STOCK OPTION AGREEMENT............................................................................ TAB 1
NON-QUALIFIED STOCK OPTION AGREEMENT......................................................................... TAB 2
STOCK PURCHASE AND RESTRICTION AGREEMENT..................................................................... TAB 3
</TABLE>
<PAGE>
BLUESTONE SOFTWARE, INC.
1996 INCENTIVE AND NON-QUALIFIED
STOCK OPTION PLAN
Section 1. NAME AND PURPOSES OF THE PLAN.
(a) NAME. The Plan will be known as the Bluestone Software,
Inc. 1996 Incentive and Non-Qualified Stock Option Plan. The Plan was formerly
known as the Bluestone Consulting, Inc. 1996 Incentive and Non-Qualified Stock
Option Plan, but pursuant to a corporate transaction in which Bluestone
Consulting, Inc., a New Jersey corporation, merged into Bluestone Software,
Inc., a Delaware corporation, Bluestone Software, Inc. became the successor
sponsor of the Plan.
(b) PURPOSES. The purpose of the Plan is to provide key
Employees and Consultants with an opportunity to share in the capital
appreciation of the Common Stock of the Company. The Options granted pursuant to
the Plan are intended to constitute either Incentive Stock Options or
Non-Qualified Stock Options, as determined by the Administrator of the Plan at
the time of grant.
Section 2. DEFINITIONS. As used herein, the following
definitions shall apply:
(a) "ADMINISTRATOR" shall be the Board or a Committee
appointed by the Board pursuant to Section 3 of the Plan, which shall administer
the Plan.
(b) "AFFILIATE" shall mean, whether now or hereafter existing,
a person or entity that directly, or indirectly controls or is controlled by, or
is under common control with, the Company, except that when used in connection
with an Incentive Stock Option, "Affiliate" shall mean a Subsidiary.
(c) "BCI" shall mean Bluestone Consulting, Inc., a Delaware
corporation, that was spun off from the Company on April 17, 1997.
(d) "BOARD" shall mean the Board of Directors of the Company,
as constituted from time to time.
(e) "CHANGE OF CONTROL" shall mean the happening of an event
(excluding a Public Offering) that shall be deemed to have occurred upon the
earliest to occur of the following events:
(i) the date the stockholders of the Company (or
the Board, if stockholder action is not
required) approve a plan or other
arrangement pursuant to which the Company
will be dissolved or liquidated;
<PAGE>
(ii) the date the stockholders of the Company (or
the Board, if stockholder action is not
required) approve a definitive agreement to
sell or otherwise dispose of all or
substantially all of the assets of the
Company, or
(iii) the date the stockholders of the Company (or
the Board, if stockholder action is not
required) and the stockholders of the other
constituent corporations (or their
respective boards of directors, if and to
the extent that stockholder action is not
required) have approved a definitive
agreement to merge or consolidate the
Company with or into another corporation,
other than, in either case, a merger or
consolidation of the Company in which
holders of shares of the Company's voting
capital stock immediately prior to the
merger or consolidation will have at least
fifty percent (50%) of the ownership of
voting capital stock of the surviving
corporation immediately after the merger or
consolidation (on a fully diluted basis),
which voting capital stock is to be held in
the same proportion (on a fully diluted
basis) as such holders' ownership of voting
capital stock of the Company immediately
before the merger or consolidation, or
(iv) the date any entity, person or group (within
the meaning of Section 13(d)(3) or Section
14(d)(2) of the Exchange Act), other than
(A) the Company, (B) any of its
Subsidiaries, (C) any of the holders of the
capital stock of the Company, as determined
on the date that this Plan is adopted by the
Board, (D) any employee benefit plan (or
related trust) sponsored or maintained by
the Company or any of its Subsidiaries or
(E) any Affiliate of any of the foregoing,
shall have acquired beneficial ownership of,
or shall have acquired voting control over
more than fifty percent (50%) of the
outstanding shares of the Company's voting
capital stock (on a fully diluted basis),
unless the transaction pursuant to which
such person, entity or group acquired such
beneficial ownership or control resulted
from the original issuance by the Company of
shares of its voting capital stock and was
approved by at least a majority of directors
who shall have been members of the Board for
at least twelve (12) months prior to the
date of such approval, or
(v) the first day after the date of this Plan
when directors are elected such that there
shall have been a change in the composition
of the Board such that a majority of the
Board shall have been members of the Board
for less than twelve (12) months, unless the
nomination for election of each new director
who was not a director at the beginning of
such twelve (12) month period was
-2-
<PAGE>
approved by a vote of at least sixty percent
(60%) of the directors then still in office
who were directors at the beginning of such
period, or
(vi) the date upon which the Board determines (in
its sole discretion) that based on then
current available information, the events
described in clause (iv) are reasonably
likely to occur.
(f) "CODE" shall mean the Internal Revenue Code of 1986, as
amended from time to time, and any successor thereto.
(g) "COMMITTEE" shall mean the Committee appointed by the
Board in accordance with Section 3(a) of the Plan, if one is appointed, in which
event the Committee shall possess the power and authority of the Board with
respect to the Plan as set forth in section 3(b) of the Plan.
(h) "COMMON STOCK" shall mean the common stock of the Company,
$.001 par value per share.
(i) "COMPANY" shall mean BLUESTONE SOFTWARE, INC., a Delaware
corporation, formerly known as Bluestone Consulting, Inc., a New Jersey
corporation, and any successor in interest that agrees to assume and maintain
the Plan.
(j) "CONSULTANT" shall mean (i) any person associated with the
Company who is engaged by the Company to render services and is compensated by
the Company for such services, including but not limited to, an advisor or
independent contractor; (ii) any director of the Company whether or not
compensated for such services in his capacity as a director; and (iii) solely
for purposes of the Plan, any person employed by BCI or any other company so
designated by the Board.
(k) "DISABILITY" or "DISABLED" with respect to an Optionee
shall mean (i) when the Optionee is determined to be disabled within the meaning
of any long-term disability policy or program sponsored by the Company or BCI
covering the Optionee, as in effect as of the date of such determination, or
(ii) if no such policy or program shall be in effect, when the Optionee is
unable to engage in any substantial gainful activity by reason of a physical or
mental impairment that can be expected to result in death or that has lasted or
can be expected to last for a continuous period of not less than twelve (12)
months. The determination of whether an Optionee is Disabled pursuant to
subparagraph (ii) shall be determined by the Board of Directors, whose
determination shall be conclusive; provided that, (iii) if an Optionee is bound
by the terms of an employment agreement between the Optionee and the Company or
Optionee and BCI, whether the Optionee is "Disabled" for purposes of the Plan
shall be determined in accordance with the procedures set forth in said
employment agreement, if such procedures are therein provided; and (iv) an
Optionee bound by such an employment agreement shall not be determined to be
Disabled under the Plan any earlier than he or she would be determined to be
disabled under his or her employment agreement.
-3-
<PAGE>
(l) "EMPLOYEE" shall mean any person, including but not
limited to, officers and directors, employed by the Company or any Subsidiary of
the Company. The payment of directors' fees by the Company shall not be
sufficient to constitute "employment" by the Company.
(m) "EXCHANGE ACT" shall mean the Securities Exchange Act of
1934, as amended.
(n) "FAIR MARKET VALUE" shall mean, as of any date, the fair
market value of a share of Common Stock as determined pursuant to Section 7
hereof.
(o) "INCENTIVE STOCK OPTION" shall mean any Option that is
intended to be and is designated as an Incentive Stock Option within the meaning
of Section 422 of the Code.
(p) "NON-EMPLOYEE DIRECTOR" shall have the meaning set forth
in Rule 16b- 3(b)(3)(i) promulgated by the Securities and Exchange Commission
under the Exchange Act, or any successor definition adopted by the Securities
and Exchange Commission; provided, however, that the Administrator may, in its
sole discretion, determine from time to time whether the rules and regulations
under Section 162(m) of the Code shall apply for purposes of determining which
individuals are "Non-Employee Directors."
(q) "NON-QUALIFIED STOCK OPTION" shall mean any Option that is
not intended to qualify as an Incentive Stock Option.
(r) "OPTION" shall mean an Incentive Stock Option or a
Non-Qualified Stock Option as the case may be, granted pursuant to the Plan.
(s) "OPTION AGREEMENT" shall mean the written agreement by and
between the Company and an Optionee under which Optionee may purchase the Shares
pursuant to the exercise of an Option.
(t) "OPTIONEE" shall mean an Employee or Consultant to whom an
Option is granted.
(u) "PLAN" shall mean this Bluestone Software, Inc. 1996
Incentive and NonQualified Stock Option Plan, as amended from time to time.
(v) "PUBLIC OFFERING" shall mean the consummation of a firm
commitment underwritten public offering of equity securities of the Company
registered under the Securities Act.
(w) "SALE OF THE COMPANY" shall mean the earliest of: (i) the
closing of a sale, transfer or other disposition of all or substantially all of
the shares of the capital stock then outstanding of the Company (except if such
transferee is then an Affiliate); (ii) the closing of a sale, transfer or other
disposition of all or substantially all of the assets of the Company (except if
-4-
<PAGE>
such transferee is then an Affiliate); or (iii) the merger or consolidation of
the Company with or into another corporation (except an Affiliate), other than a
merger or consolidation of the Company in which the holders of shares of the
Company's voting capital stock outstanding immediately before such merger or
consolidation hold greater than fifty percent (50%) of the surviving entity's
voting capital stock after such consolidation or merger.
(x) "SECURITIES ACT" shall mean the Securities Act of 1933, as
amended.
(y) "SECURITIES BROKER" means a registered securities broker
acceptable to the Board who agrees to effect the cashless exercise of an Option.
(z) "SHARE" or "SHARES" shall mean a share or shares of Common
Stock, as adjusted in accordance with Section 8 of the Plan, that is allocated
to the Plan.
(aa) "STOCK PURCHASE AND RESTRICTION AGREEMENT" shall mean an
agreement in such form or forms as the Board (subject to the terms and
conditions of this Plan) may from time to time approve, which an Optionee shall
be required to execute as a condition of purchasing Shares upon the exercise of
an Option.
(bb) "SUBSIDIARY" shall mean, whether now or hereafter
existing, a subsidiary or parent corporation of the Company as such term is
defined in Sections 424(e), (f) and (g) of the Code.
(cc) "TRANSFER" or "TRANSFERRED" shall mean the transfer of
employment or other engagement from the Company to BCI, or from BCI to the
Company.
Section 3. ADMINISTRATION.
(a) PROCEDURE. The Plan shall be administered by the Board or
a Committee consisting of not less than two persons appointed by the Board (in
either case, the "Administrator"). Members of the Board or the Committee who are
eligible for Options or who have been granted Options may vote on any matters
affecting the administration of the Plan or the grant of any Options pursuant to
the Plan, except that no such member shall act upon the granting of an Option to
himself or herself, but any such member may be counted in determining the
existence of a quorum at any meeting of the Board or the Committee during which
action is taken with respect to the granting of Options to such member.
In the event the Company has a class of equity securities
registered under Section 12 of the Exchange Act, the Plan shall be administered
either by the Board, or by a Committee, appointed in the same manner and subject
to the same terms as provided in the preceding sentence of this subsection 3(a),
provided that said Committee shall consist of not less than two (2) persons,
each of whom is a Non-Employee Director.
(b) COMMITTEE. If a Committee is appointed by the Board, then
the Committee shall possess the power and authority of the Board in
administering the Plan on
-5-
<PAGE>
behalf of the Board, subject to the terms and conditions as the Board may
prescribe. Members of the Committee may or may not be members of the Board and
shall serve for such period of time as the Board may determine. From time to
time, the Board may increase the size of the Committee and appoint additional
members thereto, remove members (with or without cause) and appoint new members
in substitution therefor, fill vacancies however caused, or remove all members
of the Committee and thereafter directly administer the Plan.
(c) POWERS OF THE ADMINISTRATOR. Subject to the provisions of
the Plan (and, in the case of the Committee, the specific duties delegated by
the Board to such Committee), the Administrator shall have the authority, in its
sole discretion:
(i) to determine whether and to what extent Options
are granted hereunder;
(ii) to determine the Fair Market Value of the Common
Stock based upon review of relevant information and in accordance with Section 7
of the Plan;
(iii) to determine the exercise price of the Options
in accordance with Section 6(b) of the Plan;
(iv) to select the Optionees to whom Options may from
time to time be granted;
(v) to determine the number of Shares to be subject
to each Option granted hereunder;
(vi) to prescribe, amend and rescind rules and
regulations relating to the Plan;
(vii) to determine the terms and provisions of each
Option granted under the Plan, each Option Agreement and each other agreement
that in the sole discretion of the Administrator may be required (all of which
agreements need not be identical with the terms of other Options, Option
Agreements or other agreements);
(viii) to determine the circumstances under which the
vesting or exercise date of an Option will be accelerated;
(ix) to interpret the Plan or any agreement entered
into with respect to the grant or exercise of Options;
(x) to authorize any person to execute on behalf of
the Company any instrument required to effectuate the grant of an Option
previously granted by the Board or to take such other actions as may be
necessary or appropriate with respect to the Company's rights pursuant to
Options or agreements relating to the granting or exercise thereof;
-6-
<PAGE>
(xi) to determine whether and under what
circumstances an Option may be exercised without a payment of cash under Section
6(c) hereof;
(xii) to terminate the Plan in the event of a Change
of Control;
(xiii) to determine whether or not a Transfer has
occurred; and
(xiv) to make such other determinations and establish
such other procedures as it deems necessary or advisable for the administration
of the Plan.
(d) EFFECT OF THE ADMINISTRATOR'S DECISION. All decisions,
determinations and interpretations of the Administrator pursuant to the
provisions of the Plan shall be final and binding on all Optionees and any other
holders of Options.
(e) LIMITATION OF LIABILITY. Notwithstanding anything herein
to the contrary, no member of the Board or the Committee shall be liable for any
good faith determination, act or failure to act in connection with the Plan or
any Option awarded hereunder.
Section 4. ELIGIBILITY.
(a) ELIGIBLE PERSONS. Options may be granted at any time and
from time to time to any Employee or Consultant who shall be selected by the
Administrator. Any grant of Options may include or exclude any Employee or
Consultant as the Administrator shall determine in its sole discretion.
Consultants who are not also Employees of the Company are eligible to be granted
Non-Qualified Stock Options under the Plan but are not eligible to be granted
Incentive Stock Options under the Plan.
(b) VESTING OF OPTIONS. Subject to the provisions of Section 6
hereof and except to the extent the Board provides otherwise, each Option shall
vest at a rate of twenty-five percent (25%) of the Shares subject to the Option
per year (the total number of Shares so vested being the "Vested Amount") during
the consecutive four (4) year period commencing on the date of grant. Options
that are not vested may not be exercised.
(c) EFFECT UPON ENGAGEMENT. The Plan will not confer upon any
Optionee any right with respect to the continuation of any employment,
consulting or any other relationship with the Company or BCI nor will it
interfere in any way with such Optionee's right or the Company's or BCI's right
to terminate that Optionee's employment, consulting or other relationship with
the Company or BCI at any time, whether with or without cause.
Section 5. STOCK SUBJECT TO THE PLAN.
(a) MAXIMUM NUMBER OF SHARES. Subject to the provisions of
Section 8 of the Plan, the maximum aggregate number of Shares which may be
optioned and sold under the Plan is Nine Million Four Hundred Twenty Nine
Thousand Forty Nine (9,429,049) Shares. The Shares may be authorized, but
unissued or reacquired, Common Stock. Notwithstanding the
-7-
<PAGE>
foregoing, no individual shall receive, over the term of the Plan, awards for
more than an aggregate of Two Million Five Hundred Thousand (2,500,000) Shares
authorized for grant under the Plan.
(b) RETURN OF SHARES TO THE PLAN. If an Option expires, is
terminated or become unexercisable for any reason without having been exercised
in full, then the unpurchased Shares subject thereto shall, unless the Plan
shall have been terminated, return to the Plan and become available for future
grant under the Plan.
Section 6. TERMS AND CONDITIONS OF OPTIONS.
Each Option granted under the Plan shall be authorized by the
Board and shall be evidenced by an Option Agreement which shall state or
incorporate by reference all other terms and conditions of the Plan including,
without limitation, the following terms and conditions:
(a) NUMBER OF SHARES. The Option Agreement shall state the
number of Shares subject to the Option.
(b) OPTION EXERCISE PRICE. The per Share exercise price for
the Shares to be issued pursuant to the exercise of an Incentive Stock Option
shall be stated in the Option Agreement and shall be no less than the Fair
Market Value per share of the Common Stock on the date such Option is granted,
without regard to any restriction other than a restriction that by its terms
will never lapse; provided, however, that any Incentive Stock Option granted
under this Plan to an Employee who, at the time such Option is granted, owns
more than ten percent (10%) of the current total combined voting power of all
classes of the capital stock of the Company, shall have an exercise price per
Share of not less than one hundred ten percent (110%) of the Fair Market Value
of the Common Stock on the date such Option is granted. The per Share exercise
price for the Shares to be issued pursuant to the exercise of a Non-Qualified
Stock Option shall be stated in the Option Agreement and shall be determined by
the Administrator but shall be at least $.01 per Share.
(c) CONSIDERATION. The consideration to be paid for the Shares
to be issued upon the exercise of an Option, including the method of payment,
shall be determined by the Administrator and may consist entirely of: (i) cash;
(ii) check; (iii) authorization from the Company to retain from the total number
of Shares as to which the Option is exercised that number of Shares having a
Fair Market Value on the date of exercise equal to the exercise price for the
total Shares as to which the Option is exercised; (iv) to the extent permitted
under the Exchange Act, the delivery of a properly executed exercise notice
together with irrevocable instructions to a Securities Broker to promptly
deliver to the Company the amount of sale or loan proceeds required to pay the
exercise price; or (v) such other consideration and method of payment as the
Administrator may from time to time determine. In making its determination as to
the type of consideration to accept, the Administrator shall consider if the
acceptance of such consideration may be reasonably expected to benefit the
Company.
-8-
<PAGE>
(d) FORM OF OPTION. The Option Agreement shall state whether
the Option granted thereunder is intended to be an Incentive Stock Option or a
Non-Qualified Stock Option and shall, subject to the terms of the Option
Agreement, constitute a binding determination as to the form of Option granted
thereunder.
(e) EXERCISE OF AN OPTION.
(i) Unless otherwise provided by the Board, any
Option granted hereunder shall be exercisable, in whole or in part, in
accordance with the vesting schedule set forth in Section 4(b) hereof and shall
be exercisable at such times and under such further conditions as may be
determined by the Board and as set forth in the Option Agreement.
(ii) An Option may not be exercised for a fraction of
a Share. In the event of a "cashless exercise" as permitted under Section 6(c)
hereof, the Company shall issue shares for, the whole number of shares acquired
through such cashless exercise and cash for the value of any fractional share.
(iii) An Option may not be exercised after the date
of expiration of its term as shall be set forth in the Option Agreement.
(iv) An Option shall be deemed to be exercised when
written notice of such exercise has been received by the Company at its
principal executive office in accordance with the terms of the Option Agreement
by the person entitled to exercise the Option, and full payment for the Shares
with respect to which the Option is exercised has been received by the Company,
accompanied by an executed Stock Purchase and Restriction Agreement and any
other agreements required by the Administrator or the terms of the Plan and/or
Option Agreement. An Optionee shall have no right to vote or receive dividends
and shall have no other rights as a stockholder with respect to the Shares,
notwithstanding the exercise of the Option, until the issuance (as evidenced by
the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company) of the stock certificate evidencing such Shares.
No adjustment shall be made for a dividend or other right for which the record
date is prior to the date a stock certificate with respect to the Shares is
issued.
(v) As soon as practicable after the proper exercise
of an Option in accordance with the provisions of the Plan, the Company shall,
without transfer or issue tax to the Optionee, deliver to the Optionee at the
principal executive office of the Company or such other place as shall be
mutually agreed upon between the Company and the Optionee, a certificate or
certificates representing the Shares for which the Option shall have been
exercised. The time of issuance and delivery of the certificate(s) representing
the Shares for which the Option shall have been exercised may be postponed by
the Company for such period as may be required by the Company, with reasonable
diligence, to comply with any applicable listing requirements of any national or
regional securities exchange or any law or regulation applicable to the issuance
or delivery of such Shares.
-9-
<PAGE>
(vi) The exercise of an Option in any manner shall
result in a decrease in the number of Shares that thereafter may be available
both for purposes of the Plan and for sale under the Option by the number of
Shares as to which the Option is exercised.
(f) TERMINATION OF OPTIONS.
(i) TERMINATION IN GENERAL. Unless sooner terminated
as provided in this Plan, each Option shall be exercisable for the period of
time as shall be determined by the Administrator and set forth in the Option
Agreement and shall be void and unexercisable thereafter.
(ii) TERMINATION OF RELATIONSHIP WITH THE COMPANY.
Unless sooner terminated as provided in this Plan, in the event of the
termination of an Optionee's employment or consulting relationship with the
Company (as the case may be), including termination of employment or consulting
relationship with BCI, for any reason other than the death or Disability of the
Optionee, such Optionee may, within three (3) months (or such other period of
time as is determined by the Board) from the date of such termination (but in no
event later than the expiration date of the term of such Option as set forth in
the Option Agreement), exercise the Option up to the Vested Amount as of the
date of termination provided that the Optionee was entitled to exercise the
Option on the date of such termination; provided, however, that an Optionee who
has Transferred shall not be considered to have terminated his relationship with
the Company. To the extent the Optionee was not entitled to exercise the Option
on the date of such termination, or if the Optionee does not exercise such
Option to the extent so entitled within the time specified herein, the Option
will terminate.
(iii) DEATH OR DISABILITY. Unless sooner terminated
as provided in this Plan, in the event of the death or Disability of an Optionee
while employed or engaged by the Company (as the case may be), including
termination of employment or service with BCI, due to death or Disability,
Options held by such Optionee that are exercisable on the date of Disability or
death shall be exercisable up to the Vested Amount as of the date of Disability
or death for a period of twelve (12) months commencing on the date of the
Optionee's Disability or death. Such Options may be exercisable by the Optionee
or his or her legal guardian or representative or, in the case of death, by his
or her executor(s) or administrator(s); provided, however, if such disabled
Optionee shall commence any employment or engagement during such twelve (12)
month period with or by a competitor of the Company (INCLUDING, but not limited
to, full or part-time employment or independent consulting work, but EXCLUDING
any employment or engagement by BCI), as determined solely in the judgment of
the Administrator, then all Options held by such Optionee that have not yet been
exercised shall terminate immediately upon the commencement thereof.
(iv) AGREEMENT TO TERMINATE. Options may be
terminated at any time by agreement between the Company and the Optionee.
-10-
<PAGE>
(g) OTHER PROVISIONS.
(i) Notwithstanding any provision in this Plan or an
Option Agreement to the contrary, no Option granted to any Optionee under this
Plan shall be treated as an Incentive Stock Option to the extent that such
Option would cause the aggregate Fair Market Value of all Shares with respect to
which Incentive Stock Options are exercisable by such Optionee for the first
time during any calendar year (determined as of the date of grant of each such
Option) to exceed $100,000. For purposes of determining whether an Incentive
Stock Option granted to an Optionee would cause the aggregate Fair Market Value
to exceed the $100,000 limitation, such Incentive Stock Options shall be taken
into account in the order granted. For purposes of this subsection, Incentive
Stock Options granted to an Optionee shall include all incentive stock options
under all plans of the Company that are incentive stock option plans within the
meaning of Section 422 of the Code. Options may be exercised in any order
elected by the Optionee, whether or not the Optionee holds any unexercised
Options under this Plan or any other plan of the Company.
(ii) Notwithstanding any other provision of this Plan
or an Option Agreement to the contrary, no Option shall be (A) granted under
this Plan after ten (10) years from the date on which this Plan is adopted by
the Board, or (B) exercisable more than ten (10) years from the date of grant;
provided that if an Incentive Stock Option shall be granted under this Plan to
any Employee who, at the time of the grant of such Option, owns stock possessing
more than ten percent (10%) of the total combined voting power for all classes
of the Company's capital stock, the foregoing clause (B) shall be deemed
modified by substituting the term "five (5) years" for the term "ten (10) years"
that appears therein.
Section 7. FAIR MARKET VALUE OF COMMON STOCK.
The Fair Market Value of a Share of Common Stock, as of any
date, shall be determined as follows:
(a) If the Shares of Common Stock are listed on a national or
regional securities exchange or traded through NASDAQ/NMS, then the Fair Market
Value of a share of Common Stock shall be the closing price for a share of
Common Stock on the exchange or on NASDAQ/NMS, as reported in THE WALL STREET
JOURNAL or such other source as the Administrator deems reliable on the relevant
valuation date, or if there is no trading on that date, on the next trading
date.
(b) If the Shares of Common Stock are traded in the
over-the-counter market, then the Fair Market Value of a share of Common Stock
shall be the mean of the bid and asked prices for a share of Common Stock on the
relevant valuation date as reported in THE WALL STREET JOURNAL or other source
the Administrator deems reliable (or, if not so reported, as otherwise reported
by the National Association of Securities Dealers Automated Quotations
("NASDAQ") System or the NASD OTC Bulletin Board), or if there is no trading on
such date, on the next trading date.
-11-
<PAGE>
(c) In the absence of an established market for the Common
Stock, the Fair Market Value of a share of Common Stock shall be determined by
the Board in its sole discretion.
Section 8. ADJUSTMENTS.
(a) ADJUSTMENTS. Subject to any required action by the
stockholders of the Company, the number of Shares covered by each outstanding
Option, the number of Shares that have been authorized for issuance under the
Plan but as to which no Options have yet been granted or that have been returned
to the Plan upon cancellation or expiration of an Option, and the price per
Share of the Common Stock covered by an Option will each be proportionately
adjusted for any increase or decrease in the number of outstanding shares of
Common Stock resulting from stock splits, reverse stock splits, stock dividends,
reclassifications and recapitalizations. Such adjustment shall be made by the
Board whose determination in that respect will be final, binding and conclusive.
Except as provided herein, no issuance by the Company of shares of stock of any
class or securities convertible into shares of stock of any class, will affect,
and no adjustment by reason thereof will be made with respect to, the number or
price of shares of Common Stock subject to an Option.
(b) NO FRACTIONAL SHARES. No fractional Shares shall be
issuable on account of any action aforesaid, and the aggregate number of Shares
into which Shares then covered by the Option, when changed as the result of such
action, shall be reduced to the number of whole Shares resulting from such
action, unless the Board, in its sole discretion, shall determine to issue scrip
certificates in respect to any fractional Shares, which scrip certificates shall
be in a form and have such terms and conditions as the Board in its discretion
shall prescribe.
Section 9. RIGHTS AS A STOCKHOLDER.
An Optionee shall have no rights as a stockholder of the
Company and shall not have the right to vote nor receive dividends with respect
to any Shares subject to an Option until such Option has been exercised and a
stock certificate with respect to the Shares purchased upon such exercise of the
Option has been issued to Optionee as set forth in Section 6(e)(iv) and (v)
hereof.
Section 10. FORFEITURE.
Notwithstanding any other provision of this Plan, if an
Optionee's employment or consulting relationship with the Company (as the case
may be) is terminated by the Company or BCI and the Board makes a determination
that the Optionee (i) has engaged in any type of disloyalty to the Company or
BCI, including without limitation, fraud, embezzlement, theft, or dishonesty in
the course of Optionee's employment or consulting relationship, (ii) has been
convicted of a felony or other crime involving a breach of trust or fiduciary
duty owed to the Company or BCI, (iii) has made an unauthorized disclosure of
trade secrets or confidential information of the Company or BCI, or (iv) has
breached any confidentiality agreement or non-competition agreement with the
Company or BCI in any material respect, then, at the election of
-12-
<PAGE>
the Board, all unexercised Options held by the Optionee (whether or not then
exercisable) shall terminate. In the event of such an election by the Board, in
addition to immediate termination of all unexercised Options, the Optionee shall
forfeit all Shares for which the Company has not yet delivered stock
certificates to the Optionee and the Company shall refund to the Optionee the
exercise price paid to it upon exercise of the Option with respect to such
Shares. Notwithstanding anything herein to the contrary, the Company may
withhold delivery of stock certificates pending the resolution of any inquiry
that could lead to a finding resulting in forfeiture.
Section 11. TIME OF GRANTING OPTIONS.
The date of grant of an Option shall, for all purposes, be the
date on which the Administrator makes the determination to grant the Option or
such other date as is determined by the Administrator. Notice of the
determination shall be given to each Optionee to whom an Option is so granted
within a reasonable time after the date of such grant.
Section 12. MODIFICATION, EXTENSION, RENEWAL OF OPTION.
Subject to the terms and conditions of the Plan, the Board may
modify, extend or renew an Option, or accept the surrender of an Option (to the
extent not theretofore exercised); provided that no Incentive Stock Option may
be modified, extended or renewed if such action would cause such Option to cease
to be an "incentive stock option" within the meaning of Section 422 of the Code.
Section 13. TRANSFERABILITY.
No Option may be sold, pledged, assigned, transferred or
disposed of in any manner other than by will or by the laws of descent and
distribution. During the lifetime of the Optionee, his or her Options shall be
exercisable only by the Optionee, or, in the event of his or her legal
incapacity or Disability, by the legal guardian or representative of the
Optionee.
Section 14. POWER OF BOARD IF CHANGE OF CONTROL.
Notwithstanding anything to the contrary set forth in this
Plan, in the event of a Sale of the Company, fifty percent (50%) of all Options
that have not vested as of the date of a Sale of the Company shall become
immediately vested and exercisable. All remaining unvested Options shall vest in
accordance with the vesting schedule set forth in the applicable Option
Agreement. Notwithstanding the preceding, the Board shall have the right, in its
sole discretion, to accelerate the vesting of all Options that have not vested
as of the date of the Change of Control and/or to establish an earlier date for
the expiration of the exercise of an Option (notwithstanding a later expiration
of exercisability set forth in an Option Agreement). In addition, in the event
of a Change of Control of the Company, the Board shall have the right, in its
sole discretion, subject to and conditioned upon a Sale of the Company: (i) to
arrange for the successor company (or other entity) to assume all of the rights
and obligations of the Company under this Plan; or (ii) to terminate this Plan
and (A) to pay to all Optionees cash with respect to
-13-
<PAGE>
those Options that are vested as of the date of the Sale of the Company in an
amount equal to the difference between the Option Price and the Fair Market
Value of a Share of Common Stock (determined as of the date the Plan is
terminated) multiplied by the number of Options that are vested as of the date
of the Sale of the Company which are held by the Optionee as of the date of the
Sale of the Company, or (B) to arrange for the exchange of all Options for
options to purchase common stock in the successor corporation, or (C) to
distribute to each Optionee other property in an amount equal to and in the same
form as the Optionee would have received from the successor corporation if the
Optionee had owned the Shares subject to Options that are vested as of the date
of the Sale of the Company rather than the Option at the time of the Sale of the
Company. The form of payment or distribution to the Optionee pursuant to this
Section shall be determined by the Board in its sole discretion.
Section 15. AMENDMENT OR TERMINATION OF THE PLAN.
Insofar as permitted by law and the Plan, the Board may at any
time suspend, terminate, discontinue, alter or amend the Plan in any respect
whatsoever; provided, however, that without prior approval of at least a
majority of the stockholders entitled to vote thereon, no such revision or
amendment may change the aggregate number of Shares for which Options may be
granted hereunder, change the designation of the class of Optionees eligible to
receive Options or decrease the price at which Options may be granted. Any other
provision of this Section notwithstanding, the Board specifically is authorized
to adopt any amendment to this Plan deemed by the Board to be necessary or
advisable to assure that the Incentive Stock Options or the Non-Qualified Stock
Options available under the Plan continue to be treated as such, respectively,
under all applicable laws.
Section 16. APPLICATION OF FUNDS.
The proceeds received by the Company from the sale of Shares
pursuant to the exercise of Options shall be used for general corporate
purposes.
Section 17. NO OBLIGATION TO EXERCISE OPTION.
The granting of an Option shall impose no obligation upon the
Optionee to exercise such Option.
Section 18. APPROVAL OF STOCKHOLDERS.
This Plan shall become effective on the date that it is
adopted by the Board; provided that it shall become limited to a non-qualified
stock option plan if it is not approved by the stockholders of a majority of the
Company's outstanding voting stock within one year (365 days) of its adoption by
the Board. The Board may grant Options hereunder prior to approval of the Plan,
or any material amendments thereto, by the holders of a majority of the
Company's outstanding voting stock; provided that any and all Options so granted
shall be converted into non-qualified stock options if the Plan, or a material
amendment, is not approved by such stockholders within 365 days of its adoption
or material amendment.
-14-
<PAGE>
Section 19. CONDITIONS UPON ISSUANCE OF SHARES.
(a) Options granted under the Plan are conditioned upon the
Company obtaining any required permit or order from appropriate governmental
agencies, authorizing the Company to issue such Options and Shares issuable upon
the exercise thereof.
(b) Shares shall not be issued pursuant to the exercise of an
Option unless the exercise of such Option and the issuance and delivery of such
Shares pursuant thereto shall comply with all relevant provisions of law,
including, without limitation, the Securities Act, the Exchange Act, the rules
and regulations promulgated thereunder, and the requirements of any stock
exchange upon which the Shares may then be listed, and shall be further subject
to the approval of counsel for the Company with respect to such compliance.
(c) As a condition to the exercise of an Option, the Board may
require the person exercising such Option to execute an agreement with, and/or
may require the person exercising such Option to make any representation and/or
warranty to, the Company as may be, in the judgment of counsel to the Company,
required under applicable law or regulation, including but not limited to, a
representation and warranty that the Shares are being purchased only for
investment and without any present intention to sell or distribute such Shares
if, in the opinion of counsel for the Company, such a representation and
warranty is appropriate under any of the aforementioned relevant provisions of
law.
Section 20. RESERVATION OF SHARES.
(a) The Company, during the term of this Plan, shall at all
times reserve and keep available such number of Shares as shall be sufficient to
satisfy the requirements of the Plan.
(b) The Company, during the term of this Plan, shall use its
best efforts to seek to obtain from appropriate regulatory agencies any
requisite authorization in order to issue and sell such number of Shares as
shall be sufficient to satisfy the requirements of the Plan. The inability of
the Company to obtain from any such regulatory agency having jurisdiction the
requisite authorization(s) deemed by the Company's counsel to be necessary for
the lawful issuance and sale of any Shares hereunder, or the inability of the
Company to confirm to its satisfaction that any issuance and sale of any Shares
hereunder will meet applicable legal requirements, shall relieve the Company of
any liability in respect to the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
-15-
<PAGE>
Section 21. OTHER AGREEMENTS.
Options shall be evidenced by an Option Agreement in such form
or forms as the Board (subject to the terms and conditions of this Plan) may
from time to time approve, which Option Agreement shall evidence and reflect the
terms and conditions of an Option as set forth in Section 6 hereof. Upon
exercise of an Option, the Optionee shall execute and deliver to the Company a
Stock Purchase and Restriction Agreement in such form or forms as the Board
shall approve from time to time. The Administrator may, from time to time,
require such other agreements in connection with the Option as it, in its sole
discretion, deems advisable. The Option Agreement and the Stock Purchase and
Restriction Agreement and any other agreement required by the Plan or the Option
Agreement, as determined by the Board, may contain such other provisions as the
Board in its discretion deems advisable and that are not inconsistent with the
provisions of this Plan, including, without limitation, restrictions upon or
conditions precedent to the exercise of the Option.
Section 22. TAXES, FEES, EXPENSES AND WITHHOLDING.
(a) The Company shall pay all original issue and transfer
taxes (but not income taxes, if any) with respect to the grant of an Option
and/or the issue and transfer of Shares pursuant to the exercise thereof, and
all other fees and expenses necessarily incurred by the Company in connection
therewith, and will, from time to time, use its best efforts to comply with all
laws and regulations that, in the opinion of counsel for the Company, shall be
applicable thereto.
(b) The granting of Options hereunder and the issuance of
Shares pursuant to the exercise thereof is conditioned upon the Company's
reservation of the right to withhold in accordance with any applicable law, from
any compensation or other amounts payable to the Optionee, any taxes required to
be withheld under federal, state or local law as a result of the grant or
exercise of such Option or the sale of the Shares issued upon exercise thereof.
To the extent that compensation or other amounts, if any, payable to the
Optionee is insufficient to pay any taxes required to be so withheld, the
Company may, in its sole discretion, require the Optionee (or such other person
entitled herein to exercise the Option), as a condition to the exercise of an
Option, to pay in cash to the Company an amount sufficient to cover such tax
liability or otherwise to make adequate provision for the Company's satisfaction
of its withholding obligations under federal, state and local law.
Section 23. NOTICES.
Any notice to be given to the Company pursuant to the
provisions of this Plan shall be addressed to the Company in care of its
Secretary (or such other person as the Company may designate from time to time)
at its principal executive office, and any notice to be given to an Optionee
shall be delivered personally or addressed to the Optionee at the address given
beneath the signature of the Optionee on his or her Option Agreement, or at such
other address as such Optionee or his or her permitted transferee (upon the
transfer of the Shares) may hereafter designate in writing to the Company. Any
such notice shall be deemed duly given when
-16-
<PAGE>
enclosed in a properly sealed envelope or wrapper addressed as aforesaid,
registered or certified, and deposited, postage and registry or certification
fee prepaid, in a post office or branch post office regularly maintained by the
United States Postal Service. It shall be the obligation of each Optionee and
each permitted transferee holding Shares purchased upon exercise of an Option to
provide the Secretary of the Company, by letter mailed as provided herein, with
written notice of his or her direct mailing address.
Section 24. NO ENLARGEMENT OF RIGHTS.
This Plan is purely voluntary on the part of the Company, and
the continuance of the Plan shall not be deemed to constitute a contract between
the Company and any Employee or Consultant, or to be consideration for or a
condition of the employment or service of any Employee or Consultant as the case
may be. Nothing contained in this Plan shall be deemed to give any Employee or
Consultant the right to be retained in the employ or service of the Company or
BCI, or to interfere with the right of the Company or BCI to discharge or retire
any Employee or Consultant thereof at any time. No Employee or Consultant shall
have any right to or interest in Options authorized hereunder prior to the grant
thereof to such Employee or Consultant, and upon such grant such Employee or
Consultant shall have only such rights and interests as are expressly provided
herein, subject, however, to all applicable provisions of the Company's
Certificate of Incorporation, as the same may be amended from time to time.
Section 25. INFORMATION TO OPTIONEES.
The Company, upon request, shall provide without charge to
each Optionee copies of such annual and periodic reports as are provided by the
Company to its stockholders generally.
Section 26. AVAILABILITY OF PLAN.
A copy of this Plan shall be delivered to the Secretary of the
Company and shall be shown to any eligible person making reasonable inquiry
concerning it.
Section 27. INVALID PROVISIONS.
In the event that any provision of this Plan is found to be
invalid or otherwise unenforceable under any applicable law, such invalidity or
unenforceability shall not be construed as rendering any other provisions
contained herein as invalid or unenforceable, and all such other provisions
shall be given full force and effect to the same extent as though the invalid or
unenforceable provision was not contained herein.
Section 28. APPLICABLE LAW.
This Plan shall be governed by and construed in accordance
with the laws of the State of New Jersey.
-17-
<PAGE>
Section 29. BOARD ACTION.
Notwithstanding anything to the contrary set forth in this
Plan, any and all actions of the Board or Committee, as the case may be, taken
under or in connection with this Plan and any agreements, instruments,
documents, certificates or other writings entered into, executed, granted,
issued and/or delivered pursuant to the terms hereof, shall be subject to and
limited by any and all votes, consents, approvals, waivers or other actions of
all or certain stockholders of the Company or other persons required pursuant to
(a) the Company's Certificate of Incorporation (as the same may be amended
and/or restated from time to time), (b) the Company's Bylaws (as the same may be
amended and/or restated from time to time), and (c) any other agreement,
instrument, document or writing now or hereafter existing, between or among the
Company and its stockholders or other persons (as the same may be amended from
time to time).
Section 30. MISCELLANEOUS.
This Plan is intended to comply with the conditions and
requirements for employee benefit plans under Rule 16b-3, as promulgated under
Section 16 of the Exchange Act, such that Options granted pursuant to the Plan
will be exempted from the provisions of Section 16(b) thereof. To the extent
that any provision of the Plan would cause a conflict with such requirements,
such provision shall be deemed null and void to the extent permitted by
applicable law. This section shall not be applicable if no class of the
Company's equity securities is then registered pursuant to Section 12 of the
Exchange Act.
PLAN HISTORY
ADOPTION AND APPROVAL OF PLAN AND ANY AMENDMENTS
<TABLE>
<S> <C>
Date Plan adopted by Board: February 17, 1996
Date Plan approved by Stockholders: February 28, 1996
Original Effective Date of Plan: March 1, 1996
Amended and Restated: April 17, 1997
Amended and Restated: July 2, 1998
Amended: January 21, 1999
Amended and Restated: March 11, 1999
</TABLE>
-18-
<PAGE>
BLUESTONE SOFTWARE, INC.
1996 INCENTIVE AND NON-QUALIFIED
STOCK OPTION PLAN
INCENTIVE STOCK OPTION AGREEMENT
BLUESTONE SOFTWARE, INC., a Delaware corporation (the
"Company"), hereby grants to ____________________________ (the "Optionee") an
option (the "Option") to purchase a total of ______________ (___) shares of
Common Stock (the "Shares") of the Company, at the price and on the terms set
forth herein, and in all respects subject to the terms and provisions of the
BLUESTONE SOFTWARE, INC. 1996 INCENTIVE AND NONQUALIFIED STOCK OPTION PLAN (the
"Plan") applicable to incentive stock options, which terms and provisions are
incorporated herein by reference. Capitalized terms used but not otherwise
defined herein shall have the meanings given to them in the Plan.
1. NATURE OF THE OPTION. The Option is intended by the Company
and the Optionee to be an incentive stock option within the meaning of Section
422 of the Code.
2. DATE OF GRANT; TERM OF OPTION. The Option is granted this
____ day of ____________, ____, and it may not be exercised later than 5:00 p.m.
on the ____ day of
______________, ____.
3. OPTION EXERCISE PRICE. The Option exercise price is $_____
per Share which price is the Fair Market Value per Share on the date hereof; or
$________ per Share if Optionee, at the time of grant, owns stock possessing
more than 10% of the current total combined voting power of all classes of the
Company's capital stock, which price represents a price per Share equal to no
less than 110% of the Fair Market Value of the Common Stock on the date the
Option is granted.
4. EXERCISE OF OPTION. Except as otherwise provided herein,
the Option shall be exercisable during its term only in accordance with the
terms and provisions of the Plan and this Option Agreement as follows:
(A) VESTING. The Option shall vest at a rate of
twenty-five percent (25%) of the total number of Shares subject to the Option
per year (the total number of shares so vested being the "Vested Amount") on
each consecutive anniversary of the date of this Option Agreement, commencing on
the date of this Option Agreement.
<PAGE>
(B) RIGHT TO EXERCISE.
(i) Options that have not yet vested may not
be exercised.
(ii) The Option may not be exercised for a
fraction of a Share.
(iii) In the event of Optionee's death,
Disability or other termination of service, the exercisability shall be governed
by this Section 4, Sections 6 and 7 hereof, and the provisions of the Plan.
(iv) In no event may the Option be exercised
after the date of expiration of the term of the Option, as set forth in Section
2 hereof.
(C) METHOD OF EXERCISE. The Option shall be
exercisable by written notice that shall state the election to exercise the
Option, the number of Shares in respect to which the Option is being exercised
and such other representations and agreements as to the Optionee's investment
intent with respect to such Shares as may be required by the Company hereunder
or pursuant to the provisions of the Plan. Such written notice shall be signed
by the Optionee and shall be delivered in person or by certified mail to the
Secretary of the Company or such other person as may be designated by the
Company. The written notice shall be accompanied by payment of the purchase
price, an executed Stock Purchase and Restriction Agreement and any other
agreements required by the Administrator, the terms of the Plan and/or this
Option Agreement. The Option will be deemed to be exercised upon the receipt by
the Company of such written notice, payment of the purchase price, the Stock
Purchase and Restriction Agreement and any other agreements required by the
Administrator, the terms of the Plan and/or this Option Agreement. The Optionee
will have no right to vote or receive dividends and will have not other rights
as a stockholder with respect to such Shares notwithstanding the exercise of the
Option, until the issuance (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company) of the
stock certificate evidencing the Shares that are being issued upon exercise of
the Option. The Company will issue (or cause to be issued) such stock
certificates promptly following the exercise of the Option. The certificate or
certificates for the Shares as to which the Option shall be exercised shall be
registered in the name of the Optionee and shall contain any legend as may be
required under the Plan, the Stock Purchase and Restriction Agreement, any other
agreements required by the Administrator and/or applicable law.
(D) METHOD OF PAYMENT. The method of payment of the
purchase price shall be determined by the Administrator and may consist entirely
of cash, check or any combination of such methods of payment, or such other
consideration or method of payment as may be authorized by the Administrator and
permitted under the Plan.
-2-
<PAGE>
(E) RESTRICTIONS ON EXERCISE. The Option may not be
exercised if the issuance of the Shares upon such exercise would constitute a
violation of any applicable federal or state securities laws or other laws or
regulations. As a condition to the exercise of the Option, the Company may
require the Optionee to make any representations and warranties to the Company
as may be required by any applicable law or regulation.
5. INVESTMENT REPRESENTATIONS. Unless the Shares have been
registered under the Securities Act, in connection with the grant of the Option,
the Optionee represents and warrants as follows:
(a) The Optionee is acquiring the Option, and upon
exercise of the Option, the Optionee will be acquiring the Shares for investment
for his or her own account, not as a nominee or agent, and not with a view to,
or for resale in connection with, any distribution thereof.
(b) The Optionee is aware of the Company's business
affairs and financial condition and has acquired sufficient information about
the Company to reach an informed and knowledgeable decision to acquire the
Shares. The Optionee has received all information as the Optionee deems
necessary and appropriate to enable him or her to evaluate the financial risk
inherent in making an investment in the Shares and has received satisfactory and
complete information concerning the business and financial condition of the
Company in response to all inquiries in respect thereof.
6. TERMINATION OF EMPLOYMENT WITH COMPANY. Subject to the
provisions of Section 8 hereof, upon termination of the Optionee's employment
with the Company for any reason other than death or Disability, the Optionee
shall have the right to exercise the Option at any time within the three (3)
month period after the date of such termination to the extent that the Optionee
was entitled to exercise the Option at the date of such termination; provided,
however, that if the Optionee Transfers, then to the extent the Option is not
exercised within such three (3) month period, the unexercised portion of the
Option shall automatically convert into a non-qualified stock option and shall
continue to be exercisable up to the earlier of the expiration of the Option as
set forth in Section 2 hereof or three (3) months after termination of service
with both the Company and BCI.
7. DEATH OR DISABILITY OF OPTIONEE. Upon the death or
Disability of the Optionee while in the employ of the Company, the Option may be
exercised at any time within twelve (12) months after the date of death or
termination due to Disability, in the case of death, by the Optionee's estate or
by a person who acquired the right to exercise the Option by bequest or
inheritance, or, in the case of Disability, by the Optionee or his legal
guardian or representative, but in any case only to the extent the Optionee was
entitled to exercise the Option at such date; provided, however, that if such
disabled Optionee shall commence any employment
-3-
<PAGE>
or engagement during such twelve (12) month period with or by a competitor of
the Company (INCLUDING, but not limited to, full or part-time employment or
independent consulting work, but EXCLUDING any employment or engagement by BCI),
as determined solely in the judgment of the Board, the Option shall terminate
immediately upon the commencement thereof. In the event the Optionee Transfers
and such Option converts to a non-qualified option as provided in Section 6
hereof, in the event of death or Disability while in the service of BCI (or the
Company, in the event of a subsequent Transfer), the Option may be exercised by
the Optionee's estate, legal guardian, or representative within the twelve (12)
month period after termination of service due to death or Disability. To the
extent that the Optionee was not entitled to exercise the Option at the date of
termination, or to the extent the Option is not exercised within the time
specified herein, the Option shall terminate. Notwithstanding the foregoing, the
Option shall not be exercisable after the expiration of the term set forth in
Section 2 hereof.
8. FORFEITURE OF OPTION. Notwithstanding any other provision
of the Option Agreement, if the Optionee's employment is terminated and the
Board makes a determination that the Optionee (i) has engaged in any type of
disloyalty to the Company, including without limitation, fraud, embezzlement,
theft, or dishonesty in the course of his employment, (ii) has been convicted of
a felony or other crime involving a breach of trust or other fiduciary duty owed
to the Company, (iii) has disclosed trade secrets or confidential information of
the Company, (iv) has breached any agreement with the Company in respect of
confidentiality, non-disclosure, non-competition or otherwise, then, at the
election of the Board, all unexercised Options shall terminate. In the event of
such an election by the Board, in addition to immediate termination of all
unexercised Options, the Optionee shall forfeit all Shares for which the Company
has not yet delivered share certificates to the Optionee and the Company shall
refund to the Optionee the Option price paid to the Company with respect to
those Shares. Notwithstanding anything herein to the contrary, the Company may
withhold delivery of share certificates pending the resolution of any inquiry
that could lead to a determination resulting in forfeiture. In the event the
Optionee's employment with the Company terminates, but the Optionee Transfers,
the preceding forfeiture provisions shall apply in the event Optionee's service
is terminated by BCI for any of the reasons stated in the immediately preceding
subsections (1) through (iv) hereof; provided that "BCI" shall be substituted
for "the Company" where it appears in such preceding subsections.
9. NON-TRANSFERABILITY OF OPTION. The Option may not be sold,
pledged, assigned, hypothecated, gifted, transferred or disposed of in any
manner either voluntarily or involuntarily by operation of law, other than by
will or by the laws of descent or distribution, and may be exercised during the
lifetime of the Optionee only by such Optionee. Subject to the foregoing and the
terms of the Plan, the terms of the Option Agreement shall be binding upon the
executors, administrators, heirs, successors and assigns of the Optionee.
-4-
<PAGE>
10. CONTINUATION OF EMPLOYMENT. Neither the Plan nor this
Option Agreement shall confer upon any Optionee any right to continue in the
employment of the Company, or BCI in the event of Transfer, or limit in any
respect the right of the Company or BCI to discharge or release the Optionee at
any time, with or without cause and with or without notice.
11. WITHHOLDING. The Company reserves the right to withhold,
in accordance with any applicable laws, from any consideration payable to
Optionee any taxes required to be withheld by federal, state or local law as a
result of the grant or exercise of the Option or the sale or other disposition
of the Shares issued upon exercise of the Option. If the amount of any
consideration payable to the Optionee is insufficient to pay such taxes or if no
consideration is payable to the Optionee, then upon the request of the Company,
the Optionee (or such other person entitled to exercise the Option pursuant to
Section 7 hereof) shall pay to the Company an amount sufficient for the Company
to satisfy any federal, state or local tax withholding requirements the Company
may incur, as a result of the grant or exercise of the Option or the sale or
other disposition of the Shares issued upon the exercise of the Option.
12. THE PLAN. The Option is subject to, and the Company and
the Optionee agree to be bound by, all of the terms and conditions of the Plan
as such Plan may be amended from time to time in accordance with the terms
thereof. Pursuant to the Plan, the Board is authorized to adopt rules and
regulations not inconsistent with the Plan as it shall deem appropriate and
proper. A copy of the Plan in its present form is available for inspection
during business hours by the Optionee or the persons entitled to exercise the
Option at the Company's principal office.
13. CONVERSION TO NON-QUALIFIED OPTION. Notwithstanding
anything to the contrary set forth herein, this Option is being granted subject
to the condition that in the event the Plan is not approved by the stockholders
of the Company within 365 days of the date that the Plan was adopted by the
Board, this Option shall automatically be converted into a non-qualified stock
option.
14. EARLY DISPOSITION OF STOCK. Subject to the fulfillment by
the Optionee of any conditions upon the disposition of Shares received under the
Option, the Optionee hereby agrees that if he or she disposes of any Shares
received under the Option within two (2) years from date of grant or one (1)
year after such Shares were transferred to him or her upon exercise of the
Option, he or she will notify the Company in writing within thirty (30) days
after the date of such disposition. The Optionee acknowledges that disposition
by him or her within two years from the date of grant and one year from the date
of exercise of the Option would disqualify him or her from capital gain
treatment for any gain realized upon such disposition.
-5-
<PAGE>
15. ENTIRE AGREEMENT. The Option, together with the Plan and
the other exhibits attached thereto or hereto, represents the entire agreement
between the parties.
16. GOVERNING LAW. This Option shall be construed in
accordance with the laws of the State of New Jersey.
17. AMENDMENT. Subject to the provisions of the Plan, this
Option Agreement may only be amended by a writing signed by each of the parties
hereto.
Date: BLUESTONE SOFTWARE, INC.
--------------------------
By:
----------------------------
Title:
-------------------------
-6-
<PAGE>
ACKNOWLEDGMENT
The Optionee acknowledges receipt of a copy of the Plan, a
copy of which is attached hereto, and represents that he or she has read and is
familiar with the terms and provisions thereof, and hereby accepts the Option
subject to all of the terms and provisions thereof. The Optionee hereby agrees
to accept as binding, conclusive and final all decisions or interpretations of
the Administrator upon any questions arising under the Plan.
Date:
---------------------------- -------------------------
Signature of Optionee
-------------------------
Address
-------------------------
City, State, Zip
THE OPTION AND THE SECURITIES THAT MAY BE PURCHASED UPON
EXERCISE OF THE OPTION HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO,
OR IN CONNECTION WITH, THE SALE, TRANSFER OR DISTRIBUTION THEREOF. NO SUCH SALE,
TRANSFER OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATING THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED.
THE SHARES WHICH MAY BE PURCHASED UPON EXERCISE OF THE OPTION
MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF A STOCK PURCHASE AND
RESTRICTION AGREEMENT TO BE ENTERED INTO BETWEEN THE HOLDER OF THE OPTION AND
THE COMPANY UPON EXERCISE OF THIS OPTION, A COPY OF WHICH AGREEMENT IS ON FILE
WITH THE SECRETARY OF THE COMPANY.
-7-
<PAGE>
BLUESTONE SOFTWARE, INC.
1996 INCENTIVE AND NON-QUALIFIED
STOCK OPTION PLAN
NON-QUALIFIED STOCK OPTION AGREEMENT
BLUESTONE SOFTWARE, INC., a Delaware corporation (the
"Company"), hereby grants to ____________________________ (the "Optionee") an
option (the "Option") to purchase a total of ______________ (___) shares of
Common Stock (the "Shares") of the Company, at the price and on the terms set
forth herein, and in all respects subject to the terms and provisions of the
BLUESTONE SOFTWARE, INC. 1996 INCENTIVE AND NONQUALIFIED STOCK OPTION PLAN (the
"Plan") applicable to non-qualified stock options, which terms and provisions
are incorporated by reference herein. Unless otherwise defined herein,
capitalized terms used but not defined herein shall have the meanings given to
them in the Plan.
1. NATURE OF THE OPTION. The Option is intended to be a
nonstatutory stock option and is NOT intended to be an incentive stock option
within the meaning of Section 422 of the Code, or to otherwise qualify for any
special tax benefits to the Optionee.
2. DATE OF GRANT; TERM OF OPTION. The Option is granted this
____ day of ____________, ____, and it may not be exercised later than 5:00 p.m.
on the ____ day of
______________ , _____.
3. OPTION EXERCISE PRICE. The Option exercise price is
______________ ($_____) per Share.
4. EXERCISE OF OPTION. Except as otherwise provided herein,
the Option shall be exercisable during its term only in accordance with the
terms and provisions of the Plan and this Option Agreement as follows:
(A) VESTING. The Option shall vest at a rate of
twenty-five percent (25%) of the total number of Shares subject to the Option
per year (the total number of Shares so vested being the "Vested Amount") on
each consecutive anniversary of the date of this Option Agreement, commencing on
the date of this Option Agreement.
<PAGE>
(B) RIGHT TO EXERCISE.
(i) Options that have not yet vested may not
be exercised.
(ii) The Option may not be exercised for a
fraction of a Share.
(iii) In the event of Optionee's death,
Disability or other termination of service, the exercisability shall be governed
by this Section 4, Sections 6 and 7 hereof, and the provisions of the Plan.
(iv) In no event may the Option be exercised
after the date of expiration of the term of the Option, as set forth in Section
2 hereof.
(C) METHOD OF EXERCISE. The Option shall be
exercisable by written notice that shall state the election to exercise the
Option, the number of Shares in respect to which the Option is being exercised
and such other representations and agreements as to the Optionee's investment
intent with respect to such Shares as may be required by the Administrator or
pursuant to the provisions of the Plan. Such written notice shall be signed by
the Optionee and shall be delivered in person or by certified mail to the
Secretary of the Company or such other person as may be designated by the
Company. The written notice shall be accompanied by payment of the purchase
price, an executed Stock Purchase and Restriction Agreement and any other
agreements required by the Administrator, the terms of the Plan and/or this
Option Agreement. The Option will be deemed to be exercised upon the receipt by
the Company of such written notice, payment of the purchase price, the Stock
Purchase and Restriction Agreement and any other agreements required by the
Administrator, the terms of the Plan and/or this Option Agreement. The Optionee
shall have no right to vote or receive dividends and shall have no other rights
as a stockholder with respect to such Shares, notwithstanding the exercise of
the Option, until the issuance by the Company (as evidenced by the appropriate
entry on the books of the Company or of a duly authorized transfer agent of the
Company) of the stock certificate evidencing the Shares that are being issued
upon exercise of the Option. The Company will issue (or cause to be issued) such
stock certificates promptly following the exercise of the Option. The
certificate or certificates for the Shares as to which the Option shall be
exercised shall be registered in the name of the Optionee and shall contain any
legend as may be required under the Plan, the Stock Purchase and Restriction
Agreement, any other agreements required by the Administrator and/or applicable
law.
(D) METHOD OF PAYMENT. The method of payment of the
purchase price shall be determined by the Administrator and may consist entirely
of cash, check or any combination of such methods of payment, or such other
consideration or method of payment as may be authorized by the Administrator and
permitted under the Plan.
(E) RESTRICTIONS ON EXERCISE. The Option may not be
exercised if the issuance of the Shares upon such exercise would constitute a
violation of any applicable federal or state securities laws or other laws or
regulations. As a condition to the exercise of the Option,
-2-
<PAGE>
the Company may require the Optionee to make any representations and warranties
to the Company as may be required by any applicable law or regulation.
5. INVESTMENT REPRESENTATIONS. Unless the Shares have been
registered under the Securities Act, in connection with the acquisition of the
Option, the Optionee represents and warrants as follows:
(A) The Optionee is acquiring the Option, and upon
exercise of the Option, Optionee will be acquiring the Shares for investment for
his or her own account, not as a nominee or agent, and not with a view to, or
for resale in connection with, any distribution thereof.
(B) The Optionee is aware of the Company's business
affairs and financial condition and has acquired sufficient information about
the Company to reach an informed and knowledgeable decision to acquire the
Shares. The Optionee has received all such information as the Optionee deems
necessary and appropriate to enable him or her to evaluate the financial risk
inherent in making an investment in the Shares and has received satisfactory and
complete information concerning the business and financial condition of the
Company in response to all inquiries in respect thereof.
6. TERMINATION OF RELATIONSHIP WITH THE COMPANY. Subject to
the provisions of Section 8 hereof, upon termination of the Optionee's service
with the Company, including termination of service with BCI, for any reason
other than death or Disability, the Optionee shall have the right to exercise
this Option up to the Vested Amount as of the date of termination for a period
of three (3) months from the date of such termination, provided that the
Optionee may only exercise the Option to the extent that the Optionee was
entitled to exercise the Option at the date of such termination; provided,
however, that the Optionee shall not be considered to have terminated his
relationship with the Company if he Transfers.
7. DEATH OR DISABILITY OF OPTIONEE. Upon the death or
Disability of the Optionee while in the service of the Company, including
termination of service with BCI, the Option may be exercised up to the Vested
Amount at any time within twelve (12) months after the date of death or
termination due to Disability provided the Optionee was entitled to exercise the
Option at the date of his or her death or termination due to Disability. In the
case of death, the Option may be exercised by the Optionee's estate or by a
person who acquired the right to exercise this Option by bequest or inheritance.
In the case of Disability, the Option may be exercised by the Optionee or his or
her legal guardian or representative, but in any case, the Option may be
exercised only to the extent that the Optionee was entitled to exercise the
Option at such date; provided, however, that if such disabled Optionee shall
commence any employment or engagement during such twelve (12) month period with
or by a competitor of the Company (INCLUDING, but not limited to, full or
part-time employment or independent consulting work, but EXCLUDING any
employment or engagement by BCI), as determined solely in the judgment of the
Board, the Option shall terminate immediately upon the commencement thereof. To
the extent that the Optionee was not entitled to exercise the Option at the date
of termination, or to the extent the Option is not exercised within the time
specified herein, the Option shall terminate.
-3-
<PAGE>
Notwithstanding the foregoing, the Option shall not be exercisable after the
expiration of the term set forth in Section 2 hereof.
8. FORFEITURE OF OPTION. Notwithstanding any other provision
of this Option Agreement, if the Optionee's service with the Company or BCI is
terminated and the Board makes a determination that the Optionee (i) has engaged
in any type of disloyalty to the Company or BCI, including without limitation,
fraud, embezzlement, theft, or dishonesty in the course of his employment or
engagement, (ii) has been convicted of a felony or other crime involving a
breach of trust or other fiduciary duty owed to the Company or BCI, (iii) has
disclosed trade secrets or confidential information of the Company or BCI, or
(iv) has breached any agreement with the Company or BCI in respect of
confidentiality, non-disclosure, non-competition or otherwise, then, at the
election of the Board, all unexercised Options shall terminate. In the event of
such an election by the Board, in addition to immediate termination of all
unexercised Options, the Optionee shall forfeit all Shares for which the Company
has not yet delivered share certificates to the Optionee and the Company shall
refund to the Optionee the Option price paid to the Company with respect to
those Shares. Notwithstanding anything herein to the contrary, the Company may
withhold delivery of share certificates pending the resolution of any inquiry
that could lead to a determination resulting in forfeiture.
9. NON-TRANSFERABILITY OF OPTION. The Option may not be sold,
pledged, assigned, hypothecated, gifted, transferred or disposed of in any
manner either voluntarily or involuntarily by operation of law, other than by
will or by the laws of descent or distribution, and may be exercised during the
lifetime of the Optionee only by such Optionee. Subject to the foregoing and the
terms of the Plan, the terms of this Option Agreement shall be binding upon the
executors, administrators, heirs, successors and assigns of the Optionee.
10. CONTINUATION OF EMPLOYMENT OR ENGAGEMENT. Neither the Plan
nor this Option Agreement shall confer upon any Optionee any right to continue
in the service of the Company or BCI or limit, in any respect, the right of the
Company or BCI to discharge or release the Optionee at any time, with or without
cause and with or without notice.
11. WITHHOLDING. The Company reserves the right to withhold,
in accordance with any applicable laws, from any consideration payable to the
Optionee any taxes required to be withheld by federal, state or local law as a
result of the grant or exercise of the Option or the sale or other disposition
of the Shares issued upon exercise of the Option. If the amount of any
consideration payable to the Optionee is insufficient to pay such taxes or if no
consideration is payable to the Optionee, then upon the request of the Company,
the Optionee (or such other person entitled to exercise the Option pursuant to
Section 7 hereof) shall pay to the Company an amount sufficient for the Company
to satisfy any federal, state or local tax withholding requirements the Company
may incur as a result of the grant or exercise of the Option or the sale or
other disposition of the Shares issued upon the exercise of the Option.
12. THE PLAN. This Option Agreement is subject to, and the
Company and the Optionee agree to be bound by, all of the terms and conditions
of the Plan as such Plan may be amended from time to time in accordance with the
terms thereof. Pursuant to the Plan, the Board
-4-
<PAGE>
is authorized to adopt rules and regulations not inconsistent with the Plan as
it shall deem appropriate and proper. A copy of the Plan in its present form is
available for inspection during business hours by the Optionee or the persons
entitled to exercise the Option at the Company's principal office.
13. ENTIRE AGREEMENT. This Option Agreement, together with the
Plan, and any other and the other exhibits attached thereto or hereto,
represents the entire agreement between the parties.
14. GOVERNING LAW. This Option Agreement shall be construed in
accordance with the laws of the State of New Jersey.
15. AMENDMENT. Subject to the provisions of the Plan, this
Option Agreement may only be amended by a writing signed by each of the parties
hereto.
Date: BLUESTONE SOFTWARE, INC.
-------------------------
By:
-----------------------
Title:
---------------------
-5-
<PAGE>
ACKNOWLEDGMENT
The Optionee acknowledges receipt of a copy of the Plan, a
copy of which is attached hereto, and represents that he or she has read and is
familiar with the terms and provisions thereof, and hereby accepts the Option
subject to all of the terms and provisions thereof. The Optionee hereby agrees
to accept as binding, conclusive and final all decisions or interpretations of
the Administrator upon any questions arising under the Plan.
Date:
--------------------------- ---------------------------
Signature of Optionee
-------------------------
Address
-------------------------
City, State, Zip
THE OPTION AND THE SECURITIES THAT MAY BE PURCHASED UPON
EXERCISE OF THE OPTION HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO,
OR IN CONNECTION WITH, THE SALE, TRANSFER OR DISTRIBUTION THEREOF. NO SUCH SALE,
TRANSFER OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATING THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED.
THE SHARES WHICH MAY BE PURCHASED UPON EXERCISE OF THE OPTION
MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF A STOCK PURCHASE AND
RESTRICTION AGREEMENT TO BE ENTERED INTO BETWEEN THE HOLDER OF THE OPTION AND
THE COMPANY UPON EXERCISE OF THE OPTION, A COPY OF WHICH AGREEMENT IS ON FILE
WITH THE SECRETARY OF THE COMPANY.
-6-
<PAGE>
BLUESTONE SOFTWARE, INC.
1996 INCENTIVE AND NON-QUALIFIED
STOCK OPTION PLAN
STOCK PURCHASE AND RESTRICTION AGREEMENT
This STOCK PURCHASE AND RESTRICTION AGREEMENT is made this
_____ day of ____________, 19__, by and between BLUESTONE SOFTWARE, INC., a
Delaware corporation (the "Company"), and ("Optionee").
R E C I T A L S:
1. Optionee was granted an Option (the "Option") on
________________, 19___ pursuant to the BLUESTONE SOFTWARE, INC. 1996 INCENTIVE
AND NONQUALIFIED STOCK OPTION PLAN (the "Plan"), the terms and conditions of
which are incorporated herein by reference. In addition, capitalized terms used
but not otherwise defined herein shall have the meanings given to them in the
Plan.
2. Pursuant to the Option, Optionee was granted the right to
purchase _____________ (____) shares of the Company's Common Stock, as adjusted
in accordance with the Plan (the "Optioned Shares").
3. Optionee has elected to exercise the Option to purchase
________________ (_____) of such Optioned Shares (herein referred to as the
"Shares") under the Stock Option Agreement evidencing the Option (the "Option
Agreement").
4. As required by the Plan and the Option Agreement, as a
condition to Optionee's exercise of the Option, Optionee is required to execute
this Agreement which gives the Company certain rights, including, but not
limited to, transfer restrictions with respect to the Shares, rights of
repurchase and first refusal upon a proposed sale or transfer of the Shares and
other rights to repurchase the Shares being issued pursuant to the terms hereof.
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, and intending to be
legally bound hereby, the parties hereto hereby agree as follows:
1. EXERCISE OF OPTION. Subject to the terms and conditions
hereof, Optionee shall exercise his or her Option or a portion thereof to
purchase ___________________ Shares at an exercise price of $_________ per
Share, subject to and in accordance with the terms set forth in this Agreement,
payable in accordance with the terms and provisions of the Option Agreement.
<PAGE>
2. TRANSFER RESTRICTIONS.
(a) The Optionee shall not sell, assign, transfer,
pledge, hypothecate, mortgage, encumber or otherwise dispose of all or any of
his or her Shares except as otherwise expressly provided in this Agreement.
(b) Notwithstanding anything to the contrary
contained herein, the Optionee may transfer all or any of his or her Shares (i)
by way of gift to his or her spouse, parents, siblings, or lineal descendants of
the Optionee or to any trust for the exclusive benefit of any such family member
or the Optionee, provided that any such transferee shall agree in writing with
the Company, prior to, and as a condition precedent to such transfer, to be
bound by all of the provisions of this Agreement to the same extent as if such
transferee were the Optionee, or (ii) by will or the laws of descent and
distribution, in which event each such transferee shall be bound by all of the
provisions of this Agreement to the same extent as if such transferee were the
Optionee.
(c) Any purported transfer in violation of the
provisions of this Agreement shall be void AB INITIO.
3. TERMINATION OF EMPLOYMENT OR ENGAGEMENT.
(a) In the event of the termination of the employment
or engagement (or other relationship) of the Optionee for any reason, including
termination of employment or engagement with BCI, the Company (which term, for
purposes of this Section 3, shall include the designees of the Company) shall
have the right to purchase from, and if the Company exercises its option
pursuant to subparagraphs (d), (e) and (f) below, the Optionee shall sell to the
Company upon the exercise of such right at a purchase price per Share equal to
the Fair Market Value per share as at the date of termination, all of the Shares
owned by the Optionee.
(b) In the event the Optionee does not exercise the
Option until after the Optionee's termination of employment or other engagement
with the Company or BCI, the Company shall have the right to purchase from, and
if the Company exercises its option pursuant to subparagraphs (d), (e) and (f)
below, the Optionee shall sell to the Company upon the exercise of such right at
a purchase price per Share equal to the Fair Market Value per share as at the
date of exercise, all of the Shares owned by the Optionee.
(c) The number of Shares subject to repurchase
pursuant to Sections 3(a) and 3(b) shall be adjusted to give effect to any stock
dividend, or other distribution of stock made on or in respect of such Shares,
or any subdivision, combination or reclassification of the outstanding capital
stock of the Company or received in exchange for the Shares.
(d) In order to exercise the option to purchase
Optionee's Shares under this Section 3, the Company shall deliver a written
notice to the stockholder indicating its election to purchase the Shares and
specifying the number of Shares which the Company elects to purchase and the
purchase price therefor.
-2-
<PAGE>
(e) If the Company elects not to exercise its rights
pursuant to this Section 3 or if the Company is legally prohibited from or
unable to repurchase the Shares during the period referred to below, then the
Company shall notify the Optionee and each designee of the Company, if any,
within the 60-day period following (i) with respect to a repurchase pursuant to
Section 3(a), the termination of employment or engagement of the Optionee or
(ii) with respect to a repurchase pursuant to Section 3(b), the date of exercise
of the Option. In such event, the designees shall have the right, during the
30-day period following the Company's notice, to purchase such number of Shares
as the Company shall designate, on the same terms and conditions as were
applicable to the Company, which right shall be exercised by giving written
notice of acceptance to the Company specifying the number of Shares which such
designee elects to purchase and the purchase price therefor.
(f) The repurchase of Shares hereunder shall be made
on a date selected by the Company, within 120 days after (i) with respect to a
repurchase pursuant to Section 3(a), the termination of employment or engagement
or (ii) with respect to a repurchase pursuant to Section 3(b), the date of
exercise of the Option, by delivery of payment to the Optionee, by check or wire
transfer, against receipt of one or more certificates, properly endorsed,
evidencing the Optionee's Shares to be so repurchased.
(g) Anything contained herein to the contrary
notwithstanding, at the option of the Company, any purchaser of Shares pursuant
to Section 3 which is not the Company shall agree in writing, in advance, to be
bound by and comply with all applicable provisions of this Agreement.
4. RIGHT OF FIRST REFUSAL ON DISPOSITIONS.
(a) If at any time the Optionee desires to sell all
or any part of his or her Shares pursuant to a bona fide offer from a third
party (the "Proposed Transferee"), then the Optionee shall submit a written
offer (the "Offer") to sell such Shares (the "Offered Shares") to the Company or
any entity or person designated by the Company ("designee"), on terms and
conditions, including price, not less favorable to the Company or its designee
than those on which the Optionee proposes to sell such Offered Shares to the
Proposed Transferee. The Offer shall disclose the identity of the Proposed
Transferee, the number of Offered Shares proposed to be sold, the total number
of Shares owned by the Optionee, the terms and conditions, including price, of
the proposed sale, and any other material facts relating to the proposed sale.
The Offer shall further state that the Company or its designee may acquire, in
accordance with the provisions of this Agreement, all or any portion of the
Offered Shares for the price and upon the other terms and conditions set forth
therein.
(b) If the Company (or its designee, if one exists)
desires to purchase all or any part of the Offered Shares, then the Company or
its designee shall communicate in writing its election to purchase (an
"Acceptance") to the Optionee, which Acceptance shall state the number of
Offered Shares the Company or its designee desires to purchase and shall be
given to the Optionee within thirty (30) days after the date the Offer was made
to the Company. The Acceptance shall, when taken in conjunction with the Offer,
be deemed to constitute a valid,
-3-
<PAGE>
legally binding and enforceable agreement for the sale and purchase of such
Offered Shares. Sales of the Offered Shares to be sold to the Company or its
designee pursuant to this Section 4 shall be made at the offices of the Company
on the 45th day following the date the Offer was made (or if such 45th day is
not a business day, then on the next succeeding business day). Such sales shall
be effected by the Optionee's delivery to the Company a certificate or
certificates evidencing the Offered Shares to be purchased by the Company or its
designee, duly endorsed for transfer to the Company or its designee, as the case
may be, which Shares shall be delivered free and clear of all liens, charges,
claims, and encumbrances of any nature whatsoever, against payment to the
Optionee of the purchase price therefor by the Company or its designee, as the
case may be.
(c) If the Company or its designee does not purchase
all of the Offered Shares, then the Offered Shares not so purchased may be sold
by the Optionee at any time within 90 days after the date the Offer was made to
the Company. Any such sale shall be to the Proposed Transferee, at not less than
the price and upon other terms and conditions, if any, not more favorable to the
Proposed Transferee than those specified in the Offer. Any Offered Shares not
sold within such 90-day period shall continue to be subject to the requirements
of a prior offer pursuant to this Section 4.
5. FAILURE TO DELIVER SHARES. If the Optionee becomes
obligated to sell any Shares to the Company or its designee under this Agreement
and fails to deliver such Shares in accordance with the terms of this Agreement,
then the Company or its designee may, at its option, in addition to all other
remedies it may have, send to the Optionee the purchase price for such Shares as
is herein specified. Thereupon, the Company upon written notice to the Optionee,
(a) shall cancel on its books the certificate or certificates representing the
Shares to be sold and (b) in the case of a designee, shall issue, in lieu
thereof, in the name of such designee, a new certificate or certificates
representing such Shares, and thereupon all of the Optionee's rights in and to
such Shares shall terminate.
6. FURTHER LIMITATION AS TO TRANSFERS BY THE STOCKHOLDER. In
addition to the other restrictions provided in this Agreement or otherwise, if
requested by the Company or its underwriters for a public offering of securities
of the Company, the Optionee shall not sell or otherwise transfer or dispose of
any Shares or other securities of the Company held by such Optionee during the
period of fourteen (14) days before, and one hundred eighty (180) days
following, the effective date of a registration statement filed by the Company
with the Securities and Exchange Commission relating to such offering (other
than a registration statement on Form S-8 or Form S-4, or their successors, or
any other comparable form for similarly limited purposes promulgated after the
date hereof, or any registration statement covering only securities proposed to
be issued in exchange for securities or assets of another corporation).
7. REMEDIES.
(a) The Optionee expressly agrees that the Company or
its designee, as the case may be, will be irreparably damaged if this Agreement
is not specifically enforced. In case any one or more of the covenants and/or
agreements set forth in this Agreement shall have
-4-
<PAGE>
been breached by the Optionee, the Company or its designee (as the case may be)
may proceed to protect and enforce their rights either by suit in equity and/or
by action at law, including, but not limited to, an action for damages as a
result of any such breach; and/or an action for specific performance of any such
covenant or agreement contained in this Agreement and/or a temporary or
permanent injunction, in any case without showing any actual damage. The rights,
powers and remedies of the parties under this Agreement are cumulative and not
exclusive of any other right, power or remedy which such parties may have under
any other agreement or law. No single or partial assertion or exercise of any
right, power or remedy of a party hereunder shall preclude any other or further
assertion or exercise thereof.
(b) The Optionee agrees that, until a public market
for the Shares exists, the Shares cannot be readily purchased, sold, or
evaluated in the open market, that they have a unique and special value, and
that the Company and its stockholders would be irreparably damaged if the terms
of this Agreement were not capable of being specifically enforced, and for this
reason, among others, the Company shall be entitled to a decree of specific
performance of the terms hereof or an injunction restraining violation of this
Agreement, said right to be in addition to any other remedies of the Company.
8. ASSIGNMENT. The Company may assign its rights under this
Agreement to one or more persons or entities, who shall have the right to so
exercise such rights in his, her or its own name and for his, her or its own
account. If the exercise of any such right requires the consent of any state or
other regulatory authority, then the Optionee shall cooperate with the Company
in requesting such consent.
9. ADJUSTMENT. The number of Shares subject to the terms and
provisions of this Agreement during the term of this Agreement shall be adjusted
to give effect to any stock dividend or liquidating dividend of cash and/or
property, stock split or other change or reclassification of the outstanding
securities of the Company. In such event, any and all new, substituted or
additional securities or other property to which the Optionee is entitled by
reason of his or her ownership of Shares shall be immediately subject to the
terms of this Agreement, and be included in the term "Shares" for all purposes
with the same force and effect as the Shares presently subject to such rights
and restrictions.
10. LEGENDS. All certificates representing any Shares of the
Company subject to the provisions of this Agreement shall have endorsed thereon
the following legend in substantially the following form unless in the opinion
of counsel such legend is no longer necessary:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR ANY
APPLICABLE STATE SECURITIES LAWS. THESE SHARES HAVE NOT BEEN
ACQUIRED WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT BE
SOLD, ASSIGNED, EXCHANGED, MORTGAGED, PLEDGED, HYPOTHECATED OR
-5-
<PAGE>
OTHERWISE TRANSFERRED OR DISPOSED OF, BY GIFT OR OTHERWISE, OR
IN ANY WAY ENCUMBERED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT FOR SUCH SHARES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND ANY APPLICABLE STATE SECURITIES LAWS, OR AN
OPINION OF COUNSEL SATISFACTORY TO BLUESTONE SOFTWARE, INC.
THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT AND UNDER
APPLICABLE STATE SECURITIES LAWS. MOREOVER, THE SHARES
REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AND RESTRICTED
BY THE PROVISIONS OF A CERTAIN STOCK PURCHASE AND RESTRICTION
AGREEMENT BETWEEN BLUESTONE SOFTWARE, INC. AND THE
STOCKHOLDER, A COPY OF WHICH AGREEMENT WILL BE FURNISHED BY
BLUESTONE SOFTWARE, INC. UPON WRITTEN REQUEST AND WITHOUT
CHARGE, AND ALL OF THE PROVISIONS OF SUCH AGREEMENT ARE
INCORPORATED BY REFERENCE IN THIS CERTIFICATE.
11. INVESTMENT REPRESENTATIONS. Unless the Shares have been
registered under the Securities Act of 1933, as amended (the "Act"), in which
event the Company will so advise Optionee in writing, Optionee acknowledges,
agrees, represents and warrants, in connection with the proposed purchase of the
Shares, as follows:
(a) The Optionee is purchasing the Shares solely for
his or her own account for investment and not with a view to, or for resale in
connection with any distribution thereof within the meaning of the Act. The
Optionee further represents that he or she does not have any present intention
of selling, offering to sell or otherwise disposing of or distributing the
Shares or any portion thereof; and that the entire legal and beneficial interest
of the Shares he or she is purchasing is being purchased for, and will be held
for the account of, the Optionee only and neither in whole nor in part for any
other person.
(b) The Optionee is aware of the Company's business
affairs and financial condition and has acquired sufficient information about
the Company to reach an informed and knowledgeable decision to acquire the
Shares. The Optionee has a preexisting personal or business relationship with
the officers and directors of the Company and that the Optionee has such
knowledge and experience in business and financial matters to enable him or her
to evaluate the risks of the prospective investment and to make an informed
investment decision with respect thereto and that the Optionee has the capacity
to protect his or her own interests in connection with the purchase of the
Shares. The Optionee has discussed the Company and its plans, operations and
financial condition with its officers, has received all such information as the
Optionee deems necessary and appropriate to enable him or her to evaluate the
financial risk inherent in making an investment in the Shares and has received
satisfactory and
-6-
<PAGE>
complete information concerning the business and financial condition of the
Company in response to all inquiries in respect thereof.
(c) The Optionee realizes that his or her purchase of
the Shares will be a speculative investment and that Optionee is able, without
impairing his or her financial condition, to hold the Shares for an indefinite
period of time and to suffer a complete loss on the investment.
(d) The Company has disclosed in writing that: (i)
the sale of the Shares has not been registered under the Act, and the Shares
must be held indefinitely unless a transfer of them is subsequently registered
under the Act or an exemption from such registration is available, and the
Company is under no obligation to register the Shares; and (ii) the Company
shall make a notation in its records of the aforementioned restrictions on
transfer and legends.
(e) The Optionee is aware of the provisions of Rule
144, promulgated under the Act, which, in substance, permits limited public
resale of "restricted securities" acquired, directly or indirectly, from the
issuer thereof (or an affiliate of such issuer) in a non-public offering subject
to the satisfaction of certain conditions, including among other things: the
resale occurring not less than one (1) year from the date Optionee has purchased
and paid for the Shares; the availability of certain public information
concerning the Company; the sale being through a broker in an unsolicited
"brokers' transaction" or in a transaction directly with a market maker (as said
term is defined under the Securities Exchange Act of 1934, as amended); and that
any sale of the Shares may be made by Optionee, if Optionee is an affiliate of
the Company, only in limited amounts during any three-month period not exceeding
specified limitations. The Optionee understands that at the time Optionee wishes
to sell the Shares there may be no public market upon which to make such a sale,
and that, even if such public market then exists, the Company may not be
satisfying the current public information requirements of Rule 144, and that, in
such event, Optionee would be precluded from selling the Shares under Rule 144
even if the one-year minimum holding period had been satisfied. The Optionee
understands that in the event all of the requirements of Rule 144 are not
satisfied, registration under the Act, compliance with Regulation A, or some
other registration exemption will be required; and that, notwithstanding the
fact that Rule 144 is not exclusive, the Staff of the SEC has expressed its
opinion that persons proposing to sell private placement securities other than
in a registered offering and otherwise than pursuant to Rule 144 will have a
substantial burden of proof in establishing that an exemption from registration
is available for such offers or sales, and such persons and their respective
brokers who participate in such transactions do so at their own risk.
(f) Without in any way limiting the Optionee's
representations and warranties set forth herein, the Optionee shall in no event
make any disposition of all or any portion of the Shares that he or she is
purchasing unless and until:
(i) there is then in effect a Registration
Statement under the Act covering such proposed disposition and such disposition
is made in accordance with said Registration Statement; or
-7-
<PAGE>
(ii) the Optionee shall have (a) notified
the Company of the proposed disposition and furnished the Company with a
detailed statement of the circumstances surrounding the proposed disposition,
and (b) furnished the Company with an opinion of Optionee's own counsel
(satisfactory to the Company) to the effect that such disposition will not
require registration of such shares under the Act, and such opinion of the
Optionee's counsel shall have been concurred in by counsel for the Company and
the Company shall have advised the Optionee of such concurrence.
12. ESCROW. As security for the Optionee's faithful
performance of the terms of this Agreement and to insure the availability for
delivery of the Optionee's Shares upon exercise, under this Agreement, of the
rights of the Company and the rights of the other beneficiaries to this
Agreement, the Optionee shall, if requested in writing by the Company, deliver
to and deposit with the Chief Financial Officer of the Company or his nominee
(the "Escrow Agent"), as Escrow Agent in this transaction, two Stock Assignments
duly endorsed (with date and number of shares blank) in the form attached hereto
as ATTACHMENT A, together with the certificate or certificates evidencing the
Shares; such documents are to be held by the Escrow Agent and delivered to said
Escrow Agent pursuant to the Joint Escrow Instructions of the Company and
Optionee set forth in ATTACHMENT B attached hereto and incorporated herein by
this reference, which instructions shall also be delivered to the Escrow Agent
at the closing hereunder.
13. RESTRICTION ON ALIENATION. The Optionee shall not sell,
transfer, gift, pledge, hypothecate, assign or otherwise dispose of any of the
Shares or any right or interest therein, whether voluntary, by operation of law
or otherwise, without the prior written consent of the Company, except a
transfer which meets the requirements of this Agreement. Any sale, transfer,
gift, pledge, hypothecation, assignment or disposition or purported sale,
transfer or other disposition of such Shares by Optionee shall be null and void
AB INITIO unless the terms, conditions and provisions of this Agreement are
strictly observed.
14. TERM. Except for Sections 3, 4 and 5 hereof, which shall
terminate upon the consummation of a Public Offering of shares of the Company's
equity capital, this Agreement shall continue in full force and effect until
such time as the Optionee has transferred all of the Shares (other than pursuant
to Section 2(b)) in accordance with the terms of this Agreement.
15. MISCELLANEOUS.
(a) The Company shall not be required (i) to
transfer on its books any Shares that shall have been sold or transferred in
violation of any of the provisions set forth in this Agreement, or (ii) to treat
as owner of such Shares or to accord the right to vote as such owner or to pay
dividends to any transferee to whom such Shares shall have been so transferred.
-8-
<PAGE>
(b) Subject to the provisions of this Agreement,
Optionee shall, during the term of this Agreement, exercise all rights and
privileges of a stockholder of the Company with respect to the Shares.
(c) The parties agree to execute such further
instruments and to take such further action as may reasonably be necessary to
carry out the intent of this Agreement.
(d) Any notice, consent or other communication
required or permitted hereunder shall be given in writing and shall be deemed
effectively given: (a) upon personal delivery; (b) two (2) business days after
day of deposit if sent by regular mail; (c) one (1) business day after the
business day of deposit with a carrier if sent by Federal Express, Express Mail
or other express service (receipt requested), in each case to the appropriate
addresses, telex numbers and telecopier numbers set forth below (or at such
other address or numbers as such party may designate by ten (10) days' advance
written notice to the other party hereto):
(i) To the Optionee:
-------------------
-------------------
-------------------
(ii) To the Company:
Bluestone Software, Inc.
1000 Briggs Road
Mount Laurel, NJ 08054
Attn: President
(e) This Agreement shall inure to the benefit of the
successors and assigns of the Company and, subject to all compliance with the
restrictions on transfer herein set forth, be binding upon Optionee, his heirs,
executors, administrators, and permitted successors and assigns.
(f) This Agreement shall be construed under the laws
of the State of New Jersey and constitutes the entire Agreement of the parties
with respect to the subject matter hereof, superseding all prior written or oral
agreements with respect thereto, and no amendment or addition hereto shall be
deemed effective unless agreed to in writing by the parties hereto.
(g) If any provision of this Agreement is held by a
court of competent jurisdiction to be invalid, void or unenforceable, then the
remaining provisions shall nevertheless continue in full force and effect
without being impaired or invalidated in any way and shall be construed in
accordance with the purposes and tenor and effect of this Agreement.
-9-
<PAGE>
(h) Nothing in this Agreement shall be deemed to
create any term of employment or engagement or affect in any manner whatsoever
the right or power of the Company or BCI to terminate Optionee's employment or
engagement.
(i) Notwithstanding (i) the execution and delivery of
this Agreement by the parties hereto or (ii) anything to the contrary contained
herein, if the Optionee's employment or engagement with the Company or BCI (as
the case may be) is terminated and the Board makes a determination that the
Optionee (A) has engaged in any type of disloyalty to the Company or BCI,
including without limitation, fraud, embezzlement, theft, or dishonesty in the
course of his or her employment or engagement, (B) has been convicted of a
felony, (C) has disclosed trade secrets or confidential information of the
Company or BCI, or (D) has breached any agreement with the Company or BCI in
respect of confidentiality, non-disclosure, non-competition or otherwise, then,
at the election of the Board, the Optionee shall forfeit all shares for which
the Company has not yet delivered share certificates to the Optionee or Escrow
Agent, as the case may be, and the Company shall refund to the Optionee the
Option purchase price paid to the Company upon exercise of the Option with
respect to those Shares. In addition, the Company may withhold delivery of share
certificates pending the resolution of any inquiry that could lead to a
determination resulting in forfeiture.
-10-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above-written.
BLUESTONE SOFTWARE, INC.
By:
------------------------------------
Title:
------------------------------------
OPTIONEE:
----------------------------------
(Signature)
----------------------------------
(Print Name)
Address:
------------------------------------
-11-
<PAGE>
Exhibit 10.3
BLUESTONE SOFTWARE, INC.
EMPLOYEE CONFIDENTIALITY AGREEMENT
Recognizing that the success of Bluestone Software, Inc., a Delaware corporation
(the "Company"), depends, in part, on the protection of trade secrets,
innovations, formulae, software, algorithms and information held or utilized by
the Company, and recognizing that during my employment I may have access or
contribute to such matters, and in consideration of my employment by the Company
and intending to be legally bound by this Agreement, I agree to the following:
1. During and after my employment, without the prior written
consent of an officer of the Company, I will not disclose or use for my direct
or indirect benefit or the direct or indirect benefit of a third party, and I
will use my best efforts to maintain, the confidentiality of all confidential
information that I acquire because of my employment. In general, "confidential
information" means: any information that the Company treats as confidential,
including, but not limited to, any information relating to research, processes,
inventions, products, methods, formulae, algorithms, computer codes or
instructions (including source and object code and related documentation), all
computer inputs and outputs (regardless of the media on which stored or
located), computer processing systems or techniques, concepts, layouts,
flowcharts, specifications, know-how, user or service manuals or other like
textual materials, software, documentation, equipment, costs, customer lists,
customer leads, compensation records and plans, business studies, business
procedures, and finances, the identities of customers, contractors or suppliers
and prospective customers, contractors or suppliers; the terms of contracts or
agreements with customers, contractors or suppliers; any information relating to
the Company's relationship with actual or prospective customers, contractors or
suppliers and the needs and requirements of, and the Company's course of dealing
with, any such actual or prospective customers, contractors or suppliers; any
personnel information; any customer or vendor credit information; any other
materials prepared by me in the course of, relating to or arising out of my
employment by the Company, or prepared by any other Company employee or
contractor for the Company or its customers; and any other materials that have
not been made available to the general public. Failure to mark any of the
confidential information as confidential or proprietary will not affect its
status as confidential information under the terms of this Agreement. I
acknowledge that Confidential Information may include both information owned by
the Company and information disclosed to the Company by the customers of the
Company on a confidential basis. During and after my employment by the Company,
I will not disclose the Confidential Information of one customer to any other
customer of the Company, without the prior written consent of an officer of the
Company, and will comply with all of the internal policies and procedures of the
Company with respect to the use of Confidential Information of customers.
<PAGE>
2. During and after my employment, I will not remove from the
Company's offices or premises any documents, records, notebooks, files,
correspondence, reports, memoranda, computer tapes, computer disks or similar
materials of or containing information of the type identified in the preceding
paragraph, or other materials or property of the Company of any kind
(collectively, "Materials"), unless necessary in accordance with my duties and
responsibilities of employment by the Company. In the event that I remove any
Materials, I will return such Materials to their proper files or places of
safekeeping as promptly as possible after the removal has served its specific
purpose. Except as may be necessary in the discharge of my assigned duties, I
will not make, retain, remove or distribute any copies of any of such Materials
for any reason whatsoever and I will not divulge to any third person the nature
or contents of any of such Materials or of any other oral or written
information. Upon the termination of my employment with the Company, I will
return to the Company all originals and copies of such Materials then in my
possession, whether prepared by me or by others. If, at any time after such
termination, I become aware that any such originals, copies or extracts of the
foregoing are in my possession, then I will immediately surrender the possession
thereof to the Company.
3. I acknowledge that any and all writings, documents,
inventions, discoveries, computer programs or instructions (whether in source
code, object code, or any other form), algorithms, formulae, plans, customer
lists, memoranda, tests, research, designs, specifications, models, data,
diagrams, flow charts, overhead foils, instructional guides, and/or techniques
(whether reduced to written form or otherwise) that I make, conceive, discover,
or develop, either solely or jointly with any other person, at any time during
the term of my employment, whether during working hours or at the Company's
facility or at any other time or location, and whether upon the request or
suggestion of the Company or otherwise, that relate to or are useful in any way
in connection with any business carried on or contemplated by the Company
(collectively, the "Intellectual Work Product") will be the sole and exclusive
property of the Company. I will promptly and fully disclose all the Intellectual
Work Product to the Company, and I will have no claim for additional
compensation for the Intellectual Work Product.
4. I acknowledge that all Intellectual Work Product that is
copyrightable will be considered a work made for hire under United States
Copyright Law. To the extent that any copyrightable Intellectual Work Product
may not be considered a work made for hire under the applicable provisions of
the copyright law, or to the extent that, notwithstanding the foregoing
provisions, I may retain an interest in any Intellectual Work Product that is
not copyrightable, I hereby irrevocably assign and transfer to the Company any
and all right, title, or interest that I may have in the Intellectual Work
Product under copyright, patent, trade secret and trademark law, in perpetuity
or for the longest period otherwise permitted by law, without the necessity of
further consideration. The Company will be entitled to obtain and hold in its
own name all copyrights, patents, trade secrets and trademarks with respect
thereto.
5. At the sole request and expense of the Company, either
before or after the termination of my employment, I will assist the Company in
acquiring and maintaining copyright, patent, trade
-2-
<PAGE>
secret and trademark protection upon, and confirming its title to, such
Intellectual Work Product. My assistance will include signing all applications
for copyrights and patents and other documents, cooperating in legal proceedings
and taking any other steps considered desirable by the Company.
6. In the event the Company is unable after reasonable effort
to secure my signature on any of the documents referenced in Paragraph 5 above,
whether because of my physical or mental incapacity or for any other reason
whatsoever, then I hereby irrevocably designate and appoint the Company and its
duly authorized officers and agents as my agent and attorney-in-fact, to act for
and in my behalf and stead to execute and file any such documents and to do all
other lawfully permitted acts to further the prosecution and issuance of any
such trade secret, patent, copyright, trademark, or other analogous protection,
with the same legal force and effect as if executed by me.
7. During the period of my employment by the Company and for a
period of one (1) year thereafter, I will not, directly or indirectly, perform
any services within the scope of or similar to the services performed by me
under this Agreement for or on behalf of any business that (i) designs,
develops, markets, supports and sells Internet or intranet software development
tools and related products and services, and (ii) is competitive with any
business conducted by the Company. During the period of my employment by the
Company for a period of one (1) year thereafter, I will not, directly or
indirectly, contact, solicit, call on, or otherwise deal in any way with any
customer, vendor or contractor with whom the Company shall have dealt at any
time during the period of my performance of services to the Company, for a
purpose which is competitive with the business of the Company, or influence or
attempt to influence any customer, vendor or contractor of the Company to
terminate or modify any written or oral agreement or course of dealing with the
Company. For the one (1) year period immediately following the termination of my
employment with the Company, I will not, directly or indirectly, employ, engage
or retain, or arrange to have any other person or entity employ, engage or
retain any person who is an employee, contractor, consultant or agent of the
Company or shall have been employed, engaged or retained by the Company as an
employee, contractor, consultant or agent at any time during the one (1) year
period preceding the date upon which my employment with the Company is
terminated; additionally, I will not, directly or indirectly, influence or
attempt to influence any such person to terminate or modify his or her
employment arrangement or engagement with the Company.
8. If the Company provides me with travel advances or other
advances of expenses in connection with my employment, I will make a prompt
settlement of all such advances after completion of the travel and other
activities. If I owe any money to the Company at the time of termination of
employment, then it may be deducted from any money otherwise owed to me by the
Company.
9. I will devote my full time and effort to my employment and
will at all times act and perform the duties of my employment with honesty,
integrity, good faith, responsibility, and I will comply with all rules,
regulations and policies of the Company.
-3-
<PAGE>
10. I am not subject to any other agreement that I will
violate by signing this Agreement or which prevents me from disclosing
confidential information. I agree to disclose the existence and terms of
this Agreement to any employer for which I may work during the term of this
Agreement (which employment is not hereby authorized) or after the termination
of my employment at the Company.
11. This Agreement constitutes the complete agreement between
the Company and me and supersedes all prior agreements, oral or written
including without limitation, any employment agreements between me and the
Company, and any other communication relating to the subject matter of this
Agreement. This Agreement may not be amended or modified except in writing and
will be governed by the laws of the State of New Jersey without regard to
conflicts of law principles. If any provision or portion of any provision of
this Agreement shall be determined to be void, invalid or unenforceable for any
reason, then the validity and enforceability of the remaining provisions or
portions of provisions will not be affected. The Company may assign this
Agreement to, and this Agreement will bind and inure to the benefit of, any
parent, subsidiary, affiliate or successor of the Company. I acknowledge that
this Agreement is not assignable by me. Except as otherwise provided by the
immediately subsequent sentence of this provision, I agree that any suit, action
or other legal proceeding arising out of or relating to this Agreement,
including, but not limited to, any action commenced by the Company for
preliminary or permanent injunctive or other equitable relief, will be
instituted in the United States District Court for the District of New Jersey,
or if such court does not have or will not accept jurisdiction, in any court of
general jurisdiction in Burlington County, New Jersey, and I consent and submit
to the personal and exclusive jurisdiction of such courts in any such suit,
action or proceeding. This provision shall not prevent the Company from seeking
to enforce this Agreement in any other court of competent jurisdiction. I agree
that service of process upon me may be effected by certified mail or by any
other means permitted by law, and I waive any objection which I may have to the
laying of venue of any such suit, action or proceeding in any such court and any
claim or defense of inconvenient forum. If an action at law or in equity is
necessary to enforce or interpret the terms of this Agreement, then the
prevailing party shall be entitled to recover, in addition to any other relief,
reasonable attorneys' fees, costs and disbursements.
12. I acknowledge that it is impossible to measure fully in
monetary damages the injury that will be caused to the Company in the event of a
breach or threatened breach of this Agreement, and I waive the claim or defense
that the Company has an adequate remedy at law. I will not, in any action or
proceeding to enforce the provisions of this Agreement, assert the claim or
defense that such a remedy at law exists. The Company will be entitled to
injunctive relief to enforce the provisions of this Agreement, without prejudice
to any other remedies the Company may have at law or in equity.
-4-
<PAGE>
13. I acknowledge that this Agreement does not constitute a
right to continued employment and my employment by the Company may be terminated
by the Company at any time, with or without cause.
Witness: Agreed and Accepted:
Signature: Signature:
---------------------------- --------------------------
Company Representative
Name:
-------------------------------
Date:
-------------------------------
-5-
<PAGE>
BLUESTONE SOFTWARE, INC.
EMPLOYEE CONFIDENTIALITY AGREEMENT
Recognizing that the success of Bluestone Software, Inc., a Delaware corporation
(the "Company"), depends, in part, on the protection of trade secrets,
innovations, formulae, software, algorithms and information held or utilized by
the Company, and recognizing that during my employment I may have access or
contribute to such matters, and in consideration of my employment by the Company
and intending to be legally bound by this Agreement, I agree to the following:
1. During and after my employment, without the prior written consent of
an officer of the Company, I will not disclose or use for my direct or indirect
benefit or the direct or indirect benefit of a third party, and I will use my
best efforts to maintain, the confidentiality of all confidential information
that I acquire because of my employment. In general, "confidential information"
means: any information that the Company treats as confidential, including, but
not limited to, any information relating to research, processes, inventions,
products, methods, formulae, algorithms, computer codes or instructions
(including source and object code and related documentation), all computer
inputs and outputs (regardless of the media on which stored or located),
computer processing systems or techniques, concepts, layouts, flowcharts,
specifications, know-how, user or service manuals or other like textual
materials, software, documentation, equipment, costs, customer lists, customer
leads, compensation records and plans, business studies, business procedures,
and finances, the identities of customers, contractors or suppliers and
prospective customers, contractors or suppliers; the terms of contracts or
agreements with customers, contractors or suppliers; any information relating to
the Company's relationship with actual or prospective customers, contractors or
suppliers and the needs and requirements of, and the Company's course of dealing
with, any such actual or prospective customers, contractors or suppliers; any
personnel information; any customer or vendor credit information; any other
materials prepared by me in the course of, relating to or arising out of my
employment by the Company, or prepared by any other Company employee or
contractor for the Company or its customers; and any other materials that have
not been made available to the general public. Failure to mark any of the
confidential information as confidential or proprietary will not affect its
status as confidential information under the terms of this Agreement. I
acknowledge that Confidential Information may include both information owned by
the Company and information disclosed to the Company by the customers of the
Company on a confidential basis. During and after my employment by the Company,
I will not disclose the Confidential Information of one customer to any other
customer of the Company, without the prior written consent of an officer of the
Company, and will comply with all of the internal policies and procedures of the
Company with respect to the use of Confidential Information of customers.
2. During and after my employment, I will not remove from the Company's
offices or premises any documents, records, notebooks, files, correspondence,
reports, memoranda, computer tapes, computer disks or similar materials of or
containing information of the type identified in the preceding paragraph, or
other materials or property of the Company of any kind (collectively,
<PAGE>
"Materials"), unless necessary in accordance with my duties and responsibilities
of employment by the Company. In the event that I remove any Materials, I will
return such Materials to their proper files or places of safekeeping as promptly
as possible after the removal has served its specific purpose. Except as may be
necessary in the discharge of my assigned duties, I will not make, retain,
remove or distribute any copies of any of such Materials for any reason
whatsoever and I will not divulge to any third person the nature or contents of
any of such Materials or of any other oral or written information. Upon the
termination of my employment with the Company, I will return to the Company all
originals and copies of such Materials then in my possession, whether prepared
by me or by others. If, at any time after such termination, I become aware that
any such originals, copies or extracts of the foregoing are in my possession,
then I will immediately surrender the possession thereof to the Company.
3. I acknowledge that any and all writings, documents, inventions,
discoveries, computer programs or instructions (whether in source code, object
code, or any other form), algorithms, formulae, plans, customer lists,
memoranda, tests, research, designs, specifications, models, data, diagrams,
flow charts, overhead foils, instructional guides, and/or techniques (whether
reduced to written form or otherwise) that I make, conceive, discover, or
develop, either solely or jointly with any other person, at any time during the
term of my employment, whether during working hours or at the Company's facility
or at any other time or location, and whether upon the request or suggestion of
the Company or otherwise, that relate to or are useful in any way in connection
with any business carried on or contemplated by the Company (collectively, the
"Intellectual Work Product") will be the sole and exclusive property of the
Company. I will promptly and fully disclose all the Intellectual Work Product to
the Company, and I will have no claim for additional compensation for the
Intellectual Work Product.
4. I acknowledge that all Intellectual Work Product that is
copyrightable will be considered a work made for hire under United States
Copyright Law. To the extent that any copyrightable Intellectual Work Product
may not be considered a work made for hire under the applicable provisions of
the copyright law, or to the extent that, notwithstanding the foregoing
provisions, I may retain an interest in any Intellectual Work Product that is
not copyrightable, I hereby irrevocably assign and transfer to the Company any
and all right, title, or interest that I may have in the Intellectual Work
Product under copyright, patent, trade secret and trademark law, in perpetuity
or for the longest period otherwise permitted by law, without the necessity of
further consideration. The Company will be entitled to obtain and hold in its
own name all copyrights, patents, trade secrets and trademarks with respect
thereto.
5. At the sole request and expense of the Company, either before or
after the termination of my employment, I will assist the Company in acquiring
and maintaining copyright, patent, trade secret and trademark protection upon,
and confirming its title to, such Intellectual Work Product. My assistance will
include signing all applications for copyrights and patents and other documents,
cooperating in legal proceedings and taking any other steps considered desirable
by the Company.
6. In the event the Company is unable after reasonable effort to secure
my signature on any of the documents referenced in Paragraph 5 above, whether
because of my physical or mental incapacity or for any other reason whatsoever,
then I hereby irrevocably designate and appoint the
-2-
<PAGE>
Company and its duly authorized officers and agents as my agent and
attorney-in-fact, to act for and in my behalf and stead to execute and file any
such documents and to do all other lawfully permitted acts to further the
prosecution and issuance of any such trade secret, patent, copyright, trademark,
or other analogous protection, with the same legal force and effect as if
executed by me.
7. For the one (1) year period immediately following the termination of
my employment with the Company, I will not, directly or indirectly, employ,
engage or retain, or arrange to have any other person or entity employ, engage
or retain any person who is an employee, contractor, consultant or agent of the
Company or shall have been employed, engaged or retained by the Company as an
employee, contractor, consultant or agent at any time during the one (1) year
period preceding the date upon which my employment with the Company is
terminated; additionally, I will not, directly or indirectly, influence or
attempt to influence any such person to terminate or modify his or her
employment arrangement or engagement with the Company.
8. If the Company provides me with travel advances or other advances of
expenses in connection with my employment, I will make a prompt settlement of
all such advances after completion of the travel and other activities. If I owe
any money to the Company at the time of termination of employment, then it may
be deducted from any money otherwise owed to me by the Company.
9. I will devote my full time and effort to my employment and will at
all times act and perform the duties of my employment with honesty, integrity,
good faith, responsibility, and I will comply with all rules, regulations and
policies of the Company.
10. I am not subject to any other agreement that I will violate by
signing this Agreement or which prevents me from disclosing confidential
information. I agree to disclose the existence and terms of this Agreement to
any employer for which I may work during the term of this Agreement (which
employment is not hereby authorized) or after the termination of my employment
at the Company.
11. This Agreement constitutes the complete agreement between the
Company and me and supersedes all prior agreements, oral or written including
without limitation, any employment agreements between me and the Company, and
any other communication relating to the subject matter of this Agreement. This
Agreement may not be amended or modified except in writing and will be governed
by the laws of the State of New Jersey without regard to conflicts of law
principles. If any provision or portion of any provision of this Agreement shall
be determined to be void, invalid or unenforceable for any reason, then the
validity and enforceability of the remaining provisions or portions of
provisions will not be affected. The Company may assign this Agreement to, and
this Agreement will bind and inure to the benefit of, any parent, subsidiary,
affiliate or successor of the Company. I acknowledge that this Agreement is not
assignable by me. Except as otherwise provided by the immediately subsequent
sentence of this provision, I agree that any suit, action or other legal
proceeding arising out of or relating to this Agreement, including, but not
limited to, any action commenced by the Company for preliminary or permanent
injunctive or other equitable relief, will be instituted in the United States
District Court for the District of New Jersey, or if such court does not have or
will not accept jurisdiction, in any court of general jurisdiction in Burlington
-3-
<PAGE>
County, New Jersey, and I consent and submit to the personal and exclusive
jurisdiction of such courts in any such suit, action or proceeding. This
provision shall not prevent the Company from seeking to enforce this Agreement
in any other court of competent jurisdiction. I agree that service of process
upon me may be effected by certified mail or by any other means permitted by
law, and I waive any objection which I may have to the laying of venue of any
such suit, action or proceeding in any such court and any claim or defense of
inconvenient forum. If an action at law or in equity is necessary to enforce or
interpret the terms of this Agreement, then the prevailing party shall be
entitled to recover, in addition to any other relief, reasonable attorneys'
fees, costs and disbursements.
12. I acknowledge that it is impossible to measure fully in monetary
damages the injury that will be caused to the Company in the event of a breach
or threatened breach of this Agreement, and I waive the claim or defense that
the Company has an adequate remedy at law. I will not, in any action or
proceeding to enforce the provisions of this Agreement, assert the claim or
defense that such a remedy at law exists. The Company will be entitled to
injunctive relief to enforce the provisions of this Agreement, without prejudice
to any other remedies the Company may have at law or in equity.
13. I acknowledge that this Agreement does not constitute a right to
continued employment and my employment by the Company may be terminated by the
Company at any time, with or without cause.
Witness: Agreed and Accepted:
Signature: Signature:
---------------------------- ------------------------
Company Representative
Name:
-----------------------------
Date:
-----------------------------
-4-
<PAGE>
Exhibit 10.4
BLUESTONE SOFTWARE, INC.
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT is made on this 18th day of April,
1997 by and between Mel Baiada, a resident of 124 Pheasant Fields Lane,
Moorestown, New Jersey 08057 (the "Employee"), and BLUESTONE SOFTWARE, INC., a
corporation organized and existing under the laws of the State of Delaware (the
"Company"), and successor by merger to Bluestone Consulting Inc., a New Jersey
corporation.
WHEREAS, the Company is engaged in the business of designing, developing,
supporting, marketing and selling Internet and intranet software development
tools and related products and services (as may be expanded by the Company
during the term of this Agreement, the "Business");
WHEREAS, the Employee currently owns all of the issued and outstanding
capital stock of the Company and, after the equity financing pursuant to the
Series A Preferred Stock Purchase Agreement (the "Stock Purchase Agreement")
among the Company and the investors listed therein, will hold a majority of the
issued and outstanding capital stock of the Company on a fully-diluted basis;
WHEREAS, the Employee owns all of the issued and outstanding capital
stock of Bluestone Consulting, Inc., a Delaware corporation (the "Services
Company"), an affiliate of the Company; and
WHEREAS, the Company desires to employ the Employee and the Employee
desires to be employed by the Company for a one (1) year period upon the terms
and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and obligations
contained herein, and intending to be legally bound, the parties, subject to the
terms and conditions set forth herein, agree as follows:
1. EMPLOYMENT AND TERM.
(a) The Company hereby employs the Employee and the Employee
hereby accepts employment as President and Chief Executive Officer of the
Company (the "Position"), for a period commencing on the date hereof (the
"Commencement Date") and continuing until April 18th, 1998 (the "Initial Term")
upon the terms and conditions hereinafter set forth.
<PAGE>
(b) This Agreement shall automatically renew for successive
additional one (1) year terms (each, a "Renewal Period") unless notice of
termination is given under Section 8 or the Company elects not to renew the
Agreement based upon a majority vote of the entire Board of Directors of the
Company (the "Board") (which in the case of a Board consisting of four directors
shall mean at least three votes in favor of non-renewal) and written notice of
such intention is given to the Employee not later than thirty (30) days prior to
the expiration of the Initial Term or any Renewal Period, as applicable. The
Initial Term of employment and any Renewal Periods hereunder are hereinafter
referred to collectively as the "Term."
2. DUTIES.
(a) During the Term, the Employee shall serve the Company
faithfully and to the best of his ability and shall devote, subject to Section
2(b), his full time, attention, skill and efforts to the performance of the
duties required by or appropriate for the Position. The Employee shall assume
such duties and responsibilities as may be customarily incident to such a
position, and such additional and other duties as may be assigned to the
Employee from time to time by the Board, including, without limitation, the
duties and responsibilities set forth in SCHEDULE A attached hereto. The
Employee shall report to the Board.
(b) The Employee may serve as President and Chief Executive
Officer of Bluestone Consulting, Inc., a Delaware corporation (the "Services
Company"), until on or about December 31, 1997. The Employee may elect to serve
as chairman and/or a member of the board of directors of the Services Company
without restriction.
3. COMPENSATION. The Company shall pay the Employee, and the Employee
hereby agrees to accept, as compensation for all services rendered hereunder and
for the Employee's intellectual property and other covenants and assignments as
provided for in Sections 4, 5 and 6 hereof, the compensation set forth in this
Section 3.
3.1 SALARY. The Company shall pay the Employee an initial base
salary at the annual rate of One Hundred Fifty Thousand Dollars ($150,000) (as
the same may hereafter be adjusted, the "Base Salary"). The Base Salary shall be
inclusive of all applicable income, social security and other taxes and charges
that are required by law to be withheld by the Company, are requested to be
withheld by the Employee, and shall be withheld and paid in accordance with the
Company's normal payroll practice for its similarly situated employees from time
to time in effect. The Base Salary may be adjusted from time to time by the
Board in its discretion in accordance with the normal executive employee
compensation review practices of the Company.
3.2 BONUS PROGRAM. The Company shall pay to the Employee a cash
bonus in the amount of Fifty Thousand Dollars ($50,000) (or such greater amount
as determined by the Board in its sole discretion) for the fiscal year ended
December 31, 1997. Such bonus will paid to the Employee on or before January 31,
1998. Thereafter, the Employee shall be entitled
-2-
<PAGE>
to participate in any executive bonus program that may be established by and at
the discretion of the Company pursuant to which the Board may award bonuses to
executive employees, based upon the achievement of written individual and
corporate objectives such as the Board shall determine.
3.3 REPURCHASE AGREEMENT The Employee and the Company shall enter
into a repurchase agreement in respect of certain shares of Common Stock of the
Company owned by the Employee. The Repurchase Agreement shall set forth, among
other things, the number of shares subject to the Company's repurchase right,
the vesting schedule and the purchase price per share.
3.4 FRINGE BENEFITS. The Employee shall be entitled to participate
in any health or dental programs of the Company. The Employee shall be entitled
to participate in all vacation and other fringe benefit programs of the Company
to the extent and on the same terms and conditions as are accorded to other
officers and key employees of the Company. Notwithstanding the above, the
Employee is entitled to three (3) weeks paid vacation per calendar year.
3.5 REIMBURSEMENT OF EXPENSES. The Employee shall be reimbursed
for all normal items of travel and entertainment and miscellaneous expenses
reasonably incurred by him on behalf of the Company, provided that such expenses
are documented and submitted to the Company all in accordance with the
reimbursement policies of the Company as in effect from time to time.
4. CONFIDENTIALITY. The Employee recognizes and acknowledges that the
Proprietary Information (as hereinafter defined) is a valuable, special and
unique asset of the Company. As a result, both during the Term and thereafter,
the Employee shall not, without the prior written consent of the Company, for
any reason either directly or indirectly divulge to any third-party or use for
his own benefit, or for any purpose other than the exclusive benefit of the
Company, any confidential, proprietary, business and technical information or
trade secrets of the Company or of any subsidiary or affiliate of the Company
(the "Proprietary Information") revealed, obtained or developed in the course of
his employment with the Company. Proprietary Information shall include, but
shall not be limited to: the intangible personal property described in Section
5(b) hereof; any information relating to methods of production, manufacture and
research; hardware and software configurations, computer codes or instructions
(including source and object code listings, program logic algorithms,
subroutines, modules or other subparts of computer programs and related
documentation, including program notation), computer inputs and outputs
(regardless of the media on which stored or located) and computer processing
systems, techniques, designs, architecture, and interfaces; the identities of,
the Company's relationship with, the terms of contracts and agreements with, the
needs and requirements of, and the Company's course of dealing with, the
Company's actual and prospective customers, contractors and suppliers; and any
other materials prepared by the Employee in the course of his employment by the
Company, or prepared by any other employee or contractor of the Company for the
Company or its customers, (including concepts, layouts, flow charts,
specifications,
-3-
<PAGE>
know-how, user or service manuals, plans, sketches, blueprints, costs, business
studies, business procedures, finances, marketing data, methods, plans,
personnel information, customer and vendor credit information and any other
materials that have not been made available to the general public). Nothing
contained herein shall restrict the Employee's ability to make such disclosures
during the course of his employment as may be necessary or appropriate to the
effective and efficient discharge of the duties required by or appropriate for
the Position or as such disclosures may be required by law. Furthermore, nothing
contained herein shall restrict the Employee from divulging or using for his own
benefit or for any other purpose any Proprietary Information that is readily
available to the general public so long as such information did not become
available to the general public as a direct or indirect result of the Employee's
breach of this Section 4. Failure by the Company to mark any of the Proprietary
Information as confidential or proprietary shall not affect its status as
Proprietary Information under the terms of this Agreement.
5. PROPERTY.
(a) All right, title and interest in and to Proprietary
Information shall be and remain the sole and exclusive property of the Company.
During the Term, the Employee shall not remove from the Company's offices or
premises any documents, records, notebooks, files, correspondence, reports,
memoranda or similar materials of or containing Proprietary Information, or
other materials or property of any kind belonging to the Company unless
necessary or appropriate in accordance with the duties and responsibilities
required by or appropriate for the Position and, in the event that such
materials or property are removed, all of the foregoing shall be returned to
their proper files or places of safekeeping as promptly as possible after the
removal shall serve its specific purpose. The Employee shall not make, retain,
remove and/or distribute any copies of any of the foregoing for any reason
whatsoever, except as may be necessary in the discharge of the assigned duties,
and shall not divulge to any third person the nature of and/or contents of any
of the foregoing or of any other oral or written information to which he may
have access or with which for any reason he may become familiar, except as
disclosure shall be necessary in the performance of the duties; and upon the
termination of his employment with the Company, he shall return to the Company
all originals and copies of the foregoing then in the possession, whether
prepared by the Employee or by others.
(b) (i) The Employee acknowledges that all right, title and
interest in and to any and all writings, documents, inventions, discoveries,
computer programs or instructions (whether in source code, object code, or any
other form), algorithms, formulae, plans, memoranda, tests, research, designs,
innovations, systems, analyses, specifications, models, data, diagrams, flow
charts, and/or techniques (whether reduced to written or electronic form or
otherwise) that the Employee creates, makes, conceives, discovers or develops,
either solely or jointly with any other person, at any time during the Term,
whether during working hours or at the Company's facility or at any other time
or location, and whether upon the request or suggestion of the Company or
otherwise, and that relate to or are useful in any way in connection with the
Business now or hereafter carried on by the Company (collectively, "Intellectual
Work
-4-
GV: #44228 v6 (Y4K06!.WPD)
<PAGE>
Product") shall be the sole and exclusive property of the Company. The Employee
shall promptly disclose to the Company all Intellectual Work Product, and the
Employee shall have no claim for additional compensation for the Intellectual
Work Product.
(ii) The Employee acknowledges that all the Intellectual Work
Product that is copyrightable shall be considered a work made for hire under
United States Copyright Law. To the extent that any copyrightable Intellectual
Work Product may not be considered a work made for hire under the applicable
provisions of the United States Copyright Law, or to the extent that,
notwithstanding the foregoing provisions, the Employee may retain an interest in
any Intellectual Work Product that is not copyrightable, the Employee hereby
irrevocably assigns and transfers to the Company any and all right, title, or
interest that the Employee may have in the Intellectual Work Product under
copyright, patent, trade secret, trademark and other intellectual property laws,
in perpetuity or for the longest period otherwise permitted by law, without the
necessity of further consideration. The Company shall be entitled to obtain and
hold in its own name all copyrights, patents, trade secrets, and trademarks with
respect thereto.
(iii) The Employee shall reveal promptly all information
relating to the Intellectual Work Product to an appropriate officer of the
Company, cooperate with the Company and execute such documents as may be
necessary or appropriate (A) in the event that the Company desires to seek
copyright, patent, trademark or other analogous protection thereafter relating
to the Intellectual Work Product, and when such protection is obtained, renew
and restore the same, or (B) to defend any opposition proceedings in respect of
obtaining and maintaining such copyright, patent, trademark or other analogous
protection.
(iv) In the event that the Company is unable after reasonable
effort to secure the Employee's signature on any of the documents referenced in
Section 5(b)(iii) hereof, whether because of the Employee's physical or mental
incapacity or for any other reason whatsoever, the Employee hereby irrevocably
designates and appoints the Company and its duly authorized officers and agents
as the Employee's agent and attorney-in-fact, to act for and in his behalf and
stead to execute and file any such documents and to do all other lawfully
permitted acts to further the prosecution and issuance of any such copyright,
patent, trademark or other analogous protection with the same legal force and
effect as if executed by the Employee.
6. COVENANT NOT TO COMPETE.
(a) During the Term and for a period of one (1) year thereafter
(the "Restricted Period"), the Employee shall not, in the United States or in
any country in which the Company is conducting or has conducted business at any
time during the one (1) year period immediately preceding the termination of his
employment, do any of the following directly or indirectly without the prior
written consent of the Company in its sole discretion:
(i) engage or participate, directly or indirectly, in any
business activity competitive with the Business or the business of any of the
Company's subsidiaries or affiliates (other than the Services Company), as
conducted during the Term;
-5-
<PAGE>
(ii) become interested (as owner, proprietor, promoter,
stockholder, lender, partner, co-venturer, director, officer, employee, agent,
consultant or otherwise) in any person, firm, corporation, association or other
entity engaged in any business that is competitive with the Business or the
business of any subsidiary or affiliate (other than the Services Company) of the
Company as conducted during the Term, or become interested in (as owner,
stockholder, lender, partner, co-venturer, director, officer, employee, agent,
consultant or otherwise) any portion of the business of any person, firm,
corporation, association or other entity where such portion of such business is
competitive with the Business of the Company or the business of any subsidiary
or affiliate (other than the Services Company) of the Company as conducted
during the Term (notwithstanding the foregoing, (i) the Employee may hold up to
five percent (5%) of the outstanding securities of any class of any
publicly-traded securities of a company that is engaged in activities referenced
in Section 6(a) hereof and (ii) the Employee may serve on the Board and the
board of directors of the Services Company);
(iii) solicit or call on, either directly or indirectly, any
(A) customer with whom the Company shall have dealt at any time during the one
(1) year period immediately preceding the termination of the Employee's
employment hereunder, or (B) supplier or distributor with whom the Company shall
have dealt at any time during the one (1) year period immediately preceding the
termination of the Employee's employment hereunder, except in respect of
customers, suppliers or distributors of the Services Company;
(iv) influence or attempt to influence any supplier,
distributor, customer or potential customer of the Company to terminate or
modify any written or oral agreement or course of dealing with the Company; or
(v) influence or attempt to influence any person either (A) to
terminate or modify the employment, consulting, agency, distributorship or other
arrangement with the Company, or (B) to employ or retain, or arrange to have any
other person or entity employ or retain, any person who has been employed or
retained by the Company as an employee, consultant, agent or distributor of the
Company at any time during the one (1) year period immediately preceding the
termination of the Employee's employment hereunder.
(b) The Employee hereby acknowledges that the limitations as to
time, character or nature and geographic scope placed on his subsequent
employment by this Section 6 are reasonable and fair and will not prevent or
materially impair his ability to earn a livelihood.
7. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE EMPLOYEE.
(a) The Employee represents and warrants to the Company that:
(i) There are no restrictions, agreements or understandings
whatsoever to which the Employee is a party which would prevent or make unlawful
the
-6-
<PAGE>
Employee's execution of this Agreement or the Employee's employment hereunder,
or which is or would be inconsistent or in conflict with this Agreement or the
Employee's employment hereunder, or would prevent, limit or impair in any way
the performance by the Employee of the obligations hereunder; and
(ii) The Employee has disclosed to the Company all restraints,
confidentiality commitments or other employment restrictions that he has with
any other employer, person or entity.
(b) Upon and after his termination or cessation of employment with
the Company and until such time as no obligations of the Employee to the Company
hereunder exist under Section 6, the Employee (i) shall provide copies of
Sections 4, 5 and 6 of this Agreement to any prospective employer or other
person, entity or association in the Business, with whom or which the Employee
proposes to be employed, affiliated, engaged, associated or to establish any
business or remunerative relationship prior to the commencement thereof and (ii)
shall notify the Company of the name and address of any such person, entity or
association prior to his employment, affiliation, engagement, association or the
establishment of any business or remunerative relationship.
8. EARLY TERMINATION. The Employee's employment hereunder may be
terminated during the Term upon the occurrence of any one of the events
described in this Section 8.
8.1 TERMINATION FOR DISABILITY.
(a) In the event of the disability of the Employee such that
the Employee is unable to perform the duties and responsibilities hereunder by
reasons of illness, injury or incapacity for a period of more than one hundred
twenty (120) consecutive calendar days or more than ninety (90) working days, in
the aggregate, during any six (6) month period ("Disability"), the Employee's
employment hereunder may be terminated upon the majority vote of the entire
Board (which in the case of a Board consisting of four directors shall mean at
least three votes in favor of termination).
(b) In the event of a termination of the Employee's employment
hereunder pursuant to Section 8.1(a), the Employee will be entitled to receive:
all accrued and unpaid (as of the date of such termination) Base Salary and
benefits and other forms of compensation and benefits payable or provided in
accordance with the terms of any then existing compensation or benefit plan or
arrangement, including payment prescribed under any disability or life insurance
plan or arrangement in which he is a participant or to which he is a party as an
employee of the Company. In addition to he foregoing, in the event of a
termination under Section 8.1, the Employee shall receive a cash severance
payment in an amount equal to six (6) months of his Base Salary on the date of
termination.
-7-
<PAGE>
8.2 TERMINATION BY DEATH. In the event that the Employee dies
during the Term, the Employee's employment hereunder shall be terminated thereby
and the Company shall pay to the Employee's executors, legal representatives or
administrators an amount equal to: the accrued and unpaid portion of the Base
Salary, benefits and other compensation for the month in which he dies, as well
as a payment in an amount equal to six (6) months of his Base Salary on the date
of termination.
8.3 TERMINATION FOR CAUSE.
(a) Upon a majority vote of the entire Board (which in the
case of a Board consisting of four directors shall mean at least three votes in
favor of termination), the Company may elect to terminate the Employee's
employment hereunder at any time for cause upon written notice to the Employee.
For purposes of this Agreement, the term "cause" shall mean:
(i) a material breach by the Employee of any of the
obligations under Sections 5, 6 or 7 of this Agreement, which breach remains
uncured for a period of ninety (90) days after the Employee has received
written notice from the Company of such breach;
(ii) the Employee's willful or gross neglect of his
duties hereunder, or willful or gross misconduct in the performance of such
duties, so as to cause material harm to the Company;
(iii) a judicial determination that the Employee has
committed fraud, misappropriation or embezzlement against the Company; or
(iv) conviction of the Employee for any felony which,
as determined in good faith by the Board, constitutes a crime involving moral
turpitude and results in material harm to the Company.
(b) In the event of a termination of the Employee's
employment hereunder pursuant to Section 8.3(a), the Employee shall be
entitled to receive all accrued but unpaid (as of the effective date of such
termination) Base Salary, benefits and bonuses. All Base Salary, benefits and
bonuses shall cease at the time of such termination, subject to the terms of
any benefit or compensation plan then in force and applicable to the Employee.
8.4 TERMINATION BY EMPLOYEE.
(a) The Employee may terminate his employment hereunder,
upon at least four (4) weeks prior written notice to the Company.
(b) In the event of a termination of the Employee's
employment hereunder pursuant to Section 8.4(a), the Employee shall be
entitled to receive all accrued but
-8-
<PAGE>
unpaid (as of the effective date of such termination) Base Salary, benefits and
bonuses. All Base Salary, benefits and bonuses shall cease at the time of such
termination, subject to the terms of any benefit or compensation plan then in
force and applicable to the Employee.
8.5 TERMINATION WITHOUT CAUSE.
(a) Upon a majority vote of the entire Board (which in
the case of a Board consisting of four directors shall mean at least three
votes in favor of termination), the Company may elect to terminate the
Employee's employment hereunder without cause upon thirty (30) days written
notice to the Employee.
(b) In the event of a termination of the Employee's
employment hereunder pursuant to Section 8.5(a), the Employee shall be
entitled to receive all accrued but unpaid (as of the effective date of such
termination) Base Salary, benefits and bonuses. In addition to the foregoing,
in the event of a termination under Section 8.5, the Employee shall receive a
cash severance payment in an amount equal to six (6) months of his Base
Salary on the date of termination. All Base Salary, benefits and bonuses
shall cease at the time of such termination, subject to the terms of any
benefit or compensation plan then in force and applicable to the Employee.
9. SURVIVAL OF PROVISIONS. The provisions of this Agreement set forth
in Sections 3.3 and 4 through 20 hereof shall survive the termination of the
Employee's employment hereunder.
10. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
and be binding upon the Company and the Employee and their respective
successors, executors, administrators, heirs and/or permitted assigns; provided
that the Employee may not assign this Agreement or any interest herein, by
operation of law or otherwise, without the prior written consent of the Company
in its sole discretion.
11. NOTICE. Any notice hereunder by either party shall be given by
personal delivery, by sending such notice by certified mail, return-receipt
requested, by overnight delivery with a reputable courier service, or by
telecopier, addressed or telecopied, as the case may be, to the other party at
its address set forth below or at such other address designated by notice in the
manner provided in this section. Such notice shall be deemed to have been
received upon the date of actual delivery if personally delivered or, in the
case of mailing, two (2) days after deposit with the U.S. mail, or if by
overnight delivery, or the date of delivery or, in the case of facsimile
transmission, when confirmed by the facsimile machine report.
If to the Employee:
Mel Baiada
124 Pheasant Fields Lane
Moorestown, New Jersey 08057
-9-
<PAGE>
Fax: (609) 778-4925
If to the Company:
Bluestone Software, Inc.
1000 Briggs Road
Mount Laurel, NJ 08054
Attention: Board of Directors
Fax: (609) 778-8125
with a copy to:
Pepper, Hamilton & Scheetz
1235 Westlakes Drive
Suite 400
Berwyn, PA 19312
Attention: Christopher F. Wright, Esquire
Fax: (610) 640-7835
12. ENTIRE AGREEMENT AND AMENDMENTS. This Agreement contains the entire
agreement and understanding of the parties hereto relating to the subject matter
hereof, and merges and supersedes all prior and contemporaneous discussions,
agreements and understandings of every nature between the parties hereto
relating to the employment of the Employee with the Company. This Agreement may
not be changed or modified, except by an agreement in writing signed by each of
the parties hereto.
13. WAIVER. The waiver of the breach of any term or provision of this
Agreement shall not operate as or be construed to be a waiver of any other or
subsequent breach of this Agreement.
14. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of New Jersey, without regard to the
principles of conflicts of laws of any jurisdiction.
15. INVALIDITY. If any provision of this Agreement shall be determined
to be void, invalid, unenforceable or illegal for any reason, then the validity
and enforceability of all of the remaining provisions hereof shall not be
affected thereby. If any particular provision of this Agreement shall be
adjudicated to be invalid or unenforceable, then such provision shall be deemed
amended to delete therefrom the portion thus adjudicated to be invalid or
unenforceable, such amendment to apply only to the operation of such provision
in the particular jurisdiction in which such adjudication is made; provided
that, if any provision contained in this Agreement shall be adjudicated to be
invalid or unenforceable because such provision is held to be
-10-
<PAGE>
excessively broad as to duration, geographic scope, activity or subject, then
such provision shall be deemed amended by limiting and reducing it so as to be
valid and enforceable to the maximum extent compatible with the applicable laws
of such jurisdiction, such amendment only to apply with respect to the operation
of such provision in the applicable jurisdiction in which the adjudication is
made.
16. SECTION HEADINGS. The section headings in this Agreement are for
convenience only; they form no part of this Agreement and shall not affect its
interpretation.
17. NUMBER OF DAYS. In computing the number of days for purposes of this
Agreement, all days shall be counted, including Saturdays, Sundays and legal
holidays; provided that, if the final day of any time period falls on a
Saturday, Sunday or day which is a legal holiday in New Jersey, then such final
day shall be deemed to be the next day which is not a Saturday, Sunday or legal
holiday.
18. SPECIFIC ENFORCEMENT; EXTENSION OF PERIOD.
(a) The Employee acknowledges that the restrictions contained in
Sections 4, 5, 6 and 7 hereof are reasonable and necessary to protect the
legitimate interests of the Company and its affiliates and that the Company
would not have entered into this Agreement in the absence of such restrictions.
The Employee also acknowledges that any breach by him of Sections 4, 5, 6 or 7
hereof will cause continuing and irreparable injury to the Company for which
monetary damages would not be an adequate remedy. The Employee shall not, in any
action or proceeding to enforce any of the provisions of this Agreement, assert
the claim or defense that an adequate remedy at law exists. In the event of such
breach by the Employee, the Company shall have the right to enforce the
provisions of Sections 4, 5, 6 and 7 of this Agreement by seeking injunctive or
other relief in any court, and this Agreement shall not in any way limit
remedies of law or in equity otherwise available to the Company.
(b) The periods of time set forth in Section 6 hereof shall not
include, and shall be deemed extended by, any time required for litigation to
enforce the relevant covenant periods, provided that the Company is successful
on the merits in any such litigation. The "time required for litigation" is
herein defined to mean the period of time commencing on the earlier of the
Employee's first breach of such covenants or the service of process upon the
Employee ending on the date of a final non-appealable order or settlement by the
parties relating to such litigation.
19. CONSENT TO SUIT. In the case of any dispute under or in connection
with this Agreement, the Employee may only bring suit against the Company in the
Courts of the State of New Jersey or in the Federal District Court for such
geographic location. The Employee hereby consents to the exclusive jurisdiction
and venue of the courts of the State of New Jersey or the Federal District Court
for such geographic location, provided that such Federal Court has subject
matter jurisdiction over such dispute, and the Employee hereby waives any claim
he may have at any time as to FORUM NON CONVENIENS with respect to such venue.
The Company shall
-11-
<PAGE>
have the right to institute any legal action arising out of or relating to this
Agreement in any appropriate court and in any jurisdiction. Any judgment entered
against either of the parties in any proceeding hereunder may be entered and
enforced by any court of competent jurisdiction. If an action at law or in
equity is necessary to enforce or interpret the terms of this Agreement, then
the prevailing party shall be entitled to recover, in addition to any other
relief, reasonable attorneys' fees, costs and disbursements.
20. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which
together shall be deemed to be one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
on the day and year first written above.
BLUESTONE SOFTWARE, INC.
By: /s/ Enrico Ballezzi
------------------------------
Title: Chief Financial Officer
WITNESS:
/s/ Thomas Ballezzi /s/ Mel Baiada
- --------------------- -------------------------
Name: Thomas Ballezzi MEL BAIADA
-12-
<PAGE>
Exhibit 10.5
FIRST AMENDMENT TO
EXECUTIVE EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of the 13th day of January, 1999 by
and between Mel Baiada, a resident of 124 Pheasant Fields Lane, Moorestown, New
Jersey 08057 (the "Employee"), and BLUESTONE SOFTWARE, INC., a corporation
organized and existing under the laws of the State of Delaware (the "Company"),
and successor by merger to Bluestone Consulting Inc., a New Jersey corporation.
BACKGROUND
A. On April 18, 1997, Employee and the Company entered into an
Executive Employment Agreement (the "Employment Agreement"); and
B. The Company and Employee now desire to amend the Employment
Agreement, subject to the terms and condition hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and
obligations contained herein, and intending to be legally bound, the parties,
subject to the terms and conditions set forth herein, agree as follows:
1. Section 1 of the Employment Agreement shall be amended such
that the term "Position" shall mean Chairman of the Board and the term "Initial
Term" shall continue until June 30, 1999. Effective as of the date hereof,
Employee shall no longer hold the title of President or Chief Executive Officer.
2. The first sentence of Section 1(b) of the Employment
Agreement shall be deleted and replaced as follows:
"This Agreement may be renewed on or before June 30, 1999, for
such time (the "Renewal Period") and upon such terms as are approved by the
Board of Directors of the Company (the "Board") after recommendation by the
President of the Company. The recommendation for renewal shall include an
objective compensation and bonus plan for twelve months, together with an
evaluation of Employee's performance against reasonable objectives for the first
six months of 1999."
3. Schedule A shall be deleted.
4. Section 3.2 of the Employment Agreement shall be amended to
delete the first sentence and replace it as follows:
"Within thirty days of the date hereof, Employee and the
President of the Company will agree in writing on reasonable performance
objectives for Employee for the first six months of
<PAGE>
1999. Employee's bonus and management stock options will be based upon these
objectives, drawn from the management compensation and stock option pools that
will be used in 1999 for other management employees."
5. Employee's Contingent Shares, as defined in the Stock
Repurchase Agreement, dated as of April 18, 1997 (the "Repurchase Agreement")
shall continue to vest in accordance with the terms of the Repurchase Agreement
for as long as Employee remains in the Position, subject to the provisions
regarding termination herein.
6. If Employee is terminated from the Position, or the
Employment Agreement is not renewed in accordance with Section 1(b) of the
Employment Agreement as amended in paragraph 2 herein, he shall retain his
position as a director on the Board as long as he: 1) retains at least ten
percent (10%) ownership of the issued and outstanding Common Stock of the
Company, determined on a fully converted basis assuming conversion of all
outstanding convertible securities and exercise of all outstanding options,
warrants or rights to acquire Common Stock; or 2) until June 30, 2000, whichever
is later.
7. If Employee is terminated from the Position in accordance
with Section 8.5 of the Employment Agreement, or the Employment Agreement is not
renewed in accordance with Section 1(b) of the Employment Agreement as amended
in paragraph 2 herein, he will receive twelve (12) months of 1998 base salary as
severance, grossed up for benefits and taxes. Such severance will be payable in
accordance with the Bluestone payroll schedule.
8. If Employee is terminated from the Position in accordance
with Section 8.5 of the Employment Agreement, or the Employment Agreement is not
renewed in accordance with Section 1(b) of the Employment Agreement as amended
in paragraph 2 herein, his Contingent Shares under the Repurchase Agreement will
immediately become Vested Shares, as defined in the Repurchase Agreement.
9. The receipt of the payments and benefits to be provided to
Employee under Sections 6, 7 and 8 of this Agreement are conditional upon
Employee executing and delivering to the Company a mutual release in the form
attached hereto as EXHIBIT A.
10. If Employee is terminated from the Position in accordance
with Section 8.3 of the Employment Agreement, he will not receive any severance
and will immediately forfeit his Board seat and any other employee title in the
Company.
11. The Employment Agreement will terminate automatically if
the shares of the Company are registered in a public offering of its securities,
or there is a merger where the Company is not the surviving company, a sale of
all the Company's stock, or a sale of substantially all the assets of the
Company.
-2-
<PAGE>
12. Employee shall not, in connection with any matter relating
to his employment with the Company, knowingly and intentionally disparage the
Company or its predecessors, successors (by merger or otherwise), parents,
subsidiaries, affiliates and assigns, together with each and every of their
present, past and future officers, directors, shareholders and employees (herein
collectively referred to as the "Company Group"). The Company represents that,
as of the date of this Agreement, there are no documents in Employee's personnel
file in which the Company has intentionally and knowingly disparaged Employee
and the Company on its behalf and on behalf of the Company Group further agrees
that neither it nor any member of the Company Group shall knowingly or
intentionally disparage Employee in the future for matters relating to his
employment with the Company.
13. The Company will reimburse Employee for reasonable
expenses in connection with a legal review of this Agreement.
14. Except as amended herein, the Employment Agreement will
remain in full force effect.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed on the day and year first written above.
BLUESTONE SOFTWARE, INC.
By:
---------------------------
Title:
WITNESS:
/s/ Mel Baiada
- --------------------- -------------------------
Name: MEL BAIADA
-3-
<PAGE>
Exhibit 10.6
BLUESTONE SOFTWARE, INC.
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT is made on this 24th day of April,
1997 by and between Robert Bickel, a resident of 348 E. 2nd Street, Moorestown,
New Jersey 08057 (the "Employee"), and BLUESTONE SOFTWARE, INC., a corporation
organized and existing under the laws of the State of Delaware (the "Company")
and successor by merger to Bluestone Consulting Inc., a New Jersey corporation.
WHEREAS, the Company is engaged in the business of designing,
developing, supporting, marketing and selling Internet and intranet software
development tools and related products and services (as may be expanded by the
Company during the term of this Agreement, the "Business"); and
WHEREAS, the Company desires to employ the Employee and the Employee
desires to be employed by the Company upon the terms and conditions hereinafter
set forth.
NOW, THEREFORE, in consideration of the mutual covenants and
obligations contained herein, and intending to be legally bound, the parties,
subject to the terms and conditions set forth herein, agree as follows:
1. EMPLOYMENT AND TERM. The Company hereby employs the Employee and
the Employee hereby accepts employment as Senior Vice President and Chief
Operating Officer (the "Position") with the Company upon the terms and
conditions hereinafter set forth. The Employee understands and agrees that the
Employee's employment by the Company is at the will of the Company, and the
employment relationship may be terminated either by the Employee or the Company
at any time, with or without cause.
2. DUTIES. During the term of his employment, the Employee shall
serve the Company faithfully and to the best of his ability and shall devote his
full time, attention, skill and efforts to the performance of the duties
required by or appropriate for the Position. The Employee shall assume such
duties and responsibilities as may be customarily incident to such a position,
and such additional and other duties as may be assigned to the Employee from
time to time by the President or the Board of Directors of the Company,
including, without limitation, the duties and responsibilities set forth in
SCHEDULE A attached hereto. The Employee shall report to the President of the
Company.
3. COMPENSATION. The Company shall pay the Employee, and the Employee
hereby agrees to accept, as compensation for all services rendered hereunder and
for the Employee's intellectual property and other covenants and assignments as
provided for in Sections 4, 5 and 6 hereof, the compensation set forth in this
Section 3.
<PAGE>
3.1 SALARY. The Company shall pay the Employee an initial base
salary at the annual rate of One Hundred Thirty-Five Thousand Dollars ($135,000)
(as the same may hereafter be adjusted, the "Base Salary"). The Base Salary
shall be inclusive of all applicable income, social security and other taxes and
charges that are required by law to be withheld by the Company, are requested to
be withheld by the Employee, and shall be withheld and paid in accordance with
the Company's normal payroll practice for its similarly situated employees from
time to time in effect. The Base Salary may be adjusted from time to time by the
Board of Directors of the Company in its discretion in accordance with the
normal executive employee compensation review practices of the Company.
3.2 BONUS PROGRAM. The Employee shall be entitled to participate
in any executive bonus program that may be established by and at the discretion
of the Company pursuant to which the Board of Directors of the Company may award
bonuses to executive employees, based upon the achievement of written individual
and corporate objectives such as the Board of Directors shall determine.
3.3 EQUITY PARTICIPATION.
(a) After the closing of the venture capital financing
contemplated by the Series A Preferred Stock Purchase Agreement, among the
Company, Bluestone Consulting, Inc., a Delaware corporation and the investors
listed therein, the Company shall grant to the Employee an incentive stock
option (the "Option") to purchase Three Hundred Thousand (300,000) shares of
common stock, par value $.001 per share, of the Company (the "Common Stock").
The Option shall vest in sixteen (16) equal installments on a quarterly basis
over a four (4) year period beginning as of the date of grant of the Option. The
exercise price of the Option shall be the fair market value of the Common Stock
of the Company on the date of grant of the Option as determined by the Board of
Directors of the Company in its sole discretion. The Option shall be subject to
and in accordance with the provisions of the 1996 Incentive and Nonqualified
Stock Option Plan of the Company, as amended (the "Plan").
(b) All shares of Common Stock issued under the Option, the
shall be subject to the terms and provisions of a Stock Purchase and Restriction
Agreement as required by the Plan.
3.4 FRINGE BENEFITS. The Employee shall be entitled to
participate in any health or dental programs of the Company. The Employee shall
be entitled to participate in all vacation and other fringe benefit programs of
the Company to the extent and on the same terms and conditions as are accorded
to other officers and key employees of the Company. Notwithstanding the above,
the Employee is entitled to three (3) weeks paid vacation per calendar year.
-2-
<PAGE>
3.5 REIMBURSEMENT OF EXPENSES. The Employee shall be reimbursed
for all normal items of travel and entertainment and miscellaneous expenses
reasonably incurred by him on behalf of the Company, provided that such expenses
are documented and submitted to the Company all in accordance with the
reimbursement policies of the Company as in effect from time to time.
4. CONFIDENTIALITY. The Employee recognizes and acknowledges
that the Proprietary Information (as hereinafter defined) is a valuable, special
and unique asset of the Company. As a result, both during the term of his
employment and thereafter, the Employee shall not, without the prior written
consent of the Company, for any reason either directly or indirectly divulge to
any third-party or use for his own benefit, or for any purpose other than the
exclusive benefit of the Company, any confidential, proprietary, business and
technical information or trade secrets of the Company or of any subsidiary or
affiliate of the Company (the "Proprietary Information") revealed, obtained or
developed in the course of his employment with the Company. Proprietary
Information shall include, but shall not be limited to: the intangible personal
property described in Section 5(b) hereof; any information relating to methods
of production, manufacture and research; hardware and software configurations,
computer codes or instructions (including source and object code listings,
program logic algorithms, subroutines, modules or other subparts of computer
programs and related documentation, including program notation), computer inputs
and outputs (regardless of the media on which stored or located) and computer
processing systems, techniques, designs, architecture, and interfaces; the
identities of, the Company's relationship with, the terms of contracts and
agreements with, the needs and requirements of, and the Company's course of
dealing with, the Company's actual and prospective customers, contractors and
suppliers; and any other materials prepared by the Employee in the course of his
employment by the Company, or prepared by any other employee or contractor of
the Company for the Company or its customers, (including concepts, layouts, flow
charts, specifications, know-how, user or service manuals, plans, sketches,
blueprints, costs, business studies, business procedures, finances, marketing
data, methods, plans, personnel information, customer and vendor credit
information and any other materials that have not been made available to the
general public). Nothing contained herein shall restrict the Employee's ability
to make such disclosures during the course of his employment as may be necessary
or appropriate to the effective and efficient discharge of the duties required
by or appropriate for the Position or as such disclosures may be required by
law. Furthermore, nothing contained herein shall restrict the Employee from
divulging or using for his own benefit or for any other purpose any Proprietary
Information that is readily available to the general public so long as such
information did not become available to the general public as a direct or
indirect result of the Employee's breach of this Section 4. Failure by the
Company to mark any of the Proprietary Information as confidential or
proprietary shall not affect its status as Proprietary Information under the
terms of this Agreement.
-3-
<PAGE>
5. PROPERTY.
(a) All right, title and interest in and to Proprietary
Information shall be and remain the sole and exclusive property of the Company.
During the term of his employment, the Employee shall not remove from the
Company's offices or premises any documents, records, notebooks, files,
correspondence, reports, memoranda or similar materials of or containing
Proprietary Information, or other materials or property of any kind belonging to
the Company unless necessary or appropriate in accordance with the duties and
responsibilities required by or appropriate for the Position and, in the event
that such materials or property are removed, all of the foregoing shall be
returned to their proper files or places of safekeeping as promptly as possible
after the removal shall serve its specific purpose. The Employee shall not make,
retain, remove and/or distribute any copies of any of the foregoing for any
reason whatsoever, except as may be necessary in the discharge of the assigned
duties, and shall not divulge to any third person the nature of and/or contents
of any of the foregoing or of any other oral or written information to which he
may have access or with which for any reason he may become familiar, except as
disclosure shall be necessary in the performance of the duties; and upon the
termination of his employment with the Company, he shall return to the Company
all originals and copies of the foregoing then in the possession, whether
prepared by the Employee or by others.
(b)(i) The Employee acknowledges that all right,
title and interest in and to any and all writings, documents, inventions,
discoveries, computer programs or instructions (whether in source code, object
code, or any other form), algorithms, formulae, plans, memoranda, tests,
research, designs, innovations, systems, analyses, specifications, models, data,
diagrams, flow charts, and/or techniques (whether reduced to written or
electronic form or otherwise) that the Employee creates, makes, conceives,
discovers or develops, either solely or jointly with any other person, at any
time during the term of Employee's employment, whether during working hours or
at the Company's facility or at any other time or location, and whether upon the
request or suggestion of the Company or otherwise, and that relate to or are
useful in any way in connection with the Business now or hereafter carried on by
the Company (collectively, "Intellectual Work Product") shall be the sole and
exclusive property of the Company. The Employee shall promptly disclose to the
Company all Intellectual Work Product, and the Employee shall have no claim for
additional compensation for the Intellectual Work Product.
(ii) The Employee acknowledges that all the Intellectual Work
Product that is copyrightable shall be considered a work made for hire under
United States Copyright Law. To the extent that any copyrightable Intellectual
Work Product may not be considered a work made for hire under the applicable
provisions of the United States Copyright Law, or to the extent that,
notwithstanding the foregoing provisions, the Employee may retain an interest in
any Intellectual Work Product that is not copyrightable, the Employee hereby
irrevocably assigns and transfers to the Company any and all right, title, or
interest that the Employee may have in the Intellectual Work Product under
copyright, patent, trade secret, trademark and other intellectual
-4-
<PAGE>
property laws, in perpetuity or for the longest period otherwise permitted by
law, without the necessity of further consideration. The Company shall be
entitled to obtain and hold in its own name all copyrights, patents, trade
secrets, and trademarks with respect thereto.
(iii) The Employee shall reveal promptly all information
relating to the Intellectual Work Product to an appropriate officer of the
Company, cooperate with the Company and execute such documents as may be
necessary or appropriate (A) in the event that the Company desires to seek
copyright, patent, trademark or other analogous protection thereafter relating
to the Intellectual Work Product, and when such protection is obtained, renew
and restore the same, or (B) to defend any opposition proceedings in respect of
obtaining and maintaining such copyright, patent, trademark or other analogous
protection.
(iv) In the event that the Company is unable after reasonable
effort to secure the Employee's signature on any of the documents referenced in
Section 5(b)(iii) hereof, whether because of the Employee's physical or mental
incapacity or for any other reason whatsoever, the Employee hereby irrevocably
designates and appoints the Company and its duly authorized officers and agents
as the Employee's agent and attorney-in-fact, to act for and in his behalf and
stead to execute and file any such documents and to do all other lawfully
permitted acts to further the prosecution and issuance of any such copyright,
patent, trademark or other analogous protection with the same legal force and
effect as if executed by the Employee.
6. COVENANT NOT TO COMPETE.
(a) During the term of his employment and for a period of one
(1) year thereafter (the "Restricted Period") the Employee shall not, in the
United States or in any country in which the Company is conducting or has
conducted business at any time during the one (1) year period immediately
preceding the termination of his employment, do any of the following directly or
indirectly without the prior written consent of the Company in its sole
discretion:
(i) engage or participate, directly or indirectly, in any
business activity competitive with the Business or the business of any of the
Company's subsidiaries or affiliates (other than the Services Company), as
conducted during the term of Employee's employment;
(ii) become interested (as owner, proprietor, promoter,
stockholder, lender, partner, co-venturer, director, officer, employee, agent,
consultant or otherwise) in any person, firm, corporation, association or other
entity engaged in any business that is competitive with the Business or the
business of any subsidiary or affiliate (other than the Services Company) of the
Company as conducted during the term of Employee's employment, or become
interested in (as owner, stockholder, lender, partner, co-venturer, director,
officer, employee, agent, consultant or otherwise) any portion of the business
of any person, firm, corporation, association or other entity where such portion
of such business is competitive with the Business of the Company or the business
of any subsidiary or affiliate (other than the Services Company) of the Company
as conducted during the term of Employee's employment
-5-
<PAGE>
(notwithstanding the foregoing, the Employee may hold not more than one percent
(1%) of the outstanding securities of any class of any publicly-traded
securities of a company that is engaged in activities referenced in Section 6(a)
hereof);
(iii) solicit or call on, either directly or indirectly, any
(A) customer with whom the Company shall have dealt at any time during the one
(1) year period immediately preceding the termination of the Employee's
employment hereunder, or (B) supplier or distributor with whom the Company shall
have dealt at any time during the one (1) year period immediately preceding the
termination of the Employee's employment hereunder;
(iv) influence or attempt to influence any
supplier, distributor, customer or potential customer of the Company to
terminate or modify any written or oral agreement or course of dealing with the
Company; or
(v) influence or attempt to influence any person either (A)
to terminate or modify the employment, consulting, agency, distributorship or
other arrangement with the Company, or (B) to employ or retain, or arrange to
have any other person or entity employ or retain, any person who has been
employed or retained by the Company as an employee, consultant, agent or
distributor of the Company at any time during the one (1) year period
immediately preceding the termination of the Employee's employment hereunder.
(b) The Employee hereby acknowledges that the limitations as to
time, character or nature and geographic scope placed on his subsequent
employment by this Section 6 are reasonable and fair and will not prevent or
materially impair his ability to earn a livelihood.
7. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE EMPLOYEE.
(a) The Employee represents and warrants to the Company that:
(i) There are no restrictions, agreements or understandings
whatsoever to which the Employee is a party which would prevent or make unlawful
the Employee's execution of this Agreement or the Employee's employment
hereunder, or which is or would be inconsistent or in conflict with this
Agreement or the Employee's employment hereunder, or would prevent, limit or
impair in any way the performance by the Employee of the obligations hereunder;
and
(ii) The Employee has disclosed to the Company all
restraints, confidentiality commitments or other employment restrictions that he
has with any other employer, person or entity.
(b) Upon and after his termination or cessation of employment
with the Company and until such time as no obligations of the Employee to the
Company hereunder
-6-
<PAGE>
exist, the Employee (i) shall provide copies of Sections 4, 5 and 6 of this
Agreement to any prospective employer or other person, entity or association in
the Business, with whom or which the Employee proposes to be employed,
affiliated, engaged, associated or to establish any business or remunerative
relationship prior to the commencement thereof and (ii) shall notify the Company
of the name and address of any such person, entity or association prior to his
employment, affiliation, engagement, association or the establishment of any
business or remunerative relationship.
8. SURVIVAL OF PROVISIONS. The provisions of this Agreement
set forth in Sections 3.3 and 4 through 19 hereof shall survive the termination
of the Employee's employment hereunder.
9. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the Company and the Employee and their respective
successors, executors, administrators, heirs and/or permitted assigns; provided
that the Employee may not assign this Agreement or any interest herein, by
operation of law or otherwise, without the prior written consent of the Company
in its sole discretion.
10. NOTICE. Any notice hereunder by either party shall be
given by personal delivery, by sending such notice by certified mail,
return-receipt requested, by overnight delivery with a reputable courier
service, or by telecopier, addressed or telecopied, as the case may be, to the
other party at its address set forth below or at such other address designated
by notice in the manner provided in this section. Such notice shall be deemed to
have been received upon the date of actual delivery if personally delivered or,
in the case of mailing, two (2) days after deposit with the U.S. mail, or if by
overnight delivery, or the date of delivery or, in the case of facsimile
transmission, when confirmed by the facsimile machine report.
If to the Employee:
Robert Bickel
348 E. 2nd Street
Moorestown, New Jersey 08057
Fax: (609) 778-8125
If to the Company:
Bluestone Software, Inc.
1000 Briggs Road
Mount Laurel, NJ 08054
Attention: Mr. Mel Baiada, President
Fax: (609) 727-3833
-7-
<PAGE>
with a copy to:
Pepper, Hamilton & Scheetz
1235 Westlakes Drive
Suite 400
Berwyn, PA 19312
Attention: Christopher F. Wright, Esquire
Fax: (610) 640-7835
11. ENTIRE AGREEMENT AND AMENDMENTS. This Agreement contains
the entire agreement and understanding of the parties hereto relating to the
subject matter hereof, and merges and supersedes all prior and contemporaneous
discussions, agreements and understandings of every nature between the parties
hereto relating to the employment of the Employee with the Company. This
Agreement may not be changed or modified, except by an agreement in writing
signed by each of the parties hereto.
12. WAIVER. The waiver of the breach of any term or provision of this
Agreement shall not operate as or be construed to be a waiver of any other or
subsequent breach of this Agreement.
13. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of New Jersey, without regard to the
principles of conflicts of laws of any jurisdiction.
14. INVALIDITY. If any provision of this Agreement shall be
determined to be void, invalid, unenforceable or illegal for any reason, then
the validity and enforceability of all of the remaining provisions hereof shall
not be affected thereby. If any particular provision of this Agreement shall be
adjudicated to be invalid or unenforceable, then such provision shall be deemed
amended to delete therefrom the portion thus adjudicated to be invalid or
unenforceable, such amendment to apply only to the operation of such provision
in the particular jurisdiction in which such adjudication is made; provided
that, if any provision contained in this Agreement shall be adjudicated to be
invalid or unenforceable because such provision is held to be excessively broad
as to duration, geographic scope, activity or subject, then such provision shall
be deemed amended by limiting and reducing it so as to be valid and enforceable
to the maximum extent compatible with the applicable laws of such jurisdiction,
such amendment only to apply with respect to the operation of such provision in
the applicable jurisdiction in which the adjudication is made.
15. SECTION HEADINGS. The section headings in this Agreement
are for convenience only; they form no part of this Agreement and shall not
affect its interpretation.
16. NUMBER OF DAYS. In computing the number of days for
purposes of this Agreement, all days shall be counted, including Saturdays,
Sundays and legal holidays; provided that, if the final day of any time period
falls on a Saturday, Sunday or day which is a legal holiday
-8-
<PAGE>
in New Jersey, then such final day shall be deemed to be the next day which is
not a Saturday, Sunday or legal holiday.
17. SPECIFIC ENFORCEMENT; EXTENSION OF PERIOD.
(a) The Employee acknowledges that the restrictions contained in
Sections 4, 5, 6 and 7 hereof are reasonable and necessary to protect the
legitimate interests of the Company and its affiliates and that the Company
would not have entered into this Agreement in the absence of such restrictions.
The Employee also acknowledges that any breach by him of Sections 4, 5, 6 or 7
hereof will cause continuing and irreparable injury to the Company for which
monetary damages would not be an adequate remedy. The Employee shall not, in any
action or proceeding to enforce any of the provisions of this Agreement, assert
the claim or defense that an adequate remedy at law exists. In the event of such
breach by the Employee, the Company shall have the right to enforce the
provisions of Sections 4, 5, 6 and 7 of this Agreement by seeking injunctive or
other relief in any court, and this Agreement shall not in any way limit
remedies of law or in equity otherwise available to the Company.
(b) The periods of time set forth in Section 6 hereof
shall not include, and shall be deemed extended by, any time required for
litigation to enforce the relevant covenant periods, provided that the Company
is successful on the merits in any such litigation. The "time required for
litigation" is herein defined to mean the period of time commencing on the
earlier of the Employee's first breach of such covenants or the service of
process upon the Employee ending on the date of a final non-appealable order or
settlement by the parties relating to such litigation.
18. CONSENT TO SUIT. In the case of any dispute under or in
connection with this Agreement, the Employee may only bring suit against the
Company in the Courts of the State of New Jersey or in the Federal District
Court for such geographic location. The Employee hereby consents to the
exclusive jurisdiction and venue of the courts of the State of New Jersey or the
Federal District Court for such geographic location, provided that such Federal
Court has subject matter jurisdiction over such dispute, and the Employee hereby
waives any claim he may have at any time as to FORUM NON CONVENIENS with respect
to such venue. The Company shall have the right to institute any legal action
arising out of or relating to this Agreement in any appropriate court and in any
jurisdiction. Any judgment entered against either of the parties in any
proceeding hereunder may be entered and enforced by any court of competent
jurisdiction. If an action at law or in equity is necessary to enforce or
interpret the terms of this Agreement, then the prevailing party shall be
entitled to recover, in addition to any other relief, reasonable attorneys'
fees, costs and disbursements.
19. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which
together shall be deemed to be one and the same instrument.
-9-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed on the day and year first written above.
BLUESTONE SOFTWARE, INC.
By: /s/ Mel Baiada
------------------------------------
Title: President
WITNESS:
/s/ Robert Bickel
- ----------------------------- ---------------------------------------
Name: ROBERT BICKEL
-10-
<PAGE>
Exhibit 10.7
SEVERANCE AGREEMENT
This Severance Agreement is a supplement to the offer of employment from
Bluestone Software, Inc. (Employer) to Kevin Kilroy (Employee). Both Employer
and Employee acknowledge that good and adequate consideration exists for this
Severance Agreement.
Employer and Employee agree that in the event that Employee's employment
is terminated at any time by action of Employer for reasons other than just
cause, Employee shall be entitled to:
1. Salary continuation for a minimum of twelve (12) months, from the date of
such termination, plus one (1) additional month for each year of service,
based upon the salary then in effect (excluding bonuses) on termination.
2. Twelve (12) months of continuation of health insurance benefits.
3. Accrued and unpaid vacation time.
4. Six (6) months of outplacement assistance not to exceed $12,000.
5. Immediate 50% vesting of any unvested options at date of termination, with
the right to exercise for five (5) years from date of vesting.
For purposes of this Severance Agreement, just cause includes, but is not
limited to, theft or other criminal conduct, misappropriation of trade secrets,
and so forth.
Employee's receipt of the salary continuation provided in this Severance
Agreement is conditioned upon Employee's signing and delivering to Employer a
binding agreement setting forth the release of any and all claims arising from
Employee's employment and/or termination from employment with Employer.
/s/ P. Kevin Kilroy
------------------------------------
Employee
September 17, 1998
------------------------------------
Date
BLUESTONE SOFTWARE, INC.
BY: /s/ Mel Baiada
---------------------------------
DATE: September 17, 1998
-------------------------------
<PAGE>
Exhibit 10.8
SEVERANCE AGREEMENT
This Severance Agreement is a supplement to the offer of employment from
Bluestone Software, Inc. (Employer) to Robert Bickel (Employee). Both Employer
and Employee acknowledge that good and adequate consideration exists for this
Severance Agreement.
Employer and Employee agree that in the event that Employee's employment
is terminated at any time by action of Employer for reasons other than just
cause, Employee shall be entitled to:
1. Salary continuation for a minimum of twelve (12) months, from the date of
such termination, plus one (1) additional month for each year of service,
based upon the salary then in effect (excluding bonuses) on termination.
2. Twelve (12) months of continuation of health insurance benefits.
3. Accrued and unpaid vacation time.
4. Six (6) months of outplacement assistance not to exceed $12,000.
5. Immediate 50% vesting of any unvested options at date of termination, with
the right to exercise for five (5) years from qdate of vesting.
For purposes of this Severance Agreement, just cause includes, but is not
limited to, theft or other criminal conduct, misappropriation of trade secrets,
and so forth.
Employee's receipt of the salary continuation provided in this Severance
Agreement is conditioned upon Employee's signing and delivering to Employer a
binding agreement setting forth the release of any and all claims arising from
Employee's employment and/or termination from employment with Employer.
/s/ Robert Bickel
------------------------------------
Employee
September 17, 1998
------------------------------------
Date
BLUESTONE SOFTWARE, INC.
BY: /s/ Mel Baiada
---------------------------------
DATE: September 17, 1998
-------------------------------
<PAGE>
Exhibit 10.9
SEVERANCE AGREEMENT
This Severance Agreement is a supplement to the offer of employment from
Bluestone Software, Inc. (Employer) to John Capobianco (Employee). Both Employer
and Employee acknowledge that good and adequate consideration exists for this
Severance Agreement.
Employer and Employee agree that in the event that Employee's employment
is terminated at any time by action of Employer for reasons other than just
cause, Employee shall be entitled to:
1. Salary continuation for a minimum of twelve (12) months, from the date of
such termination, plus one (1) additional month for each year of service,
based upon the salary then in effect (excluding bonuses) on termination.
2. Twelve (12) months of continuation of health insurance benefits.
3. Accrued and unpaid vacation time.
4. Six (6) months of outplacement assistance not to exceed $12,000.
5. Immediate 50% vesting of any unvested options at date of termination, with
the right to exercise for five (5) years from date of vesting.
For purposes of this Severance Agreement, just cause includes, but is not
limited to, theft or other criminal conduct, misappropriation of trade secrets,
and so forth.
Employee's receipt of the salary continuation provided in this Severance
Agreement is conditioned upon Employee's signing and delivering to Employer a
binding agreement setting forth the release of any and all claims arising from
Employee's employment and/or termination from employment with Employer.
/s/ John H. Capobianco
------------------------------------
Employee
September 17, 1998
------------------------------------
Date
BLUESTONE SOFTWARE, INC.
BY: /s/ Mel Baiada
------------------------------------
DATE: September 17, 1998
-------------------------------
<PAGE>
Exhibit 10.10
SEVERANCE AGREEMENT
This Severance Agreement is a supplement to the offer of employment from
Bluestone Software, Inc. (Employer) to Enrico J. Ballezzi (Employee). Both
Employer and Employee acknowledge that good and adequate consideration exists
for this Severance Agreement.
Employer and Employee agree that in the event that Employee's employment
is terminated at any time by action of Employer for reasons other than just
cause, Employee shall be entitled to:
1. Salary continuation for a minimum of twelve (12) months, from the date of
such termination, plus one (1) additional month for each year of service,
based upon the salary then in effect (excluding bonuses) on termination.
2. Twelve (12) months of continuation of health insurance benefits.
3. Accrued and unpaid vacation time.
4. Six (6) months of outplacement assistance not to exceed $12,000.
5. Immediate 50% vesting of any unvested options at date of termination, with
the right to exercise for five (5) years from date of vesting.
For purposes of this Severance Agreement, just cause includes, but is not
limited to, theft or other criminal conduct, misappropriation of trade secrets,
and so forth.
Employee's receipt of the salary continuation provided in this Severance
Agreement is conditioned upon Employee's signing and delivering to Employer a
binding agreement setting forth the release of any and all claims arising from
Employee's employment and/or termination from employment with Employer.
/s/ Enrico J. Ballezzi
------------------------------------
Employee
September 17, 1998
------------------------------------
Date
BLUESTONE SOFTWARE, INC.
BY: /s/ Mel Baiada
--------------------------------
DATE: September 17, 1998
-------------------------------
<PAGE>
Exhibit 10.11
BLUESTONE SOFTWARE INC.
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (this "Agreement") is made as of the
3rd day of May, 1999 (the "Effective Date") by and between Andrew J. Filipowski
("Consultant") and BLUESTONE SOFTWARE INC. ("Company").
W I T N E S S E T H:
WHEREAS, Company desires to engage Consultant to provide
consulting services to Company in accordance with the terms and conditions of
this Agreement; and
WHEREAS, Consultant desires to provide such services to
Company.
NOW, THEREFORE, in consideration of the mutual promises and
the mutual benefits described in this Agreement, Consultant and Company,
intending to be legally bound, hereby agree as follows:
1. ENGAGEMENT. Upon the terms and subject to the conditions
set forth in this Agreement, Company agrees to engage Consultant, as an
independent contractor, to render the services described in this Agreement to
and on behalf of Company and Consultant hereby agrees to render such services to
and on behalf of Company.
2. SERVICES OF CONSULTANT. At Company's request, Consultant
agrees to provide strategic and general business advice to Company, during the
Term (as hereinafter defined) at mutually agreeable times and locations, but in
no event more than (a) the equivalent of two (2) full business days per month or
(b) forty-eight (48) full business days during the Term and at all time subject
to Consultant's prior commitments.
3. COMPENSATION. In full consideration of the provision of
Consultant's services during the Term, Company agrees to grant contemporaneously
with the execution hereof, to Consultant, 70,000 fully vested non-qualified
stock options (the "Stock Options") under the Amended and Restated Bluestone
Software, Inc. 1996 Incentive and Non-Qualified Stock Option Plan (the "Plan").
The exercise price of the Stock Options shall be $1.29 per share. The Stock
Options shall be subject to the terms and conditions of the Plan, a copy of
which is attached hereto as Exhibit __.
4. EXPENSES. Company shall reimburse Consultant for all
out-of-pocket expenses incurred by Consultant in connection with the performance
of Consultant's duties to Company, subject to documentation acceptable to
Company in accordance with its policy regarding reimbursement of expenses, a
copy of the Company's policy is attached hereto as Exhibit __.
-1-
<PAGE>
5. CONFIDENTIAL INFORMATION. Company expressly acknowledges
that Consultant has been and will continue to be actively involved, including
but not limited to, in the capacity of shareholder, partner, investor,
executive, officer, director, employee, agent, consultant and advisor, in those
ventures and entities set forth on Exhibit A attached hereto. Without the prior
written consent of Company, except as shall be necessary in the performance of
Consultant's duties that are specifically assigned by Company to Consultant,
Consultant shall not disclose or use for Consultant's direct or indirect benefit
or the direct or indirect benefit of any third party, during and after
Consultant's engagement, the confidentiality of any Confidential Information (as
hereinafter defined) of Company. "Confidential Information" means: (i) the terms
of this Agreement and the terms of the engagement by Company of the Consultant,
and (ii) any information relating to research and development; processes;
inventions; products; methods; computer codes or instructions (including source
and object code listings, program logic algorithms, subroutines, modules or
other subparts of computer programs and related documentation, including program
notation); computer processing systems and techniques; concepts; layouts;
flowcharts; specifications; know-how; any associated user or service manuals or
other like textual materials (including any other data and materials used in
performing Consultant's duties); all computer inputs and outputs (regardless of
the media on which stored or located); hardware and software configurations;
designs; architecture; interfaces; plans; sketches; blueprints; and any other
materials prepared by Consultant in the course of, relating to or arising out of
his or her engagement by Company, or prepared by any other Company consultant or
consultant for Company or its customers; costs; business studies; business
procedures; finances; marketing and sales data, methods, plans and efforts; the
identities of customers, consultants and suppliers and prospective customers,
consultants and suppliers; the terms of contracts and agreements with customers,
consultants and suppliers; Company's relationship with actual and prospective
customers, consultants and suppliers and the needs and requirements of, and
Company's course of dealing with, any such actual or prospective customers,
consultants and suppliers; personnel information; customer and vendor credit
information; and any other materials that have not been made available to the
general public.
The term Confidential Information shall not include any
information which:
(a) was previously known to Consultant; or
(b) is or become publicly known through no
wrongful act of Consultant; or
(c) is rightfully received by Consultant from a
third party without similar restrictions and without breach of this or a similar
agreement; or
(d) is furnished to a third party by the Company
without a similar restriction on the rights of a third party; or
-2-
<PAGE>
(e) is approved for release by written
authorization of the Company; or
(f) is disclosed pursuant to the requirement of
a government agency or by operation of law.
6. TERM. The term of the Agreement (the "Term") shall begin as
of the Effective Date and remain in effect for two (2) years thereafter.
7. RELATIONSHIP BETWEEN PARTIES. Consultant will be retained
by Company strictly for the purposes and to the extent set forth in this
Agreement and his relationship to Company shall be that of an independent
consultant. Consultant shall not be considered under the provisions of this
Agreement or otherwise as an employee of Company. Consultant shall be
responsible for the timely payment of his own self-employment and income taxes
and Company shall not deduct or withhold from any monies payable to Consultant
hereunder any amount on account of any tax or employee benefit.
8. MISCELLANEOUS.
(a) This Agreement shall not be assignable by
either party without the prior written consent of the other.
(b) This Agreement, together with the Plan,
contains the entire agreement and understanding of the parties relating to the
subject matter hereof and merges and supersedes all prior discussions,
agreements and understandings of every nature between them. This Agreement may
not be changed or modified, except by an agreement in writing signed by both of
the parties hereto. The waiver of the breach of any term or provision of this
Agreement shall not operate as or be construed to be a waiver of any other or
subsequent breach of this Agreement.
(c) This Agreement shall be construed and
enforced in accordance with the laws of the State of New Jersey, without regard
to conflicts of law principles of New Jersey or any other jurisdiction.
(d) If any provision of this Agreement shall be
determined to be void, invalid, unenforceable or illegal for any reason, the
validity and enforceability of all of the remaining provisions hereof shall not
be affected thereby. If any particular provisions of this Agreement shall be
adjudicated to be invalid or unenforceable, such provision shall be deemed
amended to delete therefrom the portion thus adjudicated to be invalid or
unenforceable, such amendment to apply only to the operation of such provision
in the particular jurisdiction in which such adjudication is made; PROVIDED
THAT, if any one or more of the provisions contained in this Agreement shall be
adjudicated to be invalid or unenforceable because such provision is held to be
excessively broad as to duration, geographic scope, activity or subject, such
provision shall be deemed amended by limiting and reducing it so as to be valid
and enforceable to the maximum
-3-
<PAGE>
extent compatible with the applicable laws of such jurisdiction, such amendment
only to apply with respect to the operation of such provision in the applicable
jurisdiction in which the adjudication is made.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Consulting
Agreement to be executed the day and year first above written.
BLUESTONE SOFTWARE INC.
By: /s/ P. Kevin Kilroy
----------------------------------
Its: President
----------------------------------
/s/ Andrew J. Filipowski
----------------------------------
Andrew J. Filipowski
-5-
<PAGE>
Exhibit 10.13
SUBCONTRACT AGREEMENT
THIS AGREEMENT is made this 23rd day of April, 1998, between Bluestone
Software, Inc., a Delaware corporation ("Software"), and Bluestone Consulting,
Inc., a Delaware corporation ("Consulting").
W I T N E S S E T H:
WHEREAS, Software is in the business of developing, selling, licensing and
providing support services for its own software products (the "Sapphire
Business") and selling, licensing and providing support services for software
products of other companies (the "GUI Business"); and
WHEREAS, Software is a party to certain support agreements pursuant to
which Software is obligated to perform prepaid support services for software
sold by Software in connection with the GUI Business (the "Support Agreements");
and
WHEREAS, in consideration of the payments by Software to Consulting set
forth in this agreement, Consulting has agreed to perform all obligations of
Software under the Support Agreements; and
WHEREAS, Consulting intends to create and expand its operations in the
business of reselling and servicing software produced by other companies, and
NOW, THEREFORE, in consideration of the foregoing, and intending to be
legally bound, Software and Consulting hereby agree as follows:
1. SUBCONTRACT. Software and Consulting agree that commencing on the
opening of business on the date hereof (the "Effective Time"), Consulting agrees
to perform, on behalf of Software, all obligations of Software under the Support
Agreements, provided however, that no notification of such agreement shall be
made to the customers under such Support Agreements.
2. PROVISION OF SERVICES. Consulting shall employ sufficient work staff,
commencing on the Effective Time, to enable Consulting to render the services
agreed to hereunder. Consulting shall be solely liable for any and all
obligations arising after the Effective Date with respect to employees who
provide the services called for under this agreement.
3. PAYMENT. In consideration of Consulting providing the services called
for under this agreement, Software shall pay to Consulting the amount of Six
Hundred Thousand
<PAGE>
Dollars ($600,000), which amount shall be payable prior to March 31, 1999, in
increments and at intervals mutually agreeable to Software and Consulting.
4. INDEMNIFICATION. Software shall indemnify, defend and hold harmless
Consulting from and against any and all claims, demands, liabilities, damages,
losses, suits, costs and expenses (including reasonable attorneys' fees) of
every kind, nature and type, incurred by Consulting, related to or arising out
of the performance of the Support Agreements which relate to, arose or were
incurred with respect to a period prior to the Effective Time. Consulting shall
indemnify, defend and hold harmless Software from and against any and all
claims, demands, liabilities, damages, losses, suits, costs and expenses
(including reasonable attorneys' fees) of every kind, nature and type, incurred
by Software, related to or arising out of the Support Agreements which relate
to, arise or are incurred with respect to a period from and after the Effective
Time and to any claims made by employees of Consulting with respect to
compensation obligations.
5. AMENDMENT. This agreement may not be changed, modified, discharged or
terminated orally or in any manner other than by an agreement in writing signed
by the parties hereto.
6. COUNTERPARTS. This agreement may be executed in separate counterparts,
each of which, when so executed and delivered, shall be deemed to be an
original; but such counterparts shall together constitute one and the same
instrument.
7. ENTIRE AGREEMENT. This agreement contains the entire agreement and
understanding of the parties relating to the subject matter hereof, and merge
and supersede all prior discussions, agreements and understandings of every
nature between them.
8. SUCCESSOR AND ASSIGNS. This agreement and the covenants herein set
forth shall bind, inure to the benefit and be enforceable against the respective
successors and assigns of the parties hereto. Neither party may assign any of
its rights or duties under this agreement without the written consent of the
other party.
9. HEADINGS. The headings in this agreement are for convenience of
reference only and shall not affect its interpretation.
10. GOVERNING LAW. This agreement shall be governed by and construed in
accordance with the laws of the State of Delaware without regard to conflicts of
laws principles of any jurisdiction.
-2-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this agreement
as of the date first above written.
BLUESTONE SOFTWARE, INC.
By: /s/ Mel Baiada
-----------------------------
Name: Mel Baiada
Title: President
BLUESTONE CONSULTING, INC.
By: /s/ Thomas Ballezzi
-----------------------------
Name: Thomas Ballezzi
Title: Chief Operating Officer
-3-
<PAGE>
Exhibit 10.14
INTERCOMPANY SERVICES AGREEMENT
THIS INTERCOMPANY SERVICES AGREEMENT, is made on this 17th day of
April, 1997 by and between Bluestone Software, Inc, a Delaware corporation (the
"Products Company"), and Bluestone Consulting, Inc., a Delaware corporation (the
"Services Company").
BACKGROUND
WHEREAS, the Products Company and the Services Company have entered
into a Contribution and Distribution Agreement dated April 17, 1997 (the
"Contribution Agreement"), whereby the Products Company has agreed to transfer
to the Services Company the Services Business (as defined in the Contribution
Agreement) in exchange for the initial issuance of all of the common stock of
the Services Company; and
WHEREAS, the parties hereto desire to each provide certain services to
the other party to facilitate an orderly transition for the operations of each
of the Products Business and the Services Business after the transfer of the
Services Business by the Products Company to the Services Company.
TERMS
NOW, THEREFORE, in consideration of the mutual covenants and
undertakings contained herein, and intending to be legally bound hereby, the
parties hereto agree as follows:
Section 1. DEFINITIONS
Capitalized terms used and not otherwise defined herein shall
have the meaning ascribed to those terms in the Contribution Agreement. As used
in this Agreement, the following terms used herein have the following meanings:
"CONSULTING SERVICES" shall mean all services as described in
SCHEDULE 1 hereto, but excluding those services which will be provided to the
Services Company by the Products Company pursuant to other agreements, including
any VAR Agreements relating to the right to sell the Products Company training
services and the right to resell the SAPPHIRE/WEB product, and which the
Products Company and the Services Company have entered or will enter into in
connection with the transactions contemplated by the Contribution Agreement.
"FULLY ALLOCATED COST" shall mean all of the Products
Company's or the Services Company's, as applicable, costs, direct and indirect,
of providing its respective Services, including all labor, occupancy, material
expenditures and overhead, calculated and allocated as set forth on SCHEDULE 1
or SCHEDULE 2, as applicable, in each case in accordance with GAAP.
<PAGE>
"SERVICES" shall mean collectively the Consulting Services and
the Software Services.
"SERVICES PERIOD" shall mean, with respect to a particular
Service, the period of time commencing on the date hereof during which such
Service will be provided pursuant hereto, as indicated in SCHEDULE 1 or SCHEDULE
2 hereto, as applicable.
"SOFTWARE SERVICES" shall mean all services as described in
SCHEDULE 2 hereto, but excluding those services which will be provided to the
Products Company by the Services Company pursuant to other agreements which the
Products Company and the Services Company have entered or will enter into in
connection with the transactions contemplated by the Contribution Agreement.
Section 2. CONSULTING SERVICES
(a) After the Closing Date, the Products Company shall provide
to the Services Company the Consulting Services during the applicable Services
Period, as set forth on SCHEDULE 1 hereto.
(b) The Products Company will perform, or will ensure that the
Consulting Services are performed as set forth on SCHEDULE 1 hereto, in a manner
which is substantially similar in nature, quality and timeliness to those
provided to the Services Business during fiscal year 1996 prior to the Closing
Date; provided that except as required by Section 6(d) hereof, the Products
Company will not be required to perform or to cause to be performed any of the
Consulting Services for the benefit of any third party or any other entity other
than the Services Company. The Products Company makes no other warranties,
express or implied, with respect to the Consulting Services. To the extent that
the Services Company wishes the Products Company to provide any Consulting
Service not listed on SCHEDULE 1, the Products Company may, in its sole
discretion and at its sole option as determined by the Board of Directors of the
Products Company, provide such Consulting Service or cause such Consulting
Service to be provided to the Services Company, during the Services Period and
at a charge to be agreed upon by the Boards of Directors of the Services Company
and the Products Company.
(c) The Products Company shall not be obligated to perform or
to cause to be performed any Consulting Service in a volume or quantity which
exceeds the historical volumes or quantities of Consulting Services performed
for the Services Business. In the event of non-performance of any Consulting
Service due to Force Majeure (as hereinafter defined), the parties agree to work
together in good faith to arrange for an alternative means by which the Services
Company may obtain, at the Services Company's sole cost, the Consulting Services
so affected.
(d) Consulting Services provided pursuant to the terms of this
Agreement shall be charged as set forth on SCHEDULE 1.
-2-
<PAGE>
(e) At the Services Company's request, the Products Company
shall allow the Services Company reasonable access to the Products Company's
employees that perform the Consulting Services (the "Products Personnel") during
the term of this Agreement for the purpose of assisting the Services Company in
the operation of the Services Business and transferring the Consulting Services
to the Services Company or to third parties designated by the Services Company.
The Services Company agrees to schedule such access so as to minimize disruption
to such the Products Personnel's employment obligations to the Products Company.
the Services Company will reimburse the Products Company, promptly following the
Products Company's request and receipt of supporting documentation, for any
out-of-pocket expenses incurred by the Products Company in connection with such
assistance provided by the Products Personnel (including, without limitation,
documented reasonable travel expenses).
Section 3. SOFTWARE SERVICES
(a) After the Closing Date, the Services Company shall provide
to the Products Company the Software Services during the applicable Services
Period, as set forth on SCHEDULE 2 hereto.
(b) The Services Company will perform, or will ensure that the
Software Services are performed as set forth on SCHEDULE 2 hereto, in a manner
which is substantially similar in nature, quality and timeliness to those
provided to the Services Business during fiscal year 1996 prior to the Closing
Date; provided that the Services Company shall provide or cause to be provided
Software Services only to the extent such Software Services relate to the
continued conduct of the Products Business; provided, further, that except as
required by Section 6(d) hereof, the Services Company will not be required to
perform or to cause to be performed any of the Software Services for the benefit
of any third party or any other entity other than the Products Company. The
Services Company makes no other warranties, express or implied, with respect to
the Software Services. To the extent that the Products Company (as determined by
the Board of Directors of the Products Company) wishes the Services Company to
provide any Software Service not listed on SCHEDULE 2, the Services Company may,
in its sole discretion and at its sole option, provide such Software Service or
cause such Consulting Service to be provided to the Products Company, during the
Services Period and at a charge to be agreed upon by the Boards of Directors of
the Services Company and the Products Company.
(c) The Services Company shall not be obligated to perform or
to cause to be performed any Consulting Service in a volume or quantity which
exceeds the historical volumes or quantities of Software Services performed for
the Services Business. In the event of non-performance of any Consulting Service
due to Force Majeure (as hereinafter defined), the parties agree to work
together in good faith to arrange for an alternative means by which the Services
Company may obtain, at the Services Company's sole cost, the Software Services
so affected.
(d) Software Services provided pursuant to the terms of this
Agreement shall be charged at prices set forth on SCHEDULE 2.
-3-
<PAGE>
(e) At the Services Company's request, the Services Company
shall allow the Products Company reasonable access to the Services Company's
employees that perform the Software Services (the "Services Personnel") during
the term of this Agreement for the purpose of assisting the Services Company in
the operation of the Products Business and transferring the Software Services to
the Products Company or to third parties designated by the Products Company. The
Products Company agrees to schedule such access so as to minimize disruption to
such the Services Personnel's employment obligations to the Services Company.
The Products Company will reimburse the Services Company, promptly following the
Services Company's request and receipt of supporting documentation, for any
out-of-pocket expenses incurred by the Services Company in connection with such
assistance provided by the Services Company Personnel (including, without
limitation, documented reasonable travel expenses).
Section 4. REIMBURSEMENT AND BILLING
Charges for Services (i) shall be charged to and payable by the
Services Company or the Products Company, as applicable, (ii) shall be billed
monthly, on the fifteenth day of the month following the month in which such
Services were rendered, and (iii) shall be due and payable upon receipt of
invoice, with a grace period of ten (10) days. Charges not paid when due shall
bear interest at the rate of eighteen percent (18%) per annum from the eleventh
day after date payment is due until the date paid.
Section 5. TERM AND TERMINATION
The initial term of this Agreement shall be for one (1) year from the
date hereof. Thereafter, this Agreement shall automatically renew for successive
one-year periods, provided that either party hereto may give four (4) months'
written notice to the other party at any time after the first anniversary of
this Agreement of its intention to terminate this Agreement.
Section 6. MISCELLANEOUS
(a) Each party's maximum liability to, and the sole remedy of,
the other party for breach of this Agreement shall be the greater of (i) a
refund of the price paid for the particular Service or (ii) the non-breaching
party's cost of performing the Service itself or (iii) the non- breaching
party's cost of obtaining the Service from a third party; provided that the non-
breaching party shall exercise all reasonable efforts under the circumstances to
minimize the cost of any such alternatives to the Services by selecting the most
cost effective alternatives which provide the functional equivalent of the
Services replaced. Notwithstanding anything to the contrary herein, in no event
shall either party have any liability for loss of profit, goodwill or other
special or consequential damages as a result of provision of or failure to
provide the services under the terms of this Agreement.
(b) Each party (an "Indemnifiying Party") shall indemnify,
defend and hold harmless the other party and its Affiliates (an "Indemnified
Party") from, against and in respect of any Damages imposed on, sustained,
incurred or suffered by or asserted against the
-4-
<PAGE>
Indemnified Party, directly or indirectly relating to or arising out of any act
or omission of the Indemnifying Party or any of its Affiliates in connection
with the provision of the Services under this Agreement, except to the extent
any Damages are due to the willful misconduct or fraud of the Indemnified Party
or a failure by the Indemnified Party to comply with its obligations under this
Agreement.
(c) No party to this Agreement shall be responsible for
failure or delay in performance of any Services, nor shall any party be
responsible for failure or delay in receiving such Service, if caused by an act
of God, act of public enemy, war, government acts or regulations, fire, flood,
hurricane, embargo, quarantine, epidemic, labor stoppages beyond its reasonable
control, accident, explosion, unusually severe weather or other cause similar or
dissimilar to the foregoing beyond its control (herein called "Force Majeure").
(d) No party to this Agreement may assign any of its rights or
obligations under this Agreement without the prior written consent of the other
party hereto. Notwithstanding the foregoing, any party may assign its rights and
obligations with respect to the provision of Services hereunder to any of its
Affiliates; provided that any such assignment shall terminate in the event such
Affiliate ceases to be such.
(e) Any waiver of any provision of this Agreement must be in
writing and signed by the party against whom it is to be effective in order to
be effective. No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. Any amendment of this Agreement
must be in writing and signed by each of the parties hereto.
(f) In the event of a conflict between the terms and
conditions of this Agreement and the terms and conditions of the Contribution
Agreement, the terms and conditions of the Contribution Agreement shall govern,
supersede and prevail.
(g) This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware without reference to the
choice of law principles thereof. Each party hereby irrevocably submits to the
exclusive jurisdiction of any state or federal court located in New Jersey for
the purposes of any suit, action or other proceeding arising out of this
Agreement or any transaction contemplated hereby.
(h) This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which shall
constitute one and the same Agreement.
(i) (1) Each party recognizes that in the performance of this
Agreement confidential and/or proprietary information belonging to any other
party regarding the Services may be disclosed or become known to the other party
or its respective Affiliates ("Confidential Information"). Unless otherwise
expressed in writing to the other party, information, including that expressed
orally, that is exchanged between the parties shall be presumed to be
confidential
-5-
<PAGE>
and/or proprietary. Each party agrees to take such precautions as it normally
takes with its confidential and/or proprietary information to hold in confidence
any and all written confidential and/or proprietary information with respect to
the Services which belongs to the other party. This obligation shall not apply
to:
(A) information that, at the time of
disclosure, is in the public domain;
(B) information that, after disclosure, is
published or otherwise becomes part of the public domain through no fault of the
party to whom the information was disclosed;
(C) information that a party can show
through its records was in its possession or the possession of an Affiliate at
the time of disclosure; and
(D) information that may be received by a
party in good faith from a source other than the other party which source has no
duty of nondisclosure to such other party or, if such source does have a duty of
non-disclosure, the receiving party was unaware of or had no reasonable basis
for knowing thereof.
(2) Each party shall maintain, however, the right to
disclose such information if required to do so by law, but shall endeavor to
keep and assist the other parties in keeping it confidential by all appropriate
means. If a party finds it necessary to disclose any such information in any
judicial or administrative hearing or proceeding, then the party shall attempt
to disclose such information "in camera" or subject to "protective order" or on
some other non-public basis.
(3) Upon termination of this Agreement, the parties
shall return each other's Confidential Information, provided that the parties
shall be entitled to retain one record copy in their legal departments to
determine the extent of their continuing obligations.
(j) All notices or other communications hereunder shall be
deemed to have been duly given and made if in writing and if served by personal
delivery upon the party for whom it is intended, if delivered by registered or
certified mail, return receipt requested, or by a national courier service, or
if sent by telecopier, provided that the telecopy is promptly confirmed by
telephone confirmation thereof, to the person at the address set forth below, or
such other address as may be designated in writing hereafter, in the same
manner, by such person:
-6-
<PAGE>
To the Products Company:
Bluestone Software, Inc.
1000 Briggs Road
Mt. Laurel, NJ 08054
Telephone: (609) 727-4600
Telecopy: (609) 727-3833
Attn: Mr. Mel Baiada, President
To the Services Company:
Bluestone Consulting, Inc.
1000 Briggs Road
Mt. Laurel, NJ 08054
Telephone: (609) 727-4600
Telecopy: (609) 727-3833
Attn: Mr. Tom Ballezzi, Chief Operating Officer
(k) This Agreement, including the schedules and exhibits
attached hereto, and the Contribution Agreement, including the schedules and
exhibits attached thereto, and the other agreements which the parties hereto
have entered into contemporaneously herewith, embody the entire agreement of the
parties with regard to the subject matter thereof and supersede any prior
communications, commitments, representations or warranties, both written and
oral, relating to the subject matter thereof, subject to Section 6(f) hereof.
(l) This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors and permitted
assigns. Nothing in this Agreement, express or implied, is intended to confer
upon any person other than the Products Company, the Services Company, or their
successors or permitted assigns, any rights or remedies under or by reason of
this Agreement.
(m) Each party shall provide to the other party and its
auditors and authorized representatives such information relating to the
Services and the accuracy of fees invoiced (including the basis on which such
fees were derived) as such party shall from time to time reasonably request, and
shall permit the party making such request and its auditors and authorized
representatives reasonable access, during regular business hours and upon
reasonable notice, to its books and records relating to the Services for
purposes of verifying the Services provided and the charges therefor.
(n) Each party agrees that the Services to be provided under
this Agreement are unique and that any breach on its part of this Agreement will
be remediable by an order of specific performance.
-7-
<PAGE>
(o) Each of the parties hereto acknowledge that they are
separate entities, each of which has entered into this Agreement for independent
business reasons. The relationship of the parties hereunder is that of an
independent contractor and nothing contained herein shall be deemed to create a
joint venture, partnership or any other relationship.
(p) This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but which together
shall constitute one and the same instrument.
[SIGNATURE PAGE FOLLOWS]
-8-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
BLUESTONE SOFTWARE, INC.
By: /s/ Mel Baiada
---------------------------------
Name: Mel Baiada
Title: President
BLUESTONE CONSULTING, INC.
By: /s/ Mel Baiada
---------------------------------
Name: Mel Baiada
Title: President
-9-
<PAGE>
Exhibit 10.15
SERVICE MARK LICENSE AGREEMENT
THIS SERVICE MARK AGREEMENT is made on this 17th day of April,
1997 by and between BLUESTONE SOFTWARE, INC., a Delaware corporation (the
"Products Company"), and BLUESTONE CONSULTING, INC., a Delaware corporation (the
"Services Company").
WHEREAS, the Products Company, successor by merger to
Bluestone Consulting Inc., a New Jersey corporation ("Bluestone"), concurrently
with the execution and delivery of this Agreement is transferring its
professional consulting services group to the Services Company, a newly-formed
corporation and an Affiliate (as hereinafter defined) of the Products Company;
and
WHEREAS, it is the desire and intention of the parties that
the Services Company be permitted to use the Licensed Service Marks (as
hereunder defined), subject to the terms and conditions set forth in this
Agreement.
NOW, THEREFORE, for good and valuable consideration, the
receipt and adequacy of which is hereby acknowledged, and intending to be
legally bound hereby, the Products Company and the Services Company hereby agree
as follows:
1. DEFINITIONS. Capitalized terms used but not otherwise
defined herein shall have the meaning ascribed to those terms in the
Contribution and Distribution Agreement dated the date hereof between the
Services Company and the Products Company (the "Contribution Agreement"). As
used in this Agreement, the following terms shall have the following meanings:
"Affiliate" shall mean a person that directly or
indirectly through one or more intermediaries, controls, is controlled by or is
under common control with, the person specified; provided that the Products
Company and the Services Company (after giving effect to the Reorganization)
shall not be deemed to be Affiliates of each other for purposes of this
Agreement.
"Change of Control" shall mean (i) a sale, transfer
or other disposition of greater than fifty percent (50%) of the shares of the
capital stock then outstanding of the Services Company (except if such
transferee is then an Affiliate); (ii) a sale, transfer or other disposition of
greater than fifty percent (50%) of the shares, or all or substantially all of
the assets of the Services Company (except if such transferee is then an
Affiliate); (iii) the merger or consolidation of the Company with or into
another corporation (except an Affiliate), other than a merger or consolidation
of the Services Company in which the holders of the shares of the Services
Company's voting capital stock outstanding immediately before such merger or
<PAGE>
consolidation hold greater than fifty percent (50%) of the surviving entity's
voting capital stock after such consolidation or merger.
"Default" has the meaning set forth in Section 8
hereof.
"Services" shall mean any services performed by the
Services Company, including, without limitation, professional consulting
services to those customers involved in GUI, object-oriented, database
technologies and client/server development.
2. LICENSE. The Products Company grants to the Services
Company a non-exclusive, perpetual, worldwide royalty-free license to use the
Licensed Service Marks in connection with the Services under the conditions
herein set forth (the "License"). The Services Company may sublicense such use
of the Licensed Service Marks to any Affiliate of the Services Company upon
obtaining the prior written consent of the Products Company, which consent shall
not be unreasonably withheld, provided that such sublicensee agrees, as part of
such sublicense agreement, to be bound by the terms and conditions of this
Agreement.
3. QUALITY OF SERVICES. The Products Company has previously
examined the nature and quality of the Services offered by the Services Company
in connection with the Licensed Service Marks. Based upon that examination, the
Products Company has determined that the Services currently offered and
performed by the Services Company's predecessor meet the Products Company's
standards of high quality. Any materially adverse changes to the nature and
quality of the Services offered under the Licensed Service Marks proposed by the
Services Company must be approved by the Products Company in writing as a
condition precedent to the Services Company implementing and offering such
changes to the Services under the Licensed Service Marks.
4. INSPECTION. Every six (6) months, the Services Company
shall provide the Products Company with representative samples of all
literature, packages, labels and advertising bearing the Licensed Service Marks
prepared by or for the Services Company and intended to be used by the Services
Company (the "Licensed Service Marks Materials"). The Products Company shall
have the right to approve or disapprove (which approval will not be unreasonably
withheld or denied, and which disapproval must be reasonable) the use of the
Licensed Service Marks Materials by the Services Company.
5. USE OF LICENSED SERVICE MARKS. Whenever the Services
Company uses the Licensed Service Marks in advertising or in any other manner
in connection with the Services, the Services Company shall indicate the
Products Company's ownership of the Licensed Service Marks with a
registration symbol [ ("(-Registered Trademark-)")]. When using the Licensed
Service Marks under this Agreement, the Services Company undertakes to comply
with all applicable laws in force at any time in the United States.
-2-
<PAGE>
6. PRIOR RESTRICTIONS. The assignments, licenses and
sublicenses granted by the parties hereto pursuant to this Agreement are
expressly made subject to any and all prior rights of third parties.
7. OWNERSHIP OF LICENSED SERVICE MARKS. The Services Company
acknowledges that the Products Company owns the exclusive right, title and
interest in and to the Licensed Service Marks, and the Services Company will not
at any time knowingly do or cause to be done any act or thing in any way
impairing or tending to impair any part of such right, title and interest. In
connection with the use of the Licensed Service Marks, the Services Company
shall not in any manner represent that it has any ownership in the Licensed
Service Marks or registration thereof, and the Services Company acknowledges
that neither this Agreement nor the Services Company's use of the Licensed
Service Marks shall create in the Services Company's favor any right, title or
interest in or to the Licensed Service Marks, and all use of the Licensed
Service Marks by the Services Company shall inure to the benefit of the Products
Company. Upon termination of this Agreement, the Services Company and any
Affiliate that has sublicensed the use of the Licensed Service Marks shall
immediately cease all use of the Licensed Service Marks and shall not thereafter
adopt any other designation confusingly similar to the Licensed Service Marks.
8. DEFAULT. The occurrence of any of the following shall
constitute a default ("Default") hereunder:
a. If the Services Company becomes insolvent or makes
an assignment of assets or business for the benefit of creditors, or if a
petition in bankruptcy is filed by the Services Company, or if the Services
Company is adjudicated bankrupt, or if a bill in equity or other proceeding for
the appointment of a receiver or other custodian for the Services Company's
business or assets is filed and consented to by the Services Company, or if a
receiver or other custodian is appointed, or if proceedings for composition with
creditors under any state or federal law is instituted by or against the
Services Company or if the real or personal property of the Services Company is
attached or levied upon by any sheriff, marshall, or constable, and is not
reasonably cured; or
b. If the Services Company fails to comply with any
material provision of this Agreement.
9. TERMINATION.
a. In the event of any Default which, is not cured
within thirty (30) days after receipt of a written "Notice to Cure" thereof from
the Products Company, the Products Company may immediately terminate this
Agreement and the License, in addition to and not in limitation of all other
remedies at law or in equity. Notwithstanding the foregoing sentence, this
Agreement shall immediately terminate automatically in the event of a Default
pursuant to Section 8(a) hereof.
-3-
<PAGE>
b. The Products Company may terminate upon thirty
(30) days written notice in the event of a Change of Control of the Services
Company, PROVIDED, HOWEVER, that the Services Company shall have the right, upon
written notice of the exercise of such right, to continue the License for a
period not to exceed one (1) year from the date of the Change of Control.
10. MODIFICATION.
a. Notwithstanding anything in this Agreement to the
contrary, the Products Company retains the right, which right shall be exercised
in the reasonable judgment of the Products Company, to change, alter, modify,
revise, replace or otherwise supplement (each, a "Change") the Licensed Service
Marks. In addition to other reasons which may make such a Change advisable, the
Products Company may do so to update its image, avoid, settle or compromise a
threatened infringement action, avoid the need to commence any such action, or
in response to comments received from the United States Patent and Trademark
Office.
b. In the event that the Products Company determines
to Change the Licensed Service Marks, the Services Company and any Affiliate
that has sublicensed the use of the Licensed Service Marks shall accept, use,
promote and display the Licensed Service Marks as changed (the "New Trademarks")
and shall cease using the Licensed Service Marks which has been changed (the
"Old Trademarks"), and shall take such other action, including corrective
advertising, at the Services Company's expense as may be reasonably required by
the Products Company PROVIDED, HOWEVER, that for a period of nine (9) months
after the date the Services Company receives notice of the Change, the Services
Company may continue to use the Old Trademarks while exhausting its existing
stock of supplies and materials containing the Old Trademarks. Upon notification
by the Products Company, or at such later date if designated by the Products
Company, the New Trademarks shall become the Licensed Service Marks.
c. The Services Company shall provide to the Products
Company two (2) months prior written notice if it intends to abandon any
Licensed Service Mark.
d. The Products Company shall provide to the Services
Company two (2) months prior written notice if the Products Company intends to
abandon any Licensed Service Mark.
11. OTHER MARKS. The Services Company may adopt or license
other trademarks or service marks to use with or without the Licensed Service
Marks in accordance with the terms of this Agreement.
12. CONFIDENTIALITY.
a. PROTECTION OF PROPRIETARY INFORMATION. The parties
hereto shall safeguard against unauthorized use and disclosure all of the
proprietary information, in their possession or which comes into their
possession that is owned by the parties hereto and is not
-4-
<PAGE>
subject to confidentiality provisions in a separate agreement. The parties
hereto agree to use the same degree of care that each uses to protect its own
information of a similar nature, but in no event less than a reasonable degree
of care under the circumstances. The obligations not to use or disclose
proprietary information shall survive the termination of this Agreement.
b. EXCEPTIONS TO PROTECTION OF PROPRIETARY
INFORMATION. The parties acknowledge that any item of proprietary information
pursuant to Section 12 shall be excepted from such requirements to the extent
that:
(1) the item or its use is or becomes known
in the trade without the fault of the party claiming the exception;
(2) the item or its use is or becomes
available on an unrestricted basis to the party claiming the exception from an
unaffiliated source that is not under a confidentiality obligation; or
(3) disclosure of the item or its use by any
party is the result of a court or government action; provided that the party
disclosing such item pursuant to this subsection (b) shall provide reasonable
prior written notification to the other parties of such action, and provided
further that disclosure solely pursuant to this subsection (b) shall not release
disclosing party from its obligation otherwise to maintain the item in
confidence unless otherwise permitted by this Agreement.
13. INFRINGEMENT.
a. In the event that the Products Company or the
Services Company becomes aware of actu al or threatened infringement of the
Licensed Service Marks, such party shall promptly notify the other party in
writing. Within thirty (30) days of becoming so aware or receipt of such notice,
as the case may be, the Products Company shall have the right to initiate
actions to resolve the infringement at its sole cost and expense. The Services
Company shall have the right to participate in any such infringement action at
its own expense. If the Products Company does not initiate actions to resolve
the infringement within the above thirty (30) days, then the Services Company
shall have the right to initiate actions to resolve the infringement at the
Services Company's sole cost and expense.
b. In the event that the Products Company or the
Services Company becomes aware of any actual or threatened trademark
infringement action against the Products Company or the Services Company or any
permitted sublicensee involving the use of the Licensed Service Marks, such
party shall promptly notify the other party in writing. Within thirty (30) days
of becoming aware or receipt of such notice, as the case may be, the Products
Company shall have the right to defend and control the defense of such action
and take such other actions to resolve the matter on reasonable terms and
conditions as may be appropriate at the Products Company's expense. The Services
Company shall have the right to participate in any such action at its own
expense. If the Products Company elects not to defend and control a defense of
such
-5-
<PAGE>
action, then the Services Company shall have the right to defend and control
defense of such action at the Services Company's expense.
c. Both parties shall provide full cooperation with
the other party at all times in connection with any infringement action pursuant
to this Section 13, including being named as a party to the action, if
necessary. If only one party is participating in such action, then the other
party's cooperation shall be at such other party's sole expense.
14. ASSIGNMENT. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns; provided that no party may assign, delegate or otherwise
transfer any of its rights or obligations under this Agreement without the
consent of the other party hereto, except that either party may assign its
rights to an Affiliate hereunder.
15. NOTICE. All notices, requests, demands and other
communication hereunder shall be in writing and shall be deemed to have been
duly given if personally delivered, if sent by facsimile transmission (with
confirmation postmarked on the same day), if sent by overnight courier service
or, if mailed, when mailed by United States first-class, certified or registered
mail, postage prepaid, to other party at the following addresses (or at such
addresses as shall be given in writing by any party to the other):
If to the Products Company, to:
Bluestone Software, Inc.
1000 Briggs Road
Mount Laurel, NJ 08054
Fax: (609) 727-3833
Attention: Mr. Mel Baiada, President
If to the Services Company, to:
Bluestone Consulting, Inc.
1000 Briggs Road
Mount Laurel, NJ 08054
Fax: (609) 727-3833
Attention: Mr. Thomas Ballezzi, Chief Operating Officer
16. WAIVER AND AMENDMENT. No waiver by any party to this
Agreement of any breach or Default shall be effective unless the same shall be
in writing and signed. No waiver by any party of any breach or Default shall be
construed to constitute a waiver of, or consent to, the present or future breach
or Default of any other term or provision hereof. No alteration, amendment or
modification of this Agreement shall be effective or binding to any extent
whatsoever except by an instrument in writing and signed by both of the parties
hereto.
-6-
<PAGE>
17. ENTIRE AGREEMENT. This Agreement and the Contribution
Agreement constitutes the entire agreement between the parties as to the subject
matter hereto and supersedes all prior agreements or understandings between the
Products Company and the Services Company, whether written or oral.
18. HEADINGS. The headings, titles and subtitles herein are
inserted for convenience of reference only and shall not control or affect the
meaning or construction of any of the provisions hereof.
19. SEVERABILITY. If any provision of this Agreement shall be
deemed to be invalid or unenforceable by any court of competent jurisdiction,
the remaining provisions shall be valid and enforceable and this Agreement shall
be construed as if such invalid or unenforceable provision had never been
contained herein.
20. GOVERNING LAW; JURISDICTION. This Agreement shall be
governed by and construed in accordance with the laws of the State of Delaware.
In connection with any dispute arising between the parties under this Agreement
each party hereto consents to the exclusive jurisdiction and venue of any
federal or state court located in the State of New Jersey and each party waives
any claim, it may have at any time to FORUM NON CONVENIENS with respect to such
venue.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
BLUESTONE SOFTWARE, INC.
By: /s/ Mel Baiada
------------------------
Name: Mel Baiada
Title: President
BLUESTONE CONSULTING, INC.
By: /s/ Mel Baiada
------------------------
Name: Mel Baiada
Title: President
-7-
<PAGE>
Exhibit 10.16
AMENDED AND RESTATED
CONVERTIBLE AND SUBORDINATED NOTE
THIS CONVERTIBLE NOTE AND THE SHARES INTO WHICH IT MAY BE
CONVERTED HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE
OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT.
FOR VALUE RECEIVED, this Amended and Restated Convertible Note
(this "Convertible Note") is made on this 17th day of April, 1997 by Bluestone
Software, Inc. (the "Products Company"), a Delaware corporation and successor by
merger to Bluestone Consulting, Inc., a New Jersey corporation (the "Former
Corporation" and together with the Products Company, the "Company"), having its
principal place of business at 1000 Briggs Road, Mount Laurel, New Jersey 08054,
in favor of Mark Baiada (the "Payee") on the terms and conditions set forth
herein.
W I T N E S S E T H:
WHEREAS, as of January 1, 1996, the Company executed a
Convertible Note in favor of Payee in the principal amount of One Million
Dollars ($1,000,000) (the "Original Convertible Note"), which Original
Convertible Note is convertible into 700,000 shares of common stock of the
Company;
WHEREAS, pursuant to a Contribution and Distribution Agreement
dated of even date herewith by and between the Products Company and Bluestone
Consulting, Inc., a Delaware corporation (the "Services Company"), the Products
Company will contribute certain of its assets relating to its services business
to the Services Company in exchange for all of the issued and outstanding stock
of the Services Company and the assumption by the Services Company of certain
liabilities of the Products Company, as more specifically set forth in the
Contribution and Distribution Agreement, and immediately thereafter, the
Products Company shall distribute all of the issued and outstanding stock of the
Services Company to Mr. Mel Baiada, the sole shareholder of the Products
Company;
WHEREAS, pursuant to and in connection with the Contribution
and Distribution Agreement, the Services Company has agreed to assume FIVE
HUNDRED THOUSAND DOLLARS ($500,000) of the principal amount of the Original
Convertible Note (the "Assumed Principal Amount"), with the remaining FIVE
HUNDRED THOUSAND DOLLARS ($500,000) of the principal amount of the Original
Convertible Note remaining as a liability of the Products Company (the "Retained
Principal Amount");
<PAGE>
WHEREAS, to effect the assumption by the Services Company of
the Assumed Principal Amount, the Services Company shall execute a Convertible
Note in favor of Payee, which note shall be convertible into the common stock of
the Services Company in accordance with its terms; and
WHEREAS, this Convertible Note is issued by the Products
Company to (i) amend and restate in its entirety the Original Convertible Note
to effect the Products Company's continuing indebtedness relative to the
Retained Principal Amount and (ii) reflect the assumption by the Services
Company of the Assumed Principal Amount.
NOW THEREFORE, intending to be legally bound hereby and
intending to have this Amended and Restated Convertible Note govern the terms
and conditions of the Retained Convertible Note, the Products Company hereby
makes this Convertible Note in favor of Payee upon the terms and conditions set
forth as follows:
1. PAYMENT. Subject to the terms and conditions hereafter set
forth, the Company hereby promises to pay to the order of Payee, the Principal
in the amount of Five Hundred Thousand Dollars ($500,000) as follows:
a. PAYMENT OF PRINCIPAL. To the extent not paid
sooner pursuant to Section 2 hereof, the Principal shall be due and payable, in
lawful money of the United States, to Payee on December 31, 2002.
b. PAYMENT OF INTEREST. Interest on the Principal
outstanding under this Convertible Note shall accrue from the date hereof at a
rate of ten percent (10%) per annum, compounded annually, without set off or
deductions and shall continue to accrue until the entire Principal is paid in
full. The Company shall make annual payments of accrued interest to Payee, in
arrears, on or before each anniversary of the date of this Convertible Note, or
if such interest payment date is a Saturday, Sunday or a legal holiday, then on
the next business day following such interest payment date. All computations of
the interest rate hereunder shall be made on the basis of a year of 360 days for
the actual number of days (including the first day but excluding the last day)
this Convertible Note is outstanding.
c. PAYMENT. Both principal and interest are payable
in lawful money of the United States of America by wire (or intra-bank) transfer
of same day funds to the account of the Payee at such banking institution as the
Payee designates or, if requested by the Payee, by certified or official bank
check payable to the Payee mailed to the Payee at the address of the Payee as
set forth in the records of the Company or such other address as shall be
designated in writing by the Payee to the Company.
2. PREPAYMENT. The Company may, at any time after the date
hereof with the prior written consent of the Payee, pay all amounts due under
this Convertible Note without penalty or premium, in whole or in part, upon
payment of the Principal hereof, together with interest on the
2
<PAGE>
Principal amount paid hereunder to the date of such payment. Any partial
prepayments of this Convertible Note shall be applied first to accrued interest
and then to original principal.
3. SUBORDINATION OF CONVERTIBLE NOTE. Anything in this
Convertible Note to the contrary notwithstanding, the indebtedness evidenced by
this Convertible Note, and any renewals or extensions thereof, including
Principal and interest, shall at all times be wholly subordinate and junior in
right of payment, to the extent and in the manner hereinafter set forth in this
Section 3, to all principal of and interest on all indebtedness of the Company
to PNC Bank, N.A. (the "Bank"), whether outstanding on the date hereof or
created or incurred after the date hereof. Such indebtedness of the Company to
which this Convertible Note is subordinate and junior is sometimes hereinafter
referred to as "Senior Indebtedness".
a. In the event of any liquidation, dissolution or
winding up of the Company, or of any execution, sale, receivership, insolvency,
bankruptcy, liquidation, readjustment, reorganization or other similar
proceeding relative to the Company or its property, all principal and interest
owing on all Senior Indebtedness shall first be paid in full before any payment
is made upon the indebtedness evidenced by this Convertible Note. In any such
event, any payment or distribution of any kind or character, whether in cash,
property or securities (other than in securities or other evidences of
indebtedness, the payment of which is subordinated to the payment of all Senior
Indebtedness which may at the time be outstanding) that shall be made upon or in
respect of this Convertible Note shall be paid over to the Bank, for application
in payment thereof unless and until such Senior Indebtedness shall have been
paid or satisfied in full.
b. In the event that this Convertible Note is
declared or becomes due and payable because of the occurrence of any default
hereunder or otherwise other than at the option of the Company , under
circumstances when the foregoing clause (a) shall not be applicable, the holder
of the Convertible Note shall be entitled to payment only after there shall
first have been paid in full all Senior Indebtedness outstanding at the time the
Convertible Note becomes due and payable because of any such event, or payment
shall have been provided for in a manner satisfactory to the Bank.
c. During the continuance of any default in the
payment of either principal or interest on any Senior Indebtedness, no payment
of principal or interest shall be made on the Convertible Note.
d. For the thirty (30) day period after the
occurrence of, and during the continuance of, any event of default with respect
to Senior Indebtedness of which the holder of the Convertible Note has been
given notice by the Company or the Bank, the holder of the Convertible Note will
not (i) demand payment of principal or interest on the Convertible Note or
otherwise cause the Convertible Note to become due or (ii) exercise any remedies
with respect to the Convertible Note, unless and until all Senior Indebtedness
shall have been paid in full or the Bank shall have otherwise consented in
writing.
3
<PAGE>
e. The provisions of this Section 3 are solely for
the purpose of defining the relative rights of the Bank on the one hand, and the
holder of the Convertible Note on the other hand, and nothing herein shall
impair, as between the Company and the holder of the Convertible Note, the
obligation of the Company, which is unconditional and absolute, to pay the
principal of and interest on the Convertible Note in accordance with its terms;
nor shall anything herein prevent the holder of the Convertible Note from
exercising all remedies otherwise permitted by applicable law or hereunder upon
default hereunder, subject to the rights under this Section 3 of the Bank.
f. Notwithstanding anything to the contrary set forth
herein, nothing in this Section 3 shall limit the rights of the holder of the
Convertible Note to convert the principal amount of the Convertible Note as
provided in Section 4 hereof.
4. OPTIONAL CONVERSION. Payee shall have the right, at Payee's
option, at any time and from time to time prior to repayment of all amounts due
under this Convertible Note or maturity of this Convertible Note, to convert all
or any portion of the outstanding Principal due under this Convertible Note into
up to Seven Hundred Thousand (700,000) fully paid and nonassessable shares (the
"Conversion Shares") of the Company's common stock, par value $.001 per share
(the "Common Stock"), at a conversion price equal $.71 per share (the
"Conversion Price"). The number of Conversion Shares and the Conversion Price
are each as set forth in Section 5 hereof.
a. In order to exercise the conversion privilege,
Payee shall surrender this Convertible Note, duly endorsed, to the Company's
principal address set forth above, together with written notice of conversion to
the Company that Payee elects to convert this Convertible Note or the portion
thereof specified in said notice. As promptly as practicable after the surrender
of this Convertible Note as aforesaid, in full or in part, and in any event
within ten (10) days thereafter, the Company, at its expense, shall issue and
deliver to Payee a certificate or certificates for the number of full shares of
Common Stock issuable upon the conversion of this Convertible Note or portion
thereof registered in the name of Payee in accordance with the provisions of
this Section 4 and a check or cash in respect of any fractional interest in
respect of a share of Common Stock arising upon such conversion, as provided
below. In case this Convertible Note shall be surrendered for partial
conversion, the Company shall execute and deliver to Payee, without charge, a
new Convertible Note in an aggregate principal amount equal to the unconverted
portion of the surrendered Convertible Note, provided that, except for the
amount of shares into which the new Convertible Note may be converted, the new
Convertible Note shall have all of the same terms and conditions as this
Convertible Note.
b. Each conversion shall be deemed to have been
effected immediately prior to the close of business on the day on which this
Convertible Note shall have been surrendered and the conversion notice shall
have been received by the Company, as aforesaid and Payee shall be deemed to
have become on said date the holder of record of the shares of Common Stock
issuable upon such conversion.
c. No fractional shares of Common Stock or scrip
representing fractional shares shall be issued upon conversion of this
Convertible Note. If any fractional share of Common
4
<PAGE>
Stock would be issuable upon the conversion of this Convertible Note, then the
Company shall make an adjustment therefor in cash at the conversion price.
d. Upon any conversion of this Convertible Note,
or any portion hereof, appropriate cash adjustment shall be made for or on
account of any interest accrued hereon or such portion. Upon conversion of
all or any portion of the unpaid Principal amount hereof, the principal
obligation due hereunder shall be deemed reduced to the extent of the value
of the aggregate conversion price of the Common Stock acquired thereby.
5. ADJUSTMENTS. The Exercise Price and the number of shares
purchasable hereunder are subject to adjustment from time to time as follows:
a. STOCK DIVIDEND, SPLIT OR SUBDIVISION OF SHARES. If
the number of shares of Common Stock outstanding at anytime after the date
hereof is increased or deemed increased by a stock dividend payable in shares of
Common Stock or other securities (other than options granted under an employee
stock option plan) convertible into or exchangeable for shares of Common Stock
("Equivalents") or by a subdivision or split-up of shares of Common Stock or
Equivalents (other than a change in par value, from par value to no par value or
from no par value to par value), then, following the effective date fixed for
the determination of holders of Common Stock or Equivalents entitled to receive
such stock dividend, subdivision or split-up, the Conversion Price shall be
appropriately decreased (but in no event shall the Conversion Price be decreased
below the par value of the Common Stock issuable upon conversion of this
Convertible Note) and the number of Conversion Shares shall be increased in
proportion to such increase in outstanding shares (on a fully diluted basis).
b. COMBINATION OF SHARES. If, at any time after the
date hereof, the number of shares of Common Stock outstanding is decreased by a
combination of the outstanding shares of Common Stock (other than a change in
par value, from par value to no par value or from no par value to par value),
then, following the effective date for such combination, the Conversion Price
shall be appropriately increased and the number of Conversion Shares shall be
decreased in proportion to such decrease in outstanding shares (on a fully
diluted basis).
6. CONSOLIDATION OR MERGER. If any consolidation or merger of
the Company or the sale of all or substantially all its assets shall be
effected, then, as a condition of such consolidation, merger or sale, lawful and
adequate provision shall be made whereby the holder of this Convertible Note
shall thereafter have the right to receive upon the basis and upon the terms and
conditions specified herein and in lieu of the shares of Common Stock of the
Company immediately theretofore receivable upon the conversion of this
Convertible Note, such shares of stock, securities or assets as may be issued or
payable with respect to or in exchange for a number of outstanding shares equal
to the number of shares of Common Stock immediately theretofore so receivable by
such holder had such consolidation, merger or sale not taken place, and in any
such case appropriate provision shall be made with respect to the rights and
interests of such holder to the end that the provisions hereof (including
without limitation provisions for adjustment of the conversion price) shall
thereafter be applicable, as nearly as may be, in relation to any shares of
stock, securities or assets thereafter deliverable upon the exercise of such
conversion rights. The Company shall not effect any such consolidation, merger
of sale, unless prior to
5
<PAGE>
or simultaneously with the consummation thereof, the successor (if other than
the Company) resulting from such consolidation or merger or the purchaser of
such assets shall assume by written instrument executed and mailed or delivered
to the holder hereof, the obligation to deliver to such holder such shares of
stock, securities or assets as, in accordance with the foregoing provisions,
such holder may be entitled to receive.
7. NOTICE OF ADJUSTMENT OF CONVERSION SHARES OR CONVERSION
PRICE. Upon any adjustment of the number of Conversion Shares or the Conversion
Price, then and in each such case, the Company shall give written notice
thereof, to the holder hereof, which notice shall state the conversion price
resulting from such adjustment, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based.
8. COLLECTION. Should the indebtedness evidenced by this
Convertible Note or any part hereof be collected at law or in equity or in
bankruptcy, receivership or other court proceedings, or this Convertible Note
placed in the hands of attorneys for collection, the Company agrees to pay, in
addition to principal and interest due and payable hereon, all costs of
collection, including reasonable attorneys' fees, incurred by the Payee in
collecting this Convertible Note.
9. BANKRUPTCY OF THE COMPANY. In the event of an actual or
deemed entry of any order for relief with respect to the Company under the
Federal Bankruptcy Code, this Convertible Note, all interest thereon and all
other amounts payable hereunder shall automatically become and be due and
payable, without presentment, demand, protest, or any notice of any kind, all of
which are hereby expressly waived by the Company.
10. WAIVER OF PRESENTMENT. The Company hereby waives
presentment for payment, demand, notice of demand, notice of nonpayment or
dishonor, protest and notice of protest of this Convertible Note, and all other
notices in connection with the delivery, acceptance, performance, default or
enforcement of the payment of this Convertible Note. The Company agrees that the
Company's liability shall be unconditional, without regard to the liability of
any other party, and shall not be affected in any manner by any indulgence,
extensions of time, renewal, waiver or modification granted or consented to by
the Payee. The Company agrees that additional guarantors or sureties may become
parties hereto without notice to the Company or affecting its liability
hereunder. The Company hereby waives and releases all errors, defects and
imperfections in any proceeding instituted by the Payee under the terms of this
Convertible Note.
11. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants as follows:
a. The Company is a corporation duly organized,
validly existing and in good standing under the laws of Delaware and has all
requisite corporate power and authority to own and lease its property, to carry
on its business as presently conducted and as proposed to be conducted
6
<PAGE>
(as previously disclosed to Payee) and to execute and deliver, and to perform
all of its obligations under this Convertible Note.
b. The execution, delivery and performance by the
Company of this Convertible Note is within the Company's corporate powers, have
been duly authorized by all necessary corporate action, and do not and will not
contravene or cause a breach or default under (i) the Company's Certificate of
Incorporation or Bylaws, (ii) any law or any order, decree, writ, judgment,
award, injunction or similar legal restriction currently applicable to the
Company, or (iii) any contractual provision or restriction contained in any
indenture, loan or credit agreement, guaranty, mortgage, deed of trust, bond,
note, or other agreement, instrument or understanding which binds or affects or
purports to bind or affect the Company; nor will such execution, delivery or
performance result in or require the creation of any lien, security interest or
other charge or encumbrance (other than pursuant hereto) upon or with respect to
any of the Company's properties.
c. No authorization, approval or consent or other
action by, and no notice to or filing with, any governmental authority,
regulatory body or other person or entity is required for the due execution,
delivery or performance by the Company of this Convertible Note or the
consummation of the transactions contemplated hereby and thereby, except for any
federal or Blue Sky filings, which filings shall be made within the required
time periods.
d. This Convertible Note when executed and delivered
hereunder will be, the legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms.
12. NOTICES. All notices and other communications from the
Company to Payee shall be in writing, and shall be delivered by hand, sent by
overnight courier, or mailed by first-class certified or registered mail,
postage prepaid, to the address furnished to the Company in writing by Payee.
All notices and other communications from Payee or in connection herewith to the
Company shall be in writing, and shall be delivered by hand, sent by overnight
courier, or mailed by first-class certified or registered mail, postage prepaid,
to the Company at its principal office set forth above. If the Company should at
any time change the location of its principal office to a place other than as
set forth below, then it shall give prompt written notice to Payee and
thereafter all references in this Convertible Note to the location of its
principal office at the particular time shall be as so specified in such notice.
13. NO RIGHTS AS STOCKHOLDER. Notwithstanding Payee's rights
hereunder, until the conversion of this Convertible Note, Payee shall not have
or exercise any rights by virtue hereof as a stockholder of the Company.
14. CHANGE OR WAIVER. Any term of this Convertible Note may be
changed or waived only by an instrument in writing signed by the party against
which enforcement of the change or waiver is sought.
7
<PAGE>
15. HEADINGS. The headings in this Convertible Note are for
purposes of reference only and shall not limit or otherwise affect the meaning
of any provision of this Convertible Note.
16. SEVERABILITY. If any provision of this Convertible Note is
held to be invalid or unenforceable by a court of competent jurisdiction, then
the other provisions of this Convertible Note shall remain in full force and
effect and shall be liberally construed in favor of the Payee in order to effect
the provisions of this Convertible Note.
17. REMEDIES NOT EXCLUSIVE. All rights and remedies of the
Payee under this Convertible Note and any applicable law are separate and
cumulative, and the exercise of one shall not limit or prejudice the exercise of
any other such rights or remedies. The enumeration in this Convertible Note of
any waivers or consents by the Company shall not be deemed exclusive of any
additional waivers or consents by the Company which may be deemed to exist in
law or equity. No delay or omission by the Payee in exercising any right or
remedy shall operate as a waiver thereof. No waiver of any rights and remedies
hereunder, and no modification or amendment of this Note, shall be deemed made
by the Payee unless in writing and duly signed by an officer of the Payee. Any
such written waiver shall apply only to the particular instance specified
therein and shall not impair the further exercise of such right or remedy or of
any other right or remedy of the Payee, and no single or partial exercise of any
right or remedy under this Convertible Note shall preclude any other or further
exercise thereof or any other right or remedy.
18. SUCCESSORS AND ASSIGNS. This Convertible Note inures to
the benefit of the Payee and binds the Company, and their respective successors
and assigns, and the words "Payee" and the "Company" whenever occurring herein
all be deemed and construed to include such respective successors and assigns.
19. GOVERNING LAW. This Convertible Note is made and delivered
in and shall be governed by the laws of the State of Delaware without regard to
principles of conflicts or choice of laws of any jurisdiction.
8
<PAGE>
IN WITNESS WHEREOF, the Company has executed this Convertible
Note by its duly authorized officer as of the date set forth above.
BLUESTONE SOFTWARE, INC.
By: /s/ Mel Baiada
--------------------------------
Mel Baiada
President
9
<PAGE>
Exhibit 10.17
THIS NOTE IS SUBORDINATED PURSUANT TO THE TERMS OF THAT CERTAIN SUBORDINATION
AGREEMENT, DATED APRIL 17, 1997, BY AND AMONG PNC BANK, NATIONAL ASSOCIATION,
BLUESTONE SOFTWARE, INC. AND BLUESTONE CONSULTING, INC.
BLUESTONE SOFTWARE, INC.
PROMISSORY NOTE
$500,000 April 17, 1997
FOR VALUE RECEIVED, the undersigned, Bluestone Software, Inc., Inc., a
Delaware corporation and successor by merger to Bluestone Consulting Inc., a New
Jersey corporation, (the "Borrower"), HEREBY PROMISES TO PAY to the order of
Bluestone Consulting, Inc., a Delaware corporation (the "Payee"), the principal
sum of FIVE HUNDRED THOUSAND DOLLARS ($500,000) on December 31, 2005. Interest
will accrue on the unpaid principal amount of this Promissory Note at the rate
of ten percent (10%) per annum, in arrears, and shall be payable annually on
each anniversary date of this note (each such date, an "Interest Payment Date"),
or if an Interest Payment Date is a Saturday, Sunday or holiday, on the first
business day following such Interest Payment Date, and no interest on the amount
payable shall accrue for the intervening period. All computations of the
interest rate hereunder shall be made on the basis of a year of 360 days for the
actual number of days (including the first day but excluding the last day) this
Promissory Note is outstanding.
This Note is subordinated pursuant to the terms of that certain
Subordination Agreement, dated April 17, 1997, by and among PNC Bank, National
Association, the Borrower and the Payee.
Both principal and interest are payable in lawful money of the United
States of America by wire transfer or intra-bank transfer, of immediately
available funds to the account of the Payee at such banking institution as the
Payee designates or, if requested by the Payee, by certified or official bank
check payable to the Payee mailed to the Payee at the address of the Payee as
set forth in the records of the Borrower or such other address as shall be
designated in writing by the Payee to the Borrower.
The Borrower may, at its option, at any time after the date hereof, pay
all amounts due under this Promissory Note without penalty or premium, in whole
or in part, upon payment of the principal amount hereof, together with interest
on the principal amount so paid accrued to the date of such payment. Any partial
prepayment shall be applied first to accrued interest and then to principal
outstanding.
Should the indebtedness evidenced by this Promissory Note or any part
hereof be collected at law or in equity or in bankruptcy, receivership or other
court proceedings, or this Promissory Note placed in the hands of attorneys for
collection, the Borrower agrees to pay, in addition to principal and interest
due and payable hereon, all costs of collection, including reasonable attorneys'
fees, incurred by the Payee in collecting this Promissory Note.
In the event of an actual or deemed entry of any order for relief with
respect to the Borrower under the Federal Bankruptcy Code, this Promissory Note,
all interest thereon and all other amounts payable hereunder shall automatically
become and be due and payable, without presentment, demand, protest, or any
notice of any kind, all
<PAGE>
of which are hereby expressly waived by the Borrower.
The Borrower hereby waives presentment for payment, demand, notice of
demand, notice of nonpayment or dishonor, protest and notice of protest of this
Note, and all other notices in connection with the delivery, acceptance,
performance, default or enforcement of the payment of this Note. The Borrower
agrees that the Borrower's liability shall be unconditional, without regard to
the liability of any other party, and shall not be affected in any manner by any
indulgence, extensions of time, renewal, waiver or modification granted or
consented to by the Payee. The Borrower agrees that additional guarantors or
sureties may become parties hereto without notice to the Borrower or affecting
its liability hereunder. The Borrower hereby waives and releases all errors,
defects and imperfections in any proceeding instituted by the Payee under the
terms of this Note.
If any provision of this Note is held to be invalid or unenforceable by
a court of competent jurisdiction, then the other provisions of this Note shall
remain in full force and effect and shall be liberally construed in favor of the
Payee in order to effect the provisions of this Note.
All rights and remedies of the Payee under this Note and any applicable
law are separate and cumulative, and the exercise of one shall not limit or
prejudice the exercise of any other such rights or remedies. The enumeration in
this Note of any waivers or consents by the Borrower shall not be deemed
exclusive of any additional waivers or consents by the Borrower which may be
deemed to exist in law or equity. No delay or omission by the Payee in
exercising any right or remedy shall operate as a waiver thereof. No waiver of
any rights and remedies hereunder, and no modification or amendment of this
Note, shall be deemed made by the Payee unless in writing and duly signed by an
officer of the Payee. Any such written waiver shall apply only to the particular
instance specified therein and shall not impair the further exercise of such
right or remedy or of any other right or remedy of the Payee, and no single or
partial exercise of any right or remedy under this Note shall preclude any other
or further exercise thereof or any other right or remedy.
This Promissory Note inures to the benefit of the Payee and binds the
Borrower, and their respective successors and assigns, and the words "Payee" and
"Borrower" whenever occurring herein all be deemed and construed to include such
respective successors and assigns.
This Promissory Note is made and delivered in and shall be governed by
the laws of the State of New Jersey without regard to principles of conflicts or
choice of laws of any jurisdiction.
BLUESTONE SOFTWARE, INC.
By: /s/ Mel Baiada
----------------------------------
President
<PAGE>
Exhibit 10.20
LOAN AND SECURITY AGREEMENT
This LOAN AND SECURITY AGREEMENT is entered into as of December 8,
1997, by and between SILICON VALLEY BANK, a California-chartered bank
("Bank"), with its principal place of business at 3003 Tasman Drive, Santa
Clara, California 95054 and with a loan production office located at
Wellesley Office Park, 40 William Street, Suite 350, Wellesley, Massachusetts
02181, doing business under the name "Silicon Valley East" ("Bank") and
BLUESTONE SOFTWARE, INC., a Delaware corporation with its principal place of
business at 1000 Briggs Road, Mount Laurel, New Jersey 08054-4101
("Borrower").
RECITALS
Borrower wishes to obtain credit from time to time from Bank, and Bank
desires to extend credit to Borrower. This Agreement sets forth the terms on
which Bank will advance credit to Borrower, and Borrower will repay the amounts
owing to Bank.
AGREEMENT
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
1.1 DEFINITIONS. As used in this Agreement, the following terms
shall have the following definitions:
"Accounts" means all presently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to
Borrower arising out of the sale or lease of goods (including, without
limitation, the licensing of software and other technology) or the
rendering of services by Borrower, whether or not earned by
performance, and any and all credit insurance, guaranties, and other
security therefor, as well as all merchandise returned to or reclaimed
by Borrower and Borrower's Books relating to any of the foregoing.
"Advance" or "Advances" means a loan advance under the
Committed Revolving Line.
"Affiliate" means, with respect to any Person, any Person that
owns or controls directly or indirectly such Person, any Person that
controls or is controlled by or is under common control with such
Person, and each of such Person's senior executive officers, directors,
partners and, for any Person that is a limited liability company, such
Person's, managers and members.
"Bank Expenses" means all reasonable costs or expenses
(including reasonable attorneys' fees and expenses) incurred in
connection with the preparation, negotiation, administration, and
enforcement of the Loan Documents; and Bank's reasonable attorneys'
fees and expenses incurred in amending, enforcing or defending the Loan
Documents, (including fees and expenses of appeal or review, or those
incurred in any Insolvency Proceeding) whether or not suit is brought.
"Borrower's Books" means all of Borrower's books and records
including, without limitation: ledgers; records concerning Borrower's
assets or liabilities, the Collateral, business operations or financial
condition; and all computer programs, or tape files, and the equipment,
containing such information.
"Borrowing Base" means an amount equal to (i) Eighty percent
(80%) of Eligible Accounts as determined by Bank with reference to the
most recent Borrowing Base Certificate delivered by Borrower, plus (ii)
an amount equal to One Hundred percent (100.0%) of any Certificate of
Deposit maintained at the Bank, and specifically pledged to Bank, up to
$400,000.00.
-1-
<PAGE>
"Business Day" means any day that is not a Saturday, Sunday,
or other day on which banks in the State of California are authorized
or required to close.
"Closing Date" means the date of this Agreement.
"Code" means the Massachusetts Uniform Commercial Code.
"Collateral" means the property described on EXHIBIT A
attached hereto.
"Committed Revolving Line" means a credit extension of up to
One Million Seven Hundred Fifty Thousand Dollars ($1,750,000.00).
"Committed Equipment Line" means a credit extension of up to
Five Hundred Thousand Dollars ($500,000.00).
"Contingent Obligation" means, as applied to any Person, any
direct or indirect liability, contingent or otherwise, of that Person
with respect to (i) any indebtedness, lease, dividend, letter of credit
or other obligation of another, including, without limitation, any such
obligation directly or indirectly guaranteed, endorsed, co-made or
discounted or sold with recourse by that Person, or in respect of which
that Person is otherwise directly or indirectly liable; (ii) any
obligations with respect to undrawn letters of credit issued for the
account of that Person; and (iii) all obligations arising under any
interest rate, currency or commodity swap agreement, interest rate cap
agreement, interest rate collar agreement, or other agreement or
arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; provided,
however, that the term "Contingent Obligation" shall not include
endorsements for collection or deposit in the ordinary course of
business. The amount of any Contingent Obligation shall be deemed to be
an amount equal to the stated or determined amount of the primary
obligation in respect of which such Contingent Obligation is made or,
if not stated or determinable, the maximum reasonably anticipated
liability in respect thereof as determined by such Person in good
faith; provided, however, that such amount shall not in any event
exceed the maximum amount of the obligations under the guarantee or
other support arrangement.
"Credit Extension" means each Advance, Equipment Advance, or
any other extension of credit by Bank for the benefit of Borrower
hereunder.
"Eligible Accounts" means those Accounts that arise in the
ordinary course of Borrower's business that comply with all of
Borrower's representations and warranties to Bank set forth in Section
5.4. Unless otherwise agreed to by Bank in writing, Eligible Accounts
shall not include the following:
(a) Accounts that the account debtor has failed to
pay within ninety (90) days of invoice date;
(b) Accounts with respect to an account debtor, fifty
percent (50%) of whose Accounts outstanding at any time the
account debtor has failed to pay within ninety (90) days of
invoice date;
(c) Accounts with respect to an account debtor,
including Affiliates, whose total obligations to Borrower
exceed twenty-five percent (25%) of all Accounts, to the
extent such obligations exceed the aforementioned percentage,
except as approved in writing by Bank;
(d) Accounts with respect to which the account debtor
does not have its principal place of business in the United
States;
(e) Accounts with respect to which the account debtor
is a federal, state, or local governmental entity or any
department, agency, or instrumentality thereof, except for
those Accounts of the United States or any department, agency
or instrumentality thereof as to which the payee has
-2-
<PAGE>
assigned its rights to payment thereof to Bank and the
assignment has been acknowledged, pursuant to the Assignment
of Claims Act of 1940, as amended (31 U.S.C. 3727);
(f) Accounts with respect to which Borrower is liable
to the account debtor, but only to the extent of any amounts
owing to the account debtor (sometimes referred to as "contra"
accounts, e.g. accounts payable, customer deposits, credit
accounts etc.);
(g) Accounts generated by demonstration or
promotional equipment, or with respect to which goods are
placed on consignment, guaranteed sale, sale or return, sale
on approval, bill and hold, or other terms by reason of which
the payment by the account debtor may be conditional;
(h) Accounts with respect to which the account debtor
is an Affiliate, officer, employee, or agent of Borrower;
(i) Accounts with respect to which the account debtor
disputes liability or makes any claim with respect thereto as
to which Bank believes, in its sole discretion, that there may
be a basis for dispute (but only to the extent of the amount
subject to such dispute or claim), or is subject to any
Insolvency Proceeding, or becomes insolvent, or goes out of
business; and
(j) Accounts the collection of which Bank reasonably
determines to be doubtful.
"Equipment" means all present and future machinery, equipment,
tenant improvements, furniture, fixtures, vehicles, tools, parts and
attachments in which Borrower has any interest.
"Equipment Advance" has the meaning set forth in
Section 2.1.2.
"Equipment Availability End Date" has the meaning set forth in
Section 2.1.2.
"Equipment Maturity Date" is defined in Section 2.1.2.
"ERISA" means the Employment Retirement Income Security Act of
1974, as amended, and the regulations thereunder.
"GAAP" means generally accepted accounting principles as in
effect in the United States from time to time.
"Indebtedness" means (a) all indebtedness for borrowed money
or the deferred purchase price of property or services, including
without limitation reimbursement and other obligations with respect to
surety bonds and letters of credit, (b) all obligations evidenced by
notes, bonds, debentures or similar instruments, (c) all capital lease
obligations and (d) all Contingent Obligations.
"Insolvency Proceeding" means any proceeding commenced by or
against any person or entity under any provision of the United States
Bankruptcy Code, as amended, or under any other bankruptcy or
insolvency law, including assignments for the benefit of creditors,
formal or informal moratoria, compositions, extension generally with
its creditors, or proceedings seeking reorganization, arrangement, or
other relief.
"Inventory" means all present and future inventory in which
Borrower has any interest, including merchandise, raw materials, parts,
supplies, packing and shipping materials, work in process and finished
products intended for sale or lease or to be furnished under a contract
of service, of every kind and description now or at any time hereafter
owned by or in the custody or possession, actual or constructive, of
Borrower, including such inventory as is temporarily out of its custody
or possession or in transit and including any returns upon any accounts
or other proceeds, including insurance proceeds, resulting from the
sale or disposition of any of the foregoing and any documents of title
representing any of the above.
-3-
<PAGE>
"Investment" means any beneficial ownership of (including
stock, partnership interest or other securities) any Person, or any
loan, advance or capital contribution to any Person.
"IRC" means the Internal Revenue Code of 1986, as amended, and
the regulations thereunder.
"Lien" means any mortgage, lien, deed of trust, charge,
pledge, security interest or other encumbrance.
"Liquid Assets" shall mean cash, or cash equivalents (as
determined under GAAP) plus the undrawn amounts under the Committed
Revolving Line.
"Loan Documents" means, collectively, this Agreement, any note
or notes executed by Borrower, and any other present or future
agreement entered into between Borrower and/or for the benefit of Bank
in connection with this Agreement, all as amended, extended or restated
from time to time.
"Material Adverse Effect" means a material adverse effect on
(i) the business operations or condition (financial or otherwise) of
Borrower and its Subsidiaries taken as a whole or (ii) the ability of
Borrower to repay the Obligations or otherwise perform its obligations
under the Loan Documents.
"Maturity Date" means the later of the Equipment Maturity Date
or the Revolving Maturity Date.
"Negotiable Collateral" means all of Borrower's present and
future letters of credit of which it is a beneficiary, notes, drafts,
instruments, securities, documents of title, and chattel paper.
"Obligations" means all debt, principal, interest, Bank
Expenses and other amounts owed to Bank by Borrower pursuant to this
Agreement or any other agreement, whether absolute or contingent, due
or to become due, now existing or hereafter arising, including any
interest that accrues after the commencement of an Insolvency
Proceeding and including any debt, liability, or obligation owing from
Borrower to others that Bank may have obtained by assignment or
otherwise.
"Payment Date" means the first calendar day of each month
commencing on the first such date after the Closing Date and ending on
the Revolving Maturity Date.
"Permitted Indebtedness" means:
(a) Indebtedness of Borrower in favor of Bank
arising under this Agreement or any other Loan Document;
(b) Indebtedness existing on the Closing Date
and disclosed in the Schedule;
(c) Subordinated Debt;
(d) Indebtedness to trade creditors incurred in
the ordinary course of business;
(e) In addition to the foregoing, Indebtedness
in the amount of $150,000.00 incurred to purchase Equipment
not financed by Bank; and
(f) Indebtedness secured by Permitted Liens.
"Permitted Investment" means:
(a) Investments existing on the Closing Date
disclosed in the Schedule; and
-4-
<PAGE>
(b) (i) marketable direct obligations issued
or unconditionally guaranteed by the United States of America
or any agency or any State thereof maturing within one (1)
year from the date of acquisition thereof, (ii) commercial
paper maturing no more than one (1) year from the date of
creation thereof and currently having the highest rating
obtainable from either Standard & Poor's Corporation or
Moody's Investors Service, Inc., and (iii) certificates of
deposit maturing no more than one (1) year from the date of
investment therein issued by Bank.
"Permitted Liens" means the following:
(a) Any Liens existing on the Closing Date and
disclosed in the Schedule or arising under this Agreement or
the other Loan Documents;
(b) Liens for taxes, fees, assessments or other
governmental charges or levies, either not delinquent or being
contested in good faith by appropriate proceedings and as to
which adequate reserves are maintained on Borrower's Books in
accordance with GAAP, PROVIDED the same have no priority over
any of Bank's security interests;
(c) Liens (i) upon or in any Equipment acquired
or held by Borrower or any of its Subsidiaries to secure the
purchase price of such Equipment or indebtedness incurred
solely for the purpose of financing the acquisition of such
Equipment, or (ii) existing on such equipment at the time of
its acquisition, PROVIDED that the Lien is confined solely to
the property so acquired and improvements thereon, and the
proceeds of such equipment;
(e) Liens incurred in connection with the
extension, renewal or refinancing of the indebtedness secured
by Liens of the type described in clauses (a) through (c)
above, PROVIDED that any extension, renewal or replacement
Lien shall be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness
being extended, renewed or refinanced does not increase.
"Person" means any individual, sole proprietorship,
partnership, limited liability company, joint venture, trust,
unincorporated organization, association, corporation, institution,
public benefit corporation, firm, joint stock company, estate, entity
or governmental agency.
"Prime Rate" means the variable rate of interest, per annum,
most recently announced by Bank, as its "prime rate," whether or not
such announced rate is the lowest rate available from Bank.
"Responsible Officer" means each of the Chief Executive
Officer, the President, the Chief Financial Officer and the Controller
of Borrower.
"Revolving Maturity Date" shall mean one day prior to the date
which is one year from the Closing Date.
"Schedule" means the schedule of exceptions attached hereto,
if any.
"Subordinated Debt" means any debt incurred by Borrower that
is subordinated to the debt owing by Borrower to Bank on terms
acceptable to Bank (and identified as being such by Borrower and Bank).
"Subsidiary" means with respect to any Person, corporation,
partnership, company association, joint venture, or any other business
entity of which more than fifty percent (50%) of the voting stock or
other equity interests is owned or controlled, directly or indirectly,
by such Person or one or more Affiliates of such Person.
"Tangible Net Worth" means as of any applicable date, the
consolidated total assets of Borrower and its Subsidiaries MINUS,
without duplication, (i) the sum of any amounts attributable to (a)
goodwill,
-5-
<PAGE>
(b) intangible items such as unamortized debt discount and expense,
patents, trade and service marks and names, copyrights and research and
development expenses except prepaid expenses, and (c) all reserves not
already deducted from assets, AND (ii) Total Liabilities.
"Total Liabilities" means as of any applicable date, any date
as of which the amount thereof shall be determined, all obligations
that should, in accordance with GAAP be classified as liabilities on
the consolidated balance sheet of Borrower, including in any event all
Indebtedness, but specifically excluding Subordinated Debt.
1.2 ACCOUNTING AND OTHER TERMS. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP and all calculations
and determinations made hereunder shall be made in accordance with GAAP. When
used herein, the term "financial statements" shall include the notes and
schedules thereto. The terms "including"/ "includes" shall always be read as
meaning "including (or includes) without limitation", when used herein or in any
other Loan Document.
2. LOAN AND TERMS OF PAYMENT
2.1 CREDIT EXTENSIONS. Borrower promises to pay to the order of Bank,
in lawful money of the United States of America, the aggregate unpaid principal
amount of all Credit Extensions made by Bank to Borrower hereunder. Borrower
shall also pay interest on the unpaid principal amount of such Credit Extensions
at rates in accordance with the terms hereof.
2.1.1 (a) Subject to and upon the terms and conditions of this
Agreement, Bank agrees to make Advances to Borrower in an aggregate outstanding
amount not to exceed the Committed Revolving Line or the Borrowing Base,
whichever is less. Subject to the terms and conditions of this Agreement,
amounts borrowed pursuant to this Section 2.1 may be repaid and reborrowed at
any time during the term of this Agreement.
(b) Whenever Borrower desires an Advance, Borrower will
notify Bank by facsimile transmission or telephone no later than 3:00 p.m.
Pacific time, on the Business Day that the Advance is to be made. Each such
notification shall be promptly confirmed by a Payment/Advance Form in
substantially the form of EXHIBIT B hereto. Bank is authorized to make Advances
under this Agreement, based upon instructions received from a Responsible
Officer or a designee of a Responsible Officer, or without instructions if in
Bank's discretion such Advances are necessary to meet Obligations which have
become due and remain unpaid. Bank shall be entitled to rely on any telephonic
notice given by a person who Bank reasonably believes to be a Responsible
Officer or a designee thereof, and Borrower shall indemnify and hold Bank
harmless for any damages or loss suffered by Bank as a result of such reliance.
Bank will credit the amount of Advances made under this Section 2.1 to
Borrower's deposit account with Bank.
(c) The Committed Revolving Line shall terminate on the
Revolving Maturity Date, at which time all Advances under this Section 2.1 and
other amounts due under this Agreement (except as otherwise expressly specified
herein) shall be immediately due and payable.
2.1.2 EQUIPMENT ADVANCES.
(a) Subject to and upon the terms and conditions of this
Agreement, at any time from the date hereof through six (6) months following the
Closing Date (the "Equipment Availability End Date"), Bank agrees to make
advances (each an "Equipment Advance" and collectively, the "Equipment
Advances") to Borrower in an aggregate outstanding amount not to exceed the
Committed Equipment Line. To evidence the Equipment Advance or Equipment
Advances, Borrower shall deliver to Bank, at the time of each Equipment Advance
request, an invoice for the equipment to be purchased. The Equipment Advances
shall be used only to purchase Equipment or refinance Equipment purchased after
January 1, 1997 and shall not exceed One Hundred Percent (100%) of the invoice
amount of such equipment approved from time to time by Bank, excluding taxes,
shipping, warranty charges, freight discounts and installation expense. Software
may, however, constitute up to twenty-five percent (25.0%) of each Equipment
Advance aggregate Equipment Advances.
-6-
<PAGE>
(b) Interest shall accrue from the date of each Equipment
Advance at a per annum rate equal to One and One Half of One percentage points
(1.50%) above the Prime Rate. and shall be payable monthly for each month
through the month in which the Equipment Availability End Date falls. Any
Equipment Advances that are outstanding on the Equipment Availability End Date
will be payable in thirty six (36) equal monthly installments of principal, plus
all accrued interest, beginning on the Payment Date of each month following the
Equipment Availability End Date and ending on the date which is thirty six (36)
months after the Equipment Availability End Date (the "Equipment Maturity
Date"). Equipment Advances, once repaid, my not be reborrowed.
(c) When Borrower desires to obtain an Equipment Advance,
Borrower shall notify Bank (which notice shall be irrevocable) by facsimile
transmission to be received no later than 3:00 p.m. Pacific time one (1)
Business Day before the day on which the Equipment Advance is to be made. Such
notice shall be substantially in the form of Exhibit B. The notice shall be
signed by a Responsible Officer or its designee and include a copy of the
invoice for the Equipment to be financed.
2.2 OVERADVANCES. If, at any time or for any reason, the amount of
Obligations owed by Borrower to Bank pursuant to Section 2.1.1 of this Agreement
is greater than the lesser of (i) the Committed Revolving Line or (ii) the
Borrowing Base, Borrower shall immediately pay to Bank, in cash, the amount of
such excess.
2.3 INTEREST RATES, PAYMENTS, AND CALCULATIONS.
(a) INTEREST RATE. Except as set forth in Section 2.3(b),
any Advances shall bear interest, on the average daily balance thereof, at a per
annum rate equal to One and One Half percentage point (1.50%) above the Prime
Rate.
(b) DEFAULT RATE. All Obligations shall bear interest,
from and after the occurrence of an Event of Default, at a rate equal to five
(5) percentage points above the interest rate applicable immediately prior to
the occurrence of the Event of Default.
(c) PAYMENTS. Interest hereunder shall be due and payable
on each Payment Date. Borrower hereby authorizes Bank to debit any accounts with
Bank, including, without limitation, Account Number _____________________ for
payments of principal and interest due on the Obligations and any other amounts
owing by Borrower to Bank. Bank will notify Borrower of all debits which Bank
has made against Borrower's accounts. Any such debits against Borrower's
accounts in no way shall be deemed a set-off. Any interest not paid when due
shall be compounded by becoming a part of the Obligations, and such interest
shall thereafter accrue interest at the rate then applicable hereunder.
(d) COMPUTATION. In the event the Prime Rate is changed
from time to time hereafter, the applicable rate of interest hereunder shall be
increased or decreased effective as of 12:01 a.m. on the day the Prime Rate is
changed, by an amount equal to such change in the Prime Rate. All interest
chargeable under the Loan Documents shall be computed on the basis of a three
hundred sixty (360) day year for the actual number of days elapsed.
2.4 CREDITING PAYMENTS. Prior to the occurrence of an Event of Default,
Bank shall credit a wire transfer of funds, check or other item of payment to
such deposit account or Obligation as Borrower specifies. After the occurrence
of an Event of Default, the receipt by Bank of any wire transfer of funds,
check, or other item of payment, whether directed to Borrower's deposit account
with Bank or to the Obligations or otherwise, shall be immediately applied to
conditionally reduce Obligations, but shall not be considered a payment in
respect of the Obligations unless such payment is of immediately available
federal funds or unless and until such check or other item of payment is honored
when presented for payment. Notwithstanding anything to the contrary contained
herein, any wire transfer or payment received by Bank after 3:00 p.m. Pacific
time shall be deemed to have been received by Bank as of the opening of business
on the immediately following Business Day. Whenever any payment to Bank under
the Loan Documents would otherwise be due (except by reason of acceleration) on
a date that is not a Business Day, such payment shall
-7-
<PAGE>
instead be due on the next Business Day, and additional fees or interest, as the
case may be, shall accrue and be payable for the period of such extension.
2.5 FEES. Borrower shall pay to Bank the following:
(a) COMMITTED REVOLVING LINE FACILITY FEE. As
compensation for the Bank's maintenance of sufficient funds available
for such purpose, the Bank shall have earned a Committed Revolving Line
Facility Fee (so referred to herein), which fee shall be paid as of the
Closing Date, in an amount equal to One Half of One percent (0.50%) of
the Committed Revolving Line. The Borrower shall not be entitled to any
credit, rebate or repayment of any Committed Revolving Line Facility
Fee previously earned by the Bank pursuant to this Section
notwithstanding any termination of the within Agreement, or suspension
or termination of the Bank's obligation to make loans and advances
hereunder;
(b) COMMITTED EQUIPMENT LINE FACILITY FEE. As
compensation for the Bank's maintenance of sufficient funds available
for such purpose, the Bank shall have earned a Committed Equipment Line
Facility Fee, which fee shall be paid as of the Closing Date, in an
amount equal to Two Thousand Five Hundred Dollars ($2,500.00);
(c) FINANCIAL EXAMINATION AND APPRAISAL FEES. Bank's
customary fees and out-of-pocket expenses for Bank's audits of
Borrower's Accounts, and for each appraisal of Collateral and financial
analysis and examination of Borrower performed from time to time by
Bank or its agents;
(d) BANK EXPENSES. Upon demand from Bank, including,
without limitation, upon the date hereof, all Bank Expenses incurred
through the date hereof, including reasonable attorneys' fees and
expenses, and, after the date hereof, all Bank Expenses, including
reasonable attorneys' fees and expenses, as and when they become due.
2.6 ADDITIONAL COSTS. In case any law, regulation, treaty or
official directive or the interpretation or application thereof by any court or
any governmental authority charged with the administration thereof or the
compliance with any guideline or request of any central bank or other
governmental authority (whether or not having the force of law):
(a) subjects Bank to any tax with respect to payments of
principal or interest or any other amounts payable hereunder by
Borrower or otherwise with respect to the transactions contemplated
hereby (except for taxes on the overall net income of Bank imposed by
the United States of America or any political subdivision thereof);
(b) imposes, modifies or deems applicable any deposit
insurance, reserve, special deposit or similar requirement against
assets held by, or deposits in or for the account of, or loans by,
Bank; or
(c) imposes upon Bank any other condition with respect to
its performance under this Agreement,
and the result of any of the foregoing is to increase the cost to Bank, reduce
the income receivable by Bank or impose any expense upon Bank with respect to
any loans, Bank shall notify Borrower thereof. Borrower agrees to pay to Bank
the amount of such increase in cost, reduction in income or additional expense
as and when such cost, reduction or expense is incurred or determined, upon
presentation by Bank of a statement of the amount and setting forth Bank's
calculation thereof, all in reasonable detail, which statement shall be deemed
true and correct absent manifest error.
2.7 TERM. Except as otherwise set forth herein, this Agreement
shall become effective on the Closing Date and, subject to Section 12.7, shall
continue in full force and effect for a term ending on the Maturity Date.
Notwithstanding the foregoing, Bank shall have the right to terminate its
obligation to make Credit Extensions under this Agreement immediately and
without notice upon the occurrence and during the continuance of an Event of
Default.
-8-
<PAGE>
Notwithstanding termination of this Agreement, Bank's lien on the Collateral
shall remain in effect for so long as any Obligations are outstanding.
3. CONDITIONS OF LOANS
3.1 CONDITIONS PRECEDENT TO INITIAL CREDIT EXTENSION. The obligation of
Bank to make the initial Credit Extension is subject to the condition precedent
that Bank shall have received, in form and substance satisfactory to Bank, the
following:
(a) this Agreement;
(b) a certificate of the Secretary of Borrower with
respect to articles, bylaws, incumbency and resolutions authorizing the
execution and delivery of this Agreement;
(c) an opinion of Borrower's counsel;
(d) Warrant Purchase Agreement;
(e) Antidilution Agreement;
(f) Registration Rights Agreement;
(g) financing statements (Forms UCC-1);
(h) insurance certificate;
(i) payment of the fees and Bank Expenses then due specified
in Section 2.5 hereof;
(j) Certificate of Foreign Qualification (if applicable);
and
(k) such other documents, and completion of such other
matters, as Bank may reasonably deem necessary or appropriate.
3.2 CONDITIONS PRECEDENT TO ALL CREDIT EXTENSIONS. The obligation
of Bank to make each Credit Extension, including the initial Credit Extension,
is further subject to the following conditions:
(a) timely receipt by Bank of the Payment/Advance Form as
provided in Section 2.1; and
(b) the representations and warranties contained in
Section 5 shall be true and correct in all material respects on and as
of the date of such Payment/Advance Form and on the effective date of
each Credit Extension as though made at and as of each such date, and
no Event of Default shall have occurred and be continuing, or would
result from such Credit Extension. The making of each Credit Extension
shall be deemed to be a representation and warranty by Borrower on the
date of such Credit Extension as to the accuracy of the facts referred
to in this Section3.2(b).
4. CREATION OF SECURITY INTEREST
4.1 GRANT OF SECURITY INTEREST. Borrower grants and pledges to
Bank a continuing security interest in all presently existing and hereafter
acquired or arising Collateral in order to secure prompt payment of any and all
Obligations and in order to secure prompt performance by Borrower of each of its
covenants and duties under the Loan Documents. Except as set forth in the
Schedule, such security interest constitutes a valid, first priority security
interest in the presently existing Collateral, and will constitute a valid,
first priority security interest in Collateral acquired after the date hereof.
Borrower acknowledges that Bank may place a "hold" on any Deposit Account
pledged as Collateral
-9-
<PAGE>
to secure the Obligations. Notwithstanding termination of this Agreement, Bank's
Lien on the Collateral shall remain in effect for so long as any Obligations are
outstanding.
4.2 DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED. Borrower shall
from time to time execute and deliver to Bank, at the request of Bank, all
Negotiable Collateral, all financing statements and other documents that Bank
may reasonably request, in form satisfactory to Bank, to perfect and continue
perfected Bank's security interests in the Collateral and in order to fully
consummate all of the transactions contemplated under the Loan Documents.
4.3 CERTIFICATE OF DEPOSIT COLLATERAL. Borrower grants to Bank as
additional security for the purpose of securing the Obligations a valid, first
priority security interest in a certain certificate of deposit, maintained with
the Bank, identified as CD# ___________, in the original principal amount of
$400,000.00, as may be substituted or replaced (the "CERTIFICATES OF DEPOSIT").
The Certificate of Deposit may not be terminated, or redeemed until all
Obligations hereunder are paid in full, and this Agreement is terminated.
4.4 RIGHT TO INSPECT. Bank (through any of its officers,
employees, or agents) shall have the right, upon reasonable prior notice, from
time to time during Borrower's usual business hours, to inspect Borrower's Books
and to make copies thereof and to check, test, and appraise the Collateral in
order to verify Borrower's financial condition or the amount, condition of, or
any other matter relating to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1 DUE ORGANIZATION AND QUALIFICATION. Borrower is a corporation
duly existing and in good standing under the laws of its state of incorporation
and qualified and licensed to do business in, and is in good standing in, any
state in which the conduct of its business or its ownership of property requires
that it be so qualified.
5.2 DUE AUTHORIZATION; NO CONFLICT. The execution, delivery, and
performance of the Loan Documents are within Borrower's powers, have been duly
authorized, and are not in conflict with nor constitute a breach of any
provision contained in Borrower's Articles/Certificate of Incorporation or
Bylaws, nor will they constitute an event of default under any material
agreement to which Borrower is a party or by which Borrower is bound Borrower is
not in default under any agreement to which it is a party or by which it is
bound, which default could have a Material Adverse Effect.
5.3 NO PRIOR ENCUMBRANCES. Borrower has good and indefeasible
title to the Collateral, free and clear of Liens, except for Permitted Liens.
5.4 BONA FIDE ELIGIBLE ACCOUNTS. The Eligible Accounts are bona
fide existing obligations. The service or property giving rise to such Eligible
Accounts has been performed or delivered to the account debtor or to the account
debtor's agent for immediate shipment to and unconditional acceptance by the
account debtor. Borrower has not received notice of actual or imminent
Insolvency Proceeding of any account debtor whose accounts are included in any
Borrowing Base Certificate as an Eligible Account.
5.5 MERCHANTABLE INVENTORY. All Inventory is in all material
respects of good and marketable quality, free from all material defects.
5.6 NAME; LOCATION OF CHIEF EXECUTIVE OFFICE. Except as disclosed
in the Schedule, Borrower has not done business and will not without at least
thirty (30) days prior written notice to Bank do business under any name other
than that specified on the signature page hereof. The chief executive office of
Borrower is located at the address indicated in Section 10 hereof.
5.7 LITIGATION. Except as set forth in the Schedule, there are no
actions or proceedings pending, or, to Borrower's knowledge, threatened by or
against Borrower or any Subsidiary before any court or administrative agency
-10-
<PAGE>
in which an adverse decision could have a Material Adverse Effect or a material
adverse effect on Borrower's interest or Bank's security interest in the
Collateral.
5.8 NO MATERIAL ADVERSE CHANGE IN FINANCIAL STATEMENTS. All
consolidated financial statements related to Borrower and any Subsidiary that
have been delivered by Borrower to Bank fairly present in all material respects
Borrower's consolidated financial condition as of the date thereof and
Borrower's consolidated results of operations for the period then ended. There
has not been a material adverse change in the consolidated financial condition
of Borrower since the date of the most recent of such financial statements
submitted to Bank on or about the Closing Date.
5.9 SOLVENCY. Borrower is able to pay its debts (including trade
debts) as they mature.
5.10 REGULATORY COMPLIANCE. Borrower and each Subsidiary has met
the minimum funding requirements of ERISA with respect to any employee benefit
plans subject to ERISA. No event has occurred resulting from Borrower's failure
to comply with ERISA that is reasonably likely to result in Borrower's incurring
any liability that could have a Material Adverse Effect. Borrower is not an
"investment company" or a company "controlled" by an "investment company" within
the meaning of the Investment Company Act of 1940. Borrower is not engaged
principally, or as one of its important activities, in the business of extending
credit for the purpose of purchasing or carrying margin stock (within the
meaning of Regulations G, T and U of the Board of Governors of the Federal
Reserve System). Borrower has complied with all the provisions of the Federal
Fair Labor Standards Act. Borrower has not violated any statutes, laws,
ordinances or rules applicable to it, violation of which could have a Material
Adverse Effect.
5.11 ENVIRONMENTAL CONDITION. None of Borrower's or any
Subsidiary's properties or assets has ever been used by Borrower or any
Subsidiary or, to the best of Borrower's knowledge, by previous owners or
operators, in the disposal of, or to produce, store, handle, treat, release, or
transport, any hazardous waste or hazardous substance other than in accordance
with applicable law; to the best of Borrower's knowledge, none of Borrower's
properties or assets has ever been designated or identified in any manner
pursuant to any environmental protection statute as a hazardous waste or
hazardous substance disposal site, or a candidate for closure pursuant to any
environmental protection statute; no lien arising under any environmental
protection statute has attached to any revenues or to any real or personal
property owned by Borrower or any Subsidiary; and neither Borrower nor any
Subsidiary has received a summons, citation, notice, or directive from the
Environmental Protection Agency or any other federal, state or other
governmental agency concerning any action or omission by Borrower or any
Subsidiary resulting in the release, or other disposition of hazardous waste or
hazardous substances into the environment.
5.12 TAXES. Borrower and each Subsidiary has filed or caused to be
filed all tax returns required to be filed on a timely basis, and has paid, or
has made adequate provision for the payment of, all taxes reflected therein.
5.13 SUBSIDIARIES. Borrower does not own any stock, partnership
interest or other equity securities of any Person, except for Permitted
Investments.
5.14 GOVERNMENT CONSENTS. Borrower and each Subsidiary has obtained
all consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all governmental authorities that are necessary
for the continued operation of Borrower's business as currently conducted.
5.15 FULL DISCLOSURE. No representation, warranty or other
statement made by Borrower in any certificate or written statement furnished to
Bank contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained in such
certificates or statements not misleading.
6. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, until payment in full of all
outstanding Obligations, and for so long as Bank may have any commitment to make
a Credit Extension hereunder, Borrower shall do all of the following:
-11-
<PAGE>
6.1 GOOD STANDING. Borrower shall maintain its and each of its
Subsidiaries' corporate existence and good standing in its jurisdiction of
incorporation and maintain qualification in each jurisdiction in which the
failure to so qualify could have a Material Adverse Effect. Borrower shall
maintain, and shall cause each of its Subsidiaries to maintain, to the extent
consistent with prudent management of Borrower's business, in force all
licenses, approvals and agreements, the loss of which could have a Material
Adverse Effect.
6.2 GOVERNMENT COMPLIANCE. Borrower shall meet, and shall cause
each Subsidiary to meet, the minimum funding requirements of ERISA with respect
to any employee benefit plans subject to ERISA. Borrower shall comply, and shall
cause each Subsidiary to comply, with all statutes, laws, ordinances and
government rules and regulations to which it is subject, noncompliance with
which could have a Material Adverse Effect or a material adverse effect on the
Collateral or the priority of Bank's Lien on the Collateral.
6.3 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES. Borrower shall
deliver to Bank: (a) as soon as available, but in any event within twenty-five
(25) days after the end of each month, a company prepared consolidated balance
sheet and income statement covering Borrower's consolidated operations during
such period, in a form and certified by an officer of Borrower reasonably
acceptable to Bank; (b) as soon as available, but in any event within ninety
(90) days after the end of Borrower's fiscal year, audited consolidated
financial statements of Borrower prepared in accordance with GAAP, consistently
applied, together with an unqualified opinion on such financial statements of an
independent certified public accounting firm reasonably acceptable to Bank; (c)
promptly upon receipt of notice thereof, a report of any legal actions pending
or threatened against Borrower or any Subsidiary that could result in damages or
costs to Borrower or any Subsidiary of One Hundred Thousand Dollars ($100,000)
or more; and (d) such budgets, sales projections, operating plans or other
financial information as Bank may reasonably request from time to time.
Within fifteen (15) days after the last day of each month, Borrower
shall deliver to Bank a Borrowing Base Certificate signed by a Responsible
Officer in substantially the form of EXHIBIT C hereto, together with aged
listings of accounts receivable.
Within twenty-five (25) days after the last day of each month, Borrower
shall deliver to Bank with the monthly financial statements a Compliance
Certificate signed by a Responsible Officer in substantially the form of
EXHIBIT D hereto.
Bank shall have a right from time to time hereafter to audit Borrower's
Accounts at Borrower's expense, provided that such audits will be conducted no
more often than every six (6) months unless an Event of Default has occurred and
is continuing; provided however, should the first audit of Borrower's Accounts
be satisfactory to the Bank, as determined in the sole discretion of the Bank,
such audits will be conducted no more often than every twelve (12) months unless
an Event of Default has occurred and is continuing.
6.4 INVENTORY; RETURNS. Borrower shall keep all Inventory in good
and marketable condition, free from all material defects. Returns and
allowances, if any, as between Borrower and its account debtors shall be on the
same basis and in accordance with the usual customary practices of Borrower, as
they exist at the time of the execution and delivery of this Agreement. Borrower
shall promptly notify Bank of all returns and recoveries and of all disputes and
claims, where the return, recovery, dispute or claim involves more than One
Hundred Thousand Dollars ($100,000).
6.5 TAXES. Borrower shall make, and shall cause each Subsidiary to
make, due and timely payment or deposit of all material federal, state, and
local taxes, assessments, or contributions required of it by law, and will
execute and deliver to Bank, on demand, appropriate certificates attesting to
the payment or deposit thereof; and Borrower will make, and will cause each
Subsidiary to make, timely payment or deposit of all material tax payments and
withholding taxes required of it by applicable laws, including, but not limited
to, those laws concerning F.I.C.A., F.U.T.A., state disability, and local,
state, and federal income taxes, and will, upon request, furnish Bank with proof
satisfactory to Bank indicating that Borrower or a Subsidiary has made such
payments or deposits; provided that Borrower or a Subsidiary need not make any
payment if the amount or validity of such payment is (i) contested in good faith
by appropriate proceedings , (ii) is reserved against (to the extent required by
GAAP) by Borrower and (iii) no lien other than a Permitted Lien results.
-12-
<PAGE>
6.6 INSURANCE.
(a) Borrower, at its expense, shall keep the Collateral
insured against loss or damage by fire, theft, explosion, sprinklers, and all
other hazards and risks, and in such amounts, as ordinarily insured against by
other owners in similar businesses conducted in the locations where Borrower's
business is conducted on the date hereof. Borrower shall also maintain insurance
relating to Borrower's ownership and use of the Collateral in amounts and of a
type that are customary to businesses similar to Borrower's.
(b) All such policies of insurance shall be in such form,
with such companies, and in such amounts as are reasonably satisfactory to Bank.
All such policies of property insurance shall contain a lender's loss payable
endorsement, in a form satisfactory to Bank, showing Bank as an additional loss
payee thereof and all liability insurance policies shall show the Bank as an
additional insured, and shall specify that the insurer must give at least twenty
(20) days notice to Bank before canceling its policy for any reason. At Bank's
request, Borrower shall deliver to Bank certified copies of such policies of
insurance and evidence of the payments of all premiums therefor. All proceeds
payable under any such policy shall, at the option of Bank, be payable to Bank
to be applied on account of the Obligations.
6.7 PRINCIPAL DEPOSITORY. Borrower shall maintain its principal
depository and operating accounts with Bank.
6.8 TANGIBLE NET WORTH. Borrower shall maintain, as of the last day
of each calendar month, a Tangible Net Worth of not less than One Million
Dollars ($1,000,000.00); provided however, the Borrower shall evidence a
Tangible Net Worth of not less than One Million Five Hundred Thousand Dollars
($1,500,000.00) for the third quarter of fiscal year ending 1997.
6.9 LIQUID ASSETS. Borrower shall maintain, as of the last day of
each calendar month, Liquid Assets of not less than One Million Dollars
($1,000,000.00)
6.10 FURTHER ASSURANCES. At any time and from time to time Borrower
shall execute and deliver such further instruments and take such further action
as may reasonably be requested by Bank to effect the purposes of this Agreement.
7. NEGATIVE COVENANTS
Borrower covenants and agrees that, so long as any Credit Extension
hereunder shall be available and until payment in full of the outstanding
Obligations or for so long as Bank may have any commitment to make any Advances,
Borrower will not do any of the following:
7.1 DISPOSITIONS. Convey, sell, lease, transfer or otherwise
dispose of (collectively, a "Transfer"), or permit any of its Subsidiaries to
Transfer, all or any part of its business or property, other than Transfers: (i)
of inventory in the ordinary course of business, (ii) of non-exclusive licenses
and similar arrangements for the use of the property of Borrower or its
Subsidiaries in the ordinary course of business; (iii) that constitute payment
of normal and usual operating expenses in the ordinary course of business; (iv)
of worn-out or obsolete Equipment; or (v) Equipment whose original cost was not
greater than $100,000.00, in the aggregate.
7.2 CHANGES IN BUSINESS, OWNERSHIP, OR MANAGEMENT, BUSINESS
LOCATIONS. Engage in any business, or permit any of its Subsidiaries to engage
in any business, other than the businesses currently engaged in by Borrower and
any business substantially similar or related thereto (or incidental thereto),
or suffer a material change in Borrower's ownership or management. Borrower will
not, without at least thirty (30) days prior written notification to Bank,
relocate its chief executive office or add any new offices or business
locations.
-13-
<PAGE>
7.3 MERGERS OR ACQUISITIONS. Merge or consolidate, or permit any
of its Subsidiaries to merge or consolidate, with or into any other business
organization, or acquire, or permit any of its Subsidiaries to acquire, all or
substantially all of the capital stock or property of another Person except with
respect to acquisitions of stock or property for a purchase price of not greater
than $250,000.00, in the aggregate, provided no indebtedness is assumed in
connection with such transaction, and provided that the Borrower will,
immediately after the consummation of such transaction, continue to comply with
all terms and conditions of this Agreement.
7.4 INDEBTEDNESS. Create, incur, assume or be or remain liable
with respect to any Indebtedness, or permit any Subsidiary so to do, other than
Permitted Indebtedness.
7.5 ENCUMBRANCES. Create, incur, assume or suffer to exist any
Lien with respect to any of its property, or assign or otherwise convey any
right to receive income, including the sale of any Accounts, or permit any of
its Subsidiaries so to do, except for Permitted Liens.
7.6 DISTRIBUTIONS. Pay any dividends or make any other
distribution or payment on account of or in redemption, retirement or purchase
of any capital stock, other than dividends required to be made to shareholders
in an amount sufficient to cover the tax liability of such shareholders on
account of the attribution of the Borrower's income to such shareholder provided
that such payment does not result (or would result solely as a result of the
passage of time) in an Event of Default.
7.7 INVESTMENTS. Directly or indirectly acquire or own, or make
any Investment in or to any Person, or permit any of its Subsidiaries so to do,
other than Permitted Investments.
7.8 TRANSACTIONS WITH AFFILIATES. Directly or indirectly enter
into or permit to exist any material transaction with any Affiliate of Borrower
except for transactions that are in the ordinary course of Borrower's business,
upon fair and reasonable terms that are no less favorable to Borrower than would
be obtained in an arm's length transaction with a nonaffiliated Person.
7.9 SUBORDINATED DEBT. Make any payment in respect of any
Subordinated Debt, or permit any of its Subsidiaries to make any such payment,
except in compliance with the terms of such Subordinated Debt, or amend any
provision contained in any documentation relating to the Subordinated Debt
without Bank's prior written consent.
7.10 INVENTORY. Store the Inventory with a bailee, warehouseman, or
similar party unless Bank has received a pledge of any warehouse receipt
covering such Inventory. Except for Inventory sold in the ordinary course of
business and except for such other locations as Bank may approve in writing,
Borrower shall keep the Inventory only at the location set forth in Section 10
hereof and such other locations of which Borrower gives Bank prior written
notice and as to which Borrower signs and files a financing statement where
needed to perfect Bank's security interest.
7.11 COMPLIANCE. Become an "investment company" or a company
controlled by an "investment company," within the meaning of the Investment
Company Act of 1940, or become principally engaged in, or undertake as one of
its important activities, the business of extending credit for the purpose of
purchasing or carrying margin stock, or use the proceeds of any Advance for such
purpose; fail to meet the minimum funding requirements of ERISA; permit a
Reportable Event or Prohibited Transaction, as defined in ERISA, to occur; fail
to comply with the Federal Fair Labor Standards Act or violate any other law or
regulation, which violation could have a Material Adverse Effect or a material
adverse effect on the Collateral or the priority of Bank's Lien on the
Collateral; or permit any of its Subsidiaries to do any of the foregoing.
8. EVENTS OF DEFAULT
Any one or more of the following events shall constitute an Event of
Default by Borrower under this Agreement:
8.1 PAYMENT DEFAULT. If Borrower fails to pay, when due, any of
the Obligations.
-14-
<PAGE>
8.2 COVENANT DEFAULT.
(a) If Borrower fails to perform any obligation under
Sections 6.3, 6.6, 6.7, 6.8 or 6.9 or violates any of the covenants contained in
Article 7 of this Agreement, or
(b) If Borrower fails or neglects to perform, keep, or
observe any other material term, provision, condition, covenant, or agreement
contained in this Agreement, in any of the Loan Documents, or in any other
present or future agreement between Borrower and Bank and as to any default
under such other term, provision, condition, covenant or agreement that can be
cured, has failed to cure such default within ten (10) days after the occurrence
thereof; provided, however, that if the default cannot by its nature be cured
within the ten (10) day period or cannot after diligent attempts by Borrower be
cured within such ten (10) day period, and such default is likely to be cured
within a reasonable time, then Borrower shall have an additional reasonable
period (which shall not in any case exceed thirty (30) days) to attempt to cure
such default, and within such reasonable time period the failure to have cured
such default shall not be deemed an Event of Default (provided that no Advances
will be required to be made during such cure period);
8.3 MATERIAL ADVERSE CHANGE. If there (i) occurs a material
adverse change in the business, operations, or condition (financial or
otherwise) of the Borrower, or (ii) is a material impairment of the priority of
Bank's security interests in the Collateral;
8.4 ATTACHMENT. If any material portion of Borrower's assets is
attached, seized, subjected to a writ or distress warrant, or is levied upon, or
comes into the possession of any trustee, receiver or person acting in a similar
capacity and such attachment, seizure, writ or distress warrant or levy has not
been removed, discharged or rescinded within thirty (30) days, or if Borrower is
enjoined, restrained, or in any way prevented by court order from continuing to
conduct all or any material part of its business affairs, or if a judgment or
other claim becomes a lien or encumbrance upon any material portion of
Borrower's assets, or if a notice of lien, levy, or assessment is filed of
record with respect to any of Borrower's assets by the United States Government,
or any department, agency, or instrumentality thereof, or by any state, county,
municipal, or governmental agency, and the same is not paid within thirty (30)
days after Borrower receives notice thereof, provided that none of the foregoing
shall constitute an Event of Default where such action or event is stayed or an
adequate bond has been posted pending a good faith contest by Borrower (provided
that no Credit Extensions will be required to be made during such cure period);
8.5 INSOLVENCY. If Borrower becomes insolvent, or if an Insolvency
Proceeding is commenced by Borrower, or if an Insolvency Proceeding is commenced
against Borrower and is not dismissed or stayed within 30 days (provided that no
Advances will be made prior to the dismissal of such Insolvency Proceeding);
8.6 OTHER AGREEMENTS. If there is a default in any agreement to
which Borrower is a party with a third party or parties resulting in a right by
such third party or parties, whether or not exercised, to accelerate the
maturity of any Indebtedness in an amount in excess of One Hundred Thousand
Dollars ($100,000) or that could have a Material Adverse Effect;
8.7 SUBORDINATED DEBT. If Borrower makes any payment on account of
Subordinated Debt, except to the extent such payment is allowed under any
subordination agreement entered into with Bank;
8.8 JUDGMENTS. If a judgment or judgments for the payment of money
in an amount, individually or in the aggregate, of at least Fifty Thousand
Dollars ($50,000) shall be rendered against Borrower and shall remain
unsatisfied and unstayed for a period of ten (10) days (provided that no Credit
Extensions will be made prior to the satisfaction or stay of such judgment); or
8.9 MISREPRESENTATIONS. If any material misrepresentation or
material misstatement exists now or hereafter in any warranty or representation
set forth herein or in any certificate or writing delivered to Bank by Borrower
or any Person acting on Borrower's behalf pursuant to this Agreement or to
induce Bank to enter into this Agreement or any other Loan Document.
-15-
<PAGE>
9. BANK'S RIGHTS AND REMEDIES
9.1 RIGHTS AND REMEDIES. Upon the occurrence and during the
continuance of an Event of Default, Bank may, at its election, without notice of
its election and without demand, do any one or more of the following, all of
which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this
Agreement, by any of the other Loan Documents, or otherwise,
immediately due and payable (provided that upon the occurrence of an
Event of Default described in Section 8.5 all Obligations shall become
immediately due and payable without any action by Bank);
(b) Cease advancing money or extending credit to or for
the benefit of Borrower under this Agreement or under any other
agreement between Borrower and Bank;
(c) Settle or adjust disputes and claims directly with
account debtors for amounts, upon terms and in whatever order that Bank
reasonably considers advisable;
(d) Without notice to or demand upon Borrower, make such
payments and do such acts as Bank considers necessary or reasonable to
protect its security interest in the Collateral. Borrower agrees to
assemble the Collateral if Bank so requires, and to make the Collateral
available to Bank as Bank may designate. Borrower authorizes Bank to
enter the premises where the Collateral is located, to take and
maintain possession of the Collateral, or any part of it, and to pay,
purchase, contest, or compromise any encumbrance, charge, or lien which
in Bank's determination appears to be prior or superior to its security
interest and to pay all expenses incurred in connection therewith. With
respect to any of Borrower's premises, Borrower hereby grants Bank a
license to enter such premises and to occupy the same, without charge;
(e) Without notice to Borrower set off and apply to the
Obligations any and all (i) balances and deposits of Borrower held by
Bank, or (ii) indebtedness at any time owing to or for the credit or
the account of Borrower held by Bank;
(f) Ship, reclaim, recover, store, finish, maintain,
repair, prepare for sale, advertise for sale, and sell (in the manner
provided for herein) the Collateral. Bank is hereby granted a
non-exclusive, royalty-free license or other right, solely pursuant to
the provisions of this Section 9.1, to use, without charge, Borrower's
labels, patents, copyrights, mask works, rights of use of any name,
trade secrets, trade names, trademarks, service marks, and advertising
matter, or any property of a similar nature, as it pertains to the
Collateral, in completing production of, advertising for sale, and
selling any Collateral and, in connection with Bank's exercise of its
rights under this Section 9.1, Borrower's rights under all licenses and
all franchise agreements shall inure to Bank's benefit;
(g) Sell the Collateral at either a public or private
sale, or both, by way of one or more contracts or transactions, for
cash or on terms, in such manner and at such places (including
Borrower's premises) as Bank determines is commercially reasonable, and
apply the proceeds thereof to the Obligations in whatever manner or
order it deems appropriate;
(h) Bank may credit bid and purchase at any public sale,
or at any private sale as permitted by law; and
(i) Any deficiency that exists after disposition of the
Collateral as provided above will be paid immediately by Borrower.
9.2 POWER OF ATTORNEY. Effective only upon the occurrence and
uring the continuance of an Event of Default, Borrower hereby irrevocably
appoints Bank (and any of Bank's designated officers, or employees) as
Borrower's true and lawful attorney to: (a) send requests for verification of
Accounts or notify account debtors of Bank's security
-16-
<PAGE>
interest in the Accounts; (b) endorse Borrower's name on any checks or other
forms of payment or security that may come into Bank's possession; (c) sign
Borrower's name on any invoice or bill of lading relating to any Account, drafts
against account debtors, schedules and assignments of Accounts, verifications of
Accounts, and notices to account debtors; (d) make, settle, and adjust all
claims under and decisions with respect to Borrower's policies of insurance; and
(e) settle and adjust disputes and claims respecting the accounts directly with
account debtors, for amounts and upon terms which Bank determines to be
reasonable. The appointment of Bank as Borrower's attorney in fact, and each and
every one of Bank's rights and powers, being coupled with an interest, is
irrevocable until all of the Obligations have been fully repaid and performed
and Bank's obligation to provide advances hereunder is terminated.
9.3 ACCOUNTS COLLECTION. Upon the occurrence and during the
continuance of an Event of Default, Bank may notify any Person owing funds to
Borrower of Bank's security interest in such funds and verify the amount of such
Account, and Borrower shall collect all amounts owing to Borrower for Bank,
receive in trust all payments as Bank's trustee, and if requested or required by
Bank, immediately deliver such payments to Bank in their original form as
received from the account debtor, with proper endorsements for deposit.
9.4 BANK EXPENSES. If Borrower fails to pay any amounts or furnish
any required proof of payment due to third persons or entities, as required
under the terms of this Agreement, then Bank may do any or all of the following:
(a) make payment of the same or any part thereof; (b) set up such reserves under
the Committed Revolving Line as Bank deems necessary to protect Bank from the
exposure created by such failure; or (c) obtain and maintain insurance policies
of the type discussed in Section 6.6 of this Agreement, and take any action with
respect to such policies as Bank deems prudent. Any amounts so paid or deposited
by Bank shall constitute Bank Expenses, shall be immediately due and payable,
and shall bear interest at the then applicable rate hereinabove provided, and
shall be secured by the Collateral. Any payments made by Bank shall not
constitute an agreement by Bank to make similar payments in the future or a
waiver by Bank of any Event of Default under this Agreement.
9.5 BANK'S LIABILITY FOR COLLATERAL. So long as Bank complies with
reasonable banking practices, Bank shall not in any way or manner be liable or
responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage
thereto occurring or arising in any manner or fashion from any cause; (c) any
diminution in the value thereof; or (d) any act or default of any carrier,
warehouseman, bailee, forwarding agency, or other person whomsoever. All risk of
loss, damage or destruction of the Collateral shall be borne by Borrower.
9.6 REMEDIES CUMULATIVE. Bank's rights and remedies under this
Agreement, the Loan Documents, and all other agreements shall be cumulative.
Bank shall have all other rights and remedies not expressly set forth herein as
provided under the Code, by law, or in equity. No exercise by Bank of one right
or remedy shall be deemed an election, and no waiver by Bank of any Event of
Default on Borrower's part shall be deemed a continuing waiver. No delay by Bank
shall constitute a waiver, election, or acquiescence by it. No waiver by Bank
shall be effective unless made in a written document signed on behalf of Bank
and then shall be effective only in the specific instance and for the specific
purpose for which it was given.
9.7 DEMAND; PROTEST. Borrower waives demand, protest, notice of
protest, notice of default or dishonor, notice of payment and nonpayment, notice
of any default, nonpayment at maturity, release, compromise, settlement,
extension, or renewal of accounts, documents, instruments, chattel paper, and
guarantees at any time held by Bank on which Borrower may in any way be liable.
10. NOTICES
Unless otherwise provided in this Agreement, all notices or demands by
any party relating to this Agreement or any other agreement entered into in
connection herewith shall be in writing and (except for financial statements and
other informational documents which may be sent by first-class mail, postage
prepaid) shall be personally delivered or sent by a recognized overnight
delivery service, by certified mail, postage prepaid, return receipt requested,
or by telefacsimile to Borrower or to Bank, as the case may be, at its addresses
set forth below:
-17-
<PAGE>
If to Borrower Bluestone Software, Inc.
1000 Briggs Road
Mount Laurel, New Jersey 08054-4101
Attn: Mr. Enrico Ballezzi, CFO
FAX: (609) 727-3833
If to Bank Silicon Valley Bank
40 William Street
Wellesley, Massachusetts 02181
Attn: Pamela J. Aldsworth, Vice President
FAX: (781) 431-9906
with a copy to: Riemer & Braunstein
Three Center Plaza
Boston, Massachusetts 02108
Attn: David A. Ephraim, Esquire
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other.
11. CHOICE OF LAW AND VENUE; JURY WAIVER
The laws of the Commonwealth of Massachusetts shall apply to this
Agreement. BORROWER ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES,
UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT OF
COMPETENT JURISDICTION IN THE COMMONWEALTH OF MASSACHUSETTS IN ANY ACTION, SUIT,
OR PROCEEDING OF ANY KIND, AGAINST IT WHICH ARISES OUT OF OR BY REASON OF THIS
AGREEMENT; PROVIDED, HOWEVER, THAT IF FOR ANY REASON BANK CANNOT AVAIL ITSELF OF
THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS, BORROWER ACCEPTS JURISDICTION
OF THE COURTS AND VENUE IN SANTA CLARA COUNTY, CALIFORNIA.
BORROWER AND BANK EACH HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY
TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE
LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER
CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT. EACH
PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL
COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
12. GENERAL PROVISIONS
12.1 SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure to
the benefit of the respective successors and permitted assigns of each of the
parties; PROVIDED, HOWEVER, that neither this Agreement nor any rights hereunder
may be assigned by Borrower without Bank's prior written consent, which consent
may be granted or withheld in Bank's sole discretion. Bank shall have the right
without the consent of or notice to Borrower to sell, transfer, negotiate, or
grant participation in all or any part of, or any interest in, Bank's
obligations, rights and benefits hereunder.
12.2 INDEMNIFICATION. Borrower shall , indemnify ,defend, protect
and hold harmless Bank and its officers, employees, and agents against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any other
party in connection with the transactions contemplated by the Loan Documents;
and (b) all losses or Bank Expenses in any way suffered, incurred, or paid by
Bank as a result of or in any way arising out of, following, or consequential to
-18-
<PAGE>
transactions between Bank and Borrower whether under the Loan Documents, or
otherwise (including without limitation reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.
12.3 TIME OF ESSENCE. Time is of the essence for the performance of
all obligations set forth in this Agreement.
12.4 SEVERABILITY OF PROVISIONS. Each provision of this Agreement
shall be severable from every other provision of this Agreement for the purpose
of determining the legal enforceability of any specific provision.
12.5 AMENDMENTS IN WRITING, INTEGRATION. This Agreement cannot be
amended or terminated except by a writing signed by Borrower and Bank. All prior
agreements, understandings, representations, warranties, and negotiations
between the parties hereto with respect to the subject matter of this Agreement,
if any, are merged into this Agreement and the Loan Documents.
12.6 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same Agreement.
12.7 SURVIVAL. All covenants, representations and warranties made
in this Agreement shall continue in full force and effect so long as any
Obligations remain outstanding. The obligations of Borrower to indemnify Bank
with respect to the expenses, damages, losses, costs and liabilities described
in Section 12.2 shall survive until all applicable statute of limitations
periods with respect to actions that may be brought against Bank have run.
12.8 CONFIDENTIALITY. In handling any confidential information Bank
shall exercise the same degree of care that it exercises with respect to its own
proprietary information of the same types to maintain the confidentiality of any
non-public information thereby received or received pursuant to this Agreement
except that disclosure of such information may be made (i) to the subsidiaries
or affiliates of Bank in connection with their present or prospective business
relations with Borrower, (ii) to prospective transferees or purchasers of any
interest in the Loans, provided that they have entered into a comparable
confidentiality agreement in favor of Borrower and have delivered a copy to
Borrower, (iii) as required by law, regulations, rule or order, subpoena,
judicial order or similar order, (iv) as may be required in connection with the
examination, audit or similar investigation of Bank, and (v) as Bank may deem
appropriate in connection with the exercise of any remedies hereunder.
Confidential information hereunder shall not include information that either:
(a) is in the public domain or in the knowledge or possession of Bank when
disclosed to Bank, or becomes part of the public domain after disclosure to Bank
through no fault of Bank; or (b) is disclosed to Bank by a third party, provided
Bank does not have actual knowledge that such third party is prohibited from
disclosing such information.
12.9 COUNTERSIGNATURE. This Agreement shall become effective only
when it shall have been executed by Borrower and Bank (provided, however, in no
event shall this Agreement become effective until signed by an officer of Bank
in California).
-19-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
BLUESTONE SOFTWARE, INC.
By:/s/ E.J. Ballezzi
---------------------------------------------
Title: Chief Financial Officer
------------------------------------------
SILICON VALLEY BANK, d/b/a SILICON VALLEY
EAST
By:/s/ Pamela Aldsworth
---------------------------------------------
Name: Pamela Aldsworth
-------------------------------------------
Title: Vice President
------------------------------------------
SILICON VALLEY BANK
By:/s/ Michael Jordan
---------------------------------------------
Name: Michael Jordan
-------------------------------------------
Title: Loan Docs Officer
------------------------------------------
(Signed in Santa Clara County, California)
-20-
<PAGE>
Exhibit 10.21
FIRST LOAN MODIFICATION AGREEMENT
This First Loan Modification Agreement is entered into as of
August 16, 1998, by and between BLUESTONE SOFTWARE, INC., a Delaware
corporation with its principal place of business at 1000 Briggs Road, Mount
Laurel, New Jersey 08054-4101 ("Borrower") and SILICON VALLEY BANK, a
California-chartered bank ("Bank"), with its principal place of business at 3003
Tasman Drive, Santa Clara, CA 95054 and with a loan production office located at
Wellesley Office Park, 40 William Street, Suite 350, Wellesley, MA 02481, doing
business under the name "Silicon Valley East".
1. DESCRIPTION OF EXISTING INDEBTEDNESS. Among other indebtedness which may be
owing by Borrower to Bank, Borrower is indebted to Bank pursuant to a loan
arrangement dated as of December 8, 1997, evidenced by, among other documents, a
certain Loan and Security Agreement dated as of December 8, 1997 (the "Loan
Agreement"). The Loan Agreement established in favor of the Borrower: (i) a
revolving line of credit in the maximum principal amount of One Million Seven
Hundred Fifty Thousand Dollars ($1,750,000.00) (the "Revolving Line"), and (ii)
an equipment line of credit in the maximum principal amount of Five Hundred
Thousand Dollars ($500,000.00) (the "Equipment Line"). Capitalized terms used
but not otherwise defined herein shall have the same meaning as in the Loan
Agreement.
Hereinafter, all indebtedness owing by Borrower to Bank shall be referred to as
the "Indebtedness".
2. DESCRIPTION OF COLLATERAL AND GUARANTIES. Repayment of the Indebtedness is
secured by the Collateral as described in the Loan Agreement (together with any
other collateral security granted to Bank, the "Security Documents").
Hereinafter, the Security Documents, together with all other documents
evidencing or securing the Indebtedness shall be referred to as the "Existing
Loan Documents".
3. DESCRIPTION OF CHANGE IN TERMS.
A. MODIFICATION(S) TO LOAN AGREEMENT.
1. The Loan Agreement shall be amended by deleting the
following definition appearing in Section 1.1
thereof:
""Committed Equipment Line" means a credit
extension of up to Five Hundred Thousand
Dollars ($500,000.00)."
and inserting in lieu thereof the following:
""Committed Equipment Line" means a credit
extension of up to Two Million Dollars
($2,000,000.00). Notwithstanding the
foregoing, the Committed Equipment Line
shall be reduced by the outstanding balance
of Equipment Advances made to Borrower
pursuant to Section 2.1.2 hereof."
2. The Loan Agreement shall be amended by inserting the
following new definition after the definition of
"Credit Extension" appearing in Section 1.1 thereof:
""Current Liabilities" means, as of any
applicable date, all amounts that should, in
accordance with GAAP, be included as current
liabilities on the consolidated balance
sheet of Borrower and its Subsidiaries, as
at such
<PAGE>
date, plus, to the extent not already
included therein, all outstanding Credit
Extensions made under this Agreement,
including all Indebtedness that is payable
upon demand or within one year from the date
of determination thereof unless such
Indebtedness is renewable or extendable at
the option of Borrower or any Subsidiary to
a date more than one year from the date of
determination, but excluding Subordinated
Debt, and excluding deferred revenues."
3. The Loan Agreement shall be amended by deleting the
following definition appearing in Section 1.1
thereof:
""Maturity Date" means the later of the
Equipment Maturity Date or the Revolving
Maturity Date."
and inserting in lieu thereof the following:
""Maturity Date" means the later of the
Second Equipment Maturity Date or the
Revolving Maturity Date."
4. The Loan Agreement shall be amended by inserting the
following new definition after the definition of
"Prime Rate" appearing in Section 1.1 thereof:
""Quick Assets" means, as of any applicable
date, the consolidated cash, cash
equivalents, accounts receivable and
investments with maturities of fewer than 90
days of Borrower determined in accordance
with GAAP."
5. No further Equipment Advances shall be made under
Section 2.1.2.
6. The Loan Agreement shall be amended by inserting
after Section 2.1.2 thereof entitled "Equipment
Advances" the following new section:
"2.1.2.A. 1998-1999 EQUIPMENT ADVANCES.
(a) Subject to and upon the terms and conditions of
this Agreement, at any time through March 31, 1999
(the "Second Equipment Availability End Date"), Bank
agrees to make Equipment Advances under this Section
2.1.2.A to Borrower in an aggregate outstanding
amount not to exceed the Committed Equipment Line. To
evidence the Equipment Advance or Equipment Advances,
Borrower shall deliver to Bank, at the time of each
Equipment Advance request, an invoice for the
equipment to be purchased. The Equipment Advances
shall be used only to purchase Equipment or refinance
Equipment purchased after January 1, 1998 and shall
not exceed One Hundred Percent (100%) of the invoice
amount of such equipment approved from time to time
by Bank, excluding taxes, shipping, warranty charges,
freight discounts and installation expense. Software
may, however, constitute up to twenty-five percent
(25.0%) of aggregate Equipment Advances under this
Section 2.1.2.A.
(b) Interest shall accrue from the date of each
Equipment Advance made pursuant to this Section
2.1.2.A at a per annum rate equal to One and One
Quarter percentage points (1.25%) above the Prime
Rate and shall be payable monthly on
-2-
<PAGE>
the Payment Date of each month through the month in
which the Second Equipment Availability End Date
falls. Amounts currently amortizing under Section
2.1.2 above shall continue to be repaid as provided
in Section 2.1.2 above, and shall be treated as
existing Equipment Advances under the Committed
Equipment Line. Any Equipment Advances made pursuant
to this Section 2.1.2.A that are outstanding on the
Second Equipment Availability End Date will be
payable in thirty-six (36) equal monthly installments
of principal, plus all accrued interest, beginning on
the Payment Date of each month following the Second
Equipment Availability End Date and ending on March
31, 2002 (the "Second Equipment Maturity Date").
Equipment Advances, once repaid, my not be
reborrowed.
(c) When Borrower desires to obtain an Equipment
Advance, Borrower shall notify Bank (which notice
shall be irrevocable) by facsimile transmission to be
received no later than 3:00 p.m. Pacific time one (1)
Business Day before the day on which the Equipment
Advance is to be made. Such notice shall be
substantially in the form of Exhibit B. The notice
shall be signed by a Responsible Officer or its
designee and include a copy of the invoice for the
Equipment to be financed."
7. The Loan Agreement shall be amended by deleting the
following text appearing as paragraph (a) of Section
2.3 entitled "Interest Rates, Payments, and
Calculations":
"(a) INTEREST RATE. Except as set forth in
Section 2.3(b), any Advances shall bear
interest, on the average daily balance
thereof, at a per annum rate equal to One
and One Half percentage point (1.50%) above
the Prime Rate."
and inserting in lieu thereof the following:
"(a) INTEREST RATE. Except as set forth in
Section 2.3(b), any Advances made pursuant
to Section 2.1.1 shall bear interest, on the
average daily balance thereof, at a per
annum rate equal to Three Quarters of One
percentage point (0.75%) above the Prime
Rate."
8. The Loan Agreement shall be amended by deleting the
following text appearing in the first paragraph of
Section 6.3 entitled "Financial Statements, Reports,
Certificates":
"(b) as soon as available, but in any event
within ninety (90) days after the end of
Borrower's fiscal year, audited consolidated
financial statements of Borrower prepared in
accordance with GAAP, consistently applied,
together with an unqualified opinion on such
financial statements of an independent
certified public accounting firm reasonably
acceptable to Bank;"
and inserting in lieu thereof the following:
"(b) as soon as available, but in any event
within one hundred twenty (120) days after
the end of Borrower's fiscal year, audited
consolidated financial statements of
Borrower prepared in accordance with GAAP,
consistently applied, together with an
unqualified opinion on such financial
statements
-3-
<PAGE>
of an independent certified public
accounting firm reasonably acceptable to
Bank;"
9. The Loan Agreement shall be amended by deleting the
following text appearing as Sections 6.8 and 6.9
thereof:
"6.8 TANGIBLE NET WORTH. Borrower shall
maintain, as of the last day of each
calendar month, a Tangible Net Worth of not
less than One Million Dollars
($1,000,000.00); provided however, the
Borrower shall evidence a Tangible Net Worth
of not less than One Million Five Hundred
Thousand Dollars ($1,500,000.00) for the
third quarter of fiscal year ending 1997.
"6.9 LIQUID ASSETS. Borrower shall maintain,
as of the last day of each calendar month,
Liquid Assets of not less than One Million
Dollars ($1,000,000.00)."
and inserting in lieu thereof the following:
""6.8 TANGIBLE NET WORTH. Borrower shall
maintain, as of the last day of each
calendar month, a Tangible Net Worth of not
less than Three Million Dollars
($3,000,000.00). For purposes hereof,
Tangible Net Worth shall be defined as
Borrower's equity plus Subordinated Debt
less intangible assets.
6.9 ADJUSTED QUICK RATIO. Borrower shall
maintain, as of the last day of each
calendar month, a ratio of Quick Assets to
Current Liabilities of at least 1.25 to
1.0."
10. The Compliance Certificate appearing as EXHIBIT D to
the Loan Agreement is hereby replaced with the
Compliance Certificate attached as EXHIBIT A hereto.
4. FEE. Borrower shall pay to Bank a modification fee equal to Three Thousand
Seven Hundred Fifty Dollars ($3,750.00), which fee shall be due on the date
hereof and which shall be deemed fully earned as of the date hereof. The
Borrower shall also reimburse Lender for legal fees and expenses incurred in
connection with this amendment to the Loan Documents.
5. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended wherever
necessary to reflect the changes described above.
6. RATIFICATION OF LOAN DOCUMENTS. Borrower hereby ratifies, confirms, and
reaffirms all terms and conditions of all security or other collateral granted
to the Bank, and confirms that the indebtedness secured thereby includes,
without limitation, the Indebtedness.
7. NO DEFENSES OF BORROWER. Borrower agrees that, as of this date, it has no
defenses against the obligations to pay any amounts under the Indebtedness.
8. CONTINUING VALIDITY. Borrower understands and agrees that in modifying the
existing Indebtedness, Bank is relying upon Borrower's representations,
warranties, and agreements, as set forth in the Existing Loan Documents. Except
as expressly modified pursuant to this Loan Modification Agreement, the terms of
the Existing Loan Documents remain unchanged and in full force and effect.
-4-
<PAGE>
Bank's agreement to modifications to the existing Indebtedness pursuant to this
Loan Modification Agreement in no way shall obligate Bank to make any future
modifications to the Indebtedness. Nothing in this Loan Modification Agreement
shall constitute a satisfaction of the Indebtedness. It is the intention of Bank
and Borrower to retain as liable parties all makers and endorsers of Existing
Loan Documents, unless the party is expressly released by Bank in writing. No
maker, endorser, or guarantor will be released by virtue of this Loan
Modification Agreement.
9. JURISDICTION/VENUE. Borrower accepts for itself and in connection with its
properties, unconditionally, the non-exclusive jurisdiction of any state or
federal court of competent jurisdiction in the Commonwealth of Massachusetts in
any action, suit, or proceeding of any kind against it which arises out of or by
reason of this Loan Modification Agreement; provided, however, that if for any
reason Bank cannot avail itself of the courts of the Commonwealth of
Massachusetts, then venue shall lie in Santa Clara County, California.
10. COUNTERSIGNATURE. This Loan Modification Agreement shall become effective
only when it shall have been executed by Borrower and Bank (provided, however,
in no event shall this Loan Modification Agreement become effective until signed
by an officer of Bank in California).
This Loan Modification Agreement is executed as of the date first
written above.
BORROWER: BANK:
BLUESTONE SOFTWARE, INC. SILICON VALLEY BANK, doing business as
SILICON VALLEY EAST
By:/s/ E. J. Ballezzi By:/s/ Pamela Aldsworth
------------------------------- -------------------------------
Name: E. J. Ballezzi Name: Pamela Aldsworth
----------------------------- -----------------------------
Title: Chief Financial Officer Title: Vice President
---------------------------- ----------------------------
SILICON VALLEY BANK
By:/s/ Michelle D. Giannini
------------------------------
Name: Michelle D. Giannini
----------------------------
Title: Assistant Vice President
---------------------------
(signed in Santa Clara County,
California)
-5-
<PAGE>
Exhibit 10.22
SECOND LOAN MODIFICATION AGREEMENT
This Second Loan Modification Agreement is entered into as of
January 21, 1999, by and between BLUESTONE SOFTWARE, INC., a Delaware
corporation with its principal place of business at 1000 Briggs Road, Mount
Laurel, New Jersey 08054-4101 ("Borrower") and SILICON VALLEY BANK, a
California-chartered bank ("Bank"), with its principal place of business at
3003 Tasman Drive, Santa Clara, CA 95054 and with a loan production office
located at Wellesley Office Park, 40 William Street, Suite 350, Wellesley, MA
02481, doing business under the name "Silicon Valley East".
1. DESCRIPTION OF EXISTING INDEBTEDNESS. Among other indebtedness which may be
owing by Borrower to Bank, Borrower is indebted to Bank pursuant to a loan
arrangement dated as of December 8, 1997, evidenced by, among other documents, a
certain Loan and Security Agreement dated as of December 8, 1997 between
Borrower and Bank, as amended by a First Loan Modification Agreement dated as of
August 16, 1998 (as amended, the "Loan Agreement"). The Loan Agreement
established in favor of the Borrower: (i) a revolving line of credit in the
maximum principal amount of One Million Seven Hundred Fifty Thousand Dollars
($1,750,000.00) (the "Revolving Line"), and (ii) an equipment line of credit in
the maximum principal amount of Two Million Dollars ($2,000,000.00) (the
"Equipment Line"). Capitalized terms used but not otherwise defined herein shall
have the same meaning as in the Loan Agreement.
Hereinafter, all indebtedness owing by Borrower to Bank shall be referred to as
the "Indebtedness".
2. DESCRIPTION OF COLLATERAL AND GUARANTIES. Repayment of the Indebtedness is
secured by the Collateral as described in the Loan Agreement (together with any
other collateral security granted to Bank, the "Security Documents").
Hereinafter, the Security Documents, together with all other documents
evidencing or securing the Indebtedness shall be referred to as the "Existing
Loan Documents".
3. DESCRIPTION OF CHANGE IN TERMS.
A. MODIFICATION(S) TO LOAN AGREEMENT.
1. No further Advances shall be made under the Committed
Revolving Line. The outstanding principal balance of
Advances made under the Committed Revolving Line, as
of January 12, 1999, is Four Hundred Seventy-Three
Thousand Three Hundred Sixty-Five and 53/100 Dollars
($473,365.53).
2. No further Equipment Advances shall be made under
Section 2.1.2.A. The outstanding principal balance of
all Equipment Advances made pursuant to Section
2.1.2.A, as of January 12, 1999, is Nine Hundred
Fifty-Nine Thousand Eighty-Five Dollars
($959,085.00).
All Equipment Advances currently amortizing under
Section 2.1.2 shall continue to be repaid as provided
in Section 2.1.2. The outstanding principal balance
of all Equipment Advances made pursuant to Section
2.1.2, as of January 12, 1999, is One Hundred
Ninety-One Thousand Four Hundred Fifteen and 88/100
Dollars ($191,415.88).
<PAGE>
3. The Loan Agreement shall be amended by deleting the
following definition appearing in Section 1.1
thereof:
""Borrowing Base" means an amount equal to
(i) Eighty percent (80%) of Eligible
Accounts as determined by Bank with
reference to the most recent Borrowing Base
Certificate delivered by Borrower, plus (ii)
an amount equal to One Hundred percent
(100.0%) of any Certificate of Deposit
maintained at the Bank, and specifically
pledged to Bank, up to $400,000.00."
and inserting in lieu thereof the following:
""Borrowing Base" means an amount equal to
Eighty percent (80%) of Eligible Accounts,
as determined by Bank with reference to the
most recent Borrowing Base Certificate
delivered by Borrower."
4. The Loan Agreement shall be amended by deleting the
following definition appearing in Section 1.1
thereof:
""Revolving Maturity Date" shall mean one
day prior to the date which is one year from
the Closing Date."
and inserting in lieu thereof the following:
""Revolving Maturity Date" shall mean
February 7, 1999."
5. The Loan Agreement shall be amended by inserting the
following new definition after the definition of
"Subordinated Debt" appearing in Section 1.1 thereof:
""Subordinated Loan" means a loan between
the Borrower and investors acceptable to the
Bank, which loan shall be expressly
subordinate to the Bank with respect to
amount and security interest and shall be on
terms and conditions acceptable to the Bank
in its sole and absolute discretion."
6. The Bank hereby waives: (i) Borrower's existing
Default under the Loan Agreement by virtue of
Borrower's failure to comply with the Tangible Net
Worth covenant in Section 6.8 thereof as of the
months ending October 31, 1998, November 30, 1998,
and December 31, 1998, and (ii) Borrower's existing
Default under the Loan Agreement by virtue of
Borrower's failure to comply with the Adjusted Quick
Ratio covenant in Section 6.9 thereof as of the
months ending October 31, 1998, November 30, 1998,
and December 31, 1998. Bank's waiver of Borrower's
compliance of said covenants shall apply only to the
foregoing periods. NOTWITHSTANDING THE FOREGOING, THE
BANK'S WAIVER OF BORROWER'S COMPLIANCE OF THE
FOREGOING COVENANTS SHALL BE EFFECTIVE ONLY IF: (i)
THE SUBORDINATED LOAN CLOSES ON OR BEFORE JANUARY 15,
1999, AND (ii) THE AGGREGATE AMOUNT OF THE ---
SUBORDINATED LOAN IS NO LESS THAN FOUR MILLION FIVE
HUNDRED THOUSAND DOLLARS ($4,500,000.00).
-2-
<PAGE>
7. The aggregate amount of the Subordinated Loan which
remains undrawn by the Borrower shall be considered
"cash" for purposes of the Tangible Net Worth
covenant appearing in Section 6.8 and the Adjusted
Quick Ratio covenant appearing in Section 6.9.
8. The Loan Agreement shall be amended by deleting the
following text appearing as Section 6.10 thereof:
"6.10 FURTHER ASSURANCES. At any time and
from time to time Borrower shall execute and
deliver such further instruments and take
such further action as may reasonably be
requested by Bank to effect the purposes of
this Agreement."
and inserting in lieu thereof the following:
"6.10 SUBORDINATE FINANCING. The Borrower
shall enter into the Subordinated Loan on
terms and with investors acceptable to the
Bank on or before January 15, 1999 in the
minimum aggregate amount of Four Million
Five Hundred Thousand Dollars
($4,500,000.00).
6.11 FURTHER ASSURANCES. At any time and
from time to time Borrower shall execute and
deliver such further instruments and take
such further action as may reasonably be
requested by Bank to effect the purposes of
this Agreement."
9. The Loan Agreement shall be amended by deleting the
following text appearing as paragraph (a) of Section
8.2 entitled "Covenant Default":
"(a) If Borrower fails to perform any
obligation under Sections 6.3, 6.6, 6.7,
6.8, or 6.9 or violates any of the covenants
contained in Article 7 of this Agreement,"
and inserting in lieu thereof the following:
"(a) If Borrower fails to perform any
obligation under Sections 6.3, 6.6, 6.7,
6.8, 6.9, or 6.10 or violates any of the
covenants contained in Article 7 of this
Agreement,"
10. The Borrower shall within thirty (30) days of the
date of this Second Loan Modification Agreement
deliver to the Bank the certificate referred to in
Section 2.7 of that certain Warrant to Purchase Stock
issued on November 24, 1997 by the Borrower to the
Bank.
11. The Borrower ratifies, confirms and reaffirms, all
and singular, the terms and conditions of a certain
Negative Pledge Agreement dated August 16, 1998
between Borrower and Bank, and acknowledges, confirms
and agrees that said Negative Pledge Agreement shall
remain in full force and effect.
12. The Compliance Certificate appearing as EXHIBIT D to
the Loan Agreement is hereby replaced with the
Compliance Certificate attached as EXHIBIT A hereto.
-3-
<PAGE>
4. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended wherever
necessary to reflect the changes described above.
5. RATIFICATION OF LOAN DOCUMENTS. Borrower hereby ratifies, confirms, and
reaffirms all terms and conditions of all security or other collateral granted
to the Bank, and confirms that the indebtedness secured thereby includes,
without limitation, the Indebtedness.
6. NO DEFENSES OF BORROWER. Borrower agrees that, as of this date, it has no
defenses against the obligations to pay any amounts under the Indebtedness.
7. CONTINUING VALIDITY. Borrower understands and agrees that in modifying the
existing Indebtedness, Bank is relying upon Borrower's representations,
warranties, and agreements, as set forth in the Existing Loan Documents. Except
as expressly modified pursuant to this Loan Modification Agreement, the terms of
the Existing Loan Documents remain unchanged and in full force and effect.
Bank's agreement to modifications to the existing Indebtedness pursuant to this
Loan Modification Agreement in no way shall obligate Bank to make any future
modifications to the Indebtedness. Nothing in this Loan Modification Agreement
shall constitute a satisfaction of the Indebtedness. It is the intention of Bank
and Borrower to retain as liable parties all makers and endorsers of Existing
Loan Documents, unless the party is expressly released by Bank in writing. No
maker, endorser, or guarantor will be released by virtue of this Loan
Modification Agreement.
8. JURISDICTION/VENUE. Borrower accepts for itself and in connection with its
properties, unconditionally, the non-exclusive jurisdiction of any state or
federal court of competent jurisdiction in the Commonwealth of Massachusetts in
any action, suit, or proceeding of any kind against it which arises out of or by
reason of this Loan Modification Agreement; provided, however, that if for any
reason Bank cannot avail itself of the courts of the Commonwealth of
Massachusetts, then venue shall lie in Santa Clara County, California.
9. COUNTERSIGNATURE. This Loan Modification Agreement shall become effective
only when it shall have been executed by Borrower and Bank (provided, however,
in no event shall this Loan Modification Agreement become effective until signed
by an officer of Bank in California).
-4-
<PAGE>
This Loan Modification Agreement is executed as of the date first
written above.
BORROWER: BANK:
BLUESTONE SOFTWARE, INC. SILICON VALLEY BANK, doing business as
SILICON VALLEY EAST
By:/s/ E. J. Ballezzi By: /s/ Ash Lilani
------------------------------- -------------------------------
Name: E. J. Ballezzi Name: Ash Lilani
----------------------------- -----------------------------
Title: Chief Financial Officer Title:
---------------------------- ----------------------------
SILICON VALLEY BANK
By: /s/ Michael Jordan
-------------------------------
Name: Michael Jordan
-----------------------------
Title:
----------------------------
(signed in Santa Clara County,
California)
-5-
<PAGE>
Exhibit 10.23
THIRD LOAN MODIFICATION AGREEMENT
This Third Loan Modification Agreement is entered into as of March 30,
1999, effective as of February 7, 1999, by and between BLUESTONE SOFTWARE, INC.,
a Delaware corporation with its principal place of business at 1000 Briggs Road,
Mount Laurel, New Jersey 08054-4101 ("Borrower") and SILICON VALLEY BANK, a
California-chartered bank ("Bank"), with its principal place of business at 3003
Tasman Drive, Santa Clara, CA 95054 and with a loan production office located at
Wellesley Office Park, 40 William Street, Suite 350, Wellesley, MA 02481, doing
business under the name "Silicon Valley East".
1. DESCRIPTION OF EXISTING INDEBTEDNESS. Among other indebtedness which may be
owing by Borrower to Bank, Borrower is indebted to Bank pursuant to a loan
arrangement dated as of December 8, 1997, evidenced by, among other documents, a
certain Loan and Security Agreement dated as of December 8, 1997 between
Borrower and Bank, as amended by a First Loan Modification Agreement dated as of
August 16, 1998, and as amended by a Second Loan Modification Agreement dated as
of January 21, 1999 (as amended, the "Loan Agreement"). The Loan Agreement
established in favor of the Borrower: (i) a revolving line of credit in the
maximum principal amount of One Million Seven Hundred Fifty Thousand Dollars
($1,750,000.00) (the "Committed Revolving Line"), and (ii) an equipment line of
credit in the maximum principal amount of Two Million Dollars ($2,000,000.00)
(the "Committed Equipment Line"). Capitalized terms used but not otherwise
defined herein shall have the same meaning as in the Loan Agreement.
Hereinafter, all indebtedness owing by Borrower to Bank shall be referred to as
the "Indebtedness".
2. DESCRIPTION OF COLLATERAL. Repayment of the Indebtedness is secured by the
Collateral as described in the Loan Agreement (together with any other
collateral security granted to Bank, the "Security Documents").
Hereinafter, the Security Documents, together with all other documents
evidencing or securing the Indebtedness shall be referred to as the "Existing
Loan Documents".
3. DESCRIPTION OF CHANGE IN TERMS.
A. MODIFICATION(S) TO LOAN AGREEMENT.
1. The Committed Revolving Line shall no longer be
capped at $473,365.53. The "Committed Revolving Line"
shall continue to mean a credit extension of up to
One Million Seven Hundred Fifty Thousand Dollars
($1,750,000.00).
2. The Loan Agreement shall be amended by inserting
immediately following the definition of "Negotiable
Collateral" appearing in Section 1.1 thereof the
following definitions:
""Net Revenue" means, as of any applicable
date, the Borrower's gross revenues (as
defined in accordance with GAAP) less
returns, allowances and discounts.
"Net Revenue Requirement" means the
achievement by the Borrower, as of the last
day of each fiscal quarter, of a minimum Net
Revenue of: (i) Three Million Two Hundred
One Thousand Nine Hundred Fifty-Four Dollars
($3,201,954.00) for the quarter ending March
31, 1999; (ii) Four Million Thirty Thousand
Seven Hundred Ten Dollars ($4,030,710.00)
for the quarter ending June 30, 1999; (iii)
Four Million Six Hundred Twenty-Five
Thousand Four Hundred Forty-Two Dollars
($4,625,442.00) for the quarter ending
September 30, 1999; and (iv) Five Million
Seven Hundred
<PAGE>
Thirty-Three Thousand Four Hundred
Seventy-Nine Dollars ($5,733,479.00) for the
quarter ending December 31, 1999, and for
each quarter thereafter. Borrower's Net
Revenue calculation for each fiscal quarter
shall be included in the Compliance
Certificate as described in Section 6.3
hereof."
3. The Loan Agreement shall be amended by deleting the
following definition appearing in Section 1.1
thereof:
""Revolving Maturity Date" shall mean February 7,
1999."
and inserting in lieu thereof the following:
""Revolving Maturity Date" shall mean April 1, 2000."
4. The Loan Agreement shall be amended by deleting the
following definition appearing in Section 1.1
thereof:
""Subordinated Loan" means a loan between
the Borrower and investors acceptable to the
Bank, which loan shall be expressly
subordinate to the Bank with respect to
amount and security interest and shall be on
terms and conditions acceptable to the Bank
in its sole and absolute discretion."
and inserting in lieu thereof the following:
""Subordinated Loan" means a loan between
the Borrower and certain Investors (as
defined below) dated January 21, 1999,
evidenced by, among other documents, (i) a
certain Convertible Subordinated Secured
Note and Warrant Purchase Agreement dated as
of January 21, 1999, (ii) a certain Security
Agreement dated January 21, 1999, and (iii)
a certain Form of Convertible Subordinated
Secured Note. For purposes hereof
"Investors" shall mean all of the following:
(i) General Electric Capital Corporation,
(ii) The P/A Fund, L.P., (iii) Patricof
Private Investment Club, L.P., (iv) APA
Excelsior IV, L.P., and (v) Coutts & Co.
(Cayman) Ltd., cust. for APA for Excelsior
IV/Offshore, L.P."
5. No further Equipment Advances shall be made under
Section 2.1.2.A. The outstanding principal balance of
all Equipment Advances made pursuant to Section
2.1.2.A, as of March 22, 1999, is Nine Hundred
Fifty-Nine Thousand Eighty-Five Dollars
($959,085.00).
All Equipment Advances currently amortizing under
Section 2.1.2 shall continue to be repaid as provided
in Section 2.1.2. The outstanding principal balance
of all Equipment Advances made pursuant to Section
2.1.2, as of March 22, 1999, is One Hundred
Seventy-Eight Thousand Two Hundred Fourteen and
78/100 Dollars ($178,214.78).
6. The Loan Agreement shall be amended by deleting the
following text appearing as paragraph (a) of Section
2.3 entitled "Interest Rates, Payments, and
Calculations":
"(a) INTEREST RATE. Except as set forth in
Section 2.3(b), any Advances made pursuant
to Section 2.1.1 shall bear interest, on the
average daily
-2-
<PAGE>
balance thereof, at a per annum rate equal
to Three Quarters of One percentage point
(0.75%) above the Prime Rate."
and inserting in lieu thereof the following:
"(a) INTEREST RATE. Except as set forth in
Section 2.3(b), any Advances made pursuant
to Section 2.1.1 shall bear interest, on the
average daily balance thereof, at a per
annum rate equal to Three Quarters of One
percentage point (0.75%) above the Prime
Rate. Notwithstanding the foregoing, if the
Borrower fails to achieve the Net Revenue
Requirement for ANY fiscal quarter, any
Advances shall bear interest (except as set
forth in Section 2.3(b)), on an average
daily balance thereof, effective as of the
first day of the month following the quarter
end in which Borrower failed to achieve such
Net Revenue Requirement, at a per annum rate
equal to the aggregate of the Prime Rate,
PLUS One and One-Quarter percent (1.25%).
The effective interest rate shall not
decrease as a result of the compliance by
the Borrower with the Net Revenue
Requirement for subsequent periods."
7. The Loan Agreement shall be amended by deleting the
following text appearing as the second paragraph of
Section 6.3 entitled "Financial Statements, Reports,
Certificates":
"Within fifteen (15) days after the last day
of each month, Borrower shall deliver to
Bank a Borrowing Base Certificate signed by
a Responsible Officer in substantially the
form of EXHIBIT C hereto, together with aged
listings of accounts receivable."
and inserting in lieu thereof the following:
"Borrower shall deliver to Bank, on a
semi-monthly basis within seven (7) business
days of the fifteenth (15th) and last day of
each month, a Borrowing Base Certificate
signed by a Responsible Officer in
substantially the form of EXHIBIT C hereto,
together with aged listings of accounts
receivable. Notwithstanding the foregoing,
if at any time during the preceding month
the outstanding principal balance under the
Committed Revolving Line is no greater than
$1,000,000.00, the Borrowing Base
Certificate and the aged listings of
accounts receivable shall be delivered by
Borrower to Bank within fifteen (15) days of
the last day of each such month."
8. The Loan Agreement shall be amended by deleting the
following text appearing as the fourth paragraph of
Section 6.3 entitled "Financial Statements, Reports,
Certificates":
"Bank shall have a right from time to time
hereafter to audit Borrower's Accounts at
Borrower's expense, provided that such
audits will be conducted no more often than
every six (6) months unless an Event of
Default has occurred and is continuing;
provided however, should the first audit of
Borrower's Accounts be satisfactory to the
Bank, as determined in the sole discretion
of the Bank, such audits will be conducted
no more often than every twelve (12) months
unless an Event of Default has occurred and
is continuing."
-3-
<PAGE>
and inserting in lieu thereof the following:
"Bank shall have a right from time to time
hereafter to audit Borrower's Accounts at
Borrower's expense, provided that such
audits will be conducted no more often than
every six (6) months unless an Event of
Default has occurred and is continuing."
9. The Loan Agreement shall be amended by deleting the
following text appearing as Sections 6.8 and 6.9
thereof:
"6.8 TANGIBLE NET WORTH. Borrower shall
maintain, as of the last day of each
calendar month, a Tangible Net Worth of not
less than Three Million Dollars
($3,000,000.00). For purposes hereof,
Tangible Net Worth shall be defined as
Borrower's equity plus Subordinated Debt
less intangible assets.
6.9 ADJUSTED QUICK RATIO. Borrower shall
maintain, as of the last day of each
calendar month, a ratio of Quick Assets to
Current Liabilities of at least 1.25 to
1.0."
and inserting in lieu thereof the following:
"6.8 TANGIBLE NET WORTH. Borrower shall
maintain, as of the last day of each
calendar month, a Tangible Net Worth of not
less than: (i) One Million Seven Hundred
Fifty Thousand Dollars ($1,750,000.00) for
each month through the month ending May 31,
1999, (ii) Three Million Dollars
($3,000,000.00) for the months ending June
30, 1999, July 31, 1999 and August 31, 1999,
and (iii) Four Million Five Hundred Thousand
Dollars ($4,500,000.00) for each month
thereafter. The Bank hereby reserves the
right, in its sole and absolute discretion,
to reset such Tangible Net Worth covenant
upon a public offering of stock by the
Borrower. For purposes hereof, Tangible Net
Worth shall be defined as Borrower's equity
plus Subordinated Debt less intangible
assets.
6.9 ADJUSTED QUICK RATIO. Borrower shall
maintain, as of the last day of each
calendar month, a ratio of Quick Assets to
Current Liabilities of at least 1.50 to
1.0."
10. The aggregate amount of the Subordinated Loan which
remains undrawn by the Borrower, but unconditionally
available to be drawn by the Borrower in immediately
available funds, shall be considered "cash" for
purposes of the Tangible Net Worth covenant appearing
in Section 6.8 and the Adjusted Quick Ratio covenant
appearing in Section 6.9.
11. The Borrower may repay principal and interest amounts
under the Subordinated Loan, PROVIDED that an Event
of Default as defined in the Loan Agreement has not
occurred and is not continuing and would not exist
immediately after such payment.
12. The Borrower hereby ratifies, confirms and reaffirms,
all and singular, the terms and conditions of a
certain Negative Pledge Agreement dated as of August
16, 1998 between Borrower and Bank, and acknowledges,
confirms and agrees that said Negative Pledge
Agreement shall remain in full force and effect.
-4-
<PAGE>
13. The Borrowing Base Certificate appearing as EXHIBIT C
to the Loan Agreement is hereby replaced with the
Compliance Certificate attached as EXHIBIT A hereto.
14. The Compliance Certificate appearing as EXHIBIT D to
the Loan Agreement is hereby replaced with the
Compliance Certificate attached as EXHIBIT B hereto.
4. FEE. Borrower shall pay to Bank a modification fee equal to Eight Thousand
Seven Hundred Fifty Dollars ($8,750.00), which fee shall be due on the date
hereof and shall be deemed fully earned as of the date hereof. ADDITIONALLY, IF
BORROWER FAILS TO ACHIEVE THE NET REVENUE REQUIREMENT (AS DEFINED IN THE LOAN
AGREEMENT, AS AMENDED) FOR ANY FISCAL QUARTER, THE BORROWER SHALL PAY TO BANK A
ONE-TIME FEE EQUAL TO FOUR THOUSAND THREE HUNDRED SEVENTY-FIVE DOLLARS
($4,375.00), WHICH FEE SHALL BE DUE ON THE SAME DUE DATE AS THE COMPLIANCE
CERTIFICATE INDICATING BORROWER'S FAILURE TO ACHIEVE SUCH NET REVENUE
REQUIREMENT AS PROVIDED IN SECTION 6.3 HEREOF. THE ABOVE REFERENCED FEE SHALL BE
NON-REFUNDABLE AND DEEMED FULLY EARNED. The Borrower shall also reimburse Bank
for all legal fees and expenses incurred in connection with this amendment to
the Existing Loan Documents.
5. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended wherever
necessary to reflect the changes described above.
6. RATIFICATION OF LOAN DOCUMENTS. Borrower hereby ratifies, confirms, and
reaffirms all terms and conditions of all security or other collateral granted
to the Bank, and confirms that the indebtedness secured thereby includes,
without limitation, the Indebtedness.
7. NO DEFENSES OF BORROWER. Borrower agrees that, as of this date, it has no
defenses against the obligations to pay any amounts under the Indebtedness.
8. CONTINUING VALIDITY. Borrower understands and agrees that in modifying the
existing Indebtedness, Bank is relying upon Borrower's representations,
warranties, and agreements, as set forth in the Existing Loan Documents. Except
as expressly modified pursuant to this Loan Modification Agreement, the terms of
the Existing Loan Documents remain unchanged and in full force and effect.
Bank's agreement to modifications to the existing Indebtedness pursuant to this
Loan Modification Agreement in no way shall obligate Bank to make any future
modifications to the Indebtedness. Nothing in this Loan Modification Agreement
shall constitute a satisfaction of the Indebtedness. It is the intention of Bank
and Borrower to retain as liable parties all makers of Existing Loan Documents,
unless the party is expressly released by Bank in writing. No maker will be
released by virtue of this Loan Modification Agreement.
9. JURISDICTION/VENUE. Borrower accepts for itself and in connection with its
properties, unconditionally, the non-exclusive jurisdiction of any state or
federal court of competent jurisdiction in the Commonwealth of Massachusetts in
any action, suit, or proceeding of any kind against it which arises out of or by
reason of this Loan Modification Agreement; provided, however, that if for any
reason Bank cannot avail itself of the courts of the Commonwealth of
Massachusetts, then venue shall lie in Santa Clara County, California.
10. COUNTERSIGNATURE. This Loan Modification Agreement shall become effective
only when it shall have been executed by Borrower and Bank (provided, however,
in no event shall this Loan Modification Agreement become effective until signed
by an officer of Bank in California).
-5-
<PAGE>
This Loan Modification Agreement is executed as a sealed instrument
under the laws of the Commonwealth of Massachusetts as of the date first written
above.
BORROWER: BANK:
BLUESTONE SOFTWARE, INC. SILICON VALLEY BANK, doing business as
SILICON VALLEY EAST
By: /s/ P. Kevin Kilroy By: /s/ Michael J. Tramack
---------------------------------- -----------------------------------
Name: P. Kevin Kilroy Name: Michael J. Tramack
-------------------------------- ---------------------------------
Title: President Title: Assistant Vice President
------------------------------- --------------------------------
SILICON VALLEY BANK
By: /s/ Michael Jordan
-----------------------------------
Name: Michael Jordan
---------------------------------
Title: Assistant Vice President
--------------------------------
(signed in Santa Clara County,
California)
-6-
<PAGE>
Exhibit 10.24
NEGATIVE PLEDGE AGREEMENT
This Negative Pledge Agreement is made as of August 16, 1998, by
and between BLUESTONE SOFTWARE, INC., a Delaware corporation with a chief
executive office located at 1000 Briggs Road, Mount Laurel, New Jersey
08054-4101 ("Borrower") and SILICON VALLEY BANK, a California-chartered bank,
with its principal place of business at 3003 Tasman Drive, Santa Clara,
California 95054 and with a loan production office located at Wellesley Office
Park, 40 William Street, Suite 350, Wellesley, Massachusetts 02481, doing
business under the name "Silicon Valley East" ("Bank").
In connection with the Loan and Security Agreement and the other Loan Documents,
as defined in the Loan and Security Agreement, executed between Borrower and
Bank dated December 8, 1997, as amended by a First Loan Modification Agreement
executed herewith (the "Loan Documents"), Borrower agrees as follows:
1. Except for the granting of licenses by Borrower in the
ordinary course of business, Borrower shall not sell,
transfer, assign, mortgage, pledge, lease, grant a security
interest in, or encumber any of Borrower's Intellectual
Property (as defined below).
2. Borrower has not, and shall not, enter into a negative pledge
agreement, or similar agreement, affecting the rights of the
Intellectual Property with any other party.
3. It shall be an event of default under the Loan Documents (as
defined in the Loan and Security Agreement) between Borrower
and Bank if there is a breach of any term of this Negative
Pledge Agreement.
4. As used herein,
(a) "Intellectual Property" means:
(i) Any and all Copyrights;
(ii) Any and all trade secrets, and any and all
intellectual property rights in computer
software and computer software products now
or hereafter existing, created, acquired or
held;
(iii) Any and all design rights which may be
available to Borrower now or hereafter
existing, created, acquired or held;
(iv) All Mask Works or similar rights available
for the protection of semiconductor chips;
(v) All Patents;
(vi) Any Trademarks;
(vii) Any and all claims for damages by way of
past, present and future infringements of any
of the rights included above, with the right,
but not the obligation, to sue for and
collect such damages for said use or
infringement of the intellectual property
rights identified above;
<PAGE>
(viii) All licenses or other rights to use any of
the Copyrights, Patents, Trademarks, or Mask
Works and all license fees and royalties
arising from such use to the extent permitted
by such license or rights; and
(ix) All amendments, extensions, renewals and
extensions of any of the Copyrights,
Trademarks, Patents, or Mask Works; and
(x) All proceeds and products of the foregoing,
including without limitation all payments
under insurance or any indemnity or warranty
payable in respect of any of the foregoing.
(b) "Copyrights" means any and all copyright rights,
copyright applications, copyright registrations and
like protections in each work or authorship and
derivative work thereof, whether published or
unpublished and whether or not the same also
constitutes a trade secret, now or hereafter
existing, created, acquired or held.
(c) "Mask Works" means all mask work or similar rights
available for the protection of semiconductor chips,
now owned or hereafter acquired;
(d) "Patents" means all patents, patent applications and
like protections including without limitation
improvements, divisions, continuations, renewals,
reissues, extensions and continuations-in-part of the
same.
(e) "Trademarks" means any trademark and servicemark
rights, whether registered or not, applications to
register and registrations of the same and like
protections, and the entire goodwill of the business
of Borrower connected with and symbolized by such
trademarks.
5. Capitalized terms used but not otherwise defined herein shall
have the same meaning as in the Loan Documents.
6. The laws of the Commonwealth of Massachusetts shall apply to
this Agreement. BORROWER ACCEPTS FOR ITSELF AND IN CONNECTION
WITH ITS PROPERTIES, UNCONDITIONALLY, THE NON-EXCLUSIVE
JURISDICTION OF ANY STATE OR FEDERAL COURT OF COMPETENT
JURISDICTION IN THE COMMONWEALTH OF MASSACHUSETTS IN ANY
ACTION, SUIT, OR PROCEEDING OF ANY KIND, AGAINST IT WHICH
ARISES OUT OF OR BY REASON OF THIS AGREEMENT; PROVIDED,
HOWEVER, THAT IF FOR ANY REASON BANK CANNOT AVAIL ITSELF OF
THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS, BORROWER
ACCEPTS JURISDICTION OF THE COURTS AND VENUE IN SANTA CLARA
COUNTY, CALIFORNIA.
2
<PAGE>
7. This Agreement shall become effective only when it shall have
been executed by Borrower and Bank (provided, however, in no
event shall this Agreement become effective until signed by an
officer of Bank in California).
BORROWER:
BLUESTONE SOFTWARE, INC.
By: /s/ E.J. Ballezzi
-----------------------------------
Name: E.J. Ballezzi
---------------------------------
Title: Chief Financial Officer
--------------------------------
BANK:
SILICON VALLEY BANK D/B/A SILICON
VALLEY EAST
By: /s/ Pamela Aldsworth
-----------------------------------
Name: Pamela Aldsworth
---------------------------------
Title: Vice President
--------------------------------
SILICON VALLEY BANK
By: /s/ Michelle D. Giannini
-----------------------------------
Name: Michelle D. Giannini
---------------------------------
Title: Assistant Vice President
--------------------------------
(Signed in Santa Clara, California)
3
<PAGE>
Exhibit 10.25
BLUESTONE SOFTWARE, INC.
OFFICER'S CERTIFICATE
The undersigned officer of Bluestone Software, Inc., a Delaware
corporation (the "Company"), hereby certifies to Silicon Valley Bank (the
"Bank"), in accordance with the Antidilution Agreement dated as of November 24,
1997 between the Company and the Bank, and the Warrant to purchase Common Stock,
par value $.001 of the Company, issued by the Company to the Bank as of November
24, 1997, as follows:
1. As of December 31, 1998, the conversion ratio of Series B
Preferred Stock of the Company was adjusted such that
8,782,695 shares of Series B Preferred Stock of the Company
with an original purchase price of $1.296 per share is
convertible into 18,382,695 shares of Common Stock. The
effective purchase price for the Common Stock issuable to
Series B Preferred Stockholders was reduced from $1.296 per
share to $.62 per share.
2. On January 21, 1999, the Company entered into a Convertible
Subordinated Secured Note and Warrant Purchase Agreement,
pursuant to which, among other things, the Company agreed to
issue Warrants to purchase 1,612,903 shares Common Stock of
the Company with an exercise price of $.62 per share.
3. As a result of the foregoing, the exercise price of the
Warrant granted to the Bank is reduced from $.95 per share to
$.80 per share and the shares issuable under said warrant are
increased from 26,316 shares of Common Stock to 31,250 shares
of Common Stock. The calculation is set forth on ATTACHMENT A
hereto.
The undersigned has executed this Certificate on this 16th day of
February, 1999.
BLUESTONE SOFTWARE, INC.
By: /s/ P. Kevin Kilroy
---------------------------
Name: P. Kevin Kilroy
Title: President
<PAGE>
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT
OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE STOCK
Corporation: Bluestone Software, Inc., a Delaware corporation
Number of Shares: 26,316
Class of Stock: common, $.001 par value (the "Common Stock")
Initial Exercise Price: $0.95 per share
Issue Date: November 24, 1997
Expiration Date: November 24, 2004
THIS WARRANT CERTIFIES THAT, for the agreed upon value of $1.00 and for
other good and valuable consideration, SILICON VALLEY BANK ("Holder") is
entitled to purchase the number of fully paid and nonassessable shares of the
class of Common Stock (the "Shares") of Bluestone Software, Inc. (the "Company")
at the initial exercise price per Share (the "Warrant Price") all as set forth
above and as adjusted pursuant to Article 2 of this Warrant, subject to the
provisions and upon the terms and conditions set forth in this Warrant.
ARTICLE 1. EXERCISE.
1.1 METHOD OF EXERCISE. Holder may exercise this Warrant by
delivering a duly executed Notice of Exercise in substantially the form attached
as APPENDIX 1 to the principal office of the Company. Unless Holder is
exercising the conversion right set forth in Section 1.2, Holder shall also
deliver to the Company a check for the aggregate Warrant Price for the Shares
being purchased.
1.2 CONVERSION RIGHT. In lieu of exercising this Warrant as
specified in Section 1.1, Holder may from time to time convert this Warrant, in
whole or in part, into a number of Shares determined by dividing (a) the
aggregate fair market value of the Shares or other securities otherwise issuable
upon exercise of this Warrant minus the aggregate Warrant Price of such Shares
by (b) the fair market value of one Share. The fair market value of the Shares
shall be determined pursuant to Section 1.4.
1.3 INTENTIONALLY OMITTED
1.4 FAIR MARKET VALUE. If the Shares are traded in a public
market, the fair market value of the Shares shall be the closing price of the
Shares (or the closing price of the Company's stock into which the Shares are
convertible) reported for the business day immediately before Holder delivers
its Notice of Exercise to the Company. If the Shares are not traded in a public
market, the Board of Directors of the Company shall determine fair market value
in its reasonable good faith judgment. The foregoing notwithstanding, if Holder
advises the Board of Directors in writing that Holder disagrees with such
determination, then the Company and Holder shall promptly agree upon a reputable
investment banking firm to undertake such valuation. If the valuation of such
investment banking firm is greater than that determined by the Board of
Directors, then all fees and expenses of such investment banking firm shall be
paid by the Company. In all other circumstances, such fees and expenses shall be
paid by Holder.
1.5 DELIVERY OF CERTIFICATE AND NEW WARRANT. Promptly after
Holder exercises or converts this Warrant, the Company shall deliver to Holder
certificates for the Shares acquired and, if this Warrant has not been fully
exercised or converted and has not expired, a new Warrant representing the
Shares not so acquired.
<PAGE>
1.6 REPLACEMENT OF WARRANTS. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the case of mutilation, on surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver, in lieu of this Warrant, a
new warrant of like tenor.
1.7 REPURCHASE ON SALE, MERGER, OR CONSOLIDATION OF THE
COMPANY.
1.7.1. "ACQUISITION". For the purpose of this
Warrant, "Acquisition" means any sale, license, or other disposition of all or
substantially all of the assets of the Company, or any reorganization,
consolidation, or merger of the Company where the holders of the Company's
securities before the transaction beneficially own less than 50% of the
outstanding voting securities of the surviving entity after the transaction.
1.7.2. ASSUMPTION OF WARRANT. Upon the closing of any
Acquisition the successor entity shall assume the obligations of this Warrant,
and this Warrant shall be exercisable for the same securities, cash, and
property as would be payable for the Shares issuable upon exercise of the
unexercised portion of this Warrant as if such Shares were outstanding on the
record date for the Acquisition and subsequent closing. The Warrant Price shall
be adjusted accordingly.
ARTICLE 2. ADJUSTMENTS TO THE SHARES.
2.1 STOCK DIVIDENDS, SPLITS, ETC. If the Company declares or
pays a dividend on its Common Stock (or the Shares if the Shares are securities
other than Common Stock) payable in Common Stock, or other securities,
subdivides the outstanding Common Stock into a greater amount of Common Stock
(other than a change in par value), or, if the Shares are securities other than
Common Stock, subdivides the Shares in a transaction that increases the amount
of Common Stock into which the Shares are convertible (other than a change in
par value), then upon exercise of this Warrant, for each Share acquired, Holder
shall receive, without cost to Holder, the total number and kind of securities
to which Holder would have been entitled had Holder owned the Shares of record
as of the date the dividend or subdivision occurred.
2.2 RECLASSIFICATION, EXCHANGE OR SUBSTITUTION. Upon any
reclassification, exchange, substitution, or other event that results in a
change of the number and/or class of the securities issuable upon exercise or
conversion of this Warrant (other than a change in par value), Holder shall be
entitled to receive, upon exercise or conversion of this Warrant, the number and
kind of securities and property that Holder would have received for the Shares
if this Warrant had been exercised immediately before such reclassification,
exchange, substitution, or other event. Such an event shall include any
automatic conversion of the outstanding or issuable securities of the Company of
the same class or series as the Shares to Common Stock pursuant to the terms of
the Company's Certificate of Incorporation upon the closing of a registered
public offering of the Company's Stock. The Company or its successor shall
promptly issue to Holder a new Warrant for such new securities or other
property. The new Warrant shall provide for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this Article
2 including, without limitation, adjustments to the Warrant Price and to the
number of securities or property issuable upon exercise of the new Warrant. The
provisions of this Section 2.2 shall similarly apply to successive
reclassifications, exchanges, substitutions, or other events.
2.3 ADJUSTMENTS FOR COMBINATIONS, ETC. If the outstanding
Shares are combined or consolidated, by reclassification or otherwise, into a
lesser number of shares (other than a change in par value), the Warrant Price
shall be proportionately increased.
2.4 ADJUSTMENTS FOR DILUTING ISSUANCES. In the event of the
issuance (a "Diluting Issuance") by the Company, after the Issue Date of this
Warrant, of Common Stock at a price per share less
-2-
<PAGE>
than the Warrant Price or securities convertible into Common Stock at a
conversion price per share less than the Warrant Price, then the number of
Shares issuable upon exercise of this Warrant, shall be adjusted as a result of
Diluting Issuances in accordance with that certain Antidilution Agreement dated
as of the date of this Warrant, by and between Holder and the Company. Under no
circumstances shall the aggregate Warrant Price payable by Holder upon exercise
of this Warrant increase as a result of any adjustment arising from a Diluting
Issuance.
2.5 NO IMPAIRMENT. The Company shall not, by amendment of its
Certificate of Incorporation or through a 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 under this Warrant by the Company, but
shall at all times in good faith assist in carrying out of all the provisions of
this Article 2 and in taking all such action as may be reasonably necessary or
appropriate to protect Holder's rights under this Article against impairment.
2.6 FRACTIONAL SHARES. No fractional Shares shall be issuable
upon exercise or conversion of the Warrant and the number of Shares to be issued
shall be rounded down to the nearest whole Share. If a fractional share interest
arises upon any exercise or conversion of the Warrant, the Company shall
eliminate such fractional share interest by paying Holder amount computed by
multiplying the fractional interest by the fair market value of a full Share.
2.7 CERTIFICATE AS TO ADJUSTMENTS. Upon each adjustment of the
Warrant Price, the Company at its expense shall promptly compute such
adjustment, and furnish Holder with a certificate of its Chief Financial Officer
setting forth such adjustment and the facts upon which such adjustment is based.
The Company shall, upon written request, furnish Holder a certificate setting
forth the Warrant Price in effect upon the date thereof and the series of
adjustments leading to such Warrant Price.
ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.
3.1 REPRESENTATIONS AND WARRANTIES. The Company hereby
represents and warrants to the Holder as follows:
(a) All Shares which may be issued upon the exercise
of the purchase right represented by this Warrant, and all securities, if any,
issuable upon conversion of the Shares, shall, upon issuance, be duly
authorized, validly issued, fully paid and nonassessable, and free of any liens
and encumbrances except for restrictions on transfer provided for herein or
under applicable federal and state securities laws.
(b) The authorized capital stock of the corporation
consists of 23,252,632 shares of capital stock which are divided into 17,726,312
shares of Common Stock and 5,526,316 shares of Series A Convertible Preferred
Stock, par value $.001 per share. SCHEDULE 3.1(b) sets forth all of the
outstanding shares of Common Stock and outstanding options, warrants,
convertible securities, convertible debentures, and rights to acquire, subscribe
for, and/or purchase any Common Stock and/or other capital stock of the Company
or any securities or debentures convertible into or exchangeable for Common
Stock and/or other capital stock of the Company.
(c) The Company has reserved for issuance pursuant to
this Warrant not less than Twenty Six Thousand Three Hundred Sixteen (26,316)
shares of the Common Stock of the Company, and the Company covenants that it
shall at all times cause to be reserved and kept available out of its authorized
and unissued shares of Common Stock of the Company such number of shares of
Common Stock as will be sufficient to permit the exercise in full of this
Warrant,
-3-
<PAGE>
3.2 NOTICE OF CERTAIN EVENTS. If the Company proposes at any
time (a) to declare any dividend or distribution upon its Common Stock, whether
in cash, property, stock, or other securities and whether or not a regular cash
dividend; (b) to offer for subscription pro rata to the holders of any class or
series of its stock any additional shares of stock of any class or series or
other rights; (c) to effect any reclassification or recapitalization of Common
Stock; (d) to merge or consolidate with or into any other corporation, or sell,
lease, license, or convey all or substantially all of its assets, or to
liquidate, dissolve or wind up; or (e) offer holders of registration rights the
opportunity to participate in an underwritten public offering of the company's
securities for cash, then, in connection with each such event, the Company shall
give Holder (1) at least 10 days prior written notice of the date on which a
record will be taken for such dividend, distribution, or subscription rights
(and specifying the date on which the holders of Common Stock will be entitled
thereto) or for determining rights to vote, if any, in respect of the matters
referred to in (c) and (d) above; (2) in the case of the matters referred to in
(c) and (d) above at least 10 days prior written notice of the date when the
same will take place (and specifying the date on which the holders of Common
Stock will be entitled to exchange their Common Stock for securities or other
property deliverable upon the occurrence of such event); and (3) in the case of
the matter referred to in (e) above, the same notice as is given to the holders
of such registration rights.
3.3 INFORMATION RIGHTS. So long as the Holder holds this
Warrant and/or any of the Shares, the Company shall deliver to the Holder (a)
promptly after mailing, copies of all notices or other written communications to
the shareholders of the Company, (b) within ninety (90) days after the end of
each fiscal year of the Company, the annual audited financial statements of the
Company certified by independent public accountants of recognized standing and
(c) such other financial statements required under and in accordance with any
loan documents between Holder and the Company or if there are no such
requirements (or if the subject loan(s) no longer are outstanding), then within
forty-five (45) days after the end of each of the first three quarters of each
fiscal year, the Company's quarterly, unaudited financial statements. Holder
acknowledges that the information received by it pursuant to this Section 3.3
may be confidential. Holder agrees by acceptance of this Warrant that it will
not use such confidential information in violation of the Securities Exchange
Act of 1934, as amended, or reproduce, disclose or disseminate such information
to any third person (other than its employees, agents or attorneys).
3.4 REGISTRATION UNDER SECURITIES ACT OF 1933, AS AMENDED. The
Company agrees that the Shares or, if the Shares are convertible into Common
Stock of the Company, such Common Stock, shall be subject to the registration
rights set forth in that certain Registration Rights Agreement, dated as of the
date of this Warrant, by and between Holder and the Company.
ARTICLE 4. MISCELLANEOUS.
4.1 TERM; NOTICE OF EXPIRATION. This Warrant is exercisable, in
whole or in part, at any time and from time to time on or before the Expiration
Date set forth above.
4.2 LEGENDS. This Warrant and the Shares (and the securities
issuable, directly or indirectly, upon conversion of the Shares, if any) shall
be imprinted with a legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED
WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO
RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED. THE
TRANSFER OF THIS SECURITY IS SUBJECT TO THE PROVISIONS OF THE WARRANT,
DATED
-4-
<PAGE>
NOVEMBER 24, 1997, ISSUED BY THE COMPANY, INCLUDING THE PROVISIONS SET
FORTH ON EXHIBIT A THERETO.
4.3 COMPLIANCE WITH SECURITIES LAWS ON TRANSFER. This Warrant
and the Shares issuable upon exercise this Warrant (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) may not be
transferred or assigned in whole or in part without compliance with applicable
federal and state securities laws by the transferor and the transferee
(including, without limitation, the delivery of investment representation
letters and legal opinions reasonably satisfactory to the Company, as reasonably
requested by the Company). The Company shall not require Holder to provide an
opinion of counsel if the transfer is to a Permitted Transferee (as defined
herein) or if there is no material question as to the availability of current
information as referenced in Rule 144(c), Holder represents that it has complied
with Rule 144(d) and (e) in reasonable detail, the selling broker represents
that it has complied with Rule 144(f), and the Company is provided with a copy
of Holder s notice of proposed sale.
4.4 TRANSFER PROCEDURE. Subject to the provisions of Section
4.3 Holder may transfer all or part of this Warrant or the Shares issuable upon
exercise of this Warrant (or the securities issuable, directly or indirectly,
upon conversion of the Shares, if any) at any time to Silicon Valley Bancshares,
The Silicon Valley Bank Foundation, or any affiliate of Holder (each a
"Permitted Transferee"), or, to any other transferee by giving the Company
notice of the portion of the Warrant being transferred setting forth the name,
address and taxpayer identification number of the transferee and surrendering
this Warrant to the Company for reissuance to the transferee(s) (and Holder if
applicable). Notwithstanding anything to contrary set forth in this Warrant,
Holder agrees that it shall make no disposition of this Warrant, and the Shares
issued upon exercise of this Warrant, other than a transfer to a Permitted
Transferee, unless and until Holder shall have notified the Company of the
proposed disposition, provided a written summary of the terms and conditions of
the proposed disposition, and complied with the terms of the Company's Right of
First Refusal option as set forth in EXHIBIT A hereto.
4.5 NOTICES. All notices and other communications from the
Company to the Holder, or vice versa, shall be deemed delivered and effective
when given personally or mailed by a reputable overnight delivery service or by
first-class registered or certified mail, postage prepaid, at such address as
may have been furnished to the Company or the Holder, as the case may be, in
writing by the Company or such holder from time to time.
4.6 WAIVER. 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.
4.7 ATTORNEYS FEES. In the event of any dispute between the
parties concerning the terms and provisions of this Warrant, the party
prevailing in such dispute shall be entitled to collect from the other party all
costs incurred in such dispute, including reasonable attorneys' fees.
4.8 NO RIGHTS OF STOCKHOLDERS. Holder shall not be entitled to
vote, to receive dividends or subscription rights, or to be deemed the holder of
Common Stock or any other securities of the Company that may at any time be
issuable on the exercise hereof for any purpose, nor shall anything contained
herein be construed to confer upon Holder, as such, any of the rights of a
stockholder of the Company, including without limitation, any right to vote for
the election of directors or upon any matter submitted to stockholders, to give
or withhold consent to any corporate action (whether upon any recapitalization,
issuance of stock, reclassification of stock, change of par value or change of
stock to no par value, consolidation, merger, conveyance, or otherwise), to
receive notices, or otherwise, until the Warrant shall have been exercised as
provided herein.
-5-
<PAGE>
4.9 GOVERNING LAW. This Warrant shall be governed by and
construed in accordance with the laws of the State of Delaware, without giving
effect to its principles regarding conflicts of law.
ATTEST: "COMPANY"
BLUESTONE SOFTWARE, INC.
By: By: /s/ Mel Baiada
--------------------------------- -------------------------------
Name: Name: Mel Baiada
Title: Title: President
-6-
<PAGE>
Exhibit 10.26
ANTIDILUTION AGREEMENT
THIS ANTIDILUTION AGREEMENT is entered into as of November 24, 1997, by
and between Silicon Valley Bank ("Purchaser") and Bluestone Software, Inc. (the
"Company").
RECITALS
A. Concurrently with the execution of this Antidilution Agreement,
the Purchaser is purchasing from the Company a Warrant (the "Warrant') pursuant
to which Purchaser has the right to acquire from the Company the Shares (as
defined in the Warrant).
B. By this Antidilution Agreement, the Purchaser and the Company
desire to set forth the adjustment in the number of Shares issuable upon
exercise of the Warrant as a result of a Diluting Issuance (as defined in the
Warrant).
C. Capitalized terms used herein shall have the same meaning as set
forth in the Warrant.
NOW, THEREFORE, in consideration of the mutual promises,
covenants and conditions hereinafter set forth, the parties hereto mutually
agree as follows:
1. DEFINITIONS. As used in this Antidilution Agreement, the
following terms have the following respective meanings:
(a) "Option" means any right, option, or warrant
to subscribe for, purchase, or otherwise acquire common stock or Convertible
Securities.
(b) "Convertible Securities" means any evidences
of indebtedness, shares of stock, or other securities directly or indirectly
convertible into or exchangeable for Common Stock.
(c) "Issue" means to grant, issue, sell, assume,
or fix a record date for determining persons entitled to receive, any security
(including Options), whichever of the foregoing is the first to occur.
(d) "Additional Common Shares" means all Common
Stock (including reissued shares) Issued (or deemed to be issued pursuant to
Section 2) after the date of the Warrant. Additional Common Shares does not
include, however, any Common Stock Issued in a transaction described in Sections
2.1 and 2.2 of the Warrant; any Common Stock Issued upon conversion or exercise
of Options and Convertible Securities outstanding as of the date of the Warrant;
the Shares; or Common Stock Issued or reserved for issuance pursuant to a stock
option plan which was approved by the Board of Directors of the Company.
2. DEEMED ISSUANCE OF ADDITIONAL COMMON SHARES. The shares of
Common Stock ultimately issuable upon exercise of an Option (including the
shares of Common Stock ultimately issuable upon conversion or exercise of a
Convertible Security issuable pursuant to an Option) are deemed to be Issued
when the Option is Issued. The shares of Common Stock ultimately issuable upon
conversion or exercise of a Convertible Security (other than a Convertible
Security Issued pursuant to an Option) shall be deemed Issued upon Issuance of
the Convertible Security. The maximum amount of Common Stock issuable is
determined without regard to any future adjustments permitted under the
instrument creating the Options or Convertible Securities.
<PAGE>
3. ADJUSTMENT OF WARRANT PRICE FOR DILUTING ISSUANCES.
3.1 WEIGHTED AVERAGE ADJUSTMENT. If the Company issues
Additional Common Shares after the date of the Warrant and the consideration per
Additional Common Share (determined pursuant to Section 4) is less than the
Warrant Price in effect immediately before such Issue, the Warrant Price shall
be reduced, concurrently with such Issue, to a price (calculated to the nearest
hundredth of a cent) determined by multiplying the Warrant Price by a fraction:
(a) the numerator of which is the amount of such Common Stock
outstanding immediately before such Issue plus the amount of Common Stock that
the aggregate consideration received by the Company for the Additional Common
Shares would purchase at the Warrant Price in effect immediately before such
Issue, and
(b) the denominator of which is the amount of Common Stock
outstanding immediately before such Issue plus the number of such Additional
Common Shares.
3.2 ADJUSTMENT OF NUMBER OF SHARES. Upon each adjustment of
the Warrant Price, the number of Shares issuable upon exercise of the Warrant
shall be increased to equal the quotient obtained by dividing (a) the product
resulting from multiplying (i) the number of Shares issuable upon exercise of
the Warrant and (ii) the Warrant Price, in each case as in effect immediately
before such adjustment, by (b) the adjusted Warrant Price.
3.3 SECURITIES DEEMED OUTSTANDING. For the purpose of this
Section 3, all securities issuable upon exercise of any outstanding Convertible
Securities or Options, warrants, or other rights to acquire securities of the
Company shall be deemed to be outstanding.
4. COMPUTATION OF CONSIDERATION. The consideration received by the
Company for the Issue of any Additional Common Shares shall be computed as
follows:
(a) CASH shall be valued at the amount of cash received by the
Corporation, excluding amounts paid or payable for accrued interest or accrued
dividends.
(b) PROPERTY. Property other than cash shall be computed at
the fair market value thereof at the time of the Issue as determined in good
faith by the Board of Directors of the Company.
(c) MIXED CONSIDERATION. The consideration for Additional
common Shares Issued together with other property of the Company for
consideration that covers both shall be determined in good faith by the Board of
Directors.
(d) OPTIONS AND CONVERTIBLE SECURITIES. The consideration per
Additional Common Share for Options and Convertible Securities shall be
determined by dividing:
(i) the total amount, if any, received or
receivable by the Company for the Issue of the Options or Convertible
Securities, plus the minimum 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
Company upon exercise of the Options or conversion of the Convertible
Securities, by
(ii) the maximum amount 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) ultimately
issuable upon the exercise of such Options or the conversion of such Convertible
Securities.
-2-
<PAGE>
5. GENERAL.
5.1 GOVERNING LAW. This Antidilution Agreement shall be
governed in all respects by the laws of the State of Delaware.
5.2 SUCCESSORS AND ASSIGNS. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors, permitted assigns, heirs, executors and
administrators of the parties hereto.
5.3 ENTIRE AGREEMENT. Except as set forth below, this
Antidilution Agreement and the other documents delivered pursuant hereto
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and thereof.
5.4 NOTICES, ETC. All notices and other communications
required or permitted hereunder shall be in writing and shall be mailed by
overnight delivery by a reputable courier service or by first class mail,
postage prepaid, certified or registered mail, return receipt requested,
addressed (a) if to Purchaser at Purchaser's address as set forth below, or at
such other address as Purchaser shall have furnished to the Company in writing,
or (b) if to the Company, at the Company's address set forth below, or at such
other address as the Company shall have furnished to the Purchaser in writing.
5.5 SEVERABILITY. In case any provision of this Antidilution
Agreement shall be invalid, illegal, or unenforceable, the validity, legality
and enforceability of the remaining provisions of this Antidilution Agreement
shall not in any way be affected or impaired thereby.
5.6 TITLES AND SUBTITLES. The titles of the sections and
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Antidilution Agreement.
5.7 COUNTERPARTS. This Antidilution Agreement may be executed
in any number of counterparts, each of which shall be an original, but all of
which together shall constitute one instrument.
PURCHASER COMPANY
SILICON VALLEY BANK BLUESTONE SOFTWARE, INC.
By:/s/ Pamela Aldsworth By:/s/ Mel Baiada
--------------------------- -------------------------
Name: Pamela Aldsworth Name: Mel Baiada
Title: Vice President Title: President
Address: Address:
---------------------- --------------------
---------------------- --------------------
---------------------- --------------------
<PAGE>
Exhibit 10.27
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is entered into as of November 24,
1997, by and between Silicon Valley Bank ("Purchaser") and Bluestone Software,
Inc. (the "Company").
RECITALS
A. Concurrently with the execution of this Agreement, the Purchaser is
purchasing from the Company a warrant (the "Warrant") pursuant to which
Purchaser has the right to acquire from the Company the Shares (as defined in
the Warrant).
B. By this Agreement, the Purchaser and the Company desire to set forth
the registration rights of the Shares all as provided herein.
NOW, THEREFORE, in consideration of the mutual promises,
covenants and conditions hereinafter set forth, the parties hereto mutually
agree as follows:
1. REGISTRATION RIGHTS. The Company covenants and agrees as
follows:
1.1 DEFINITIONS. For purposes of this Section 1:
(a) The term "register," "registered," and
"registration" refer to a registration effected by preparing and filing a
registration statement or similar document in compliance with the Securities Act
of 1933, as amended (the "Securities Act"), and the declaration or ordering of
effectiveness of such registration statement or document;
(b) The term "Registrable Securities" means (i)
the Shares (as defined in the Warrant) issued or issuable upon exercise of the
Warrant and (ii) any Common Stock of the Company issued as (or issuable upon the
conversion or exercise of any warrant, right or other security which is issued
as) a dividend or other distribution with respect to, or in exchange for or in
replacement of, any stock referred to in (i).
(c) The terms "Holder" or "Holders" means the
Purchaser or qualifying transferees under subsection 1.8 hereof who hold
Registrable Securities.
(d) The term "SEC" means the Securities and Exchange
Commission.
1.2 COMPANY REGISTRATION.
(a) REGISTRATION. If at any time or from time
to time, the Company shall determine to register any of its securities, for its
own account or the account of any of its shareholders, other than a registration
on Form S-1 or S-8 relating solely to employee stock option or purchase plans,
or a registration on Form S-4 relating solely to an SEC Rule 145 transaction, or
a registration on any other form (other than Form S-1, S-2, S-3 or S-18, or
their successor forms) or any successor to such forms, which does not include
substantially the same information as would be required to be included in a
registration statement covering the sale of Registrable Securities, the Company
will:
(i) promptly give to each Holder written
notice thereof (which shall include a list of the jurisdictions in which the
Company intends to attempt to qualify such securities under the applicable blue
sky or other state securities laws); and
<PAGE>
(ii) include in such registration (and
compliance), and in any underwriting involved therein, all the Registrable
Securities specified in a written request or requests, made within 20 days after
receipt of such written notice from the Company, by any Holder or Holders,
except as set forth in subsection 1.2(b) below.
(b) UNDERWRITING. If the registration of which
the Company gives notice is for a registered public offering involving an
underwriting, the Company shall so advise the Holders as a part of the written
notice given pursuant to subsection 1.2(a)(i). In such event the right of any
Holder to registration pursuant to this subsection 1.2 shall be conditioned upon
such Holder's participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting to the extent provided
herein. All Holders proposing to distribute their securities through such
underwriting shall (together with the Company and the other shareholders
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by the Company.
(c) PRIORITY ON REGISTRATION. Notwithstanding
anything to the contrary contained in this Section 1.2, if Holder is notified in
writing that the underwriter has determined that marketing factors require a
limitation of the number of shares to be underwritten, then the number of
securities to be included in such offering shall be determined in the following
order of priority: first, all of the Registrable Securities (as defined in the
Investors' Rights Agreement dated as of April 18, 1997, by and among the Company
and the signatories listed therein (the AInvestors' Rights Agreement@) ) held by
the Investors who are parties to the Investors' Rights Agreement or any
amendment thereto, other than the Common Stockholder (as hereinafter defined)
or, if less than all, the available number of Registrable Securities (as defined
in the Investors' Rights Agreement) apportioned pro rata among such Investors;
second, all of the registrable securities owned by Holder and the Common
Stockholder, respectively, or, if less than all, the available number of
registrable securities apportioned pro rata between Holder and the Common
Stockholder; and third, all of the registrable securities owned by other
holders, or if less than all, the available number of registrable securities
apportioned pro rata among such holders. As used herein a "Common Stockholder@
shall mean Mel Baiada.
1.3 EXPENSES OF REGISTRATION. All expenses incurred in
connection with any registration, qualification or compliance pursuant to this
Section 1 including without limitation, all registration, filing and
qualification fees, printing expenses, fees and disbursements of counsel for the
Company and expenses of any special audits incidental to or required by such
registration, shall be borne by the Company, but excluding underwriting
discounts and commissions relating to the Registrable Securities. The Company
will not pay the fees and disbursements of counsel for Holder unless Company
counsel does not make itself available as counsel for the selling Holders, in
which case the Company will pay reasonable counsel fees for one (1) counsel for
all selling shareholders of the Company in connection with the registration of
the Registrable Securities hereunder.
1.4 REGISTRATION PROCEDURES. In the case of each
registration, qualification or compliance effected by the Company pursuant to
this Registration Rights Agreement, the Company will keep each Holder
participating therein advised in writing as to the initiation of each
registration, qualification and compliance and as to the completion thereof. At
its expense the Company will:
(a) Prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use its best efforts
to cause such registration statement to become effective, and, upon the request
of the Holders of a majority of the Registrable Securities registered
thereunder, keep such registration statement effective for up to 180 days.
-2-
<PAGE>
(b) Prepare and file with the SEC such
amendments and supplements to such registration statement and the prospectus
used in connection with such registration statement as may be necessary to
comply with the provisions of the Securities Act with respect to the disposition
of all securities covered by such registration statement.
(c) Furnish to the Holders such numbers of
copies of a prospectus, including a preliminary prospectus, in conformity with
the requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
(d) Use its best efforts to register and qualify
the securities covered by such registration statement under such other
securities or Blue Sky laws of such jurisdictions as shall be reasonably
requested by the Holders, provided that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do business or to
file a general consent to service of process in any such states or
jurisdictions.
(e) In the event of any underwritten public
offering, enter into and perform its obligations under an underwriting
agreement, in usual and customary form, with the managing underwriter of such
offering. Each Holder participating in such underwriting shall also enter into
and perform its obligations under such an agreement.
(f) Notify each Holder of Registrable Securities
covered by such registration statement at any time when a prospectus relating
thereto is required to be delivered under the Securities Act or 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.
1.5 INDEMNIFICATION.
(a) The Company will indemnify each Holder of
Registrable Securities and each of its officers, directors and partners, and
each person controlling such Holder, with respect to which such registration,
qualification or compliance has been effected pursuant to this Rights Agreement,
and each underwriter, if any, and each person who controls any underwriter of
the Registrable Securities held by or issuable to such Holder, against all
claims, losses, expenses, damages and liabilities (or actions in respect
thereto) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any prospectus, offering circular or
other document (including any related registration statement, notification or
the like) incident to any such registration, qualification or compliance, or
based on any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statement therein not
misleading, or any violation or alleged violation by the Company of the
Securities Act, the Securities Exchange Act of 1934, as amended, ("Exchange
Act") or any state securities law applicable to the Company or any rule or
regulation promulgated under the Securities Act, the Exchange Act or any such
state law and relating to action or inaction required of the Company in
connection with any such registration, qualification of compliance, and will
reimburse each such Holder, each of its officers, directors and partners, and
each person controlling such Holder, each such underwriter and each person who
controls any such underwriter, within a reasonable amount of time after incurred
for any reasonable legal and any other expenses incurred in connection with
investigating, defending or settling any such claim, loss, damage, liability or
action; provided, however, that the indemnity agreement contained in this
subsection 1.5(a) shall not apply to amounts paid in settlement of any such
claim, loss, damage, liability, or action if such settlement is effected without
the consent of the Company (which consent shall not be unreasonably withheld);
and provided further, that the Company will not be liable in any such case to
the extent that any such claim, loss, damage or liability arises out of or is
based on any untrue statement or
-3-
<PAGE>
omission based upon written information furnished to the Company by an
instrument duly executed by such Holder or underwriter specifically for use
therein.
(b) Each Holder will, if Registrable Securities held
by or issuable to such Holder are included in the securities as to which such
registration, qualification or compliance is being effected, indemnify the
Company,each of its directors and officers, each underwriter, if any, of the
Company's securities covered by such a registration statement, each person who
controls the Company within the meaning of the Securities Act, and each other
such Holder, each of its directors and officers, and each person controlling
such Holder, against all claims, losses, expenses, damages and liabilities (or
actions in respect thereof) arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse
the Company, such Holders, such directors, officers, partners, persons or
underwriters for any reasonable legal or any other expenses incurred in
connection with investigating, defending or settling any such claim, loss,
damage, liability or action, in each case to the extent, but only to the extent,
that such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to the Company by an instrument duly executed by such Holder
specifically for use therein; provided, however, that the indemnity agreement
contained in this subsection 1.5(b) shall not apply to amounts paid in
settlement of any such claim, loss, damage, liability or action if such
settlement is effected without the consent of such Holder, (which consent shall
not be unreasonably withheld); and provided further, that the total amount for
which any Holder shall be liable under this subsection 1.5(b) shall not in any
event exceed the aggregate proceeds received by such Holder from the sale of
Registrable Securities held by such Holder in such registration.
(c) Each party entitled to indemnification under
this subsection 1.5 (the "Indemnified Party") shall give notice to the party
required to provide indemnification (the "Indemnifying Party") promptly after
such Indemnified Party has actual knowledge of any claim as to which indemnity
may be sought, and shall permit the Indemnifying Party to assume the defense of
any such claim or any litigation resulting therefrom; provided that counsel for
the Indemnifying Party, who shall conduct the defense of such claim or
litigation, shall be approved by the Indemnified Party (whose approval shall not
be unreasonably withheld), and the Indemnified Party may participate in such
defense at such party's expense; and provided further, that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations hereunder, unless such failure resulted in
prejudice to the Indemnifying Party; and provided further, that an Indemnified
Party (together with all other Indemnified Parties which may be represented
without conflict by one counsel) shall have the right to retain one separate
counsel, with the reasonable fees and expenses to be paid by the Indemnifying
Party, if representation of such Indemnified Party by the counsel retained by
the Indemnifying Party would be inappropriate due to actual or potential
differing interests between such Indemnified Party and any other party
represented by such counsel in such proceeding.
1.6 INFORMATION BY HOLDER. Any Holder or Holders of
Registrable Securities included in any registration shall promptly furnish to
the Company such information regarding such Holder or Holders and the
distribution proposed by such Holder or Holders as the Company may request in
writing and as shall be required in connection with any registration,
qualification or compliance referred to herein.
1.7 RULE 144 REPORTING. With a view to making available to
Holders the benefits of certain rules and regulations of the SEC which may
permit the sale of the Registrable Securities to the public without
registration, the Company agrees to:
-4-
<PAGE>
(a) make and keep public information available,
as those terms are understood and defined in SEC Rule 144, after 90 days after
the effective date of the first registration filed by the Company for an
offering of its securities to the general public;
(b) file with the SEC in a timely manner all
reports and other documents required of the Company under the Securities Act and
the Exchange Act (at any time after it has become subject to such reporting
requirements); and
(c) so long as a Holder owns any Registrable
Securities, to furnish to such Holder forthwith upon request a written statement
by the Company as to its compliance with the reporting requirements of said Rule
144 (at any time after 90 days after the effective date of the first
registration statement filed by the Company for an offering of its securities to
the general public), and of the Securities Act and the Exchange Act (at any time
after it has become subject to such reporting requirements), a copy of the most
recent annual or quarterly report of the Company, and such other reports and
documents so filed by the Company as the Holder may reasonably request in
complying with any rule or regulation of the SEC allowing the Holder to sell any
such securities without registration.
1.8 TRANSFER OF REGISTRATION RIGHTS. Holders' rights to
cause the Company to register their securities and keep information available,
granted to them by the Company under subsections 1.2 and 1.7 may be assigned to
a transferee or assignee of a Holder's Registrable Securities not sold to the
public, provided, that the Company is given written notice by such Holder at the
time of or within a reasonable time after said transfer, stating the name and
address of said transferee or assignee and identifying the securities with
respect to which such registration rights are being assigned and provided
further that transferee or assignee agrees in writing to be bound by the
provisions of the Warrant, including the provisions set forth on EXHIBIT A
thereto. Notwithstanding anything to the contrary in this Section 1.8, Holder
may not assign or transfer any of its rights under this Registration Rights
Agreement unless such transferee or assignee will own (or have the right to
acquire) more than 50% of the Shares (as defined in the Warrant), immediately
after such transfer or assignment.
2. GENERAL.
2.1 WAIVERS AND AMENDMENTS; TERMINATION. With the written
consent of the record or beneficial holders of at least a majority of the
Registrable Securities, the obligations of the Company and the rights of the
Holders of the Registrable Securities under this agreement may be waived (either
generally or in a particular instance, either retroactively or prospectively,
and either for a specified period of time or indefinitely), and with the same
consent the Company, when authorized by resolution of its Board of Directors,
may enter into a supplementary agreement for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Agreement; provided, however, that no such modification, amendment or
waiver shall reduce the aforesaid percentage of Registrable Securities without
the consent of all of the Holders of the Registrable Securities. Upon the
effectuation of each such waiver, consent, agreement of amendment or
modification, the Company shall promptly give written notice thereof to the
record holders of the Registrable Securities who have not previously consented
thereto in writing. This Agreement or any provision hereof may be changed,
waived, discharged or terminated only by a statement in writing signed by the
party against which enforcement of the change, waiver, discharge or termination
is sought, except to the extent provided in this subsection 2.1.
2.2 GOVERNING LAW. This Agreement shall be governed in
all respects by the laws of the State of Delaware.
2.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors, permitted assigns, heirs, executors and
administrators of the parties hereto.
-5-
<PAGE>
2.4 ENTIRE AGREEMENT. Except as set forth below, this
Agreement and the other documents delivered pursuant hereto constitute the full
and entire understanding and agreement between the parties with regard to the
subjects hereof and thereof.
2.5 NOTICES, ETC. All notices and other communications
required or permitted hereunder shall be in writing and shall be mailed by
overnight delivery by a reputable courier service, or by first class mail,
postage prepaid, certified or registered mail, return receipt requested,
addressed (a) if to Holder, at such Holder's address as set forth below, or at
such other address as such Holder shall have furnished to the Company in
writing, or (b) if to the Company, at the Company's address set forth below, or
at such other address as the Company shall have furnished to the Holder in
writing.
2.6 SEVERABILITY. In case any provision of this Agreement
shall be invalid, illegal, or unenforceable, the validity, legality and
enforceability of the remaining provisions of this Agreement or any provision of
the other Agreement s shall not in any way be affected or impaired thereby.
2.7 TITLES AND SUBTITLES. The titles of the sections and
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
2.8 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.
PURCHASER COMPANY
SILICON VALLEY BANK BLUESTONE SOFTWARE, INC.
By:/s/ Pamela Aldsworth By:/s/ Mel Baiada
----------------------------- -----------------------------
Name: Pamela Aldsworth Name: Mel Baiada
Title: Vice President Title: President
Address: Address:
------------------------ ------------------------
------------------------ ------------------------
------------------------ ------------------------
Witness: Solely with respect to Section 1.2(c):
/s/ E. J. Ballezzi /s/ Mel Baiada
- --------------------------- ----------------------------------
MEL BAIADA
-6-
<PAGE>
THESE SECURITIES HAVE BEEN ISSUED PURSUANT TO EXEMPTIONS FOR NONPUBLIC OFFERINGS
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
AND APPLICABLE STATE SECURITIES LAWS, AND, ACCORDINGLY, THESE SECURITIES MAY NOT
BE RESOLD OR OTHERWISE DISPOSED OF UNLESS, IN THE OPINION OF COUNSEL FOR OR
SATISFACTORY TO THE ISSUER, REGISTRATION UNDER THE APPLICABLE FEDERAL OR STATE
SECURITIES LAWS IS NOT REQUIRED OR COMPLIANCE IS MADE WITH SUCH REGISTRATION
REQUIREMENTS.
WARRANT TO PURCHASE 481,434 SHARES OF COMMON STOCK
OF
BLUESTONE SOFTWARE, INC.
This is to certify that, FOR VALUE RECEIVED, BT ALEX. BROWN
INCORPORATED or its registered assigns pursuant to Section (d) hereof
("Holder"), is entitled to purchase, subject to the provisions of this
Warrant, from Bluestone Software, Inc. a Delaware corporation (the
"Company"), 481,434 fully paid, validly issued and nonassessable shares of
Common Stock, par value $0.001 per share, of the Company ("Common Stock"), at
the exercise price of $2.72 per share. The number of shares of Common Stock
to be received upon the exercise of this Warrant and the price to be paid for
each share of Common Stock may be adjusted from time to time as hereinafter
set forth. The shares of Common Stock deliverable upon such exercise, and as
adjusted from time to time, are hereinafter sometimes referred to as "Warrant
Shares," and the exercise price of a share of Common Stock as adjusted from
time to time is hereinafter sometimes referred to as the "Exercise Price."
(a) EXERCISE OF WARRANT. The Warrant may be exercised at any time, or
from time to time, by presentation and surrender hereof to the Company at its
principal office, or at the office of its stock transfer agent, if any, with the
Purchase Form annexed hereto duly executed (with signature guaranteed if
required by the Company or its stock transfer agent) and accompanied by payment
of the Exercise Price for the number of Warrant Shares specified in such form
and any applicable taxes. The purchase price for any Warrant Shares purchased
pursuant to the exercise of this Warrant shall be paid in full upon such
exercise in cash or by certified or bank check or pursuant to a cashless
exercise procedure whereby the Warrant Shares issued upon exercise of this
Warrant will be sold by the Holder or Holder's agent with Holder receiving the
difference between the Exercise Price and the sale price, in cash, and the
Company receiving the Exercise Price for the Warrant Shares, in cash, or any
combination of the foregoing methods of paying the Exercise Price. As soon as
practicable after each such exercise of the Warrants, but not later than seven
(7) business days from the date of such exercise, the Company shall issue and
deliver to the Holder a certificate or certificates for the Warrant Shares
issuable upon such exercise, registered in the name of the Holder or the
Holder's designee, except in the case of a cashless exercise. If the Warrant
should be exercised in part only, the Company shall, upon surrender of the
Warrant for cancellation, execute and deliver a new Warrant evidencing the
rights of the Holder thereof to purchase the balance of the Warrant Shares
purchasable thereunder. In the event of a cash exercise, upon receipt by the
1
<PAGE>
Company of the Warrant at its office, or by the stock transfer agent of the
Company at its office, in proper form for exercise, together with the exercise
price thereof and taxes as aforesaid in cash or certified or bank check and the
investment letter described below, the Holder shall be deemed to be the holder
of record of the shares of Common Stock issuable upon such exercise,
notwithstanding that the stock transfer books of the Company shall then be
closed or that certificates representing such shares of Common Stock shall not
then be physically delivered to the Holder. In order to assure the availability
of an exemption from registration under the federal or applicable state
securities laws, the Company may condition the exercise of the Warrant upon the
Holder delivering to the Company an investment letter in the form as customarily
used by the Company from time to time in connection with the exercise of
non-registered options and warrants which are issued by the Company. It is
further understood that certificates for the Warrant Shares, if any, to be
issued upon exercise of the Warrant may contain a restrictive legend in
accordance with Section (j) hereof.
(b) RESERVATION OF SHARES. The Company shall at all times reserve for
issuance and/or delivery upon exercise of this Warrant such number of shares of
its Common Stock as shall be required for issuance and delivery upon exercise of
the Warrants. If the Common Stock is or becomes listed on any national
securities exchange or the NASDAQ National Market System, the Company shall also
list such shares on such exchange subject to notice of issuance or maintain the
listing of its Common Stock on the NASDAQ system, as the case may be.
(c) FRACTIONAL SHARES. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of the Warrant. With respect
to any fraction of a share called for upon any exercise hereof, the Company
shall pay to the Holder an amount in cash equal to such fraction multiplied by
the current market value of a share, determined as follows:
(1) If the Common Stock is listed on a national
securities exchange or admitted to unlisted trading privileges
on such exchange or listed for trading on the NASDAQ National
Market System, the current market value shall be the last
reported sale price of the Common Stock on such exchange or
system on the last business day prior to the date of exercise
of this Warrant or if no such sale is made on such day, the
average closing bid and asked prices for such day on such
exchange or system;
(2) If the Common Stock is not so listed or admitted
to unlisted trading privileges, the current market value shall
be the mean of the last reported bid and asked prices reported
by the National Quotation Bureau, Inc., on the last business
day prior to the date of the exercise of this Warrant; or
(3) If the Common Stock is not so listed or admitted
to unlisted trading privileges and bid and asked prices are
not so reported, the current market value shall be an amount,
not less than the book value thereof as at the end of the most
recent fiscal year of the Company ending prior to the date of
the exercise of the Warrant,
2
<PAGE>
determined in such reasonable manner as may be prescribed by
the Board of Directors of the Company.
(d) EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. The Warrant is
exchangeable, without expense, at the option of the Holder, upon presentation
and surrender hereof to the Company or at the office of its stock transfer
agent, if any, for other Warrants of different denominations entitling the
Holder thereof to purchase in the aggregate the same number of shares of Common
Stock purchasable hereunder. Subject to Section (j) hereof, the Holder may
transfer or assign the Warrant, in whole or in part and from time to time. Upon
surrender of this Warrant to the Company at its principal office or at the
office of its stock transfer agent, if any, with the Assignment Form annexed
hereto duly executed (with signature guaranteed, if required by the Company or
its stock transfer agent) and funds sufficient to pay any transfer tax, the
Company shall, without charge, execute and deliver a new Warrant in the name of
the assignee or assignees named in such instrument of assignment and this
Warrant shall promptly be canceled. This Warrant may be divided by or combined
with other Warrants which carry the same rights upon presentation hereof at the
principal office of the Company or at the office of its stock transfer agent, if
any, together with a written notice specifying the names and denominations in
which new Warrants are to be issued and signed by the Holder hereof. The term
"Warrant" as used herein includes any Warrants into which this Warrant my be
divided or exchanged. Upon receipt by the Company of evidence satisfactory to it
of the loss, theft, destruction or mutilation of this Warrant, and in the case
of loss, theft or destruction, of reasonable satisfactory indemnification, and
upon surrender and cancellation of this Warrant, if mutilated, the Company will
execute and deliver a new Warrant of like tenor, date and amount. Any such new
Warrant executed and delivered shall constitute a binding contractual obligation
on the part of the Company.
(e) RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be
entitled to any rights of a shareholder in the Company, either at law or equity,
and the rights of the Holder are limited to those expressed in the Warrant and
are not enforceable against the Company except to the extent set forth herein.
(f) ANTI-DILUTION PROVISIONS. So long as this Warrant shall be
outstanding, the Exercise Price in effect at any time and the number and kind of
securities purchasable upon the exercise of this Warrant shall be subject to
adjustment from time to time upon the happening of certain events as follows:
(1) SPECIAL DEFINITIONS. For purposes of this
Warrant, the following definitions apply:
(a) "Options" shall mean rights, options, or
warrants to subscribe for, purchase or otherwise
acquire either Common Stock or Convertible Securities
(defined below).
3
<PAGE>
(b) "Convertible Securities" shall mean any
evidences of indebtedness, shares (other than Common
Stock and Series A Convertible Preferred Stock, par
value $0.001 per share ("Series A Preferred Stock"),
Series B Convertible Preferred Stock, par value
$0.001 per share ("Series B Preferred Stock"), or
Series C Convertible Preferred Stock , par value
$0.001 per share ("Series C Preferred Stock" and
collectively, with the Series A Preferred Stock and
the Series B Preferred Stock, the "Preferred Stock)
or other securities convertible into or exchangeable
for Common Stock.
(c) "Additional Shares of Common Stock"
shall mean all shares of Common Stock issued (or
deemed to be issued as provided herein) by the
Company after the date hereof, as the case may be,
other than shares of Common Stock issued or issuable:
(i) upon conversion of shares of
Preferred Stock;
(ii) to officers, directors,
employees or consultants of the Corporation pursuant
to stock options granted pursuant to the
Corporation's stock option plan on terms approved by
the Board of Directors of the Company, but not
exceeding 9,429,049 shares of Common Stock (or such
greater number approved by the Board) (net of any
repurchases of such shares or cancellations or
expirations of options), subject to adjustment for
all subdivisions and combinations;
(iii) as a dividend or distribution
on Preferred Stock;
(iv) for which adjustment to the
conversion prices for the SeriesA Preferred Stock,
the Series B Preferred Stock or the Series C
Preferred Stock is made pursuant to the Certificate
of Incorporation of the Company;
(v) upon the conversion of the
convertible term note held by Mark Baiada in the
principal amount of $500,000, subject to adjustment
for all subdivisions and combinations;
(vi) to Silicon Valley Bank pursuant
to a warrant granted to it but not exceeding 31,250
shares of Common Stock, subject to adjustment for all
subdivisions and combinations; or
(vii) upon exercise or conversion of
warrants and convertible subordinated secured notes
to be issued to investors under the Convertible
Subordinated Secured Note and Warrant Purchase
Agreement by and among the Company and the investors
listed therein, or Common Stock
4
<PAGE>
issued or issuable upon the conversion of the Series
B Preferred Stock or the Series C Preferred Stock or
other convertible securities received by the
investors upon conversion of the convertible
subordinated secured notes.
(2) NO ADJUSTMENT OF EXERCISE PRICE. Any provision
herein to the contrary notwithstanding, no adjustment in the
Exercise Price shall be made in respect of: (i) any future
issuance of Options (or upon the issuance of Common Stock upon
the exercise of such Options) to employees of the Company
under the Amended and Restated Bluestone Software, Inc. 1996
Incentive and Non-Qualified Stock Option Plan; or (ii) the
issuance of Additional Shares of Common Stock (as defined
herein) unless the consideration per share (determined
pursuant to Section (f)(5) herein) for the Additional Shares
of Common Stock issued or deemed to be issued by the Company
is less than the Exercise Price in effect on the date of, and
immediately prior to, such issue.
(3) DEEMED ISSUE OF ADDITIONAL SHARES OF COMMON
STOCK. In the event the Company at any time or from time to
time after the date hereof shall issue any Options or
Convertible Securities or shall fix a record date for the
determination of holders of any class of securities then
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 designed to protect against
dilution) of Common Stock issuable upon the exercise of such
Options or, in the case of Convertible Securities and Options
therefor, upon the conversion or exercise of such Convertible
Securities and Options therefor, and 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 in any such case in which Additional Shares of
Common Stock are deemed to be issued:
(A) no further adjustments in the
Exercise 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;
(B) 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 Company, or decrease or
increase in the number of shares of Common
Stock issuable, upon the exercise,
conversion or exchange thereof, the Exercise
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
5
<PAGE>
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
(provided, however, that no such adjustment
of the Exercise Price shall affect Common
Stock previously issued upon the exercise of
this Warrant);
(C) 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
Exercise 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:
(1) 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
Company for the issue of all such Options,
whether or not exercised, plus the
consideration actually received by the
Company 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 Company upon such
conversion or exchange; and
(2) in the case of Options
for Convertible Securities, only the
Convertible Securities, if any, actually
issued upon the exercise thereof were issued
at the time of such Options, and the
consideration received by the Company for
the Additional Shares of Common Stock deemed
to have been then issued was the
consideration actually received by the
Company for the issue of all such Options,
whether or not exercised, plus the
consideration deemed to have been received
by the Company (determined pursuant to
Section (f)(5) herein) upon the issue of the
Convertible Securities with respect to which
such Options were actually exercised;
(D) no readjustment pursuant to
clause (B) or (C) above shall have the
effect of increasing the Exercise Price to
an amount which exceeds the lower of (a) the
Exercise Price on the original adjustment
date, or (b) the Exercise Price that would
have resulted from any issuance of
Additional Shares of Common Stock between
the original adjustment date and such
readjustment date; and
6
<PAGE>
(E) 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 Exercise 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 (C) above.
(4) ADJUSTMENT OF EXERCISE PRICE UPON ISSUANCE OF
ADDITIONAL SHARES OF COMMON STOCK. In the event the Company,
at any time after the date herein, shall issue Additional
Shares of Common Stock (including Additional Shares of Common
Stock deemed to be issued pursuant to Section (f)(5) herein)
without consideration or for a consideration per share less
than the Exercise Price in effect on the date of and
immediately prior to such issue, then and in such event, the
Exercise Price under the Warrant shall be reduced concurrently
with such issue, to a price (calculated to the nearest cent)
determined by multiplying such Exercise Price by a fraction,
the numerator of which shall be the number of shares of Common
Stock outstanding immediately prior to such issue plus the
number of shares of Common Stock which the aggregate
consideration received by the Company for the total number of
Additional Shares of Common Stock so issued would purchase at
such Exercise Price in effect immediately prior to such
issuance, and the denominator of which shall be the number of
shares of Common Stock outstanding immediately prior to such
issue plus the number of such Additional Shares of Common
Stock so issued. For the purpose of the above calculation, the
number of shares of Common Stock outstanding immediately prior
to such issue shall be calculated as if all Warrants had been
exercised and all Convertible Securities had been fully
converted into shares of Common Stock immediately prior to
such issuance and any outstanding warrants, options or other
rights for the purchase of shares of stock or convertible
securities had been fully exercised immediately prior to such
issuance (and the resulting securities fully converted into
shares of Common Stock if so convertible) as of such date, but
not including in such calculation any additional shares of
Common Stock issuable with respect to this Warrant,
Convertible Securities, or outstanding options, warrants or
other rights for the purchase of shares of stock or
convertible securities, solely as a result of the adjustment
of the Exercise Price (or other conversion ratios) resulting
from the issuance of the Additional Shares of Common Stock
causing the adjustment in question.
(5) DETERMINATION OF CONSIDERATION. For purposes of
this Warrant, the consideration received by the Company for
the issue of any Additional Shares of Common Stock shall be
computed as follows:
(A) Cash and Property. Such consideration shall:
(1) insofar as it consists of cash, be
computed at the aggregate amount of cash
received by the Company,
7
<PAGE>
excluding amounts paid or payable for
accrued interest or accrued dividends;
(2) insofar as it consists of property
other than cash, be computed at the fair
value thereof at the time of such issue, as
determined in good faith by the Board; and
(3) in the event Additional Shares of
Common Stock are issued together with the
other shares or securities or other assets
of the Company for consideration which
covers both types of securities, be the
proportion of such consideration so
received, computed as provided in
clauses (1) and (2) above, with respect to
the Additional Shares of Common Stock as
determined in good faith by the Board.
(B) Options and Convertible Securities. The
consideration per share received by the Company
for Additional Shares of Common Stock deemed to
have been issued pursuant to Section (f)(5)
herein, relating to Options and Convertible
Securities shall be determined by dividing:
(1) the total amount, if any, received or
receivable by the Company 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
designed to protect against dilution)
payable to the Company 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
(2) the maximum number of shares of Common
Stock (as set forth in the instruments
relating thereto, without regard to any
provision contained therein designed to
protect against the dilution) issuable
upon the exercise of such Options or
conversion or exchange of such Convertible
Securities.
(6) ADJUSTMENTS TO EXERCISE PRICE FOR STOCK DIVIDENDS
AND FOR COMBINATIONS OR SUBDIVISIONS OF COMMON STOCK. In the
event that the Company at any time or from time to time after
the date herein shall declare or pay, without consideration,
any dividend on the Common Stock payable in Common Stock or in
8
<PAGE>
any right to acquire Common Stock for no consideration, or
shall effect a subdivision of the outstanding shares of Common
Stock into a greater number of shares of Common Stock (by
stock split, reclassification or otherwise than by payment of
a dividend in Common Stock or in any right to acquire Common
Stock), or 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,
then the Exercise Price in effect immediately prior to such
event shall, concurrently with the effectiveness of such
event, be proportionately decreased or increased, as
appropriate. In the event that this Company shall declare or
pay, without consideration, any dividend on the Common Stock
payable in any right to acquire Common Stock for no
consideration, then the Company shall be deemed to have made a
dividend payable in Common Stock in an amount of shares equal
to the maximum number of shares issuable upon exercise of such
rights to acquire Common Stock.
(7) ADJUSTMENTS FOR RECLASSIFICATION AND
REORGANIZATION. If the Common Stock issuable upon the exercise
of the Warrants shall be changed into the same or a different
number of shares of any other class or classes of stock,
whether by capital reorganization, reclassification or
otherwise, the Exercise Price then in effect shall,
concurrently with the effectiveness of such reorganization or
reclassification, be proportionately adjusted so that the
Warrants shall be exercised for, in lieu of the number of
shares of Common Stock which the holders would otherwise have
been entitled to receive, a number of shares of such other
class or classes of stock equivalent to the number of shares
of Common Stock that would have been subject to receipt by the
holders upon the exercise of the Warrant immediately before
that change.
(8) No adjustment in the Exercise Price shall be
required unless such adjustment would require an increase or
decrease of at least $.05 in such price; provided, however,
that any adjustments which by reason of this subsection (f)
(8) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment required to be
made hereunder.
(9) Whenever the Exercise Price is adjusted, as
herein provided, the Company shall promptly cause a notice
setting forth the adjusted Exercise Price and adjusted number
of Warrant Shares issuable upon exercise of each Warrant to be
mailed to the Holder, at its address appearing in the Warrant
Register, and shall cause a certified copy thereof to be
mailed to its transfer agent, if any.
(10) All calculations under this Section (f) shall be
made to the nearest cent or to the nearest Warrant Share, as
the case may be.
9
<PAGE>
(11) In the event that at any time, as a result of an
adjustment made pursuant to this Section (f) above, the Holder
of this Warrant thereafter shall become entitled to receive
any shares of the Company, other than Common Stock, thereafter
the number of such other shares so receivable upon exercise of
this Warrant shall be subject to adjustment from time to time
in a manner and on terms as nearly equivalent as practicable
to the provisions with respect to the Common Stock contained
in subsection (A) above.
(12) Irrespective of any adjustments in the Exercise
Price or the number or kind of Warrant Shares purchasable upon
exercise of this Warrant, Warrants theretofore or thereafter
issued may continue to express the same price and number and
kind of shares as are stated in the similar Warrants initially
issuable pursuant to this Warrant.
(g) OFFICER'S CERTIFICATE. Whenever the Exercise Price shall be
adjusted as required by the provisions of the foregoing Section, the Company
shall forthwith file in the custody of its Secretary or an Assistant Secretary
at its principal office and with its stock transfer agent, if any, an officer's
certificate showing the adjusted Exercise Price determined as herein provided,
setting forth in reasonable detail the facts requiring such adjustment,
including a statement of the number of additional shares of Common Stock, if
any, and such other facts as shall be necessary to show the reason for and the
manner of computing such adjustment. Each such officer's certificate shall be
made available at all reasonable times for inspection by the Holder or any
holder of a Warrant executed and/or delivered pursuant to Section (a) or Section
(d), and the Company shall, forthwith after each such adjustment, mail, by
certified mail, a copy of such certificate to the Holder or any such holder.
(h) NOTICES TO WARRANT HOLDERS. So long as this Warrant shall be
outstanding, (i) if the Company shall pay any dividend or make any distribution
upon the Common Stock, or (ii) if the Company shall offer to the holders of
Common Stock for subscription or purchase by them any shares of any class or any
other rights, or (iii) if any capital reorganization of the Company,
reclassification of the capital stock of the Company, consolidation or merger of
the Company with or into another corporation, sale, lease or transfer of all or
substantially all of the property and assets of the Company to another
corporation, or voluntary or involuntary dissolution, liquidation or winding up
of the Company shall be effected, then in any such case, the Company shall cause
to be mailed by certified mail to the Holder or any holder of a Warrant executed
and/or delivered pursuant to Section (a) or Section (d), at least 15 days prior
to the date specified in (x) or (y) below, as the case may be, a notice
containing a brief description of the proposed action and stating the date on
which (x) a record is to be taken for the purpose of such dividend, distribution
or rights, or (y) such reclassification, reorganization, consolidation, merger,
conveyance, lease, dissolution, liquidation or winding up is to take place and
the date, if any is to be fixed, as of which the holders of Common Stock or
other securities shall receive cash or other property deliverable upon such
reclassification, reorganization, consolidation, merger, conveyance,
dissolution, liquidation or winding up.
10
<PAGE>
(i) SECURITIES LAW COMPLIANCE
(1) The Holder of the Warrant, by acceptance hereof,
acknowledges that the Warrant and the shares of Common Stock
to be issued upon exercise hereof or conversion thereof are
being acquired solely for the Holder's own account and not as
a nominee for any other party, and for investment, and that
the Holder will not offer, sell, transfer, assign or otherwise
dispose of this Warrant or any shares of Common Stock to be
issued upon exercise hereof or conversion thereof except under
circumstances that will not result in a violation of the Act
or any state securities laws. Upon exercise of the Warrant,
the Holder shall, if requested by the Company, confirm in
writing, in a form satisfactory to the Company, that the
shares of Common Stock so purchased are being acquired solely
for the Holder's own account and not as a nominee for any
other party, for investment, and not with a view toward
distribution or resale.
(2) If appropriate, the Warrant and any Warrants
issued upon exercise or substitution or upon assignment or
transfer pursuant to Section (a) or Section (d), as the case
may be, and all shares of Common Stock issued upon exercise
hereof or conversion thereof shall be stamped or imprinted
with legends setting forth the restrictions on transfer
arising under applicable federal and state securities laws.
(j) REGISTRATION RIGHTS UNDER THE SECURITIES ACT OF 1933
(1) Commencing on the effective date of the first
registration statement for a public offering of securities of
the Company, the Company shall advise the Holder of the
Warrant or of the Warrant Shares or any then Holder of
Warrants or Warrant Shares (such persons being collectively
referred to herein as "Holders") by prompt written notice
prior to the filing of any registration statement or
post-effective amendment thereto ("Registration Statement")
under the Securities Act of 1933, as amended (the "Act"),
covering an underwritten public offering of equity securities
of the Company solely for cash in excess of $1,000,000 (other
than a Registration Statement initiated by a holder on Form
S-3, a registration relating solely to the sale of securities
to participants in a Company stock option, stock purchase or
similar plan or a SEC Rule 145 transaction, a registration on
any form which does not include substantially the same
information as would be required to be included in a
registration statement covering the sale of the Registrable
Securities (as defined in the Second Restated Investors'
Rights Agreement dated May 25, 1999, between the Company and
the investors signatory thereto) or a registration in which
the only Common Stock being registered in Common Stock
issuable upon conversion of debt securities that are also
being registered) and shall register in any such Registration
Statement the number of Warrant Shares that the Holder shall
notify the Company it desires to register and shall include in
any such Registration Statement such
11
<PAGE>
information as may be required to permit a public offering of
such Warrant Shares by the Company's underwriter(s). The
Company shall supply prospectuses and other documents as the
Holder may reasonably request in order to facilitate the
public sale or other disposition of the Warrant Shares. The
Company shall bear the entire cost and expense of a
registration of securities initiated by it under this Section
(j)(1). The Holder shall, however, bear the fees of its own
counsel and any transfer taxes and underwriting discounts or
commissions applicable to the Warrant Shares sold by it. The
Company may include other securities in any such registration
statement. The Company shall do any and all other acts and
things which may be necessary or desirable to enable the
Holder to consummate the public sale or other disposition of
the Warrant Shares, and furnish indemnification in the manner
as set forth in Paragraph (2) (a) of this Section (j), but
shall not be required to qualify as a foreign corporation to
qualify the Warrant Shares for sale under the securities laws
of any state. The Holder shall furnish information and
indemnification as set forth in Paragraph (2) (b) of this
Section (j). All decisions as to whether and when to proceed
with any Registration Statement shall be made solely by the
Company.
Notwithstanding the foregoing paragraph, in the event
that there is an underwritten offering of the Company's
securities offered pursuant to said registration statement
pursuant to the immediately preceding Paragraph, the
underwriter(s) shall have the right to refuse to permit any
Warrant Shares, or to limit the amount of Warrant Shares, to
be sold by the Holder to such underwriter(s) as such
underwriter(s) may determine in its discretion, and the Holder
shall refrain from selling such remainder of its Warrant
Shares covered by such registration statement for a period not
exceeding 180 days following the effective date and shall also
refrain at any time when notified by the Company that an
amendment or supplement to the prospectus is required. The
Company shall not be obligated to keep any Registration
Statement effective for a total of more than 120 days or until
the distribution contemplated in the Registration Statement
has been completed, whichever occurs first.
2(a) Whenever pursuant to this Section (j) a
Registration Statement relating to the Warrant Shares is filed
under the Act, amended or supplemented, the Company will
indemnify and hold harmless each Holder of Warrant Shares
covered by such Registration Statement, amendment or
supplement (such Holder being hereinafter called the
"Distributing Holder"), and each person, if any who controls
(within the meaning of the Act) the Distributing Holder,
against any losses, claims, damages or liabilities, joint or
several, to which the Distributing Holder or any such
controlling person may become subject, under the Act or
otherwise, 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 any such
Registration Statement or any preliminary prospectus or final
prospectus constituting a part thereof or any amendment or
supplement thereto, or
12
<PAGE>
arise out of or are based upon the omission to state therein a
material fact required to be stated therein or necessary to
make the statements therein not misleading; and will reimburse
the Distributing Holder and each such controlling person for
any legal or other expenses reasonably incurred by the
Distributing Holder and each controlling person for any legal
or other expenses reasonable incurred by the Distributing
Holder or such controlling person or underwriter in connection
with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company will
not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or
omission or alleged omission made in said Registration
Statement, preliminary prospectus, final prospectus or
amendment or supplement, in reliance upon and in conformity
with written information furnished by the Distributing Holder
or underwriter for use in the preparation thereof.
(b) The Distributing Holder will indemnify and hold
harmless the Company, each of its directors, each of its
officers who have signed said Registration Statement and such
amendments and supplements thereto, each person, if any, who
controls the Company (within the meaning of the Act) and the
Company's underwriter(s) and each person, if any, who controls
such underwriter(s) (within the meaning of the Act) against
any losses, claims, damages or liabilities to which the
Company or any such director, officer, underwriter or
controlling person may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or
liabilities arise out of or are based upon any untrue or
alleged untrue statement of any material fact contained in
said Registration Statement, preliminary prospectus, final
prospectus, or amendment or supplement, or arise out of or are
based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in
each case to the extent, but only to the extent that such
untrue statement or alleged untrue statement or omission or
alleged omission was made in said Registration Statement,
preliminary prospectus, final prospectus or amendment or
supplement, in reliance upon and in conformity with written
information furnished by such Distributing Holder for use in
the preparation thereof; and will reimburse the Company or
underwriter or any such director, officer or controlling
person for any legal or other expenses reasonably incurred by
them in connection with investigating or defending any such
loss, claim, damage, liability or action.
(c) Promptly after receipt by an indemnified party
under this Paragraph 2 of notice of the commencement of any
action, such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party, give the
indemnifying party notice of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified
party otherwise than under this Paragraph 2.
13
<PAGE>
(d) In case any such action is brought against any
indemnified party, and it notifies an indemnifying party of
the commencement thereof, the indemnifying party will be
entitled to participate in, and, the extent that it may wish,
jointly with any other indemnifying party similarly notified
to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying
party will not be liable to such indemnified party under this
Paragraph 2 for any legal or other expenses subsequently
incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation.
(e) The Company's agreements with respect to Warrant
Shares in this Section (j) shall continue in effect regardless
of the exercise of the Warrant; provided, however, that the
Holder's rights under this Section (j) may not be assigned
without the prior written consent of the Company.
(k) RIGHT TO CONVERT WARRANT INTO COMMON STOCK.
(1) RIGHT TO CONVERT. The Holder shall have the right
to require the Company to convert this Warrant provided in
this Section (1), into common stock (the "Net Conversion
Right"). Upon exercise of the Net Conversion Right, the
Company shall deliver to the Holder (without payment by the
Holder of any Exercise Price or of any other cash or
consideration) that number of shares of Common Stock equal to
the quotient obtained by dividing (x) the value of this
Warrant at the time the Conversion Right is exercised
(determined by subtracting the aggregate Exercise Price in
effect immediately prior to the exercise of the Conversion
Right from the aggregate fair market value of the shares of
Common Stock issuable upon exercise of this Warrant
immediately prior to the exercise of the Conversion Right) by
(y) the fair market value of one share of Common Stock
immediately prior to the exercise of the Conversion Right.
(2) METHOD OF EXERCISE. The Net Conversion Right may
be exercised by the Holder by the surrender of this Warrant at
the principal office of the Company together with a written
statement specifying that the Holder thereby intends to
exercise the Net Conversion Right. Certificates for the shares
of Common Stock issuable upon exercise of the Net Conversion
Right shall be delivered to the Holder within five (5) days
following the Company's receipt of this Warrant together with
the aforesaid written statement.
(3) DETERMINATION OF FAIR MARKET VALUE. For purposes
of this Section (f), fair market value of a share of Common
Stock as of a particular date (the "Determination Date") shall
be determined in accordance with Section (c) of this Warrant.
14
<PAGE>
(l) AMENDMENTS. Neither the Warrant nor any term hereof may be changed,
waived, discharged or terminated without the prior written consent of the
Holder.
(m) NO IMPAIRMENT. The Company will not avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Company, but will at all times in good faith assist in the
carrying out of all the provisions of this Warrant and in the taking of all such
action as may be necessary or appropriate in order to protect the rights of any
Holder.
(n) GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of Delaware.
(o) NOTICES. All notices and other communications required or permitted
hereunder shall be in writing and shall be mailed by first class mail, postage
prepaid, addressed (a) if to the Holder, to BT Alex. Incorporated, One South
Street, Baltimore, Maryland 21202, Attention: Donald D. Notman, Jr., or (b) if
to the Company, to Bluestone Software, Inc., 1000 Briggs Road, Mount Laurel, New
Jersey 08054, Attention: President, or at such other address as to the Company
shall have furnished to the Holder in writing.
15
<PAGE>
IN WITNESS WHEREOF, Bluestone Software, Inc. has caused this Warrant to be
executed by its officer thereunto duly authorized.
Dated: _________________
BLUESTONE SOFTWARE, INC.
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
16
<PAGE>
Exhibit 10.29
BLUESTONE SOFTWARE, INC.
SERIES A PREFERRED
STOCK PURCHASE AGREEMENT
April 18, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. Purchase and Sale of Stock......................................................................1
1.1 Sale and Issuance of Series A Preferred Stock..........................................1
1.2 Closing................................................................................1
2. Representations and Warranties of the Company...................................................2
2.1 Organization, Good Standing and Qualification..........................................2
2.2 Capitalization and Voting Rights.......................................................2
2.3 Subsidiaries...........................................................................3
2.4 Authorization..........................................................................3
2.5 Valid Issuance of Preferred and Common Stock...........................................3
2.6 Governmental Consents..................................................................3
2.7 Offering...............................................................................4
2.8 Litigation.............................................................................4
2.9 Employee Agreements....................................................................4
2.10 Patents and Trademarks.................................................................4
2.11 Compliance with Other Instruments......................................................5
2.12 Agreements; Action.....................................................................5
2.13 Related-Party Transactions.............................................................6
2.14 Financial Plan.........................................................................7
2.15 Permits................................................................................7
2.16 Environmental and Safety Laws..........................................................7
2.17 Manufacturing and Marketing Rights.....................................................7
2.18 Disclosure.............................................................................7
2.19 Registration Rights....................................................................8
2.20 Title to Property and Assets...........................................................8
2.21 Financial Statements...................................................................8
2.22 Changes................................................................................8
2.23 Employee Benefit Plans.................................................................9
2.24 Tax Matters...........................................................................11
2.25 Insurance.............................................................................12
2.26 Books and Records.....................................................................12
3. Representations and Warranties of the Investors................................................12
3.1 Authorization.........................................................................12
3.2 Purchase Entirely for Own Account.....................................................13
3.3 Disclosure of Information.............................................................13
3.4 Investment Experience.................................................................13
3.5 Accredited Investor...................................................................13
3.6 Restricted Securities.................................................................13
3.7 Further Limitations on Disposition....................................................13
3.8 Legends...............................................................................14
3.9 Certain Tax Matters...................................................................14
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
4. Conditions of Investor's Obligations at Closing................................................15
4.1 Representations and Warranties........................................................15
4.2 Performance...........................................................................15
4.3 Compliance Certificate................................................................15
4.4 Qualifications........................................................................15
4.5 Proceedings and Documents.............................................................15
4.6 Employee Agreements...................................................................15
4.7 Opinion of Company Counsel............................................................15
4.8 Tax Opinion of Company Counsel........................................................16
4.9 Investors' Rights Agreement...........................................................16
4.10 Right of First Refusal and Co-Sale Agreement..........................................16
4.11 Voting Agreement......................................................................16
4.12 Due Diligence.........................................................................16
4.13 Restated Certificate of Incorporation.................................................16
4.14 Key Person Life Insurance.............................................................16
4.15 Related Agreements....................................................................16
4.16 Consummation of the Spin-off. .......................................................17
5. Conditions of the Company's Obligations at Closing.............................................17
5.1 Representations and Warranties........................................................17
5.2 Payment of Purchase Price.............................................................17
5.3 Qualifications........................................................................17
5.4 Right of First Refusal and Co-Sale Agreement..........................................17
5.5 Voting Agreement......................................................................17
6. Indemnification................................................................................17
7. Miscellaneous..................................................................................19
7.1 Survival of Warranties................................................................19
7.2 Successors and Assigns................................................................19
7.3 Governing Law.........................................................................19
7.4 Counterparts..........................................................................19
7.5 Titles and Subtitles..................................................................19
7.6 Notices...............................................................................20
7.7 Finder's Fee..........................................................................20
7.8 Expenses..............................................................................20
7.9 Amendments and Waivers................................................................20
7.10 Severability..........................................................................20
7.11 Aggregation of Stock..................................................................21
7.12 Entire Agreement......................................................................21
7.13 Definition of Investor................................................................21
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
SCHEDULE A Schedule of Investors..........................................................................26
SCHEDULE B Disclosure Letter..............................................................................27
EXHIBIT A Restated Certificate of Incorporation..........................................................28
EXHIBIT B Form of Employee Agreement.....................................................................29
EXHIBIT C Opinion of Company Counsel.....................................................................30
EXHIBIT D Tax Opinion of Company Counsel.................................................................31
EXHIBIT E Investors' Rights Agreement....................................................................32
EXHIBIT F Right of First Refusal and Co-Sale Agreement...................................................33
EXHIBIT G Voting Agreement...............................................................................34
</TABLE>
iii
<PAGE>
BLUESTONE SOFTWARE, INC.
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is made as of the 18th day of April 1997,
by and between Bluestone Software, Inc., a Delaware corporation (the "Company"),
and the investors listed on Schedule A hereto, each of which is herein referred
to as an "Investor."
INTENDING TO BE LEGALLY BOUND, and in consideration of the mutual
agreements stated below, the parties agree as follows:
1. PURCHASE AND SALE OF STOCK.
1.1 SALE AND ISSUANCE OF SERIES A PREFERRED STOCK
(a) The Company shall adopt and file with the
Secretary of State of Delaware on or before the Closing (as defined below) the
Amended and Restated Certificate of Incorporation in the form attached hereto as
EXHIBIT A (the "Restated Certificate").
(b) Subject to the terms and conditions of this
Agreement, each Investor agrees, severally, to purchase at the Closing (as
hereafter defined), and the Company agrees to sell and issue to each Investor at
such Closing, that number of shares of the Company's Series A Convertible
Preferred Stock, $.001 par value per share ("Series A Preferred Stock"), set
forth opposite each Investor's name on SCHEDULE A hereto, at a price of $0.95
per share.
1.2 CLOSING.
The purchase by the Investors and sale by the Company
of the shar es of Series A Preferred Stock hereunder (the "Shares") shall take
place at the offices of Blank Rome Comisky & McCauley, Four Penn Center Plaza,
Philadelphia, Pennsylvania at 10:00 A.M., on April 18, 1997, or at such other
time and place as the Company and the Investors, mutually agree upon orally or
in writing (which time and place are designated as the "Closing"); provided,
however, that if acceptable to the Company and the Investors, the Closing may be
effected by facsimile transmission of executed copies of the documents delivered
at the Closing and payment of the purchase price specified in Section 1.1 and by
sending original copies of the documents delivered at the Closing by reputable
overnight delivery service, postage or delivery charges prepaid, for delivery to
the parties at their addresses stated on the signature page of this Agreement by
the third business day following the Closing. At the Closing the Company shall
deliver to each Investor a certificate representing the Shares that such
Investor is purchasing against payment of the purchase price therefor by check,
wire transfer, or any combination thereof (or in the case of Mel Baiada
("Baiada"), by cancellation of indebtedness owed by the Company to Ba iada) in
an amount equal to the purchase price referred to on SCHEDULE A attached hereto.
Any Investor purchasing Shares pursuant to this Agreement shall become a party
to this Agreement, the Investors' Rights Agreement, the First Refusal and
Co-Sale Agreement and the Voting Agreement (each as defined below and
collectively with this Agreement, the "Transaction Agreements"), all dated as of
the date hereof.
<PAGE>
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY . Knowing that each
Investor is relying thereon, the Company hereby represents and warrants to each
Investor that, except as set forth in the Disclosure Letter attached hereto as
SCHEDULE B (the "Disclosure Letter") furnished to each Investor and special
counsel for the Investors, specifically identifying the relevant subparagraph
hereof:
2.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware and has all requisite corporate power
and authority to carry on its business as now conducted and as proposed to be
conducted. The Company is duly qualified to transact business and is in good
standing in each jurisdiction in which the failure to so qualify would have a
material adverse effect on its business or properties.
2.2 CAPITALIZATION AND VOTING RIGHTS. The authorized capital
of the Company will consist immediately after the Closing, of:
(i) PREFERRED STOCK. 5,526,316 preferred stock (the
"Preferred Stock"), all of which have been designated Series A Preferred Stock
and will be sold pursuant to this Agreement. The rights, privileges and
preferences of the Series A Preferred Stock will be as stated in the Company's
Restated Certificate.
(ii) COMMON STOCK. 17,726,316 shares of common stock,
$.001 par value per share ("Common Stock"), of which (a) 5,526,316 shares have
been reserved for issuance upon conversion of the Shares (the "Conversion
Shares"), (b) 700,000 shares have been reserved for issuance upon conversion of
the convertible term note held by Mark Baiada in the principal amount of
$500,000 (the "Mark Baiada Conversion Shares"), (c) 813,250 shares have been
reserved for issuance upon the exercise of outstanding options (the "1996 Plan
Options") granted to certain employees of the Company pursuant to the Company's
Amended and Restated 1996 Incentive and Non-Qualified Stock Option Plan (the
"1996 Plan"), (d) 300,000 shares have been reserved for issuance upon the
exercise of outstanding options to be granted to Bob Bickel on or after the
Closing (the "Bickel Options"), (e) 1,386,750 shares have been reserved for
issuance upon the exercise of options to be granted in the future to certain
employees of the Company under the 1996 Plan, and (f) 9,000,000 shares are
currently issued and outstanding.
(iii) The outstanding shares of Common Stock are all
duly and validly authorized and issued, fully paid and nonassessable, and were
issued in accordance with the registration or qualification provisions of the
Securities Act of 1933, as amended (the "Act"), and any relevant state
securities laws or pursuant to valid exemptions therefrom.
(iv) Except for (a) the conversion privileges of the
Preferred Stock issued or to be issued under this Agreement, (b) the rights
provided in the registration rights provisions of the Investors' Rights
Agreement, (c) any other rights created under the Transaction Agreements, and
(d) as of the Closing (I) 700,000 shares of Common Stock reserved for issuance
upon conversion of the convertible term note held by Mark Baiada in the
principal amount of $500,000, (II) 300,000 shares of Common Stock reserved for
issuance upon exercise of the Bickel Options, and (III)
2
<PAGE>
813,250 shares of Common Stock reserved for issuance upon exercise of the 1996
Plan Options, there are not outstanding any options, warrants, rights (including
conversion or preemptive rights) or agreements for the purchase or acquisition
from the Company of any shares of its capital stock. The Company has reserved an
additional 1,386,750 shares of its Common Stock for purchase upon exercise of
options to be granted in the future to certain employees under the 1996 Plan.
Except for the Transaction Agreements, the Company is not a party or subject to
any agreement or understanding, and, to the best of the Company's knowledge,
there is no agreement or understanding between any persons and/or entities,
which affects or relates to the voting or giving of written consents by a
director of the Company or the voting or giving of written consents by a
director or stockholder with respect to any security.
2.3 SUBSIDIARIES. The Company does not presently own or
control, directly or indirectly, any interest in any other corporation,
association, or other business entity. The Company is not a participant in any
joint venture, partnership, or similar arrangement.
2.4 AUTHORIZATION. All corporate action on the part of the
Company, its officers, directors and stockholders necessary for the
authorization, execution and delivery of the Transaction Agreements, the
performance of all obligations of the Company hereunder and thereunder, and the
authorization, issuance (or reservation for issuance), sale and delivery of the
Shares being sold hereunder and the Conversion Shares, has been taken or will be
taken prior to the Closing. The Transaction Agreements constitute valid and
legally binding obligations of the Company, enforceable in accordance with their
respective terms, except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, and other laws of general application affecting
enforcement of creditors' rights generally, (ii) as limited by laws relating to
the availability of specific performance, injunctive relief, or other equitable
remedies, and (iii) to the extent the indemnification provisions contained in
the Investors' Rights Agreement may be limited by applicable federal or state
securities laws.
2.5 VALID ISSUANCE OF PREFERRED AND COMMON STOCK. The Shares,
when issued, sold and delivered in accordance with the terms of this Agreement
for the consideration expressed herein, will be duly and validly issued, fully
paid, and nonassessable, and will be free of restrictions on transfer other than
restrictions on transfer under the Transaction Agreements and under applicable
state and federal securities laws. The Conversion Shares have been duly and
validly reserved for issuance and, upon issuance in accordance with the terms of
the Restated Certificate, will be duly and validly issued, fully paid, and
nonassessable and will be free of restrictions on transfer other than
restrictions on transfer under the Transaction Agreements and under applicable
state and federal securities laws.
2.6 GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the consummation of the transactions
contemplated by this Agreement (except such additional steps as may be necessary
to qualify the offer and sale of the Shares under applicable state securities
laws, which such steps have been taken or shall be timely taken by the Company).
3
<PAGE>
2.7 OFFERING. Subject in part to the truth and accuracy of
each Investor's representations set forth in Section 3 of this Agreement, the
offer, sale and issuance of the Shares as contemplated by this Agreement are
exempt from the registration requirements of the Act, and neither the Company
nor any authorized agent acting on its behalf will take any action hereafter
that would cause the loss of such exemption.
2.8 LITIGATION. There is no action, suit, proceeding
or investigation pending or currently threatened against the Company that
questions the validity of the Transaction Agreements or the right of the
Company to enter into such agreements, or to consummate the transactions
contemplated hereby or thereby, or that might result, either individually or
in the aggregate, in any material adverse change in the assets, condition,
affairs or prospects of the Company, financially or otherwise, or any change
in the current equity ownership of the Company, nor is the Company aware that
there is any basis for the foregoing. The foregoing includes, without
limitation, actions, suits, proceedings or investigations pending or
threatened (or any basis therefor known to the Company) involving the prior
employment of any of the Company's employees, their use in connection with
the Company's business of any information or techniques allegedly proprietary
to any of their former employers, or their obligations under any agreements
with prior employers. The Company is not a party or subject to the provisions
of any order, writ, injunction, judgment or decree of any court or government
agency or instrumentality. There is no action, suit, proceeding or
investigation by the Company currently pending or that the Company intends to
initiate.
2.9 EMPLOYEE AGREEMENTS. [INTENTIONALLY OMITTED].
2.10 PATENTS AND TRADEMARKS. The Company owns or possesses
sufficient legal rights to all patents, trademarks, service marks, trade names,
copyrights, trade secrets, information, proprietary rights and processes
("Intellectual Property") necessary for its business as now conducted and as
proposed to be conducted without any conflict with or infringement of the rights
of others. The Disclosure Letter contains a complete list of all patents and
patent applications of the Company. There are no outstanding options, licenses,
or agreements of any kind relating to any of the Company's Intellectual
Property, nor is the Company bound by or a party to any options, licenses or
agreements of any kind with respect to the Intellectual Property of any other
person or entity. The Company has not received any communications alleging that
the Company has violated or, by conducting its business as proposed to be
conducted, would violate any of the Intellectual Property of any other person or
entity. The Company is not aware that any of the Company's employees is
obligated under any contract (including licenses, covenants or commitments of
any nature) or other agreement, or subject to any judgment, decree or order of
any court or administrative agency, that would interfere with the use of his or
her best efforts to promote the interests of the Company or that would conflict
with the Company's business as proposed to be conducted. Neither the execution
nor delivery of the Transaction Agreements nor the carrying on of the Company's
business by the employees of the Company, nor the conduct of the Company's
business as proposed to be conducted, will, to the best of the Company's
knowledge, conflict with or result in a breach of the terms, conditions or
provisions of, or constitute a default under, any contract, covenant or
instrument under which any of such employees is now obligated. The Company does
not believe that it is or will be necessary to utilize any inventions of any of
the Company's employees (or people it currently intends to hire) made prior to
their employment by the Company.
4
<PAGE>
2.11 COMPLIANCE WITH OTHER INSTRUMENTS.
(a) The Company is not in violation or default of any
provision of its Restated Certificate or Bylaws, or of any instrument, judgment,
order, writ, decree or contract to which it is a party or by which it is bound,
or, to the best of its knowledge, of any provision of any federal or state
statute, rule or regulation applicable to the Company. The execution, delivery
and performance of the Transaction Agreements, and the consummation of the
transactions contemplated hereby and thereby, will not result in any such
violation or be in conflict with or constitute, with or without the passage of
time and/or giving of notice, either a default under any such provision,
instrument, judgment, order, writ, decree or contract or an event that results
in the creation of any lien, charge or encumbrance upon any assets of the
Company or the suspension, revocation, impairment, forfeiture, or nonrenewal of
any material permit, license, authorization, or approval applicable to the
Company, its business or operations or any of its assets or properties.
(b) The Company has avoided every condition, and has
not performed any act, the occurrence of which would result in the Company's
loss of any material right granted under any license, distribution or other
agreement.
2.12 AGREEMENTS; ACTION.
(a) Except for agreements explicitly contemplated
hereby and by the Transaction Agreements, there are no agreements,
understandings or proposed transactions between the Company and any of its
officers, directors or affiliates, or any affiliate thereof.
(b) There are no agreements, understandings,
instruments, contracts, proposed transactions, judgments, orders, writs or
decrees to which the Company is a party or by which it is bound that may involve
(i) obligations (contingent or otherwise) of, or payments to the Company in
excess of, $25,000, or (ii) the license of any patent, copyright, trade secret
or other proprietary right to or from the Company, or (iii) provisions
restricting or affecting the development, manufacture or distribution of the
Company's products or services, or (iv) indemnification by the Company with
respect to infringements of proprietary rights.
(c) Since the date of the Latest Balance Sheet (as
defined below), the Company (i) has not declared or paid any dividends or
authorized or made any distribution upon or with respect to any class or series
of its capital stock, (ii) except for (A) the convertible term note in the
principal amount of $500,000 payable to Mark Baiada (the "Mark Baiada Term
Note"), (B) the term note in the principal amount of $250,000 payable to Mel
Baiada (the "Mel Baiada Term Note"), (C) the term loan in the original principal
amount of $235,000 payable to PNC Bank (the "PNC Bank Term Loan"), (D) the
$1,000,000 revolving line of credit with PNC Bank (the "PNC Bank Credit Line")
and (E) the $150,000 convertible line of credit note with PNC Bank (the "PNC
Bank Convertible Line of Credit Note"), does not currently have outstanding any
indebtedness for money borrowed or any other liabilities individually in excess
of $25,000 or, in the case of indebtedness and/or liabilities individually less
than $25,000, in excess of $75,000 in the aggregate, or (iii) has not made any
loans or advances to any person, other than ordinary advances for travel
5
<PAGE>
expenses, has not sold, exchanged or otherwise disposed of any of its assets or
rights, other than the sale of its inventory in the ordinary course of business.
(d) For the purposes of subsections (b) and (c)
above, all indebtedness, liabilities, agreements, understandings, instruments,
contracts and proposed transactions involving the same person or entity
(including persons or entities the Company has reason to believe are affiliated
therewith) shall be aggregated for the purpose of meeting the individual minimum
dollar amounts of such subsections.
(e) The Company is not a party to and is not bound by
any contract, agreement or instrument, or subject to any restriction under its
Restated Certificate or Bylaws that materially adversely affects its business as
now conducted or as proposed to be conducted, its properties or its financial
condition.
(f) The Company has not engaged in the past three (3)
months in any discussion (i) with any representative of any corporation or
corporations regarding the consolidation or merger of the Company with or into
any such corporation or corporations, (ii) with any corporation, partnership,
association or other business entity or any individual regarding the sale,
conveyance or disposition of all or substantially all of the assets of the
Company or a transaction or series of related transactions in which more than
fifty percent (50%) of the voting power of the Company is disposed of, or (iii)
regarding any other form of acquisition, liquidation, dissolution or winding up
of the Company.
2.13 RELATED-PARTY TRANSACTIONS. No employee, officer, or
director of the Company or member of his or her immediate family is indebted to
the Company, nor is the Company, except for its obligations under the Mark
Baiada Term Notes and the Mel Baiada Term Note, indebted (or committed to make
loans or extend or guarantee credit) to any of them. To the best of the
Company's knowledge, none of such persons has any direct or indirect ownership
interest in any firm or corporation with which the Company is affiliated or with
which the Company has a business relationship, or any firm or corporation that
competes with the Company, except that employees, officers, or directors of the
Company and members of their immediate families may own stock in publicly traded
companies that may compete with the Company. No member of the immediate family
of any officer or director of the Company is directly or indirectly interested
in any material contract with the Company.
2.14 FINANCIAL PLAN. The financial plan attached to the
Disclosure Letter (the "Financial Plan") has been prepared in good faith by the
Company and does not contain any untrue statement of a material fact nor does it
omit to state a material fact necessary to make the statements made therein not
misleading, except that with respect to projections contained in the Financial
Plan, the Company represents only that such projections were prepared in good
faith by the Company and that the Company reasonably believes there is a
reasonable basis for such projections.
2.15 PERMITS. The Company has all franchises, permits,
licenses, and any similar authority necessary for the conduct of its business as
now being conducted by it, the lack of which could materially and adversely
affect the business, properties, prospects, or financial condition of
6
<PAGE>
the Company, and the Company believes it can obtain, without undue burden or
expense, any similar authority for the conduct of its business as planned to be
conducted in the Business Plan. The Company is not in default in any material
respect under any of such franchises, permits, licenses, or other similar
authority.
2.16 ENVIRONMENTAL AND SAFETY LAWS. To the best of the
Company's knowledge, the Company is not in violation of any applicable statute,
law or regulation relating to the environment or occupational health and safety,
and to the best of its knowledge, no material expenditures are or will be
required in order to comply with any such existing statute, law or regulation.
2.17 MANUFACTURING AND MARKETING RIGHTS. The Company has not
granted rights to manufacture, produce, assemble, license, market, or sell its
products to any other person and is not bound by any agreement that affects the
Company's exclusive right to develop, manufacture, assemble, distribute, market
or sell its products.
2.18 DISCLOSURE. The Company has fully provided each Investor
with all the information that such Investor has requested for deciding whether
to purchase the Series A Preferred Stock and all information that the Company
believes is reasonably necessary to enable such Investor to make such decision.
Neither the Transaction Agreements nor any other written statements or
certificates made or delivered in connection herewith or therewith contains any
untrue statement of a material fact or omits to state a material fact necessary
to make the statements herein or therein not misleading. There is no fact within
the knowledge of the Company, or any of the Company's officers which has not
been disclosed herein or in writing by them to the Investors and which
materially adversely affects, or in the future in their opinion may, insofar as
they can now foresee, materially adversely affect the business, properties,
assets or condition, financial or otherwise, of the Company. Other than as
stated in the Disclosure Letter, without limiting the foregoing, the Company has
no knowledge or belief that there exists, or there is, pending or planned, any
patent, invention, device, application or principle or any statute, rule, law,
regulation, standard or condition which would materially adversely affect the
condition, financial or otherwise, or the operations of the Company.
2.19 REGISTRATION RIGHTS. Except as provided in the Investors'
Rights Agreement, the Company has not granted or agreed to grant any
registration rights, including piggyback rights, to any person or entity.
2.20 TITLE TO PROPERTY AND ASSETS. The Company owns its
property and assets free and clear of all mortgages, liens, loans and
encumbrances, except (i) as reflected in the Financial Statements (as defined
below), (ii) for liens for current taxes not yet delinquent, (iii) for liens
imposed by law and incurred in the ordinary course of business for obligations
not past due to carriers, warehousemen, laborers, materialmen and the like, (iv)
for liens in respect of pledges or deposits under workers' compensation laws or
similar legislation, (v) for minor defects in title, none of which, individually
or in the aggregate, materially interferes with the use of such property, or
(vi) for such encumbrances and liens that arise in the ordinary course of
business and do not materially impair the Company's ownership or use of such
property or assets. With respect to the property and
7
<PAGE>
assets it leases, the Company is in compliance with such leases and, to the best
of its knowledge, holds a valid leasehold interest free of any liens, claims or
encumbrances.
2.21 FINANCIAL STATEMENTS. The Company has delivered to each
Investor consolidated audited financial statements (balance sheet, operating
statement and statement of cash flows) of Bluestone Consulting, Inc., a New
Jersey Corporation (the "Predecessor Corporation") as of and for each of the
fiscal years ended December 31, 1996 and 1995 (the "Audited Financial
Statements"), and consolidated unaudited financial statements (balance sheet,
operating statement and statement of cash flows) of the Predecessor Corporation
as of February 28, 1997 and for the two months then ended (the "Unaudited
Financial Statements" together with the Audited Financial Statements, the
"Financial Statements"). The Financial Statements fairly present the financial
condition and operating results of the Predecessor Corporation as of the dates,
and for the periods, indicated therein, subject to normal year-end adjustments.
The Financial Statements have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods indicated and with each other, except that the Unaudited Financial
Statements may not contain all footnotes required by generally accepted
accounting principles. Except as set forth in the Financial Statements, the
Predecessor Corporation has no material liabilities, contingent or otherwise,
other than (i) liabilities incurred in the ordinary course of business
subsequent to February 28, 1997, and (ii) obligations under contracts and
commitments incurred in the ordinary course of business, which, individually or
in the aggregate, are not material to the financial condition or operating
results of the Predecessor Corporation. Except as disclosed in the Financial
Statements, the Predecessor Corporation is not a guarantor or indemnitor of any
indebtedness of any other person, firm or corporation.
2.22 CHANGES. Since February 28, 1997, the date of the latest
balance sheet included in the Financial Statements (the "Latest Balance Sheet"),
there has not been:
(a) any change in the assets, liabilities, financial
condition or operating results of the Company from that reflected in the
Financial Statements, except changes in the ordinary course of business that
have not been, in the aggregate, materially adverse;
(b) any damage, destruction or loss, whether or not
covered by insurance, materially and adversely affecting the assets, properties,
financial condition, operating results, prospects or business of the Company (as
such business is presently conducted and as it is proposed to be conducted);
(c) any waiver by the Company of a valuable right or
of a material debt owed to it;
(d) any satisfaction or discharge of any lien, claim
or encumbrance or payment of any obligation by the Company, except in the
ordinary course of business and that is not material to the assets, properties,
financial condition, operating results, prospects or business of the Company (as
such business is presently conducted and as it is proposed to be conducted);
8
<PAGE>
(e) any material change or amendment to a material
contract or arrangement by which the Company or any of its assets or properties
is bound or subject;
(f) any resignation or termination of employment of
any key officer of the Company, and the Company, to the best of its knowledge,
does not know of the impending resignation or termination of employment of any
such officer;
(g) any mortgage, pledge, transfer of a security
interest in, or lien, created by the Company, with respect to any of its
material properties or assets, except liens for taxes not yet due or payable;
(h) any loans or guarantees made by the Company to or
for the benefit of its employees, officers or directors, or any members of their
immediate families, other than travel advances and other advances made in the
ordinary course of its business; or
(i) to the best of the Company's knowledge, any other
event or condition of any character that might materially and adversely affect
the assets, properties, financial condition, operating results, prospects or
business of the Company (as such business is presently conducted and as it is
proposed to be conducted).
2.23 EMPLOYEE BENEFIT PLANS. Except as set forth in the
Disclosure Letter, the Company has not established, maintained or contributed to
any Employee Benefit Plans as defined in the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), and the Company has not proposed any Employee
Benefit Plans which the Company will establish, maintain, or to which the
Company will contribute, and the Company has not proposed any changes to any
Employee Benefit Plans now in effect (all of the preceding referred to
collectively hereinafter as the "Company's Employee Benefit Plans"). True and
correct copies and descriptions, to the extent that they exist, of all of the
Company's Employee Benefit Plans have been previously provided to the Investors.
If permitted and/or required by applicable Law, the Company has properly
submitted all of the Company's Employee Benefit Plans in good faith to meet the
applicable requirements of ERISA and/or the Code (as hereinafter defined) to the
IRS for its approval within the time prescribed therefor under applicable
federal regulations. Favorable letters of determination of such tax-qualified
status from the IRS have been previously provided to the Investors. With respect
to the Company's Employee Benefit Plans, the Company will have made, on or prior
to the Closing, all payments required to be made by it on or prior to the
Closing and will have accrued (in accordance with generally accepted accounting
principles consistently applied) as of the Closing all payments due but not yet
payable as of the Closing. The Company has previously provided to the Investors
a true and correct copy of the most current Form 5500 and any other form or
filing required to be submitted to any governmental agency with regard to any of
the Company's Employee Benefit Plans. All of the Company's Employee Benefit
Plans are, and have been, operated in full compliance with their provisions and
with all applicable Laws including, without limitation, ERISA and the Code and
the regulations and rulings thereunder. The Company and all fiduciaries of the
Company's Employee Benefit Plans have complied with the provisions of the
Company's Employee Benefit Plans and with all applicable Laws including, without
limitation, ERISA and the Code and the regulations and rulings thereunder. There
has been no termination or partial termination (including any termination
9
<PAGE>
or partial termination attributable to this sale) of any of the Company's
Employee Benefit Plans. The Company has never established, maintained or had the
obligation to contribute to a defined benefit plan (as defined in the Code or
ERISA), an Employee Benefit Plan that is subject to the minimum funding
standards of the Code or ERISA, or a multiemployer (as defined in the Code or
ERISA). Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
payment (including, without limitation, severance, unemployment compensation,
golden parachute or otherwise) becoming due from the Company under any of the
Company's Employee Benefit Plans, (ii) increase any benefits otherwise payable
under any of the Company's Employee Benefit Plans, or (iii) result in the
acceleration of the time of payment or vesting of any such benefits to any
extent. There are no pending actions, claims or lawsuits which have been
asserted or instituted against any of the Company's Employee Benefit Plans, the
assets of any of the trusts under such plans, the plan sponsor, the plan
administrator or against any fiduciary of any of the Company's Employee Benefit
Plans (other than routine benefit claims) nor does the Company have knowledge of
facts which could form the basis for any such action, claim or lawsuit. There
are no investigations or audits of any of the Company's Employee Benefit Plans,
any trusts under such plans, the plan sponsor, the plan administrator or any
fiduciary of any of the Company's Employee Benefit Plans which have been
threatened or instituted nor does the Company have knowledge of facts which
could form the basis for any such investigation or audit. Except as disclosed in
the Disclosure Letter, no event has occurred or will occur which will result in
liability to the Company in connection with any Employee Benefit Plan
established, maintained, or contributed to (currently or previously) by the
Company or by any other entity which, together with the Company, constitute
elements of either (i) a controlled group of corporations (within the meaning of
Section 414(b) of the Code), (ii) a group of trades or businesses under common
control (within the meaning of Sections 414(c) of the Code or 4001 of ERISA),
(iii) an affiliated service group (within the meaning of Section 414(m) of the
Code), or (iv) another arrangement covered by Section 414(o) of the Code. For
purposes of this Agreement, "Employee Benefit Plan" means (i) any employee
benefit plan, as defined in Section 3(3) of ERISA, and (ii) any other plan,
trust agreement or arrangement for any bonus, severance, hospitalization,
vacation, incentive or deferred compensation, pension or profit-sharing,
retirement, payroll savings, stock option, equity compensation, group insurance,
death benefit, fringe benefit, welfare or any other employee benefit plan or
fringe benefit arrangement of any nature whatsoever, including those benefitting
retirees or former employees.
2.24 TAX MATTERS.
(a) The Company has filed all Tax Returns (as defined
below) which it was required to file under applicable laws and regulations; all
such Tax Returns are complete and correct in all respects and have been prepared
in compliance with all applicable laws and regulations; the Company has paid all
Taxes (as defined below) due and owing by it with respect to any period ending
on or before the Closing (whether or not such Taxes are required to be shown on
a Tax Return) and have withheld and paid over to the appropriate taxing
authority all Taxes which it is required to withhold from amounts paid or owing
to any employee, stockholder, creditor or other third party with respect to any
period ending on or before the Closing; the Company has not waived any statute
of limitations with respect to any Taxes or agreed to any extension of time with
respect to any Tax Return; the accrual for Taxes on the Latest Balance Sheet
would be adequate to pay all
10
<PAGE>
Tax liabilities of the Company if its current tax year were treated as ending on
the date of the Latest Balance Sheet; since the date of the Latest Balance
Sheet, the Company has not incurred any liability for Taxes other than in the
ordinary course of business; the assessment of any additional Taxes for periods
for which Tax Returns have been filed by the Company shall not exceed the
recorded liability therefor on the Latest Balance Sheet; the federal income Tax
Returns of the Company have been audited or closed for all tax years through
1992; no foreign, federal, state or local tax audits or administrative or
judicial proceedings are pending or being conducted with respect to the Company,
no information related to Tax matters has been requested by any foreign,
federal, state or local taxing authority and no written notice indicating an
intent to open an audit or other review has been received by the Company from
any foreign, federal, state or local taxing authority; and there are no material
unresolved questions or claims concerning the Company's Tax liability;
(b) The Company has not made an election under
Section 341(f) of the Internal Revenue Code of 1986, as amended (the "Code").
The Company is not liable for the Taxes of another person under (i) Treas.
Reg. Section 1.1502-6 (or comparable provisions of state, local or foreign
law), (ii) as a transferee or successor, (iii) by contract or indemnity, or
(iv) otherwise. The Company is not a party to any tax sharing agreement. The
Company has disclosed on their federal income Tax Returns any position taken
for which substantial authority (within the meaning of Section
6662(d)(2)(B)(i) of the Code) did not exist at the time the return was filed.
The Company has not made any payments, is obligated to make payments or is a
third party to an agreement that could obligate it to make any payments that
would not be deductible under Section 280G of the Code;
(c) As of the Closing, the Company is a qualified
small business within the meaning of Section 1202(c) of the Code. During the
period beginning one year prior to the Closing Date through the Closing, the
Company has not made a significant redemption of its stock within the meaning
of Section 1202(c)(3)(B) of the Code;
(d) The Company has made a valid election under
Section 1362(a) of the Code to be treated as an "S corporation" within the
meaning of Section 1361 of the Code, which election has been effective for all
tax periods from the date of the Company's formation to the Closing Date;
(e) The formation of Bluestone Consulting, Inc., a
Delaware corporation ("Bluestone") by the Company and the distribution of its
stock to the shareholders (the "Spin-off") did not and will not result in any
Tax to the Company, and for purposes of subsection 2.24(a) above, such formation
and distribution shall not be considered a transaction occurring in the ordinary
course of business; and
(f) For purposes of this Agreement, the term "Tax" or
"Taxes" means federal, state, county, local, foreign or other income, gross
receipts, ad valorem, franchise, profits, sales or use, transfer, registration,
excise, utility, environmental, communications, real or personal property,
capital stock, license, payroll, wage or other withholding, employment, social
security, severance, stamp, occupation, alternative or add-on minimum, estimated
and other taxes of any kind whatsoever (including, without limitation,
deficiencies, penalties, additions to tax, and interest attributable thereto)
whether disputed or not. The term "Tax Return" means any return, information
11
<PAGE>
report or filing with respect to Taxes, including any schedules attached thereto
and including any amendment thereof.
2.25 INSURANCE. The Company has in full force and effect fire
and casualty insurance policies, with extended coverage, sufficient in amount
(subject to reasonable deductibles) to allow it to replace any of its properties
that might be damaged or destroyed.
2.26 BOOKS AND RECORDS. The minute books and stock record
books of the Company provided to the Investors contain (i) minutes of all
meetings of the stockholders, board of directors and any committee of the board
of directors, (ii) written statements of all actions taken by the stockholders,
board of directors and any committee of the board of directors without a
meeting, and (iii) records of the issuance, transfer and cancellation of all
shares of capital stock and other securities, in each case since the time of
incorporation. Such minute books and stock record books reflect all transactions
referred to there in accurately and completely.
3. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS. Each Investor
hereby severally represents and warrants that:
3.1 AUTHORIZATION. Such Investor has full power and authority
to enter into the Transaction Agreements, and each such agreement constitutes
its valid and legally binding obligation, enforceable in accordance with its
terms, except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, and other laws of general application affecting
enforcement of creditors' rights generally, (ii) as limited by laws relating to
the availability of specific performance, injunctive relief, or other equitable
remedies, and (iii) to the extent the indemnification provisions contained in
the Investors' Rights Agreement may be limited by applicable federal or state
securities laws.
3.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made
with such Investor in reliance upon such Investor's representation to the
Company, which by such Investor's execution of this Agreement such Investor
hereby confirms, that the Shares to be received by such Investor and the
Conversion Shares (collectively, the "Securities") will be acquired for
investment for such Investor's own account, not as a nominee or agent, and not
with a view to the resale or distribution of any part thereof except in
accordance with the Securities Act of 1933, as amended (the "Act"), and that
such Investor has no present intention of selling, granting any participation
in, or otherwise distributing the same. By executing this Agreement, such
Investor further represents that such Investor does not have any contract,
undertaking, agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third person, with respect to any of the
Securities.
3.3 DISCLOSURE OF INFORMATION. Such Investor believes it has
received all the information it considers necessary or appropriate for deciding
whether to purchase the Shares. Such Investor further represents that it has had
an opportunity to ask questions and receive answers from the Company regarding
the terms and conditions of the offering of the Shares and the business,
properties, prospects and financial condition of the Company. The foregoing,
however, does not
12
<PAGE>
limit or modify the representations and warranties of the Company in Section 2
of this Agreement or the right of the Investors to rely thereon.
3.4 INVESTMENT EXPERIENCE. Such Investor is an investor in
securities of companies in the development stage and acknowledges that it is
able to fend for itself, can bear the economic risk of its investment, and has
such knowledge and experience in financial or business matters that it is
capable of evaluating the merits and risks of the investment in the Shares. If
other than an individual, Investor also represents it has not been organized for
the purpose of acquiring the Shares.
3.5 ACCREDITED INVESTOR. Such Investor is an "accredited
investor" within the meaning of Securities and Exchange Commission ("SEC") Rule
501 of Regulation D, as presently in effect.
3.6 RESTRICTED SECURITIES. Such Investor understands that the
Shares and Conversion Shares are characterized as "restricted securities" under
the federal securities laws inasmuch as they are being acquired from the Company
in a transaction not involving a public offering and therefore may not be sold,
transferred or otherwise disposed of without registration under the Act or an
exemption therefrom, and that in the absence of an effective registration
statement covering the Shares or the Conversion Shares or an available exemption
from registration under the Act, the Shares or the Conversion Shares must be
held indefinitely. In this connection, such Investor represents that it is
familiar with SEC Rule 144, as presently in effect, and understands the resale
limitations imposed thereby and by the Act.
3.7 FURTHER LIMITATIONS ON DISPOSITION. Without in any way
limiting the representations set forth above, such Investor further agrees not
to make any disposition of all or any portion of the Securities unless and until
the transferee has agreed in writing for the benefit of the Company to be bound
by this Section 3 and the Investors' Rights Agreement provided and to the extent
this Section and such agreement are then applicable, and:
(a) There is then in effect a Registration Statement
under the Act covering such proposed disposition and such disposition is made in
accordance with such Registration Statement; or
(b)(i) Such Investor shall have notified the Company
of the proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and (ii) if
reasonably requested by the Company, such Investor shall have furnished the
Company with an opinion of counsel, reasonably satisfactory to the Company, that
such disposition will not require registration of such shares under the Act. It
is agreed that the Company will not require opinions of counsel for transactions
made pursuant to Rule 144 except in unusual circumstances.
(c) Notwithstanding the provisions of paragraphs (a)
and (b) above, no such registration statement or opinion of counsel shall be
necessary for a transfer by an Investor that is a partnership to a partner of
such partnership or a retired partner of such partnership who retires
13
<PAGE>
after the date hereof, or to the estate of any such partner or retired partner
or the transfer by gift, will or intestate succession of any partner to his or
her spouse or to the siblings, lineal descendants or ancestors of such partner
or his or her spouse, if the transferee agrees in writing to be subject to the
terms hereof to the same extent as if he or she were an original Investor
hereunder.
3.8 LEGENDS. It is understood that the certificates evidencing
the Securities may bear one or all of the following legends:
(a) "These securities have not been registered
under the Securities Act of 1933, as
amended, or any state securities laws. They
may not be sold, offered for sale, pledged
or hypothecated in the absence of a
registration statement in effect with
respect to the securities under such Act and
such state securities laws or an opinion of
counsel satisfactory to the Company that
such registration is not required or unless
sold pursuant to Rule 144 of such Act."
3.9 CERTAIN TAX MATTERS.
(a) Such investor has no present plan or intention,
individually or together with other investors, to cause the company to,
liquidate, merge with another entity, or sell or otherwise dispose of the assets
of the company other than in the ordinary course if business or to cause the
company to cease carrying on the business of the company.
(b) Such investor acknowledges that the transactions
contemplated by the contribution and distribution agreement are intended to
qualify as transactions described in sections 368(a)(1)(d) and 355 of the code
and such investor has no present plan or intention to take any action or
position inconsistent therewith or with the consummation of such transactions as
contemplated in the contribution and distribution agreement.
4. CONDITIONS OF INVESTOR'S OBLIGATIONS AT CLOSING. The obligations of
each Investor under subsection 1.1(b) of this Agreement are subject to the
fulfillment on or before the Closing of each of the following conditions, the
waiver of which shall not be effective against any Investor who does not consent
in writing thereto:
4.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained in Section 2 shall be true on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the date of the Closing.
4.2 PERFORMANCE. The Company shall have performed and complied
with all agreements, obligations and conditions contained in this Agreement that
are required to be performed or complied with by it on or before the Closing.
4.3 COMPLIANCE CERTIFICATE. The President of the Company shall
deliver to each Investor at the Closing a certificate stating that the
conditions specified in Sections 4.1 and 4.2 have
14
<PAGE>
been fulfilled and stating that there shall have been no adverse change in the
business, affairs, prospects, operations, properties, assets or condition of the
Company since the date of the Financial Statements.
4.4 QUALIFICATIONS. All authorizations, approvals, or permits,
if any, of any governmental authority or regulatory body of the United States or
of any state (except for certain post-Closing Blue Sky filings required under
applicable state securities laws) that are required in connection with the
lawful issuance and sale of the Shares pursuant to this Agreement shall be duly
obtained and effective as of the Closing.
4.5 PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated at the Closing and
all documents incident thereto shall be reasonably satisfactory in form and
substance to Investors' special counsel, and they shall have received all such
counterpart original and certified or other copies of such documents as they may
reasonably request.
4.6 EMPLOYEE AGREEMENTS. [INTENTIONALLY OMITTED].
4.7 OPINION OF COMPANY COUNSEL. Each Investor shall have
received from counsel for the Company, an opinion, dated as of the Closing, in
the form and content satisfactory to the Investors and attached hereto as
EXHIBIT C.
4.8 TAX OPINION OF COMPANY COUNSEL. Each Investor shall
have received from counsel of the Company, a tax opinion, dated as of the
Closing, in form and content satisfactory to the Investors and attached
hereto as EXHIBIT D, that the Spin-off qualifies as a tax free reorganization
within the meaning of Section 368(a)(1)(D) and Section 355 of the Code and
that, except as otherwise provided in the Disclosure Letter, which such
disclosures shall be satisfactory to each of the Investors, no federal income
tax will be imposed on the Company by reason of the Spin-off.
4.9 INVESTORS' RIGHTS AGREEMENT. The Company and each Investor
shall have entered into an investors' rights agreement in the form attached
hereto as EXHIBIT E (the "Investors' Rights Agreement").
4.10 RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT. The Company
and certain key members of the Company's management and those individuals who
hold more than two percent (2.0%) of the outstanding Common Stock of the Company
as of the Closing (on a fully as-converted basis, as if all shares of Series A
Preferred Stock and all convertible securities had been fully converted into
shares of Common Stock) shall have entered into a right of first refusal and
co-sale agreement in the form satisfactory to the Investors and attached hereto
as EXHIBIT F (the "Right of First Refusal and Co-Sale Agreement").
4.11 VOTING AGREEMENT. The Company and each of Baiada and Mark
Baiada, shall have entered into a voting agreement in the form attached hereto
as EXHIBIT G (the "Voting Agreement").
15
<PAGE>
4.12 DUE DILIGENCE. All matters investigated by the Investors
in the course of their due diligence shall be satisfactory to each of the
Investors, special counsel for Investors and Ernst & Young, L.P., accountants
for the Investors.
4.13 RESTATED CERTIFICATE OF INCORPORATION. The Restated
Certificate in the form satisfactory to the Investors and attached hereto as
EXHIBIT A shall have been adopted by the Company and filed with the Secretary of
State of Delaware.
4.14 KEY PERSON LIFE INSURANCE. The Company shall have
obtained from financially sound and reputable insurers, term life insurance on
the life of Baiada in the amount of $2,000,000, and on each of the lives of Bob
Bickel and Mark Nigro in the amount of $500,000. Such policies shall name the
Company as loss payee and shall not be cancelable by the Company without prior
approval of at least a majority of the shares of Series A Preferred Stock then
outstanding.
4.15 RELATED AGREEMENTS. Each Investor shall have received
from the Company, the following agreements in form and content satisfactory to
each of the Investors:
(i) BANK LENDING AGREEMENTS. Any and all lending
agreements by and between the Company and its primary lender for working
capital, capital equipment leases and software leases;
(ii) SHAREHOLDER LENDING AGREEMENTS. Any and all
lending agreements by and between the Company and the shareholders of Bluestone;
and
(iii) SERVICES AGREEMENT. Any and all agreements by
and between the Company and Bluestone regarding the provision of consulting
services by Bluestone to the Company.
4.16 CONSUMMATION OF THE SPIN-OFF. The Closing of the
transactions contemplated by the Contribution and Distribution Agreement dated
April 17, 1997, by and between Bluestone and the Company shall have been
consummated.
5. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING. The obligations
of the Company to each Investor under this Agreement are subject to the
fulfillment on or before the Closing of each of the following conditions by that
Investor:
5.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Investors contained in Section 3 shall be true on and as of
the Closing with the same effect as though such representations and warranties
had been made on and as of the Closing.
5.2 PAYMENT OF PURCHASE PRICE. The Investors shall have
delivered the purchase price specified in Section 1.1.
16
<PAGE>
5.3 QUALIFICATIONS. All authorizations, approvals, or permits,
if any, of any governmental authority or regulatory body of the United States or
of any state (except for certain post-Closing Blue Sky filings required under
applicable state securities laws) that are required in connection with the
lawful issuance and sale of the Shares pursuant to this Agreement shall be duly
obtained and effective as of the Closing.
5.4 RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT. The
Investors shall have entered into the Right of First Refusal and Co-Sale
Agreement.
5.5 VOTING AGREEMENT. The Investors shall have entered into
the Voting Agreement.
6. INDEMNIFICATION.
(a) In addition to all rights and remedies available to the
Investors at law or in equity, the Company shall indemnify, defend and hold
harmless each of the Investors and any parent, subsidiary, associate, affiliate,
partner, shareholder, director, officer, shareholder or agent of each such
Investor, and each subsequent holder of Series A Preferred Stock and their
respective affiliates, stockholders, officers, directors, employees, agents,
representatives, successors and permitted assigns (all of the foregoing are
collectively referred to as the "Indemnified Parties") from and against and pay
on behalf of or reimburse such party as and when incurred all losses (including,
without limitation, diminutions in value), liabilities, demands, claims, actions
or causes of action, costs, damages, judgments, debts, settlements, assessments,
deficiencies, taxes, penalties, fines or expenses, whether or not arising out of
any claims by or on behalf of any third party, including interest, penalties,
reasonable attorneys' fees and expenses and all reasonable amounts paid in
investigation, defense or settlement of any of the foregoing (collectively,
"Losses") which any such party may suffer, sustain or become subject to, as a
result of, in connection with, or relating to or by virtue of:
(i) any material misrepresentations or material
breach of warranty on the part of the Company under Section 2;
(ii) without duplication of subsection 6(a)(i), any
material misrepresentation in or material omission from any of the
representations or warranties contained in any certificate, document or
instrument or the Disclosure Letter delivered to the Investors by or on behalf
of the Company in connection herewith;
(iii) any material nonfulfillment or breach of any
covenant or agreement on the part of the Company under this Agreement or under
any certificate, document or instrument delivered in connection therewith; or
(iv) any action, demand, proceeding, investigation or
claim by any third party (including, without limitation, governmental agencies)
against or affecting the Company and/or its affiliates or subsidiaries which, if
successful, would give rise to or evidence the existence of or
17
<PAGE>
relate to a material breach of (A) any of the representations or warranties at
the time made or (B) covenants of the Company.
(b) Notwithstanding the foregoing, and subject to the
following sentence, upon judicial determination, which is final and no longer
appealable, that the act or omission giving rise to the indemnification
hereinabove provided resulted primarily out of or was based primarily upon the
Indemnified Party's gross negligence, fraud or willful misconduct (unless such
action was based upon the Indemnified Party's reliance in good faith upon any of
the representations, warranties, covenants or promises made by the Company
herein), the Company shall not be responsible for any Losses sought to be
indemnified in connection therewith, and the Company shall be entitled to
recover from the Indemnified Party all amounts previously paid in full or
partial satisfaction of such indemnity, together with all costs and expenses of
the Company reasonably incurred in effecting such recovery, if any.
(c) All indemnification rights hereunder shall survive the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereunder indefinitely, regardless of any
investigation, inquiry or examination made for or on behalf of, or any knowledge
of any of the Investors and/or any of the other Indemnified Parties or the
acceptance by either Investor of any certificate or opinion.
(d) If for any reason the indemnity provided for in this
Section 6 is unavailable to any Indemnified Party or is insufficient to hold
each such Indemnified Party harmless from all such Losses arising with respect
to the transactions contemplated hereunder, then the Company and the Indemnified
Party shall each contribute to the amount paid or payable by such Loss in such
proportion as is appropriate to reflect not only the relative benefits received
by the Company on the one hand, and such Indemnified Party on the other, but
also the relative fault of the Company on the one hand, and the Indemnified
Party on the other, as well as any relevant equitable considerations. In
addition, the Company agrees to reimburse any Indemnified Party upon demand for
all reasonable expenses (including legal counsel fees) incurred by such
Indemnified Party or any such other person in connection with investigating,
preparing or defending any such action or claim. The indemnity, contribution and
expense reimbursement obligations that the Company has under this Section 6
shall be in addition to any liability that the Company may otherwise have. The
Company further agrees that the indemnification and reimbursement commitments
set forth in this Agreement shall apply whether or not the Indemnified Party is
a formal party to any such lawsuits, claims or other proceedings.
(e) Any indemnification of either Investor or any other
Indemnified Party by the Company pursuant to this Section 6 shall be effected by
wire transfer of immediately available funds from the Company to an account
designated by such Investor or such other Indemnified Party within 15 days after
the determination thereof.
7. MISCELLANEOUS.
7.1 SURVIVAL OF WARRANTIES. The warranties, representations
and covenants of the Company and Investors contained in or made pursuant to this
Agreement shall survive the execution,
18
<PAGE>
delivery and performance of this Agreement and the Closing and shall in no way
be affected by any investigation of the subject matter thereof made by or on
behalf of the Investors or the Company.
7.2 SUCCESSORS AND ASSIGNS. Except as otherwise provided
herein, the terms and conditions of this Agreement shall inure to the benefit of
and be binding upon the respective successors and assigns of the parties
(including transferees of any Securities). Nothing in this Agreement express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
7.3 GOVERNING LAW. This Agreement shall be governed by and
construed under the laws of the Commonwealth of Pennsylvania without giving
effect to conflict of law principles.
7.4 COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument, and it shall not be
necessary in making proof of this Agreement to produce or account for more than
one counterpart hereof.
7.5 TITLES AND SUBTITLES. The titles and subtitles used in
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
7.6 NOTICES. Unless otherwise provided, all notices, consents
or other communications required or permitted to be given under this Agreement
shall be in writing and shall be deemed to have been duly given (i) when
delivered personally, (ii) three business days after being mailed by first class
mail, postage prepaid, or (iii) one business day after being sent by a reputable
overnight delivery service, postage or delivery charges prepaid, to the parties
at their respective addresses stated on the signature page of this Agreement.
Notices may also be given by prepaid telegram or facsimile and shall be
effective on the date transmitted if confirmed within 24 hours thereafter by a
signed original sent in the manner provided in the preceding sentence. Any party
may change its address for notice and the address to which copies must be sent
by giving notice of the new addresses to the other parties in accordance with
this Section 7.6, except that any such change of address notice shall not be
effective unless and until received.
7.7 FINDER'S FEE. Each party represents that it neither is nor
will be obligated for any finders' fee or commission in connection with this
transaction. Each Investor agrees to indemnify and to hold harmless the Company
from any liability for any commission or compensation in the nature of a
finders' fee (and the costs and expenses of defending against such liability or
asserted liability) for which such Investor or any of its officers, partners,
employees, or representatives is responsible. The Company agrees to indemnify
and hold harmless each Investor from any liability for any commission or
compensation in the nature of a finders' fee (and the costs and expenses of
defending against such liability or asserted liability) for which the Company or
any of its officers, employees or representatives is responsible.
7.8 EXPENSES. Subject to the provisions of Section 6, whether
or not the Closing is effected, the Company shall pay all costs and expenses
that it incurs with respect to the
19
<PAGE>
negotiation, execution, delivery and performance of this Agreement. If the
Closing is effected, the Company shall, at the Closing, reimburse the reasonable
fees and out-of-pocket expenses of special counsel for the Investors and
auditors for the Investors. Investors will make all reasonable efforts to ensure
that such fees (exclusive of such out-of-pocket expenses) do not exceed $60,000.
If any action at law or in equity is necessary to enforce or interpret the terms
of the Transaction Agreements, the prevailing party shall be entitled to
reasonable attorney's fees, costs and necessary disbursements in addition to any
other relief to which such party may be entitled.
7.9 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders of
a majority of the Common Stock issued or issuable upon conversion of the Shares.
Any amendment or waiver effected in accordance with this Section 7.9 shall be
binding upon each holder of any such securities purchased under this Agreement
at the time outstanding (including securities into which such securities are
convertible), each future holder of all such securities, and the Company.
7.10 SEVERABILITY. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, such provision shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
7.11 AGGREGATION OF STOCK. All Shares held or acquired by
affiliated entities or persons shall be aggregated together for the purpose of
determining the availability of any rights under this Agreement.
7.12 ENTIRE AGREEMENT. This Agreement and the other
Transaction Agreements referred to herein constitute the entire agreement with
respect to the subject matter hereof among the parties, and no party shall be
liable or bound to any other party in any manner by any warranties,
representations, or covenants except as specifically set forth herein or
therein.
7.13 DEFINITION OF INVESTOR. The term "Investor" as it is used
in Sections 2, 4 (except for subsections 4.9 and 4.11) and 6 of this Agreement
only shall not include Baiada.
20
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Stock Purchase
Agreement as of the date first above written.
BLUESTONE SOFTWARE, INC.
By:/s/ Mel Baiada
-------------------------
Name: Mel Baiada
Title: President
Address: 1000 Briggs Road
Mt. Laurel, NJ 08054
Telephone No.: 609-727-4600
Facsimile No.: 609-778-8125
INVESTORS:
THE P/A FUND, L.P.
By: APA PENNSYLVANIA PARTNERS II, L.P.,
its General Partner
By: /s/ William C. Hulley
-------------------------
Name: William C. Hulley
Title: General Partner
Address: 518 Broad Street
Sewickley, PA 15143
Telephone No.: 412-749-9454
Facsimile No.: 412-749-9459
21
<PAGE>
PATRICOF PRIVATE INVESTMENT CLUB, L.P.
By: APA EXCELSIOR IV PARTNERS, L.P.,
its General Partner
By: PATRICOF & CO. MANAGERS, INC.,
its General Partner
By: /s/ Gregory M. Case
--------------------------------------
Name: Gregory M. Case
Title: Vice President
Address: 100 Matsonford Road
Bldg 5, Suite 470
Radnor, Pennsylvania 19087
Telephone No.: 610-687-3030
Facsimile No.: 610-687-8520
APA EXCELSIOR IV, L.P.
By: APA EXCELSIOR IV PARTNERS, L.P.,
its General Partner
By: PATRICOF & CO. MANAGERS, INC.,
its General Partner
By: /s/ Gregory M. Case
--------------------------------------
Name: Gregory M. Case
Title: Vice President
Address: 100 Matsonford Road
Bldg 5, Suite 470
Radnor, Pennsylvania 19087
Telephone No.: 610-687-3030
Facsimile No.: 610-687-8520
22
<PAGE>
APA EXCELSIOR IV/OFFSHORE, L.P.
By: PATRICOF & CO. VENTURES, INC.,
its Investment Advisor
By: /s/ Gregory M. Case
--------------------------------------
Name: Gregory M. Case
Title: Vice President
Address: 100 Matsonford Road
Bldg 5, Suite 470
Radnor, Pennsylvania 19087
Telephone No.: 610-687-3030
Facsimile No.: 610-687-8520
/s/ Mel Baiada
------------------------------------------
MEL BAIADA
Address: 1000 Briggs Road
Mt. Laurel, NJ 08054
Telephone No.: 609-727-4600
Facsimile No.: 609-778-8125
/s/ Eugene Levy
------------------------------------------
EUGENE LEVY
Address: 90 Riverside Drive, Apt. 5E
New York, New York 10024
Telephone No.: 212-753-6300
Facsimile No.: 212-319-6155
23
<PAGE>
Exhibit 10.30
BLUESTONE SOFTWARE, INC.
SERIES B PREFERRED
STOCK PURCHASE AGREEMENT
April 22, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
Page
<S> <C>
1. Purchase and Sale of Stock........................................................................1
1.1 Sale and Issuance of Series B Preferred Stock..............................................1
1.2 Closing....................................................................................1
2. Representations and Warranties of the Company.....................................................2
2.1 Organization, Good Standing and Qualification..............................................2
2.2 Capitalization and Voting Rights...........................................................2
2.3 Subsidiaries...............................................................................3
2.4 Authorization..............................................................................3
2.5 Valid Issuance of Preferred and Common Stock...............................................3
2.6 Governmental Consents......................................................................4
2.7 Offering...................................................................................4
2.8 Litigation.................................................................................4
2.9 Patents and Trademarks.....................................................................4
2.10 Compliance with Other Instruments..........................................................5
2.11 Agreements; Action.........................................................................5
2.12 Related-Party Transactions.................................................................6
2.13 Financial Plan.............................................................................7
2.14 Permits....................................................................................7
2.15 Environmental and Safety Laws..............................................................7
2.16 Manufacturing and Marketing Rights.........................................................7
2.17 Disclosure.................................................................................7
2.18 Registration Rights........................................................................7
2.19 Title to Property and Assets...............................................................8
2.20 Financial Statements.......................................................................8
2.21 Changes....................................................................................8
2.22 Employee Benefit Plans.....................................................................9
2.23 Tax Matters................................................................................10
2.24 Insurance..................................................................................12
2.25 Books and Records..........................................................................12
2.26 Use of Proceeds............................................................................12
2.27 Labor Matters..............................................................................12
3. Representations and Warranties of the Investors...................................................12
3.1 Authorization..............................................................................13
3.2 Purchase Entirely for Own Account..........................................................13
3.3 Disclosure of Information..................................................................13
3.4 Investment Experience......................................................................13
3.5 Accredited Investor........................................................................13
3.6 Restricted Securities......................................................................13
3.7 Further Limitations on Disposition.........................................................14
3.8 Legends....................................................................................14
4. Conditions of Investor's Obligations at Closing...................................................14
4.1 Representations and Warranties.............................................................15
4.2 Performance................................................................................15
<PAGE>
4.3 Compliance Certificate.....................................................................15
4.4 Qualifications.............................................................................15
4.5 Proceedings and Documents..................................................................15
4.6 Opinion of Company Counsel.................................................................15
4.7 Investors' Rights Agreement................................................................15
4.8 Right of First Refusal and Co-Sale Agreement...............................................15
4.9 Voting Agreement...........................................................................15
4.10 Due Diligence..............................................................................16
4.11 Restated Certificate of Incorporation......................................................16
4.12 Related Agreements.........................................................................16
4.13 Waiver of Default..........................................................................16
5. Conditions of the Company's Obligations at Closing................................................16
5.1 Representations and Warranties.............................................................16
5.2 Payment of Purchase Price..................................................................16
5.3 Qualifications.............................................................................16
5.4 Right of First Refusal and Co-Sale Agreement...............................................16
5.5 Voting Agreement...........................................................................17
6. Indemnification...................................................................................17
7. Miscellaneous.....................................................................................18
7.1 Survival of Warranties.....................................................................18
7.2 Successors and Assigns.....................................................................18
7.3 Governing Law..............................................................................18
7.4 Counterparts...............................................................................19
7.5 Titles and Subtitles.......................................................................19
7.6 Notices....................................................................................19
7.7 Finder's Fee...............................................................................19
7.8 Expenses...................................................................................19
7.9 Amendments and Waivers.....................................................................19
7.10 Severability...............................................................................20
7.11 Aggregation of Stock.......................................................................20
7.12 Entire Agreement...........................................................................20
SCHEDULE A Schedule of Investors.....................................................................24
SCHEDULE B Disclosure Letter.........................................................................25
EXHIBIT A Second Amended Restated Certificate of Incorporation.......................................26
EXHIBIT B Opinion of Company Counsel.................................................................27
EXHIBIT C Restated Investors- Rights Agreement.......................................................28
EXHIBIT D Restated Right of First Refusal and Co-Sale Agreement......................................29
EXHIBIT E Restated Voting Agreement..................................................................30
</TABLE>
-ii-
<PAGE>
BLUESTONE SOFTWARE, INC.
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is made as of the 22nd day of April 1998,
by and between Bluestone Software, Inc., a Delaware corporation (the
"Company"), and the investors listed on Schedule A hereto, each of which is
herein referred to as an "Investor."
INTENDING TO BE LEGALLY BOUND, and in consideration of the mutual
agreements stated below, the parties agree as follows:
1. PURCHASE AND SALE OF STOCK.
1.1 SALE AND ISSUANCE OF SERIES B PREFERRED STOCK.
(a) The Company shall adopt and file with the Secretary of
State of Delaware on or before the Closing (as defined below) the Second
Amended and Restated Certificate of Incorporation in the form attached hereto
as EXHIBIT A (the "Restated Certificate").
(b) Subject to the terms and conditions of this Agreement,
each Investor agrees, severally, to purchase at the Closing (as hereafter
defined), and the Company agrees to sell and issue to each Investor at such
Closing, that number of shares of the Company's Series B Convertible
Preferred Stock, $.001 par value per share ("Series B Preferred Stock"), set
forth opposite each Investor's name on SCHEDULE A hereto, at a price of
$1.296 per share.
1.2 CLOSING.
The purchase by the Investors and sale by the Company of
the shares of Series B Preferred Stock hereunder (the "Shares") shall take
place at the offices of Fried, Frank, Harris, Shriver & Jacobson, One New
York Plaza, New York, New York at 12:00 P.M., on April 22, 1998, or at such
other time and place as the Company and the Investors, mutually agree upon
orally or in writing (which time and place are designated as the "Closing");
provided, however, that if acceptable to the Company and the Investors, the
Closing may be effected by facsimile transmission of executed copies of the
documents delivered at the Closing and payment of the purchase price
specified in Section 1.1 and by sending original copies of the documents
delivered at the Closing by reputable overnight delivery service, postage or
delivery charges prepaid, for delivery to the parties at their addresses
stated on the signature page of this Agreement by the third business day
following the Closing. At the Closing the Company shall deliver to each
Investor a certificate representing the Shares that such Investor is
purchasing against payment of the purchase price therefor by check, wire
transfer, or, in the case of the Investors other than General Electric
Capital Corporation, by delivery of 10% Convertible Subordinated Secured
Notes in an aggregate principal amount and accrued interest thereon equal to
the stated value of the Shares purchased therewith, dated March 2, 1998, or
any combination thereof in an amount equal to the purchase price referred to
on SCHEDULE A attached hereto. Any Investor purchasing Shares pursuant to
this Agreement shall become a party to this Agreement, the Restated
-1-
<PAGE>
Investors' Rights Agreement, the Restated First Refusal and Co-Sale
Agreement, and the Restated Voting Agreement (each as defined below and
collectively with this Agreement, the "New Transaction Agreements"), all
dated as of the date hereof.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Knowing that each
Investor is relying thereon, the Company hereby represents and warrants to
each Investor that, except as set forth in the Disclosure Letter attached
hereto as SCHEDULE B (the "Disclosure Letter") furnished to each Investor and
special counsel for the Investors, specifically identifying the relevant
subparagraph hereof:
2.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has all requisite corporate power and
authority to carry on its business as now conducted and as proposed to be
conducted. The Company is duly qualified to transact business and is in good
standing in each jurisdiction in which the failure to so qualify would have a
material adverse effect on its business or properties.
2.2 CAPITALIZATION AND VOTING RIGHTS. The authorized capital
of the Company will consist immediately after the Closing, of:
(i) PREFERRED STOCK. (a) 5,526,316 shares of Series A
Convertible Preferred Stock, $.001 par value per share ("Series A Preferred
Stock"), all of which are outstanding; and (b) 8,782,695 shares of Series B
Preferred Stock, which will be sold pursuant to this Agreement. The rights,
privileges and preferences of the Series B Preferred Stock will be as stated
in the Company's Restated Certificate. The Series A Preferred Stock and
Series B Preferred Stock are collectively herein referred to as "Preferred
Stock".
(ii) COMMON STOCK. 36,135,327 shares of common stock,
$.001 par value per share ("Common Stock"), of which (a) 18,382,695 shares
have been reserved for issuance upon conversion of the shares of Series B
Preferred Stock and 5,526,316 shares have been reserved for issuance upon
conversion of the shares of Series A Preferred Stock (together, the
"Conversion Shares"), (b) 700,000 shares have been reserved for issuance upon
conversion of the convertible term note held by Mark Baiada in the principal
amount of $500,000 (the "Mark Baiada Conversion Shares"), (c) 813,250 shares
have been reserved for issuance upon the exercise of outstanding options (the
"1996 Plan Options") granted to certain employees of the Company pursuant to
the Company's Amended and Restated 1996 Incentive and Non-Qualified Stock
Option Plan (the "1996 Plan"), (d) 300,000 shares have been reserved for
issuance upon the exercise of outstanding options granted to Bob Bickel (the
"Bickel Options"), (e) 1,386,750 shares have been reserved for issuance upon
the exercise of options to be granted in the future to certain employees of
the Company under the 1996 Plan, (f) 26,316 shares have been reserved for
issuance upon the exercise of warrants granted to Silicon Valley Bank (the
"Silicon Valley Bank Warrants") and (g) 9,000,000 shares are currently issued
and outstanding.
(iii) The outstanding shares of Common Stock are all duly and
validly authorized and issued, fully paid and nonassessable, and were issued
in accordance with the registration or qualification provisions of the
Securities Act of 1933, as amended (the "Act"), and any relevant state
securities laws or pursuant to valid exemptions therefrom.
-2-
<PAGE>
(iv) Except for (a) the conversion privileges of the
Preferred Stock, (b) the rights provided in the registration rights
provisions of the Restated Investors' Rights Agreement, (c) any other rights
created under the New Transaction Agreements, and (d) as of the Closing (I)
700,000 shares of Common Stock reserved for issuance upon conversion of the
convertible term note held by Mark Baiada in the principal amount of
$500,000, (II) 300,000 shares of Common Stock reserved for issuance upon
exercise of the Bickel Options, (III) 813,250 shares of Common Stock reserved
for issuance upon exercise of the 1996 Plan Options, and (IV) 25,000 shares
reserved for issuance upon exercise of the Silicon Valley Bank Warrants,
there are not outstanding any options, warrants, rights (including conversion
or preemptive rights) or agreements for the purchase or acquisition from the
Company of any shares of its capital stock. The Company has reserved an
additional 1,386,750 shares of its Common Stock for purchase upon exercise of
options to be granted in the future to certain employees under the 1996 Plan.
Except for the New Transaction Agreements, the Company is not a party or
subject to any agreement or understanding, and, to the best of the Company's
knowledge, there is no agreement or understanding between any persons and/or
entities, which affects or relates to the voting or giving of written
consents by a director of the Company or the voting or giving of written
consents by a director or stockholder with respect to any security.
2.3 SUBSIDIARIES. The Company does not presently own or control,
directly or indirectly, any interest in any other corporation, association,
or other business entity. The Company is not a participant in any joint
venture, partnership, or similar arrangement.
2.4 AUTHORIZATION. All corporate action on the part of the
Company, its officers, directors and stockholders necessary for the
authorization, execution and delivery of the New Transaction Agreements, the
performance of all obligations of the Company hereunder and thereunder, and
the authorization, issuance (or reservation for issuance), sale and delivery
of the Shares being sold hereunder and the Conversion Shares, has been taken
or will be taken prior to the Closing. The New Transaction Agreements
constitute valid and legally binding obligations of the Company, enforceable
in accordance with their respective terms, except (i) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, and other laws
of general application affecting enforcement of creditors' rights generally,
(ii) as limited by laws relating to the availability of specific performance,
injunctive relief, or other equitable remedies, and (iii) to the extent the
indemnification provisions contained in the Restated Investors' Rights
Agreement, as amended, may be limited by applicable federal or state
securities laws.
2.5 VALID ISSUANCE OF PREFERRED AND COMMON STOCK. The Shares, when
issued, sold and delivered in accordance with the terms of this Agreement for
the consideration expressed herein, will be duly and validly issued, fully
paid, and nonassessable, and will be free of restrictions on transfer other
than restrictions on transfer under the New Transaction Agreements and under
applicable state and federal securities laws. The Conversion Shares have been
duly and validly reserved for issuance and, upon issuance in accordance with
the terms of the Restated Certificate, will be duly and validly issued, fully
paid, and nonassessable and will be free of restrictions on transfer other
than restrictions on transfer under the New Transaction Agreements and under
applicable state and federal securities laws.
-3-
<PAGE>
2.6 GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part
of the Company is required in connection with the consummation of the
transactions contemplated by this Agreement (except such additional steps as
may be necessary to qualify the offer and sale of the Shares under applicable
state securities laws, which such steps have been taken or shall be timely
taken by the Company).
2.7 OFFERING. Subject in part to the truth and accuracy of each
Investor's representations set forth in Section 3 of this Agreement, the
offer, sale and issuance of the Shares as contemplated by this Agreement are
exempt from the registration requirements of the Act, and neither the Company
nor any authorized agent acting on its behalf will take any action hereafter
that would cause the loss of such exemption.
2.8 LITIGATION. There is no action, suit, proceeding or
investigation pending or currently threatened against the Company that
questions the validity of the New Transaction Agreements or the right of the
Company to enter into such agreements, or to consummate the transactions
contemplated hereby or thereby, or that might result, either individually or
in the aggregate, in any material adverse change in the assets, condition,
affairs or prospects of the Company, financially or otherwise, or any change
in the current equity ownership of the Company, nor is the Company aware that
there is any basis for the foregoing. The foregoing includes, without
limitation, actions, suits, proceedings or investigations pending or
threatened (or any basis therefor known to the Company) involving the prior
employment of any of the Company's employees, their use in connection with
the Company's business of any information or techniques allegedly proprietary
to any of their former employers, or their obligations under any agreements
with prior employers. The Company is not a party or subject to the provisions
of any order, writ, injunction, judgment or decree of any court or government
agency or instrumentality. There is no action, suit, proceeding or
investigation by the Company currently pending or that the Company intends to
initiate.
2.9 PATENTS AND TRADEMARKS. The Company owns or possesses
sufficient legal rights to all patents, trademarks, service marks, trade
names, copyrights, trade secrets, information, proprietary rights and
processes ("Intellectual Property") necessary for its business as now
conducted and as proposed to be conducted without any conflict with or
infringement of the rights of others. The Disclosure Letter contains a
complete list of all patents and patent applications of the Company. There
are no outstanding options, licenses, or agreements of any kind relating to
any of the Company's Intellectual Property, nor is the Company bound by or a
party to any options, licenses or agreements of any kind with respect to the
Intellectual Property of any other person or entity. The Company has not
received any communications alleging that the Company has violated or, by
conducting its business as proposed to be conducted, would violate any of the
Intellectual Property of any other person or entity. The Company is not aware
that any of the Company's employees is obligated under any contract
(including licenses, covenants or commitments of any nature) or other
agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would interfere with the use of his or her best
efforts to promote the interests of the Company or that would conflict with
the Company's business as proposed to be conducted. Neither the execution nor
delivery of the New Transaction Agreements nor the carrying on of the
Company's business by the employees of the Company, nor the conduct of the
Company's business as proposed to be conducted, will, to the best of the
-4-
<PAGE>
Company's knowledge, conflict with or result in a breach of the terms,
conditions or provisions of, or constitute a default under, any contract,
covenant or instrument under which any of such employees is now obligated.
The Company does not believe that it is or will be necessary to utilize any
inventions of any of the Company's employees (or people it currently intends
to hire) made prior to their employment by the Company.
2.10 COMPLIANCE WITH OTHER INSTRUMENTS.
(a) The Company is not in violation or default of any
provision of its Restated Certificate or Bylaws, or of any instrument,
judgment, order, writ, decree or contract to which it is a party or by which
it is bound, or, to the best of its knowledge, of any provision of any
federal or state statute, rule or regulation applicable to the Company.
Except as set forth in the Disclosure Letter, the execution, delivery and
performance of the New Transaction Agreements, and the consummation of the
transactions contemplated hereby and thereby, will not result in any such
violation or be in conflict with or constitute, with or without the passage
of time and/or giving of notice, either a default under any such provision,
instrument, judgment, order, writ, decree or contract or an event that
results in the creation of any lien, charge or encumbrance upon any assets of
the Company or the suspension, revocation, impairment, forfeiture, or
nonrenewal of any material permit, license, authorization, or approval
applicable to the Company, its business or operations or any of its assets or
properties.
(b) The Company has avoided every condition, and has not
performed any act, the occurrence of which would result in the Company's loss
of any material right granted under any license, distribution or other
agreement.
2.11 AGREEMENTS; ACTION.
(a) Except for agreements explicitly contemplated hereby and
by the New Transaction Agreements, there are no agreements, understandings or
proposed transactions between the Company and any of its officers, directors
or affiliates, or any affiliate thereof.
(b) There are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, writs or decrees to
which the Company is a party or by which it is bound that may involve (i)
obligations (contingent or otherwise) of, or payments to the Company in
excess of, $25,000, or (ii) the license of any patent, copyright, trade
secret or other proprietary right to or from the Company, or (iii) provisions
restricting or affecting the development, manufacture or distribution of the
Company's products or services, or (iv) indemnification by the Company with
respect to infringements of proprietary rights.
(c) Since the date of the Latest Balance Sheet (as defined
below), the Company (i) has not declared or paid any dividends or authorized
or made any distribution upon or with respect to any class or series of its
capital stock, (ii) except for (A) the convertible term note in the principal
amount of $500,000 payable to Mark Baiada (the "Mark Baiada Term Note"), (B)
the term loan in the original principal amount of $235,000 payable to Silicon
Valley Bank (the "Silicon Valley Bank Term Loan"), (C) the $1,000,000
revolving line of credit with Silicon Valley Bank (the "Silicon Valley Bank
Credit Line"), and (D) the $150,000 convertible line of credit note with
Silicon Valley Bank (the "Silicon Valley Bank Convertible Line of Credit
-5-
<PAGE>
Note"), does not currently have outstanding any indebtedness for money
borrowed or any other liabilities individually in excess of $25,000 or, in
the case of indebtedness and/or liabilities individually less than $25,000,
in excess of $75,000 in the aggregate, and (iii) has not made any loans or
advances to any person, other than ordinary advances for travel expenses, has
not sold, exchanged or otherwise disposed of any of its assets or rights,
other than the sale of its inventory in the ordinary course of business.
(d) For the purposes of subsections (b) and (c) above, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including
persons or entities the Company has reason to believe are affiliated
therewith) shall be aggregated for the purpose of meeting the individual
minimum dollar amounts of such subsections.
(e) The Company is not a party to and is not bound by any
contract, agreement or instrument, or subject to any restriction under its
Restated Certificate or Bylaws that materially adversely affects its business
as now conducted or as proposed to be conducted, its properties or its
financial condition.
(f) The Company has not engaged in the past three (3)
months in any discussion (i) with any representative of any corporation or
corporations regarding the consolidation or merger of the Company with or
into any such corporation or corporations, (ii) with any corporation,
partnership, association or other business entity or any individual regarding
the sale, conveyance or disposition of all or substantially all of the assets
of the Company or a transaction or series of related transactions in which
more than fifty percent (50%) of the voting power of the Company is disposed
of, or (iii) regarding any other form of acquisition, liquidation,
dissolution or winding up of the Company.
(g) Any agreements, understandings, instruments or
contracts with the parties to contracts listed in Schedule 2.11 of the
Disclosure Letter which were entered into prior to the date of such contracts
listed in Schedule 2.11 of the Disclosure Letter are no longer in force or
effect.
2.12 RELATED-PARTY TRANSACTIONS. No employee, officer, or director
of the Company or member of his or her immediate family or affiliate of any
of the foregoing is indebted to the Company, nor is the Company, except for
its obligations under the Mark Baiada Term Notes, indebted (or committed to
make loans or extend or guarantee credit) to any of them. To the best of the
Company's knowledge, none of such persons has any direct or indirect
ownership interest in any firm or corporation with which the Company is
affiliated or with which the Company has a business relationship, or any firm
or corporation that competes with the Company, except that employees,
officers, or directors of the Company and members of their immediate families
may own stock in publicly traded companies that may compete with the Company.
No member of the immediate family of any officer or director of the Company
is directly or indirectly interested in any material contract with the
Company.
-6-
<PAGE>
2.13 FINANCIAL PLAN. The financial plan attached to the Disclosure
Letter (the "Financial Plan") has been prepared in good faith by the Company
and does not contain any untrue statement of a material fact nor does it omit
to state a material fact necessary to make the statements made therein not
misleading, except that with respect to projections contained in the
Financial Plan, the Company represents only that such projections were
prepared in good faith by the Company and that the Company reasonably
believes there is a reasonable basis for such projections.
2.14 PERMITS. The Company has all franchises, permits, licenses,
and any similar authority necessary for the conduct of its business as now
being conducted by it, the lack of which could materially and adversely
affect the business, properties, prospects, or financial condition of the
Company, and the Company believes it can obtain, without undue burden or
expense, any similar authority for the conduct of its business as planned to
be conducted in the Financial Plan. The Company is not in default in any
material respect under any of such franchises, permits, licenses, or other
similar authority.
2.15 ENVIRONMENTAL AND SAFETY LAWS. To the best of the Company's
knowledge, the Company is not in violation of any applicable statute, law or
regulation relating to the environment or occupational health and safety, and
to the best of its knowledge, no material expenditures are or will be
required in order to comply with any such existing statute, law or regulation.
2.16 MANUFACTURING AND MARKETING RIGHTS. The Company has not
granted rights to manufacture, produce, assemble, license, market, or sell
its products to any other person and is not bound by any agreement that
affects the Company's exclusive right to develop, manufacture, assemble,
distribute, market or sell its products.
2.17 DISCLOSURE. The Company has fully provided each Investor with
all the information that such Investor has requested for deciding whether to
purchase the Series B Preferred Stock and all information that the Company
believes is reasonably necessary to enable such Investor to make such
decision. Neither the New Transaction Agreements nor any other written
statements or certificates made or delivered in connection herewith or
therewith contains any untrue statement of a material fact or omits to state
a material fact necessary to make the statements herein or therein not
misleading. There is no fact within the knowledge of the Company, or any of
the Company's officers which has not been disclosed herein or in writing by
them to the Investors and which materially adversely affects, or in the
future in their opinion may, insofar as they can now foresee, materially
adversely affect the business, properties, assets or condition, financial or
otherwise, of the Company. Other than as stated in the Disclosure Letter,
without limiting the foregoing, the Company has no knowledge or belief that
there exists, or there is, pending or planned, any patent, invention, device,
application or principle or any statute, rule, law, regulation, standard or
condition which would materially adversely affect the condition, financial or
otherwise, or the operations of the Company.
2.18 REGISTRATION RIGHTS. Except as provided in the Restated
Investors' Rights Agreement, the Company has not granted or agreed to grant any
registration rights, including piggyback rights, to any person or entity.
-7-
<PAGE>
2.19 TITLE TO PROPERTY AND ASSETS. The Company owns its property
and assets free and clear of all mortgages, liens, loans and encumbrances,
except (i) as reflected in the Financial Statements (as defined below), (ii)
for liens for current taxes not yet delinquent, (iii) for liens imposed by
law and incurred in the ordinary course of business for obligations not past
due to carriers, warehousemen, laborers, materialmen and the like, (iv) for
liens in respect of pledges or deposits under workers' compensation laws or
similar legislation, (v) for minor defects in title, none of which,
individually or in the aggregate, materially interferes with the use of such
property, or (vi) for such encumbrances and liens that arise in the ordinary
course of business and do not materially impair the Company's ownership or
use of such property or assets. With respect to the property and assets it
leases, the Company is in compliance with such leases and, to the best of its
knowledge, holds a valid leasehold interest free of any liens, claims or
encumbrances.
2.20 FINANCIAL STATEMENTS. The Company has delivered to each
Investor consolidated audited financial statements (balance sheet, operating
statement and statement of cash flows) of the Company as of and for the
fiscal year ended December 31, 1997 and those of Bluestone Consulting, Inc.,
a New Jersey corporation (the "Predecessor Corporation") as of and for each
of the fiscal years ended December 31, 1996 and 1995 (the "Audited Financial
Statements"), and consolidated unaudited financial statements (balance sheet,
operating statement and statement of cash flows) of the Company as of
February 28, 1998 and for the two months then ended (the "Unaudited Financial
Statements" together with the Audited Financial Statements, the "Financial
Statements"). The Financial Statements fairly present the financial condition
and operating results of the Company and the Predecessor Corporation as of
the dates, and for the periods, indicated therein, subject to normal year-end
adjustments. The Financial Statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods indicated and with each other, except that the
Unaudited Financial Statements may not contain all footnotes required by
generally accepted accounting principles. Except as set forth in the
Financial Statements, the Company has no material liabilities, contingent or
otherwise, other than (i) liabilities incurred in the ordinary course of
business subsequent to December 31, 1997, and (ii) obligations under
contracts and commitments incurred in the ordinary course of business, which,
individually or in the aggregate, are not material to the financial condition
or operating results of the Company. Except as disclosed in the Financial
Statements, the Company is not a guarantor or indemnitor of any indebtedness
of any other person, firm or corporation.
2.21 CHANGES. Except as disclosed in the Disclosure Letter, since
December 31, 1997, the date of the latest audited balance sheet included in
the Financial Statements (the "Latest Balance Sheet"), there has not been:
(a) any change in the assets, liabilities, financial
condition or operating results of the Company from that reflected in the
Financial Statements, except changes in the ordinary course of business that
have not been, in the aggregate, materially adverse;
(b) any damage, destruction or loss, whether or not covered
by insurance, materially and adversely affecting the assets, properties,
financial condition, operating results, prospects or business of the Company
(as such business is presently conducted and as it is proposed to be
conducted);
-8-
<PAGE>
(c) any waiver by the Company of a valuable right or of a
material debt owed to it;
(d) any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by the Company, except in the
ordinary course of business and that is not material to the assets,
properties, financial condition, operating results, prospects or business of
the Company (as such business is presently conducted and as it is proposed to
be conducted);
(e) any material change or amendment to a material contract
or arrangement by which the Company or any of its assets or properties is
bound or subject;
(f) any resignation or termination of employment of any key
officer of the Company, and the Company, to the best of its knowledge, does
not know of the impending resignation or termination of employment of any
such officer;
(g) any mortgage, pledge, transfer of a security interest
in, or lien, created by the Company, with respect to any of its material
properties or assets, except liens for taxes not yet due or payable;
(h) any loans or guarantees made by the Company to or for
the benefit of its employees, officers or directors, or any members of their
immediate families, other than travel advances and other advances made in the
ordinary course of its business; or
(i) to the best of the Company's knowledge, any other event
or condition of any character that might materially and adversely affect the
assets, properties, financial condition, operating results, prospects or
business of the Company (as such business is presently conducted and as it is
proposed to be conducted).
2.22 EMPLOYEE BENEFIT PLANS. Except as set forth in the Disclosure
Letter, the Company has not established, maintained, contributed or been
required to contribute to any Employee Benefit Plans as defined in the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and
the Company has not proposed any Employee Benefit Plans which the Company
will establish, maintain, or to which the Company will contribute or be
required to contribute, and the Company has not proposed any changes to any
Employee Benefit Plans now in effect (all of the preceding referred to
collectively hereinafter as the "Company's Employee Benefit Plans"). True and
correct copies and descriptions, to the extent that they exist, of all of the
Company's Employee Benefit Plans have been previously provided to the
Investors. Each of the Company's Employee Benefit Plans, which is intended to
be qualified under Section 401(a) of the Code is so qualified. Favorable
letters of determination of such tax-qualified status from the IRS have been
previously provided to the Investors. With respect to the Company's Employee
Benefit Plans, the Company will have made, on or prior to the Closing, all
payments required to be made by it on or prior to the Closing and will have
accrued (in accordance with generally accepted accounting principles
consistently applied and the requirements of ERISA) as of the Closing all
payments due but not yet payable as of the Closing. The Company has
previously provided to the Investors a true and correct copy of the most
current Form 5500 and any other form or filing required to be submitted to
any governmental agency with regard to any of
-9-
<PAGE>
the Company's Employee Benefit Plans. All of the Company's Employee Benefit
Plans are, and have been, operated in full compliance with their provisions
and with all applicable Laws including, without limitation, ERISA and the
Code and the regulations and rulings thereunder. The Company and all
fiduciaries of the Company's Employee Benefit Plans have complied with the
provisions of the Company's Employee Benefit Plans and with all applicable
Laws including, without limitation, ERISA and the Code and the regulations
and rulings thereunder. There has been no termination or partial termination
(including any termination or partial termination attributable to this sale)
of any of the Company's Employee Benefit Plans. The Company has never
established, maintained or had the obligation to contribute to a defined
benefit plan (as defined in the Code or ERISA), an Employee Benefit Plan that
is subject to the minimum funding standards of the Code or ERISA, or a
multiemployer (as defined in the Code or ERISA). Neither the execution and
delivery of this Agreement nor the consummation of the transactions
contemplated hereby will (i) result in any payment (including, without
limitation, severance, unemployment compensation, golden parachute or
otherwise) becoming due from the Company under any of the Company's Employee
Benefit Plans, (ii) increase any benefits otherwise payable under any of the
Company's Employee Benefit Plans, or (iii) result in the acceleration of the
time of payment or vesting of any such benefits to any extent. None of the
Company's Employee Benefit Plans provides benefits after retirement or
termination of employment, except to the extent required under applicable
law. There are no pending actions, claims or lawsuits which have been
asserted or instituted against any of the Company's Employee Benefit Plans,
the assets of any of the trusts under such plans, the plan sponsor, the plan
administrator or against any fiduciary of any of the Company's Employee
Benefit Plans (other than routine benefit claims) nor does the Company have
knowledge of facts which could form the basis for any such action, claim or
lawsuit. There are no investigations or audits of any of the Company's
Employee Benefit Plans, any trusts under such plans, the plan sponsor, the
plan administrator or any fiduciary of any of the Company's Employee Benefit
Plans which have been threatened or instituted nor does the Company have
knowledge of facts which could form the basis for any such investigation or
audit. No event has occurred or will occur which will result in liability to
the Company in connection with any Employee Benefit Plan established,
maintained, or contributed to (currently or previously) by the Company or by
any other entity which, together with the Company, constitute elements of
either (i) a controlled group of corporations (within the meaning of Section
414(b) of the Code), (ii) a group of trades or businesses under common
control (within the meaning of Sections 414(c) of the Code or 4001 of ERISA),
(iii) an affiliated service group (within the meaning of Section 414(m) of
the Code), or (iv) another arrangement covered by Section 414(o) of the Code.
For purposes of this Agreement, "Employee Benefit Plan" means (i) any
employee benefit plan, as defined in Section 3(3) of ERISA, and (ii) any
other plan, trust agreement or arrangement for any bonus, severance,
hospitalization, vacation, incentive or deferred compensation, pension or
profit-sharing, retirement, payroll savings, stock option, equity
compensation, group insurance, death benefit, fringe benefit, welfare or any
other employee benefit plan or fringe benefit arrangement of any nature
whatsoever, including those benefiting retirees or former employees.
2.23 TAX MATTERS.
(a) The Company has filed all Tax Returns (as defined below)
which it was required to file under applicable laws and regulations; all such
Tax Returns are complete and correct in all respects and have been prepared
in compliance with all applicable laws and
-10-
<PAGE>
regulations; the Company has paid all Taxes (as defined below) due and owing
by it with respect to any period ending on or before the Closing (whether or
not such Taxes are required to be shown on a Tax Return) and have withheld
and paid over to the appropriate taxing authority all Taxes which it is
required to withhold from amounts paid or owing to any employee, stockholder,
creditor or other third party with respect to any period ending on or before
the Closing; the Company has not waived any statute of limitations with
respect to any Taxes or agreed to any extension of time with respect to any
Tax Return; the accrual for Taxes on the Latest Balance Sheet would be
adequate to pay all Tax liabilities of the Company if its current tax year
were treated as ending on the date of the Latest Balance Sheet; since the
date of the Latest Balance Sheet, the Company has not incurred any liability
for Taxes other than in the ordinary course of business; the assessment of
any additional Taxes for periods for which Tax Returns have been filed by the
Company shall not exceed the recorded liability therefor on the Latest
Balance Sheet; the federal income Tax Returns of the Company have been
audited or closed for all tax years through 1992; no foreign, federal, state
or local tax audits or administrative or judicial proceedings are pending or
being conducted with respect to the Company, no information related to Tax
matters has been requested by any foreign, federal, state or local taxing
authority and no written notice indicating an intent to open an audit or
other review has been received by the Company from any foreign, federal,
state or local taxing authority; and there are no material unresolved
questions or claims concerning the Company's Tax liability;
(b) The Company has not made an election under Section 341(f)
of the Internal Revenue Code of 1986, as amended (the "Code"). The Company is
not liable for the Taxes of another person under (i) Treas. Reg. Section
1.1502-6 (or comparable provisions of state, local or foreign law), (ii) as a
transferee or successor, (iii) by contract or indemnity, or (iv) otherwise.
The Company is not a party to any tax sharing agreement. The Company has
disclosed on their federal income Tax Returns any position taken for which
substantial authority (within the meaning of Section 6662(d)(2)(B)(i) of the
Code) did not exist at the time the return was filed. The Company has not
made any payments, is obligated to make payments or is a third party to an
agreement that could obligate it to make any payments that would not be
deductible under Section 280G of the Code;
(c) As of the Closing, the Company is a qualified small
business within the meaning of Section 1202(c) of the Code. During the
period beginning one year prior to the Closing Date through the Closing,
the Company has not made a significant redemption of its stock within the
meaning of Section 1202(c)(3)(B) of the Code;
(d) The Company has made a valid election under Section
1362(a) of the Code to be treated as an "S corporation" within the meaning of
Section 1361 of the Code, which election has been effective for all tax
periods from the date of the Company's formation to the date of the issuance
of the Series A Preferred Stock;
(e) The formation of Bluestone Consulting, Inc., a Delaware
corporation ("BCI") by the Company and the distribution of its stock to the
stockholders (the "Spin-off") did not and will not result in any Tax to the
Company, and for purposes of subsection 2.23(a) above, such formation and
distribution shall not be considered a transaction occurring in the ordinary
course of business; and
-11-
<PAGE>
(f) For purposes of this Agreement, the term "Tax" or "Taxes"
means federal, state, county, local, foreign or other income, gross receipts,
ad valorem, franchise, profits, sales or use, transfer, registration, excise,
utility, environmental, communications, real or personal property, capital
stock, license, payroll, wage or other withholding, employment, social
security, severance, stamp, occupation, alternative or add-on minimum,
estimated and other taxes of any kind whatsoever (including, without
limitation, deficiencies, penalties, additions to tax, and interest
attributable thereto) whether disputed or not. The term "Tax Return" means
any return, information report or filing with respect to Taxes, including any
schedules attached thereto and including any amendment thereof.
2.24 INSURANCE. The Company has in full force and effect fire
and casualty insurance policies, with extended coverage, sufficient in amount
(subject to reasonable deductibles) to allow it to replace any of its properties
that might be damaged or destroyed, and key man insurance covering Mel Baiada,
Bob Bickel, Mark Nigro, John Capobianco and Kevin Kilroy as specified in the
Disclosure Letter.
2.25 BOOKS AND RECORDS. The minute books and stock record books of
the Company provided to the Investors contain (i) minutes of all meetings of
the stockholders, board of directors and any committee of the board of
directors, (ii) written statements of all actions taken by the stockholders,
board of directors and any committee of the board of directors without a
meeting, and (iii) records of the issuance, transfer and cancellation of all
shares of capital stock and other securities, in each case since the time of
incorporation. Such minute books and stock record books reflect all
transactions referred to there in accurately and completely.
2.26 USE OF PROCEEDS. The Company will use the proceeds of the
sale of the Series B Preferred Stock for the purpose of sales and marketing
expenditures and other operating expenses.
2.27 LABOR MATTERS. The Company is not a party to any collective
bargaining agreement covering employees of the Company's business, nor does
any labor union or collective bargaining agent represent any of the employees
of the Company's business. Except as set forth in the Disclosure Letter,
there is no labor strike, slow-down or stoppage pending or, to the Company's
knowledge, threatened by the employees of the Company's business.
2.28 "YEAR 2000". The Company's computer system and software
(including all software and applications developed for or sold to any
customer or client) are able to accurately process date data, including but
not limited to, calculating, comparing and sequencing from, into and between
the twentieth century (through year 1999), the year 2000 and the twenty-first
century, including leap year calculations. To the best knowledge of the
Company, it is not aware of any inability on the part of any service provider
to timely remedy such service provider's own deficiencies in respect of the
year 2000 problem.
3. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS. Each Investor
hereby severally represents and warrants that:
-12-
<PAGE>
3.1 AUTHORIZATION. Such Investor has full power and authority to
enter into the Transaction Agreements, and each such agreement constitutes
its valid and legally binding obligation, enforceable in accordance with its
terms, except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, and other laws of general application affecting
enforcement of creditors' rights generally, (ii) as limited by laws relating
to the availability of specific performance, injunctive relief, or other
equitable remedies, and (iii) to the extent the indemnification provisions
contained in the Investors' Rights Agreement may be limited by applicable
federal or state securities laws.
3.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made
with such Investor in reliance upon such Investor's representation to the
Company, which by such Investor's execution of this Agreement such Investor
hereby confirms, that the Shares to be received by such Investor and the
Conversion Shares (collectively, the "Securities") will be acquired for
investment for such Investor's own account, not as a nominee or agent, and
not with a view to the resale or distribution of any part thereof except in
accordance with the Act, and that such Investor has no present intention of
selling, granting any participation in, or otherwise distributing the same.
By executing this Agreement, such Investor further represents that such
Investor does not have any contract, undertaking, agreement or arrangement
with any person to sell, transfer or grant participations to such person or
to any third person, with respect to any of the Securities.
3.3 DISCLOSURE OF INFORMATION. Such Investor believes it has
received all the information it considers necessary or appropriate for
deciding whether to purchase the Shares. Such Investor further represents
that it has had an opportunity to ask questions and receive answers from the
Company regarding the terms and conditions of the offering of the Shares and
the business, properties, prospects and financial condition of the Company.
The foregoing, however, does not limit or modify the representations and
warranties of the Company in Section 2 of this Agreement or the right of the
Investors to rely thereon.
3.4 INVESTMENT EXPERIENCE. Such Investor is an investor in
securities of companies in the development stage and acknowledges that it is
able to fend for itself, can bear the economic risk of its investment, and
has such knowledge and experience in financial or business matters that it is
capable of evaluating the merits and risks of the investment in the Shares.
Investor also represents it has not been organized for the purpose of
acquiring the Shares.
3.5 ACCREDITED INVESTOR. Such Investor is an "accredited
investor" within the meaning of Securities and Exchange Commission ("SEC")
Rule 501 of Regulation D, as presently in effect.
3.6 RESTRICTED SECURITIES. Such Investor understands that the
Shares and Conversion Shares are characterized as "restricted securities"
under the federal securities laws inasmuch as they are being acquired from
the Company in a transaction not involving a public offering and therefore
may not be sold, transferred or otherwise disposed of without registration
under the Act or an exemption therefrom, and that in the absence of an
effective registration statement covering the Shares or the Conversion Shares
or an available exemption from registration under the Act, the Shares or the
Conversion Shares must be held indefinitely. In this connection, such
-13-
<PAGE>
Investor represents that it is familiar with SEC Rule 144, as presently in
effect, and understands the resale limitations imposed thereby and by the Act.
3.7 FURTHER LIMITATIONS ON DISPOSITION. Without in any way
limiting the representations set forth above, such Investor further agrees
not to make any disposition of all or any portion of the Securities unless
and until the transferee has agreed in writing for the benefit of the Company
to be bound by this Section 3 and the Investors' Rights Agreement provided
and to the extent this Section and such agreement are then applicable, and:
(a) There is then in effect a Registration Statement under
the Act covering such proposed disposition and such disposition is made in
accordance with such Registration Statement; or
(b)(i) Such Investor shall have notified the Company of the
proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and (ii)
if reasonably requested by the Company, such Investor shall have furnished
the Company with an opinion of counsel, reasonably satisfactory to the
Company, that such disposition will not require registration of such shares
under the Act. It is agreed that the Company will not require opinions of
counsel for transactions made pursuant to Rule 144 except in unusual
circumstances.
(c) Notwithstanding the provisions of paragraphs (a) and
(b) above, no such registration statement or opinion of counsel shall be
necessary for a transfer by an Investor that is a partnership to a partner of
such partnership or a retired partner of such partnership who retires after
the date hereof, or to the estate of any such partner or retired partner or
the transfer by gift, will or intestate succession of any partner to his or
her spouse or to the siblings, lineal descendants or ancestors of such
partner or his or her spouse, if the transferee agrees in writing to be
subject to the terms hereof to the same extent as if he or she were an
original Investor hereunder.
3.8 LEGENDS. It is understood that the certificates evidencing
the Securities may bear one or all of the following legends:
"These securities have not been registered under the Securities
Act of 1933, as amended, or any state securities laws. They may
not be sold, offered for sale, pledged or hypothecated in the
absence of a registration statement in effect with respect to
the securities under such Act and such state securities laws or
an opinion of counsel satisfactory to the Company that such
registration is not required or unless sold pursuant to
Rule 144 of such Act."
4. CONDITIONS OF INVESTOR'S OBLIGATIONS AT CLOSING. The obligations of
each Investor under subsection 1.1(b) of this Agreement are subject to the
fulfillment on or before the Closing of each of the following conditions, the
waiver of which shall not be effective against any Investor who does not
consent in writing thereto:
-14-
<PAGE>
4.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained in Section 2 shall be true on and as of
the Closing with the same effect as though such representations and
warranties had been made on and as of the date of the Closing.
4.2 PERFORMANCE. The Company shall have performed and complied
with all agreements, obligations and conditions contained in this Agreement
that are required to be performed or complied with by it on or before the
Closing.
4.3 COMPLIANCE CERTIFICATE. The President of the Company shall
deliver to each Investor at the Closing a certificate stating that the
conditions specified in Sections 4.1 and 4.2 have been fulfilled and stating
that there shall have been no adverse change in the business, affairs,
prospects, operations, properties, assets or condition of the Company since
the date of the Financial Statements.
4.4 QUALIFICATIONS. All authorizations, approvals, or permits, if
any, of any governmental authority or regulatory body of the United States or
of any state (except for certain post-Closing Blue Sky filings required under
applicable state securities laws) that are required in connection with the
lawful issuance and sale of the Shares pursuant to this Agreement shall be
duly obtained and effective as of the Closing.
4.5 PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated at the Closing
and all documents incident thereto shall be reasonably satisfactory in form
and substance to Investors' special counsel, and they shall have received all
such counterpart original and certified or other copies of such documents as
they may reasonably request.
4.6 OPINION OF COMPANY COUNSEL. Each Investor shall have received
from counsel for the Company, an opinion, dated as of the Closing, in the
form and content satisfactory to the Investors and attached hereto as EXHIBIT
B.
4.7 RESTATED INVESTORS' RIGHTS AGREEMENT. The Company and each
Investor shall have entered into an investors' rights agreement in the form
attached hereto as EXHIBIT C (the "Restated Investors' Rights Agreement").
4.8 RESTATED RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT AND
SERIES B PREFERRED STOCK. The Company and certain key members of the
Company's management and those individuals who hold more than two percent
(2.0%) of the outstanding Common Stock of the Company as of the Closing (on a
fully as-converted basis, as if all shares of Series A Preferred Stock and
Series B Preferred Stock and all convertible securities had been fully
converted into shares of Common Stock) shall have entered into a restated
right of first refusal and co-sale agreement in the form satisfactory to the
Investors and attached hereto as EXHIBIT D (the "Restated Right of First
Refusal and Co-Sale Agreement").
4.9 RESTATED VOTING AGREEMENT. The Company and each of Baiada and
Mark Baiada, shall have entered into a restated voting agreement in the form
attached hereto as EXHIBIT E (the "Restated Voting Agreement").
-15-
<PAGE>
4.10 DUE DILIGENCE. All matters investigated by the Investors in
the course of their due diligence shall be satisfactory to each of the
Investors, special counsels for Investors and the respective accountants for
the Investors.
4.11 RESTATED CERTIFICATE OF INCORPORATION. The Restated
Certificate in the form satisfactory to the Investors and attached hereto as
EXHIBIT A shall ave been adopted by the Company and filed with the Secretary
of State of Delaware.
4.12 RELATED AGREEMENTS. Each Investor shall have received from
the Company, the following agreements in form and content satisfactory to
each of the Investors:
(i) BANK LENDING AGREEMENTS. Any and all lending agreements
by and between the Company and its primary lender for working capital,
capital equipment leases and software leases;
(ii) SHAREHOLDER LENDING AGREEMENTS. Any and all lending
agreements by and between the Company and the shareholders of BCI; and
(iii) SERVICES AGREEMENT. Any and all agreements by and
between the Company and BCI regarding the provision of consulting services by
BCI to the Company.
4.13 WAIVER OF DEFAULT. The Company shall have obtained a written
waiver, in form and content satisfactory to each of the Investors, from
Silicon Valley Bank of any defaults under any loan agreement between the
Company and Silicon Valley Bank.
5. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING. The obligations
of the Company to each Investor under this Agreement are subject to the
fulfillment on or before the Closing of each of the following conditions by
that Investor:
5.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Investors contained in Section 3 shall be true on and as of
the Closing with the same effect as though such representations and
warranties had been made on and as of the Closing.
5.2 PAYMENT OF PURCHASE PRICE. The Investors shall have delivered
the purchase price specified in Section 1.1 and the notes specified in
Section 1.2 shall have been delivered and canceled.
5.3 QUALIFICATIONS. All authorizations, approvals, or permits, if
any, of any governmental authority or regulatory body of the United States or
of any state (except for certain post-Closing Blue Sky filings required under
applicable state securities laws) that are required in connection with the
lawful issuance and sale of the Shares pursuant to this Agreement shall be
duly obtained and effective as of the Closing.
5.4 RESTATED RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT. The
Investors shall have entered into the Restated Right of First Refusal and
Co-Sale Agreement dated the date hereof.
-16-
<PAGE>
5.5 RESTATED VOTING AGREEMENT. The Investors shall have entered
into the Restated Voting Agreement dated the date hereof.
6. INDEMNIFICATION.
(a) In addition to all rights and remedies available to the
Investors at law or in equity, the Company shall indemnify, defend and hold
harmless each of the Investors and any parent, subsidiary, associate,
affiliate, partner, shareholder, director, officer, shareholder or agent of
each such Investor, and each subsequent holder of Series B Preferred Stock
and their respective affiliates, stockholders, officers, directors,
employees, agents, representatives, successors and permitted assigns (all of
the foregoing are collectively referred to as the "Indemnified Parties") from
and against and pay on behalf of or reimburse such party as and when incurred
all losses (including, without limitation, diminutions in value),
liabilities, demands, claims, actions or causes of action, costs, damages,
judgments, debts, settlements, assessments, deficiencies, taxes, penalties,
fines or expenses, whether or not arising out of any claims by or on behalf
of any third party, including interest, penalties, reasonable attorneys' fees
and expenses and all reasonable amounts paid in investigation, defense or
settlement of any of the foregoing (collectively, "Losses") which any such
party may suffer, sustain or become subject to, as a result of, in connection
with, or relating to or by virtue of:
(i) any material misrepresentations or material breach of
warranty on the part of the Company under Section 2;
(ii) without duplication of subsection 6(a)(i), any material
misrepresentation in or material omission from any of the representations or
warranties contained in any certificate, document or instrument or the
Disclosure Letter delivered to the Investors by or on behalf of the Company
in connection herewith;
(iii) any material nonfulfillment or breach of any covenant or
agreement on the part of the Company under this Agreement or under any
certificate, document or instrument delivered in connection therewith; or
(iv) any action, demand, proceeding, investigation or claim by
any third party (including, without limitation, governmental agencies)
against or affecting the Company and/or its affiliates or subsidiaries which,
if successful, would give rise to or evidence the existence of or relate to a
material breach of (A) any of the representations or warranties at the time
made or (B) covenants of the Company.
(b) Notwithstanding the foregoing, and subject to the following
sentence, upon judicial determination, which is final and no longer
appealable, that the act or omission giving rise to the indemnification
hereinabove provided resulted primarily out of or was based primarily upon
the Indemnified Party's gross negligence, fraud or willful misconduct (unless
such action was based upon the Indemnified Party's reliance in good faith
upon any of the representations, warranties, covenants or promises made by
the Company herein), the Company shall not be responsible for any Losses
sought to be indemnified in connection therewith, and the Company shall be
entitled to recover from the Indemnified Party all amounts previously paid in
-17-
<PAGE>
full or partial satisfaction of such indemnity, together with all costs and
expenses of the Company reasonably incurred in effecting such recovery, if
any.
(c) All indemnification rights hereunder shall survive the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereunder indefinitely, regardless of any
investigation, inquiry or examination made for or on behalf of, or any
knowledge of any of the Investors and/or any of the other Indemnified Parties
or the acceptance by either Investor of any certificate or opinion.
(d) If for any reason the indemnity provided for in this Section 6
is unavailable to any Indemnified Party or is insufficient to hold each such
Indemnified Party harmless from all such Losses arising with respect to the
transactions contemplated hereunder, then the Company and the Indemnified
Party shall each contribute to the amount paid or payable by such Loss in
such proportion as is appropriate to reflect not only the relative benefits
received by the Company on the one hand, and such Indemnified Party on the
other, but also the relative fault of the Company on the one hand, and the
Indemnified Party on the other, as well as any relevant equitable
considerations. In addition, the Company agrees to reimburse any Indemnified
Party upon demand for all reasonable expenses (including legal counsel fees)
incurred by such Indemnified Party or any such other person in connection
with investigating, preparing or defending any such action or claim. The
indemnity, contribution and expense reimbursement obligations that the
Company has under this Section 6 shall be in addition to any liability that
the Company may otherwise have. The Company further agrees that the
indemnification and reimbursement commitments set forth in this Agreement
shall apply whether or not the Indemnified Party is a formal party to any
such lawsuits, claims or other proceedings.
(e) Any indemnification of either Investor or any other Indemnified
Party by the Company pursuant to this Section 6 shall be effected by wire
transfer of immediately available funds from the Company to an account
designated by such Investor or such other Indemnified Party within 15 days
after the determination thereof.
7. MISCELLANEOUS.
7.1 SURVIVAL OF WARRANTIES. The warranties, representations and
covenants of the Company and Investors contained in or made pursuant to this
Agreement shall survive the execution, delivery and performance of this
Agreement and the Closing and shall in no way be affected by any
investigation of the subject matter thereof made by or on behalf of the
Investors or the Company.
7.2 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein,
the terms and conditions of this Agreement shall inure to the benefit of and
be binding upon the respective successors and assigns of the parties
(including transferees of any Securities). Nothing in this Agreement express
or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
7.3 GOVERNING LAW. This Agreement shall be governed by and
construed under the laws of the State of Delaware without giving effect to
conflict of law principles.
-18-
<PAGE>
EACH OF THE PARTIES HEREBY WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY JURY IN
ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF THIS AGREEMENT OR ANY OF
THE NEW TRANSACTION AGREEMENTS.
7.4 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument, and it shall not be
necessary in making proof of this Agreement to produce or account for more
than one counterpart hereof.
7.5 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
7.6 NOTICES. Unless otherwise provided, all notices, consents or
other communications required or permitted to be given under this Agreement
shall be in writing and shall be deemed to have been duly given (i) when
delivered personally, (ii) three business days after being mailed by first
class mail, postage prepaid, or (iii) one business day after being sent by a
reputable overnight delivery service, postage or delivery charges prepaid, to
the parties at their respective addresses stated on the signature page of
this Agreement. Notices may also be given by prepaid telegram or facsimile
and shall be effective on the date transmitted if confirmed within 24 hours
thereafter by a signed original sent in the manner provided in the preceding
sentence. Any party may change its address for notice and the address to
which copies must be sent by giving notice of the new addresses to the other
parties in accordance with this Section 7.6, except that any such change of
address notice shall not be effective unless and until received.
7.7 FINDER'S FEE. Each party represents that it neither is nor
will be obligated for any finders' fee or commission in connection with this
transaction. Each Investor agrees to indemnify and to hold harmless the
Company from any liability for any commission or compensation in the nature
of a finders' fee (and the costs and expenses of defending against such
liability or asserted liability) for which such Investor or any of its
officers, partners, employees, or representatives is responsible. The Company
agrees to indemnify and hold harmless each Investor from any liability for
any commission or compensation in the nature of a finders' fee (and the costs
and expenses of defending against such liability or asserted liability) for
which the Company or any of its officers, employees or representatives is
responsible.
7.8 EXPENSES. Subject to the provisions of Section 6, whether or
not the Closing is effected, the Company shall pay all costs and expenses
that it incurs with respect to the negotiation, execution, delivery and
performance of this Agreement. If the Closing is effected, the Company shall,
at the Closing, reimburse the reasonable fees and out-of-pocket expenses of
special counsel for General Electric Capital Corporation not to exceed
$35,000 and of special counsel for Patricof Ventures and Adams Capital not to
exceed $6,000. If any action at law or in equity is necessary to enforce or
interpret the terms of the New Transaction Agreements, the prevailing party
shall be entitled to reasonable attorney's fees, costs and necessary
disbursements in addition to any other relief to which such party may be
entitled.
7.9 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived
(either generally or in a
-19-
<PAGE>
particular instance and either retroactively or prospectively), only with the
written consent of the Company and the holders of 75% of the Common Stock
issued or issuable upon conversion of the Shares. Any amendment or waiver
effected in accordance with this Section 7.9 shall be binding upon each
holder of any such securities purchased under this Agreement at the time
outstanding (including securities into which such securities are
convertible), each future holder of all such securities, and the Company.
7.10 SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
7.11 AGGREGATION OF STOCK. All Shares held or acquired by
affiliated entities or persons shall be aggregated together for the purpose
of determining the availability of any rights under this Agreement.
7.12 ENTIRE AGREEMENT. This Agreement and the other New Transaction
Agreements referred to herein constitute the entire agreement with respect to
the subject matter hereof among the parties, and no party shall be liable or
bound to any other party in any manner by any warranties, representations, or
covenants except as specifically set forth herein or therein.
IN WITNESS WHEREOF, the parties have executed this Stock Purchase
Agreement as of the date first above written.
BLUESTONE SOFTWARE, INC.
By:/s/ Mel Baiada
------------------------------
Name: Mel Baiada
Title: President
Address: 1000 Briggs Road
Mt. Laurel, NJ 08054
Telephone No.: 609-727-4600
Facsimile No.: 609-778-8125
-20-
<PAGE>
INVESTORS:
GENERAL ELECTRIC CAPITAL CORPORATION
By:/s/ Anton Simunovic
--------------------------------
Name: Anton Simunovic
Title: Vice President
Address: 260 Long Ridge Road
Stamford, CT 06927
Telephone No.: (203) 961-2887
Facsimile No.: (203) 357-4565
THE P/A FUND, L.P.
By: APA PENNSYLVANIA PARTNERS II, L.P.,
its General Partner
By:/s/ William C. Hulley
--------------------------------
Name: William C. Hulley
Title: General Partner
Address: 518 Broad Street
Sewickley, PA 15143
Telephone No.: 412-749-9454
Facsimile No.: 412-749-9459
PATRICOF PRIVATE INVESTMENT CLUB, L.P.
By: APA EXCELSIOR IV PARTNERS, L.P.,
its General Partner
By: PATRICOF & CO. MANAGERS, INC.,
its General Partner
By:/s/ Gregory M. Case
--------------------------------
Name: Gregory M. Case
Title: Vice President
Address: 455 South Gulph Road
Suite 410
King of Prussia, PA 19406
Telephone No.: 610-265-0286
Facsimile No.: 610-265-4959
-21-
<PAGE>
APA EXCELSIOR IV, L.P.
By: APA EXCELSIOR IV PARTNERS, L.P.,
its General Partner
By: PATRICOF & CO. MANAGERS, INC.,
its General Partner
By:/s/ Gregory M. Case
--------------------------------
Name: Gregory M. Case
Title: Vice President
Address: 455 South Gulph Road
Suite 410
King of Prussia, PA 19406
Telephone No.: 610-265-0286
Facsimile No.: 610-265-4959
COUTTS & CO. (CAYMAN) LTD., CUST. FOR
APA EXCELSIOR IV/OFFSHORE, L.P.
By: PATRICOF & CO. VENTURES, INC.,
its Investment Advisor
By:/s/ Gregory M. Case
--------------------------------
Name: Gregory M. Case
Title: Managing Director
Address: 455 South Gulph Road
Suite 410
King of Prussia, PA 19406
Telephone No.: 610-265-0286
Facsimile No.: 610-265-4959
-22-
<PAGE>
/s/ Eugene Levy
-------------------------------------
EUGENE LEVY
Address: 90 Riverside Drive, Apt. 5E
New York, New York 10024
Telephone No.: 212-753-6300
Facsimile No.: 212-319-6155
-23-
<PAGE>
Exhibit 10.31
BLUESTONE SOFTWARE, INC.
CONVERTIBLE SUBORDINATED SECURED NOTE
AND WARRANT
PURCHASE AGREEMENT
JANUARY 21, 1999
<PAGE>
CONVERTIBLE SUBORDINATED SECURED NOTE
AND
WARRANT PURCHASE AGREEMENT
THIS AGREEMENT is made as of the 21st day of January, 1999, by and
between Bluestone Software, Inc., a Delaware corporation (the "Company"), and
the investors listed on SCHEDULE A hereto, each of which is herein referred to
as an "Investor."
INTENDING TO BE LEGALLY BOUND, and in consideration of the mutual
agreements stated below, the parties agree as follows:
1. PURCHASE AND SALE OF CONVERTIBLE SUBORDINATED SECURED NOTES AND
WARRANTS.
1.1 SALE AND ISSUANCE OF CONVERTIBLE SUBORDINATED NOTES AND
WARRANTS. Subject to the terms and conditions of this Agreement, each Investor
agrees, severally, to purchase at a Closing or Closings (as hereinafter
defined), and the Company agrees to sell and issue to such Investor at such
Closing(s): (1) convertible subordinated secured notes of the Company in the
form attached hereto as EXHIBIT A (individually, a "Note" and collectively, the
"Notes") in an aggregate principal amount up to the amount set forth opposite
such Investor's name on SCHEDULE A; and (2) related warrants in the form
attached hereto as EXHIBIT B (individually, a "Warrant" and collectively, the
"Warrants") to purchase up to that number of shares of the Company's Common
Stock, par value $.001 per share ("Common Stock"), set forth opposite such
Investor's name on SCHEDULE A. The purchase price for each Note purchased and
sold hereunder shall be 99.9% of the principal amount thereof, and the purchase
price for each related Warrant purchased and sold hereunder shall be .1% of the
principal amount of such Note.
1.2 PURCHASE AND SALE PROCEDURES. At any time and from time to
time after the date hereof and prior to May 30, 1999, the Company may request (a
"Company Request") that the Investors purchase from the Company all or a portion
of the total aggregate principal amount of Notes (the "Requested Investment
Amount") and related Warrants that the Investors have agreed to purchase
pursuant to Section 1.1. In order to be effective, any such Company Request
shall be in writing, signed by the President and Chief Financial Officer of the
Company and delivered to the Investors c/o each of Anton Simunovic, Vice
President, General Electric Capital Corporation, 260 Long Ridge Road, Stamford,
CT 06927 and Gregory M. Case, Vice President, Patricof & Co. Ventures, Inc., 455
South Gulph Road, King of Prussia, PA 19406 (or such other representative of the
Investors as shall be selected from time to time by the written consent of all
of the Investors and as to which the Investors shall have notified the Company).
Subject to the terms and conditions of this Agreement, upon receipt of an
effective Company Request, each Investor, severally, shall purchase, and the
Company shall sell and issue to such Investor, (i) a Note in the principal
amount equal to the product of (A) the Requested Investment Amount, multiplied
by (B) a fraction, the numerator of which is the aggregate principal amount of
Notes set forth opposite such Investors' name on SCHEDULE A and the denominator
of which is the total of the aggregate principal amount of Notes set forth
opposite all of the Investor's names on SCHEDULE A (an "Investor's Allocable
Note Amount"), and (ii) a Warrant to purchase a number of shares of Common Stock
equal to the quotient
<PAGE>
of (A) the product of the principal amount of the Note being purchased and sold
pursuant to clause (i), multiplied by .20, divided by (B) .62 (an "Investor's
Allocable Warrants").
1.3 CLOSINGS. Each purchase and sale of the Notes and related
Warrants contemplated hereunder shall take place at the offices of Blank Rome
Comisky & McCauley LLP, One Logan Square, Philadelphia, Pennsylvania at 10:00
a.m. on the third business day following the Investor's receipt of an effective
Company Request, or at such other time and place as the Company and the
Investors mutually agree upon orally or in writing (each time and place shall be
designated as a "Closing); provided, however, that if acceptable to the Company
and the Investors, a Closing may be effected by facsimile transmission of
executed copies of the documents delivered at the Closing and payment of the
purchase price specified in Section 1.1 and by sending original copies of the
documents delivered at the Closing by reputable overnight delivery service,
postage or delivery charges prepaid, for delivery to the parties at their
addresses stated on the signature page of this Agreement by the third business
day following the Closing. At each Closing, the Company shall deliver to or for
the benefit of each Investor: (i) a Note, substantially in the form of EXHIBIT
A, in the principal amount equal to such Investor's Allocable Note Amount; and
(ii) certificates representing Warrants to purchase that number of shares of the
Company's Common Stock equal to the Investor's Allocable Warrants, against
payment of the purchase price therefor by check or wire transfer of immediately
available funds.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Knowing that each
Investor is relying thereon, the Company hereby represents, warrants to, and
agrees with, each Investor that, except as set forth on a Disclosure Letter
attached hereto as Schedule B (the "Disclosure Letter") furnished to each
Investor and special counsels for the Investors, specifically identifying the
relevant subparagraph hereof, which exceptions shall be deemed to be
representations and warranties as if made hereunder:
2.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has all requisite corporate power and
authority to carry on its business as now conducted. The Company is duly
qualified to transact business and is in good standing in each jurisdiction in
which the failure to so qualify would have a material adverse effect on its
business or properties.
2.2 CAPITALIZATION AND VOTING RIGHTS. The authorized capital of
the Company will consist immediately prior to the Closing, of:
(i) PREFERRED STOCK. (a) 5,526,316 shares of Series A
Convertible Preferred Stock, $.001 par value per share ("Series A
Preferred Stock"), all of which are outstanding and (b) 8,782,695 shares
of Series B Preferred Stock ("Series B Preferred Stock"), all of which
are outstanding. The rights, privileges and preferences of the Series A
Preferred Stock and Series B Preferred Stock are as stated in the
Company's Second Amended and Restated Certificate of Incorporation (the
"Restated Certificate"). The Series A Preferred Stock and Series B
Preferred Stock are collectively herein referred to as "Preferred Stock".
<PAGE>
(ii) COMMON STOCK. 38,135,327 shares of common stock, $.001
par value per share ("Common Stock"), of which (a) 18,382,695 shares have
been reserved for issuance upon conversion of the shares of Series B
Preferred Stock and 5,526,316 shares have been reserved for issuance upon
conversion of the shares of Series A Preferred Stock (together, the
"Conversion Shares"), (b) 700,000 shares have been reserved for issuance
upon conversion of the convertible term note held by Mark Baiada in the
principal amount of $500,000 (the "Mark Baiada Conversion Shares"), (c)
3,561,523 shares have been reserved for issuance upon the exercise of
outstanding options (the "1996 Plan Options") granted to certain
employees of the Company pursuant to the Company's Amended and Restated
1996 Incentive and Non-Qualified Stock Option Plan (the "1996 Plan"), (d)
300,000 shares have been reserved for issuance upon the exercise of
outstanding options granted to Bob Bickel (the "Bickel Options"), (e)
630,352 shares have been reserved for issuance upon the exercise of
options to be granted in the future to certain employees of the Company
under the 1996 Plan, (f) 26,316 shares have been reserved for issuance
upon the exercise of warrants granted to Silicon Valley Bank (the
"Silicon Valley Bank Warrants"), and (g) 9,008,125 shares are currently
issued and outstanding.
(iii) The outstanding shares of Preferred Stock and Common
Stock are all duly and validly authorized and issued, fully paid and
nonassessable, and were issued in accordance with the registration or
qualification provisions of the Securities Act of 1933, as amended (the
"Act") and any relevant state securities laws or pursuant to valid
exemptions therefrom.
(iv) Except for (a) the conversion privileges of the
Preferred Stock, (b) the rights provided in the registration rights
provisions of the Restated Investors' Rights Agreement (the "Restated
Investors' Rights Agreement") dated as of April 23, 1998 by and between,
among others, the Company and each of the Investors and the Company's
Restated Certificate, (c) any other rights created under this Agreement,
the Restated Investors' Rights Agreement, the Restated First Refusal and
Co-Sale Agreement ("Restated First Refusal and Co-Sale Agreement") dated
as of April 23, 1998 by and between, among others, the Company and each
of the Investors and the Restated Voting Agreement ("Restated Voting
Agreement") dated as of April 23, 1998 by and between, among others, the
Company and each of the Investors, the Notes and the Warrants, and (d) as
of the Closing (I) 700,000 shares of Common Stock reserved for issuance
upon conversion of the convertible term note held by Mark Baiada in the
principal amount of $500,000, (II) 300,000 shares of Common Stock
reserved for issuance upon exercise of the Bickel Options, (III)
3,561,523 shares of Common Stock reserved for issuance upon the exercise
of the 1996 Plan Options, and (IV) 26,316 shares reserved for issuance
upon exercise of the Silicon Valley Bank Warrants, there are not
outstanding any options, warrants, rights (including conversion or
preemptive rights) or agreements for the purchase or acquisition from the
Company of any shares of its capital stock. The Company has reserved an
additional 630,352 shares of its Common Stock for purchase upon exercise
of options to be granted in the future to certain employees under the
1996 Plan. Except for the Series A and B Preferred Stock, the Company is
not a party or subject to any agreement or understanding, and, to the
best of the Company's knowledge, there is no agreement or understanding
between any persons and/or entities, which affects or relates to the
voting or giving of written consents by a director of
<PAGE>
the Company or the voting or giving of written consents by a director or
stockholder with respect to any security.
2.3 SUBSIDIARIES. The Company does not presently own or
control, directly or indirectly, any interest in any other corporation,
association, or other business entity. The Company is not a participant in any
joint venture, partnership, or similar arrangement.
2.4 AUTHORIZATION. All corporate action on the part of the
Company, its officers, directors and stockholders necessary for the
authorization and execution and delivery of this Agreement, the Notes and the
Warrants and the performance of all obligations of the Company hereunder and
thereunder, has been taken or will be taken prior to the Closing. This
Agreement, the Notes and the Warrants constitute valid and legally binding
obligations of the Company, enforceable in accordance with their respective
terms, except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, and other laws of general application affecting
enforcement of creditors' rights generally, (ii) as limited by laws relating to
the availability of specific performance, injunctive relief, or other equitable
remedies, and to the extent the indemnification provisions contained in the
Restated Certificate may be limited by applicable federal or state securities
laws.
2.5 VALID ISSUANCE OF EQUITY SECURITIES. The Series B Preferred
issuable upon conversion of the Notes purchased by the Investors hereunder and
the Common Stock issuable upon conversion of such Series B Preferred Stock, will
be duly and validly reserved for issuance, and upon issuance in accordance with
the terms of the Notes, will be duly and validly issued, fully paid, and
nonassessable, and will be free of restrictions on transfer other than
restrictions on transfer under this Agreement and the Notes and under applicable
state and federal securities laws. The Common Stock issuable upon exercise of
the Warrants have been duly and validly reserved for issuance and, upon issuance
will be duly and validly issued, fully paid, and nonassessable and will be free
of restrictions on transfer other than restrictions on transfer under this
Agreement, the Notes and the Warrants and under applicable state and federal
securities laws.
2.6 GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the consummation of the transactions
contemplated by this Agreement (except such additional steps as may be necessary
to qualify the offer and sale of the Notes and Warrants under applicable state
securities laws, which such steps have been taken or shall be timely taken by
the Company).
2.7 OFFERING. Subject in part to the truth and accuracy of each
Investor's representations set forth in Section 3 of this Agreement the offer,
sale and issuance of the Notes and the Warrants as contemplated by this
Agreement are exempt from the registration requirements of the Act, and neither
the Company nor any authorized agent acting on its behalf will take any action
hereafter that would cause the loss of such exemption.
2.8 LITIGATION. Except as set forth in the Disclosure Schedule,
there is no action, suit, proceeding or investigation pending or currently
threatened against the Company that questions
<PAGE>
the validity of this Agreement, the Notes or the Warrants or the right of the
Company to enter into such agreements, or to consummate the transactions
contemplated hereby or thereby, or that might result, either individually or in
the aggregate, in any material adverse change in the assets, condition, affairs
or prospects of the Company, financially or otherwise, or any change in the
current equity ownership of the Company, nor is the Company aware that there is
any basis for the foregoing. The foregoing includes, without limitation,
actions, suits, proceedings or investigations pending or threatened (or any
basis therefor known to the Company) involving the prior employment of any of
the Company's employees, their use in connection with the Company's business of
any information or techniques allegedly proprietary to any of their former
employers, or their obligations under any agreements with prior employers.
Except as set forth in the Disclosure Schedule, the Company is not a party or
subject to the provisions of any order, writ, injunction, judgment or decree of
any court or government agency or instrumentality. Except as set forth in the
Disclosure Schedule, there is no action, suit, proceeding or investigation by
the Company currently pending or that the Company intends to initiate.
2.9 PATENTS AND TRADEMARKS. The Company owns or possesses
sufficient legal rights to all patents, trademarks, service marks, trade names,
copyrights, trade secrets, information, proprietary rights and processes
("Intellectual Property") necessary for its business as now conducted and as
proposed to be conducted without any conflict with or infringement of the rights
of others. The Disclosure Letter contains a complete list of all patents and
patent applications of the Company. There are no outstanding options, licenses,
or agreements of any kind relating to the Company's Intellectual Property, nor
is the Company bound by or a party to any options, licenses or agreements of any
kind with respect to the Intellectual Property of any other person or entity.
The Company has not received any communications alleging that the Company has
violated or, by conducting its business as proposed to be conducted, would
violate any of the Intellectual Property of any other person or entity. The
Company is not aware that any of the Company's employees is obligated under any
contract (including licenses, covenants or commitments of any nature) or other
agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would interfere with the use of his or her best
efforts to promote the interests of the Company or that would conflict with the
Company's business as proposed to be conducted. Neither the execution nor
delivery of this Agreement, the Notes or the Warrants nor the carrying on of the
Company's business by the employees of the Company, nor the conduct of the
Company's business as proposed to be conducted, will, to the best of the
Company's knowledge, conflict with or result in a breach of the terms,
conditions or provisions of, or constitute a default under, any contract,
covenant or instrument under which any of such employees is now obligated. The
Company does not believe it is or will be necessary to utilize any inventions of
any of its employees (or people it currently intends to hire) made prior to
their employment by the Company.
2.10 COMPLIANCE WITH OTHER INSTRUMENTS.
(a) The Company is not in violation or default of any
provision of its Restated Certificate or Bylaws, or of any instrument, judgment,
order, writ, decree or contract to which it is a party or by which it is bound,
or, to the best of its knowledge, of any provision of any federal or state
statute, rule or regulation applicable to the Company. Except as set forth in
the
<PAGE>
Disclosure Letter, the execution, delivery and performance of this Agreement,
the Notes and the Warrants, and the consummation of the transactions
contemplated hereby and thereby, will not result in any such violation or be in
conflict with or constitute, with or without the passage of time and/or giving
of notice, either a default under any such provision, instrument, judgment,
order, writ, decree or contract or an event that results in the creation of any
lien, charge or encumbrance upon any assets of the Company or the suspension,
revocation, impairment, forfeiture, or nonrenewal of any material permit,
license, authorization, or approval applicable to the Company, its business or
operations or any of its assets or properties.
(b) The Company has avoided every condition, and has not
performed any act, the occurrence of which would result in the Company's loss of
any material right granted under any license, distribution or other agreement.
2.11 AGREEMENTS; ACTION
(a) Except for agreements explicitly contemplated hereby
and by the Notes and the Warrants, there are no agreements, understandings or
proposed transactions between the Company and any of its officers, directors,
affiliates, or any affiliate thereof.
(b) There are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, writs or decrees to which
the Company is a party or by which it is bound that may involve (i) obligations
(contingent or otherwise) of, or payments to the Company in excess of, $25,000,
or (ii) the license of any patent, copyright, trade secret or other proprietary
right to or from the Company, or (iii) provisions restricting or affecting the
development, manufacture or distribution of the Company's products or services,
or (iv) indemnification by the Company with respect to infringements of
proprietary rights.
(c) Since the date of the Latest Balance Sheet (as defined
below), the Company (i) has not declared or paid any dividends or authorized or
made any distribution upon or with respect to any class or series of its capital
stock, (ii) except for (A) the convertible term note in the principal amount of
$500,000 payable to Mark Baiada (the "Mark Baiada Term Note"), (B) the
$1,750,000 working capital line of credit with Silicon Valley Bank (the "Silicon
Valley Working Capital Line of Credit"), (C) the $2,000,000 equipment line of
credit with Silicon Valley Bank (the "Silicon Valley Equipment Line of Credit"),
(D) the promissory note dated as of April 17, 1997 in the principal amount of
$500,000 payable to BCI (as defined herein) the "BCI Note"), and (E) the notes
in the principal amount of $55,897 and $75,000, respectively, payable to
Colonial Pacific Leasing (the "Colonial Pacific Leasing Notes"), does not
currently have outstanding any indebtedness for money borrowed or any other
liabilities individually in excess of $25,000 or, in the case of indebtedness
and/or liabilities individually less than $25,000, in excess of $75,000 in the
aggregate, (iii) has not made any loans or advances to any person, other than
ordinary advances for travel expenses, or (iv) has not sold, exchanged or
otherwise disposed of any of its assets or rights, other than the sale of its
inventory in the ordinary course of business.
<PAGE>
(d) For the purposes of subsections (b) and (c) above, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including persons
or entities the Company has reason to believe are affiliated therewith) shall be
aggregated for the purpose of meeting the individual minimum dollar amounts of
such subsections.
(e) The Company is not a party to and is not bound by any
contract, agreement or instrument, or subject to any restriction under its
Restated Certificate or Bylaws that materially adversely affects its business as
now conducted or as proposed to be conducted, its properties or its financial
condition.
(f) Any agreements, understandings, instruments or
contracts with the parties to contracts listed in Schedule 2.11 of the
Disclosure Letter which were entered into prior to the date of such contracts
listed in Schedule 2.11 of the Disclosure Letter are no longer in force or
effect.
2.12 RELATED-PARTY TRANSACTIONS. Except as set forth in Schedule
2.12 of the Disclosure Letter, no employee, officer, or director of the Company
or member of his or her immediate family is indebted to the Company, nor is the
Company, except for its obligations under the Mark Baiada Term Note and the BCI
Note, indebted (or committed to make loans or extend or guarantee credit) to any
of them. To the best of the Company's knowledge, none of such persons has any
direct or indirect ownership interest in any firm or corporation with which the
Company is affiliated or with which the Company has a business relationship, or
any firm or corporation that competes with the Company, except that employees,
officers, or directors of the Company and members of their immediate families
may own stock in publicly traded companies that may compete with the Company. No
member of the immediate family of any officer or director of the Company is
directly or indirectly interested in any material contract with the Company.
2.13 FINANCIAL PLAN. The Financial Plan, as defined in Section
5.15 herein,will be prepared in good faith by the Company and will not contain
any untrue statement of a material fact nor will it omit to state a material
fact necessary to make the statements made therein not misleading, except that
with respect to projections contained in the Financial Plan, the Company will
represent only that such projections were prepared in good faith by the Company
and that the Company reasonably believes there is a reasonable basis for such
projections.
2.14 PERMITS. The Company has all franchises, permits, licenses,
and any similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which could materially and adversely affect the
business, properties, prospects, or financial condition of the Company, and the
Company believes it can obtain, without undue burden or expense, any similar
authority for the conduct of its business as planned to be conducted in the
Financial Plan. The Company is not in default in any material respect under any
of such franchises, permits, licenses, or other similar authority.
<PAGE>
2.15 ENVIRONMENTAL AND SAFETY LAWS. To the best of the Company's
knowledge, the Company is not in violation of any applicable statute, law or
regulation relating to the environment or occupational health and safety, and to
the best of its knowledge, no material expenditures are or will be required in
order to comply with any such existing statute, law or regulation.
2.16 MANUFACTURING AND MARKETING RIGHTS The Company has not
granted rights to manufacture, produce, assemble, license, market, or sell its
products to any other person and is not bound by any agreement that affects the
Company's exclusive right to develop, manufacture, assemble, distribute, market
or sell its products.
2.17 DISCLOSURE. The Company has fully provided each Investor
with all the information that such Investor has requested for deciding whether
to purchase the Notes and the Warrants. Neither this Agreement, the Notes or the
Warrants nor any other written statements or certificates made or delivered in
connection herewith or therewith contains any untrue statement of a material
fact or omits to state a material fact necessary to make the statements herein
or therein not misleading. There is no fact within the knowledge of the Company,
or any of the Company's officers which has not been disclosed herein or in
writing by them to the Investors and which materially adversely affects, or in
the future in their opinion may, insofar as they can now foresee, materially
adversely affect the business, properties, assets or condition, financial or
otherwise, of the Company. Other than as stated in the Disclosure Letter,
without limiting the foregoing, the Company has no knowledge or belief that
there exists, or there is, pending or planned, any patent, invention, device,
application or principle or any statute, rule, law, regulation, standard or
condition which would materially adversely affect the condition, financial or
otherwise, or the operations of the Company.
2.18 REGISTRATION RIGHTS. Except as provided in the registration
rights provisions of the Restated Investors' Rights Agreement and the Company's
Restated Certificate, the Company has not granted or agreed to grant any
registration rights, including piggyback rights, to any person or entity.
2.19 TITLE TO PROPERTY AND ASSETS. The Company owns its property
and assets free and clear of all mortgages, liens, loans and encumbrances,
except (i) as reflected on Schedule 2.1(f) of the Security Agreement dated as of
the date hereof between the Investors and the Company, (ii) for liens for
current taxes not yet delinquent, (iii) for liens imposed by law and incurred in
the ordinary course of business for obligations not past due to carriers,
warehousemen, laborers, materialmen and the like, (iv) for liens in respect of
pledges or deposits under workers' compensation laws or similar legislation, (v)
for minor defects in title, none of which, individually or in the aggregate,
materially interferes with the use of such property or (vi) for such
encumbrances and liens that arise in the ordinary course of business and do not
materially impair the Company's ownership or use of such property or assets.
With respect to the property and assets it leases, the Company is in compliance
with such leases and, to the best of its knowledge, holds a valid leasehold
interest free of any liens, claims or encumbrances.
<PAGE>
2.20 FINANCIAL STATEMENTS. The Company has delivered to each
Investor consolidated audited financial statements (balance sheet, operating
statement and statement of cash flows) of the Company as of and for the fiscal
year ended December 31, 1997 and those of Bluestone Consulting, Inc., a New
Jersey corporation (the "Predecessor Corporation") as of and for each of the
fiscal years ended December 31, 1996 and 1995 (the "Audited Financial
Statements"), and consolidated unaudited financial statements (balance sheet,
operating statement and statement of cash flows) of the Company as of November
30, 1998 and for the eleven (11) months then ended (the "Unaudited Financial
Statements" together with the Audited Financial Statements, the "Financial
Statements"). The Financial Statements fairly present the financial condition
and operating results of the Company and the Predecessor Corporation as of the
dates, and for the periods, indicated therein, subject to normal year-end audit
adjustments. The Financial Statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods indicated and with each other, except that the Unaudited
Financial Statements may not contain all footnotes required by generally
accepted accounting principles. Except as set forth in the Financial Statements,
the Company has no material liabilities, contingent or otherwise, other than (i)
liabilities incurred in the ordinary course of business subsequent to December
31, 1997, and (ii) obligations under contracts and commitments incurred in the
ordinary course of business, which, individually or in the aggregate, are not
material to the financial condition or operating results of the Company. Except
as disclosed in the Financial Statements, the Company is not a guarantor or
indemnitor of any indebtedness of any other person, firm or corporation.
2.21 CHANGES. Except as disclosed in the Disclosure Schedule,
since December 31, 1997, the date of the latest audited balance sheet included
in the Financial Statements (the "Latest Balance Sheet"), there has not been:
(a) any change in the assets, liabilities, financial
condition or operating results of the Company from that reflected in the
Financial Statements, except changes in the ordinary course of business that
have not been, in the aggregate, materially adverse;
(b) any damage, destruction or loss, whether or not covered
by insurance, materially and adversely affecting the assets, properties,
financial condition, operating results, prospects or business of the Company (as
such business is presently conducted and as it is proposed to be conducted);
(c) any waiver by the Company of a valuable right or of a
material debt owed to it;
(d) any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by the Company, except in the ordinary
course of business and that is not material to the assets, properties, financial
condition, operating results, prospects or business of the Company (as such
business is presently conducted and as it is proposed to be conducted);
<PAGE>
(e) any material change or amendment to a material contract
or arrangement by which the Company or any of its assets or properties is bound
or subject;
(f) any resignation or termination of employment of any key
officer of the Company; and the Company, to the best of its knowledge, does not
know of the impending resignation or termination of employment of any such
officer;
(g) any mortgage, pledge, transfer of a security interest
in, or lien, created by the Company, with respect to any of its material
properties or assets, except liens for taxes not yet due or payable;
(h) any loans or guarantees made by the Company to or for
the benefit of its employees, officers or directors, or any members of their
immediate families, other than travel advances and other advances made in the
ordinary course of its business; or
(i) to the best of the Company's knowledge, any other event
or condition of any character that might materially and adversely affect the
assets, properties, financial condition, operating results, prospects or
business of the Company (as such business is presently conducted and as it is
proposed to be conducted).
2.22 EMPLOYEE BENEFIT PLANS. Except as set forth in the
Disclosure Letter, the Company has not established, maintained or contributed to
any Employee Benefit Plans as defined in the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), and the Company has not proposed any Employee
Benefit Plans which the Company will establish, maintain, or to which the
Company will contribute or be required to contribute, and the Company has not
proposed any changes to any Employee Benefit Plans now in effect (all of the
preceding referred to collectively hereinafter as the "Company's Employee
Benefit Plans"). True and correct copies and descriptions, to the extent that
they exist, of all of the Company's Employee Benefit Plans have been previously
provided to the Investors. Each of the Company's Employee Benefit Plans, which
is intended to be qualified under Section 401(a) of the Code is so qualified.
Favorable letters of determination of such tax-qualified status from the IRS
have been previously provided to the Investors. With respect to the Company's
Employee Benefit Plans, the Company will have made, on or prior to the Closing,
all payments required to be made by it on or prior to the Closing and will have
accrued (in accordance with generally accepted accounting principles
consistently applied and the requirements of ERISA) as of the Closing all
payments due but not yet payable as of the Closing. The Company has previously
provided to the Investors a true and correct copy of the most current Form 5500
and any other form or filing required to be submitted to any governmental agency
with regard to any of the Company's Employee Benefit Plans. All of the Company's
Employee Benefit Plans are, and have been, operated in full compliance with
their provisions and with all applicable Laws including, without limitation,
ERISA and the Code and the regulations and rulings thereunder. The Company and
all fiduciaries of the Company's Employee Benefit Plans have complied with the
provisions of the Company's Employee Benefit Plans and with all applicable Laws
including, without limitation, ERISA and the Code and the regulations and
rulings thereunder. There has been no termination or partial termination
(including any termination or partial termination attributable
<PAGE>
to this sale) of any of the Company's Employee Benefit Plans. The Company has
never established, maintained or had the obligation to contribute to a defined
benefit plan (as defined in the Code or ERISA), an Employee Benefit Plan that is
subject to the minimum funding standards of the Code or ERISA, or a
multiemployer (as defined in the Code or ERISA). Neither the execution and
delivery of this Agreement nor the consummation of the transactions contemplated
hereby will (i) result in any payment (including, without limitation, severance,
unemployment compensation, golden parachute or otherwise) becoming due from the
Company under any of the Company's Employee Benefit Plans, (ii) increase any
benefits otherwise payable under any of the Company's Employee Benefit Plans, or
(iii) result in the acceleration of the time of payment or vesting of any such
benefits to any extent. There are no pending actions, claims or lawsuits which
have been asserted or instituted against any of the Company's Employee Benefit
Plans, the assets of any of the trusts under such plans, the plan sponsor, the
plan administrator or against any fiduciary of any of the Company's Employee
Benefit Plans (other than routine benefit claims) nor does the Company have
knowledge of facts which could form the basis for any such action, claim or
lawsuit. There are no investigations or audits of any of the Company's Employee
Benefit Plans, any trusts under such plans, the plan sponsor, the plan
administrator or any fiduciary of any of the Company's Employee Benefit Plans
which have been threatened or instituted nor does the Company have knowledge of
facts which could form the basis for any such investigation or audit. No event
has occurred or will occur which will result in liability to the Company in
connection with any Employee Benefit Plan established, maintained, or
contributed to (currently or previously) by the Company or by any other entity
which, together with the Company, constitute elements of either (i) a controlled
group of corporations (within the meaning of Section 414(b) of the Code), (ii) a
group of trades or businesses under common control (within the meaning of
Sections 414(c) of the Code or 4001 of ERISA), (iii) an affiliated service group
(within the meaning of Section 414(m) of the Code) or (iv) another arrangement
covered by Section 414(o) of the Code. For purposes of this Agreement, "Employee
Benefit Plan" means (i) any employee benefit plan, as defined in Section 3(3) of
ERISA and (ii) any other plan, trust agreement or arrangement for any bonus,
severance, hospitalization, vacation, incentive or deferred compensation,
pension or profit-sharing, retirement, payroll savings, stock option, equity
compensation, group insurance, death benefit, fringe benefit, welfare or any
other employee benefit plan or fringe benefit arrangement of any nature
whatsoever, including those benefiting retirees or former employees.
2.23 TAX MATTERS.
(a) Except as set forth on Schedule 2.23 of the Disclosure
Letter, the Company has filed all Tax Returns (as defined below) which it was
required to file under applicable laws and regulations; all such Tax Returns are
complete and correct in all respects and have been prepared in compliance with
all applicable laws and regulations; the Company has paid all Taxes (as defined
below) due and owing by it with respect to any period ending on or before the
Closing (whether or not such Taxes are required to be shown on a Tax Return) and
have withheld and paid over to the appropriate taxing authority all Taxes which
it is required to withhold from amounts paid or owing to any employee,
stockholder, creditor or other third party with respect to any period ending on
or before the Closing; the Company has not waived any statute of limitations
with respect to any Taxes or agreed to any extension of time with respect to any
Tax Return; the accrual for Taxes on
<PAGE>
the Latest Balance Sheet would be adequate to pay all Tax liabilities of the
Company if its current tax year were treated as ending on the date of the Latest
Balance Sheet; since the date of the Latest Balance Sheet, the Company has not
incurred any liability for Taxes other than in the ordinary course of business;
the assessment of any additional Taxes for periods for which Tax Returns have
been filed by the Company shall not exceed the recorded liability therefor on
the Latest Balance Sheet; the federal income Tax Returns of the Company have
been audited or closed for all tax years through 1992; except as set forth on
Schedule 2.23 of the Disclosure Letter no foreign, federal, state or local tax
audits or administrative or judicial proceedings are pending or being conducted
with respect to the Company, no information related to Tax matters has been
requested by any foreign, federal, state or local taxing authority and no
written notice indicating an intent to open an audit or other review has been
received by the Company from any foreign, federal, state or local taxing
authority; and there are no material unresolved questions or claims concerning
the Company's Tax liability;
(b) The Company has not made an election under Section
341(f) of the Internal Revenue Code of 1986, as amended (the "Code"). The
Company is not liable for the Taxes of another person under (i) Treas. Reg.
Section 1.1502-6 (or comparable provisions of state, local or foreign law),
(ii) as a transferee or successor, (iii) by contract or indemnity or (iv)
otherwise. The Company is not a party to any tax sharing agreement. The
Company has disclosed on their federal income Tax Returns any position taken
for which substantial authority (within the meaning of Section
6662(d)(2)(B)(i) of the Code) did not exist at the time the return was filed.
The Company has not made any payments, is obligated to make payments or is a
third party to an agreement that could obligate it to make any payments that
would not be deductible under Section 280G of the Code;
(c) As of the Closing, the Company is a qualified small
business within the meaning of Section 1202(c) of the Code. During the period
beginning one year prior to the Closing Date through the Closing, the Company
has not made a significant redemption of its stock within the meaning of
Section 1202(c)(3)(B) of the Code;
(d) The Company has made a valid election under Section
1362(a) of the Code to be treated as an "S corporation" within the meaning of
Section 1361 of the Code, which election has been effective for all tax periods
from the date of the Company's formation to the issuance of the Series A
Preferred Stock;
(e) The formation of Bluestone Consulting, Inc., a Delaware
corporation ("BCI") by the Company and the distribution of its stock to the
shareholders (the "Spin-off") did not and will not result in any Tax to the
Company, and for purposes of subsection 2.23(a) above, such formation and
distribution shall not be considered a transaction occurring in the ordinary
course of business; and
(f) For purposes of this Agreement, the term "Tax" or
"Taxes" means federal, state, county, local, foreign or other income, gross
receipts, ad valorem, franchise, profits, sales or use, transfer, registration,
excise, utility, environmental, communications, real or personal property,
capital stock, license, payroll, wage or other withholding, employment, social
security, severance, stamp, occupation, alternative or add-on minimum, estimated
and other taxes of any kind
<PAGE>
whatsoever (including, without limitation, deficiencies, penalties, additions to
tax, and interest attributable thereto) whether disputed or not. The term "Tax
Return" means any return, information report or filing with respect to Taxes,
including any schedules attached thereto and including any amendment thereof.
2.24 INSURANCE. The Company has in full force and effect fire
and casualty insurance policies, with extended coverage, sufficient in amount
(subject to reasonable deductibles) to allow it to replace any of its properties
that might be damaged or destroyed, and key man insurance covering Mel Baiada,
Bob Bickel, Mark Nigro and John Capobianco as specified in the Disclosure
Letter. The Company will obtain key man insurance in the amount of $1,000,000
covering Kevin Kilroy within forty-five (45) days after the date of this
Agreement.
2.25 BOOKS AND RECORDS. The minute books and stock record books
of the Company provided to the Investors contain (i) minutes of all meetings of
the stockholders, board of directors and any committee of the board of
directors, (ii) written statements of all actions taken by the Stockholders,
board of directors and any committee of the board of directors without a
meeting, and (iii) records of the issuance, transfer and cancellation of all
shares of capital stock and other securities, in each case since the time of
incorporation. Such minute books and stock record books reflect all transactions
referred to therein accurately and completely.
2.26 USE OF PROCEEDS. The net proceeds received by the Company
from the sale of the Notes shall be used by the Company for general corporate
and working capital purposes.
2.27 LABOR MATTERS. The Company is not a party to any collective
bargaining agreement covering employees of the Company's business, nor does any
labor union or collective bargaining agent represent any of the employees of the
Company's business. Except as set forth in the Disclosure Letter, there is no
labor strike, slow-down or stoppage pending or, to the Company's knowledge,
threatened by the employees of the Company's business.
2.28 "YEAR 2000". The Company's computer system and software
(including all software and applications developed for or sold to any customer
or client) are able to accurately process date data, including but not limited
to, calculating, comparing and sequencing from, into and between the twentieth
century (through year 1999), the year 2000 and the twenty-first century,
including leap year calculations. To the best knowledge of the Company, it is
not aware of any inability on the part of any service provider to timely remedy
such service provider's own deficiencies in respect of the year 2000 problem.
3. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS. Each Investor
hereby represents and warrants that:
<PAGE>
3.1 AUTHORIZATION. Each Investor has full power and authority
to enter into the this Agreement, the Notes and the Warrants, and each such
Agreement constitutes its valid and legally binding obligation, enforceable in
accordance with its terms, except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, and other laws of general application
affecting enforcement of creditors' rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief, or
other equitable remedies, and (iii) to the extent the indemnification provisions
contained in Restated Certificate may be limited by applicable federal or state
securities laws.
3.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made
with such Investor in reliance upon such Investor's representation to the
Company, which by such Investor's execution of this Agreement such Investor
hereby confirms, that the Notes and the Warrants to be received by such Investor
and the Common Stock issuable upon exercise of the Warrants together with the
New Equity Securities (as defined in the Notes) and Common Stock issuable upon
conversion or exercise of the Notes (collectively, the "Securities") will be
acquired for investment for such Investor's own account, not as a nominee or
agent, and not with a view to the resale or distribution of any part thereof
except in accordance with the Act, and that such Investor has no present
intention of selling, granting any participation in, or otherwise distributing
the same. By executing this Agreement, such Investor further represents that
such Investor does not have any contract, undertaking, agreement or arrangement
with any person to sell, transfer or grant participations to such person or to
any third person, with respect to any of the Securities.
3.3 DISCLOSURE OF INFORMATION. Such Investor believes it has
received all the information it considers necessary or appropriate for deciding
whether to purchase the Notes and the Warrants. Such Investor further represents
that it has had an opportunity to ask questions and receive answers from the
Company regarding the terms and conditions of the offering of the Notes and the
Warrants and the business, properties, prospects and financial condition of the
Company. The foregoing, however, does not limit or modify the representations
and warranties of the Company in Section 2 of this Agreement or the right of the
Investors to rely thereon.
3.4 INVESTMENT EXPERIENCE. Such Investor is an investor in
securities of companies in the development stage and acknowledges that it is
able to fend for itself, can bear the economic risk of its investment, and has
such knowledge and experience in financial or business matters that it is
capable of evaluating the merits and risks of the investment in the Notes and
the Warrants. If other than an individual, Investor also represents it has not
been organized for the purpose of acquiring the Notes and the Warrants.
3.5 ACCREDITED INVESTOR. Such Investor is an "accredited
investor" within the meaning of Securities and Exchange Commission ("SEC") Rule
501 of Regulation D, as presently in effect.
3.6 RESTRICTED SECURITIES. Such Investor understands that the
Securities it is purchasing are characterized as "restricted securities" under
the federal securities laws inasmuch as
<PAGE>
they are being acquired from the Company in a transaction not involving a public
offering and therefore may not be sold, transferred or otherwise disposed of
without registration under the Act or an exemption therefrom, and that in the
absence of an effective registration statement covering the Securities or an
available exemption from registration under the Act, the Securities must be held
indefinitely. In this connection, such Investor represents that it is familiar
with SEC Rule 144, as presently in effect, and understands the resale
limitations imposed thereby and by the Act.
3.7 FURTHER LIMITATIONS ON DISPOSITION. Without in any way
limiting the representations set forth above, such Investor further agrees not
to make any disposition of all or any portion of the Securities unless and until
the transferee has agreed in writing for the benefit of the Company to be bound
by this Section 3 to the extent this Section is then applicable, and:
(a) There is then in effect a Registration Statement under
the Act covering such proposed disposition and such disposition is made in
accordance with such Registration Statement; or
(b)(i) Such Investor shall have notified the Company of the
proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and (ii) if
reasonably requested by the Company, such Investor shall have furnished the
Company with an opinion of counsel, reasonably satisfactory to the Company that
such disposition will not require registration of such shares under the Act. It
is agreed that the Company will not require opinions of counsel for transactions
made pursuant to Rule 144 except in unusual circumstances.
(c) Notwithstanding the provisions of paragraphs (a) and
(b) above, no such registration statement or opinion of counsel shall be
necessary for a transfer by an Investor that is a partnership to a partner of
such partnership or a retired partner of such partnership who retires after the
date hereof, or to the estate of any such partner or retired partner or the
transfer by gift, will or intestate succession of any partner to his or her
spouse or to the siblings, lineal descendants or ancestors of such partner or
his or her spouse, if the transferee agrees in writing to be subject to the
terms hereof to the same extent as if he or she were an original Investor
hereunder.
3.8 LEGENDS. It is understood that the certificates evidencing
the Securities may bear one or all of the following legends:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION
STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT AND SUCH STATE
SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT."
<PAGE>
4. CONDITIONS OF THE INVESTOR'S EXECUTION OF THIS AGREEMENT. On or
before the execution of this Agreement by the Investors, the Company shall have
fulfilled the following conditions:
4.1 OPINION OF COMPANY COUNSEL. Each Investor shall have
received from counsel for the Company, an opinion, dated as of the date hereof,
in the form and content satisfactory to each of the Investors and attached
hereto as Exhibit C.
4.2 SECRETARY'S CERTIFICATE. The Investors shall have received
a certificate, dated the date hereof, of the Secretary of the Company to the
effect (i) that attached thereto is a true and complete copy of the Certificate
of Incorporation and the By-laws of the Company in each case as in effect on the
date thereof, (ii) that attached thereto is a true and complete copy of all
resolutions adopted by the Board of Directors of the Company authorizing the
execution, delivery and performance of this Agreement, the Notes and the
Warrants, (iii) the attached thereto is a good standing certificate or telegram
dated within ten business days prior to the date hereof and (iv) that set forth
in such certificate is a list of incumbent officers and specimen signatures.
4.3 RELATED AGREEMENTS. Each Investor shall have received from
the Company, unless otherwise previously provided, the following agreements in
form and content satisfactory to each of the Investors:
(i) BANK LENDING AGREEMENTS. Any and all lending agreements
by and between the Company and its primary lender for working capital,
capital equipment leases and software leases;
(ii) SHAREHOLDER LENDING AGREEMENTS. Any and all lending
agreements by and between the Company and the shareholders of BCI; and
(iii) SERVICES AGREEMENTS. Any and all agreements by and
between the Company and BCI regarding the provision of consulting
services by BCI to the Company.
4.4 SECURITY AGREEMENT. Each Investor shall have received a
security agreement (the "Security Agreement") executed by the Company, in the
form and content satisfactory to each of the Investors and attached hereto as
EXHIBIT D.
4.5 EMPLOYMENT AGREEMENT. Each Investor shall have received
copies of an employment agreement (the "Employment Agreement"), executed by the
Company and Mel Baiada in the form and content satisfactory to each of the
Investors and attached hereto as EXHIBIT E.
4.6 WAIVER OF DEFAULT. Each of the Investors shall have
received copies of a written waiver, in form and content satisfactory to each of
the Investors, from Silicon Valley Bank waiving any and all defaults by the
Company under the loan agreement between the Company and Silicon Valley Bank.
<PAGE>
4.7 1999 FINANCIAL PLAN. Each Investor shall have received from
the Company, a copy of the Company's 1999 Financial Plan (the "Financial Plan")
in form and content satisfactory to each of the Investors.
4.8 PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated hereunder and all
documents incident thereto shall be reasonably satisfactory in form and
substance to Investors' special counsels, and they shall have received all such
counterpart original and certified or other copies of such documents as they may
reasonably request.
4.9 CERTIFICATE OF AMENDMENT TO THE CERTIFICATE OF
INCORPORATION. Each Investor shall have received a copy of an amendment to the
Company's Certificate of Incorporation, as filed with the Secretary of State
of the State of Delaware, increasing the Company's authorized shares of Common
Stock to 53,000,000 shares and its authorized shares of Series B Preferred Stock
to 12,640,720 shares, all as set forth on EXHIBIT F .
4.10 AMENDMENT TO INVESTORS' RIGHTS AGREEMENT. Each Investor
shall have received an amendment, executed by the Company, to that certain
Investors' Rights Agreement dated as of April 23, 1998, between the Company and
certain investors, amending the definition of "Registrable Securities" to
include shares of Common Stock issued or issuable pursuant to or in connection
with the Notes and Warrants, substantially in the form as EXHIBIT G.
4.11 DUE DILIGENCE. All matters investigated by the Investors in
the course of their due diligence shall be satisfactory to each of the
Investors, special counsels for Investors and the respective accountants for the
Investors.
5. CONDITIONS OF INVESTORS' OBLIGATIONS AT CLOSING. The obligations
of each Investor under subsection 1.1 of this Agreement are subject to the
fulfillment on or before each Closing of each of the following conditions, the
waiver of which shall not be effective against any Investor who does not consent
in writing thereto:
5.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained in Section 2 shall be true on and as of such
Closing.
5.2 PERFORMANCE. The Company shall have performed and complied
with all agreements, obligations and conditions contained in this Agreement that
are required to be performed or complied with by it on or before such Closing.
5.3 COMPLIANCE CERTIFICATE. The President of the Company shall
deliver to each Investor at the Closing a certificate stating that the
conditions specified in Sections 5.1 and 5.2 have been fulfilled and stating
that there shall have been no adverse change in the business, affairs,
prospects, operations, properties, assets or condition of the Company since the
date of the Financial Statements.
<PAGE>
5.4 QUALIFICATIONS. All authorizations, approvals, or permits,
if any, of any governmental authority or regulatory body of the United States or
of any state (except for certain post-Closing Federal or Blue Sky filings
required under applicable securities laws) that are required in connection with
the lawful issuance and sale of the Securities pursuant to this Agreement shall
be duly obtained and effective as of such Closing.
5.5 PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated at such Closing and
all documents incident thereto shall be reasonably satisfactory in form and
substance to Investors' special counsels, and they shall have received all such
counterpart original and certified or other copies of such documents as they may
reasonably request.
5.6 NOTES. The Company shall have executed and delivered the
Notes to be issued at such Closing.
5.7 WARRANTS. The Company shall have executed and delivered the
Warrants to be issued at the Closing.
6. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING. The
obligations of the Company to each Investor under this Agreement are subject to
the fulfillment on or before each Closing of each of the following conditions by
that Investor:
6.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Investors contained in Section 3 shall be true on and as of
the Closing.
6.2 PAYMENT OF PURCHASE PRICE. The Investors shall have
delivered the purchase price specified in Section 1.1.
6.3 QUALIFICATIONS. All authorizations, approvals, or permits,
if any, of any governmental authority or regulatory body of the United States or
of any state (except for certain post-Closing Blue Sky filings required under
applicable state securities laws) that are required in connection with the
lawful issuance and sale of the Securities pursuant to this Agreement shall be
duly obtained and effective as of such Closing.
7. STATE SECURITIES LAWS. The Company will provide applicable notices
and legends as may be required by applicable state securities laws.
8. INDEMNIFICATION.
(a) In addition to all rights and remedies available to the
Investors at law or in equity, the Company shall indemnify, defend and hold
harmless each of the Investors and any parent, subsidiary, associate, affiliate,
partner, shareholder, director, officer, shareholder or agent of each such
Investor, and each subsequent holder of the Notes, Warrants or Securities and
their respective affiliates, stockholders, officers, directors, employees,
agents, representatives, successors and
<PAGE>
permitted assigns (all of the foregoing are collectively referred to as the
"Indemnified Parties") from and against and pay on behalf of or reimburse such
party as and when incurred all losses (including, without limitation,
diminutions in value), liabilities, demands, claims, actions or causes of
action, costs, damages, judgments, debts, settlements, assessments,
deficiencies, taxes, penalties, fines or expenses, whether or not arising out of
any claims by or on behalf of any third party, including interest, penalties,
reasonable attorneys' fees and expenses and all reasonable amounts paid in
investigation, defense or settlement of any of the foregoing (collectively,
"Losses") which any such party may suffer, sustain or become subject to, as a
result of, in connection with, or relating to or by virtue of:
(i) any material misrepresentations or material breach of
warranty on the part of the Company under Section 2;
(ii) without duplication of subsection 8(a)(i), any
material misrepresentation in or material omission from any of the
representations or warranties contained in any certificate, document or
instrument or the Disclosure Letter delivered to the Investors by or on
behalf of the Company in connection herewith;
(iii) any material nonfulfillment or breach of any covenant
or agreement on the part of the Company under this Agreement or under any
certificate, document or instrument delivered in connection therewith; or
(iv) any action, demand, proceeding, investigation or claim
by any third party (including, without limitation, governmental agencies)
against or affecting the Company and/or its affiliates or subsidiaries
which, if successful, would give rise to or evidence the existence of or
relate to a material breach of (A) any of the representations or
warranties at the time made or (B) covenants of the Company.
In determining each Investor's right to indemnification under this Section 8 for
material misrepresentations in connection with a representation that expressly
includes a materiality standard or material breach of a representation,
warranty, covenant or other agreement that expressly includes a standard of
materiality, such materiality standard shall not be given independent effect. In
determining any diminution in value in the Investor's investment under this
Section 8, any diminution in value resulting from payments by the Company
pursuant to clauses (i), (ii), (iii) or (iv) shall be taken into account;
provided however, that the diminution in value resulting from each such payment
shall only be taken into account one time.
(b) Notwithstanding the foregoing, and subject to the following
sentence, upon judicial determination, which is final and no longer appealable,
that the act or omission giving rise to the indemnification hereinabove provided
resulted primarily out of or was based primarily upon the Indemnified Party's
gross negligence, fraud or willful misconduct (unless such action was based upon
the Indemnified Party's reliance in good faith upon any of the representations,
warranties, covenants or promises made by the Company herein), the Company shall
not be responsible for any Losses sought to be indemnified in connection
therewith, and the Company shall be entitled to
<PAGE>
recover from the Indemnified Party all amounts previously paid in full or
partial satisfaction of such indemnity, together with all costs and expenses of
the Company reasonably incurred in effecting such recovery, if any.
(c) All indemnification rights hereunder shall survive the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereunder indefinitely, regardless of any
investigation, inquiry or examination made for or on behalf of, or any knowledge
of any of the Investors and/or any of the other Indemnified Parties or the
acceptance by either Investor of any certificate or opinion.
(d) If for any reason the indemnity provided for in this Section 8
is unavailable to any Indemnified Party or is insufficient to hold each such
Indemnified Party harmless from all such Losses arising with respect to the
transactions contemplated hereunder, then the Company and the Indemnified Party
shall each contribute to the amount paid or payable by such Loss in such
proportion as is appropriate to reflect not only the relative benefits received
by the Company on the one hand, and such Indemnified Party on the other, but
also the relative fault of the Company on the one hand, and the Indemnified
Party on the other, as well as any relevant equitable considerations. In
addition, the Company agrees to reimburse any Indemnified Party upon demand for
all reasonable expenses (including legal counsel fees) incurred by such
Indemnified Party or any such other person in connection with investigating,
preparing or defending any such action or claim. The indemnity, contribution and
expense reimbursement obligations that the Company has under this Section 7
shall be in addition to any liability that the Company may otherwise have. The
Company further agrees that the indemnification and reimbursement commitments
set forth in this Agreement shall apply whether or not the Indemnified Party is
a formal party to any such lawsuits, claims or other proceedings.
(e) Any indemnification of either Investor or any other
Indemnified Party by the Company pursuant to this Section 8 shall be effected by
wire transfer of immediately available funds from the Company to an account
designated by such Investor or such other Indemnified Party within 15 days after
the determination thereof.
9. MISCELLANEOUS
9.1 SURVIVAL OF WARRANTIES. The warranties, representations and
covenants of the Company and Investors contained in or made pursuant to this
Agreement shall survive the execution and delivery of this Agreement and the
Closings and shall in no way be affected by any investigation of the subject
matter thereof made by or on behalf of the Investors or the Company.
9.2 SUCCESSORS AND ASSIGNS. Except as otherwise provided
herein, the terms and conditions of this Agreement shall inure to the benefit of
and be binding upon the respective successors and assigns of the parties
(including transferees of any Securities). Nothing in this Agreement express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
<PAGE>
9.3 GOVERNING LAW. This Agreement shall be governed by and
construed under the laws of the State of Delaware without giving effect to
conflict of law principles. EACH OF THE PARTIES HEREBY WAIVES ANY RIGHTS IT MAY
HAVE TO TRIAL BY JURY IN ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF
THIS AGREEMENT, THE NOTES OR THE WARRANTS.
9.4 CONSENT TO JURISDICTION. The Company irrevocably consents
to the jurisdiction of the state courts of Delaware and the United States
District Court for the District of Delaware in any and all actions and
proceedings whether arising hereunder or under any other agreement or
undertaking and irrevocably agrees to service of process to the address of the
company set forth herein by certified mail, return receipt requested.
9.5 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument, and it shall not be
necessary in making proof of this Agreement to produce or account for more than
one counterpart hereof.
9.6 TITLES AND SUBTITLES The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
9.7 NOTICES. Unless otherwise provided, all notices, consents
or other communications required or permitted to be given under this Agreement
shall be in writing and shall be deemed to have been duly given (i) when
delivered personally, (ii) three business days after being mailed by first class
mail, postage prepaid, or (iii) one business day after being sent by a reputable
overnight delivery service, postage or delivery charges prepaid, to the parties
at their respective addresses stated on the signature page of this Agreement.
Notices may also be given by prepaid telegram or facsimile and shall be
effective on the date transmitted if confirmed within 24 hours thereafter by a
signed original sent in the manner provided in the preceding sentence. Any party
may change its address for notice and the address to which copies must be sent
by giving notice of the new addresses to the other parties in accordance with
this Section 9.7, except that any such change of address notice shall not be
effective unless and until received.
9.8 FINDER'S FEE. Each party represents that it neither is nor
will be obligated for any finders' fee or commission in connection with this
transaction. Each Investor agrees to indemnify and to hold harmless the Company
from any liability for any commission or compensation in the nature of a
finders' fee (and the costs and expenses of defending against such liability or
asserted liability) for which such Investor or any of its officers, partners,
employees, or representatives is responsible. The Company agrees to indemnify
and hold harmless each Investor from any liability for any commission or
compensation in the nature of a finders' fee (and the costs and expenses of
defending against such liability or asserted liability) for which the Company or
any of its officers, employees or representatives is responsible.
<PAGE>
9.9 EXPENSES. Subject to the provisions of Section 8, whether
or not the Closing is effected, the Company shall pay all costs and expenses
that it incurs with respect to the negotiation, execution, delivery and
performance of this Agreement and shall reimburse the reasonable fees and
out-of-pocket expenses of special counsel for General Electric Capital
Corporation not to exceed $10,000 and of special counsel for Patricof Ventures
and Adams Capital not to exceed $20,000. If any action at law or in equity is
necessary to enforce or interpret the terms of this Agreement or the Transaction
Agreements, the prevailing party shall be entitled to reasonable attorney's
fees, costs and necessary disbursements in addition to any other relief to which
such party may be entitled.
9.10 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders of
75% of the aggregate principal amount of Notes being issued hereunder. Any
amendment or waiver effected in accordance with this Section 9.10 shall be
binding upon each holder of any securities purchased under this Agreement at the
time outstanding (including securities into which such securities are
convertible), each future holder of all such securities, and the Company.
9.11 SEVERABILITY. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, such provision shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
9.12 AGGREGATION OF SECURITIES. All Securities held or acquired
by affiliated entities or persons shall be aggregated together for the purpose
of determining the availability of any rights under this Agreement.
9.13 ENTIRE AGREEMENT. This Agreement and the documents referred
to herein constitute the entire agreement with respect to the subject matter
hereof among the parties, and no party shall be liable or bound to any other
party in any manner by any warranties, representations, or covenants except as
specifically set forth herein or therein.
* * *
(SIGNATURES APPEAR ON NEXT PAGE.)
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Note and Warrant
Purchase Agreement, intending to be legally bound hereby, as of the date first
above written.
BLUESTONE SOFTWARE, INC.
By: /s/ P. Kevin Kilroy
-----------------------------------------
Name: P. Kevin Kilroy
Title: President
Address: 1000 Briggs Road
Mt. Laurel, NJ 08054
Telephone No.: 609-727-4600
Facsimile No.: 609-778-8125
INVESTORS:
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ Anton Simunovic
-----------------------------------------
Name: Anton Simunovic
Title: Vice President
Address: 260 Long Ridge Road
Stamford, CT 06927
Telephone No.: 203-961-2887
Facsimile No.: 203-357-4565
[SIGNATURE PAGE TO THE CONVERTIBLE SUBORDINATED SECURED NOTE
AND WARRANT PURCHASE AGREEMENT]
<PAGE>
THE P/A FUND, L.P.
By: FOSTIN CAPITAL PARTNERS II, L.P.
its General Partner
By: /s/ William C. Hulley
-----------------------------------------
Name: William C. Hulley
Title: General Partner
Address: 518 Broad Street
Sewickley, PA 15143
Telephone No.: 412-749-9455
Facsimile No.: 412-338-8453
PATRICOF PRIVATE INVESTMENT CLUB, L.P.
By: APA EXCELSIOR IV PARTNERS, L.P.
its General Partner
By: PATRICOF & CO. MANAGERS, INC.
its General Partner
By: /s/ Gregory M. Case
-----------------------------------------
Name: Gregory M. Case
Title: Vice President
Address: 455 South Gulph Road
Suite 410
King of Prussia, PA 19406
Telephone No.: 610-265-0286
Facsimile No.: 610-265-4959
[SIGNATURE PAGE TO THE CONVERTIBLE SUBORDINATED SECURED NOTE
AND WARRANT PURCHASE AGREEMENT]
<PAGE>
APA EXCELSIOR IV, L.P.
By: APA EXCELSIOR IV PARTNERS, L.P.
its General Partner
By: PATRICOF & CO. MANAGERS, INC.
its General Partner
By: /s/ Gregory M. Case
-----------------------------------------
Name: Gregory M. Case
Title: Vice President
Address: 455 South Gulph Road
Suite 410
King of Prussia, PA 19406
Telephone No.: 610-265-0286
Facsimile No.: 610-265-4959
COUTTS & CO. (CAYMAN) LTD., CUST. FOR
APA EXCELSIOR IV/OFFSHORE, L.P.
By: PATRICOF & CO. VENTURES, INC.
its Investment Advisor
By: /s/ Gregory M. Case
-----------------------------------------
Name: Gregory M. Case
Title: Managing Director
Address: 455 South Gulph Road
Suite 410
King of Prussia, PA 19406
Telephone No.: 610-265-0286
Facsimile No.: 610-265-4959
[SIGNATURE PAGE TO THE CONVERTIBLE SUBORDINATED SECURED NOTE
AND WARRANT PURCHASE AGREEMENT]
<PAGE>
Exhibit 10.32
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON ITS EXERCISE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR THE SECURITIES LAWS OF ANY STATE. THIS WARRANT AND SUCH SHARES MAY
NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED IN
THE ABSENCE OF REGISTRATION UNDER SAID ACT AND ALL OTHER APPLICABLE SECURITIES
LAWS OR UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
No. CS-__ Warrant to Purchase up to ________ Shares
of Common Stock
(subject to adjustment)
Date: ___________, 1999
WARRANT TO PURCHASE COMMON STOCK
OF
BLUESTONE SOFTWARE, INC.
(Void after __________, 2009)
This certifies that, for value received ______________________________,
or registered assigns ("Holder") is entitled, subject to the terms and
conditions set forth below, to purchase from Bluestone Software, Inc., a
Delaware corporation (the "Company"), _________ shares of common stock, (or
such other number of shares of Common Stock as may be determined in
accordance with Section 2 hereof), $.001 par value, of the Company (the
"Common Stock") upon surrender hereof, at the principal office of the Company
referred to below, with the notice of exercise form attached hereto duly
executed, and simultaneous payment therefor in lawful money of the United
States or otherwise as hereinafter provided, at the Exercise Price as set
forth in Section 2 below. The number, character and Exercise Price of such
shares of Common Stock are subject to adjustment as provided below.
This Warrant is issued pursuant to the Note and Warrant Purchase
Agreement (as amended, modified or otherwise supplemented from time to time, the
"Purchase Agreement") dated as of January 21, 1999 by and between, among others,
the Company and the investors named therein. The Holder of this Warrant is
subject to certain restrictions set forth in the Purchase Agreement and shall be
entitled to certain rights and privileges set forth in the Purchase Agreement.
This Warrant is one of the Warrants referred to as the "Warrants" in the
Purchase Agreement.
<PAGE>
1. TERM OF WARRANT. Subject to the terms and conditions set forth
herein, this Warrant shall be exercisable, in whole or in part, at any time,
or from time to time during the term ("Term") commencing at 9:00 a.m.,
Philadelphia, Pennsylvania time, on the date hereof and ending at 5:00 p.m.,
Philadelphia, Pennsylvania time, on _________, 2009, and shall be void
thereafter.
2. EXERCISE PRICE AND NUMBER OF SHARES. The Exercise Price (per share
of Common Stock) at which this Warrant may be exercised shall be $.62. The
Exercise Price and the number of shares are subject to adjustment from time to
time pursuant to Section 11 hereof.
3. EXERCISE OF WARRANT.
(a) MANNER OF EXERCISE. The purchase rights represented by this
Warrant are exercisable by the Holder in whole or in part, at any time, or
from time to time, during the term hereof as described in Section 1 above, by
the surrender of this Warrant and the Notice of Exercise annexed hereto duly
completed and executed on behalf of the Holder, at the office of the Company
(or such other office or agency of the Company as it may designate by notice
in writing to the Holder at the address of the Holder appearing on the books
of the Company), upon payment (i) in cash or by check acceptable to the
Company, (ii) by cancellation by the Holder of indebtedness of the Company to
the Holder, or (iii) by a combination of (i) and (ii), of the purchase price
of the shares to be purchased.
(b) TIME OF EXERCISE. This Warrant shall be deemed to have been
exercised immediately prior to the close of business on the date of its
surrender for exercise as provided above, and the person entitled to receive
the shares of Common Stock issuable upon such exercise shall be treated for
all purposes as the holder of record of such shares as of the close of
business on such date. As promptly as practicable on or after such date and
in any event within 10 days thereafter, the Company at its expense, will
issue and deliver to the person or persons entitled to receive the same a
certificate or certificates for the number of shares issuable upon such
exercise. In the event that this Warrant is exercised in part, the Company at
its expense, shall execute and deliver a new Warrant of like tenor
exercisable for the number of shares for which this Warrant may then be
exercised.
(c) NET ISSUE EXERCISE. Notwithstanding any provisions herein to
the contrary, if the fair market value of one share of Common Stock is
greater than the Exercise Price (at the date of calculation as set forth
below), in lieu of exercising this Warrant for cash, the holder may elect to
receive shares equal to the value (as determined below) of this Warrant (or
the portion thereof being canceled) by surrender of this Warrant at the
principal office of the Company together with the properly endorsed Notice of
Exercise and notice of such election in which event the Company shall issue
to the Holder a number of shares of Common Stock computed using the following
formula:
-2-
<PAGE>
Y (A-B)
X = ---------
A
X = the number of shares of Common Stock to be
issued to the Holder
Y = the number of shares of Common
Stock purchasable under the Warrant
or, if only a portion of the Warrant
is being exercised, the portion of
the Warrant being canceled (at the
date of such calculation)
A = the fair market value of one share
of the Company's Common Stock (at
the date of such calculation)
B = Exercise Price (as adjusted to the date
of such calculation)
For purposes of the above calculation, fair market value of one share
of Common Stock shall be determined as set forth in Section 11 hereof.
Notwithstanding the foregoing, in the event the Warrant is exercised in
connection with the Company's initial public offering of Common Stock, the fair
market value per share shall be the per share offering price to the public of
the Company's initial public offering.
4. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. In lieu of any fractional share to which the Holder would otherwise be
entitled, the Company shall make a cash payment equal to the Exercise Price
multiplied by such fraction.
5. 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 loss, theft or destruction, on delivery of
an indemnity agreement reasonably satisfactory in form and substance to the
Company or, in the case of mutilation, on surrender and cancellation of this
Warrant, the Company at its expense shall execute and deliver, in lieu of
this Warrant, a new warrant of like tenor and amount. Any such new Warrant
shall constitute an original contractual obligation of the Company, whether
or not the allegedly lost, stolen, mutilated or destroyed Warrant shall at
any time be enforceable by anyone.
6. RIGHTS OF SHAREHOLDERS. Subject to Sections 9 and 11 of this Warrant,
the Holder shall not be entitled to vote or receive dividends or be deemed
the holder of Common Stock or any other securities of the Company that may at
any time be issuable on the exercise hereof for any purpose, nor shall
anything contained herein be construed to confer upon the Holder, as such,
any of the rights of a shareholder of the Company or any right to vote for
the election of directors or upon any matter submitted to shareholders at any
meeting thereof, or to give or withhold consent to any corporate action
(whether upon any recapitalization, issuance of stock, reclassification of
stock, change of par value, or change of stock to no par value,
consolidation,
-3-
<PAGE>
merger, conveyance, or otherwise) or to receive notice of meetings, or to
receive dividends or subscription rights or otherwise until the Warrant shall
have been exercised as provided herein.
7. TRANSFER OF WARRANT.
(a) WARRANT REGISTER. The Company will maintain a register (the
"Warrant Register") containing the names and addresses of the Holder or
Holders. Any Holder of this Warrant or any portion thereof may change his
address as shown on the Warrant Register by written notice to the Company
requesting such change. Any notice or written communication required or
permitted to be given to the Holder may be delivered or given by mail to such
Holder as shown on the Warrant Register and at the address shown on the
Warrant Register. Until this Warrant is transferred on the Warrant Register
of the Company, the Company may treat the Holder as shown on the Warrant
Register as the absolute owner of this Warrant for all purposes,
notwithstanding any notice to the contrary.
(b) WARRANT AGENT. The Company may, by written notice to the Holder,
appoint an agent for the purpose of maintaining the Warrant Register referred
to in Section 7(a) above, issuing the Common Stock or other securities then
issuable upon the exercise of this Warrant, exchanging this Warrant,
replacing this Warrant, or any or all of the foregoing. Thereafter, any such
registration, issuance, exchange, or replacement, as the case may be, shall
be made at the office of such agent.
(c) TRANSFERABILITY AND NONNEGOTIABILITY OF WARRANT. This Warrant may
not be transferred or assigned in whole or in part without compliance with
all applicable federal and state securities laws by the transferor and the
transferee (including the delivery of investment representation letters and
legal opinions reasonably satisfactory to the Company, if such are requested
by the Company). Subject to the provisions of this Warrant with respect to
compliance with the Securities Act of 1933, as amended (the "Act") and
subject to Section 3 of the Purchase Agreement, title to this Warrant may be
transferred by endorsement (by the Holder executing the Assignment Form
annexed hereto) and delivery in the same manner as a negotiable instrument
transferable by endorsement and delivery.
(d) EXCHANGE OF WARRANT UPON A TRANSFER. On surrender of this Warrant
for exchange, properly endorsed on the Assignment Form and subject to the
provisions of this Warrant with respect to compliance with the Act and with
the limitations on assignments and transfers contained in this Section 7 and
Section 3 of the Purchase Agreement, the Company at its expense shall issue
to or on the order of the Holder a new warrant or warrants of like tenor, in
the name of the Holder or as the Holder (on payment by the Holder of any
applicable transfer taxes) may direct, for the number of shares issuable upon
exercise hereof.
(e) RESTRICTIONS ON TRANSFER. The Holder of this Warrant by
acceptance hereof agrees that the transfer of this Warrant and the shares of
Common Stock issuable upon the exercise of all or any portion of this Warrant
(the "Securities") are subject to the provisions of Section 3 of the Purchase
Agreement, which include restrictions on transfer of the Securities; and this
Warrant and the Securities shall be entitled to all rights and benefits
accorded thereto in the
-4-
<PAGE>
Purchase Agreement, and the applicable provisions of the Purchase Agreement
are hereby incorporated herein by reference.
8. RESERVATION OF STOCK. The Company covenants that during the term this
Warrant is exercisable, the Company will reserve from its authorized and
unissued Common Stock a sufficient number of shares to provide for the
issuance of Common Stock upon the exercise of this Warrant and, from time to
time, will take all steps necessary to amend its Restated Certificate to
provide sufficient reserves of shares of Common Stock issuable upon exercise
of the Warrant. The Company further covenants that all shares that may be
issued upon exercise of the rights represented by this Warrant and payment of
the Exercise Price, all as set forth herein, will be free from all taxes,
liens and charges in respect of the issue thereof (other than taxes in
respect of any transfer occurring contemporaneously or otherwise specified
herein). The Company agrees that its issuance of this Warrant shall
constitute full authority to its officers who are charged with the duty of
executing stock certificates to execute and issue the necessary certificates
for shares of Common Stock upon the exercise of this Warrant.
9. NOTICES OF CERTAIN EVENTS.
(a) In case:
(i) the Company shall take a record of the holders of its
Common Stock (or other stock or securities at the time receivable upon the
exercise of this Warrant) for the purpose of entitling them to receive any
dividend or other distribution, or any right to subscribe for or purchase any
shares of stock of any class or any other securities, or to receive any other
right, or
(ii) of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation or
merger of the Company with or into another corporation, or any conveyance of
all or substantially all of the assets of the Company to another corporation,
or
(iii) of any voluntary dissolution, liquidation or winding-up of
the Company, then, and in each such case, the Company will mail or cause to
be mailed to the Holder or Holders a notice specifying, as the case may be,
(A) the date on which a 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, or (B) the date on which such reorganization,
reclassification, consolidation, merger, conveyance, 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 such stock or securities at
the time receivable upon the exercise of this Warrant) shall be entitled to
exchange their shares of Common Stock (or such other stock or securities) for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, conveyance, dissolution, liquidation
or winding-up. Such notice shall be mailed at least 15 days prior to the date
therein specified.
-5-
<PAGE>
(b) All such notices, advices and communications shall be deemed to
have been received (i) when delivered personally, (ii) three business days
after being mailed by first class mail, postage prepaid, or (iii) one
business day after being sent by a reputable overnight delivery service,
postage or deliver charges prepaid. Notices, advices and communications may
also be given by prepaid telegram or facsimile and shall be effective on the
date transmitted if confirmed within 24 hours thereafter by a signed original
sent in the manner provided in the preceding sentence.
10. AMENDMENTS AND WAIVERS.
(a) MANNER OF AMENDMENT. Any term of this Warrant may be amended or
waived upon the written consent of the Company and the Holder and further
provided that the number of shares of Common Stock subject to the Warrant and
the Exercise Price may not be amended, and the right to exercise this Warrant
may not be waived, without the written consent of the Holder of this Warrant
(it being agreed that an amendment to or waiver under any of the provisions
of Section 11 of this Warrant shall not be considered an amendment of the
number of shares subject to the Warrant or the Exercise Price).
(b) NO CONTINUING WAIVER. No waivers of, or exceptions to, any term,
condition or provision of this Warrant, in any one or more instances, shall
be deemed to be, or construed as, further or continuing waiver of any such
term, condition or provision.
11. ADJUSTMENTS. The Exercise Price and the number of shares purchasable
hereunder are subject to adjustment from time to time as follows:
(a) ISSUANCE OF ADDITIONAL STOCK.
(i) In the event the Company shall issue Additional Stock (as
such term is defined below) for a consideration per share less than the Fair
Market Value (as such term is defined below) but greater than or equal to the
prevailing Exercise Price, then the Exercise Price in effect immediately
prior to each such issuance shall forthwith be adjusted by multiplying such
Exercise Price by the quotient obtained by dividing (a) an amount equal to
the sum of (1) the total number of shares of Common Stock outstanding on a
fully diluted basis immediately prior to such issuance (including shares
deemed to be outstanding as provided in Section 11(a)(vi)), plus (2) the
number of shares of Common Stock which the aggregate consideration received
by the Company for such securities so issued would purchase at Fair Market
Value, by (b) an amount equal to the sum of (1) the total number of shares of
Common Stock outstanding on a fully diluted basis immediately prior to such
issuance (including shares deemed to be outstanding as provided in Section
11(a)(vii)), plus (2) the number of shares of Common Stock to be issued by
the Company for a consideration per share less than the Fair Market Value.
For purposes of this Section 11, "Fair Market Value" per share
of Common Stock shall be determined as follows:
-6-
<PAGE>
(A) If the security is not registered under the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), the value
of the security shall be determined in good faith by the Board of Directors
of the Company and certified in a board resolution, taking into
consideration, INTER ALIA, (i) the most recently completed (but not longer
than six months preceding such date) arm's length transaction between the
Company and a person other than an affiliate of the Company (ii) if no such
transaction shall have occurred on such date or within such six-month period,
the value of the security most recently determined as of a date within the
six months preceding such date by an Independent Financial Expert or (iii) if
neither clause (i) nor (ii) is applicable, the value of the security as
mutually agreed by the Company and the Holder; provided, however, that if the
Company and such Holder are unable to mutually agree upon such value, the
Company shall select an Independent Financial Expert approved by such Holder
(whose consent shall not be unreasonably withheld or delayed) who shall
determine the value of such security.
(B) If the security is registered under the Exchange Act,
the average of the daily market prices for each business day during the
period commencing 30 business days before such date and ending on the date
one day prior to such date or, if the security has been registered under the
Exchange Act for less than 30 consecutive business days before such date,
then the average of the daily market prices (as hereinafter defined) for all
of the business days before such date for which daily market prices are
available. If the market price is not determinable for at least 15 business
days in such period, the Fair Market Value of the security shall be
determined as if the security was not registered under the Exchange Act.
(C) The "MARKET PRICE" for any security on each business
day means: (A) if such Security is listed or admitted to trading on any
securities exchange, the closing price, regular way, on such day on the
principal exchange on which such security is traded, or if no sale takes
place on such day, the average of the closing bid and asked prices on such
day or (B) if such security is not then listed or admitted to trading on any
securities exchange, the last reported sale price on such day, or if there is
no such last reported sale price on such day, the average of the closing bid
and the asked prices on such day, as reported by a reputable quotation source
designated by the Company. If there are no such prices on a business day,
then the market price shall not be determinable for such business day.
(D) "INDEPENDENT FINANCIAL EXPERT" shall mean a
nationally recognized Investment banking firm selected by the Company (i)
that does not (and whose directors, officers, employees and affiliates do
not) have a direct or indirect financial interest in the Company, (ii) that
has not been, and, at the time it is called upon to serve as an Independent
Financial Expert is not (and none of whose directors, officers, employees or
affiliates is) a promoter, director or officer of the Company, (iii) that has
not been retained by the Company for any purpose, other than to perform an
equity valuation, within the preceding twelve months, and (iv) that, in the
reasonable judgment of the Board of Directors of the Company, is otherwise
qualified to serve as an independent financial advisor. Any such person may
receive customary compensation from and indemnification by the Company for
opinions or services it provides as an Independent Financial Expert.
-7-
<PAGE>
(ii) If the Company shall issue any Additional Stock without
consideration or for a consideration per share less than the Exercise Price
in effect immediately prior to the issuance of such Additional Stock, the
Exercise Price in effect immediately prior to each such issuance shall
forthwith be adjusted to a price per share equal to the product obtained by
multiplying the Exercise Price in effect immediately prior to the issuance of
such Additional Stock by a fraction, (i) the numerator of which is equal to
the sum of (x) the number of shares of Common Stock deemed outstanding on a
fully as-converted basis immediately prior to such issuance (including shares
deemed to be outstanding as provided in Section 11(a)(vii)) and (y) the
quotient of the aggregate consideration received by the Company upon such
issuance, divided by the Exercise Price in effect immediately prior to the
issuance of such Additional Stock, and (ii) the denominator of which is the
total number of shares of Common Stock deemed outstanding on a fully
as-converted basis (including shares deemed outstanding as provided in
Section 11(a)(vii)) immediately after (and including) such issuance.
(iii) No adjustment of the Exercise Price shall be made in an
amount less than one cent per share, provided that any adjustments that are
not required to be made by reason of this sentence shall be carried forward
and shall be either taken into account in any subsequent adjustment made
prior to three (3) years from the date of the event giving rise to the
adjustment being carried forward, or shall be made at the end of three (3)
years from the date of the event giving rise to the adjustment being carried
forward. No adjustment of such Exercise Price pursuant to Section 11(a)(i)
shall have the effect of increasing the Exercise Price above the Exercise
Price in effect immediately prior to such adjustment.
(iv) In the case of the issuance of Common Stock for cash, the
consideration shall be deemed to be the amount of cash paid therefor before
deducting any reasonable discounts, commissions or other expenses allowed,
paid or incurred by the Company for underwriting or otherwise in connection
with the issuance and sale thereof.
(v) In the case of the issuance of the Common Stock for a
consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair value thereof as determined by the
Board of Directors irrespective of any accounting treatment.
(vi) In the event Additional Stock is issued together with
other shares or securities or other assets of the Company for consideration
which covers both, the consideration allocable to the Additional Stock shall
be the proportion of such consideration so received, computed as provided in
Sections 11(a) (iv) and (v) above, as determined in good faith by the Board
of Directors.
(vii) In the case of the issuance after January 21, 1999 of
options to purchase or rights to subscribe for Common Stock, securities by
their terms convertible into or exchangeable for Common Stock or options to
purchase or rights to subscribe for such convertible or exchangeable
securities, the following provisions shall apply for all purposes of this
Section 11(a):
-8-
<PAGE>
(1) The aggregate maximum number of shares of Common
Stock deliverable upon exercise (assuming the satisfaction of any conditions
to exercisability, including without limitation, the passage of time, but
without taking into account potential antidilution adjustments) of such
options to purchase or rights to subscribe for Common Stock shall be deemed
to have been issued at the time such options or rights were issued and for a
consideration equal to the consideration (determined in the manner provided
in Sections 11(a)(iv), (v) and (vi)) if any, received by the Company upon the
issuance of such options or rights plus the minimum exercise price provided
in such options or rights (without taking into account potential antidilution
adjustments) for the Common Stock covered thereby. Notwithstanding anything
to the contrary herein, no further adjustment shall be made for the actual
issuance of Common Stock or any payment of such consideration upon the
exercise of any such options or rights or the conversion or exchange of such
securities.
(2) The aggregate maximum number of shares of Common
Stock deliverable upon conversion of or in exchange (assuming the
satisfaction of any conditions to convertibility or exchangeability,
including, without limitation, the passage of time, but without taking into
account potential antidilution adjustments) for any such convertible or
exchangeable securities or upon the exercise of options to purchase or rights
to subscribe for such convertible exchangeable securities and subsequent
conversion or exchange thereof shall be deemed to have been issued at the
time such securities were issued or such options or rights were issued and
for a consideration equal to the consideration, if any, received by the
Company for any such securities and related options or rights (excluding any
cash received on account of accrued interest or accrued dividends), plus the
minimum additional consideration, if any, to be received by the Company
(without taking into account potential antidilution adjustments) upon the
conversion or exchange of such securities or the exercise of any related
options or rights (the consideration in each case to be determined in the
manner provided in Sections 11(a)(iv), (v) and (vi)). Notwithstanding
anything to the contrary herein, no further adjustment shall be made for the
actual issuance of Common Stock or any payment of such consideration upon the
exercise of any such options or rights or the conversion or exchange of such
securities.
(3) In the event of any change in the number of
shares of Common Stock deliverable or in the consideration payable to the
Company upon exercise of such options or rights or upon conversion of or in
exchange for such convertible or exchangeable securities, including, but not
limited to, a change resulting from the antidilution provisions thereof, the
Exercise Price, to the extent in any way affected by or computed using such
options, rights or securities, shall be recomputed to reflect such change,
but no further adjustment shall be made for the actual issuance of Common
Stock or any payment of such consideration upon the exercise of any such
options or rights or the conversion or exchange of such securities.
(4) Upon the expiration of any such options or rights,
the termination of any such rights to convert or exchange or the expiration
of any options or rights related to such convertible or exchangeable
securities, the Exercise Price, to the extent in any way affected by or
computed using such options, rights or securities or options or rights
related to such securities, shall be recomputed to reflect the issuance of
only the number of shares of Common Stock (and convertible or exchangeable
securities that remain in effect) actually issued
-9-
<PAGE>
upon the exercise of such options or rights, upon the conversion or exchange
of such securities or upon the exercise of the options or rights related to
such securities.
(5) The number of shares of Common Stock deemed
issued and the consideration deemed paid therefor pursuant to Section
11(a)(vii)(1) and (2) shall be appropriately adjusted to reflect any change,
termination, or expiration of the type described in either Section
11(a)(vii)(3) or (4).
(viii) "Additional Stock" shall mean any shares of Common Stock
issued (or deemed to have been issued pursuant to Section 11(a)(vii)) by the
Company after January 21, 1999 other than:
(1) Common Stock issued pursuant to the events
described in Sections 11(b), (c), (d) or (e) hereof;
(2) shares of Common Stock, not to exceed 4,500,000
shares, or such greater number which shall be approved by the Company's
Board of Directors, (net of any repurchases of such shares or cancellations
or expirations of options), issuable to consultants, employees, officers or
directors of the Company pursuant to stock options or stock awards granted or
to be granted, provided that the grant of such options or awards shall have
been approved by the Board of Directors;
(3) shares of Common Stock issuable pursuant to
warrants outstanding as of January 21, 1999 or any Warrants issued or to be
issued pursuant to the Purchase Agreement;
(4) shares of Series A or Series B Preferred Stock issued
and outstanding as of January 21, 1999 or shares of Series A or Series B
Preferred Stock issued in respect of Series A or Series B Preferred Stock,
respectively, as a dividend on such stock or issued under the terms of the
Restated Certificate, or the Common Stock issued or issuable upon conversion
thereof; or
(5) shares of Common Stock issued or issuable upon
conversion of the convertible term note held by Mark Baiada in the principal
amount of $500,000.
(B) MERGER, SALE OF ASSETS, ETC. If at any time while this Warrant,
or any portion thereof, is outstanding and unexpired there shall be (i) a
reorganization (other than a combination, reclassification, exchange or
subdivision of shares otherwise provided for herein), (ii) a merger or
consolidation of the Company with or into another corporation in which the
Company is not the surviving entity, or a reverse triangular merger in which
the Company is the surviving entity but the shares of the Company's capital
stock outstanding immediately prior to the merger are converted by virtue of
the merger into other property whether in the form of securities, cash or
otherwise, or (iii) a sale or transfer of the Company's properties and assets
as, or substantially as, an entirety to any other person, this Warrant shall
thereafter represent the right
-10-
<PAGE>
to acquire the number of shares of stock or other securities which the Holder
of this Warrant would have owned immediately after the consummation of such
reorganization, merger, consolidation, sale or transfer, if the Holder of
this Warrant had exercised this Warrant immediately before the effective date
of the reorganization, merger, consolidation, sale or transfer.
(c) RECLASSIFICATION, ETC. If the Company, at any time while this
Warrant, or any portion thereof, remains outstanding and unexpired by
reclassification of securities or otherwise, shall change any of the
securities as to which purchase rights under this Warrant exist into the same
or a different number of securities of any other class or classes, this
Warrant shall thereafter represent the right to acquire such number and kind
of securities as would have been issuable as the result of such change with
respect to the securities that were subject to the purchase rights under this
Warrant immediately prior to such reclassification or other change and the
Exercise Price therefor shall be appropriately adjusted, all subject to
further adjustment as provided in this Section 11.
(d) SPLIT, SUBDIVISION OR COMBINATION OF SHARES. If the Company at
any time while this Warrant, or any portion thereof, remains outstanding and
unexpired shall split, subdivide or combine the securities as to which
purchase rights under this Warrant exist, into a different number of
securities of the same class, the Exercise Price for such securities shall be
proportionately decreased in the case of a split or subdivision or
proportionately increased in the case of a combination.
(e) ADJUSTMENTS FOR DIVIDENDS IN STOCK OR OTHER SECURITIES. If
while this Warrant, or any portion hereof, remains outstanding and unexpired
the holders of the securities as to which purchase rights under this Warrant
exist at the time shall have received, or, on or after the record date fixed
for the determination of eligible shareholders, shall have become entitled to
receive, without payment therefor, other or additional stock or other
securities of the Company by way of dividend, then and in each case, this
Warrant shall represent the right to acquire, in addition to the number of
shares of the security receivable upon exercise of this Warrant, and without
payment of any additional consideration therefor, the amount of such other or
additional stock or other securities of the Company that such holder would
hold on the date of such exercise had it been the holder of record of the
security receivable upon exercise of this Warrant on the date hereof and had
thereafter, during the period from the date hereof to and including the date
of such exercise, retained such shares and/or all other additional stock
available to it as aforesaid during such period, giving effect to all
adjustments called for during such period by the provisions of this Section
11.
(f) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment pursuant to this Section 11, the Company at its
expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to each Holder of this Warrant a
certificate setting forth, in reasonable detail, the event requiring the
adjustment or readjustment, the amount of such adjustment or readjustment,
the method by which such adjustment or readjustment was calculated, the
Exercise Price at the time in effect, and the number of shares and the
amount, if any, of other property that at the time would be received
-11-
<PAGE>
upon the exercise of the Warrant. The Company shall upon the written request,
at any time, of any such Holder, furnish or cause to be furnished to such
Holder a like certificate.
(g) ADJUSTMENT IN NUMBER OF SHARES. Upon each adjustment of the
Exercise Price pursuant to this Section 11, this Warrant shall thereafter
evidence the right to receive upon payment of the adjusted Exercise Price
that number of shares of Common Stock (calculated to the nearest hundredth)
obtained from the following formula:
Y x A
X = ---
B
X = the adjusted number of shares of
Common Stock issuable upon exercise
of the Warrant by payment of the
adjusted Exercise Price.
Y = the number of shares of Common
Stock previously issuable upon the
exercise of the Warrant by payment
of the Exercise Price prior to
adjustment.
A = the Exercise Price prior to adjustment.
B = the adjusted Exercise Price.
* * *
12. REPRESENTATIONS AND WARRANTIES. The Company represents and warrants
to the Holder that all shares of Common Stock that may be issued upon the
exercise of this Warrant will, upon issuance, be validly issued, fully paid
and nonassessable, with no personal liability attaching to the ownership
thereof, and free from all taxes, liens and charges with respect to the issue
thereof (other than pursuant to the Purchase Agreement and/or any other
document to be delivered in connection with the transactions contemplated by
the Purchase Agreement). The Company will from time to time use its best
efforts to take all such action as may be required to assure that the stated
or par value per share of the Common Stock is at all times no greater than
the then effective Exercise Price. The Company shall at all times have
authorized and reserved, free from pre-emptive rights, a sufficient number of
shares of its Common Stock to provide for the exercise of this Warrant. The
Company shall not take any action which would cause the number of authorized
but unissued shares of Common Stock to be less than the number of such shares
required to be reserved hereunder for issuance upon exercise of the Warrant.
The Company shall take all reasonable actions to cause all shares of Common
Stock reserved for the purpose of issuance upon the exercise of this Warrant
to be issued and delivered by the Company pursuant to an available exemption
from registration under applicable federal and state securities laws.
-12-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its officers thereunto duly authorized as of the date first above written,
intending to be legally bound hereby.
BLUESTONE SOFTWARE, INC.
By:
------------------------------------
Name:
Title:
-13-
<PAGE>
Exhibit 10.33
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PREFERRED STOCK PURCHASE AGREEMENT
- --------------------------------------------------------------------------------
BLUESTONE SOFTWARE, INC.
Sale of
Series C Convertible Preferred Stock
May 25, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
SECTION 1 . AUTHORIZATION OF CAPITAL STOCK..................................................................1
SECTION 2 . PURCHASE AND SALE OF STOCK......................................................................1
2.1 Purchasers of Series C Preferred Stock..........................................................1
2.2 Closing.........................................................................................2
SECTION 3 . REPRESENTATIONS AND WARRANTIES OF THE COMPANY...................................................2
3.1 Organization....................................................................................2
3.2 Subsidiaries....................................................................................2
3.3 Capital Stock...................................................................................2
3.4 Authorization...................................................................................3
3.5 Valid Issuance..................................................................................3
3.6 No Consents Required; No Violation of Laws......................................................4
3.7 Qualification To Do Business....................................................................4
3.8 Absence of Defaults, Conflicts, Etc.............................................................4
3.9 Disclosure Materials, Financial Statements, Material Liabilities................................5
3.10 Indebtedness....................................................................................5
3.11 Absence of Certain Developments.................................................................5
3.12 Contracts, Agreements...........................................................................6
3.13 Compliance with Law.............................................................................6
3.14 Pending Actions.................................................................................6
3.15 Tax Matters.....................................................................................6
3.16 Employees.......................................................................................6
3.17 Employee Benefit Plans..........................................................................7
3.18 Intellectual Property Rights....................................................................7
3.19 Title to Tangible Assets; Leasehold Interests...................................................8
3.20 Insurance.......................................................................................8
3.21 Transactions with Related Parties...............................................................9
3.22 Interest in Competitors.........................................................................9
3.23 Registration Rights.............................................................................9
3.24 Disclosure Materials............................................................................9
SECTION 4 . REPRESENTATIONS AND WARRANTIES OF PURCHASERS....................................................9
4.1 Authorization...................................................................................9
4.2 Investment for Own Account......................................................................9
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
4.3 Offering Exemption.............................................................................10
4.4 Knowledge and Experience; Ability to Bear Economic Risks.......................................10
4.5 Limitations on Disposition.....................................................................10
4.6 Residence......................................................................................11
4.7 Representations and Warranties as of Closing Date..............................................11
4.8 Purchaser Questionnaire........................................................................11
4.9 Residence......................................................................................11
4.10 Representations and Warranties as of Closing Date..............................................12
SECTION 5 . PURCHASERS' CLOSING CONDITIONS.................................................................12
5.1 Representations and Warranties.................................................................12
5.2 Compliance with Agreement......................................................................12
5.3 Officer's Certificates.........................................................................12
5.4 Certificate; Shareholder Action................................................................12
5.5 Other Agreements...............................................................................12
5.6 Legal Opinion..................................................................................12
5.7 Injunction.....................................................................................13
5.8 Legal Investment...............................................................................13
SECTION 6 . COMPANY'S CLOSING CONDITIONS...................................................................13
6.1 Representations and Warranties.................................................................13
6.2 Compliance with Agreement......................................................................13
6.3 Other Agreements...............................................................................13
6.4 Approval of Proceedings........................................................................13
6.5 Injunction.....................................................................................13
6.6 Legal Investment...............................................................................13
SECTION 7 . COVENANTS......................................................................................14
7.1 Financial and Business Information.............................................................14
7.2 Confidentiality................................................................................15
7.3 Resale of Securities...........................................................................15
7.4 Regulation D Filing............................................................................16
7.5 Further Assurances.............................................................................16
SECTION 8 . INTERPRETATION OF THIS AGREEMENT...............................................................16
8.1 Defined Terms..................................................................................16
8.2 Directly or Indirectly.........................................................................17
8.3 Governing Law..................................................................................17
8.4 Section Headings...............................................................................17
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
SECTION 9 . MISCELLANEOUS..................................................................................17
9.1 Notices........................................................................................17
9.2 Expenses.......................................................................................18
9.3 Reproduction of Documents......................................................................18
9.4 Successors and Assigns.........................................................................19
9.5 Entire Agreement; Disclosure Schedules; Amendment and Waiver...................................19
9.6 Counterparts...................................................................................19
9.7 Survival.......................................................................................19
</TABLE>
-iii-
<PAGE>
Exhibits
A Form of Third Amended and Restated Certificate of Incorporation
B Form of Escrow Agreement
C Form of Second Restated First Refusal and Co-Sale Agreement
D Form of Second Restated Investors' Rights Agreement
Schedules
2.1 Name and Address of Purchasers
3.3 Capital Stock
3.10 Security Interests
3.16 Employment and Severance Agreements
-iv-
<PAGE>
PREFERRED STOCK PURCHASE AGREEMENT
This Agreement is made and entered into as of the 25th day of May,
1999, by and between Bluestone Software, Inc., a Delaware corporation (the
"Company"), and those individuals and entities listed on SCHEDULE 2.1 attached
hereto ("Purchasers"). Certain capitalized terms used in this Agreement are
defined in Section 8.1.
In consideration of the mutual promises, covenants and conditions
hereinafter set forth, the parties hereby agree as follows:
SECTION 1 . AUTHORIZATION OF CAPITAL STOCK.
The Company's Board of Directors has authorized the filing of the Third
Amended and Restated Certificate of Incorporation which includes, among other
things, the preferences and rights of the Series C Preferred Stock (the
"Certificate") in the form of EXHIBIT A attached hereto, creating a new series
of preferred stock consisting of 9,191,176 shares of Series C Preferred Stock,
par value $.001 per share (the "Series C Preferred Stock"). The terms,
limitations and relative rights and preferences of the Series C Preferred Stock
are set forth in the Certificate.
SECTION 2 . PURCHASE AND SALE OF STOCK.
2.1 PURCHASERS OF SERIES C PREFERRED STOCK. Subject to the terms and
conditions set forth in this Agreement and in reliance upon the representations
set forth below, on the Closing Date (as defined below) the Company will sell to
Purchasers, and Purchasers will purchase from the Company at a purchase price
equal to $2.72 per share, up to 9,191,176 shares of Series C Preferred Stock for
an aggregate purchase price of up to $25,000,000. Such sale and purchase shall
be effected on the Closing Date by the Company executing and delivering to
Purchasers, duly registered in Purchasers' name, duly executed stock
certificates evidencing the Series C Preferred Stock to be purchased under this
Agreement, against delivery by Purchasers to the Company of (a) those certain
Convertible Notes, dated April 2, 1999 and May 3, 1999, in the aggregate
principal amount of $1,350,000 made by the Company in favor of certain of the
holders of the Series B Preferred Stock, which notes shall be canceled and
deemed paid in full, and (b) an aggregate of up to $23,650,000 payable by
Purchasers. Each Purchaser will purchase the number of shares of Series C
Preferred Stock set forth on SCHEDULE 2.1 beside such Purchaser's name. Each
Purchaser agrees to pay the amount set forth on SCHEDULE 2.1 beside such
Purchaser's name by wire transfer payable to the order of Pepper Hamilton LLP,
as escrow agent for the Company, pursuant to an Escrow Agreement in the form of
EXHIBIT B attached to this Agreement, for the benefit of the Company. As soon as
practicable following each Closing, the Company will deliver to each Purchaser a
certificate registered in the Purchaser's name evidencing the number of shares
of Series C Preferred Stock set forth opposite the Purchaser's name on SCHEDULE
2.1 dated as of the Closing Date.
<PAGE>
2.2 CLOSING. The closing of the sale and purchase referred to in
Section 2.1 (the "Closing") shall take place at 10:00 A.M., Eastern Standard
time, on May 25, 1999, or such other date as Purchasers and the Company may
mutually agree in writing (the "Closing Date"), at the offices of Pepper
Hamilton LLP, 1235 Westlakes Drive, Suite 400, Berwyn, Pennsylvania 19312 or
such other location as Purchasers and the Company shall mutually select.
SECTION 3 . REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to Purchasers that:
3.1 ORGANIZATION. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. The
Company has all requisite corporate power, authority and qualifications and has
all necessary governmental approvals, licenses, permits and authorizations to
own its properties and to carry on its business as now conducted, except where
the failure to have any such approval, license, permit or authorization could
not reasonably be expected to have a material adverse effect on the business or
financial position of the Company.
3.2 SUBSIDIARIES. The Company does not own, directly or indirectly, any
capital stock or other equity securities of any corporation nor does it have any
direct or indirect ownership interest in any business. The Company is not a
participant in any joint venture or partnership.
3.3 CAPITAL STOCK.
(a) On the date hereof, the capitalization of the Company is
as set forth on SCHEDULE 3.3. On the Closing Date, after giving effect to the
transactions contemplated hereby, the capitalization of the Company will be as
set forth on SCHEDULE 3.3.
(b) Pursuant to the Company's 1996 Incentive and Non-Qualified
Stock Option Plan (the "Stock Option Plan"), there are 9,429,049 shares of the
common stock of the Company (the "Common Stock") reserved for issuance upon the
exercise of stock options. As of the date of this Agreement, there are
outstanding stock options to purchase an aggregate of 6,295,441 shares of Common
Stock.
(c) The private placement memorandum of the Company dated May
1, 1999 (the "Memorandum") sets forth a complete list of the holders of the
Company's outstanding capital stock and warrants to purchase capital stock as of
the date of this Agreement and prior to the transactions contemplated by this
Agreement.
(d) Except as contemplated by the Second Restated First
Refusal and Co-Sale Agreement, there is no agreement, restriction or encumbrance
(including, without limitation, any
-2-
<PAGE>
right of first refusal, right of first offer or voting trust agreement) with
respect to the sale or voting of any shares of the Company's capital stock
(whether outstanding or issuable upon conversion or exercise of outstanding
securities).
3.4 AUTHORIZATION.
(a) The Board of Directors of the Company has authorized the
execution, delivery and performance of this Agreement, the Second Restated First
Refusal and Co-Sale Agreement, and the Second Restated Investors' Rights
Agreement (collectively, with this Agreement, referred to as the "Agreements"),
and each of the transactions contemplated hereby and thereby, including the
execution and filing of the Certificate and the issuance and delivery of the
shares of Series C Preferred Stock in accordance with this Agreement. Except for
the action by the Board of Directors described in the preceding sentence and the
shareholder action contemplated by Section 5.4, no other corporate action is
necessary to authorize the performance by the Company of its obligations under
the Agreements.
(b) Each of the Agreements constitute the valid and binding
obligation of the Company, enforceable against the Company in accordance with
their respective terms, except as limited by (i) applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
affecting enforcement of creditors' rights; and (ii) general principles of
equity that restrict the availability of equitable remedies.
3.5 VALID ISSUANCE.
(a) All outstanding shares of capital stock of the Company
have been duly authorized and validly issued and are fully paid and
nonassessable. Except as set forth in the Memorandum or as contemplated by the
Agreements, its Second Amended and Restated Certificate of Incorporation, as
filed in Delaware on April 23, 1998, as amended on July 2, 1998 and January 21,
1999 (the "Certificate of Incorporation") of the Company and the Certificate,
there are no shares of capital stock issuable upon conversion of any security of
the Company nor are there any rights, options or warrants outstanding or other
agreements to acquire shares of capital stock nor is the Company contractually
obligated to purchase, redeem or otherwise acquire any of its outstanding shares
of capital stock. Except as contemplated in the Certificate of Incorporation or
the Agreements, no shareholder of the Company is entitled to any preemptive
rights, rights of first refusal, or redemption rights.
(b) Upon issuance, sale and delivery of the Series C Preferred
Stock as contemplated by this Agreement and in accordance with the Certificate,
the shares of Series C Preferred Stock to be sold to Purchasers under this
Agreement will be duly authorized, validly issued, fully paid and nonassessable
and will be free of preemptive rights.
-3-
<PAGE>
(c) All corporate action on the part of the Company, its
officers, directors and stockholders necessary for the sale and issuance of the
Series C Preferred Stock and the performance by the Company of its obligations
under the Agreements has been taken or will be taken prior to the Closing. The
Company has or will have prior to the Closing duly reserved an aggregate of not
less than 9,191,176 shares of Common Stock for issuance upon conversion of the
Series C Preferred Stock.
3.6 NO CONSENTS REQUIRED; NO VIOLATION OF LAWS. The nature of the
business that the Company conducts, any relationship between the Company and any
other Person, and the creation, authorization, issuance, offer or sale of the
Series C Preferred Stock as contemplated by this Agreement, do not require a
consent, approval or authorization of, or filing, registration or qualification
with, any Person or any governmental authority on the part of the Company,
except for state and Federal securities law filings. No vote, consent or
approval of the holders of any security of the Company is required as a
condition to the execution and delivery of this Agreement or the authorization,
issuance, offer and sale of the Series C Preferred Stock under this Agreement,
except for the consent of the holders of (i) a majority of the outstanding
shares of Common Stock of the Company, and (ii) 75% of the Series A Convertible
Preferred Stock and Series B Convertible Preferred Stock, each voting as a
separate class, on the transactions contemplated by this Agreement.
3.7 QUALIFICATION TO DO BUSINESS. The Company is qualified, licensed
and authorized to do business as a foreign corporation in each jurisdiction in
which it owns or leases any material property or in which the conduct of its
business requires it to so qualify or be so licensed, and such jurisdictions
constitute the only jurisdictions in which the conduct of the Company's business
or the nature of the property owned or leased by it require it to qualify to do
business as a foreign corporation, except where the failure to so qualify would
not have a material adverse effect on the business or financial position of the
Company.
3.8 ABSENCE OF DEFAULTS, CONFLICTS, ETC. The execution and delivery of
the Agreements, the authorization, issuance, offer and sale of the Series C
Preferred Stock contemplated by this Agreement, the adoption by the Company of
the Certificate and the fulfillment of the terms of such documents by the
Company will not (A) result in a breach of any of the terms, conditions or
provisions of, or constitute a default under, or permit the acceleration of
rights under or termination of, any indenture, mortgage, deed of trust, credit
agreement, note or other evidence of indebtedness, instrument or other agreement
of the Company, or (B) violate the Certificate of Incorporation or Bylaws of the
Company, or any rule, regulation, writ, injunction, judgment, decree, award or
other action of any court or Federal or state or other regulatory board or body
or administrative agency having jurisdiction over the Company or over its
properties or businesses. No event has occurred and no condition exists which,
upon notice or the passage of time, or both, would constitute a default under
any such agreements and
-4-
<PAGE>
instruments or in any such license, permit, rule, regulation, order or
authorization to which the Company is a party or by which it may be bound.
3.9 DISCLOSURE MATERIALS, FINANCIAL STATEMENTS, MATERIAL LIABILITIES.
(a) The Company has previously delivered to Purchasers the
Memorandum containing certain financial statements of the Company (the
"Financial Statements"). Such Financial Statements, including the notes thereto,
have been prepared from the books and records of the Company, are true and
correct and present fairly the financial position and the results of operations
and cash flows of the Company as at and for the periods indicated, in each case
in conformity with generally accepted accounting principles ("GAAP")
consistently applied. The portions of the Memorandum containing financial
projections and other forward-looking statements were prepared by the Company in
good faith based upon assumptions which the Company believes to be reasonable in
light of facts known to the Company.
(b) Except as set forth in the Financial Statements the
Company has no material liabilities or obligations, absolute or contingent,
except (i) obligations and liabilities incurred in the ordinary course of
business since the respective dates of such statements, or (ii) obligations
which are not required by GAAP to be reflected in the Financial Statements or
such interim statements.
3.10 SECURITY INTERESTS. SCHEDULE 3.10 hereto sets forth (i) any lien,
charge, security interest or encumbrance with respect to any of the Company's
indebtedness and (ii) a brief description of each instrument or agreement
governing such indebtedness. The Company has provided counsel to the Agent a
complete and correct copy of each such instrument or agreement (including all
amendments, supplements or modifications thereto). No default exists with
respect to or under any such indebtedness or any instrument or agreement
relating thereto which default would reasonably be expected to have a material
adverse effect on the Company.
3.11 ABSENCE OF CERTAIN DEVELOPMENTS. Since March 31, 1999, there has
been no (i) material adverse change in the condition, financial or otherwise, of
the Company or in its assets, liabilities, properties or business, taken as a
whole, (ii) declaration, setting aside or payment of any dividend or other
distribution with respect to the capital stock of the Company or redemption of
any share of capital stock of the Company, (iii) material loss, destruction or
damage to any property of the Company, whether or not insured, (iv) acceleration
or prepayment of any indebtedness for a material amount of borrowed money or the
refunding of any such indebtedness, (v) labor trouble involving the Company or
any material change in its personnel or the terms and conditions of employment,
(vi) waiver of any valuable right which could reasonably be expected to have a
material adverse effect on the business or financial position of the Company,
(vii) material loan or extension of credit by the Company to any officer or
employee of the Company (other than reasonable travel advances) or (viii)
acquisition or
-5-
<PAGE>
disposition of any material assets (or any contract or arrangement therefor)
otherwise than for fair value in the ordinary course of business, or any other
transaction by the Company otherwise than for fair value in the ordinary course
of business.
3.12 CONTRACTS, AGREEMENTS. All material contracts, agreements and
understandings are in full force and effect and the Company or any other party
thereto has not received any notice of default or is in default, and no
condition now exists which, with notice or the lapse of time or both, would
render the Company or, to the knowledge of the Company, any other party, in
default under any material contracts, understandings or agreements to which the
Company is or may be a party. There are no disputes or proceedings relating to
any such material contract, understanding or agreement and the Company has not
received any notice or indication that any party to any such material contract,
understanding or agreement intends to cancel or terminate such contract,
understanding or agreement or intends to exercise or not exercise any options
under such material contract, understanding or agreement.
3.13 COMPLIANCE WITH LAW. The Company has not been notified of any
violation of any laws, ordinances, governmental rules or regulations to which it
is subject, including without limitation laws or regulations relating to the
environment or to occupational health and safety, and to its knowledge no
material expenditures are or will be required in order to cause its current
operations or properties to comply with any such law, ordinances, governmental
rules or regulations.
3.14 PENDING ACTIONS. There is no action, suit, investigation or
proceeding pending or, to the knowledge of the Company threatened, against the
Company or any of its properties or assets by or before any court, arbitrator or
governmental authority which questions the validity of the Agreements, the
Certificate, or any action taken or to be taken pursuant hereto or thereto, or
which could reasonably be expected to have a material adverse effect on the
business or financial position of the Company, and the Company is not in default
with respect to any judgment, order, writ, injunction, decree or award
applicable to it or its business or properties.
3.15 TAX MATTERS. The Company has completed and duly filed all Federal,
state, county and local tax returns required to have been filed by it and all
taxes which are shown on such returns have been paid (other than taxes contested
in good faith by appropriate proceeding). There are in effect no waivers of
applicable statutes of limitations with respect to taxes for any year. No tax
returns have been audited by taxing authorities.
3.16 EMPLOYEES. Other than as set forth on SCHEDULE 3.16, the Company
does not have any employment contract with any of its employees (other than
severance or employment agreements terminable by the Company without premium or
penalty on notice of 30 days or less), or any collective bargaining agreements
covering any of its employees, nor has the Company been subject to any labor
organization activity. There are no material controversies or labor
-6-
<PAGE>
troubles pending or, to the knowledge of the Company threatened, between the
Company and any of its employees. The Company has complied with all applicable
federal and state laws and regulations respecting employment and employment
practices, terms and conditions of employment, wages and hours and other laws
related to employment. No key employee or consultant of the Company has within
the prior three months given any written notice to the Company that he or she
intends to leave the employ of the Company and, during such period, no such
employee or consultant has been terminated.
3.17 EMPLOYEE BENEFIT PLANS. Other than as disclosed in the Memorandum,
the Company has not established, sponsored, maintained, made any contributions
to or been obligated by law to establish, maintain, sponsor or make any
contributions to any "employee pension benefit plan" or "employee welfare
benefit plan" (as such terms are defined in the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")), including, without limitation, any
"multi-employer plan". Any such plans have been established and are being
operated in compliance with ERISA, and there exist no unfunded obligations of
the Company with respect to any such plan, except as could not reasonably be
expected to have a material adverse effect on the Company. The Company has
complied with all applicable laws relating to the employment of labor, including
provisions relating to wages, hours, equal opportunity, collective bargaining
and the payment of Social Security and other taxes, and with ERISA except to the
extent that noncompliance would not reasonably be expected to have a material
adverse effect on the Company, and the Company is not aware of any pending or
threatened claim against the Company with respect to the foregoing.
3.18 INTELLECTUAL PROPERTY RIGHTS. The Company owns, free and clear of
all encumbrances, restrictions, liens, security interests and charges, and has
good and marketable title to, or holds adequate licenses or otherwise possesses
all such rights (or such rights are in the public domain) as are necessary to
use all patents (and applications therefor), patent disclosures, trademarks,
service marks, trade names, copyrights (and applications therefor), inventions,
discoveries, processes, know-how, scientific, technical, engineering and
marketing data, software code, formulae and techniques used or proposed to be
used, in or necessary for the conduct of its business as now conducted or as
proposed to be conducted, except where the failure to have such rights would not
have a material adverse effect on the business or financial position of the
Company.
The Company has not received written notice of any conflict or
alleged conflict with the rights of others pertaining to any of its tangible and
intangible assets. To the Company's knowledge, the Company's business, as
presently conducted, does not infringe upon or violate any intellectual property
rights or trade secrets of others. To the Company's knowledge, the Company has
the right to use, free and clear of any rights or claims of others, all
intellectual property and trade secrets, processes, customer lists and other
rights to the extent reasonably necessary for the conduct of the Company's
business as presently conducted.
-7-
<PAGE>
The Company is not currently obligated or under any existing
liability to make royalty or other payments to any owner of, licensor of, or
other claimant to, any patent, trademark, service name, trade name, copyright,
or other intangible asset, with respect to the use thereof or in connection with
the conduct of its business as now conducted, except where the failure to make
any such payments would not have a material adverse effect on the business or
financial position of the Company. To the Company's knowledge, no employee of
the Company is subject to any employment agreement or proprietary information
agreement which he or she had with a previous employer or any intellectual
property policy of such employer, which affects the rights of the Company to use
the technologies, patents, trademarks, trade secrets, service names, trade
names, copyrights, licenses and the like currently employed by the Company, or
is a party to or threatened by any litigation concerning any patents,
trademarks, trade secrets, service names, trade names, copyrights, licenses and
the like.
3.19 TITLE TO TANGIBLE ASSETS; LEASEHOLD INTERESTS. The Company has
good and marketable title to its tangible properties and assets and good title
to all its leasehold estates, in each case subject to no mortgage, pledge, lien,
lease, encumbrance or charge, other than, or resulting from, taxes which have
not yet become delinquent and minor liens and encumbrances which do not in any
case materially detract from the value of the property subject thereto or
materially impair the operations of the Company. The Company does not own any
real property. Certain real property used by the Company in the conduct of its
business is held under lease, and the Company is not aware of any pending or
threatened claim or action by any lessor of any such property to terminate or
materially alter any such lease. Each lease or agreement to which the Company is
a party and pursuant to which the Company holds properties and assets is a valid
and subsisting agreement without any material default of the Company thereunder
and, to the best of the Company's knowledge, without any material default
thereunder of any other party thereto. No event has occurred and is continuing
which, with due notice or lapse of time or both, would constitute a default or
event of default by the Company under any such lease or, to the best of the
Company's knowledge, by any party thereto, except for such defaults that would
not individually or in the aggregate have a material adverse effect on the
Company. The Company's possession of such property has not been disturbed and,
to the best of the Company's knowledge, no claim adverse to its rights in such
leasehold interests has been asserted against it.
3.20 INSURANCE. The Company holds valid policies with reputable
insurers covering insurance in the amounts and type that the Company reasonably
believes is appropriate and customary for entities in the same or similar
businesses to that of the Company or that are otherwise required to be
maintained by it and with such deductibles or coinsurance as is customary, and
such policies are in full force and effect. The Company has timely filed claims
with its insurers with respect to all material matters and occurrences for which
it believes it has coverage. No notice of any termination or threatened
termination of any of such policies has been received by the Company and such
policies are in full force and effect.
-8-
<PAGE>
3.21 TRANSACTIONS WITH RELATED PARTIES. Except as disclosed in the
Memorandum, the Company is not a party to any agreement in excess of $20,000
with any of its officers, shareholders or directors or any Affiliate of any of
the foregoing under which it: (i) leases any real or personal property (either
to or from such person), (ii) has incurred any debt for borrowed money or under
which it has lent money (other than routine travel advances), (iii) licenses
technology (either to or from such person), (iv) is obligated to purchase any
tangible or intangible asset from or sell such asset to such person, or (v)
purchases products or services from such person.
3.22 INTEREST IN COMPETITORS. Neither the Company nor to its knowledge
any of its officers, has any interest, either by way of contract or by way of
investment (other than as holder of not more than 5% of the outstanding capital
stock of a publicly traded Person) or otherwise, directly or indirectly, in any
Person other than the Company that (i) provides any services or designs,
produces or sells any product or product lines or engages in any activity
similar to or competitive with any activity currently conducted or proposed to
be conducted by the Company or (ii) has any direct or indirect interest in any
asset or property, real or personal, tangible or intangible, of the Company.
3.23 REGISTRATION RIGHTS. Except as set forth in the Second Restated
Investors' Rights Agreement, the Company is not under any obligation to register
any of its securities under the Act.
3.24 DISCLOSURE MATERIALS. The confidential private placement
memorandum of the Company dated May 1, 1999 does not contain an untrue statement
of a material fact or omit a material fact necessary to make the statements
contained therein not misleading.
SECTION 4 . REPRESENTATIONS AND WARRANTIES OF PURCHASERS.
Each Purchaser represents and warrants, severally and jointly, to the
Company that:
4.1 AUTHORIZATION. The Purchaser has all requisite power, authority and
legal right to execute, deliver, enter into, consummate and perform this
Agreement. This Agreement constitutes the valid and binding obligation of
Purchaser, enforceable against Purchaser in accordance with its terms. The
execution, delivery and performance of this Agreement have been duly authorized
by all necessary action on the part of Purchaser and all consents of any third
parties that may be required to be obtained by Purchaser for the consummation of
the transactions contemplated by this Agreement have been obtained.
4.2 INVESTMENT FOR OWN ACCOUNT. Purchaser is acquiring the Series C
Preferred Stock purchased under this Agreement (and will acquire the Common
Stock upon conversion of the Series C Preferred Stock) for its own account for
investment and not with a view towards the
-9-
<PAGE>
resale, transfer or distribution thereof. Such Purchaser has no present
intention of distributing such Series C Preferred Stock (or the shares of the
Common Stock acquired upon conversion of the Series C Preferred Stock). No other
Person has any right with respect to or interest in the Series C Preferred Stock
to be purchased by Purchaser, nor has Purchaser agreed to give any Person any
such interest or right in the future.
4.3 OFFERING EXEMPTION. Purchaser understands that the shares of the
Series C Preferred Stock being purchased under this Agreement have not been
registered under the Act, nor qualified under any state securities laws, and
that the shares of Series C Preferred Stock are being offered and sold pursuant
to an exemption from such registration pursuant to Section 4(2) and Rule 506
promulgated under the Act and qualification based in part upon the
representations of such Purchaser contained herein.
4.4 KNOWLEDGE AND EXPERIENCE; ABILITY TO BEAR ECONOMIC RISKS. Purchaser
has substantial knowledge and experience in financial and business matters, is
capable of evaluating the merits and risks of the investment contemplated by
this Agreement, and is able to bear the economic risk of its investment in the
Company (including a complete loss of its investment). Purchaser represents that
it is an accredited investor within the meaning of Regulation D under the Act.
Purchaser represents that it received the Memorandum and has had an opportunity
to discuss the Company's business management and financial affairs with
directors, officers and management of the Company. Purchaser has also had the
opportunity to ask questions of, and receive answers from, the Company and its
management regarding the terms and conditions of this investment.
4.5 LIMITATIONS ON DISPOSITION. Purchaser recognizes that no public
market exists for the Series C Preferred Stock to be sold hereunder, and no
representation has been made to Purchaser that any such public market will exist
in the future. Purchaser understands that it must bear the economic risk of this
investment indefinitely unless the Series C Preferred Stock (or the Common Stock
issuable upon conversion thereof) is registered pursuant to the Act or an
exemption from such registration is available, and unless the disposition of the
Series C Preferred Stock (or the Common Stock issuable upon conversion thereof)
is qualified under applicable state securities laws or an exemption from such
qualification is available (and evidence reasonably satisfactory to the Company
is provided by such Purchaser of the availability of such exemptions, including
the delivery, upon request, to the Company of an opinion of counsel to such
Purchaser, which opinion and counsel are reasonably satisfactory to the
Company), and that, except as provided in the Second Restated Investors' Rights
Agreement, the Company has no obligation or present intention of so registering
the Series C Preferred Stock (or the Common Stock issuable upon conversion
thereof). Purchaser understands that there is no assurance that any exemption
from the Act will be available, or, if available, that such exemption will allow
it to dispose of or otherwise transfer any or all of the Series C Preferred
Stock or the Common Stock issuable on conversion of the Series C Preferred Stock
in the amounts or at the times
-10-
<PAGE>
Purchaser might desire. Purchaser understands that at the present time Rule 144
promulgated under the Act by the Securities and Exchange Commission ("Rule 144")
is not applicable to sales of the shares of Series C Preferred Stock because
such shares are not registered under Section 12 of the Securities Exchange Act
of 1934 (the "Exchange Act"), and there is not publicly available the
information concerning the Company specified in Rule 144. Purchaser acknowledges
that the Company is not presently under any obligation to register under Section
12 of the Exchange Act or to make publicly available the information specified
in Rule 144 and that except as provided herein, is not otherwise required to do
so.
4.6 NO GENERAL SOLICITATION. The Purchaser represents that at no time
was the Purchaser presented with or solicited by or through any leaflet, public
promotional meeting, advertisement or any other form of general or public
advertising or solicitation. In addition, the Purchaser acknowledges that there
has never been any representation, guaranty or warranty made by the Company or
any agent or representative of the Company as to the amount of or type of
consideration or profit, if any, to be realized as a result of any investment by
the Purchaser in the Series C Preferred Stock or the Common Stock issuable upon
conversion of the Series C Preferred Stock.
4.7 PURCHASER INFORMATION. The Purchaser has discussed with his/her or
its legal, tax and financial advisors the suitability of an investment in the
Company for his/her or its particular tax and financial situation. All
information which he, she or it has provided to the Company concerning her, his
or its financial position is correct and complete as of the date of this
Agreement, and if there should be any material change in such information prior
to the Closing Date, the Purchaser agrees immediately to provide such
information to the Company and the Agent.
4.8 PURCHASER QUESTIONNAIRE. The information provided in the Purchaser
Questionnaire submitted to the Company by such Purchaser, is true, complete and
correct as of the date hereof.
4.9 RESIDENCE. If Purchaser is an individual, then the Purchaser
resides in the state or province identified in the address of Purchaser set
forth on SCHEDULE 2.1. If Purchaser is a partnership, corporation, limited
liability company or other entity, then the office or offices of Purchaser in
which its investment decision was made is located at the address or addresses of
Purchaser set forth on SCHEDULE 2.1. If the Purchaser is not a resident of the
United States, he, she or it understands that it is his/her or its
responsibility to satisfy himself as to the full observance of the laws of any
relevant territory outside the United States relating to his/her or its purchase
of the shares of Series C Preferred Stock, including obtaining any required
governmental or other consents or observing any other applicable formalities.
-11-
<PAGE>
4.10 REPRESENTATIONS AND WARRANTIES AS OF CLOSING DATE. The
representations and warranties contained in Sections 4.1 through 4.9 will be
true and correct on and as of the Closing Date in all material respects as
though such representations and warranties were made at and as of such date.
SECTION 5 . PURCHASERS' CLOSING CONDITIONS.
The obligation of Purchasers to purchase the Series C Preferred Stock
to be sold pursuant to this Agreement on the Closing Date is subject to the
following conditions:
5.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Company contained in this Agreement shall be true on and as of the
Closing Date in all material respects as though such representations and
warranties were made at and as of such date, except as otherwise affected by the
transactions contemplated hereby.
5.2 COMPLIANCE WITH AGREEMENT. The Company shall have performed and
complied in all material respects with all agreements, covenants and conditions
contained in this Agreement which are required to be performed or complied with
by the Company prior to or on the Closing Date.
5.3 OFFICER'S CERTIFICATES. Purchasers shall have received a
certificate, dated the Closing Date, signed by an executive officer of the
Company on behalf of the Company, certifying that with respect to the Company,
the conditions specified in Sections 5.1 and 5.2 of this Agreement have been
fulfilled.
5.4 CERTIFICATE; SHAREHOLDER ACTION.
(a) The Certificate shall have been filed with the Secretary
of State of the State of Delaware and shall be duly authorized and effective
under Delaware law.
(b) All action required to be taken by the Company's
shareholders in connection with the transactions contemplated by this Agreement
shall have been duly taken by such holders.
5.5 OTHER AGREEMENTS. The Company and the Purchasers shall have entered
into the Escrow Agreement, Second Restated First Refusal and Co-Sale Agreement
and the Second Restated Investors' Rights Agreement in the form of EXHIBIT B,
EXHIBIT C and EXHIBIT D attached hereto.
5.6 LEGAL OPINION. Pepper Hamilton LLP, counsel to the Company, shall
have delivered an opinion letter to BT Alex. Brown, Incorporated (the "Agent").
-12-
<PAGE>
5.7 INJUNCTION. There shall be no effective injunction, writ,
preliminary restraining order or any order of any nature issued by a court of
competent jurisdiction directing that the transactions provided for herein or
any of them not be consummated as herein provided.
5.8 LEGAL INVESTMENT. On the Closing Date, the sale and issuance of the
shares of Series C Preferred Stock and the issuance of the shares of Common
Stock upon conversion thereof shall be legally permitted by all laws and
regulations to which Purchasers and the Company are subject.
SECTION 6 . COMPANY'S CLOSING CONDITIONS.
The obligation of the Company to sell the Series C Preferred Stock to
be sold pursuant to this Agreement on the Closing Date is subject to the
following conditions:
6.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Purchasers contained in this Agreement shall be true on and as of the Closing
Date in all material respects as though such representations and warranties were
made at and as of such date, except as otherwise affected by the transactions
contemplated hereby.
6.2 COMPLIANCE WITH AGREEMENT. Purchasers shall have performed and
complied in all material respects with all agreements, covenants and conditions
contained in this Agreement which are required to be performed or complied with
by Purchasers prior to or on the Closing Date.
6.3 OTHER AGREEMENTS. The Company and Purchasers shall have entered
into the Escrow Agreement, Second Restated First Refusal and Co-Sale Agreement
and the Second Restated Investors' Rights Agreement.
6.4 APPROVAL OF PROCEEDINGS. All proceedings to be taken in connection
with the transactions contemplated by this Agreement shall be satisfactory in
form and substance to the Company and its counsel, Pepper Hamilton LLP, and the
Company shall have received copies of all documents or other evidence which the
Company and its counsel may reasonably request in connection with such
transactions.
6.5 INJUNCTION. There shall be no effective injunction, writ,
preliminary restraining order or any order of any nature issued by a court of
competent jurisdiction directing that the transactions provided for herein or
any of them not be consummated as herein provided.
6.6 LEGAL INVESTMENT. On the Closing Date, the sale and issuance of the
shares of Series C Preferred Stock and the issuance of the shares of Common
Stock upon conversion
-13-
<PAGE>
thereof shall be legally permitted by all laws and regulations to which
Purchasers and the company are subject.
SECTION 7 . COVENANTS.
7.1 FINANCIAL AND BUSINESS INFORMATION. From and after the date hereof,
the Company shall deliver to Purchasers so long as Purchasers hold shares of
Series C Preferred:
(a) QUARTERLY STATEMENTS. As soon as reasonably practicable
after the close of each of the first three fiscal quarters of each fiscal year
of the Company, and in any event within 45 days thereafter, a balance sheet,
statement of income and statement of cash flows of the Company as at the close
of such quarter and covering operations for such quarter, and the portion of the
Company's fiscal year ending on the last day of such month or quarter, all in
reasonable detail and prepared in accordance with generally accepted accounting
principles, consistently applied, subject to audit and year-end adjustments,
setting forth in each case in comparative form the figures for the comparable
period of the previous fiscal year and accompanied by a narrative description of
the Company's business and results of operations for such quarter.
(b) ANNUAL STATEMENTS. As soon as practicable after the end of
each fiscal year of the Company, and in any event within 90 days thereafter,
copies of:
(1) consolidated and consolidating balance sheets of
the Company and its subsidiaries at the end of such year; and
(2) consolidated statements of income, shareholders'
equity and cash flows of the Company and its subsidiaries for
such year, setting forth in each case in comparative form the
figures for the previous fiscal year, all in reasonable detail
and accompanied by an opinion of a firm of independent
certified public accountants of recognized national standing
selected by the Company stating that such financial statements
fairly present the financial position of the Company and its
subsidiaries on a consolidated basis, as applicable, and have
been prepared in accordance with generally accepted accounting
principles consistently applied (except for changes in
application in which such accountants concur) and that the
examination of such accountants in connection with such
financial statements has been made in accordance with
generally accepted auditing standards, and accordingly
included such tests of the accounting records and such other
auditing procedures as were considered necessary in the
circumstances.
-14-
<PAGE>
7.2 CONFIDENTIALITY.
(a) As much of the information and other material furnished
under or in connection with this Agreement (whether furnished before, on or
after the date hereof, including without limitation, information furnished
pursuant to Section 7.1) as constitutes or contains confidential business,
financial or other information of the Company or its subsidiaries, each
Purchaser covenants for itself, and, as applicable, for its directors, officers,
affiliates and partners, that it will use due care to prevent its officers,
directors, partners, employees, counsel, accountants and other representatives
from disclosing such information to persons other than their respective
authorized employees, counsel, accountants, shareholders, partners, limited
partners and other authorized representatives. Notwithstanding the foregoing, if
Purchasers are advised by such counsel that such disclosure or delivery is
required by law, regulation or judicial or administrative order, then they may
disclose or deliver such information or other after giving written notice to the
Company of such requirements.
For purposes of this Section 7.2(a), "due care" means at least
the same level of care that Purchasers would use to protect the confidentiality
of its own sensitive or proprietary information, and this obligation shall
survive termination of this Agreement.
(b) From and after the consummation of an initial public
offering of securities, to the extent that any of the information furnished
pursuant to Section 7.1 hereof would constitute material, nonpublic information
for purposes of the Exchange Act, Purchasers agree not to engage in any purchase
or sale of securities while in possession of such information and prior to the
time that such information is made generally known to the public and Purchasers
agree to use due care to prevent their officers, directors, partners, employees,
counsel and other representatives, who have been given access to such material,
nonpublic information, from engaging in any such purchase or sale during such
period.
7.3 RESALE OF SECURITIES.
(a) Each Purchaser covenants that it will not sell or
otherwise transfer the Series C Preferred Stock (or any shares of Common Stock
acquired upon the conversion of shares of Series C Preferred Stock) except
pursuant to an effective registration under the Act or in a transaction which,
in the opinion of counsel reasonably satisfactory to the Company, qualifies as
an exempt transaction under the Act and the rules and regulations promulgated
thereunder and any applicable state securities laws.
(b) The certificates evidencing the shares of Series C
Preferred Stock and the shares of Common Stock acquired upon conversion thereof
shall bear a legend substantially to the following effect:
-15-
<PAGE>
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), AND MAY NOT BE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION UNDER THE ACT OR IN A TRANSACTION
WHICH, IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO
THE COMPANY, QUALIFIES AS AN EXEMPT TRANSACTION UNDER THE ACT
AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER.
7.4 REGULATION D FILING. The Company will file on a timely basis a Form
D "Notice of Sale of Securities Pursuant to Regulation D" and any amendments
thereto required to be filed with the Securities and Exchange Commission
pursuant to Regulation D under the Act, and all notices, filings and
registrations, and amendments to any thereof as shall be required under any
state securities or "Blue Sky" law or any regulation thereunder, and will
simultaneously furnish copies of such Form D or amendment thereto and each such
notice, filing registration or amendment thereof to the agent and counsel to the
Purchasers on behalf of Purchasers.
7.5 FURTHER ASSURANCES. Each of the parties shall execute such
documents and other papers and take such further actions as may be reasonably
required or desirable to carry out the provisions hereof and the transactions
contemplated hereby. Each such shall use its best efforts to fulfill or obtain
the fulfillment of the conditions to the Closing as promptly as practicable.
SECTION 8 . INTERPRETATION OF THIS AGREEMENT
8.1 DEFINED TERMS. As used in this Agreement, the following terms have
the respective meanings set forth below:
"ACT" means the Securities Act of 1933, as amended.
"AFFILIATE" means with respect to any Person, any other Person
which directly or indirectly, by itself or through one or more intermediaries,
controls, or is controlled by, or is under direct or indirect common control
with, such Person. The term "control" means the possession, direct or indirect,
of the power to direct or cause the direction of the management and policies of
a Person, whether through the ownership of voting securities, by contract or
otherwise.
The term "BUSINESS DAY" means any day which is not a Saturday,
Sunday or day on which banks are authorized by law to be closed in the State of
New Jersey.
-16-
<PAGE>
"CODE" means the Internal Revenue Code of 1986, as amended,
and the regulations promulgated thereunder.
"EXCHANGE ACT" means the Securities Exchange Act of 1934.
"PERSON" means an individual, partnership, joint-stock
company, corporation, trust or unincorporated organization, and a government or
agency or political subdivision thereof.
8.2 DIRECTLY OR INDIRECTLY. Where any provision in this Agreement
refers to action to be taken by, or prohibited to be taken by, any Person, such
provision shall be applicable whether such action is taken directly or
indirectly by such Person.
8.3 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware.
8.4 SECTION HEADINGS. The headings of the sections and subsections of
this Agreement are for convenience only and shall not be deemed to constitute a
part of this Agreement.
SECTION 9 . MISCELLANEOUS.
9.1 NOTICES. All notices, instructions or other communications required
or permitted to be given hereunder or necessary in connection herewith shall be
in writing and shall be deemed to have been duly delivered upon the delivery
thereof, if delivered personally, upon the transmission thereof, if sent by
facsimile transmission, on the second business day after delivery to an air
courier company for express delivery, or on the seventh business day after
mailing, if mailed, postage prepaid, registered or certified mail, as follows:
(i) if to Purchasers, at the address shown on
SCHEDULE 2.1, marked for attention as there indicated, or at such other address
as Purchasers may have furnished to the Company in writing:
(ii) if to the Company, at the address shown below,
or at such other address as the Company may have furnished to Purchasers in
writing:
Bluestone Software, Inc.
1000 Briggs Road
Mount Laurel, New Jersey 08054
Attention: Chief Financial Officer
Telecopier: (609)787-9395
-17-
<PAGE>
With a copy to:
William A. Scari, Jr., Esq.
Pepper Hamilton LLP
1235 Westlakes Drive
Suite 400
Berwyn, Pennsylvania 19312
Telecopier: (610)640-7835
9.2 EXPENSES. Each party shall be responsible for the fees and
disbursements of its legal counsel, incurred in connection with the negotiation,
execution and delivery of this Agreement, and the closing of the transactions
contemplated thereby. The Company has agreed to reimburse the Agent on a
quarterly basis for reasonable out-of-pocket expenses and the fees and expenses
of the Agent's special counsel, Willkie Farr & Gallagher, PROVIDED, HOWEVER,
that the total of all such reimbursements will not exceed $95,000.
9.3 REPRODUCTION OF DOCUMENTS.
(a) This Agreement and all documents relating hereto,
including, without limitation, (a) consents, waivers and modifications which may
hereafter be executed, (b) documents received by Purchasers pursuant hereto
(except for certificates evidencing the Series C Preferred Stock), and (c)
financial statements, certificates and other information previously or hereafter
furnished to Purchasers, may be reproduced by Purchasers or the Company by any
photographic, photostatic, microfilm, microcard, miniature photographic or other
similar process and Purchasers or the Company may destroy any original document
so reproduced. The parties hereto agree and stipulate that any such reproduction
shall be admissible in evidence as the original itself in any judicial or
administrative proceeding (whether or not the original is in existence and
whether or not such reproduction was made by Purchasers or the Company in the
regular course of business) and that any enlargement, facsimile or further
reproduction of such reproduction shall likewise be admissible in evidence.
(b) Upon receipt of evidence satisfactory to the Company of
the loss, theft, destruction or mutilation of any share certificate representing
shares of Series C Preferred Stock and, in the case of any such loss, theft or
destruction, upon delivery of an indemnity agreement reasonably satisfactory to
the Company, or in the case of any such mutilation, upon surrender of such share
certificate (which surrendered share certificate shall be canceled by the
Company), the Company will issue a new share certificate of like tenor in lieu
of such lost, stolen, destroyed or mutilated share certificate as if the lost,
stolen, destroyed or mutilated share certificate were then surrendered for
exchange.
-18-
<PAGE>
9.4 SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit
of and be binding upon the successors and assigns of each of the parties hereto.
Except to the extent otherwise provided for herein, neither this Agreement nor
the rights of the parties hereunder may be assigned without the written consent
of the nonassigning party.
9.5 ENTIRE AGREEMENT; DISCLOSURE SCHEDULES; AMENDMENT AND WAIVER.
This Agreement (including the Exhibits and Schedules attached
to this Agreement) constitutes the entire understanding of the parties hereto
and supersedes all prior term sheets, letters of intent, agreements or
understandings among such parties relating to the subject matter hereof. A
disclosure on any Schedule to this Agreement will be deemed to be a disclosure
for all other Schedules to this Agreement and for all other representations and
warranties made in this Agreement. This Agreement may be amended, and the
observance of any term of this Agreement may be waived, with (and only with) the
written consent of the Company and Purchasers.
9.6 COUNTERPARTS. This Agreement may be executed by omnibus signature
page and/or in any number of counterparts, each of which when so executed and
delivered shall be deemed an original, and such counterparts together shall
constitute only one instrument.
9.7 SURVIVAL. The representations, warranties, covenants and agreements
made in this Agreement, the Shareholders' Agreement, or in any certificate or
instrument delivered in connection with this Agreement or the Shareholder's
Agreement shall survive the execution and delivery of this Agreement and the
closing of the transactions contemplated by this Agreement. All statements as to
factual matters contained in any certificate or other instrument delivered by or
on behalf of the Company pursuant to this Agreement in connection with the
transactions contemplated by this Agreement shall be deemed to be
representations and warranties by the company solely as of the date of such
certificate or instrument.
[SIGNATURE PAGES FOLLOW]
-19-
<PAGE>
SIGNATURE PAGES
PREFERRED STOCK PURCHASE AGREEMENT
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date above first written.
Bluestone Software, Inc.
By: /s/ P. Kevin Kilroy
---------------------------
P. Kevin Kilroy
President
INVESTORS:
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ Anton Simunovic
---------------------------
Name: Anton Simunovic
Title: Vice President
Address: 260 Long Ridge Road
Stamford, CT 06927
Telephone No.:(203) 961-2887
Facsimile No.: (203) 357-4565
THE P/A FUND, L.P.
By: FOSTIN CAPITAL PARTNERS II, L.P.,
its General Partner
By: /s/ William C. Hulley
---------------------------
Name: William C. Hulley
Title: General Partner
Address: 518 Broad Street
Sewickley, PA 15143
Telephone No.: (412)749-9454
Facsimile No.: (412)749-9459
-20-
<PAGE>
SIGNATURE PAGES
PREFERRED STOCK PURCHASE AGREEMENT
PATRICOF PRIVATE INVESTMENT CLUB, L.P.
By: APA EXCELSIOR IV PARTNERS, L.P.,
its General Partner
By: PATRICOF & CO. MANAGERS, INC.
its General Partner
By: /s/ Gregory M. Case
---------------------------
Name: Gregory M. Case
Title: Vice President
Address: 455 South Gulph Road
Suite 410
King of Prussia, PA 19406
Telephone No.: (610)265-0286
Facsimile No.: (610)265-4959
APA EXCELSIOR IV, L.P.,
By: APA EXCELSIOR IV PARTNERS, L.P.,
its General Partner
By: PATRICOF & CO. MANAGERS, INC.
its General Partner
By: /s/ Gregory M. Case
---------------------------
Name: Gregory M. Case
Title: Vice President
Address: 455 South Gulph Road
Suite 410
King of Prussia, PA 19406
Telephone No.: (610)265-0286
Facsimile No.: (610)265-4959
-21-
<PAGE>
SIGNATURE PAGES
PREFERRED STOCK PURCHASE AGREEMENT
COUTTS & CO. (CAYMAN) LTD., CUST. FOR
APA EXCELSIOR IV/OFFSHORE, LP.
By: PATRICOF & CO. VENTURES, INC.
its Investment Advisor
By: /s/ Gregory M. Case
---------------------------
Name: Gregory M. Case
Title: Managing Director
Address: 455 South Gulph Road
Suite 410
King of Prussia, PA 19406
Telephone No.: (610)265-0286
Facsimile No.: (610)265-4959
[OMNIBUS SIGNATURE PAGES FOLLOW]
-22-
<PAGE>
Exhibit 10.34
BLUESTONE SOFTWARE, INC.
SECOND RESTATED FIRST REFUSAL AND CO-SALE AGREEMENT
THIS SECOND RESTATED FIRST REFUSAL AND CO-SALE AGREEMENT is made as of
the 25th day of May, 1999, by and among Bluestone Software, Inc., a Delaware
corporation (the "COMPANY"), the investors listed on SCHEDULE A attached hereto
(the "SERIES A INVESTORS"), the investors listed on SCHEDULE B attached hereto
(the "SERIES B INVESTORS"), the investors listed on SCHEDULE C hereto (the
"SERIES C INVESTORS" and together with the Series A Investors, the Series B
Investors and Mel Baiada, the "INVESTORS") and the individuals listed on
SCHEDULE D hereto (the "INDIVIDUAL STOCKHOLDERS;" the Individual Stockholders,
together with the Investors, are collectively referred to as the "STOCKHOLDERS,"
and individually referred to as a "STOCKHOLDER").
The Company, the Series A Investors and the Individual Stockholders are
parties to the Series A Preferred Stock Purchase Agreement dated as of April 18,
1997 (the "SERIES A AGREEMENT") relating to the sale of Series A Convertible
Preferred Stock of the Company (the "SERIES A PREFERRED STOCK"). The Company and
Series B Investors are parties to the Series B Preferred Stock Purchase
Agreement dated as of April 23, 1998 (the "SERIES B AGREEMENT") relating to the
sale of Series B Convertible Preferred Stock of the Company (the "SERIES B
PREFERRED STOCK"). The Company and the Series C Investors are parties to the
Preferred Stock Purchase Agreement dated as of May 25, 1999 (the "SERIES C
AGREEMENT" and together with the Series A Agreement and Series B Agreement, the
"PURCHASE AGREEMENTS") relating to the sale of Series C Convertible Preferred
Stock of the Company (the "SERIES C PREFERRED STOCK" and together with the
Series A Preferred Stock and Series B Preferred Stock, the "PREFERRED STOCK").
In consideration for the purchase by the Investors of the Preferred Stock under
the Purchase Agreements, the Stockholders desire to grant the Investors rights
of first refusal and co-sale rights set forth herein. This Second Restated First
Refusal and Co-Sale Agreement amends and restates in its entirety the Restated
First Refusal and Co-Sale Agreement dated as of April 23, 1998 between the
Company and the parties signatory thereto (the "PRIOR AGREEMENT").
INTENDING TO BE LEGALLY BOUND, and in consideration of the mutual
agreements stated below and in the Purchase Agreements, the parties hereby agree
as follows:
1. RIGHT OF FIRST REFUSAL.
1.1 GRANT. The Company and the Investors are hereby each granted a
right of first refusal with respect to any proposed disposition of shares,
directly or indirectly through the disposition of interests in any entity which
directly or indirectly owns such shares, of the Company's Common Stock, $.001
par value per share (the "COMMON STOCK"), or Preferred Stock (collectively
referred to with the Common Stock as the "STOCK") by a Stockholder (or any
permitted transferee of the Stock under paragraph 3.1 hereof, hereafter
collectively included in all references to "STOCKHOLDER"), in the following
order of priority. The Company shall have the first
<PAGE>
right to purchase any Stock proposed to be transferred to a third party by a
Stockholder. In the event the Company elects not to exercise its first refusal
rights with respect to all or any portion of such proposed transfer, then the
Company agrees to waive such rights with respect to such portion in favor of the
Investors' first refusal and co-sale rights under this Agreement.
1.2 NOTICE OF INTENDED DISPOSITION. In the event a Stockholder desires
to accept a bona fide third-party offer for the transfer of any or all of the
Stock (the shares subject to such offer to be hereafter called the
"STOCKHOLDER'S TARGET SHARES"), the Stockholder shall promptly deliver to the
Company and each of the Investors written notice of the intended disposition
("STOCKHOLDER'S DISPOSITION NOTICE") and the basic terms and conditions thereof,
including the identity of the proposed purchaser.
1.3 EXERCISE OF RIGHT BY COMPANY.
(a) The Company (or its assignees) shall, for a period of thirty
(30) days following receipt of the Stockholder's Disposition Notice, have the
right to repurchase Stockholder's Target Shares upon substantially the same
terms and conditions specified in the Stockholder's Disposition Notice, subject
to the following conditions. Such right shall be exercisable by written notice
(the "COMPANY'S EXERCISE NOTICE") delivered to the Stockholder and the Investors
prior to the expiration of the thirty (30) day exercise period. If such right is
exercised with respect to all the Stockholder's Target Shares specified in the
Stockholder's Disposition Notice, then the Company (or its assignees) shall
effect the repurchase of such Stockholder's Target Shares, including payment of
the purchase price, not more than five (5) business days after the delivery of
the Company's Exercise Notice; and at such time the Stockholder shall deliver to
the Company the certificates representing the Stockholder's Target Shares to be
repurchased, each certificate to be properly endorsed for transfer. If such
right is exercised with respect to only a portion of the Stockholder's Target
Shares specified in the Stockholder's Disposition Notice, then this right to
repurchase shall be contingent upon the Investors' election to repurchase the
remaining balance of the Stockholder's Target Shares. The Company shall notify
the Investors of its intent to repurchase only a portion of the Stockholder's
Target Shares within the thirty (30) day exercise period specified above. The
Company's repurchase of such Stockholder's Target Shares shall be consummated,
if at all, at the time of the Investors' exercise of their repurchase rights in
accordance with paragraph 1.5 herein. In the event the Investors do not elect to
repurchase the remaining Stockholder's Target Shares, the Company shall be
deemed to have waived its right of first refusal.
(b) Should the purchase price specified in the Stockholder's
Disposition Notice be payable in property other than cash or evidences of
indebtedness, the Company (or its assignees) shall have the right to pay the
purchase price in the form of cash equal in amount to the value of such
property. If the Stockholder and the Company (or its assignees) cannot agree on
such cash value within ten (10) days after the Company's receipt of the
Stockholder's Disposition Notice or otherwise disagree as to the purchase price
attribution to a transfer of Stockholder Target Shares, the valuation shall be
made by an appraiser of recognized standing
-3-
<PAGE>
selected by the Stockholder and the Company (or its assignees) or, if they
cannot agree on an appraiser within twenty (20) days after the Company's receipt
of the Stockholder's Disposition Notice, each shall select an appraiser of
recognized standing and the two appraisers shall designate a third appraiser of
recognized standing, and the average of the two appraisals which are closest in
value shall be determinative of such cash value. The cost of such appraisal(s)
shall be shared equally by the Stockholder and the Company. The closing shall
then be held on the later of (i) the fifth business day following the delivery
of the Company's Exercise Notice, or (ii) the fifth business day after such cash
valuation shall have been made.
1.4 NON-EXERCISE OF RIGHT. In the event the Company's Exercise Notice
is not given by the Company to the Stockholder and the Investors within thirty
(30) days following the date of the Company's receipt of the Stockholder's
Disposition Notice, the Company shall be deemed to have waived its right of
first refusal.
1.5 EXERCISE OF RIGHT BY AN INVESTOR. Subject to the rights of the
Company, the Investors shall, for a period (the "INVESTORS' EXERCISE PERIOD") of
the shorter of (i) sixty (60) days from receipt of the Stockholder's Disposition
Notice or (ii) thirty (30) days from receipt of written notice of Company's
election either to waive its right of first refusal or to repurchase only a
portion of the Stockholder's Target Shares, whichever is shorter, have the right
to purchase all, or the remaining balance after the Company's repurchase, of the
Stockholder's Target Shares, upon substantially the same terms and conditions
specified in the Stockholder's Disposition Notice, subject to the following
conditions. Such right shall be exercisable by written notice (the "INVESTORS'
EXERCISE NOTICE") delivered to the Stockholder and the Company prior to the
expiration of the Investors' Exercise Period, and the Investors shall effect the
purchase of such Stockholder's Target Shares, including payment of the purchase
price, not more than five (5) business days after the delivery of the Investors'
Exercise Notice; provided that such five (5) business day period shall be
extended for a period not to exceed forty-five (45) days to permit any Investor
to obtain any regulatory approvals necessary in connection with such purchase;
and at the closing of such purchase the Stockholder shall deliver to the
Investors the certificates representing the Stockholder's Target Shares to be
purchased, each certificate to be properly endorsed for transfer.
1.6 NON-EXERCISE OF RIGHT. Subject to the Investors' co-sale rights
described in Section 2 below, in the event the Company's and Investors' Exercise
Notice with respect to any portion of the Stockholder's Target Shares is not
given to the Stockholder within sixty (60) days following the date of the
Company's and Investors' receipt of the Stockholder's Disposition Notice, the
Stockholder shall have a period of thirty (30) days thereafter in which to
notify the Company and Investors of his intent to sell or otherwise dispose of
the Stockholder's Target Shares to the third-party transferee identified in the
Stockholder's Disposition Notice upon terms and conditions (including the
purchase price) no more favorable to the third-party transferee than those
specified in the Stockholder's Disposition Notice. Thereafter, the Stockholder
shall have an additional thirty (30) days to consummate the sale of the
Stockholder's Target Shares to the identified third-party transferee. The
third-party transferee shall acquire the Stockholder's Target
-4-
<PAGE>
Shares free and clear of subsequent rights of first refusal under this section.
In the event the Stockholder does not notify the Investors or consummate the
sale or disposition of the Stockholder's Target Shares within the respective
periods described above, the Company's and Investors' first refusal rights shall
continue to be applicable to any subsequent disposition of the Stockholder's
Target Shares by the Stockholder until such right lapses in accordance with
paragraph 6.1 hereof
1.7 ALLOCATION AMONG INVESTORS. The right of first refusal granted
hereunder to the Investors shall be allocated among such parties pro rata based
on their respective aggregate holdings of Common Stock (giving effect to all
shares of Common Stock issuable upon conversion of the Company's Preferred
Stock).
1.8 PARTIAL EXERCISE OF RIGHT. In the event that the Company and/or
the Investors do not exercise the right of first refusal pursuant to this
Article I with respect to all Stockholder's Target Shares described in a
particular Stockholder's Disposition Notice, then such right shall not apply to
any Stockholder's Target Shares described in such Stockholder's Disposition
Notice.
2. CO-SALE RIGHTS OF INVESTORS.
2.1 NOTICE OF OFFER. The provisions of paragraph 1.2 requiring a
Stockholder to give notice of any intended transfer of the Stock are
incorporated in this Article 2.
2.2 GRANT OF CO-SALE RIGHTS. Subject to Section 2.5, each Investor
shall have the right, exercisable upon written notice delivered to the
Stockholder prior to the expiration of the Investors' Exercise Period, to
participate in the transfer of the Stockholder's Target Shares on the same terms
and conditions as those set forth in the Stockholder's Disposition Notice. To
the extent one or more of the Investors exercise such right of participation,
the number of shares of Stockholder's Target Shares that the Stockholder may
sell in the transaction shall be correspondingly reduced. The right of
participation of each of the Investors shall be subject to the terms and
conditions set forth in this Section 2.2 and Section 2.5.
(a) The shares to be sold by any Stockholder pursuant to this
Article 2 shall be shares of the same class or classes as the shares described
in the Stockholder's Disposition Notice (except that if the shares to be sold
are Preferred Stock, Mel Baiada shall be entitled to sell shares of Common Stock
pursuant to this Article 2; and if the shares to be sold are Common Stock, the
Stockholder shall be entitled to sell shares of Preferred Stock or Common
Stock).
(b) Subject to paragraph (a), each of the Investors may sell all
or any part of a number of shares of Stock of the Company equal to the product
obtained by multiplying (i) the aggregate number of shares of Stock covered by
the purchase offer by (ii) a fraction the numerator of which is the number of
shares of Preferred Stock of the Company (or, in the case of Mel Baiada, the
number of shares of Common Stock) at the time owned by the Investor and the
denominator of which is the combined number of shares of Preferred Stock of the
Company at
-5-
<PAGE>
the time owned by the Investors (and, in the case of Mel Baiada, the number of
shares of Common Stock owned by him).
(c) To the extent an Investor elects not to sell the full number
of shares it is entitled to sell pursuant subparagraph (b) above, the other
Investors' rights to participate in the sale shall be increased pro rata by a
corresponding number of shares.
(d) Each of the Investors may effect its participation in the
sale by delivering to the Stockholder for transfer to the purchase offeror one
or mote certificates, properly endorsed for transfer, which represent:
(i) the number of shares of Stock which the Investor elects
to sell pursuant to this Section 2.2; or
(ii) that number of shares of Preferred Stock that is at
such time convertible into the number of shares of Common Stock that (x) the
party has elected to sell pursuant to this Section 2.2, if the shares of Stock
covered by the Stockholder's Disposition Notice are Common Stock or (y) would be
issuable upon conversion of the share of Stock of the class or classes covered
by the Stockholder's Disposition Notice, if such shares are other than Common
Stock.
2.3 PAYMENT OF PROCEEDS. The stock certificates which the Investors
deliver to such Stockholder pursuant to Section 2.2 shall be transferred by the
Stockholder to the purchase offeror in consummation of the sale of the Stock
pursuant to the terms and conditions specified in the Stockholder's Disposition
Notice to the Investors, and such Stockholder shall promptly thereafter remit to
each Investor that portion of the sale proceeds to which the Investor is
entitled by reason of its participation in such sale.
2.4 NON-EXERCISE. The exercise or non-exercise of the rights of the
Investors hereunder to participate in one or more sales of Stock made by the
Stockholders shall not adversely affect their rights to participate in
subsequent Stock sales by the Stockholders.
2.5 SALES OF SERIES C PREFERRED STOCK NOT SUBJECT TO CO-SALE RIGHTS.
Notwithstanding anything to the contrary contained herein, sales of the shares
of Series C Preferred Stock shall not be subject to the rights of co-sale of the
Investors set forth in this Section 2, and no Investor shall be entitled to
participate as set forth in this Section 2 in any sale or disposition of Series
C Preferred Stock.
3. EXEMPT TRANSFERS.
3.1 PERMITTED TRANSACTIONS. Notwithstanding the foregoing, the co-sale
and the first refusal rights of the Investors shall not apply to (i) any bona
fide transfer of Stock to the ancestors, descendants, siblings or spouse of a
Stockholder or to trusts for the benefit of such
-6-
<PAGE>
persons or (ii) any bona fide transfer of Stock between and among the Investors
or to any subsidiary, parent, partner or affiliate of each such Investor;
provided that the transferee shall furnish the Investors with a written
agreement to be bound by and comply with all provisions of this Agreement. Such
transferred Stock shall remain "Stock" hereunder, and such transferee shall be
treated as a "Stockholder" and/or "Investor," as may be applicable, for the
purposes of this Agreement.
3.2 COMPANY ISSUANCE OR REPURCHASE OR PUBLIC OFFERING. The provisions
of this Agreement shall not apply to the sale or issuance of any Stock (i) in a
transaction primarily to effectuate a reincorporation of the Company in a
different state, (ii) to the public pursuant to a registration statement filed
with, and declared effective by, the Securities and Exchange Commission under
the Securities Act of 1933, as amended (the "SECURITIES ACT"), the gross public
offering price of which is greater than or equal to 150% of then applicable
conversion price of the Series C Preferred Stock and which raises gross proceeds
of $20,000,000 or more in the aggregate, or (iii) to the Company.
4. PROHIBITED TRANSFERS.
4.1 GRANT. In the event a Stockholder should sell, transfer, assign,
convey or dispose of any Stock of the Company, directly or indirectly, in
contravention of the participation rights of the Investors, under this Agreement
(each a "PROHIBITED TRANSFER"), the Investors shall have the put option provided
in Section 4.2.
4.2 INVESTORS PUT OPTION. In the event of a Prohibited Transfer by a
Stockholder, each Investor shall have the option to sell to such Stockholder the
shares of Stock that such Investor would have been entitled to sell had such
Prohibited Transfer been effected in accordance with Section 2 hereof, on the
following terms and conditions:
(a) The price per share at which the shares are to be sold to
the Stockholder shall be equal to the price per share paid by the third party
purchaser or purchasers of the Stockholders' Stock to the Stockholder.
(b) The Investors shall deliver to the Stockholder, within
ninety (90) days after they have received notice from the Stockholder or
otherwise become aware of the Prohibited Transfer, the certificate or
certificates representing shares to be sold, each certificate to be properly
endorsed for transfer.
(c) The Stockholder shall, upon receipt of the certificates
for the repurchased shares, pay the aggregate Section 4.2 purchase price
therefor, by certified check or bank draft made payable to the order of the
Investor exercising such option, and shall reimburse such parties for any
additional expenses, including legal fees and expenses, incurred in effecting
such purchase and resale.
-7-
<PAGE>
5. LEGEND REQUIREMENTS.
5.1 LEGEND. Each certificate representing the Stock owned by the
Stockholders shall be endorsed with the following legend:
"THE SALE OR TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
IS SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN SECOND RESTATED
FIRST REFUSAL AND CO-SALE AGREEMENT BY AND AMONG THE REGISTERED HOLDER
(OR HIS PREDECESSOR IN INTEREST), THE COMPANY AND CERTAIN INVESTORS IN
THE CAPITAL STOCK OF BLUESTONE SOFTWARE, INC. A COPY OF SUCH AGREEMENT
IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY."
5.2 REMOVAL. The Section 5.1 legend shall be removed upon termination
of this Agreement in accordance with the provisions of Section 6.1.
6. MISCELLANEOUS PROVISIONS.
6.1 TERMINATION. The rights of an Investor under this Agreement and
the correlative obligations of each Stockholder with respect to such Investor
shall terminate at such time as such Investor shall no longer be the owner of
any shares of capital stock of the Company. Unless sooner terminated in
accordance with the preceding sentence, this Agreement shall terminate upon the
occurrence of any one of the following events:
(a) the liquidation, dissolution or indefinite cessation of the
business operations of the Company;
(b) the execution by the Company of a general assignment for
the benefit of creditors or the appointment of a receiver or trustee to take
possession of the property and assets of the Company; or
(c) immediately prior to the closing of a bona fide firm
commitment underwritten public offering of the Company's Common Stock registered
under the Securities Act of 1933 on Form S-1 (or any successor form designated
by the Securities and Exchange Commission), resulting in aggregate gross
proceeds to the Company of at least $20,000,000 at a gross offering price to the
public which is greater than or equal to 150% of then applicable conversion
price of the Series C Preferred Stock.
6.2 NOTICES. Unless otherwise provided, all notices, consents or other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given (i) when delivered
personally, (ii) three business days after being mailed by first class mail,
postage prepaid, or (iii) one business day after being sent by a reputable
overnight delivery service, postage or delivery charges prepaid, to the parties
at
-8-
<PAGE>
their respective addresses stated on the signature page of this Agreement.
Notices may also be given by prepaid telegram or facsimile and shall be
effective on the date transmitted if confirmed within 24 hours thereafter by a
signed original sent in the manner provided in the preceding sentence. Any party
may change its address for notice and the address to which copies must be sent
by giving notice of the new addresses to the other parties in accordance with
this Section 6.2, except that any such change of address notice shall not be
effective unless and until received.
6.3 SEVERABILITY. In the event one or more of the provisions of this
Agreement should, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions of this Agreement, and this Agreement
shall be construed and interpreted in such manner as to be effective and valid
under applicable law.
6.4 WAIVER OR MODIFICATION. Any amendment or modification of this
Agreement shall be effective only if evidenced by a written instrument executed
by the Company, 75% in interest of the Investors or their assignees.
6.5 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware without regard to the
principles of conflicts of law of any jurisdiction.
6.6 ATTORNEYS' FEES. In the event of any dispute involving the terms
hereof, the prevailing parties shall be entitled to collect legal fees and
expenses from the other party to the dispute.
6.7 FURTHER ASSURANCES. Each party agrees to act in accordance
herewith and not to take any action which is designed to avoid the intention
hereof.
6.8 OWNERSHIP. Each Stockholder represents and warrants that he is the
sole legal and beneficial owner of the shares of stock subject to this Second
Restated First Refusal and Co-Sale Agreement and that no other person has any
interest (other than a community property interest) in such shares.
6.9 SUCCESSORS AND ASSIGNS. This Agreement and the rights and
obligations of the parties hereunder shall inure to the benefit of, and be
binding upon, their respective successors, assigns and legal representatives.
The parties hereto specifically consent to any assignment by the Company in
order to effectuate a change in the state in which the Company is incorporated.
6.10 AGGREGATION OF STOCK. For the purposes of determining the
availability of any rights under this Agreement, the holdings of transferees and
assignees of an individual or a partnership who are spouses, ancestors, lineal
descendants or siblings of such individual or partners or retired partners of
such partnership (including spouses and ancestors, lineal descendants and
siblings of such partners or spouses who acquire Stock by gift, will or
intestate
-9-
<PAGE>
succession) shall be aggregated together with the individual or partnership, as
the case may be, for the purpose of exercising any rights or taking any action
under this Agreement.
6.11 ENTIRE AGREEMENT. This Agreement, the Second Restated Investors'
Rights Agreement dated as of May 25, 1999 between the Company and the parties
signatory thereto and the Series C Agreement constitute the entire agreement
with respect to the subject matter hereof among the parties, and no party shall
be liable or bound to any other party in any manner by any warranties,
representations, or covenants except as specifically set forth herein or
therein. This Agreement supersedes the Prior Agreement, which shall be of no
further force or effect.
[SIGNATURE PAGES FOLLOW.]
-10-
<PAGE>
SIGNATURE PAGE
SECOND RESTATED FIRST REFUSAL AND
CO-SALE AGREEMENT
IN WITNESS WHEREOF, the parties have executed this Second Restated
First Refusal and Co-Sale Agreement on the day and year indicated above.
BLUESTONE SOFTWARE, INC.
By: /s/ P. Kevin Kilroy
------------------------------------------
Name: P. Kevin Kilroy
Title: President
Address: 1000 Briggs Road
Mt. Laurel, NJ 08054
Telephone No.: 609-727-4600
Facsimile No.: 609-787-9395
INVESTORS:
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ Anton Simunovic
------------------------------------------
Name: Anton Simunovic
Title: Vice President
Address: 260 Long Ridge Road
Stamford, CT 06927
Telephone No.: (203) 961-2887
Facsimile No.: (203) 357-4565
-11-
<PAGE>
SIGNATURE PAGE
SECOND RESTATED FIRST REFUSAL AND
CO-SALE AGREEMENT
THE P/A FUND, L.P.
By: FOSTIN CAPITAL PARTNERS II, L.P.
its General Partner
By: /s/ William C. Hulley
------------------------------------------
Name: William C. Hulley
Title: General Partner
Address: 518 Broad Street
Sewickley, PA 15143
Telephone No.: 412-749-9454
Facsimile No.: 412-749-9459
PATRICOF PRIVATE INVESTMENT CLUB, L.P.
By: APA EXCELSIOR IV PARTNERS, L.P.,
its General Partner
By: PATRICOF & CO. MANAGERS, INC.,
its General Partner
By: /s/ Gregory M. Case
------------------------------------------
Name: Gregory M. Case
Title: Vice President
Address: 455 South Gulph Road
Suite 410
King of Prussia, PA 19406
Telephone No.: 610-265-0286
Facsimile No.: 610-265-4959
-12-
<PAGE>
SIGNATURE PAGE
SECOND RESTATED FIRST REFUSAL AND
CO-SALE AGREEMENT
APA EXCELSIOR IV, L.P.
By: APA EXCELSIOR IV PARTNERS, L.P.,
its General Partner
By: PATRICOF & CO. MANAGERS, INC.,
its General Partner
By: /s/ Gregory M. Case
-----------------------------------------
Name: Gregory M. Case
Title: Vice President
Address: 455 South Gulph Road
Suite 410
King of Prussia, PA 19406
Telephone No.: 610-265-0286
Facsimile No.: 610-265-4959
COUTTS & CO. (CAYMAN) LTD., CUST. FOR
APA EXCELSIOR IV/OFFSHORE, L.P.
By: PATRICOF & CO. VENTURES, INC.,
its Investment Advisor
By: /s/ Gregory M. Case
------------------------------------------
Name: Gregory M. Case
Title: Managing Director
Address: 455 South Gulph Road
Suite 410
King of Prussia, PA 19406
Telephone No.: 610-265-0286
Facsimile No.: 610-265-4959
-13-
<PAGE>
SIGNATURE PAGE
SECOND RESTATED FIRST REFUSAL AND
CO-SALE AGREEMENT
/s/ Mel Baiada
------------------------------------------
MEL BAIADA
Address: 1000 Briggs Road
Mt. Laurel, NJ 08054
Telephone No.: 609-727-4600
Facsimile No.: 609-787-9395
/s/ Eugene Levy
------------------------------------------
EUGENE LEVY
Address: 90 Riverside Drive
Apt. 5E
New York, NY 10024
Telephone No.: 212-753-6300
Facsimile No.: 212-319-6155
STOCKHOLDER:
/s/ Mark Baiada
------------------------------------------
MARK BAIADA
Address: 741 Mill Street
Moorestown, NJ 08057
Telephone: 609-231-1000
Facsimile 609-231-1950
-14-
<PAGE>
Exhibit 10.35
BLUESTONE SOFTWARE, INC.
SECOND RESTATED INVESTORS' RIGHTS AGREEMENT
MAY 25, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<C> <S> <C>
1. Registration Rights................................................... 1
1.1 Definitions.............................................. 1
1.2 Request for Registration................................. 2
1.3 Company Registration..................................... 4
1.4 Obligations of the Company............................... 5
1.5 Furnish Information...................................... 6
1.6 Expenses of Demand Registration.......................... 7
1.7 Expenses of Company Registration......................... 7
1.8 Underwriting Requirements................................ 7
1.9 Indemnification.......................................... 8
1.10 Reports Under Securities Exchange Act of 1934............ 10
1.11 Form S-3 Registration.................................... 11
1.12 Assignment of Registration Rights........................ 12
1.13 Limitations on Subsequent Registration Rights............ 12
1.14 "Market Stand-Off" Agreement............................. 13
1.15 Termination of Registration Rights....................... 13
1.16 Delay of Registration.................................... 14
2. Covenants of the Company.............................................. 14
2.1 Delivery of Financial Statements......................... 14
2.2 Inspection............................................... 15
2.3 Board of Directors....................................... 15
2.4 Tax Matters.............................................. 16
2.5 Maintenance of Properties and Leases..................... 16
2.6 Insurance................................................ 16
2.7 Key Person Life Insurance................................ 17
2.8 Accounts and Records..................................... 17
2.9 Independent Accountants.................................. 17
2.10 Compliance with Requirements of Government Authorities... 17
2.11 Maintenance of Corporate Existence....................... 17
2.12 Employee Agreements...................................... 17
2.13 Notice of Breach......................................... 18
2.14 Transactions with Affiliates............................. 18
2.15 Maintenance of a Standard System of Accounting........... 18
2.16 Payment of Indebtedness.................................. 18
2.17 Unix GUI Business........................................ 18
2.18 Termination of Covenants................................. 18
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
3. Miscellaneous......................................................... 18
3.1 Successors and Assigns................................... 19
3.2 Governing Law............................................ 19
3.3 Counterparts............................................. 19
3.4 Titles and Subtitles..................................... 19
3.5 Notices.................................................. 19
3.6 Expenses................................................. 19
3.7 Amendments and Waivers................................... 19
3.8 Severability............................................. 20
3.9 Aggregation of Stock..................................... 20
3.10 Confidential Information................................. 20
3.11 Entire Agreement......................................... 20
</TABLE>
-ii-
<PAGE>
SECOND RESTATED INVESTORS' RIGHTS AGREEMENT
THIS SECOND RESTATED INVESTORS' RIGHTS AGREEMENT is made as of the 25th
day of May, 1999 by and among Bluestone Software, Inc., a Delaware corporation
(the "COMPANY"), the investors listed on SCHEDULE A hereto, each of which is
herein referred to as an "INVESTOR," and the individual listed on SCHEDULE B
hereto, who is herein referred to as the "COMMON STOCKHOLDER."
The Company and each of the Investors are parties to one or more of the
Series A Preferred Stock Purchase Agreement dated as of April 18, 1997 (the
"SERIES A AGREEMENT"), pursuant to which the Company sold and certain of the
Investors purchased shares of Series A Convertible Preferred Stock, par value
$.001 per share, of the Company (the "SERIES A PREFERRED STOCK"), the Series B
Convertible Preferred Stock Purchase Agreement dated as of April 23, 1998 (the
"SERIES B AGREEMENT"), pursuant to which the Company sold and certain of the
Investors purchased shares of Series B Preferred Stock, par value $.001 per
share, of the Company (the "SERIES B PREFERRED STOCK"), or the Preferred Stock
Purchase Agreement dated as of May 25, 1999 (the "SERIES C AGREEMENT" and
together with the Series A Agreement and the Series B Agreement, the "PURCHASE
AGREEMENTS"), pursuant to which the Company sold and certain of the Investors
purchased shares of Series C Convertible Preferred Stock, par value $.001 per
share, of the Company (the "SERIES C PREFERRED STOCK," and together with the
Series A Preferred Stock and the Series B Preferred Stock, the "PREFERRED
STOCK"). In consideration for the purchase by the Investors in the Preferred
Stock under the Purchase Agreements, the Company desires to grant the Investors
the registration rights, right of first offer and other rights set forth herein.
This Second Restated Investors' Rights amends and restates in its entirety the
Restated Investors' Rights Agreement dated as of April 23, 1998 between the
Company and the parties signatory thereto as amended by the First Amendment
dated as of January 21, 1999 (the "PRIOR AGREEMENT").
INTENDING TO BE LEGALLY BOUND, and in consideration of the mutual
agreements stated below and in the Purchase Agreements, the parties hereby agree
as follows:
1. REGISTRATION RIGHTS. The Company covenants and agrees as follows:
1.1 DEFINITIONS. For purposes of this Section 1:
(a) The term "ACT" means the Securities Act of 1933, as
amended.
(b) The term "FORM S-3" means such form under the Act as
in effect on the date hereof or any registration form under the Act subsequently
adopted by the SEC which permits inclusion or incorporation of substantial
information by reference to other documents filed by the Company with the SEC.
<PAGE>
(c) The term "HOLDER" means any person owning or having
the right to acquire Registrable Securities or any assignee thereof in
accordance with Section 1.12 hereof
(d) The term "INITIATING HOLDERS" means the holders of a
majority of the outstanding shares on an as-converted basis of the Series A
Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock.
(e) The term "1934 ACT" shall mean the Securities
Exchange Act of 1934, as amended.
(f) The term "REGISTER," "REGISTERED," and
"REGISTRATION" refer to a registration effected by preparing and filing a
registration statement or similar document in compliance with the Act, and the
declaration or ordering of effectiveness of such registration statement or
document.
(g) The term "REGISTRABLE SECURITIES" means the Common
Stock issuable or issued (i) upon conversion of the Series A Preferred Stock,
the Series B Preferred Stock or the Series C Preferred Stock issued or issuable
by the Company or (ii) upon exercise of the warrants to purchase shares of the
Company's Common Stock issued pursuant to the Convertible Subordinated Secured
Note and Warrant Purchase Agreement, dated as of January 21, 1999, by and
between the Company and the investors signatory thereto or (iii) as a result of
a dividend or distribution or stock split or reclassification of the Series A
Preferred Stock, the Series B Preferred Stock or the Series C Preferred Stock or
the Common Stock issued or issuable upon conversion thereof.
(h) The number of shares of "REGISTRABLE SECURITIES THEN
OUTSTANDING" shall be determined by the number of shares of Common Stock
outstanding which are, and the number of shares of Common Stock issuable
pursuant to then exercisable or convertible securities which are, Registrable
Securities.
(i) The term "SEC" shall mean the Securities and
Exchange Commission.
(j) With respect only to Sections 1.3, 1.4, 1.5, 1.7,
1.8, 1.10, 1.11 (other than with respect to the right to request that the
Company effect such registration), 1.12, 1.14, 1.15 and 2.3 (except for
Subsection 2.3(e)) hereof, the term "Holder" shall also include the Common
Stockholder and the term "Registrable Securities" shall also include any Common
Stock held by the Common Stockholder (whether issued upon conversion of the
Preferred Stock or otherwise, other than shares of Common Stock issued after the
date hereof for incentive purposes).
1.2 REQUEST FOR REGISTRATION
-2-
<PAGE>
(a) If the Company shall receive, at any time after the earlier
of (i) two (2) years after the date hereof, or (ii) one (1) year after the
effective date of the first registration statement for a public offering (the
"Initial Public Offering") of securities of the Company (other than a
registration statement relating either to the sale of securities to employees of
the Company pursuant to a stock option, stock purchase or similar plan or a SEC
Rule 145 transaction), a written request from the Initiating Holders, that the
Company file a registration statement under the Act covering an offering of
securities of the Company at a gross offering price of at least $20,000,000 in
the aggregate, then the Company shall:
(i) within ten (10) days of the receipt thereof, give
written notice of such request to all Holders;
(ii) file with the SEC as soon as practicable, but in
any event within sixty (60) days of the receipt of such request, a
registration statement covering the registration under the Act of all
Registrable Securities which the Holders request to be registered, subject to
the limitations of subsection 1.2(b), within twenty (20) days of the mailing
of such notice by the Company in accordance with Section 3.5; and
(iii) use its best efforts to cause such registration
statement to become effective as soon as practicable, but in any event within
sixty (60) days after the filing thereof.
(b) If the Initiating Holders intend to distribute the
Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of its request made pursuant to
subsection 1.2(a), and the Company shall include such information in the written
notice referred to in subsection 1.2(a). The underwriter will be selected by the
Company and shall be reasonably acceptable to the Initiating Holders. In such
event, the right of any Holder to include its Registrable Securities in such
registration shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting (unless otherwise mutually agreed upon by the Initiating Holders
and such Holder) to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall (together with the
Company as provided in subsection 1.4(e)) enter into an underwriting agreement
in customary form with the underwriter or underwriters selected for such
underwriting. Notwithstanding any other provision of this Section 1.2, if the
underwriter advises the Initiating Holders in writing that marketing factors
require a limitation of the number of shares to be underwritten, then the
Initiating Holders shall so advise all Holders of Registrable Securities which
would otherwise be underwritten pursuant hereto, and the number of shares of
Registrable Securities that may be included in the underwriting shall be
allocated among all Holders thereof, including the Initiating Holders, in
proportion (as nearly as practicable) to the amount of Registrable Securities of
the Company owned by each Holder; provided, however, that the number of shares
of Registrable Securities to be included in such underwriting shall not be
reduced unless all other securities are first entirely excluded from the
underwriting.
-3-
<PAGE>
(c) Notwithstanding the foregoing, if the Company shall furnish
to Holders requesting a registration statement pursuant to this Section 1.2 a
certificate signed by the Chief Executive Officer of the Company stating that in
the good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company and its stockholders for such registration
statement to be filed and it is therefore essential to defer the filing of such
registration statement, the Company shall have the right to defer taking action
with respect to such filing for a period of not more than ninety (90) days after
receipt of the request of the Initiating Holders; provided, however, that the
Company may not utilize this right more than once in any twelve-month period.
(d) In addition, the Company shall not be obligated to effect,
or to take any action to effect, any registration pursuant to this Section 1.2:
(i) After the Company has effected two (2) registrations
at the request of Initiating Holders pursuant to this Section 1.2 and such
registrations have been declared or ordered effective;
(ii) During the period starting with the date sixty (60)
days prior to the Company's good faith estimate of the date of filing of, and
ending on a date one hundred eighty (180) days after the effective date of, a
registration subject to Section 1.3 hereof, provided that the Company is
actively employing in good faith all reasonable efforts to cause such
registration statement to become effective; or
(iii) If the Initiating Holders propose to dispose of
shares of Registrable Securities that may be immediately registered on Form
S-3 pursuant to a request made pursuant to Section 1.11 below.
1.3 COMPANY REGISTRATION. If at any time after the Initial
Public Offering, (but without any obligation to do so) the Company proposes to
register any of its stock or other securities under the Act in connection with
the public offering in excess of $1,000,000 of such securities solely for cash
in excess of $1,000,000 (other than a registration initiated by a Holder on Form
S-3, a registration relating solely to the sale of securities to participants in
a Company stock option, stock purchase or similar plan or a SEC Rule 145
transaction, a registration on any form which does not include substantially the
same information as would be required to be included in a registration statement
covering the sale of the Registrable Securities or a registration in which the
only Common Stock being registered is Common Stock issuable upon conversion of
debt securities that are also being registered), the Company shall, at such
time, promptly give each Holder written notice of such registration. Upon the
written request of each Holder given within twenty (20) days after mailing of
such notice by the Company in accordance with Section 3.5, the Company shall,
subject to the provisions of Section 1.8, include in such registration all of
the Registrable Securities that each such Holder has requested to be registered,
and shall use its best efforts to cause such registration statement to become
effective.
-4-
<PAGE>
1.4 OBLIGATIONS OF THE COMPANY. Whenever required under this
Section 1 to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use its best
efforts to cause such registration statement to become effective, and, upon
the request of the Holders of at least a majority of the Registrable
Securities registered thereunder, keep such registration statement effective
for a period of up to one hundred twenty (120) days or until the distribution
contemplated in the Registration Statement has been completed, whichever
occurs first; provided, however, that (i) such 120-day period shall be
extended for a period of time equal to the period the Holder refrains from
selling any securities included in such registration at the request of an
underwriter of Common Stock (or other securities) of the Company; and (ii) in
the case of any registration of Registrable Securities on Form S-3 that are
intended to be offered on a continuous or delayed basis, such 120-day period
shall be extended, if necessary, to keep the registration statement effective
until all such Registrable Securities are sold, provided that Rule 415, or
any successor rule under the Act, permits an offering on a continuous or
delayed basis, and provided further that applicable rules under the Act
governing the obligation to file a post-effective amendment permit, in lieu
of filing a post-effective amendment that (A) includes any prospectus
required by Section 10(a)(3) of the Act or (B) reflects facts or events
representing a material or fundamental change in the information set forth in
the registration statement, the incorporation by reference of information
required to be included in (A) and (B) above to be contained in periodic
reports filed pursuant to Section 13 or 15(d) of the 1934 Act in the
registration statement.
(b) Prepare and file with the SEC such amendment 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 Act with respect to the disposition of all
securities covered by such registration statement.
(c) Furnish to the Holders such numbers of copies of
a prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as they may reasonably
request in order to facilitate the disposition of Registrable Securities
owned by them.
(d) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities
or Blue Sky laws of such jurisdictions as shall be reasonably requested by
the Holders; provided that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such states or jurisdictions,
unless the Company is already subject to service in such jurisdiction and
except as may be required by the Act.
-5-
<PAGE>
(e) In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement, in
usual and customary form, with the managing underwriter of such offering.
Each Holder participating in such underwriting shall also enter into and
perform its obligations under such an agreement.
(f) Notify each Holder of Registrable Securities
covered by such registration statement at any time when a prospectus relating
thereto is required to be delivered under the Act of the happening of any
event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact
or omits to state a material fact required to be stated therein or necessary
to make the statements therein not misleading in the light of the
circumstances then existing.
(g) File all applications, documents and other
information necessary to list the Registrable Securities being registered
hereunder on each securities exchange on which similar securities issued by
the Company are then listed, and otherwise use its best efforts to cause such
listing to be effected.
(h) Provide a transfer agent and registrar for all
Registrable Securities registered pursuant hereto and a CUSIP number for all
such Registrable Securities, in each case not later than the effective date
of such registration.
(i) Furnish, at the request of any Holder requesting
registration of Registrable Securities pursuant to this Section 1, on the
date that such Registrable Securities are delivered to the underwriters for
sale in connection with a registration pursuant to this Section 1, if such
securities are being sold through underwriters, or, if such securities are
not being sold through underwriters, on the date that the registration
statement with respect to such securities becomes effective, an opinion,
dated such date, of the counsel representing the Company for the purposes of
such registration, in form and substance as is customarily given to
underwriters in an underwritten public offering, addressed to the
underwriters, if any, and to the Holders requesting registration of
Registrable Securities.
1.5 FURNISH INFORMATION.
(a) It shall be a condition precedent to the obligations of the
Company to take any action pursuant to this Section 1 with respect to the
Registrable Securities of any selling Holder that such Holder shall furnish to
the Company such information regarding itself, the Registrable Securities held
by it, and the intended method of disposition of such securities as shall be
required to effect the registration of such Holder's Registrable Securities.
(b) The Company shall have no obligation with respect to any
registration requested pursuant to Section 1.2 or Section 1.11 if, due to the
operation of subsection 1.5(a), the anticipated aggregate offering price of the
Registrable Securities to be included in the registration does not equal or
exceed the anticipated aggregate offering price
-6-
<PAGE>
required to originally trigger the Company's obligation to initiate such
registration as specified in subsection 1.2(a) or subsection 1.11(b)(2),
whichever is applicable.
1.6 EXPENSES OF DEMAND REGISTRATION. All expenses other than
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 1.2, including
(without limitation) all registration, filing and qualification fees, printers'
and accounting fees, fees and disbursements of counsel for the Company
(including fees and disbursements of counsel for the Company in its capacity as
counsel to the selling Holders hereunder and if Company counsel does not make
itself available for this purpose, then the Company will pay the reasonable fees
and disbursements of one (1) counsel for the selling Holders) shall be borne by
the Company; provided, however, that the Company shall not be required to pay
for any expenses of any registration proceeding begun pursuant to Section 1.2 if
the registration request is subsequently withdrawn at the request of the Holders
of at least a majority of the Registrable Securities to be registered (in which
case all participating Holders shall bear such expenses ratably based on the
ratio that the amounts of Registrable Securities each participating Holder
included in such withdrawn registration statement bears to the total amount of
Registrable Securities included in such registration statement by all
participating Holders), unless the Initiating Holders agree to forfeit its right
to one demand registration pursuant to Section 1.2; provided further, however,
that if at the time of such withdrawal the Holders have learned of a material
adverse change in the condition or prospects of the Company from that known to
the Holders at the time of their request and have withdrawn the request with
reasonable promptness following disclosure by the Company of such material
adverse change, then the Holders shall not be required to pay any of such
expenses and shall retain their fights pursuant to Section 1.2.
1.7 EXPENSES OF COMPANY REGISTRATION. The Company shall bear and pay
all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registrations
pursuant to Section 1.3 for each Holder (which right may be assigned as provided
in Section 1.12), including (without limitation) all registration, filing, and
qualification fees, printers and accounting fees relating or apportionable
thereto and the fees and disbursements of counsel for the Company in its
capacity as counsel to the selling Holders hereunder and if Company counsel does
not make itself available for this purpose, then the Company will pay the
reasonable fees and disbursements of one counsel for the selling Holders
selected by them, but excluding underwriting discounts and commissions relating
to Registrable Securities.
1.8 UNDERWRITING REQUIREMENTS. In connection with any offering
involving an underwriting of shares of the Company's capital stock, the Company
shall not be required under Section 1.3 to include any of the Holders'
securities in such underwriting unless they accept the terms of the underwriting
as agreed upon between the Company and the underwriters selected by it (or by
other persons entitled to select the underwriters), and then only in such
quantity as the underwriters determine in their sole discretion will not
jeopardize the success of the offering by the Company. If the total amount of
securities, including Registrable Securities, requested by
-7-
<PAGE>
stockholders to be included in such offering exceeds the amount of securities
sold other than by the Company that the underwriters determine in their sole
discretion is compatible with the success of the offering, then the Company
shall be required to include in the offering only that number of such
securities, including Registrable Securities, that the underwriters determine in
their sole discretion will not jeopardize the success of the offering (the
securities so included to be determined first by excluding securities requested
to be included that are not Registrable Securities, then by excluding securities
requested to be included that are Registrable Securities held by the Common
Stockholder and then by apportioning pro rata among the selling Holders who are
not the Common Stockholder according to the total amount of Registrable
Securities entitled to be included therein owned by each such selling Holder or
in such other proportions as shall mutually be agreed to by such selling
Holders) but in no event shall any shares being sold by a stockholder exercising
a demand registration right similar to that granted in Section 1.2 be excluded
from such offering. For purposes of the preceding parenthetical concerning
apportionment, for any selling Holder of Registrable Securities that is a
partnership or corporation, the partners, retired partners and stockholders of
such holder, or the estates and family members of any such partners and retired
partners and any trusts for the benefit of any of the foregoing persons shall be
deemed to be a single "selling stockholder," and any pro-rata reduction with
respect to such "selling stockholder" shall be based upon the aggregate amount
of shares carrying registration rights owned by all entities and individuals
included in such "selling stockholder," as defined in this sentence.
Notwithstanding any other provisions of this Section 1.8, if the underwritten
offering is a Company registration pursuant to Section 1.3, then the shares
being sold by the Company shall not be excluded from such offering.
1.9 INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, any underwriter (as defined in the Act) for such
Holder and each person, if any, who controls such Holder or underwriter within
the meaning of the Act or the 1934 Act, against any losses, claims, damages, or
liabilities (joint or several) to which they may become subject under the Act,
or 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 of the following statements, omissions or violations
(collectively a "VIOLATION"): (i) any untrue statement or alleged untrue
statement of a material fact contained in such registration statement, including
any preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Act, the 1934 Act, any state securities law or
any rule or regulation promulgated under the Act, or the 1934 Act or any state
securities law; and the Company will pay to each such Holder, underwriter or
controlling person, as incurred, any legal or other expenses reasonably incurred
by them in connection with investigating or defending any such loss, claim,
damage, liability, or action-provided, however, that the indemnity agreement
contained in this subsection 1.9(a) shall not
-8-
<PAGE>
apply to amounts paid in settlement of any such loss, claim, damage, liability,
or action if such settlement is effected without the consent of the Company
(which consent shall not be unreasonably withheld), nor shall the Company be
liable in any such case for any such loss, claim, damage, liability, or action
to the extent that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information furnished expressly for
use in connection with such registration by any such Holder, underwriter or
controlling person.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Act, any underwriter, any other
Holder selling securities in such registration statement and any controlling
person of any such underwriter or other Holder, against any losses, claims,
damages or liabilities (joint or several) to which any of the foregoing persons
may become subject, under the Act, or the 1934 Act or other federal or state
law, insofar as such losses, claims, damages, or liabilities (or actions in
respect thereto) arise out of or are based upon any Violation, in each case to
the extent (and only to the extent) that such Violation occurs in reliance upon
and in conformity with written information furnished by such Holder expressly
for use in connection with such registration; and each such Holder will pay, as
incurred, any legal or other expenses reasonably incurred by any person intended
to be indemnified pursuant to this subsection 1.9(b), in connection with
investigating or defending any such loss, claim, damage, liability, or action;
provided, however, that the indemnity agreement contained in this subsection
1.9(b) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent
of the Holder (which consent shall not be unreasonably withheld); provided,
that, in no event shall any indemnity under this subsection 1.9(b) exceed the
gross proceeds from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 1.9 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 1.9, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if materially prejudicial to its ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified party under
this Section 1.9, but the omission so to deliver written notice to the
indemnifying party will not relieve it of any liability that it may have to any
indemnified party otherwise than
-9-
<PAGE>
under this Section 1.9. Each indemnified party shall furnish such information
regarding itself or the claim in question as an indemnifying party may
reasonably request in writing and as shall be reasonably required in connection
with the defense of such claim.
(d) If the indemnification provided for in this Section 1.9 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage, or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage, or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
(f) The obligations of the Company and Holders under this
Section 1.9 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 1, and otherwise.
1.10 REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a view to
making available to the Holders the benefits of Rule 144 promulgated under the
Act and any other rule or regulation of the SEC that may at any time permit a
Holder to sell securities of the Company to the public without registration or
pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in SEC Rule 144, at all times after ninety (90) days
after the effective date of the first registration statement filed by the
Company for the offering of its securities to the general public;
(b) take such action, including the voluntary registration of
its Common Stock under Section 12 of the 1934 Act, as is necessary to enable the
Holders to utilize Form S-3 for the sale of their Registrable Securities, such
action to be taken as soon as practicable after the end of the fiscal year in
which the first registration statement filed by the Company for the offering of
its securities to the general public is declared effective;
-10-
<PAGE>
(c) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act; and
(d) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of SEC Rule 144 (at
any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Act and the 1934 Act (at any
time after it has become subject to such reporting requirements), or that it
qualifies as a registrant whose securities may be resold pursuant to Form S-3
(at any time after it so qualifies), (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents filed by
the Company with the SEC, and (iii) such other information as may be reasonably
requested in availing any Holder of any rule or regulation of the SEC which
permits the selling of any such securities without registration or pursuant to
such form.
1.11 FORM S-3 REGISTRATION. In case the Company shall receive from any
Holder or Holders a written request or requests that the Company effect a
registration on Form S- 3 and any related qualification or compliance with
respect to all or a part of the Registrable Securities owned by such Holder or
Holders, the Company will:
(a) promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Holders;
(b) file with the Commission as soon as practicable, but in any
event within 30 days after the receipt of such request, a registration statement
on Form S-3 covering such Registrable Securities, and use its best efforts to
cause such registration statement to become effective as soon as practicable,
but in any event within 60 days thereafter, and use its best efforts to effect
all such qualifications and compliances as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion of such
Holder's or Holders' Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any other
Holder or Holders joining in such request as are specified in a written request
given within 15 days after receipt of such written notice from the Company;
provided, however, that the Company shall not be obligated to effect more than
one registration pursuant to this Section 1.11 in any twelve-month period, and
further provided that the Company shall not be obligated to effect any such
registration, qualification or compliance, pursuant to this section 1.11: (1) if
Form S-3 is not available for such offering by the Holders, (2) if the Holders,
together with the holders of any other securities of the Company entitled to
inclusion in such registration, propose to sell Registrable Securities and such
other securities (if any) at an aggregate price to the public (net of any
underwriters' discounts or commission) of less than $1,000,000; (3) if the
Company shall furnish to the Holders a certificate signed by the President of
the Company stating that in the good faith judgment of the Board of Directors of
the Company, it would be seriously detrimental to the Company and its
stockholders for such Form S-3 Registration to be effected at such time, in
which event the Company shall have the right to defer the filing of the Form S-3
registration statement for a period of not more than sixty (60)
-11-
<PAGE>
days after receipt of the request of the Holder or Holders under this Section
1.11; provided, however, that the Company shall not utilize this right more than
once in any twelve month period; or (4) in any particular jurisdiction in which
the Company would be required to qualify to do business or to execute a general
consent to service of process in effecting such registration, qualification or
compliance; and
(c) All expenses incurred in connection with a registration
requested pursuant to Section 1.11, including (without limitation) all
registration, filing, qualification, printer's and accounting fees and the
reasonable fees and disbursements of counsel for the selling Holder or Holders
and counsel for the Company, but excluding any underwriters' discounts or
commissions associated with Registrable Securities, shall be borne by the
Company. Registrations effected pursuant to this Section 1.11 shall not be
counted as demands for registrations or registrations effected pursuant to
Sections 1.2 or 1.3, respectively.
1.12 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the Company
to register Registrable Securities pursuant to this Section 1 may be assigned
(but only with all related obligations and provided that the rights of the
Initiating Holders to request registration pursuant to Section 1.2 shall not be
assignable) by a Holder to a transferee or assignee of such securities who
acquires at least two percent (2%) of the Registrable Securities (as adjusted
for stock splits, combinations and the like), provided: (a) the Company is,
within a reasonable time after such transfer, furnished with written notice of
the name and address of such transferee or assignee and the securities with
respect to which such registration rights are being assigned; (b) such
transferee or assignee agrees in writing to be bound by and subject to the terms
and conditions of this Agreement, including without limitation the provisions of
Section 1.14 below; and (c) such assignment shall be effective only if such
transfer is exempt from registration under the Act. For the purposes of
determining the number of shares of Registrable Securities held by a transferee
or assignee, the holdings of transferees and assignees of a partnership who are
partners or retired partners of such partnership (including spouses and
ancestors, lineal descendants and siblings of such partners or spouses who
acquire Registrable Securities by gift, will or intestate succession) shall be
aggregated together with the partnership; provided that all assignees and
transferees who would not qualify individually for assignment of registration
rights shall have a single attorney-in-fact for the purpose of exercising any
rights, receiving notices or taking any action under this Section 1.
1.13 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and after the
date of this Agreement, the Company shall not, without the prior written consent
of the Holders of at least a majority of the outstanding Registrable Securities,
enter into any agreement with any holder or prospective holder of any securities
of the Company that would allow such holder or prospective holder (a) to include
such securities in any registration filed under Section 1.2 hereof, unless under
the terms of such agreement, such holder or prospective holder may include such
securities in any such registration only to the extent that the inclusion of his
securities will not reduce the amount of the Registrable Securities of the
Holders that is included or (b) to make a demand registration that could result
in such registration statement being declared effective prior
-12-
<PAGE>
to the earlier of either of the dates set forth in subsection 1.2(a) or within
one hundred eighty (180) days of the effective date of any registration effected
pursuant to Section 1.2.
1.14 "MARKET STAND-OFF" AGREEMENT. Each Investor hereby agrees that,
during the period of duration specified by the Company and an underwriter of
Common Stock or other securities of the Company, following the effective date of
a registration statement of the Company filed under the Act, it shall not, to
the extent requested by the Company and such underwriter, directly or indirectly
sell, offer to sell, contract to sell (including, without limitation, any short
sale), grant any option to purchase or otherwise transfer or dispose of (other
than to donees who agree to be similarly bound) any securities of the Company
held by it at any time during such period except Common Stock included in such
registration; provided, however, that:
(a) such agreement shall be applicable only to the first such
registration statement of the Company that covers Common Stock (or other
securities) to be sold on its behalf to the public in an underwritten offering;
and
(b) all officers and directors of the Company and all other
persons with registration rights (whether or not pursuant to this Agreement)
enter into similar agreements; and
(c) such market stand-off time period shall not exceed 180
days.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Investor (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
Notwithstanding the foregoing, the obligations described in this
Section 1.14 shall not apply to a registration relating solely to employee
benefit plans on Form S-1 or Form S-8 or similar forms that may be promulgated
in the future, or a registration relating solely to a Commission Rule 145
transaction on Form S-4 or a similar form that may be promulgated in the future.
1.15 TERMINATION OF REGISTRATION RIGHTS.
(a) No Holder shall be entitled to exercise any right provided
for in this Section 1 after five (5) years following the consummation of the
sale of securities pursuant to a registration statement filed by the Company
under the Act in connection with the initial firm commitment underwritten
offering of its securities to the general public.
(b) In addition, the right of any Holder to request
registration or inclusion in any registration pursuant to Sections 1.2, 1.3 and
1.11 shall terminate on the closing of the first Company-initiated registered
public offering of Common Stock of the Company if all shares of Registrable
Securities held or entitled to be held upon conversion by such Holder may
-13-
<PAGE>
immediately be sold under Rule 144 during any 90-day period, or on such date
after the closing of the first Company-initiated registered public offering of
Common Stock of the Company as all shares of Registrable Securities held or
entitled to be held upon conversion by such Holder may immediately be sold under
Rule 144 during any 90-day period; provided, however, that the provisions of
this Section 1.15(b) shall not apply to any Holder who owns more than two
percent (2%) of the Company's outstanding Common Stock.
1.16 DELAY OF REGISTRATION. No Holder shall have any right to take
action to restrain, enjoin or otherwise delay any registration as result of any
controversy that might arise with respect to the interpretation or
implementation of this Section 1, provided, however, that this Section 1.16
shall not affect any right or remedy that the Holder may otherwise have.
2. COVENANTS OF THE COMPANY.
2.1 DELIVERY OF FINANCIAL STATEMENTS. The Company shall deliver to
each Investor:
(a) as soon as practicable, but in any event within ninety (90)
days after the end of each fiscal year of the Company, an income statement for
such fiscal year, a balance sheet of the Company and statement of stockholders'
equity as of the end of such year, and a statement of cash flows for such year,
such year-end financial reports to be in reasonable detail, prepared in
accordance with generally accepted accounting principals ("GAAP"), and audited
and certified by independent public accountants of nationally recognized
standing selected by the Company;
(b) so long as an Investor holds at least five percent (5.0%)
of the then outstanding Common Stock of the Company (on a fully as-converted
basis, as if all shares of Preferred Stock and all convertible securities had
been fully converted into shares of Common Stock): within thirty (30) days of
the end of each month, an unaudited income statement and statement of cash flows
and balance sheet for and as of the end of such month, in reasonable detail
comparing actual performance to budget;
(c) so long as an Investor holds at least five percent (5.0%)
of the then outstanding Common Stock of the Company (on a fully as-converted
basis, as if all shares of Preferred Stock and all convertible securities had
been fully converted into shares of Common Stock): as soon as practicable, but
in any event thirty (30) days prior to the end of each fiscal year, a budget and
business plan for the next fiscal year, prepared on a monthly basis, including
balance sheets and statements of cash flows for such months and, as soon as
prepared, statements of operating goals for each of the Company's functional
units and any other budgets or revised budgets prepared by the Company;
(d) with respect to the financial statements called for in
subsections (b) and (c) of this Section 2.1, an instrument executed by the Chief
Financial Officer or President of
-14-
<PAGE>
the Company and certifying that such financials were prepared in accordance with
GAAP consistently applied with prior practice for earlier periods (with the
exception of footnotes that may be required by GAAP) and fairly present the
financial condition of the Company and its results of operation for the period
specified, subject to year-end audit adjustment; and
(e) so long as an Investor holds at least five percent (5.0%)
of the then outstanding Common Stock of the Company (on a fully as-converted
basis, as if all shares of Preferred Stock and all convertible securities had
been fully converted into shares of Common Stock): such other information
relating to the financial condition, business, prospects or corporate affairs
(including press releases and the like) of the Company as the Investor or any
assignee of any Investor may from time to time reasonably request, provided,
however, that the Company shall not be obligated under this subsection (e) or
any other subsection of Section 2.1 to provide information which the Company's
Board deems in good faith to be a trade secret or similar confidential
information.
2.2 INSPECTION. The Company shall permit each Investor that holds at
least five percent (5.0%) of the then outstanding Common Stock of the Company
(on a fully as-converted basis, as if all shares of Preferred Stock and all
convertible securities had been fully converted into shares of Common Stock), at
such Investor's expense, to visit and inspect the Company's properties, to
examine its books of account and records and to discuss the Company's affairs,
finances and accounts with its officers, all at such reasonable times as may be
requested by the Investor; provided, however, that the Company shall not be
obligated pursuant to this Section 2.2 to provide access to any information
which it reasonably considers to be a trade secret or similar confidential
information.
2.3 BOARD OF DIRECTORS.
(a) Following the Closing and in accordance with Section D.1 of
the Company's Third Amended and Restated Certificate of Incorporation, the Board
of Directors of the Company shall consist of six (6) members. Subject to Section
D.1 of the Company's Third Amended and Restated Certificate of Incorporation,
the Company shall use its best efforts to cause and maintain the election of the
following persons to the Board of Directors: (i) the Company's Chief Executive
Officer, (ii) one (1) director nominated by the holders of a majority of the
outstanding shares of Common Stock of the Company, (iii) two (2) directors
nominated by the holders of the outstanding shares of Series A Preferred Stock
(each an "INVESTORS' BOARD REPRESENTATIVE"), one of whom shall be selected by
Patricof & Co. Ventures, Inc., or its successors or assigns, and one of whom
shall be selected by Adams Capital Management, Inc., or its successor or
assigns, (iv) one (1) outside director selected by a majority of the outstanding
shares of Common Stock, so long as such person is approved by the holders of at
least seventy-five percent (75%) of the Series A Preferred Stock and Series B
Preferred Stock, then outstanding, voting together on an as-converted basis, and
(v) one (1) director nominated by GE Capital ("GECC BOARD REPRESENTATIVE"). The
Investors' Board Representatives and the GECC
-15-
<PAGE>
Board Representative shall have the right, but not the obligation, to be elected
to any and all committees of the Board;
(b) The Company shall hold meetings of its Board of Directors
no less frequently than bimonthly, unless the Board unanimously agrees to hold
such meetings less frequently. The Company shall reimburse the Investors' Board
Representatives' and the GECC Board Representative's reasonable expenses
incurred in attending the meetings of the Company's Board (or any committee
thereof) which are required and/or requested, and any reasonable business
expense incurred by such Representative.
2.4 TAX MATTERS.
(a) The Company will promptly pay and discharge, or cause to be
paid and discharged, when due and payable, all lawful taxes, assessments and
governmental charges or levies imposed upon the income, profits, property or
business of the Company or any subsidiary; provided, however, that any such tax,
assessment, charge or levy need not be paid if the validity thereof shall
currently be contested in good faith by appropriate proceedings and if the
Company shall have set aside on its books adequate reserves with respect
thereto, and provided, further, that the Company will pay all such taxes,
assessments, charges or levies forthwith upon the commencement of proceedings to
foreclose any hen which may have attached as security therefor;
(b) During the entire period the Preferred Stock (and upon
conversion, the Common Stock) is held by an Investor, the Company agrees to meet
the active business requirements set forth in Section 1202(c)(2)(A) and
Section 1202(e) of the Internal Revenue Code of 1986, as amended (the "Code");
and
(c) The Company agrees to submit such reports to the Secretary
of the Treasury as required by Section 1202(d)(1) of the Code.
2.5 MAINTENANCE OF PROPERTIES AND LEASES. The Company will keep its
properties and those of its subsidiaries in good repair, working order and
condition, reasonable wear and tear excepted, and from time to time make all
needful and proper repairs, renewals, replacements, additions and improvements
thereto; and the Company and its subsidiaries will at all times comply with each
material provision of all leases to which any of them is a party or under which
any of them occupies property if the breach of such provision might have a
material and adverse effect on the condition, financial or otherwise, or
operations of the Company.
2.6 INSURANCE. The Company will keep its assets and those of its
subsidiaries which are of an insurable character insured by financially sound
and reputable insurers against loss or damage by fire, explosion and other risks
customarily insured against by companies in the Company's line of business, and
the Company will maintain, with financially sound and
-16-
<PAGE>
reputable insurers, insurance against other hazards and risks and liability to
persons and property to the extent and in the manner customary for companies in
similar businesses similarly situated.
2.7 KEY PERSON LIFE INSURANCE. The Company has as of the date hereof
obtained and will cause to be maintained, from financially sound and reputable
insurers, term life insurance on the life of Mel Baiada in the amount of
$2,000,000, on the life of Kevin Kilroy in the amount of $1,000,000, and on each
of the lives of Robert Bickel, Mark Nigro and John Capobianco in the amount of
$500,000. Such policies shall name the Company as loss payee and shall not be
cancellable by the Company without prior approval of the Holders of at least 75%
of the Registrable Securities then outstanding.
2.8 ACCOUNTS AND RECORDS. The Company will keep true records and books
of account in which full, true and correct entries will be made of all dealings
or transactions in relation to its business and affairs in accordance with
generally accepted accounting principles applied on a consistent basis.
2.9 INDEPENDENT ACCOUNTANTS. The Company will retain independent
public accountants of recognized national standing who shall certify the
Company's financial statements at the end of each fiscal year. In the event the
services of the independent public accountants so selected, or any firm of
independent public accountants hereafter employed by the Company, are
terminated, the Company will promptly thereafter notify the Holders and will
request the firm of independent public accountants whose services are terminated
to deliver to the Holders a letter from such firm setting forth the reasons for
the termination of their services. In the event of such termination, the Company
will promptly thereafter engage another firm of independent public accounts of
recognized national standing. In its notice to the Holders the Company shall
state whether the change of accountants was recommended or approved by the Board
of Directors of the Company or any committee thereof.
2.10 COMPLIANCE WITH REQUIREMENTS OF GOVERNMENT AUTHORITIES. The
Company and all its subsidiaries shall duly observe and conform to all valid
requirements of governmental authorities relating to the conduct of their
businesses or to their properties or assets.
2.11 MAINTENANCE OF CORPORATE EXISTENCE. The Company shall maintain in
full force and effect its corporate existence, rights and franchises and all
licenses and other rights in or to use patents, processes, licenses, trademarks,
trade names or copyrights owned or possessed by it or any subsidiary and deemed
by the Company to be necessary to the conduct of their business.
2.12 EMPLOYEE AGREEMENTS. The Company will cause each person employed
by it or any subsidiary to enter into an agreement containing, among other
things, confidentiality, non-competition/non-solicitation and
discovery/inventions provisions in form and content reasonably satisfactory to
the Investors.
-17-
<PAGE>
2.13 NOTICE OF BREACH. The Company shall furnish to each of the
Investors within ten (10) days after becoming aware of (i) any material default
or breach of the terms of this Agreement, any Purchase Agreement, the Second
Restated First Refusal and Co-Sale Agreement or the Restated Voting Agreement
(collectively, the "TRANSACTION AGREEMENTS"), or any document or agreement
delivered in connection with the Transaction Agreements, or (ii) any material
adverse event affecting the Company or its business, financial condition,
operations, prospects or affairs, a statement setting forth, in reasonable
detail, such default, breach or event, including the Company's proposed response
thereto.
2.14 TRANSACTIONS WITH AFFILIATES. The Company shall not, without the
approval of the disinterested members of the Company's Board of Directors,
engage in any loans, leases, contracts or other transactions with any director,
officer or key employee of the Company, or any member of any such person's
immediate family, including the parents, spouse, children and other relatives of
any such person (including the hiring thereof) or any affiliate of any such
person, including without limitation Bluestone Consulting Inc.
2.15 MAINTENANCE OF A STANDARD SYSTEM OF ACCOUNTING. The Company will
maintain a standard system of accounting established and administered in
accordance with generally accepted accounting principles.
2.16 PAYMENT OF INDEBTEDNESS. The Company will promptly pay or cause to
be paid when due, or in conformance with customary trade terms otherwise in
accordance with policies related thereto adopted by the Company's Board of
Directors, all indebtedness incident to operations of the Company.
2.17 UNIX GUI BUSINESS. Except as provided in the letter agreement
dated April 23, 1998, between the Company and Bluestone Consulting, Inc., the
Company has discontinued its Unix GUI business, and will not incur any
additional obligations in respect of, or make any investment or advance to, such
business and the discontinuance and/or disposition of such business has not
resulted in and will not result in any tax or other liabilities to the Company.
2.18 TERMINATION OF COVENANTS. The covenants set forth in this Section
2 shall terminate and be of no further force and effect after the time of
effectiveness of the Company's first firm commitment underwritten public
offering of Common Stock pursuant to a registration statement under the
Securities Act, resulting in aggregate gross proceeds to the Company of at least
$20,000,000 at a gross offering price to the public which is greater than or
equal to 150% of then applicable conversion price of the Series C Preferred
Stock.
3. MISCELLANEOUS.
3.1 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective
-18-
<PAGE>
successors and assigns of the parties (including transferees of any shares of
Registrable Securities). Nothing in this Agreement, express or implied, is
intended to confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
3.2 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of Delaware without giving effect to conflict of law
principles.
3.3 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
3.4 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
3.5 NOTICES. Unless otherwise provided, all notices, consents or other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given (i) when delivered
personally, (ii) three business days after being mailed by first class mail,
postage prepaid, or (iii) one business day after being sent by a reputable
overnight delivery service, postage or delivery charges prepaid, to the parties
at their respective addresses stated on the signature page of this Agreement.
Notices may also be given by prepaid telegram or facsimile and shall be
effective on the date transmitted if confirmed within 24 hours thereafter by a
signed original sent in the manner provided in the preceding sentence. Any party
may change its address for notice and the address to which copies must be sent
by giving notice of the new addresses to the other parties in accordance with
this Section 3.5, except that any such change of address notice shall not be
effective unless and until received.
3.6 EXPENSES. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
3.7 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively), only
with the written consent of the Company and the Holders of at least 75% of the
Registrable Securities then outstanding (excluding any securities deemed
Registrable Securities pursuant to Section 1.1(i) hereof); provided, however,
that in the event such amendment or waiver adversely affects the rights and/or
obligations of the Common Stockholder under this Agreement in a different manner
than other Holders, such amendment or waiver shall also require the written
consent of a majority of the Common Stockholder. Any amendment or waiver
effected in accordance with this paragraph
-19-
<PAGE>
shall be binding upon each Holder of any Registrable Securities then outstanding
or securities exercisable for or convertible into Registrable Securities
(including Holders of any securities deemed Registrable Securities pursuant to
Section 1.1(i) hereof), each future holder of all such Registrable Securities,
and the Company.
3.8 SEVERABILITY. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, such provision shall be excluded from
this Agreement and the balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
3.9 AGGREGATION OF STOCK. All shares of Registrable Securities held or
acquired by affiliated entities or persons shall be aggregated together for the
purpose of determining the availability of any rights under this Agreement.
3.10 CONFIDENTIAL INFORMATION. Each Investor acknowledges that the
information received by them pursuant to Sections 2.1 and 2.2 of this Agreement
may be confidential. Each Investor agrees that it will not use such Confidential
Information in violation of the 1934 Act or reproduce, disclose or disseminate
such information to any third person (other than its employees, agents or
attorneys), except in connection with the exercise of any right hereunder. For
purposes of this Section 3.10, Confidential Information shall not include any
information that (i) is or becomes generally available to the public other than
as a result of a disclosure by the Company or any of its directors, officers,
employees or agents, (ii) is or becomes available to the Investors on a
non-confidential basis from a source other than the Company, or (iii) is
independently acquired or developed by the Investors without violating any of
the Investors' obligations under this Agreement.
3.11 ENTIRE AGREEMENT. This Agreement, the Series C Agreement and the
Second Restated First Refusal and Co-Sale Agreement dated as of May 25, 1999
between the Company and the parties signatory thereto constitute the full and
entire understanding and agreement between the parties with regard to the
subjects hereof.
[SIGNATURE PAGES FOLLOW]
-20-
<PAGE>
SIGNATURE PAGES
SECOND RESTATED INVESTORS' RIGHTS AGREEMENT
IN WITNESS WHEREOF, the parties have executed this Second Restated
Investors' Rights Agreement as of the date first above written.
BLUESTONE SOFTWARE, INC.
By: /s/ P. Kevin Kilroy
--------------------------------------
Name: P. Kevin Kilroy
Title: President
Address: 1000 Briggs Road
Mt. Laurel, NJ 08054
Telephone No.: 609-727-4600
Facsimile No.: 609-787-9395
INVESTORS:
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ Anton Simunovic
--------------------------------------
Name: Anton Simunovic
Title: Vice President
Address: 260 Long Ridge Road
Stamford, CT 06927
Telephone No.: (203) 961-2887
Facsimile No.: (203) 357-4565
-21-
<PAGE>
SIGNATURE PAGES
SECOND RESTATED INVESTORS' RIGHTS AGREEMENT
THE P/A FUND, L.P.
By: FOSTIN CAPITAL PARTNERS II, L.P.
its General Partner
By: /s/ William C. Hulley
--------------------------------------
Name: William C. Hulley
Title: General Partner
Address: 518 Broad Street
Sewickley, PA 15143
Telephone No.: 412-749-9454
Facsimile No.: 412-749-9459
PATRICOF PRIVATE INVESTMENT CLUB, L.P.
By: APA EXCELSIOR IV PARTNERS, L.P.,
its General Partner
By: PATRICOF & CO. MANAGERS, INC.,
its General Partner
By: /s/ Gregory M. Case
--------------------------------------
Name: Gregory M. Case
Title: Vice President
Address: 455 South Gulph Road
Suite 410
King of Prussia, PA 19406
Telephone No.: 610-265-0286
Facsimile No.: 610-265-4959
-22-
<PAGE>
SIGNATURE PAGES
SECOND RESTATED INVESTORS' RIGHTS AGREEMENT
APA EXCELSIOR IV, L.P.
By: APA EXCELSIOR IV PARTNERS, L.P.,
its General Partner
By: PATRICOF & CO. MANAGERS, INC.,
its General Partner
By: /s/ Gregory M. Case
--------------------------------------
Name: Gregory M. Case
Title: Vice President
Address: 455 South Gulph Road
Suite 410
King of Prussia, PA 19406
Telephone No.: 610-265-0286
Facsimile No.: 610-265-4959
COUTTS & CO. (CAYMAN) LTD., CUST. FOR
APA EXCELSIOR IV/OFFSHORE, L.P.
By: PATRICOF & CO. VENTURES, INC.,
its Investment Advisor
By: /s/ Gregory M. Case
--------------------------------------
Name: Gregory M. Case
Title: Managing Director
Address: 455 South Gulph Road
Suite 410
King of Prussia, PA 19406
Telephone No.: 610-265-0286
Facsimile No.: 610-265-4959
-23-
<PAGE>
SIGNATURE PAGES
SECOND RESTATED INVESTORS' RIGHTS AGREEMENT
/s/ Mel Baiada
-----------------------------------
MEL BAIADA
Address: 100 Briggs Road
Mt. Laurel, NJ 08054
Telephone No.: 609-727-4600
Facsimile No.: 609-787-9395
/s/ Eugene Levy
-----------------------------------
EUGENE LEVY
Address: 90 Riverside Drive
Apt. 5E
New York, NY 10024
Telephone No.: 212-753-6300
Facsimile No.: 212-319-6155
-24-
<PAGE>
FIRST AMENDMENT TO THE
SECOND RESTATED INVESTORS' RIGHTS AGREEMENT
THIS AGREEMENT is made as of June 16, 1999, by and among
Bluestone Software, Inc., a Delaware corporation (the "Company"), and the
parties listed on the signature pages hereto (the "Investors").
BACKGROUND
The Company and the Investors are parties to that certain Second
Restated Investor's Rights Agreement dated as of May 25, 1999 (the "Investors'
Rights Agreement"). The Company and the Investors desire to amend the Investors'
Rights Agreement as provided herein.
INTENDING TO BE LEGALLY BOUND, the parties hereto agree as follows:
1. Section 2.3(a) of the Investors' Rights Agreement shall be
amended and restated in its entirety to read as follows:
(a) In accordance with Section E.1 of the Company's Third
Amended and Restated Certificate of Incorporation, as
amended by the Certificate of Amendment date June __,
1999 (the "Certificate of Incorporation"), the Board
of Directors of the Company shall consist of seven
(7) members. Subject to Section E.1 of the Company's
Certificate of Incorporation, the Company shall use
its best efforts to cause and maintain the election
of the following persons to the Board of Directors:
(i) the Company's Chief Executive Officer, (ii) one
(1) director nominated by the holders of a majority
of the outstanding shares of Common Stock of the
Company, (iii) two (2) directors nominated by the
holders of the outstanding shares of the Series A
Preferred Stock (each an "INVESTORS' BOARD
REPRESENTATIVE"), one of whom shall be selected by
Patricof & Co. Ventures, Inc., or its successors and
assigns, (iv) two (2) outside directors selected by a
majority of the outstanding shares of Common tock, so
long as such persons are approved by the holders of
at least seventy-five percent (75%) of the Series A
Preferred Stock and Series B Preferred Stock, then
outstanding, voting together on an as-converted
basis, and (v) one (1) director nominated by GE
Capital ("GECC BOARD REPRESENTATIVE"). The Investors'
Board Representatives and the GECC Board
Representative shall have the right, but no the
obligation, to be elected to any and all committees
of the Board.
2. The Investors' Rights Agreement is amended in accordance with
Section 3.7 therein.
3. Except as specifically amended herein, the Investors' Rights
Agreement shall
<PAGE>
remain in full force and effect in accordance with its terms.
4. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original and all of which
shall constitute on agreement, and the signatures of any party
to any counterpart shall be deemed to be a signature to, and
may be appended to, any other counterpart.
[SIGNATURE PAGES FOLLOW]
-2-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
THE COMPANY:
BLUESTONE SOFTWARE, INC.
By: /s/ P. Kevin Kilroy
----------------------------
Name: P. Kevin Kilroy
Title: President
THE INVESTORS:
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ Anton Simunovic
----------------------------
Name: Anton Simunovic
Title: Vice President
THE P/A FUND, L.P.
By: FOSTIN CAPITAL PARTNERS II,
L.P., its General Partner
By: /s/ William C. Hulley
----------------------------
Name: William C. Hulley
Title: General Partner
[SIGNATURES CONTINUE]
-3-
<PAGE>
PATRICOF PRIVATE INVESTMENT CLUB, L.P.
By: APA EXCELSIOR IV PARTNERS, L.P.,
its General Partner
By: PATRICOF & CO. MANAGERS, INC.,
its General Partner
By: /s/ Gregory M. Case
----------------------------
Name: Gregory M. Case
Title: Vice President
APA EXCELSIOR IV, L.P.
By: APA EXCELSIOR IV PARTNERS, L.P.,
its General Partner
By: PATRICOF & CO. MANAGERS, INC.,
its General Partner
By: /s/ Gregory M. Case
----------------------------
Name: Gregory M. Case
Title: Vice President
COUTTS & CO. (CAYMAN) LTD., CUST. FOR
APA EXCELSIOR IV/OFFSHORE, L.P.
By: PATRICOF & CO. VENTURES, INC.,
its Investment Advisor
By: /s/ Gregory M. Case
----------------------------
Name: Gregory M. Case
Title: Managing Director
-4-
<PAGE>
Exhibit 10.36
BLUESTONE SOFTWARE, INC.
RESTATED VOTING AGREEMENT
THIS AGREEMENT is made as of the 23rd day of April, 1998, by and among
Bluestone Software, Inc., a Delaware corporation (the "Company"), the investors
listed on SCHEDULE A attached hereto (the "Investors"), and the individuals
listed on SCHEDULE B attached hereto (the "Founders").
The Company and certain of the Investors are parties to a certain
Series A Preferred Stock Purchase Agreement dated April 18, 1997 (the "Series A
Agreement"), pursuant to which such Investors purchased 5,526,316 shares, in the
aggregate, of the Company's Series A Convertible Preferred Stock (the "Series A
Preferred Stock"); the Company and certain of the Investors are parties to a
certain Series B Preferred Stock Purchase Agreement dated the date hereof,
pursuant to which such Investors are purchasing 8,782,695 in the aggregate, of
the Company's Series B Convertible Preferred Stock (the "Series B Preferred
Stock" and together with Series A Preferred Stock, the "Preferred Stock").
It is a condition to such issuance by the Company of the Series B
Preferred Stock and to the investment by the Investors in the Series B Preferred
Stock that the Founders and the Company enter into a voting agreement relating
to the election of members to the Company's Board of Directors (the "Board of
Directors") amending and restating the Voting Agreement dated April 18, 1997.
Any and all references to outstanding shares of the Preferred Stock also refers
to Common Stock issued upon conversion thereof. Any and all references to
outstanding shares of Common Stock also refers to Common Stock issued upon
conversion and exercise of all convertible securities.
INTENDING TO BE LEGALLY BOUND, and in consideration of the voting
agreement stated below, the parties agree as follows:
1. FOUNDERS' AGREEMENT TO VOTE. During the term of this Agreement, the
Founders agree to vote all of the shares of the Company's voting securities now
or hereafter owned by them, whether beneficially or otherwise (the "Founders'
Shares"), as follows:
(a) INVESTORS' REPRESENTATIVES. The Founders shall vote or act
with respect to the Founders' Shares so as always to elect as directors of the
Company (i) two (2) designees nominated by holders of the Series A Preferred
Stock, one such designee shall be nominated by Patricof & Co. Ventures (which
term refers to the group of funds that include APA Excelsior IV, L.P., Coutts &
Co. (Cayman) Ltd., Cust. for APA Excelsior IV/Offshore, L.P., The P/A Fund, L.P.
and Patricof Private Investment Club, L.P.), and the other designee shall be
nominated by Adams Capital Management, Inc.; and (ii) one (1) designee nominated
by General Electric
<PAGE>
Capital Corporation ("GE Capital") for as long as GE Capital is a holder of any
capital stock of the Company.
(b) CHIEF EXECUTIVE OFFICER. The Founders agree to vote or act
with respect to the Founders' Shares so as always to elect the Company's Chief
Executive Officer as a director of the Company;
(c) FOUNDERS' REPRESENTATIVE. The Founders shall vote or act
with respect to the Founders' Shares so as always to elect one (1) designee
nominated by the holders of a majority of the outstanding shares of Common Stock
of the Company held by the Founders, as a director of the Company; and
(d) OUTSIDE DIRECTORS. The Founders shall vote or act with
respect to the Founders' Shares so as to always elect one (1) designee nominated
by the holders of a majority of the outstanding shares of Common Stock held by
the Founders and reasonably approved by the holders of at least 75% of the
outstanding shares of Preferred Stock held by the Investors as a director of the
Company. In the event, but only for as long as, the Founders and Investors
cannot agree as to such director, the Founders shall vote or act with respect to
the Founders' Shares so as to leave one vacancy on the Board.
(e) EVENT OF DEFAULT. Upon the occurrence of an Event of
Default, as defined in the Company's Second Amended and Restated Certificate of
Incorporation, the Founders agree to vote or act with respect to the Founders'
Shares in accordance with the recommendation of at least a majority of the
Company's Board of Directors.
(f) INCREASE IN AUTHORIZED COMMON STOCK. If at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of all then outstanding shares of the Preferred Stock,
the Founders agree to vote or act with respect to the Founders' Shares so as to
increase the Company's authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purpose, including without
limitation, voting in favor of any necessary amendment to the Company's
Certificate of Incorporation.
2. INVESTORS' AGREEMENT TO VOTE. During the term of this Agreement, the
Investors agree to vote all of the shares of the Company's voting securities now
or hereafter owned by them, whether beneficially or otherwise (the "Investors'
Shares"), as follows:
(a) INVESTORS' REPRESENTATIVES. The Investors shall vote or
act with respect to the Investors' Shares so as always to elect as directors of
the Company (i) two (2) designees nominated by holders of the Series A Preferred
Stock, one such designee shall be nominated by Patricof & Co. Ventures, and the
other designee shall be nominated by Adams Capital Management, Inc.; and (ii)
one (1) designee nominated by GE Capital for as long as GE Capital is a holder
of any capital stock of the Company.
-2-
<PAGE>
(b) CHIEF EXECUTIVE OFFICER. The Investors agree to vote or
act with respect to the Investors' Shares so as always to elect the Company's
Chief Executive Officer as a director of the Company;
(c) FOUNDERS' REPRESENTATIVE. The Investors shall vote or act
with respect to the Investors' Shares so as always to elect one (1) designee
nominated by the holders of a majority of the outstanding shares of Common Stock
of the Company held by the Founders, as a director of the Company; and
(d) OUTSIDE DIRECTORS. The Investors shall vote or act with
respect to the Investors' Shares so as to always elect one (1) designee
nominated by the holders of a majority of the outstanding shares of Common Stock
held by the Founders and reasonably approved by the holders of at least
seventy-five (75%) of the outstanding shares of Preferred Stock held by the
Investors as a director of the Company. In the event, but only for as long as,
the Founders and Investors cannot agree as to such director, the Investors shall
vote or act with respect to the Investors' Shares so as to leave one vacancy on
the Board.
3. BOARD OBSERVER. The Company, the Founders and the Investors agree
that, for as long as each of Patricof & Co. Ventures and GE Capital is a holder
of any capital stock of the Company, Patricof & Co. Ventures and GE Capital
shall each be entitled to have one observer selected by Patricof & Co. Ventures
or GE Capital, as the case may be, present at all meetings (whether in person,
by telephone or video conference) of the Board (in addition to any nominees of
GE Capital and Patricof & Co. Ventures. serving as directors of the Company) and
such two observers shall have the same access to information concerning the
business and operations of the Corporation and at the same time as directors of
the Corporation and shall be entitled to participate in discussions and consult
with the Board at each such meeting, without voting. Notwithstanding anything to
the contrary set forth in this Section 3 or in the Company's Second Amended and
Restated Certificate of Incorporation, Patricof & Co. Ventures and GE Capital
(each a "Designator") agree that in the event that the director nominated by a
Designator pursuant to Sections 1(a) and 2(a) hereof is not eligible to act upon
a matter before the Board due to a conflict of interest between the Company and
such Designator with respect to such matter, then all rights of such
Designator's observer granted under this Section 3 shall be suspended with
respect to such matter.
4. SUCCESSORS IN INTEREST OF THE FOUNDERS AND INVESTORS.
(a) The provisions of this Agreement shall be binding upon the
successors in interest of (i) the Founders to any of the Founders' Shares, and
(ii) the Investors to any of the shares of the Company's voting securities now
or hereafter owned by them, whether beneficially or otherwise (the "Investors"
Shares). The Company shall not permit the transfer of any Founders' Shares or
Investors' Shares on its books or issue a new certificate representing any
Founders' Shares or Investors' Shares unless and until the person to whom such
security is to be
-3-
<PAGE>
transferred shall have executed a written agreement, satisfactory in form and
substance to the Investors, pursuant to which such person becomes a party to
this Agreement and agrees to be bound by all the provisions hereof as if such
person was a Founder or Investor, whichever is applicable, hereunder.
(b) Each certificate representing any Founders' Shares or
Investors' Shares shall be endorsed by the Company with a legend reading as
follows:
THE SHARES EVIDENCED HEREBY ARE SUBJECT TO A VOTING
AGREEMENT (A COPY OF WHICH MAY BE OBTAINED FROM THE
ISSUER), AND BY ACCEPTING ANY INTEREST IN SUCH SHARES
THE PERSON ACCEPTING SUCH INTEREST SHALL BE DEEMED TO
AGREE TO AND SHALL BECOME BOUND BY ALL THE PROVISIONS
OF SAID VOTING AGREEMENT.
5. COVENANTS OF THE COMPANY. The Company agrees to take all actions
required to ensure that the rights given to the Investors hereunder are
effective and that the Investors enjoy the benefits thereof. Such actions
include, without limitation, the use of the Company's best efforts to cause the
nomination of the designees of the Investors for election as directors of the
Company. The Company will not, by any voluntary action, avoid or seek to avoid
the observance or performance of any of the terms to be performed hereunder by
the Company, but will at all times in good faith assist in the carrying out of
all of the provisions of this Agreement and in the taking of all such actions as
may be necessary or appropriate in order to protect the rights of the Investors
hereunder against impairment.
6. TERMINATION. This Agreement shall terminate upon the earlier of the
date when the Investors, or their successors and assigns, no longer hold any
shares of the Preferred Stock or Common Stock issued upon conversion thereof, or
upon the consummation of the Company's initial public offering on a firm
underwriting basis, the gross offering price of which was not less than $5.18
per share (adjusted to reflect stock dividends, stock splits or
recapitalizations) and $10,000,000 in the aggregate.
7. AMENDMENTS AND WAIVERS. Any term hereof may be amended and the
observance of any term hereof may be waived (either generally or in a particular
instance and either retroactively or prospectively) only with the written
consent of the Company, and holders of 75% in interest of the Investors or their
assigns and holders of a majority in interest of the Founders' Shares, their
successors and assigns.
8. STOCK SPLITS, STOCK DIVIDENDS, ETC. In the event of any stock split,
stock dividend, recapitalization, reorganization, or the like, any securities
issued with respect to the Founders' Shares shall become Founders' Shares for
purposes of this Agreement and shall be endorsed with the legend set forth in
Section 3(b) hereof.
-4-
<PAGE>
9. SEVERABILITY. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be held to be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.
10. GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of Delaware, without regard to the conflict of laws
provisions thereof.
11. COUNTERPARTS. This Agreement and the other New Transaction
Agreements (as defined in the Series B Agreement) may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
12. SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided in
this Agreement, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors and assigns of the parties hereto.
13. ENTIRE AGREEMENT. This Agreement and the other New Transaction
Agreements (as defined in the Series B Agreement) constitute the entire
agreement with respect to the subject matter hereof among the parties, and no
party shall be liable or bound to any other party in any manner by any
warranties, representations, or covenants except as specifically set forth
herein or therein. This Agreement supersedes the Voting Agreement dated April
18, 1997, which shall be of no further force or effect.
IN WITNESS WHEREOF, the parties have executed this Restated Voting
Agreement as of the date first above written.
BLUESTONE SOFTWARE, INC.
By: /s/ Mel Baiada
Name: Mel Baiada
Title: President
Address: 1000 Briggs Road
Mt. Laurel, NJ 08054
Telephone No.: 609-727-4600
Facsimile No.: 609-778-8125
-5-
<PAGE>
INVESTORS:
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ Anton Simunovic
---------------------------
Name: Anton Simunovic
Title: Vice President
Address: 260 Long Ridge Road
Stamford, CT 06927
Telephone No.: (203) 961-2887
Facsimile No.: (203) 357-4565
-6-
<PAGE>
THE P/A FUND, L.P.
By: APA PENNSYLVANIA PARTNERS II, L.P.,
its General Partner
By: /s/ William C. Hulley
----------------------------
Name: William C. Hulley
Title: General Partner
Address: 518 Broad Street
Sewickley, PA 15143
Telephone No.: 412-749-9454
Facsimile No.: 412-749-9459
PATRICOF PRIVATE INVESTMENT CLUB, L.P.
By: APA EXCELSIOR IV PARTNERS, L.P.,
its General Partner
By: PATRICOF & CO. MANAGERS, INC.,
its General Partner
By: /s/ Gregory M. Case
--------------------------
Name: Gregory M. Case
Title: Vice President
Address: 455 South Gulph Road
Suite 410
King of Prussia, PA 19406
Telephone No.: 610-265-0286
Facsimile No.: 610-265-4959
-7-
<PAGE>
APA EXCELSIOR IV, L.P.
By: APA EXCELSIOR IV PARTNERS, L.P.,
its General Partner
By: PATRICOF & CO. MANAGERS, INC.,
its General Partner
By: /s/ GREGORY M. CASE
--------------------------
Name: Gregory M. Case
Title: Vice President
Address: 455 South Gulph Road
Suite 410
King of Prussia, PA 19406
Telephone No.: 610-265-0286
Facsimile No.: 610-265-4959
COUTTS & CO. (CAYMAN) LTD., CUST. FOR
APA EXCELSIOR IV/OFFSHORE, L.P.
By: PATRICOF & CO. VENTURES, INC.,
its Investment Advisor
By: /s/ Gregory M. Case
----------------------------
Name: Gregory M. Case
Title: Managing Director
Address: 455 South Gulph Road
Suite 410
King of Prussia, PA 19406
Telephone No.: 610-265-0286
Facsimile No.: 610-265-4959
-8-
<PAGE>
/s/ Mel Baiada
-------------------
MEL BAIADA
Address: 1000 Briggs Road
Mt. Laurel, NJ 08054
Telephone No.: 609-727-4600
Facsimile No.: 609-778-8125
/s/ Eugene Levy
-------------------
EUGENE LEVY
Address: 90 Riverside Drive, Apt. 5E
New York, New York 10024
Telephone No.: 212-753-6300
Facsimile No.: 212-319-6155
FOUNDERS:
/s/ Mel Baiada
-------------------
MEL BAIADA
Address: 1000 Briggs Road
Mt. Laurel, NJ 08054
Telephone No.: 609-727-4600
Facsimile No.: 609-778-8125
/s/ Mark Baiada
-------------------
MARK BAIADA
Address: 741 Mill Street
Moorestown, NJ 08057
Telephone No.:
-9-
<PAGE>
Facsimile No.:
-10-
<PAGE>
FIRST AMENDMENT TO THE
RESTATED VOTING AGREEMENT
THIS AGREEMENT is made as of June 16, 1999, by and among
Bluestone Software, Inc., a Delaware corporation (the "Company"), and the
parties listed on the signature pages hereto (as applicable, the "Investors" and
the "Stockholders").
BACKGROUND
The Company and the Investors and the Stockholders are parties to that
certain Restated Voting Agreement dated as of April 23, 1998 (the "Voting
Agreement"). The parties hereto desire to amend the Voting Agreement as provided
herein.
INTENDING TO BE LEGALLY BOUND, the parties hereto agree as follows:
1. Section 1(d) of the Voting Agreement shall be amended and
restated in its entirety to read as follows:
(d) OUTSIDE DIRECTORS. The Founders shall vote or act
with respect to the Founders' Shares so as to always
elect two (2) designees nominated by the holders of a
majority of the outstanding shares of Common Stock
held by the Founders and reasonably approved by the
holders of at least 75% of the outstanding shares of
Preferred Stock held by Investors as directors of the
Company. In the event, but only for so long as, the
Founders and Investors cannot agree as to one or both
of such directors, the Founders shall vote or act
with respect to the Founders' Shares so as to leave
one or both vacancies on the Board. As of the date
hereof, the outside directors shall be Andrew
Filipowski and Paul Blondin.
2. Section 2(d) of the Voting Agreement shall be amended and
restated in its entirety to read as follows:
(d) OUTSIDE DIRECTORS. The Investors shall vote or act with
respect to the Investors' Shares so as to always elect two
(2) designees nominated by the holders of a majority of
the outstanding shares of Common Stock held by the
Founders and reasonably approved by the holders of at
least 75% of the outstanding shares of Preferred Stock
held by Investors as directors of the Company. In the
event, but only for so long as, the Founders and Investors
cannot agree as to one or both of such directors, the
Founders shall vote or act with respect to the Founders'
Shares so as to leave one or both vacancies on the Board.
As of the date hereof, the outside directors shall be
Andrew Filipowski and Paul Blondin.
<PAGE>
3. The Voting Agreement is amended in accordance with Section 7
thereof.
4. Except as specifically amended herein, the Voting Agreement
shall remain in full force and effect in accordance with its
terms.
5. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original and all of which
shall constitute on agreement, and the signatures of any party
to any counterpart shall be deemed to be a signature to, and
may be appended to, any other counterpart.
[SIGNATURE PAGES FOLLOW.]
-2-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
THE COMPANY:
BLUESTONE SOFTWARE, INC.
By: /s/ P. Kevin Kilroy
---------------------------
Name: P. Kevin Kilroy
Title: President
THE INVESTORS:
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ Anton Simunovic
----------------------------
Name: Anton Simunovic
Title: Vice President
THE P/A FUND, L.P.
By: FOSTIN CAPITAL PARTNERS II,
L.P., its General Partner
By: /s/ William C. Hulley
----------------------------
Name: William C. Hulley
Title: General Partner
[SIGNATURES CONTINUE]
-3-
<PAGE>
PATRICOF PRIVATE INVESTMENT CLUB, L.P.
By: APA EXCELSIOR IV PARTNERS, L.P.,
its General Partner
By: PATRICOF & CO. MANAGERS, INC.,
its General Partner
By: /s/ Gregory M. Case
----------------------------
Name: Gregory M. Case
Title: Vice President
APA EXCELSIOR IV, L.P.
By: APA EXCELSIOR IV PARTNERS, L.P.,
its General Partner
By: PATRICOF & CO. MANAGERS, INC.,
its General Partner
By: /s/ Gregory M. Case
----------------------------
Name: Gregory M. Case
Title: Vice President
COUTTS & CO. (CAYMAN) LTD., CUST. FOR APA
EXCELSIOR IV/OFFSHORE, L.P.
By: PATRICOF & CO. VENTURES, INC.,
its Investment Advisor
By: /s/ Gregory M. Case
----------------------------
Name: Gregory M. Case
Title: Managing Director
[SIGNATURES CONTINUE]
-4-
<PAGE>
/s/ Eugene Levy
-------------------------------
Eugene Levy
STOCKHOLDERS:
/s/ Mel Baiada
---------------------
MEL BAIADA
/s/ Mark Baiada
-------------------
MARK BAIADA
-5-
<PAGE>
LEASE
BETWEEN
BRIGGS PROPERTIES PARTNERSHIP
- --------------------------------------------------------------------------------
LESSOR
AND
BLUESTONE CONSULTING, INC.
- --------------------------------------------------------------------------------
LESSEE
14,551 SQ. FT., 1000 BRIGGS ROAD, MT. LAUREL, NEW JERSEY 08054
- --------------------------------------------------------------------------------
DEMISED PREMISES
<PAGE>
INDEX
<TABLE>
<CAPTION>
Article Heading
<S> <C>
I Demised Premises
II Term of Lease
III Minimum Rent
IV Taxes
V Security Deposit
VI Description of Lessor's Work
VII Lessee's Work and Signs
VIII Use of Premises
IX Alterations
X Maintenance of Demised Premises
XI Maintenance, Control & Expense of Common Areas
XII Utilities
XIII Destruction by Fire or Casualty
XIV Lessee's Property in Demised Premises
XV Access to Demised Premises
XVI Surrender of Demised Premises
XVII Indemnity and Insurance by Lessee
XVIII Assignment and Subletting
XIX Eminent Domain
XX Default by Lessee
XXI Waiver of Lessee's Default
XXII Default of Lessor
XXIII Limitation of Liability and Transfer of Lessor's Interest
XXIV Estoppel Certificate by Lessee
XXV Option to Renew
XXVI Quiet Enjoyment
XXVII Subordination
XXVIII Tides of Articles
XXIX Notices
XXX Definition of Terms
XXXI Invalidity of Particular Provisions
XXXII Provisions Binding
XXXIII Relationship of Parties
XXXIV Complete Agreement
</TABLE>
<PAGE>
THIS Lease made on this 27th day of SEPTEMBER 1993, by and between
BRIGGS PROPERTIES PARTNERSHIP, 1629 Locust Street, Philadelphia, Pennsylvania
19103 as "Lessor", and BLUESTONE CONSULTING, INC., 1200 Church Street, Mt.
Laurel, New Jersey 08054 as "Lessee," witnesses that Lessor and Lessee covenant
with each other as follows:
RECITALS
A. Lessor is the contractual owner of a certain real property located at and
known as 1000 Briggs Road, Mt. Laurel, New Jersey. The Lessor intends to
PURCHASE the property by September 27, 1993. IN THE EVENT LESSOR DOES NOT SETTLE
ON THE PROPERTY BY OCTOBER 1, 1993, THIS LEASE SHALL LAPSE BY LESSEE'S WRITTEN
NOTICE TO LESSOR OF ITS INTENT TO TERMINATE THE LEASE.
B. Lessor desires to lease the Premises to Lessee, and Lessee desires to Lease
the Premises from Lessor, on and subject to the terms and conditions herein set
forth.
ARTICLE I - Demised Premises
The Lessor hereby leases to the Lessee and Lessee hereby rents from
Lessor the following described premises as outlined in red on Exhibit A attached
herewith, herein called "Demised Premises" containing 14,551 square feet,
situated in CAMBRIDGE CROSSING herein referred to as "Demised Premises." The
street address of the Demised Premises will be 1000 BRIGGS ROAD, MT. LAUREL, NEW
JERSEY 08054.
ARTICLE II - Terms of Lease
1. TO HAVE AND TO HOLD for a term to commence on the latter of DECEMBER
1, 1993 or the date on which lessor has substantially completed Lessor's work in
accordance with this lease and delivered the Premises to Lessee ready for
occupancy and to end at midnight on the 30TH DAY OF NOVEMBER, 2003.
2. EXPANSION OPTION/FIRST RIGHT OF REFUSAL. Lessee shall have an
expansion option on all contiguous space exercisable AFTER THE 61ST MONTH FROM
THE COMMENCEMENT DATE OF THIS LEASE in the 61st month after the commencement
date of this Lease. The rental rate for the expansion space will be the minimum
monthly rent per square foot ($7.95/SF) increased by the increase in the
Consumer Price Index, PHILADELPHIA REGION, from the commencement date and
occupancy of the expansion space. (EXAMPLE $7.95 X 3 % ANNUAL CPI X 5 YEARS =
$9.22) In the event the Lessor is unable to accommodate a minimum of 2,500 SF of
Lessee's expansion requirement, the Lessee's sole remedy is to terminate this
Lease by first giving the Lessor nine (9) months prior written notice of
Lessee's intent to terminate the Lease and the Lessee's payment to Lessor of One
Hundred Ten Thousand and 00/100 ($110,000.00) Dollars as additional rent as
reimbursement to Lessor for unamortized tenant improvements paid in nine
(9)equal monthly payment as additional rent on the first of every month.
1
<PAGE>
LESSEE SHALL HAVE A FIRST RIGHT OF REFUSAL ON ALL UNLEASED SPACE FROM
THE COMMENCEMENT DATE THROUGH THE 60TH MONTH ANNIVERSARY AT MARKET RENT. LESSOR
SHALL NOTIFY LESSEE IN WRITING OF ITS INTENT TO LEASE. IF LEASEE DOES NOT
EXERCISE ITS OPTION TO LEASE WITHIN FIVE (5) BUSINESS DAYS OF NOTICE, LESSOR
SHALL HAVE NO FURTHER OBLIGATION TO LESSEE REGARDING THAT SPACE IDENTIFIED IN
THE LESSOR NOTICE.
ARTICLE III - Minimum Rent
1. Initial Minimum Monthly Rent: The initial minimum monthly rent shall
be NINE THOUSAND SIX HUNDRED FORTY AND 04/100 ($9,640,04) Dollars, all in
advance, on the first day of every calendar month during the term hereof without
deduction or set off. If the term of this Lease shall commence or end on a day
other than the first day of the month, Lessee shall pay minimum rental equal to
one-thirtieth (1/30th) of the monthly minimum rental multiplied by the number of
rental days of such fractional month. There shall be a penalty added to all
payments due of five percent (5%) for monies received more than five (5) days
after the payment is due. The Lessee shall pay the first months rent upon
execution of the Lease by Lessor.
ARTICLE IV - Taxes
1. Taxes ("Taxes") shall mean any form of tax, assessment, excise of
impost (whether general, special, ordinary or extraordinary), license fee,
business tax, rental tax, improvement bond, levy, lien, charge or penalty
imposed or assessed by an authority having the direct or indirect power to tax
(including any city, county, state or federal government, or any school,
agricultural, lighting, drainage, sewage, irrigation or other improvement or
other special district) against or in respect of or which may be or become a
lien or charge upon (a) any legal or equitable interest or Lessor in the Demised
Premises or in the real property of which the Demised Premises is a part, or (b)
Lessor's right to or receipt of rent or other income from the Demised Premises
or by Lessor's business or leasing the Dernised Premises.
2. The amount payable by Lessee to Lessor as additional rent shall be
paid within twenty (20) days after each such tax billing is received by Lessee.
The amount payable by Lessee shall be based upon a fraction the numerator of
which is the amount of floor area occupied by Lessee and the denominator is the
amount of net leasable area of the building (14,551 + 40,500 = 36%) multiplied
by the total of such Taxes or other amount deemed to be Taxes. The Lessor has
the right to require prepayment, in which event the annual amount shall be
prorated and payable in equal monthly installments on the same day the rent is
paid. The monthly estimated Taxes shall not be less than 1/12th of the actual
Taxes for the Demised Premises for the preceding tax year. Semi-annually and
following Lessor's receipt of invoices and review of budget projections, Lessor
may notify Lessee of any additional amount due and Lessee shall pay said
additional rent due within twenty (20) days after each such billing is received.
If Lessee's monthly Tax payments exceed the actual Taxes for the SEMIANNUAL
period covered by the actual Tax bill, such
2
<PAGE>
excess shall be credited against the next monthly installment of rent and
additional rent and charges due.
ARTICLE V - Security Deposit
Lessee does herewith deposit with Lessor the sum of NINE THOUSAND SIX
HUNDRED FORTY AND 04/100 ($9,640,04) Dollars, to be held as security for the
full and faithful performance by Lessee of Lessee's obligations under this Lease
and for the payment of damages to the Demised Premises. No interest will be paid
to Lessee on the security deposit except for such sum as shall be lawfully
applied by Lessor to satisfy valid claims against Lessee arising from defaults
under this Lease or by reason of damages to the Demised Premises, the security
deposit shall be returned to Lessee at the expiration of the terms of this Lease
or any renewals or extensions thereof. It is understood that no part of any
security deposit is to be considered as the last rental due under the terms of
the Lease. THE LESSEE SHALL DELIVER THE SECURITY DEPOSIT TO LESSOR UPON
EXECUTION OF THIS LEASE.
ARTICLE VI- Description of Lessor's Work
Lessee acknowledges that neither Lessor nor its agents have made any
promise to alter, remodel or improve the demised premises or the building or any
other improvement thereon, except as expressly provided in a written rider,
addendum or amendment to this Lease. Lessee acknowledges neither Lessor not its
agents have made any representation or warranty with respect to the condition of
the demised premises or the building or any other improvement thereon, Lessee's
taking possession of the demised premises shall conclusively establish that the
Lessee hereby waives any claims which may hereafter arise against Lessor
resulting from the condition of the demised premises or any improvement thereon.
ARTICLE VII- Lessee's Work and Signs
1. Lessee may enter the Demised Premises prior to the date hereinafter
fixed for the commencement of the term of this Lease for the purpose of
installing fixtures and other equipment, provided such work by Lessee shall be
done in such manner so as not to interfere with the work to be done by Lessor or
Lessor's contractor in the Demised Premises and provided further that such work
on the part of Lessee shall be done in compliance with such rules and
regulations established by Lessor or its contractor and shall not be in conflict
with any Union Contract to which Lessor, its contractor or any sub-contractor
might be a part. Lessee shall furnish to Lessor all certificates and approvals
with respect to work done by Lessee, or on Lessee's behalf, that may be required
from any authorities for the issuance of a Certificate of Occupancy. It is
further understood and agreed that Lessor shall have no responsibility or
liability whatsoever for any loss or damage to any such fixtures or equipment
installed or left in the Demised Premises, and Lessee's entry on and occupancy
of the Demised Premises prior to the commencement of this Lease shall be
governed by and subject to all the provisions, covenants and conditions of this
Lease other than those requiring the payment of minimum rent.
3
<PAGE>
No work shall be undertaken by Lessee without first securing a Stipulation
Against Liens by the contractor and filing same as required by law to prevent
the filing of mechanics liens.
2. In any event Lessee covenants and agrees that promptly after
delivery of possession of the Demised Premises to Lessee as substantially
completed, Lessee shall commence and shall proceed with due diligence to make
all improvements to and install in the Demised Premises all fixtures and other
equipment which may be necessary or proper in the operation of Lessee's business
and thereafter to commence business.
3. Lessee may, at its own risk, lawfully erect a sign, concerning the
business of the occupant of the Demised Premises, on the exterior thereof, and
agrees to maintain said sign in a good state of repair and save the Lessor
harmless from any loss, cost or damage as a result of the erection, maintenance,
existence or removal of the same, and shall repair any damage which may have
been caused by the erection, existence, maintenance or removal of such sign. All
signs must be approved by the Lessor and the location of the same must be
approved by the Lessor, Lessor's consent will not be unreasonably withheld. Upon
vacating the premises and if requested by Lessor, the Lessee agrees to remove
all signs and repair all damage caused by such removal.
4. Lessee further covenants and agrees to pay promptly when due all
taxes, including real estate taxes assessed against Lessee's fixtures,
furnishings, equipment and stock-in-trade placed in or on the Demised Premises.
Any such taxes paid by Lessor shall be due and payable, as additional rent
within twenty (20) days after billings therefor are rendered to Lessee.
For the purpose of this Article, Lessee's fixtures shall be deemed to
include all trade fixtures which Lessee may, as heretofore provided, have the
right of removing at the expiration of the term of this Lease.
ARTICLE VIII - Use of Premises
The Demised Premises shall be occupied and used solely for the purpose
of GENERAL OFFICE USE AND SALE OF COMPUTER SOFTWARE, TRAINING AND COUNSELING,
AND RELATED ACTIVITIES.
1. Lessee shall not use or permit the demised premises to be used for
any other purposes without the prior written consent of Lessor. Lessee expressly
acknowledges that Lessor or its agents have not made any representations as to
the suitability of the demised premises for the use stated above and Lessee has
been advised by Lessor or its agents to make its own independent determination
as to the suitability of the demised premises to the stated use, and any related
zoning or other laws, ordinances, regulations and directives or any applicable
covenants, conditions and restrictions affecting the demised premises which may
limit or restrict the stated use. Lessee shall indemnify and hold Lessor
harmless against any requirements for building and or building systems
alterations that may be required by any local, state or federal codes as a
result of Lessee's occupancy of the Demised Premises. Lessee shall not commit,
or suffer to be permitted to be committed, any waste upon the Premises or any
nuisance or other act in violation
4
<PAGE>
of public policy. Further, Lessee shall not commit, or suffer to be committed,
anything which would subject the Lessor to responsibility or liability for
injury or damage to any person or property or which would invalidate or increase
the cost of any insurance coverage described in this Lease. Lessee shall comply
with all rules, regulations, orders and requirements of Lessor's then current
insurance carrier(s) with respect to the use of the demised premises and
necessary for maintaining reasonable insurance coverage of the types specified
in this Lease.
2. Lessor reserves the absolute rights to itself to (a) use the roof,
exterior walls and the area beneath the demised premises and (b) install, use,
maintain and replace equipment, machinery, pipes, conduits and wiring located
within the demised premises which serve other parts of the Property in a manner
and in locations which do not unreasonably interfere with Lessee's use of the
demised premises.
3. No wood-shaving or spraying material processes will be performed on
any part of the demised premises except in any environmental controlled by
appropriately designed and installed air-handling equipment which shall be
maintained and operated at all times during the Lease terms as required to
prevent hazardous accumulations of wood and chemical pollutants in the
atmosphere within the demised premises, and all equipment installations required
to comply with his subparagraph 5 shall be commenced, performed and completed
promptly after the commencement date. Lessee warrants to Lessor that such
installation shall be made in correctly designed facilities and in a workmanlike
manner in full compliance with all applicable legal requirements.
ARTICLE IX - Alterations
Lessee covenants and agrees not to make or permit to be made any
alterations, improvements and additions to the Demised Premises or any other
part thereof except by and with the written consent of Lessor first had.
Lessor's approval shall not be unreasonably withheld. All alterations,
improvements and additions to said premises shall be made in accordance with all
applicable laws and shall at once when made or installed be deemed to have
attached to the freehold and to have become the property of Lessor and shall
remain for the benefit of Lessor at the end of the term or other expiration of
this Lease in as good order and condition as they were installed, reasonable
wear and tear excepted; provided, however, if prior to the termination of this
Lease, or within fifteen (15) days thereafter Lessor so directs by written
notice to Lessee, who then shall promptly remove the additions, improvements,
fixtures and installations which were placed in the Demised Premises by Lessee
and which are designated in said notice and repair any damage occasioned by such
removal and in default thereof Lessor may effect said removals and repairs at
Lessee's expense. In the event of such alterations, improvements and additions
as herein provided Lessee further agrees to indemnify and save harmless the
Lessor from all expenses, liens, claims or damages to either persons or property
arising out of, or resulting from the undertaking or making of said alterations,
additions and improvements.
5
<PAGE>
ARTICLE X - Maintenance of Demised Premises
All damage or injury to the demised premises or Complex, if such latter
terms defined in this Lease, caused by the act or negligence of Lessee or its
employees, agents, representatives, visitors or invitees shall be promptly
repaired by Lessee at Lessee's expense and to the satisfaction of Lessor in
accordance with this Paragraph 10.1. If Lessee does not promptly make such
repairs, Lessor, at Lessor's option, may make or cause to be made any such
repairs and may charge Lessee for any costs and expenses paid or incurred, by
Lessor in connection therewith. Except as specifically provided in Article XIII,
there shall be no reduction in rent payable by Lessee and no liability on the
part of Lessor by reason of inconvenience, annoyance or injury to business
arising from the making of any repairs, alterations or improvements or any
portion of the demised premises or the Complex or fixtures and equipment related
thereto, and no liability on the part of Lessor for failure to make repairs,
alterations or improvements to the demised premises or the Complex or any
fixtures and equipment related thereto which are necessitated by reason of the
act or negligence of any other tenant or occupant of the Complex. Lessor agrees
to exercise due diligence in making exterior repairs, notwithstanding the fact
that the Lessee may have been responsible for the damage. Lessor shall use best
efforts not to disrupt Lessee's business.
ARTICLE XI - Maintenance, Control and Expense of Common Areas
All costs and expenses ("common area maintenance costs") incurred by
Lessor in connection therewith shall be charged and prorated in the manner
stated below. It is understood and agreed that the term "common area
maintenance costs" shall mean all sums expensed by Lessor for payment of all
work reasonably deemed necessary by Lessor for the management, operation,
maintenance, replacement and repair of the buildings on the property and its
common areas. including the following (the specific recitation of which shall
not be deemed to limit the definition of such costs and expenses): painting,
janitorial services; maintenance, repair and replacement when necessary of
sidewalks curbs, bumpers, signs, planting and landscaping, and lighting and
other utilities; resurfacing, restriping, cleaning and sweeping the parking
areas; operation, maintenance and repair of any common fire protection
systems, automatic sprinkler systems and storm drainage systems; personnel to
implement such services including but not limited to the cost of security
guards; police and fire protection services; any taxes and assessments
imposed by governmental agencies; costs of utility services; depreciation on
maintenance and operating machinery and equipment, if owned, and rental paid
for such machinery and equipment if rented; public liability and property
damage insurance on the common areas; all wage and labor costs (including
salaries, wages, payroll and similar taxes; Social Security taxes,
unemployment insurance costs, workers compensation and other insurance and
medical and other benefits) applicable to persons engaged in the management,
operation maintenance, replacement and repair of the common areas; fuel; cost
of repairing and replacing roofs; cost of reasonably and customary management
fees; and supplies for the provision of the foregoing services Lessor may
cause any of such services or items to be provided by an independent
contractor or contractors. The amount payable by Lessee to Lessor as
additional rent shall be
6
<PAGE>
paid within twenty (20) days after each such billing is received. The amount
payable by Lessee shall be based upon a fraction the numerator of which is the
amount of floor area occupied by Lessee and the denominator is the amount of net
leasable area of the building (14,551 - 40,500 = 36%) multiplied by the total of
such costs and expenses or other amount deemed to be costs and expenses. The
Lessor has the right to require prepayment, in which event the annual amount
shall be prorated and payable in equal monthly installments on the same day the
rent is paid. The monthly estimated Common Area Maintenance charges shall not be
less than 1/12th of the actual charges for the Demised Premises for the
preceding lease year. Semi-annually and following Lessor's receipt of invoices
and review of budget projections, Lessor may notify Lessee of any additional
amount due and Lessee shall pay said additional rent within twenty (20) days
after each such billing is received. If Lessee's monthly Common Area Maintenance
payments exceed the actual Common Area Maintenance charges for the semi-annual
period covered by the actual Common Area Maintenance bill, such excess shall be
credited against the next monthly installment of rent and additional rent and
charges due.
ARTICLE XII - Utilities
Lessee covenants and agrees to pay for all public utility and other
services rendered or furnished to the Demised Premises during the term hereof,
including heat, water, gas, electricity, sewer rental, trash disposal and the
like, together with all taxes levied or other charges on such utilities. In no
event shall Lessor be liable for the quality, quantity, failure or interruption
of such services to the Demised Premises. If such items are not separately
metered for Lessee, then Lessee agrees to pay his proportionate share based upon
a fraction the numerator of which is the amount of floor area occupied by the
Lessee and the denominator is the amount of net leasable area of the building
(excluding common area) multiplied by the total of such costs.
ARTICLE XIII - Destruction by Fire or Casualty
1. If the Demised Premises shall be totally destroyed by fire or other
casualty covered by the policy of fire and extended coverage insurance during
the first FIVE (5) years of this Lease, and at least FIVE (5) years remain on
the Lease then Lessor shall replace the Demised Premises with a building
containing space equal to the present leased space, and of the same general type
of construction or better, the same to be done as soon as possible after the
insurance adjustments, but in no event later than seven (7) months from the date
of the receipt of said insurance adjustment. If such event occurs after said
FIVE (5) year period, then Lessor may rebuild but does not agree to do so unless
Lessee, within thirty (30) days after receipt of insurance adjustment by Lessor,
enters into renewal of this Lease on the same terms and conditions for a period
equal to the original term of this Lease, [but in no event less than FIVE (5)
years], to commence upon the date of the completion of such rebuilding.
Otherwise, Lessor shall have the option to rebuild or of terminating this Lease.
2. In the event of total destruction of the Demised Premises as above
mentioned, Lessee's rent shall completely abate from the date of such
destruction until possession of the
7
<PAGE>
rebuilt premises is delivered to Lessee, but in the event of a partial
destruction or damage whereby Lessee shall be deprived of the occupancy of only
a portion of said premises, then minimum rent shall be equitably apportioned
according to the area of the Demised Premises which is unusable by Lessee until
such time as the Demised Premises shall be repaired or restored.
ARTICLE XIV - Lessee's Property in Demised Premises
1. All Lessee's personal property of every kind or description which
may at any time be in the Demised Premises shall be at Lessee's sole risk, or at
the risk of those claiming under Lessee, and Lessor shall not be liable for any
damage to said property or loss suffered by the business or occupation of Lessee
caused by water from any source whatsoever or from the bursting, overflowing or
leaking of sewer or steam pipes or from the sprinkler system or from the heating
or plumbing fixtures or from electric wires or from gas or odors caused in any
manner whatsoever except as may result from and be caused by the negligence of
Lessor.
ARTICLE XV - Access to Demised Premises
1. Lessee agrees to permit Lessor or Lessor's agents to inspect or
examine the Demised Premises at any reasonable time and to permit Lessor to make
such repairs, decorations, alterations, improvements or additions in the Demised
Premises or to the building of which the Demised Premises is a part, that Lessor
may deem desirable or necessary or which Lessee has not covenanted herein to do
or has failed so to do, without the same being construed as an eviction of
Lessee in whole or in part and the rent shall in no wise abate while such
decorations, repairs, alterations, improvements or additions are being made by
reason of loss or interruption of the business of Lessee because of the
prosecution of such work.
2. Lessor shall also have the right to enter upon the Demised Premises
for a period commencing one hundred eighty (180) days prior to the termination
of this Lease for the purpose of exhibiting the same to prospective tenants or
purchasers. During said period Lessor may place signs in, or upon said premises
to indicate that same are for rent or sale, which signs shall not be removed,
obliterated or hidden by Lessee.
ARTICLE XVI - Surrender of Demised Premises
1. Lessee covenants and agrees to deliver up and surrender to the
Lessor possession of the Demised Premises upon expiration of this Lease, or its
earlier termination as herein provided, broom clean and in as good condition and
repair as the same shall be at the commencement of the term of this Lease, or
may have been put by the Lessor during the continuance thereof, ordinary wear
and tear and damage by fire or the elements excepted. Lessee shall also
surrender all keys for the Demised Premises, as well as all building drawings
and environmental reports of any kind relating to the Demised Premises. The
foregoing shall require that Lessee cause the following (which is not an
exclusive list) to be true as of the date of
8
<PAGE>
surrender:
1. All interior and exterior lights are operational and burning.
2. All exhaust, ceiling and overhead fans are operational.
3. Floor is broom swept and clean of all trash and materials.
4. All electrical, plumbing, and other utilities which are terminated
are disconnected, capped and/or terminated according to applicable,
building codes and all other governmental requirements.
5. All electrical conduit and wiring installed by Tenant
specifically for Tenant's equipment are removed to originating
electrical panel if Landlord so requires.
6. Interior and exterior doors are operational and in good condition.
7. All furniture, trash and debris are removed.
8. All pictures, posters, signage, stickers and all similar items are
removed from all walls, windows, doors and other interior and
exterior surfaces of the Premises.
9. Carpet areas are vacuumed.
10. All uncarpeted office floors are swept, and any excess wax buildup
on tile and vinyl floors is removed.
11. All Tenant-installed computer cable is removed to point of origin.
12. All doors, windows, and miscellaneous hardware are operational.
13. All heating, air conditioning and mechanical equipment is
operational and in good working condition.
14. Ceiling tiles, grid, light lenses, air grills and diffusers are in
place with no holes or stains.
15. There are no broken windows or other glass items.
16. Bathroom, walls, floors, and fixtures are clean.
17. All plumbing fixtures are intact and operational and do not leak.
18. All downspouts are undamaged and operational.
19. Walls (internal and external) are clean and any holes are properly
and permanently patched.
20. If landscaping is Tenant's responsibility under this Lease, all lawn
sprinkler equipment is operational with no water leaks.
21. If landscaping is Tenant's responsibility under this Lease, all
plants, trees and shrubbery are intact and healthy.
22. If landscaping is Tenant's responsibility under this Lease, all lawns
have recently been mowed and edged, and shrubbery trimmed.
23. If roof repair is Tenant's responsibility under this Lease, the roof
is in good condition and repair (in accordance with NRA guidelines)
and no apparent leaks.
Acceptance of delivery of the Demised Premises or opening same for business
shall be deemed conclusive evidence that the Demised Premises were in good order
and condition at the commencement of the term of this Lease.
2. Lessee shall at Lessee's expense remove all property of Lessee and
all alterations,
9
<PAGE>
additions and improvements as to which Lessor shall have made the election
hereinbefore provided, repair all damage to the Demised Premises caused by such
removal and restore the Demised Premises to the condition in which they were
prior to the installation of the articles so removed. Any property not so
removed and as to which Lessor shall have not made said election, shall be
deemed to have been abandoned by Lessee and may be retained or disposed of by
Lessor, as Lessor shall desire. Lessee's obligation to observe or perform this
covenant shall survive the expiration of the term of this Lease.
ARTICLE XVII - Indemnity and Insurance by Lessee
1. Lessee covenants and agrees that it will protect and save and keep
the Lessor forever harmless and indemnified against and from any penalty or
damage or charges imposed for any violation of any law or ordinance, whether
occasioned by the neglect of Lessee or those holding under Lessee, and that
Lessee will at all times protect, indemnify and save and keep harmless the
Lessor against and from all claims, loss, cost, damage or expense arising out of
or from any accident or other occurrence on or about the Demised Premises
causing injury to any person or property whomsoever or whatsoever, and will
protect, indemnify, save and keep harmless the Lessor against and from any and
all claims and against and from any and all loss, cost, damage or expense
arising out of any failure of Lessee in any respect to comply with and perform
all the requirements and provisions of this Lease or to comply with any
government law, rule, or regulation.
2. Lessee agrees that, at its own cost and expense, it will procure and
continue in force general liability insurance covering any and all claims for
injuries to persons occurring in, upon or about the Demised Premises, and common
areas including all damage from signs, glass, awnings, fixtures or other
appurtenances now or hereafter erected on the Demised Premises during the term
of this Lease, such insurance at all times to be in an amount of not less than
Two Million Dollars ($2,000,000) Combined Single Limit of Bodily Injury and
Property Damage Liability. Such insurance shall be written with a company or
companies authorized to engage in the business of general liability and property
insurance in the state in which the Demised Premises are located and shall be
rated B+ or better by A. M. Best & Co. The Lessor and its Agent(s), Briggs
Property Partnership and Cumberland Management, shall be a named as additional
insureds on said policy, and there shall be delivered to the Lessor a copy of
the insurance contract and evidence that the contract premium has been paid. In
the event Lessees fails to furnish such policies, or continue the same in full
force and effect, the Lessor may obtain such insurance and the premiums on such
insurance shall be deemed additional rent to be paid by the Lessee unto the
Lessor upon demand.
3. The cost of all insurance for the Demised Premises shall be paid by
the Lessee. LESSEE SHOULD HAVE THE RIGHT TO REVIEW ALL INSURANCE AGENCIES FOR
THE DEMISED PREMISES ANNUALLY BY REQUESTING A COPY IN WRITING NOT MORE THAN ONCE
PER YEAR. Such costs shall be allocated among the several tenants of the
building based upon a fraction the numerator of which is the amount of floor
area occupied by the Lessee and the denominator is the amount of net leasable
area of the
10
<PAGE>
building multiplied by the total of such insurance costs. Such insurance shall
be purchased by Lessor on a full replacement cost basis, and include loss of
rents insurance, and the premium for the same shall be paid by Lessee as
additional rent within 10 days after billing for same.
4. Lessor and Lessee hereby agree that all insurance policies to insure
the Demised Premises and the contents therein against casualty loss, and all
liability policies which they shall carry pertaining to the use and occupancy of
the Demised Premises shall contain waivers of the right of subrogation against
Lessor and Lessee herein, their heirs, administrators, successors, and assigns.
5. The Lessee agrees to comply with all rules, recommendations, and
regulations of Factory Mutual Engineering or comparable insurance organization.
6. If any boiler or pressured vessel is maintained on the Demised
Premises, the Lessee shall, at its expense, secure insurance coverage as is
applicable in amounts consistent with other coverage on the building, naming
Lessor and Lessee as insured parties, and shall keep filed with Lessor a current
policy of insurance.
7. Lessee covenants and agrees not to permit, introduce or maintain, on
or about any portion of the premises, any hazardous or toxic materials, wastes
or other such substances identified in CERCLA, RCRA or other federal, state or
local legislation, regulations or ordinances whether now existing or hereafter
enacted or promulgated or any judicial or administrative interpretation of such
laws, rules or regulations (hereinafter referred to as "Hazardous Materials").
In addition, tenant covenants and agrees that it will remain in strict
compliance with all applicable federal, state and local laws, decisions of the
courts and regulations, rules directives, decrees, and orders of federal, state
and local government authorities regarding the protection of the environment and
the protection of the public health and safety. Lessee further covenants and
agrees to indemnify, protect and save Lessor harmless against and from any and
all damages, losses, liabilities, obligations, proceedings, costs, disbursements
or expenses of any kind and of any nature whatsoever (including, without
limitation, attorneys' and experts' fees and disbursements) which may at any
time be imposed upon, incurred by or asserted or awarded against Lessor and
arising from or out of any Hazardous Materials in all or any portion of the
premises, introduced by, or on behalf of, Lessee, including without limitation:
(i) the cost of removal, restoration or other such remedial work done in
connection with any such Hazardous Materials existing on all or any portion of
the premises, (ii) additional costs required to take necessary precautions to
protect against the release of Hazardous Materials on, in, under or affecting
the premises, into the air, any body of water, any other public domain or any
surrounding areas, (iii) costs incurred to comply with all applicable laws,
orders, judgments and regulations with respect to Hazardous Materials on all or
any part of the premises, (iv) costs related to the payment of environmental
consultants to evaluate the risk or potential threat to the environment created
by the presence of any Hazardous Materials on all or any portion of the
premises, and (v) costs related to the Lessor being named a potentially
responsible party for the violation of CERCLA, RCRA or any other environmental
law or regulation.
11
<PAGE>
ARTICLE XVIII - Assignment and Subletting
1. Notice and Documentation: As conditions precedent to any assignment
of the whole of Lessee's interest in this Lease or subletting by Lessee of the
whole or any part of the demised premises, (i) at least thirty (30) days prior
to any proposed assignment or subletting Lessee shall submit to Lessor a
statement containing: (a) the name and address of the proposed assignee or
subtenant; (b) a financial statement of the proposed assignee or subtenant
containing therein bank and other credit references; (c) the type of use
proposed for the demised premises; and (d) all of the principal terms and
conditions of the proposed assignment or subletting including, but not limited
to, the proposed commencement and expiration dates of the term thereof and the
amount of rent to be payable by the assignee or subtenant and a floor plan
delineating the proposed, assigned or sublet area; and (ii) Lessee shall deliver
to Lessor an original assignment or sublease executed by Lessee and the proposed
assignee or subtenant on a form approved by Lessor which shall expressly provide
(a) for the assumption by such proposed assignee or subtenant of all of Lessee's
obligations under the terms of this Lease; (b) that Lessee shall indemnify and
hold Lessor harmless from any and all claims, obligations and liabilities
(including reasonable attorney's fees) arising from such assignee's or any
portion thereof, whether such claim, obligation or liability arises from such
assignee's or subtenant's conduct, activity, work or any other matter in, or
about the demised premises and/or the Complex; (c) that Lessee shall further
indemnify and hold Lessor harmless from any costs, obligations or liabilities
(including reasonable attorney's fees) arising from any act or negligence of
such assignee or subtenant, or any officer, employee, agent or invitee of such
assignee or subtenant, and from any claim, action or proceeding brought thereon;
(d) that in no event shall Lessee, by reason of Landlord's approval of the
assignment or sublease, be deemed relieved from any obligation or liability
under the Lease, including, but not limited to, the obligation to obtain
Lessor's consent to any further assignment or subletting; and (e) that such
proposed assignment or subletting shall not be deemed effective for any purpose
unless and until Lessor's written consent thereto is obtained.
LESSOR CONSENT SHALL NOT UNREASONABLY BE WITHHELD.
2. Right to Recapture: In lieu of giving or withholding its consent to
any proposed subletting or assignment, Lessor shall have the following right to
recapture the demised premises and shall thereafter be free to lease the area
subject to the proposed assignment or sublease directly to the proposed assignee
or subleasee or any other person without such act being construed to (1)
unreasonably interfere with Leasee's contractual. relations; (2) constitute
unfair competition or (3) otherwise create any cause or action in favor of
Lessee. In lieu of consenting or not consenting, Lessor may within 30 days after
Lessor has received all of the documentation described in subparagraph 1 of this
Article XVI at its option, (i) in the case of the proposed assignment or
subletting of Lessee's entire leasehold interest, terminate Lessee's lease in
its entirety, or (ii) terminate Lessee's lease as to that portion of the demised
premises which Lessee has proposed to sublet. In the event Lessor elects to
terminate this Lease pursuant to clause (ii) above, Lessee's obligation as to
rent shall be reduced in the same proportion that the rentable area of the
portion of the demised premises taken by the proposed assignee or subtenant
bears to
12
<PAGE>
the total rentable area of the demised premises. The reservation of Lessor's
right to recapture is a critically important economic right in favor of Lessor
which has been expressly negotiated between the parties and which requires the
release of liability on the part of Lessee for any obligations with respect to
the area subject to the proposed sublease or assignment.
3. Signs: Lessee shall not be permitted to advertise in any form its
desire to assign or sublet its lease or demised premises unless Lessee has been
given Lessor's prior written consent to do so.
ARTICLE XIX - Eminent Domain
1. In the event the Demised Premises or any part thereof shall be taken
or condemned either permanently or temporarily for any public or quasi public
use or purpose by any competent authority in appropriation proceedings or by any
right of eminent domain the entire compensation award for both leasehold and
reversion shall belong to the Lessor without any deduction therefrom for any
present and future estate of Lessee, and Lessee hereby assigns to Lessor all its
right, title and interest to any such award. Lessee shall, however, be entitled
to claim, prove and receive in such condemnation proceedings such award as may
be allowed for fixtures and other equipment installed by it by only if such
award shall be in addition to the award for the land and the building (or
portion thereof) containing the Demised Premises.
2. If the entire Demised Premises shall be taken as aforesaid, then
this Lease shall terminate and shall become null and void from the time
possession thereof is required for public use and from that date, the parties
hereto shall be released from further obligation hereunder but in the event a
portion only of the Demised Premises itself shall be so taken or condemned then
Lessor, at its own expense, shall repair and restore the portion not affected by
the taking and thereafter the minimum rental to be paid by Lessee shall be
equitably and proportionately adjusted.
ARTICLE XX - Default by Lessee
If the Lessee, after ten (10) days prior written notice of a monetary
default and after thirty (30) days of a non-monetary default
(a) Does not pay in full when due any and all installments of rent and/
or other charge or payment herein reserved, included, or agreed to be treated or
collected as rent and/or any other charge, expense, or cost herein agreed to be
paid by the Lessee, or
(b) Violates or fails to perform or otherwise breaks any covenant or
agreement herein contained; or
(c) Vacates the Demised Premises or removes or attempts to remove or
manifests an intention to remove any goods or property therefrom otherwise than
in the ordinary and usual
13
<PAGE>
course of business without having first paid and satisfied the Lessor in full
for all rent and other charges then due or that may thereafter become due until
the expiration of the then current term, above mentioned; or
(d) Becomes insolvent, or makes an assignment for the benefit of
creditors, or if a petition in bankruptcy is filed by or against Lessee or a
complaint in equity or other proceedings for the appointment of a receiver for
Lessee is filed, or if proceedings for reorganization or for composition with
creditors under any State or Federal law be instituted by or against Lessee, or
if the real or personal property of Lessee shall be levied upon or be sold, or
if for any other reason Lessor shall, in good faith, believe that Lessee's
ability to comply with the covenants of this Lease, including the prompt payment
of rent hereunder, is or may become impaired,
thereupon:
(1) The whole balance of rent and other charges, payments, costs, and
expenses herein agreed to be paid by Lessee, or any part thereof, and also all
costs and officer's commissions including watchmen's wages shall be taken to be
due and payable and in arrears as if by the terms and provisions of this Lease
said balance of rent and other charges, payment, taxes, costs and expenses were
on that date, payable in advance. Further, if this Lease or any part thereof is
assigned, or if the premises, or any part thereof is sub-let, Lessee hereby
irrevocably constitutes and appoints Lessor as Lessee's agent to collect the
rents due from such assignee or sub-lessee and apply the same to the rent due
hereunder without in any way affecting Lessee's obligation to pay any unpaid
balance of rent due hereunder; or
(2) At the option of Lessor, this Lease and the terms hereby created
shall terminate and become absolutely void without any right on the part of
Lessee to reinstate this Lease by payment of any sum due or by other performance
of any condition, term, or covenant broken; whereupon, Lessor shall be entitled
to recover damages for such breach in an amount equal to the amount of rent
reserved for the balance of the term of this Lease, less the fair rental value
of the said Demised Premises for the remainder of the Lease term.
In the event of any default as above set forth, Lessor, or anyone
acting on Lessor's behalf, at Lessor's option:
(a) May let said premises or any part or parts thereof to such person
or persons as may, in Lessor's discretion, be best; and Lessee shall be liable
for any loss of rent for the balance of the then current term. Any such re-entry
or re-letting by Lessor under the terms hereof shall be without prejudice to
Lessor's claim for actual damages, and shall under no circumstances, release
Lessee from liability for such damages arising out of the breach of any of the
covenants, terms, and conditions of this Lease.
(b) May proceed as a secured party under the provisions of the Uniform
Commercial Code against the goods in which Lessor has been granted a security
interest.
14
<PAGE>
(c) May have and exercise any and all other rights and/or remedies,
granted or allowed landlords by any existing or future Statute, Act of Assembly,
or other law of this state in cases where a landlord seeks to enforce rights
arising under a lease agreement against a tenant who has defaulted or otherwise
breached the terms of such lease agreement; subject, however, to all of the
rights granted or created by any such Statute, Act of Assembly, or other law of
this state existing for the protection and benefit of tenants; and
(d) May have and exercise any and all other rights and remedies
contained in this Lease agreement OR UNDER NEW JERSEY LAW.
All of the remedies hereinbefore given to Lessor and all rights and
remedies given to it by law and equity shall be cumulative and concurrent. No
determination of this Lease or the taking or recovering possession of the
premises shall deprive Lessor of any of its remedies or actions against the
Lessee for rent due at the time or which, under the terms hereof would in the
future become due as if there had been no determination, nor shall the bringing
of any action for rent or breach of covenant, or the resort to any other remedy
herein provided for the recovery of rent be construed as a waiver of the right
to obtain possession of the premises.
ARTICLE XXI - Waiver of Lessee's Default
No waiver of any covenant or condition or of the breach of any covenant
or condition of this Lease shall be taken to constitute a waiver of any
subsequent breach of such covenant or condition nor to justify or authorize the
non-observance on any other occasion of the same or of any other covenant or
condition hereof, nor shall the acceptance of rent by Lessor at any time when
Lessee is in default under any covenant or condition hereof, be construed as a
waiver of such default or of Lessor's right to terminate this Lease on account
of such default, nor shall any waiver or indulgence granted by Lessor to Lessee
be taken as an estoppel against Lessor, it being expressly understood that if at
any time Lessee shall be in default in any of its covenants or conditions
hereunder an acceptance by Lessor of rental during the continuance of such
default or the failure on the part of Lessor promptly to avail itself of such
other rights or remedies the Lessor may have, shall not be constured as a waiver
of such default, but Lessor may at any time thereafter, if such default
continues, terminate this Lease on account of such default in the manner
hereinbefore provided. NOTWITHSTANDING THE ABOVE, ANY ACTION BY LESSOR OR LESSEE
SHALL BE IN ACCORDANCE WITH NEW JERSEY LAW.
ARTICLE XXII - Default of Lessor
Lessor shall in no event be charged with default in the performance of
any of its obligations hereunder unless and until Lessor shall have failed to
perform such obligations within thirty (30) days (or such additional time as is
reasonably required to correct any such default) after notice to Lessor by
Lessee properly specifying wherein Lessor has failed to perform any such
obligations.
15
<PAGE>
Provided, however, that if the holder of record of the first mortgage
covering the Demised Premises shall have given prior written notice to Lessee
that it is the holder of said first mortgage and that such notice includes the
address at which notices to such mortgagee are to be sent, then Lessee agrees to
give to the holder of record of such first mortgage notice simultaneously with
any notice given to Lessor to correct any default of Lessor as hereinabove
provided and agrees that the holder of record of such first mortgage shall have
the right, within sixty (60) days after receipt of said notice, to correct or
remedy such default before Lessee may take any action under this Lease AND UNDER
NEW JERSEY LAW, by reason of such default.
ARTICLE XXIII - Limitation of Liability and Transfer of Lessor's Interest
A. Limitation on Liability: The liability of Lessor to Lessee for any
default by Lessor under this Lease or arising in connection herewith or with
Lessor's operation, management, leasing, repair, renovation, alteration, or any
other matter relating to the Premises, or any Complex of which it is part, shall
be limited to the interest of Lessor in the Premises and Complex (if any).
Lessee agrees to look solely to Lessor's interest in the Premises and Complex
(if any) for the recovery of any judgment against Lessor, and Lessor shall not
be personally liable for any such judgment or deficiency after execution
thereon. The limitations of liability contained in this provision shall apply
equally and inure to the benefit of Lessor's present and future partners,
beneficiaries, officers, directors, trustees, shareholders, agents and
employees, and their respective trustees, beneficiaries, partners, heirs,
successors and assigns. Notwithstanding the foregoing to the contrary, Lessor
shall have personal liability for insured claims, beyond Lessor's interest in
the Premises and Complex to the extent of Lessor's liability insurance coverage
available for such claims.
B. Release from Individual Liability: It is expressly understood and
agreed that nothing contained in this Lease shall be construed as creating any
liability whatsoever against Lessor's Manager or any of the partners of Lessor
personally, and in particular, without limiting the generality of the foregoing,
there shall be no personal liability of Lessor's Manager or any of the partners
of Lessor to pay any indebtedness accruing under this Lease or to perform any
term, covenant, condition or agreement, either express or implied, contained in
this Lease, or to keep, preserve or sequester any property of Lessor. The
personal liability of Lessor's Manager or of said partners, if any, is hereby
expressly waived by Lessee and by every person now or hereafter claiming any
right or security hereunder, and the owner of any interest, indebtedness or
liability accruing under this Lease shall look solely to Lessor, the building
and the real property of which the Premises forms a part for payment thereof
C. Transfer of Lessor's Interest: Lessor and each successor to Lessor
shall be fully released from the performance of Lessor's obligations subsequent
to their transfer of Lessor's interest in the Premises and/or the Complex, if
such term is defined in this Lease. Lessor shall not be liable for any
obligation imposed by this Lease after a transfer of its interest in the
Premises and/or the Complex. THE CONVEYANCE OF INTEREST IN THE SUBJECT PREMISES
IN WHICH FIFTY (50) PERCENT OR MORE OF THE PRINCIPALS IN BRIGGS PROPERTIES
PARTNERSHIP RETAIN AN OWNERSHIP
16
<PAGE>
INTEREST SHALL NOT BE CONSIDERED A TRANSFER FOR THE PURPOSE OF THIS PROVISION.
ARTICLE XXIV - Estoppel Certificate by Lessee
Lessee agrees at any time within ten (10) days of Lessor's written
request to execute, acknowledge and deliver to Lessor a written statement
certifying that this Lease is unmodified and in full force and effect (or, if
there have been modifications, that the same is in full force and effect as
modified and stating the modifications), and the dates to which the basic rent
and other charges have been paid in advance, if any, it being intended that any
such statement delivered pursuant to this Article may be relied upon by an
prospective purchaser or mortgagee of the fee of the Demised Premises.
ARTICLE XXV - Option to Renew
The Lessee is hereby granted an option to extend this Lease for ONE (1)
additional period of FIVE (5) years on the same terms, conditions and rent. The
Lessee shall notify the Lessor in writing nine (9) months prior to the
expiration of the then current term of its intention not to extend said Lease,
otherwise the extension shall be automatic. The minimum rent (Article III) shall
be increased during each option period by the percentage increase in the Revised
Consumer Price Index for All Urban Consumers to THE PHILADELPHIA REGION between
the commencement date hereof and the date the option period commences. The
within option to extend this Lease may not be exercised by an assignee or
sublessee of the Lessee, and such assignee or sublessee shall vacate the
premises at the end of the then current period.
In the event that Lessee shall give notice, as stipulated in this
Lease, of intention to vacate the Demised Premises at the end of the present
term, or any renewal or extension thereof, and shall fail or refuse so to vacate
the same on the date designated by such notice, then it is expressly agreed that
Lessor shall have the option either (a) to disregard the notice so given as
having no effect, in which case all the terms and conditions of this Lease shall
continue thereafter with full force precisely as if such notice had not been
given, or (b) to treat the Lessee as a month to month holdover tenant with a
rental equal to 150% of the then current fixed minimum rent, or (c) Lessor may,
at any time within thirty days after the present term or any renewal or
extension thereof, as aforesaid, give the said Lessee ten days written notice of
his intention to terminate the said Lease; whereupon the Lessee expressly agrees
to vacate said premises at the expiration of the said period of ten days
specified in said notice. All powers granted to Lessor by this Lease may be
exercised and all obligations imposed upon Lessee by this Lease shall be
performed by Lessee as well during any extension of the original term of this
Lease as during the original term itself.
ARTICLE XXVI - Quiet Enjoyment
Lessor covenants and agrees that if Lessee pays the fixed minimum
rental and other charges herein provided and shall perform all of the covenants
and agreements herein stipulated
17
<PAGE>
to be performed on the Lessee's part, Lessee shall, at all times during said
term, have the peaceable and quiet enjoyment and possession of said premises
without any manner of hindrance from Lessor or any persons lawfully claiming
through Lessor, except as to such portion of the Demised Premises as shall be
taken under the power of eminent domain.
ARTICLE XXVII - Subordination
This Lease is and shall be subject and subordinate at all times to the
lien of any mortgages which at any time may be made liens upon the Demised
Premises; provided, however, that LESSOR SHALL USE ITS BEST EFFORTS TO HAVE THE
HOLDER OF ANY SUCH MORTGAGE AGREE THAT so long as Lessee shall not be in default
in the performance of its obligations under this Lease, neither this Lease nor
Lessee's right to remain in exclusive possession of the Demised Premises shall
be affected or disturbed by reason of any default under any such mortgage and,
if such mortgage shall be foreclosed, this Lease and all Lessee's rights and
obligations hereunder shall survive such foreclosure and continue in full force
and effect. LESSEE SHALL EXECUTE AND DELIVER UPON DEMAND ANY FURTHER INSTRUMENT
OR INSTRUMENTS CONFIRMING THE SUBORDINATION ATTORNMENT OF THIS LEASE TO THE LIEN
OF ANY SUCH MORTGAGE IF REQUESTED TO DO SO BY LANDLORD WITH THE CONSENT OF THE
MORTGAGEE.
ARTICLE XXVIII - Titles of Articles
The titles of the articles throughout this Lease are for convenience
and reference only, and such titles shall in no way be held to explain, modify,
amplify or aid in the interpretation, construction or meaning of the provisions
of this instrument.
ARTICLE XXIX - Notices
All statements and notices to be given under this Lease shall be in
writing and given in person or by registered or certified mail, return receipt
requested, postage paid, addressed to the proper party at the following address:
(a) If to Lessor: Briggs Property Partnership
1629 Locust Street
Philadelphia, PA 19103
(b) If to Lessee: Bluestone Consulting, Inc.
1000 Briggs Road
Mt. Laurel, NJ 08054
Attn: Mr. Baiada, President
ARTICLE XXX - Definition of Terms
1. "Lease Year", as used herein, shall mean each twelve month period
beginning
18
<PAGE>
with the first day of the term of this Lease, and each yearly anniversary
thereof, provided the commencement of the term of this Lease is on the first day
of the month. If the term of this Lease commences on any day other than the
first day of the month then "lease year" shall begin on the first day of the
month following the end of the month during which the term of this Lease
commences.
2. For the purpose of this Lease "floor area" shall be deemed to mean
the actual number of square feet of floor space within the exterior faces of the
exterior walls (except party walls and walls between space occupied by two or
more separate occupants, in either of which cases the center of the wall in
question shall be used instead of the exterior face thereof) of all floor,
basements and mezzanines of the Demised Premises without deduction or exclusion
for any space occupied by or used by columns, stairs or other interior
construction or equipment.
3. As used in this indenture of Lease and when required by the context,
each number (singular or plural) shall include all number, and each gender shall
include all genders; and unless the context otherwise requires, the word
"person" shall include "corporation, firm or association".
ARTICLE XXXI - Invalidity of Particular Provisions
If any term or provision of this Lease or the application thereof to
any person or circumstance shall to any extent, be invalid or unenforceable, the
remainder of this Lease, or the application of such term or provision to persons
or circumstances other than those as to which it is held invalid or
unenforceable, shall not be affected thereby, and each term and provision of
this Lease shall be valid and be enforced to the fullest extent permitted by
law.
ARTICLE XXXII - Provisions Binding
All rights and liabilities herein given to, or imposed upon, the
respective parties hereto shall extend to and bind the several and respective
heirs, executors, administrators, successors and assigns of said parties; and if
there shall be more than one Lessee, they shall all be bound jointly and
severally by the terms, covenants and agreements herein, and the word "Lessee"
shall be deemed and taken to mean each and every person or party mentioned as a
Lessee herein, by the same one or more, and if there shall be more than one
Lessee, any notice required or permitted by the terms of this Lease may be given
by or to any one thereof, and shall have the same force and effect as if given
by or to all thereof. The words "his" and "him" whenever stated herein, shall be
deemed to refer to the "Lessor" or "Lessee" whether such Lessor or Lessee be
singular or plural and irrespective of gender. No rights, however, shall inure
to the benefit of any assignee of Lessee unless the assignment to such assignee
has been approved by Lessor in writing as aforesaid.
ARTICLE XXXIII - Relationship of Parties
19
<PAGE>
Nothing contained in this Lease shall be deemed or construed by the
parties hereto or by any association whatsoever between Lessor and Lessee, it
being expressly understood and agreed that neither the computation of rent nor
any other provisions contained in this Lease nor any act or acts of the parties
hereto shall be deemed to create any relationship between Lessor and Lessee
other than the relationship of landlord and tenant.
ARTICLE XXXIV - Complete Agreement
This writing contains the entire agreement between the parties hereto,
and no agent, representative, salesman or officer of Lessor hereto has authority
to make or has made any statement, agreement or representation, either oral or
written, in connection herewith, modifying, adding or changing the terms and
conditions herein set forth. No dealings between the parties or custom shall be
permitted to contradict various additions to or modify the terms hereof. No
modification of this Lease shall be binding unless such modification shall be in
writing and signed by the parties hereto.
IN TESTIMONY WHEREOF, the Lessor and Lessee, intending to be legally
bound, have caused this Lease to be signed in triplicate, upon the day and year
first above written.
Sign in the presence of: LESSOR:
Witness: BRIGGS PROPERTIES PARTNERSHIP
- -------------------------------- BY: /s/ Steven G. Park
--------------------------------
Steven G. Park
LESSEE:
BLUESTONE CONSULTING, INC.
Attest:
- -------------------------------- BY: /s/ Mel Baiada
--------------------------------
Mel Baiada
President
20
<PAGE>
between
BRIGGS PROPERTIES PARTNERSHIP
as Lessor
and
BLUESTONE CONSULTING, INC.
as Lessee
This Addendum to Lease is made this 1st day of December, 1993 by and
between BRIGGS PROPERTIES PARTNERSHIP, 1629 Locust Street, Philadelphia,
Pennsylvania 19103, herein called "Lessor" and BLUESTONE CONSULTING, INC.,
having offices at 1200 Church Street, Mount Laurel, New Jersey 08054, herein
called "Lessee".
WHEREAS, Lessor and Lessee entered into a lease dated September 27,
1993 for 14,551 square feet in 1000 Briggs Road, Mount Laurel, New Jersey 08054.
WHEREAS, Lessor and Lessee have agreed that the Lessee requires
$29,582.00 of additional tenant improvements. Lessee shall pay one half, or
$14,791.00, upon execution of this First Amendment, and the Lessor shall pay
half, and the Lessee will increase its base rental to $10,003.81 for the first
sixty (60) months of the Lease term.
NOW, THEREFORE, in consideration of the premises the mutual covenants
herein contained, and for other good and valuable consideration, the parties
covenant and agree as follows:
ARTICLE III - MINIMUM RENT
1. The first sentence shall be changed to increase the minimum monthly
rental to Ten Thousand Three and 81/100 ($10,003.81) Dollars for the
first sixty (60) months of the Lease term. The minimum monthly
rental for months 61 through 120 shall be Nine Thousand Six Hundred
Forty and 04/100 ($9,640.04) Dollars.
IN WITNESS WHEREOF, the parties, intending to be legally bound, have
signed and sealed this First Addendum to Lease on the day and year first above
written.
All other terms and conditions of the Lease shall remain unchanged and in full
force and effect.
<PAGE>
IN TESTIMONY WHEREOF, the Lessor and Lessee, intending to be legally
bound, have caused this First Addendum to Lease to be signed in triplicate, upon
the day and year first above written.
Sign in the presence of: LESSOR:
BRIGGS PROPERTIES PARTNERSHIP
Witness:
By: /s/ Steven G. Park
- ---------------------------- --------------------------------
Steven G. Park
LESSEE:
BLUESTONE CONSULTING, INC.
Attest:
By: /s/ Mel Baiada
- ---------------------------- --------------------------------
President
<PAGE>
BRIGGS PROPERTIES PARTNERSHIP
as Lessor
and
BLUESTONE CONSULTING, INC.
as Lessee
This Addendum to Lease is made this 15th day of December, 1994 by and
between BRIGGS PROPERTIES PARTNERSHIP, 1629 Locust Street, Philadelphia,
Pennsylvania 19103, herein called "Lessor" and BLUESTONE CONSULTING, INC.,
having offices at 1000 Briggs Road, Mt. Laurel, New Jersey 08054, herein called
"Lessee".
WHEREAS, Lessor and Lessee entered into a lease dated September 27,
1993 for 14,551 square feet at 1000 Briggs Road, Mt. Laurel, New Jersey 08054
and amended the same on December 20, 1993.
WHEREAS, Lessor and Lessee have agreed that the Lessee will add an
additional 3,200 square feet, for a total of 17,751 square feet, effective upon
the latter of substantial completion of the construction, or February 1, 1995,
and to end at midnight on the 30th day of November, 2003.
WHEREAS, Lessor and Lessee agree that the Lessee's proportionate share
of the building shall increase from 36% to 44.00%.
NOW, THEREFORE, in consideration of the premises the mutual covenants
herein contained, and for other good and valuable consideration, the parties
covenant and agree as follows:
ARTICLE I - DEMISED PREMISES
1. This article will be amended by deleting "14,551 square feet" and
inserting " 17,751 square feet, as outlined in Exhibit "B".
ARTICLE III - MINIMUM RENT
1. The following paragraph shall replace the existing paragraph:
The initial minimum monthly rent shall be (See Schedule below), all
in advance, on the first day of every calendar month during the term
hereof without deduction or set off. If the term of this Lease shall
commence or end on a day other than the
<PAGE>
first day of the month, Lessee shall pay minimum rental equal to
one-thirtieth (1/30th) of the monthly minimum rental multiplied by
the number of rental days of such fractional month. There shall be a
penalty added to all payments due of five percent (5%) for monies
received more than five (5) days after the payment is due. The
Lessee shall pay the first months rent upon execution of the Lease
by Lessor.
Original Demised Premises-14,551 Additional Space-3,200
Date Rent Date Rent
2/93-1/98 $10,003.91 Upon substantial completion
1/98+ $ 9,640.04 on or about 2/95 until 11/30/03 $2,106.67
Effective Minimum Monthly Rent Schedule
Upon substantial completion
on or about 2/95 - 1/98 $12,110.48
2/98 - 11/02 $11,746.71
ARTICLE IV - TAXES
1. Paragraph 2. The equation "(14,551 divided by 40,500 = 36%)"
shall be deleted and "(17,751 divided by 40,500 = 44%)" shall be
inserted.
ARTICLE XI - MAINTENANCE, CONTROL AND EXPENSE OF COMMON AREAS
1. Paragraph 1. The equation "(14,551 divided by 40,500 = 36%)"
shall be deleted and "(17,751 divided by 40,500 = 44%)" shall be
inserted.
IN WITNESS WHEREOF, the parties, intending to be legally bound, have
signed and sealed this Second Addendum to Lease on the day and year first above
written.
All other terms and conditions of the Lease shall remain unchanged and in full
force and effect.
<PAGE>
IN TESTIMONY WHEREOF, the Lessor and Lessee, intending to be legally
bound, have caused this Second Addendum to Lease to be signed in triplicate,
upon the day and year first above written.
Sign in the presence of: LESSOR:
BRIGGS PROPERTIES PARTNERSHIP
Witness:
By: /s/ Steven G. Park
- ----------------------------------- --------------------------------
Steven G. Park
LESSEE:
BLUESTONE CONSULTING, INC.
Attest:
By: /s/ Mel Baiada
--------------------------------
Mel Baiada
President
<PAGE>
between
BRIGGS PROPERTIES PARTNERSHIP
as Lessor
and
BLUESTONE CONSULTING, INC.
as Lessee
This Addendum to Lease is made this 1st day of June, 1995 by and
between BRIGGS PROPERTIES PARTNERSHIP, 1629 Locust Street, Philadelphia,
Pennsylvania 19103, herein called "Lessor" and BLUESTONE CONSULTING, INC.,
having offices at 1000 Briggs Road,
Mt. Laurel, New Jersey 08054, herein called "Lessee".
WHEREAS, Lessor and Lessee entered into a lease dated September 27,
1993 for 14,551 square feet at 1000 Briggs Road, Mt. Laurel, New Jersey 08054
and amended the same on December 20, 1993, and December 15, 1994.
WHEREAS, Lessor and Lessee have agreed that the Lessee will add an
additional 9,500 square feet, for a total of 27,251 square feet, effective
September 1, 1995, and to end at midnight on the 30th day of November, 2003.
WHEREAS, Lessor and Lessee agree that the Lessee will pay for only
5,000 square feet of the 9,500 square feet from September 1, 1995 to December
31, 1995 and for the full 9,500 square feet beginning January 1, 1996.
WHEREAS, Lessor and Lessee agree that the Lessor will make the
improvements outlined in Exhibit "C" for which the Lessee will compensate the
Lessor $8,500.00.
WHEREAS, Lessor and Lessee agree that the Lessee's proportionate share
of the building shall increase from 44% to 67.00%.
NOW, THEREFORE, in consideration of the premises the mutual covenants
herein contained, and for other good and valuable consideration, the parties
covenant and agree as follows:
ARTICLE I - DEMISED PREMISES
1. This article will be amended by deleting "17,751 square feet" and
inserting
<PAGE>
"27,251 square feet, as outlined in Exhibit "C"".
ARTICLE III - MINIMUM RENT
1. The following paragraph shall replace the existing paragraph:
The initial minimum monthly rent shall be (See Schedule attached),
all in advance, on the first day of every calendar month during the
term hereof without deduction or set off. If the term of this Lease
shall commence or end on a day other than the first day of the
month, Lessee shall pay minimum rental equal to one-thirtieth
(1/30th) of the monthly minimum rental multiplied by the number of
rental days of such fractional month. There shall be a penalty added
to all payments due of five percent (5%) for monies received more
than five (5) days after the payment is due. The Lessee shall pay
the first months rent upon execution of the Lease by Lessor.
Minimum Monthly Rent Schedule - Effective 09/01/95
<TABLE>
<CAPTION>
<S> <C> <C> <C>
09/01/95 to 12/31/95 27,251 S.F. $15,422.98/mo. $6.79
01/01/96 to 02/17/99 27,251 S.F. S 18,404.23/mo. $8.10
02/18/99 to 11/31/03 27,251 S.F. S 18,404.46/mo. $7.94
</TABLE>
ARTICLE IV - TAXES
1. Paragraph 2. The equation "(17,751 divided by 40,500 = 44%)"
shall be deleted and "(27,251 divided by 40,500 = 67%)" shall be
inserted.
ARTICLE VI - DESCRIPTION OF LESSOR'S WORK
1. The following paragraph shall be added:
2. Lessor agrees to complete the work outlined in Exhibit "C".
Lessee will pay the Lessor $8,500.00 upon substantial completion of
the work. Lessee is only responsible for those items labelled
"Lessee's Costs".
ARTICLE XI - MAINTENANCE, CONTROL AND EXPENSE OF COMMON AREAS
1. Paragraph 1. The equation "(17,751 divided by 40,500 = 44%)"
shall be deleted and "(27,251 divided by 40,500 = 67%)" shall be
inserted.
IN WITNESS WHEREOF, the parties, intending to be legally bound, have
signed and sealed this Third Addendum to Lease on the day and year first above
written.
<PAGE>
ALL OTHER TERMS AND CONDITIONS OF THE LEASE SHALL REMAIN UNCHANGED AND IN FULL
FORCE AND EFFECT.
IN TESTIMONY WHEREOF, the Lessor and Lessee, intending to be legally
bound, have caused this Third Addendum to Lease to be signed in triplicate, upon
the day and year first above written.
Sign in the presence of: LESSOR:
BRIGGS PROPERTIES PARTNERSHIP
Witness:
By: /s/ Steven G. Park
------------------------------------ ---------------------------
Steven G. Park
LESSEE:
BLUESTONE CONSULTING, INC.
Attest:
By: /s/ Mel Baiada
------------------------------------ ---------------------------
Mel Baiada
President
<PAGE>
FOURTH ADDENDUM TO LEASE
between
BRIGGS PROPERTIES PARTNERSHIP
as Lessor
and
BLUESTONE CONSULTING, INC.
as Lessee
This Addendum to Lease is made this 16th day of May, 1996 by
and between BRIGGS PROPERTIES PARTNERSHIP, 1629 Locust Street, Philadelphia,
Pennsylvania 19103, herein called "Lessor," and BLUESTONE CONSULTING, INC.,
having offices at 1000 Briggs Road, Mt. Laurel, New Jersey 08054, herein called
"Lessee."
WHEREAS, Lessor and Lessee entered into a lease dated
September 27,1993 for 14,551 square feet at 1000 Briggs Road, Mt. Laurel, New
Jersey 08054 and amended the same on December 1, 1993, December 15, 1994, and
June 1, 1995; and
WHEREAS, Lessor and Lessee have agreed that the Lessee will
add an additional 7,495 square feet, herein referred to as the "Third Addition,"
for a total of 34,746 square feet; and
WHEREAS, Lessor and Lessee agree that the term for the Third
Addition will commence on July 1,1996 and run concurrent with the original lease
term, expiring at midnight on the 30th day of November, 2003; and
WHEREAS, Lessor and Lessee agree that the Lessee will pay an
annual rental rate of $10.50 per square foot, triple net for the Third Addition;
and
WHEREAS, Lessor and Lessee agree that Lessee's proportionate
share of the building shall increase from 67.00% to 82.60%; and
WHEREAS, Lessor and Lessee that Lessee's ability to terminate
this lease prior to its expiration will be eliminated.
NOW, THEREFORE, in consideration of the premises the mutual
covenants herein contained, and for other good and valuable consideration, the
parties covenant and agree as follows:
ARTICLE I - DEMISED PREMISES
1. This Article will be amended by adding the following:
"The Lessee's Demised Premises will be expanded by 7,495 square feet as
outlined in Exhibit "A" hereto and herein referred to as the 'Third
Addition.' The Lessee's total
<PAGE>
Demised Premises will now be 34,746 square feet."
ARTICLE II - TERMS OF LEASE
1. The term for the Third Addition will commence on the later
of (i) July 1, 1996 or (ii) the date Lessor delivers possession to Lessee of the
Third Addition with the improvements required by Paragraph 3 hereof completed to
Lessee's reasonable satisfaction; provided, however, that if Lessee takes
possession of the Third Addition prior to the foregoing dates, then the date
Lessee takes possession shall be the commencement date of the Third Addition and
Lessee's obligations with respect thereto. Such term shall run concurrent with
the original lease term and shall expire on the 30th day of November, 2003. It
is understood that the Third Addition is currently occupied and that surrender
of possession of the space must be effected with the present tenant. Lessor
covenants and agrees to use best efforts to effect such surrender, but shall not
be held liable for failure to do so.
2. Section 2 of this Article shall be amended to delete in its
entirety the third sentence thereof (which provides a termination right to
Lessee) and to provide that, notwithstanding anything in Section 2 to the
contrary, the maximum rental rate for any further expansion space at 1000 Briggs
Road shall be $10.50 per square foot net.
ARTICLE III - MINIMUM RENT
1. The following paragraph shall replace the existing
paragraph:
"The initial minimum monthly rent shall be as set forth below under the
Revised Rent Schedule, to be paid in advance, on the first day of every
calendar month during the term hereof without deduction or set off. If
the term of this Lease shall commence or end on a day other than the
first day of the month, Lessee shall pay minimum rental equal to
one-thirtieth (1/30th) of the monthly minimum rental multiplied by the
number of rental days of such fractional month. There shall be a
penalty added to all payments due of five percent (5%) for monies
received more than five (5) days after the payment is due. Lessee shall
pay the first months rent upon execution of the Lease by Lessor."
CURRENT RENT SCHEDULE
ORIGINAL DEMISED PREMISES
Current to 02/17/99 14,551 S.F. $10,000.81/mo. $8.25
02/18/99 to 11/30/03 14,551 S.F. $ 9,640.04/mo. $7.95
<PAGE>
FIRST ADDITION
Current to 11/30/03 3,200 S.F. $ 2,106.67/mo. $7.90
SECOND ADDITION
Current to 11/30/03 9,500 S.F. $ 6,296.75/mo. $7.95
TOTAL DEMISED PREMISES
Current to 02/17/99 27,251 S.F. $18,404.23/mo. $8.10
02/18/99 to 11/30/03 27,251 S.F. $18,043.46/mo. $7.95
REVISED RENT SCHEDULE
EFFECTIVE 6/1/96 (OR WHEN THE THIRD ADDITION
IS DELIVERED TO LESSEE IN ACCORDANCE HEREWITH)
THIRD ADDITION
to 11/30/03 7,495 S.F. $ 6,558.12/mo. $10.50
TOTAL DEMISED PREMISES
Current to 12/31/98 34,746 S.F. $24,962.35/mo. $8.62
02/18/99 to 11/30/03 34,746 S.F. $24,601.58/mo. $8.50
ARTICLE IV - TAXES
1. Section 2 of this Article shall have the current equation
"(27,251 divided by 40,500 = 67%)" deleted and the equation "(34,746
divided by 42,064 = 82.60%)" shall be inserted in its place.
ARTICLE IX - ALTERATIONS
1. Notwithstanding any provision of Article IX to the contrary:
a. Lessee shall have the right to remove any improvements
installed by Lessee provided that (i) same can be removed without damage to the
structural integrity of the building in which the Demised Premises are a part
and (ii) Lessee restores the affected areas of the Demised Premises to a
condition which is
<PAGE>
compatible with the remaining areas of the Demised Premises.
b. Lessee shall not be obligated to remove any improvements
made by Lessee to the Demised Premises for which Lessee has obtained Lessor's
approval to same, unless removal of same was required as a condition of Lessor's
consent thereto.
ARTICLE XI - MAINTENANCE, CONTROL AND EXPENSE OF COMMON AREAS
1. The current equation "(27,251 divided by 40,500 = 67%)"
shall be deleted and "(34,746 divided by 42,064 = 82.60%)" shall be inserted
in its place.
ARTICLE XIII - DESTRUCTION BY FIRE OR CASUALTY
1. Section 1 shall be revised to change "five (5) years" to
"eight (8) years" where it appears for the first, third and fourth times; and to
change "five (5) years" to "two (2) years" where it appears for the second time.
2. Notwithstanding any provision of the Lease to the contrary,
the following shall apply in the event of any damage to, or destruction of, the
Demised Premises:
a. If, in the opinion of Lessor's insurance carrier the Demised
Premises have been substantially or totally damaged, and Lessorand Lessee agree
that the necessary reconstruction of the Demised Premises to the condition which
existed prior to such casualty can not be completed within nine (9) months from
the date of receipt of said insurance adjustment, then either Lessor or Lessee
shall have the right to terminate this Lease.
b. If, in the opinion of Lessor's insurance carrier the Demised
Premises only have been partially damaged, and Lessor and Lessee determine that
the necessary repair of the Demised Premises to the condition which existed
prior to such casualty can not be completed within nine (9) months from the date
of such casualty, then either Lessor or Lessee shall have the right to terminate
this Lease.
c. if this Lease shall not be terminated pursuant to
Subsections (a) and (b) above, but the necessary repair or reconstruction shall
not be completed within thirty (30) days of the foregoing nine (9) months period
(as the case may be), then Lessee, upon notice to Lessor, shall have the right
to terminate this Lease.
d. In the event a claim shall not be submitted to Lessor's
insurance carrier with respect to any casualty, the determination of the
estimated time of repair shall be made in the reasonable judgment of Lessor and
Lessee. If Lessor and Lessee shall be unable to agree, they shall select a
reputable contractor (who shall be a fire reconstruction specialist if the
damage was caused by fire) to estimate the time required for repair, which shall
be binding upon Lessor and Lessee.
<PAGE>
ARTICLE XIV - LESSEE'S PROPERTY IN DEMISED PREMISES
1. Notwithstanding any provision of the Lease to the contrary,
upon termination of the Lease, Lessee shall have the right to remove all of
Lessee's personal property and trade fixtures (which include the unit work
stations) which have been installed at the Demised Premises.
ARTICLE XVII - INDEMNITY AND INSURANCE BY LESSEE
1. Notwithstanding any provision of the Section 1 of this
Article to the contrary, Lessee's liability under the Lease, and any
indemnification owed to Lessor under the Lease, shall be limited to liability
arising from or occasioned by the negligence or wilful acts of Lessee, its
employees, agents and invitees.
2. Section 5 and Section 6 are deleted.
ARTICLE XVIII - ASSIGNMENT AND SUBLETTING
1. In the event that Lessor's consent is requested and Lessor
shall elect to exercise its rights under Section 2 of this Article, Lessee shall
have the right to rescind its request for consent, in which case Landlord's
election under Section 2 shall be void and this Lease shall continue in full
force and effect.
ARTICLE XX - DEFAULT BY LESSEE
1. This Article is amended to recognize that, in the case of a
nonmonetary default, Lessee shall not be in default under the Lease if (a)
Lessee has commenced to cure such default during such thirty (30) day period,
and (b) Lessee diligently proceeds to cure such default to the reasonable
satisfaction of Lessor.
ARTICLE XXVII - SUBORDINATION
1. This Article shall be revised as follows:
a. The following language which begins at the end of
the second line thereof shall be deleted: "Lessor shall use its best efforts to
have the holder of any such mortgage agree that."
b. The following language shall be inserted after the
word "default" where it first appears in the forth line thereof: "beyond the
expiration of any applicable grace or cure period."
2. Lessor further agrees to use best efforts to deliver to
Lessee a nondisturbance agreement from the holder of the current mortgage on the
property of which the Demised Premises are a part, the form of which shall be
reasonably acceptable to Lessee.
MISCELLANEOUS - NEW PROVISIONS
<PAGE>
1. Notwithstanding any provision of the Lease to the contrary,
the cost of any capital improvements made after the date hereof shall be
amortized over a period equal to the useful life of such improvement determined
in accordance with generally accepted accounting principles, and, to the extent
Lessee is responsible for same under the Lease, payment shall be as follows:
a. If the capital improvement is included as a common
area maintenance cost, then only the amortized amount for the year in question
shall be included as a common area maintenance cost; and
b. If any such capital improvements is required in
order to comply with the requirements of any governmental authority, insurance
carrier or pursuant to any applicable law, regulation, ordinance or court
directive, and is not otherwise included as a common area maintenance cost, then
Lessee shall pay only the amortized amount for the year in question which shall
fall due during the term of the Lease (and any renewal thereof); and
c. Amounts due for the year of termination shall be
prorated.
2. If Lessee shall come to occupy all of the space in the
building available for lease by tenants, then Lessee, upon written notice to
Lessor, shall have the right to perform, at its costs and expense, all exterior
landscaping and/or all maintenance to the common areas of the building in which
the Demised Premises are located, subject in each case to (i) compliance with
Lessor's minimum standards for landscaping and building maintenance as the case
may be and such reasonable rules and regulations which Lessor may enact with
respect thereto and (ii) the requirements of any contracts then existing which
Lessor may have entered with respect thereto, which Lessee shall be obligated to
honor.
3. The Third Addition shall be delivered to Lessee on June 1,
1996, vacant and broom clean with the following improvements having been
performed by Lessor at Lessor's expense:
a. Professional cleaning of all carpeted areas
b. Repainting of all interior areas
c. Repair to any roof leaks
d. Replacement of damaged ceiling tiles
e. All mechanical systems in good and proper working order
4. In the event of any conflict between the terms of the Lease
and the terms of this Addendum, this Addendum shall control. All other terms and
conditions of the Lease shall remain unchanged and in full force and effect. The
Lease, as modified by this Addendum, is the complete agreement of the parties
and shall be further modified only by written agreement signed by Lessor and
Lessee.
IN WITNESS WHEREOF, the parties, intending to be legally
bound, have signed this Fourth Addendum to Lease on the day and year first above
written.
Sign in the presence of: LESSOR:
<PAGE>
BRIGGS PROPERTIES PARTNERSHIP
Witness:
By: /s/ Steven G. Park
- ------------------------------------- ---------------------------------
Steven G. Park
LESSEE:
BLUESTONE CONSULTING, INC.
Attest:
By: /s/ Mel Baiada
- ------------------------------------- ---------------------------------
Mel Baiada, President
<PAGE>
FIFTH ADDENDUM TO LEASE
THIS FIFTH ADDENDUM, made as of the 1st day of February 1998, by and
between LIBERTY PROPERTY LIMITED PARTNERSHIP, a Pennsylvania limited partnership
(hereinafter called "Lessor"), and BLUESTONE CONSULTING, INC., a New Jersey
corporation (hereinafter called "Lessee').
W I T N E S S E T H :
WHEREAS, Lessor's predecessor in title, Briggs Properties Partnership
("Briggs"), and Lessee entered into a Lease Agreement dated September 27, 1993,
as amended by First Addendum to Lease dated December 1, 1993, Second Addendum to
Lease dated December 15, 1994, Third Addendum to Lease dated June 1, 1995 and
Fourth Addendum to Lease dated May 15, 1996 (hereinafter collectively called the
"Lease"), covering certain Premises at 1000 Briggs Road, Mount Laurel, New
Jersey, as more fully described in the Lease (hereinafter called the
"Premises"); and
WHEREAS, the Premises has been sold by Briggs to Lessor and Lessor is
now the landlord under the Lease; and
WHEREAS, Lessor desires to increase the amount of space leased under
the Lease and Lesser has agreed to such increase subject to the provisions of
this Fifth Addendum.
Accordingly, Lessor and Lessee desire to amend the Lease.
NOW, THEREFORE, the Parties hereto, in consideration of the mutual
covenant contained herein and in the Lease, and intending to be legally bound
hereby agree that:
1. Article 1 of the Lease, entitled "Demised Premises", is hereby
amended by adding the following:
"Effective on February 1, 1998 (the "Effective Date"), Lessee's
Demised Premises will be expanded by 6,200 square feet as outlined in Exhibit
"A" hereto and herein referred to as the "Fourth Addition". On the Effective
Date, Lessee's total Demised Premises will be 40,946 square feet."
2. The term for the Fourth Addition will commence on the Effective Date
and shall expire November 30, 2003.
3. The Fourth Addition is leased to and accepted by Lessee, subject to
the terms and condition, without warranty as to physical condition,
environmental condition, zoning, suitability for a particular purpose or any
other matter whatsoever, and Lessor shall have no obligation whatsoever to
perform any improvements with respect thereto or to pay any allowance for
<PAGE>
improvements with respect thereto.
4. Effective on the Effective Date, the minimum monthly rent set forth
in the Revised Rent Schedule contained in Article III of the Fourth Addendum
shall be increased by $4,469.17.
5. Effective on the Effective Date, Section 2 of Article IV of the
Lease shall have the current equation "(34,746 divided by 42,064 = 82.60%)"
deleted and the equation "(40,946 divided by 40,946 = 100.0%) shall be
inserted in its place.
6. Effective an the Effective Data,, Article XI of the Lease shall
have the currant equation "(34,746 divided by 42,064 = 82. 60%)" deleted and
the equation "(40,946 divided by 40,946 = 100.0%)" shall be inserted in its
place.
7. The parties agree that they have dealt with no broker in connection
with this Fifth Addendum. Each party agrees to indemnify and hold the other
harmless from any and all claims for commissions or fees in connection with this
Fifth Addendum and the Lease from real estate brokers or agents with whom they
may have dealt.
8. Lessor and Lessee acknowledge that the Lease is in full force and
effect. Lessee acknowledges that as of the date hereof it has no claims or
offsets against rent due or to become due
hereunder.
9. Except as expressly modified herein, the terms and conditions of the
Lease shall remain unchanged and in full force and effect. In the event of any
conflict between the terms of the Lease and the terms of this Fifth Addendum,
this Fifth Addendum shall control.
10. This Fifth Addendum shall be binding upon and inure to the benefit
of the Parties and their respective successors and their respective successors
and permitted assigns.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Fifth
Addendum the day and year first above written.
LESSOR: LIBERTY PROPERTY LIMITED
PARTNERSHIP, a Pennsylvania limited
partnership
By: Liberty Property Trust, a Maryland
real estate investment trust,
General Partner
By: /s/ James J. Mazzarelli
-----------------------------------
James J. Mazzarelli
Senior Vice President
LESSEE: BLUESTONE CONSULTING, INC. a New
Jersey corporation
Attest: By: /s/ Mel Baiada
------------------------------ -----------------------------------
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of
this registration statement.
/s/ Arthur Andersen LLP
Philadelphia, PA
July 1, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> MAR-31-1999 DEC-31-1998
<CASH> 597,549 2,534,819
<SECURITIES> 0 0
<RECEIVABLES> 1,600,856 3,413,987
<ALLOWANCES> 70,314 44,473
<INVENTORY> 0 0
<CURRENT-ASSETS> 2,509,654 6,053,651
<PP&E> 2,767,808 2,734,202
<DEPRECIATION> 1,435,842 1,284,921
<TOTAL-ASSETS> 3,876,997 7,535,929
<CURRENT-LIABILITIES> 5,375,301 6,393,232
<BONDS> 0 0
17,678,106 17,414,551
765,051 875,642
<COMMON> 9,009 9,008
<OTHER-SE> (20,950,470) (18,156,504)
<TOTAL-LIABILITY-AND-EQUITY> 3,876,997 7,535,929
<SALES> 2,256,567 3,391,226
<TOTAL-REVENUES> 3,276,839 8,117,911
<CGS> 57,420 258,572
<TOTAL-COSTS> 1,394,790 5,335,001
<OTHER-EXPENSES> 4,364,716 14,341,072
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 48,389 46,520
<INCOME-PRETAX> (2,531,056) (11,604,682)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (2,531,056) (11,604,682)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (2,531,056) (11,604,682)
<EPS-BASIC> (0.31) (1.38)
<EPS-DILUTED> (0.31) (1.38)
</TABLE>
