<PAGE>
As filed with the Securities and Exchange Commission on September 3, 1999
Registration No. 333-83779
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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PRE-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
Under
the Securities Act of 1933
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INTERWOVEN, INC.
(Exact name of Registrant as specified in its charter)
Delaware 7372 94-3221352
(State or other (Primary standard (I.R.S. employer
jurisdiction of industrial classification identification no.)
incorporation or code number)
organization) Interwoven, Inc.
1195 West Fremont Avenue, Suite 2000
Sunnyvale, California 94087
(408) 774-2000
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
---------------
David M. Allen
Chief Financial Officer
Interwoven, Inc.
1195 West Fremont Avenue, Suite 2000
Sunnyvale, California 94087
(408) 774-2000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copies to:
Matthew P. Quilter, Esq. Mark A. Bertelsen, Esq.
Horace L. Nash, Esq. Jose F. Macias, Esq.
Darren L. Nunn, Esq. Jon C. Avina, Esq.
William L. Hughes, Esq. WILSON SONSINI GOODRICH & ROSATI
FENWICK & WEST LLP Professional Corporation
Two Palo Alto Square 650 Page Mill Road
Palo Alto, California 94306 Palo Alto, California 94304
(650) 494-0600 (650) 493-9300
---------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act 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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
Proposed Maximum
Proposed Aggregate Amount of
Title of Each Class Of Amount To Be Maximum Offering Registration
Securities To Be Registered Price Per Unit Price(1) Fee(2)
Registered ------------ -------------- ---------------- ------------
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<S> <C> <C> <C> <C>
Common Stock, $.001 par
value per share....... 3,450,000 $12.00 $41,400,000 $11,510
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</TABLE>
(1) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(c) under the Securities Act of 1933.
(2) $13,900 has been previously paid by the Registrant in connection with the
filing of the Registration Statement on July 27, 1999.
---------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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<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 offers to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED SEPTEMBER 3, 1999
3,000,000 Shares
[LOGO OF INTERWOVEN APPEARS HERE]
Common Stock
---------
Prior to this offering, there has been no public market for our common stock.
The initial public offering price is expected to be between $10.00 and $12.00
per share. We have applied to list our common stock on The Nasdaq Stock
Market's National Market under the symbol "IWOV."
The underwriters have an option to purchase a maximum of 450,000 additional
shares to cover over-allotments of shares.
Investing in our common stock involves risks. See "Risk Factors" on page 6.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions Interwoven
---------- ------------- ----------
<S> <C> <C> <C>
Per Share................................. $ $ $
Total..................................... $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about , 1999.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
Credit Suisse First Boston
BancBoston Robertson Stephens
Dain Rauscher Wessels
a division of Dain Rauscher
Incorporated
The date of this prospectus is , 1999.
<PAGE>
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.................. 3
Risk Factors........................ 6
Special Note Regarding Forward-
Looking Statements................. 14
Use of Proceeds..................... 15
Dividend Policy..................... 15
Capitalization...................... 16
Dilution............................ 17
Selected Financial Data............. 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 19
Business............................ 29
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Management....................... 43
Related Party Transactions....... 54
Principal Stockholders........... 56
Description of Capital Stock..... 58
Shares Eligible for Future Sale.. 62
Underwriting..................... 64
Notice to Canadian Residents..... 66
Legal Matters.................... 67
Experts.......................... 67
Where You Can Find Additional
Information..................... 67
Index to Financial Statements.... F-1
</TABLE>
----------------
You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is legal
to sell these securities. The information in this document may only be accurate
on the date of this document.
----------------
Interwoven(R), TeamSite(R), OpenDeploy(TM) and SmartContext(TM) are our
trademarks. This prospectus also contains trademarks of other companies and
organizations.
----------------
Unless otherwise indicated, all information contained in this prospectus
assumes:
. that the underwriters will not exercise their over-allotment option;
. the completion of a 2-for-3 reverse stock split immediately prior to
consummation of this offering;
. the conversion of each outstanding share of our preferred stock into
two-thirds of a share of common stock, except for Series B Preferred
Stock, each share of which shall be converted into 0.702205 shares of
common stock;
. no exercise of outstanding warrants to purchase shares of our preferred
stock prior to the consummation of this offering; and
. our reincorporation from California to Delaware prior to consummation of
this offering.
----------------
Dealer Prospectus Delivery Obligation
Until , 1999 (25 days after the commencement of this offering), all
dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This
is in addition to the dealer's obligation to deliver a prospectus when acting
as an underwriter and with respect to unsold allotments or subscriptions.
<PAGE>
[front cover gatefold]
A flow diagram representing the platform for eBusiness. The left side of the
diagram contains a graphic representation of web software positioning, from
contributors to applications. The right side of the diagram contains a graphic
representation of the web workflow process.
On the left of the gatefold, icons on the far left labeled Web Contributors
consist of boxes (from top to bottom) labeled "Technical Contributors" and
"Business Contributors." The next row to the right consists of icons labeled
"Executable Code," "Database Assets," "Rich HTML, XML," "Templates" and
"Text." Arrows lead from here to the next box which is labeled "Interwoven."
This box consists of two columns one labeled "TeamSite" and under that is
"Parallel Development," "Quality Assurance," "Versioning" and "Work Flow." The
next column in the Interwoven box is labeled "OpenDeploy" and under that is
"Transactional Deployment," "Encryption," "Replication" and "Syndication."
From the box labeled Interwoven, arrows lead to the next row of icons labeled
"eBusiness Applications." Under this heading are icons labeled "Knowledge
Management," "Supply Chain Managment," E-Commerce" and "Customer Relationship
Management."
On the right of the gatefold, a flow chart consisting of three columns of
icons represents the web workflow process. The far left column is labeled
"Work Area" and under that are two icons. Arrows labeled "Multiple User
Approval" lead to the middle row which is labeled "Staging Area." This column
has an arrow labeled "Final" which leads to the far right column with one icon
labeled "Edition."
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus;
it does not contain all the information you should consider before buying
shares in this offering. You should read the entire prospectus carefully before
making a decision whether to purchase our common stock.
Interwoven
Interwoven is a leading provider of software products and services that help
businesses and other organizations manage the information that makes up the
content of their web sites. In the Internet industry, this is often referred to
as "web content management." We have designed our software products to help
companies rapidly and efficiently develop, maintain and extend large web sites
that are essential to their businesses. Our principal product, TeamSite,
incorporates widely accepted Internet industry standards and is designed with
an open architecture that allows it to support a wide variety of Internet
software products, including web authoring tools and web application servers.
Using TeamSite, our customers can manage web content, control the versions of
their web sites, manage web site contribution and content approval processes,
and develop Internet applications. TeamSite allows large numbers of
contributors across an enterprise to add web content in a carefully-managed
process. In addition, our OpenDeploy product allows customers to automate the
distribution of web content across multiple web sites.
As leading companies demonstrate success on the Internet, business leaders
are seeking to capitalize on new business opportunities, reach a broader
customer base and reduce overall operating costs by moving their businesses to
the Internet. The use of the Internet to conduct business is frequently
referred to as "Internet commerce" or "eBusiness." Companies are making
significant investments to develop and deploy these eBusiness initiatives.
International Data Corporation, or IDC, estimates that spending on software
applications and services for Internet commerce will grow from $7.8 billion in
1998 to $53.8 billion in 2002.
The competitive online environment is driving companies to deploy complex
web sites that offer enhanced user experiences. These web sites can contain
hundreds of thousands of content-rich web pages, and this content has been
increasing in volume and complexity. In addition, today's web sites must be
updated frequently by numerous contributors throughout an enterprise. Web teams
find it difficult to manage the increasing complexity, volume and variability
of this content. At the same time, the large number of web authoring tools and
web application servers have contributed to the increasing technological
complexity involved in developing and maintaining web sites. These trends have
created a need for content management software that can accommodate the
increasing volume of web content, leverage existing investments in computers,
software and associated information technology infrastructure, and allow more
contributors to add content to a web site. IDC estimates that one of the
markets in which we participate, which they refer to as the web development
life-cycle management software market, will grow from $76.4 million in 1998 to
$1.6 billion in 2003.
Interwoven's content management software assists customers in accelerating
their time-to-web--the rate at which they can deploy new content on their web
sites--by enabling them to develop multiple eBusiness applications
simultaneously. It lowers web operating costs by reducing a customer's
dependence on highly-paid web professionals and reducing the time required to
test and approve new content for a web site or eBusiness application. The
scalability of our products also allows customers to manage hundreds of
thousands of web files and enables hundreds of employees throughout the
enterprise to contribute web content. In addition, our software's architecture
is non-proprietary and based on recognized industry standards, so it enables
businesses to take advantage of existing investments in technology and web
content and, at the same time, to integrate new technologies and applications
easily.
3
<PAGE>
We market and sell our software products and services primarily through a
direct sales force in North America. To date, we have licensed our software
products to over 85 customers, including AltaVista, AT&T/TCI, BellSouth, Best
Buy, Cisco Systems, FedEx, Gap, General Electric, the U.S. Department of
Education, USWeb/CKS, Viacom/Nickelodeon and Yahoo!/GeoCities, although we have
incurred losses to date resulting in an accumulated deficit of approximately
$16.5 million at June 30, 1999.
We were incorporated in California in March 1995 and intend to reincorporate
in Delaware immediately prior to the completion of this offering. Our principal
executive offices are located at 1195 West Fremont Avenue, Suite 2000,
Sunnyvale, California 94087 and our telephone number is (408) 774-2000. Our
World Wide Web address is www.interwoven.com. The information on our web site
is not part of this prospectus.
The Offering
<TABLE>
<C> <S>
Common stock offered................................ 3,000,000 shares
Common stock to be outstanding after this offering.. 21,642,241 shares
Use of proceeds..................................... For general corporate
purposes, including
working capital. See "Use
of Proceeds."
Proposed Nasdaq National Market symbol.............. IWOV
</TABLE>
The number of shares of our common stock to be outstanding immediately after
this offering is based on the number of shares outstanding as of June 30, 1999,
but does not include:
. 944,980 shares issuable upon exercise of options outstanding at June 30,
1999 under our stock option plans and 3,684,034 shares available for
future issuance under those plans;
. 300,000 shares available for future issuance under our employee stock
purchase plan;
. 72,071 shares issuable upon exercise of outstanding warrants; and
. 39,096 shares issuable upon exercise of warrants issued after July 1,
1999.
4
<PAGE>
Summary Financial Data
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Years Ended December Six Months
31, Ended June 30,
------------------------- ----------------
1996 1997 1998 1998 1999
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues.......................... $ -- $ 168 $ 4,003 $ 886 $ 5,004
Gross profit...................... -- 73 2,670 536 3,456
Total operating expenses.......... 520 2,933 9,165 3,011 9,838
Loss from operations.............. (520) (2,860) (6,495) (2,475) (6,382)
Net loss.......................... (510) (2,948) (6,344) (2,418) (6,228)
Net loss per share:
Basic and diluted............... $ (0.22) $ (1.36) $ (2.85) $ (1.25) $ (3.66)
Weighted average shares--basic
and diluted.................... 2,282 2,356 2,633 2,404 3,435
Pro forma net loss per share:
Basic and diluted............... $ (0.74) $ (0.44)
Weighted average shares--basic
and diluted.................... 8,530 14,000
</TABLE>
<TABLE>
<CAPTION>
As of June 30, 1999
---------------------
Actual As Adjusted
-------- -----------
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents............................... $ 25,203 $54,703
Working capital......................................... 22,634 52,134
Total assets............................................ 29,948 59,448
Long-term debt and capital lease obligations, less
current portion........................................ 1,000 1,000
Manditorily redeemable convertible preferred stock...... 45,276 --
Total stockholders' equity (deficit).................... (21,155) 53,621
</TABLE>
See Note 1 of Notes to Financial Statements for a description of the method
that we used to compute our basic and diluted net loss per share and pro forma
basic and diluted net loss per share.
The adjusted balance sheet data gives effect to the sale of the shares of
common stock that we are offering under this prospectus at an assumed initial
public offering price of $11.00 per share and after deducting the estimated
underwriting discounts and commissions and estimated offering expenses. See
"Use of Proceeds" and "Capitalization."
5
<PAGE>
RISK FACTORS
You should carefully consider the risks described below before buying shares
in this offering. The risks and uncertainties described below are not the only
risks we face. These risks are the ones we consider to be significant to your
decision whether to invest in our common stock at this time. We might be wrong.
There may be risks that you in particular view differently than we do, and
there are other risks and uncertainties that are not presently known to us or
that we currently deem immaterial, but that may in fact impair our business
operations. If any of the following risks actually occur, our business, results
of operations and financial condition could be seriously harmed, the trading
price of our common stock could decline and you may lose all or part of your
investment.
Our operating history is limited, so it will be difficult for you to evaluate
our business in making an investment decision.
We were incorporated in March 1995 and have a limited operating history. We
are still in the early stages of our development, which makes the evaluation of
our business operations and our prospects difficult. We shipped our first
product in May 1997. Since that time, we have derived substantially all of our
revenues from licensing our TeamSite product and related services. Before
buying our common stock, you should consider the risks and difficulties
frequently encountered by early stage companies in new and rapidly evolving
markets, particularly those companies whose businesses depend on the Internet.
These risks and difficulties, as they apply to us in particular, include:
. potential fluctuations in operating results and uncertain growth rates;
. limited market acceptance of our products;
. concentration of our revenues in a single product;
. our dependence on a small number of orders for most of our revenue;
. our need to expand our direct sales forces and indirect sales channels;
. our need to manage rapidly expanding operations; and
. our need to attract and train qualified personnel.
If we do not increase our license revenues significantly, we will fail to
achieve profitability.
We have incurred net losses in each quarter since our inception, and we
expect our net losses to increase. We incurred net losses of approximately
$510,000 in 1996, $2.9 million in 1997, $6.3 million in 1998 and $6.2 million
for the six months ended June 30, 1999. As of June 30, 1999, we had an
accumulated deficit of approximately $16.5 million. To compete effectively, we
plan to continue to invest aggressively to expand our sales and marketing,
research and development, and professional services organizations. As a result,
if we are to achieve profitability we will need to increase our revenues
significantly, particularly our license revenues. We cannot predict when we
will become profitable, if at all.
Our operating results fluctuate widely and are difficult to predict, so we may
fail to satisfy the expectations of investors or market analysts and our stock
price may decline.
Our quarterly operating results have fluctuated significantly in the past,
and we expect them to continue to fluctuate unpredictably in the future. It is
possible that in some future periods our results of operations may not meet or
exceed the expectations of public market analysts and investors. If this
occurs, the price of our common stock is likely to decline.
6
<PAGE>
Our quarterly results depend on a small number of large orders, so the loss of
any single large order could harm those results and cause our stock price to
drop.
Each quarter, we derive a significant portion of our license revenues from a
small number of relatively large orders. For example, in the first and second
quarters of 1999, our top five customers accounted for 41% and 30%,
respectively, of the total revenue in those quarters. We expect that we will
continue to depend upon a small number of large orders for a significant
portion of our license revenues. As a result, our operating results could
suffer if any large orders are delayed or cancelled in any future period.
We face significant competition, which could make it difficult to acquire and
retain customers and inhibit any future growth.
We expect the competition in the market in which we operate to persist and
intensify in the future. Competitive pressures may seriously harm our business
and results of operations if they inhibit our future growth, or require us to
hold down or reduce prices, or increase our operating costs. Our competitors
include:
. potential customers that utilize in-house development efforts;
. developers of software that directly addresses the need for web content
management, such as Vignette.
In addition, we face potential competition from companies--for example,
Microsoft and IBM--that may decide in the future to enter our market. Many of
our existing and potential competitors have longer operating histories greater
name recognition, larger customer bases and significantly greater financial,
technical and marketing resources than we do. Many of these companies can also
leverage extensive customer bases and adopt aggressive pricing policies to gain
market share. Potential competitors may bundle their products in a manner that
discourages users from purchasing our products. Barriers to entering the web
content management software market are relatively low.
The market for our products is new and customers may not accept our products.
The market for web content management software in which we sell is new and
rapidly evolving. While we have licensed our products to over 85 customers, we
expect that we will continue to need intensive marketing and sales efforts to
educate prospective clients about the uses and benefits of our products and
services. Potential customers that have invested substantial resources in other
methods of conducting business over the Internet may be reluctant to adopt a
new approach that may replace, limit or compete with their existing systems.
Any of these factors could inhibit the growth of the market, and market
acceptance of our products and services in particular. We cannot be certain
that a viable market for our products will emerge, or if it does emerge, that
it will be sustainable.
Our lengthy sales cycle makes it particularly difficult for us to forecast
revenue, requires us to incur high costs of sales, and aggravates the
variability of quarterly fluctuations.
Because our software products impact a large number of departments within an
enterprise and are implemented in conjunction with strategic business
initiatives, our customers typically commit significant time and resources to
comparing and evaluating our products, internal solutions and other
commercially available applications. These evaluations require us to expend
substantial time, effort and money educating the customers about the value of
our products and services. The time between initial contact with a potential
customer and the ultimate sale, which we refer to as our sales cycle, typically
ranges between three and nine months depending largely on the customer. To
shorten our sales cycle, we must establish a large number of referenceable
customers. Failure to do so will make it less likely that we can reduce sales
and marketing expenses. In addition, as a result of our lengthy sales cycle, we
have only a limited ability to forecast the timing and size of specific sales.
This makes it more difficult to predict quarterly financial performance, or to
achieve it, and any delay in completing sales in a particular quarter could
harm our business and cause our operating results to vary significantly.
7
<PAGE>
We rely heavily on sales of one product, so if it does not achieve market
acceptance we are likely to experience larger losses.
Since 1997, we have generated substantially all of our revenues from
licenses of, and services related to, our TeamSite product. We believe that
revenues generated from TeamSite will continue to account for a large portion
of our revenues for the foreseeable future. A decline in the price of TeamSite,
or our inability to increase license sales of TeamSite, would seriously harm
our business and operating results more seriously than it would if we had
several different products and services to sell. In addition, our future
financial performance will depend upon successfully developing and selling
enhanced versions of TeamSite and the products. If we fail to deliver product
enhancements or new products that customers want it will be more difficult for
us to succeed.
We depend on our direct sales force to sell our products, so future growth will
be constrained by our ability to hire and train new sales personnel.
We sell our products primarily through our direct sales force, and we expect
to continue to do so in the future. Our ability to sell more products is
limited by our ability to hire and train direct sales personnel, and we believe
that there is significant competition for direct sales personnel with the
advanced sales skills and technical knowledge that we need. Some of our
competitors may have greater resources to hire personnel with that skill and
knowledge. If we are not able to hire experienced and competent sales
personnel, our business would be harmed. Furthermore, because we depend on our
direct sales force, any turnover in our sales force can significantly harm our
operating results. Sales force turnover tends to slow sales efforts until
replacement personnel can be recruited and trained to become productive. See
"--We must attract and retain qualified personnel, which is particularly
difficult for us because we compete with other Internet-related software
companies and are located in the San Francisco Bay area where competition for
personnel is extremely intense."
If we do not develop our indirect sales channel, we will be less likely to
increase our revenues.
To date, we have sold our products principally through our direct sales
organization. By relying primarily on a direct sales model, we may miss sales
opportunities that might be available through other sales channels. For
example, domestic and international resellers may be able to reach new
customers more quickly or more effectively than our direct sales force. Our
ability to achieve revenue growth and to increase worldwide sales in the future
will depend in large part upon our success in expanding and maintaining
relationships with existing system integrators and Internet professional
services firms and establishing relationships with additional firms. Although
we are currently investing and plan to continue to invest significant resources
to develop these relationships, we may not be able to build an indirect channel
that will be able to market our products effectively and will be qualified to
provide timely and cost-effective customer support and services. In addition,
we may not be able to manage conflicts across our various sales channels, and
our focus on increasing sales through our indirect channel may divert
management resources and attention from direct sales.
If we do not improve our operational systems on a timely basis, we will be more
likely to fail to manage our growth properly.
We have expanded our operations rapidly in recent years. We intend to
continue to expand our operational systems for the foreseeable future to pursue
existing and potential market opportunities. This rapid growth places a
significant demand on management and operational resources. In order to manage
our growth, we need to implement and improve our operational systems,
procedures and controls on a timely basis. If we fail to implement and improve
these systems in a timely manner, our business will be seriously harmed.
Difficulties in introducing new products and upgrades in a timely manner will
make market acceptance of our products less likely.
The market for our products is characterized by rapid technological change,
frequent new product introductions and Internet-related technology
enhancements, uncertain product life cycles, changes in customer demands and
evolving industry standards. We expect to add new content management
functionality to our product offerings by internal development, and possibly by
acquisition. Content management technology is
8
<PAGE>
more complex than most software, and new products or product enhancements can
require long development and testing periods. Any delays in developing and
releasing new products could harm our business. New products or upgrades may
not be released according to schedule or may contain defects when released.
Either situation could result in adverse publicity, loss of sales, delay in
market acceptance of our products or customer claims against us, any of which
could harm our business. If we do not develop, license or acquire new software
products, or deliver enhancements to existing products on a timely and cost-
effective basis, our business will be harmed.
Our products might not be compatible with all major platforms, which could
limit our revenues.
Our products currently operate on the Microsoft Windows NT and Sun Solaris
operating systems. In addition, our products are required to interoperate with
leading web content authoring tools and web application servers. We must
continually modify and enhance our products to keep pace with changes in these
applications and operating systems. If our products were to be incompatible
with a popular new operating system or Internet business application, our
business would be harmed. In addition, uncertainties related to the timing and
nature of new product announcements, introductions or modifications by vendors
of operating systems, browsers, back-office applications, and other Internet-
related applications, could also harm our business.
Risks associated with international operations are new to us, so we may find it
more difficult to expand overseas.
To date, we have derived all of our revenues from sales to North American
customers. We plan to expand our international operations in the future. There
are many barriers to competing successfully in the international arena,
including:
. costs of customizing products for foreign countries;
. restrictions on the use of software encryption technology;
. dependence on local vendors;
. compliance with multiple, conflicting and changing governmental laws and
regulations;
. longer sales cycles; and
. import and export restrictions and tariffs.
As a result of these competitive barriers, we cannot assure you that we will be
able to market, sell and deliver our products and services in international
markets.
It is important for us to establish and maintain strategic relationships.
To offer products and services to a larger customer base our direct sales
force depends on strategic partnerships and marketing alliances to obtain
customer leads, referrals and distribution. If we are unable to maintain our
existing strategic relationships or fail to enter into additional strategic
relationships, we will have to devote substantially more resources to the sale
and marketing of our products and services. We would also lose anticipated
customer introductions and co-marketing benefits. Our success depends in part
on the success of our strategic partners and their ability to market our
products and services successfully. In addition, our strategic partners may not
regard us as significant for their own businesses. Therefore, they could reduce
their commitment to us or terminate their respective relationships with us,
pursue other partnerships or relationships, or attempt to develop or acquire
products or services that compete with our products and services. Even if we
succeed in establishing these relationships, they may not result in additional
customers or revenues.
We must attract and retain qualified personnel, which is particularly difficult
for us because we compete with other Internet-related software companies and
are located in the San Francisco Bay area where competition for personnel is
extremely intense.
Our success depends on our ability to attract and retain qualified,
experienced employees. We compete for experienced engineering, sales and
consulting personnel with Internet professional services firms, software
vendors, consulting and professional services companies. It is also
particularly difficult to recruit and retain
9
<PAGE>
personnel in the San Francisco Bay area, where we are located. In addition, our
customers generally purchase consulting and implementation services. While we
have recently established relationships with some third-party service
providers, we continue to be the primary provider of these services. It is
difficult and expensive to recruit, train and retain qualified personnel to
perform these services, and we may from time to time have inadequate levels of
staffing to perform these services. As a result, our growth could be limited
due to our lack of capacity to provide those services, or we could experience
deterioration in service levels or decreased customer satisfaction, any of
which would harm our business.
If our services revenues do not grow substantially, our total revenues are
unlikely to increase.
Our services revenues represent a significant component of our total
revenues--21% of total revenues for 1998 and 35% of total revenues for the six
months ended June 30, 1999. We anticipate that services revenues will continue
to represent a significant percentage of total revenues in the future. To a
large extent, the level of services revenues depends upon our ability to
license products which generate follow-on services revenue. Additionally,
services revenues growth depends on ongoing renewals of maintenance and service
contracts. Moreover, if third-party organizations such as systems integrators
become proficient in installing or servicing our products, our services
revenues could decline. Our ability to increase services revenues will depend
in large part on our ability to increase the capacity of our professional
services organization, including our ability to recruit, train and retain a
sufficient number of qualified personnel.
We might not be able to protect and enforce our intellectual property rights, a
loss of which could harm our business.
We depend upon our proprietary technology, and rely on a combination of
patent, copyright and trademark laws, trade secrets, confidentiality procedures
and contractual provisions to protect it. We currently do not have any issued
United States or foreign patents, but we have applied for one U.S. patent. It
is possible that a patent will not issue from our currently pending patent
application or any future patent application we may file. We have also
restricted customer access to our source code and required all employees to
enter into confidentiality and invention assignment agreements. Despite our
efforts to protect our proprietary technology, unauthorized parties may attempt
to copy aspects of our products or to obtain and use information that we regard
as proprietary. In addition, the laws of some foreign countries do not protect
our proprietary rights as effectively as the laws of the United States, and we
expect that it will become more difficult to monitor use of our products as we
increase our international presence. In addition, third parties may claim that
our products infringe theirs.
Our failure to deliver defect-free software could result in greater losses and
harmful publicity.
Our software products are complex and have in the past and may in the future
contain defects or failures that may be detected at any point in the product's
life. We have discovered software defects in the past in some of our products
after their release and we may experience delays or lost revenue to correct
those defects in the future. Despite our testing, defects and errors may still
be found in new or existing products, and may result in delayed or lost
revenues, loss of market share, failure to achieve acceptance, reduced customer
satisfaction, diversion of development resources and damage to our reputation.
As has occurred in the past, new releases of products or product enhancements
may require us to provide additional services under our maintenance contracts
to ensure proper installation and implementation. Moreover, third parties may
develop and spread computer viruses that may damage the functionality of our
software products. Any damage to or interruption in the performance of our
software could also harm our business.
Defects or errors in our products may result in product liability claims.
Because customers rely on our products for business critical processes,
defects or errors in our products or services might result in tort or warranty
claims. It is possible that the limitation of liability provisions in our
contracts will not be effective as a result of existing or future federal,
state or local laws or ordinances or unfavorable judicial decisions. We have
not experienced any product liability claims like this to date, but we
10
<PAGE>
could in the future. Further, although we maintain errors and omissions
insurance, this insurance coverage may not be adequate to cover us. A
successful product liability claim could harm our business. Even defending a
product liability suit, regardless of its merits, could harm our business
because it entails substantial expense and diverts the time and attention of
key management personnel.
Year 2000 concerns by our customers could cause them to defer purchases of our
products.
We may experience reduced sales of products as customers and potential
customers put a priority on correcting their own Year 2000 problems or avoiding
new ones and therefore defer purchases of our products until later in 2000. As
a result, the demand for our products may be particularly volatile and
unpredictable for the remainder of 1999 and early 2000.
Year 2000 problems with our products may increase our costs.
Our products are generally integrated into enterprise computer systems
involving sophisticated hardware and complex software products, which may not
be Year 2000 compliant. We may in the future be subject to claims based on Year
2000 problems in other parties' products, Year 2000 problems alleged to be
found in our products, Year 2000-related issues arising from the integration of
multiple products within an overall system, or other similar claims. We also
need to ensure Year 2000 compliance of our own internal computer and other
systems, to continue testing our software products, to audit the Year 2000
compliance status of our suppliers and business partners, and to conduct a
legal audit. We have not conducted a comprehensive Year 2000 investigation of
our internal systems and do not intend to do so. The total cost of Year 2000
compliance may be material and may harm our business.
Acquisitions may harm our business by being more difficult than expected to
integrate or by diverting management's attention.
In July 1999, we acquired Lexington Software Associates, Inc., a software
consulting company, to help support our existing customer base and to help
attract and retain new customers. We may be unable to integrate this company
into ours successfully, and our business may not benefit as expected. As part
of our business strategy, we may seek to acquire or invest in additional
businesses, products or technologies that we feel could complement or expand
our business. If we identify an appropriate acquisition opportunity, we might
be unable to negotiate the terms of that acquisition successfully, finance it,
or integrate it into our existing business and operations. We may also be
unable to select, manage or absorb any future acquisitions successfully.
Further, the negotiation of potential acquisitions, as well as the integration
of an acquired business, would divert management time and other resources. We
may have to use a substantial portion of our available cash, including proceeds
of this offering, to consummate an acquisition. On the other hand, if we
consummate acquisitions through an exchange of our securities, our stockholders
could suffer significant dilution. In addition, we cannot assure you that any
particular acquisition, even if successfully completed, will ultimately benefit
our business.
If widespread Internet adoption does not continue, or if the Internet cannot
accommodate continued growth, our business will be harmed because it depends on
growth in the use of the Internet.
Acceptance of our products depends upon continued adoption of the Internet
for commerce. As is typical in the case of an emerging industry characterized
by rapidly changing technology, evolving industry standards and frequent new
product and service introductions, demand for and acceptance of recently
introduced products and services are subject to a high level of uncertainty. To
the extent that businesses do not consider the Internet a viable commercial
medium, our customer base may not grow. In addition, critical issues concerning
the commercial use of the Internet remain unresolved and may affect the growth
of Internet use. The adoption of the Internet for commerce, communications and
access to content, particularly by those who have historically relied upon
alternative methods, generally requires understanding and accepting new ways of
conducting business and exchanging information. In particular, companies that
have already invested substantial resources
11
<PAGE>
in other means of conducting commerce and exchanging information may be
particularly reluctant or slow to adopt a new, Internet-based strategy that may
render their existing infrastructure obsolete. If the use of the Internet fails
to develop or develops more slowly than expected, our business may be seriously
harmed.
To the extent that there is an increase in Internet use, an increase in
frequency of use or an increase in the required bandwidth of users, the
Internet infrastructure may not be able to support the demands placed upon it.
In addition, the Internet could lose its viability as a commercial medium due
to delays in development or adoption of new standards or protocols required to
handle increased levels of Internet activity. Changes in, or insufficient
availability of, telecommunications or similar services to support the Internet
also could result in slower response times and could adversely impact use of
the Internet generally. If use of the Internet does not continue to grow or
grows more slowly than expected, or if the Internet infrastructure, standards,
protocols or complementary products, services or facilities do not effectively
support any growth that may occur, our business would be seriously harmed.
There is substantial risk that future regulations could be enacted that either
directly restrict our business or indirectly impact our business by limiting
the growth of Internet commerce.
As Internet commerce evolves, we expect that federal, state or foreign
agencies will adopt new legislation or regulations covering issues such as user
privacy, pricing, content and quality of products and services. If enacted,
these laws, rules or regulations could indirectly harm us to the extent that
they impact our customers and potential customers. We cannot predict if or how
any future legislation or regulations would impact our business. Although many
of these regulations may not apply to our business directly, we expect that
laws regulating or affecting commerce on the Internet could indirectly harm our
business.
Our existing stockholders control a majority of our stock.
Immediately after the closing of this offering, approximately 48% of our
outstanding capital stock will be owned by our directors and executive officers
or their affiliated entities. As a result, these stockholders, acting together,
would be able to control all matters requiring approval by the stockholders,
including the election of all directors and approval of significant corporate
transactions.
We have various mechanisms in place to discourage takeover attempts, which
might tend to suppress our stock price.
Provisions of our certificate of incorporation and bylaws that may
discourage, delay or prevent a change in control include:
. we are authorized to issue "blank check" preferred stock, which could be
issued by our board of directors to increase the number of outstanding
shares and thwart a takeover attempt;
. we provide for the election of only one-third of our directors at each
annual meeting of stockholder, which slows turnover on the board of
directors;
. we limit who may call special meetings of stockholders;
. we prohibit stockholder action by written consent, so all stockholder
actions must be taken at a meeting of our stockholders; and
. we require advance notice for nominations for election to the board of
directors or for proposing matters that can be acted upon by
stockholders at stockholder meetings.
In addition, Section 203 of the Delaware General Corporations Law and our
stock incentive plans may discourage, delay or prevent a change in control of
us. See "Description of Capital Stock--Anti-Takeover Provisions."
12
<PAGE>
Purchasers in this offering will incur immediate and substantial dilution.
The initial public offering price of our common stock will be substantially
higher than the book value per share of the outstanding common stock. As a
result, if we were liquidated for book value immediately following this
offering, each stockholder purchasing in this offering would receive less than
they paid for their common stock. To the extent that outstanding options to
purchase our common stock are exercised, or options or warrants reserved for
issuance are issued and exercised, each stockholder purchasing in this offering
will experience further substantial dilution.
Our stock price could be affected by more shares becoming available for sale.
If our stockholders sell substantial amounts of our common stock in the
public market following this offering, the market price of our common stock
could fall. Based on shares outstanding as of June 30, 1999, upon completion of
this offering, we will have 21,642,241 shares of common stock outstanding.
Other than the 3,000,000 shares of common stock sold in this offering, no
shares will be eligible for sale in the public market immediately. The limited
number of shares available for resale may affect the liquidity of the market
for those shares. Our stockholders are subject to agreements with the
underwriters or us that restrict their ability to transfer their stock for 180
days from the date of this prospectus. After these agreements expire, an
additional 15,690,149 shares will be eligible for sale in the public market. If
many of these shares are sold when they become available for resale, the market
price of our common stock may decline. For a detailed discussion of the shares
eligible for future sale, please see "Shares Eligible for Future Sale."
13
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and elsewhere in this prospectus constitute forward-
looking statements. In some cases, you can identify forward-looking statements
by terms such as "may," "will," "should," "expect," "plan," "anticipate,"
"believe," "estimate," "predict," "potential," "continue" or the negative of
these terms or other comparable terminology. The forward-looking statements
contained in this prospectus involve known and unknown risks, uncertainties and
other factors that may cause industry trends or our actual results, level of
activity, performance or achievements to be materially different from any
future results, levels of activity, performance or achievements expressed or
implied by these statements. These factors include those listed under "Risk
Factors" and elsewhere in this prospectus.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other
person assumes responsibility for the accuracy and completeness of these
statements. We are under no duty to update any of the forward-looking
statements after the date of this prospectus to conform these statements to
actual results. You should not place undue reliance on these forward-looking
statements, which apply only as of the date of this prospectus.
14
<PAGE>
USE OF PROCEEDS
We estimate that we will receive net proceeds of approximately $29.5 million
from the sale of 3,000,000 shares of our common stock ($34.1 million if the
underwriters exercise their over-allotment option in full) at an assumed
initial public offering price of $11.00 per share and after deducting estimated
underwriting discounts and commissions and estimated offering expenses. The
primary purposes of this offering are to obtain additional working capital,
create a public market for our common stock, facilitate our future access to
public capital markets and provide liquidity to existing stockholders.
We intend to use the net proceeds of this offering primarily for additional
working capital and other general corporate purposes, including increased
research and development expenditures, sales and marketing expenditures, and
general and administrative expenditures. We have not yet determined our
expected use of these proceeds, but we currently estimate that we will incur at
least $30 million in operating expenses during the next 12 months to expand our
investments in research and development, sales and marketing, and general and
administrative operations. These operating expenses will be partially offset by
the degree to which we continue to derive revenues and related gross margin
from the licensing of our software products and delivery of services.
The amounts and timing of these expenditures will vary depending on a number
of factors, including the amount of cash generated by our operations,
competitive and technological developments and the rate of growth, if any, of
our business. We may also use a portion of the net proceeds to acquire
additional businesses, products and technologies, to lease additional
facilities, or to establish joint ventures that we believe will complement our
current or future business. However, we have no specific plans, agreements or
commitments to do so and are not currently engaged in any negotiations for any
acquisition or joint venture.
We will retain broad discretion in the allocation of the net proceeds of
this offering. Pending the uses described above, we will invest the net
proceeds of this offering in short-term to medium-term interest-bearing,
investment-grade securities. We cannot predict whether the proceeds will be
invested to yield a favorable return. We believe that our available cash,
together with the net proceeds of this offering, will be sufficient to meet our
capital requirements for at least the next 12 months.
DIVIDEND POLICY
We have never declared or paid cash dividends on our common stock or other
securities, and we do not anticipate paying a cash dividend in the foreseeable
future. Our lines of credit currently prohibit the payment of dividends.
15
<PAGE>
CAPITALIZATION
The following table sets forth the following information, as of June 30,
1999:
. our actual capitalization;
. our pro forma capitalization after giving effect to the conversion of
all outstanding shares of preferred stock into shares of common stock
upon the closing of this offering; and
. our pro forma as adjusted capitalization to give effect to the sale of
3,000,000 shares of common stock offered hereby at an assumed initial
public offering price of $11.00 per share, less the estimated
underwriting discounts and commissions and estimated offering expenses.
<TABLE>
<CAPTION>
June 30, 1999
-------------------------------
Pro Pro Forma
Actual Forma As Adjusted
-------- -------- -----------
(in thousands, except share
data)
<S> <C> <C> <C>
Debt and leases, current and long-term......... $ 1,511 $ 1,511 $ 1,511
Mandatorily redeemable convertible preferred
stock, 18,763,092 shares authorized,
18,455,184 shares issued and outstanding,
actual; no shares authorized, issued or
outstanding, pro forma and pro forma as
adjusted...................................... 45,276 -- --
Stockholders' equity (deficit):
Preferred stock, $0.001 par value, no shares
authorized, issued or outstanding, actual;
5,000,000 shares authorized, no shares
issued or outstanding, pro forma and pro
forma as adjusted........................... -- -- --
Common stock, $0.001 par value, 26,666,666
shares authorized, 6,230,590 shares issued
and outstanding, actual; 75,000,000 shares
authorized, 18,642,241 shares issued and
outstanding, pro forma; 21,642,241 shares
issued and outstanding, pro forma as
adjusted.................................... 6 19 22
Additional paid-in capital................... 1,707 46,970 76,467
Notes receivable for purchase of common
stock....................................... (202) (202) (202)
Deferred stock-based compensation............ (6,130) (6,130) (6,130)
Accumulated deficit.......................... (16,536) (16,536) (16,536)
-------- -------- --------
Total stockholders' equity (deficit)....... (21,155) 24,121 53,621
-------- -------- --------
Total capitalization..................... $ 25,632 $ 25,632 $ 55,132
======== ======== ========
</TABLE>
The table excludes:
. 944,980 shares issuable upon exercise of options outstanding at June 30,
1999 under our stock option plans and 3,684,034 shares available for
future issuance under those plans;
. 300,000 shares available for future issuance under our employee stock
purchase plan;
. 72,071 shares issuable upon exercise of outstanding warrants;
. 249,667 shares issuable upon exercise of outstanding options issued
after June 30, 1999; and
. 39,096 shares issuable upon exercise of outstanding warrants issued
after July 1, 1999.
16
<PAGE>
DILUTION
The pro forma net intangible book value of our common stock as of June 30,
1999, after giving effect to the conversion of all outstanding shares of
preferred stock into common stock, was $24.1 million, or approximately $1.29
per share. Pro forma net tangible book value per share represents the amount of
our total tangible assets less total liabilities, divided by the number of
shares of common stock outstanding. Assuming our sale of 3,000,000 shares of
common stock offered at an assumed initial public offering price of $11.00 per
share, and after deducting estimated underwriting discounts and commissions and
estimated offering expenses, our pro forma net tangible book value as of June
30, 1999 would have been $53.6 million, or $2.48 per share. This represents an
immediate increase in pro forma net tangible book value of $1.19 per share to
existing stockholders and an immediate dilution in net tangible book value of
$8.52 per share to new investors. Investors participating in this offering will
incur immediate, substantial dilution. The following table illustrates the per
share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................... $11.00
Pro forma net tangible book value per share as of June 30,
1999........................................................... $1.29
Increase in pro forma net tangible book value per share
attributable to new investors.................................. $1.19
-----
Pro forma net tangible book value per share after offering........ $ 2.48
------
Dilution per share to new investors............................... $ 8.52
======
</TABLE>
The following table summarizes, on a pro forma basis, as of June 30, 1999,
the differences between the number of shares of common stock purchased from us,
the total consideration paid and the average price per share paid by existing
stockholders and by the new investors purchasing shares in this offering. We
have assumed an initial public offering price of $11.00 per share, and we have
not deducted estimated underwriting discounts and commissions and estimated
offering expenses in our calculations.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------ ------------------- Price
Number Percent Amount Percent Per Share
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders.......... 18,642,241 86.1% $39,382,600 54.4% $ 2.11
New investors.................. 3,000,000 13.9 33,000,000 45.6 11.00
---------- ----- ----------- ----- ------
Total........................ 21,642,241 100.0% $72,382,600 100.0% $ 3.34
========== ===== =========== ===== ======
</TABLE>
This discussion of dilution, and the table quantifying it, assume no
exercise of any outstanding stock options. The exercise of stock options
outstanding under our stock option plans having an exercise price less than the
offering price would increase the dilutive effect to new investors. If the
underwriters exercise their over-allotment in full, the following will occur:
. the number of shares of common stock held by existing stockholders will
decrease to approximately 84.4% of the total number of shares of our
common stock outstanding; and
. the number of shares held by new investors will increase to 3,450,000,
or approximately 15.6% of the total number of our common stock
outstanding after this offering.
17
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with,
and is qualified by reference to, the Financial Statements and Notes thereto
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and other financial data included elsewhere in this prospectus.
The statement of operations data for the years ended December 31, 1996, 1997
and 1998 and the balance sheet data at December 31, 1997 and 1998, are derived
from and are qualified by reference to audited financial statements included
elsewhere in this prospectus. The balance sheet data at December 31, 1996 is
derived from audited financial statements not included in this prospectus. The
statement of operations data for the six months ended June 30, 1998 and 1999,
and the balance sheet data at June 30, 1999 are derived from unaudited
financial statements included elsewhere in this prospectus and, in the our
opinion, include all adjustments consisting solely of normal recurring accruals
which are necessary to present fairly the data for those periods. Historical
results are not necessarily indicative of future results and the results, for
interim periods are not necessarily indicative of results to be expected for
the entire year.
<TABLE>
<CAPTION>
Year Ended Six Months
December 31, Ended June 30,
------------------------ ----------------
1996 1997 1998 1998 1999
------ ------- ------- ------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
License .......................... $ -- $ 84 $ 3,176 $ 624 $ 3,258
Services ......................... -- 84 827 262 1,746
------ ------- ------- ------- -------
Total revenues.................... -- 168 4,003 886 5,004
------ ------- ------- ------- -------
Cost of revenues:
License........................... -- -- 59 -- 119
Services.......................... -- 95 1,274 350 1,429
------ ------- ------- ------- -------
Total cost of revenues............ -- 95 1,333 350 1,548
------ ------- ------- ------- -------
Gross profit....................... -- 73 2,670 536 3,456
Operating expenses:
Research and development.......... 328 884 1,797 735 1,701
Sales and marketing............... 101 1,519 4,817 1,357 5,225
General and administrative........ 91 530 1,739 572 1,244
Amortization of deferred stock-
based compensation............... -- -- 812 347 1,668
------ ------- ------- ------- -------
Total operating expenses.......... 520 2,933 9,165 3,011 9,838
------ ------- ------- ------- -------
Loss from operations............... (520) (2,860) (6,495) (2,475) (6,382)
Interest income (expense), net..... 10 (88) 151 57 154
------ ------- ------- ------- -------
Net loss........................... $ (510) $(2,948) $(6,344) $(2,418) $(6,228)
====== ======= ======= ======= =======
Net loss per share:
Basic and diluted................. $(0.22) $ (1.36) $ (2.85) $ (1.25) $ (3.66)
Weighted average shares--basic and
diluted.......................... 2,282 2,356 2,633 2,404 3,435
Pro forma net loss per share:
Basic and diluted................. $ (0.74) $ (0.44)
Weighted average shares--basic and
diluted.......................... 8,530 14,000
</TABLE>
<TABLE>
<CAPTION>
December 31,
--------------------- June 30,
1996 1997 1998 1999
---- ------ ------- --------
(in thousands)
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents..................... $ 17 $1,019 $ 9,022 $25,203
Working capital............................... (208) 792 8,844 22,634
Total assets.................................. 92 1,384 13,908 29,948
Long-term debt and capital lease obligations,
less current portion ........................ -- 87 1,257 1,000
Mandatorily redeemable convertible preferred
stock........................................ 385 4,627 20,464 45,276
Total stockholders' deficit................... (525) (3,734) (10,752) (21,155)
</TABLE>
See Note 1 of Notes to Financial Statements for a discussion regarding
computation and presentation of pro forma basic and diluted net loss per share
and shares used in computing pro forma basic and diluted net loss per share.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition and results
of operations should be read in conjunction with "Selected Financial Data" and
our Financial Statements and Notes appearing elsewhere in this prospectus.
OVERVIEW
Interwoven was incorporated in March 1995 to provide software products and
services for web content management. Designed specifically for the web, our
products allow large teams of people across an enterprise to contribute and
edit web content on a collaborative basis, reducing the time-to-web for
critical eBusiness initiatives. From March 1995 through March 1997, we were a
development stage company conducting research and development for our initial
products. In May 1997, we shipped the first version of our principal product,
TeamSite. We have subsequently developed and released enhanced versions of
TeamSite and have introduced related products. As of June 30, 1999, we had sold
our products and services to over 75 customers. We market and sell our products
primarily through a direct sales force and augment our sales efforts through
relationships with systems integrators and other strategic partners. We are
headquartered in Sunnyvale, California and maintain additional offices in the
metropolitan areas of Atlanta, Boston, Chicago, Los Angeles, Seattle and
Washington, D.C. Our revenues to date have been derived exclusively from
accounts in North America. In May 1999, we opened an office in the United
Kingdom.
We derive revenues from the license of our software products and from
services we provide to our customers. To date, we have derived virtually all of
our license revenues from licenses of TeamSite. License revenues are recognized
when persuasive evidence of an agreement exists, the product has been
delivered, no significant post-delivery obligations remain, the license fee is
fixed or determinable and collection of the fee is probable. Services revenues
consist of professional services and maintenance fees. Professional services
primarily consist of software installation and integration, business process
consulting and training. We generally bill our professional services customers
on a time and materials basis and recognize revenues as the services are
performed. Maintenance agreements are typically priced based on a percentage of
the product license fee, and typically have a one-year term that is renewable
annually. Services provided to customers under maintenance agreements include
technical product support and an unspecified number of product upgrades as
released by us during the term of a maintenance agreement. Revenues from
maintenance support agreements are recognized ratably over the term of the
agreement.
Since inception, we have incurred substantial costs to develop our
technology and products, to recruit and train personnel for our engineering,
sales and marketing and services organizations, and to establish an
administrative organization. As a result, we have incurred net losses in each
quarter since inception and, as of June 30, 1999, had an accumulated deficit of
$16.5 million. We anticipate that our cost of services revenues and operating
expenses will increase substantially in future quarters as we grow our services
organization to support an increased level and expanded number of services
offered, increase our sales and marketing operations, develop new distribution
channels, fund greater levels of research and development, and improve
operational and financial systems. Accordingly, we expect to incur additional
losses for the foreseeable future as we continue to expand our operations. In
addition, our limited operating history makes the prediction of future results
of operations difficult and, accordingly, there can be no assurance that we
will achieve or sustain profitability.
On July 1, 1999, we acquired Lexington Software Associates, Inc. As a result
of this acquisition, we have substantially increased our professional services
organization. The Lexington Software acquisition added 18 employees to the 118
employees we had as of June 30, 1999. See Note 9 of Notes to Financial
Statements.
19
<PAGE>
Results of Operations
The following table lists, for the periods indicated, each line as a
percentage of total revenues:
<TABLE>
<CAPTION>
Years Ended Six Months Ended
December 31, June 30,
---------------- -------------------
1997 1998 1998 1999
------- ------ -------- --------
<S> <C> <C> <C> <C>
Revenues:
License.............................. 50% 79% 70% 65%
Services............................. 50 21 30 35
------- ----- -------- --------
Total revenues..................... 100 100 100 100
------- ----- -------- --------
Cost of revenues:
License.............................. -- 1 -- 2
Services............................. 57 32 40 29
------- ----- -------- --------
Total cost of revenues............. 57 33 40 31
------- ----- -------- --------
Gross profit........................... 43 67 60 69
------- ----- -------- --------
Operating expenses:
Research and development............. 526 45 83 34
Sales and marketing.................. 904 120 153 104
General and administrative........... 315 43 65 25
Amortization of deferred stock-based
compensation........................ -- 20 39 33
------- ----- -------- --------
Total operating expenses........... 1,745 228 340 196
------- ----- -------- --------
Loss from operations................... (1,702) (161) (280) (127)
Interest income (expense), net......... (52) 4 6 3
------- ----- -------- --------
Net loss............................... (1,754)% (157)% (274)% (124)%
======= ===== ======== ========
</TABLE>
Six Months Ended June 30, 1998 and 1999
Revenues
Total revenues increased 456% from $900,000 for the six months ended June
30, 1998 to $5.0 million for the six months ended June 30, 1999. This increase
was attributable to greater market acceptance of our products and services
after their introduction in 1997 and an increase in the number of sales and
marketing staff, resulting in an increased number of customers.
License. License revenues increased 429% from $624,000 for the six months
ended June 30, 1998 to $3.3 million for the six months ended June 30, 1999.
License revenues represented 70% and 65% of total revenues, respectively, in
those periods. The increase in license revenues reflects a 260% growth in
customers and a 66% increase in the average contract license fee per customer.
Services. Services revenues increased 549% from $262,000 for the six months
ended June 30, 1998 to $1.7 million for the six months ended June 30, 1999.
Services revenues represented 30% and 35% of total revenues, respectively, in
those periods. The increase in services revenues reflected an increase in both
professional services and maintenance fees generated from an expanded number of
customers who licensed our products.
Cost of Revenues
License. Cost of license revenues includes expenses incurred to manufacture,
package and distribute software products and related documentation, as well as
costs of licensing third-party software sold in conjunction with our software
products. Cost of license revenues was not significant for the six months ended
June 30, 1998 and increased to $119,000 for the six months ended June 30, 1999.
Cost of license revenues
20
<PAGE>
represented 4% of license revenues in the six months ended June 30, 1999. The
increase in cost of license revenues reflects increased sales of third-party
products sold in conjunction with our software products. Cost of license
revenues may fluctuate from period to period as we sell higher or lower numbers
of third-party products.
Services. Cost of services revenues consists primarily of salary and related
costs of our professional services, training, maintenance and support staffs,
as well as subcontractor expenses. Cost of services revenues increased 300%
from $350,000 for the six months ended June 30, 1998 to $1.4 million for the
six months ended June 30, 1999. Cost of services revenues represented 134% and
82% of services revenues, respectively, in those periods. This increase in
dollar amounts was directly attributable to an increase in the number of in-
house and subcontracted staff used to provide services to our expanded customer
base.
We expect our cost of services revenues to increase in dollar amounts as a
result of the increased staffing of our professional services organization due
to our acquisition of Lexington Software and through our continued expansion of
our services staff and consulting organizations. Since services revenues have
substantially lower margins than license revenues, this expansion would reduce
our gross margins if our license revenues were not to increase significantly.
We expect cost of services revenues as a percentage of services revenues to
vary from period to period depending on the mix of services we provide, whether
the services are performed by our in-house staff or subcontractors, and the
overall utilization rates of professional services staff.
Gross Profit
Gross profit increased 553% from $536,000 for the six months ended June 30,
1998 to $3.5 million for the six months ended June 30, 1999. Gross profit
represented 60% and 69% of total revenues, respectively, in those periods. This
increase in dollar amounts reflects increased license and services revenues
from a growing customer base. We expect gross profit as a percentage of total
revenues to fluctuate from period to period as a result of changes in the
relative proportion of license and services revenues.
Operating Expenses
Research and Development. Research and development expenses consist
primarily of personnel and related costs to support product development.
Research and development expenses increased 131% from $735,000 for the six
months ended June 30, 1998 to $1.7 million for the six months ended June 30,
1999, representing 83% and 34% of total revenues, respectively, in those
periods. This increase in dollar amounts was due to increases in the number of
product development personnel. We believe that continued investment in research
and development is critical to our strategic objectives, and we expect that the
dollar amounts of research and development expenses will increase in future
periods. To date, all software development costs have been expensed in the
period incurred.
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries and related costs for sales and marketing personnel, sales
commissions, travel and marketing programs. Sales and marketing expenses
increased 271% from $1.4 million for the six months ended June 30, 1998 to $5.2
million for the six months ended June 30, 1999, representing 153% and 104% of
total revenues, respectively, in those periods. This increase in dollar amounts
reflects increases in the number of our sales and marketing personnel costs of
$1.6 million, higher sales commissions and bonuses of $1.0 million and
increased marketing related costs of $200,000. We expect to continue to invest
heavily in sales and marketing in order to expand our customer base and
increase brand awareness. We also anticipate that the percentage of total
revenues represented by sales and marketing expenses will fluctuate from period
to period primarily depending on when we hire new sales personnel, the timing
of new marketing programs and the levels of revenues in each period.
General and Administrative. General and administrative expenses consist
primarily of salaries and related costs for accounting, human resources, legal
and other administrative functions, as well as provisions for doubtful
accounts. General and administrative expenses increased 110% from $572,000 for
the six months
21
<PAGE>
ended June 30, 1998 to $1.2 million for the six months ended June 30, 1999,
representing 65% and 25% of total revenues, respectively. This increase in
dollar amounts was due to additional staffing of these functions to support
expanded operations during this same period. We expect general and
administrative expenses to increase in dollar amounts in 1999 as we add
personnel to support expanding operations, incur additional costs related to
the growth of our business, and assume the reporting requirements of a public
company.
Amortization of Deferred Stock-Based Compensation. In 1998 and the first six
months of 1999, we recorded deferred stock-based compensation of $1.9 million
and $6.7 million in connection with stock options granted during 1998 and 1999,
respectively. These amounts represent the difference between the exercise price
of stock options granted during those periods and the deemed fair value of our
common stock at the time of the grants. Amortization of deferred stock-based
compensation was $347,000 and $1.7 million for the six months ended June 30,
1998 and 1999, respectively. We expect per quarter amortization related to
these options of approximately $1.0 million during the remainder of 1999,
between $500,000 and $750,000 during 2000, between $270,000 and $400,000 during
2001, between $100,000 and $185,000 during 2002 and $50,000 in the quarter
ended March 31, 2003.
Interest Income (Expense), Net
Interest income, net, increased from $57,000 for the six months ended June
30, 1998 to $154,000 for the six months ended June 30, 1999 due to higher
average cash balances.
Income Taxes
As of June 30, 1999, we had approximately $10.8 million of federal and $1.7
million of state net operating loss carryforwards available to reduce future
taxable income, expiring in 2015 and 2010 for federal and state tax purposes,
respectively. Under the Tax Reform Act of 1986, the amounts of and benefits
from net operating loss carryforwards may be impaired or limited. Events which
cause limitation in the amount of net operating losses that we may utilize in
any one year include, but are not limited to, a cumulative ownership change of
more than 50%, as defined, over a three year period. We have provided a full
valuation allowance on the deferred tax asset because of the uncertainty
regarding its realization. Our accounting for deferred taxes under Statement of
Financial Accounting Standards No. 109 involves the evaluation of a number of
factors concerning the realizability of our deferred tax assets. In concluding
that a full valuation allowance was required, management primarily considered
factors such as our history of operating losses and expected future losses and
the nature of our deferred tax assets. See Note 5 of Notes to Financial
Statements.
Years Ended December 31, 1996, 1997 and 1998
Revenues
We had no revenues in 1996. Total revenues increased from $168,000 in 1997
to $4.0 million in 1998. This increase was attributable to greater market
acceptance of our software products after their introduction in 1997 and an
increase in the number of sales and marketing staff, resulting in an increased
number of customers.
License. License revenues increased from $84,000 in 1997 to $3.2 million in
1998. License revenues represented 50% and 79% of total revenues, respectively,
in those periods. The increase in license revenues reflects growth from the low
level of revenue in 1997, our first year in which we licensed our products.
Services. Services revenues increased from $84,000 in 1997 to $827,000 in
1998. Services revenues represented 50% and 21% of total revenues,
respectively, in those periods. The increase in services revenues reflects an
increase in both professional services and maintenance fees generated from an
expanded number of customers who licensed our products.
22
<PAGE>
Cost of Revenues
License. We had no cost of license revenues in 1996 or 1997. Cost of license
revenues in 1998 was $59,000 and represented 2% of license revenues in 1998.
The increase in cost of license revenues reflects increased sales of third-
party products sold in conjunction with our software products.
Services. We had no cost of services revenues in 1996. Cost of services
revenues increased from $95,000 in 1997 to $1.3 million in 1998. Cost of
services revenues represented 113% and 154% of services revenues, respectively,
in those periods. This increase was due to an increase in the number of in-
house and subcontracted staff used to provide services to our expanded customer
base.
Gross Profit
Gross profit increased from $73,000 in 1997 to $2.7 million in 1998,
representing 43% and 67% of total revenues, respectively, in those periods.
This increase reflected increased license and services revenues from a growing
customer base.
Operating Expenses
Research and Development. Research and development expenses increased from
$328,000 in 1996 to $884,000 in 1997 and $1.8 million in 1998. Research and
development expenses represented 526% and 45% of total revenues in 1997 and
1998, respectively. This increase in dollar amounts was due to increases in the
number of product development personnel.
Sales and Marketing. Sales and marketing expenses increased from $101,000 in
1996 to $1.5 million in 1997 and $4.8 million in 1998. Sales and marketing
expenses represented 904% and 120% of total revenues in 1997 and 1998,
respectively. The increase in dollar amounts from 1996 to 1997 reflects
increases in sales and marketing personnel costs of $900,000 and increased
marketing related costs of $100,000. The increase in dollar amounts from 1997
to 1998 reflects increases in sale and marketing personnel costs of
$1.4 million, higher sales commissions and bonuses of $900,000 and increased
marketing related costs of $200,000.
General and Administrative. General and administrative expenses increased
from $91,000 in 1996 to $530,000 in 1997 and $1.7 million in 1998, representing
315% and 43% of total revenues in 1997 and 1998, respectively. This increase in
dollar amounts reflects additional staffing of these functions to support
expanded operations during this same period.
Amortization of Deferred Stock-Based Compensation. In 1998 we recorded
deferred stock-based compensation of $1.9 million, $812,000 of which was
amortized in 1998.
Interest Income (Expense), Net
Interest income, net, decreased from $10,000 in 1996 to a net interest
expense of $88,000 in 1997 and increased to a net interest income of $151,000
in 1998. The decrease from 1996 to 1997 reflected increased interest expense on
promissory notes issued in conjunction with the sale of our preferred stock.
The increase from 1997 to 1998 was due to increased interest income earned from
cash balances on hand as a result of sales of our preferred stock in March,
October, November and December 1998, partially offset by increased interest
expense.
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<PAGE>
Quarterly Results of Operations
The following tables set forth our unaudited statements of operations data
in dollars and as a percentage of total revenues for each of our last six
quarters. This data has been derived from unaudited financial statements that
have been prepared on the same basis as our annual audited financial statements
and, in our opinion, include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of this information.
These unaudited quarterly results should be read in conjunction with the annual
audited financial statements and notes thereto appearing elsewhere in this
prospectus. The results of operations for any quarter are not necessarily
indicative of the results for any future period.
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------------------------
March 31, June 30, Sept. 30, Dec. 31, March 31, June 30,
1998 1998 1998 1998 1999 1999
--------- -------- --------- -------- --------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues:
License............... $ 187 $ 437 $ 946 $ 1,606 $ 1,360 $ 1,898
Services.............. 44 218 277 288 742 1,004
----- ------- ------- ------- ------- -------
Total revenues....... 231 655 1,223 1,894 2,102 2,902
----- ------- ------- ------- ------- -------
Cost of revenues:
License............... -- -- 19 40 15 104
Services.............. 75 275 441 483 549 880
----- ------- ------- ------- ------- -------
Total cost of
revenues............ 75 275 460 523 564 984
----- ------- ------- ------- ------- -------
Gross profit......... 156 380 763 1,371 1,538 1,918
----- ------- ------- ------- ------- -------
Operating expenses:
Research and
development.......... 282 453 492 570 779 922
Sales and marketing... 473 884 1,603 1,857 2,287 2,938
General and
administrative....... 185 387 563 604 598 646
Amortization of
deferred stock-based
compensation......... 151 196 217 248 640 1,028
----- ------- ------- ------- ------- -------
Total operating
expenses............ 1,091 1,920 2,875 3,279 4,304 5,534
----- ------- ------- ------- ------- -------
Loss from operations.... (935) (1,540) (2,112) (1,908) (2,766) (3,616)
Interest income, net.... 4 53 32 62 65 89
Net loss................ $(931) $(1,487) $(2,080) $(1,846) $(2,701) $(3,527)
===== ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------------------
March 31, June 30, Sept. 30, Dec. 31, March 31, June 30,
1998 1998 1998 1998 1999 1999
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
As a Percentage of Total
Revenues:
Revenues:
License............... 81% 67% 77% 85% 65% 65%
Services.............. 19 33 23 15 35 35
---- ---- ---- ---- ---- ----
Total revenues....... 100 100 100 100 100 100
---- ---- ---- ---- ---- ----
Cost of revenues:
License............... -- -- 2 2 1 4
Services.............. 32 42 36 26 26 30
---- ---- ---- ---- ---- ----
Total cost of
revenues............ 32 42 38 28 27 34
---- ---- ---- ---- ---- ----
Gross profit......... 68 58 62 72 73 66
---- ---- ---- ---- ---- ----
Operating expenses:
Research and
development.......... 122 69 40 30 37 32
Sales and marketing... 205 135 131 98 109 101
General and
administrative....... 80 59 46 32 28 22
Amortization of
deferred stock-based
compensation......... 65 30 18 13 30 35
---- ---- ---- ---- ---- ----
Total operating
expenses............ 472 293 235 173 204 190
---- ---- ---- ---- ---- ----
Loss from operations.... (404) (235) (173) (101) (131) (124)
Interest income, net.... 2 8 3 3 3 3
Net loss................ (402)% (227)% (170)% ( 98)% (128)% (121)%
==== ==== ==== ==== ==== ====
</TABLE>
24
<PAGE>
Our license and services revenues have grown in each of the six quarters in
the period ended June 30, 1999, except that our license revenues declined in
the three month period ended March 31, 1999 from that in the three month period
ended December 31, 1998. This decline reflected the unusually high revenues in
the prior period, due in part to a few large license sales in that period. In
addition, many companies that license enterprise-scale software products to
large customers experience seasonal declines in the first fiscal quarter
following the end of their fiscal year. Because of our limited operating
history, we do not know whether this pattern was responsible for the declines
in the three months ended March 31, 1999, or whether it will apply to future
quarterly results. As a general matter, we depend on sales to a relatively few
large customers. As a result, our revenues are subject to period-to-period
fluctuations reflecting the impact of a few large sales.
Increased services revenues beginning in the three month period ended March
31, 1999 reflect an increase in both professional services and maintenance fees
generated from an expanded number of customers which had licensed our products
in prior periods, and an increase in the number of professional services staff
and a higher effective staff utilization rate.
As a result of our limited operating history and the emerging nature of the
market for web content management software and services in which we compete, it
is difficult for us to forecast our revenues or earnings accurately. It is
possible that in some future periods our results of operations may not meet or
exceed the expectations of public market analysts and investors. If this
occurs, the price of our common stock is likely to decline. Factors that have
caused our results to fluctuate in the past, and are likely to cause
fluctuations in the future, include:
. the size of customer orders and the timing of product and service
deliveries;
. variability in the mix of products and services sold;
. our ability to retain our current customers and attract new customers;
. the amount and timing of operating costs relating to expansion of our
business, including our planned international expansion;
. the announcement or introduction of new products or services by us or
our competitors;
. our ability to attract and retain personnel, particularly management,
engineering and sales personnel and technical consultants;
. our ability to upgrade and develop our systems and infrastructure to
accommodate our growth; and
. costs related to acquisition of technologies or businesses.
In addition, our products are typically shipped when orders are received, so
license backlog at the beginning of any quarter in the past has represented
only a small portion of expected license revenues for that quarter. Moreover,
we typically recognize a substantial percentage of revenues in the last month
of the quarter, frequently in the last week or even the last days of the
quarter. As a result, at the beginning of a quarter we have no assurance about
the levels of sales in that quarter, and the delay or cancellation of any large
orders can result in a significant shortfall from anticipated revenues. These
factors make license revenues in any quarter difficult to forecast. Since our
expenses are relatively fixed in the near term, any shortfall from anticipated
revenues, could result in significant variations in operating results from
quarter to quarter and harm to our business.
As a result of these and other factors, we believe that period-to-period
comparisons of our results of operations may not be meaningful and should not
be relied upon as indicators of our future performance.
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<PAGE>
Liquidity and Capital Resources
Since inception, we have funded our operations through private sales of
equity securities. We raised a total of $37.0 million, net of offering costs,
from the issuance of preferred stock. At June 30, 1999, our sources of
liquidity consisted of $25.2 million in cash and cash equivalents and $22.6
million in working capital. We have a $3.0 million line of credit and a $1.5
million equipment line of credit with Silicon Valley Bank, each of which bear
interest at the bank's prime rate, which was 7.75% at June 30, 1999, plus
0.25%. At June 30, 1999, the line of credit was unused and $1.5 million was
outstanding under the equipment line of credit. The lines of credit are secured
by all of our tangible and intangible assets, and contain financial covenants
including revenue performance levels and minimum levels of working capital. We
intend to maintain both lines of credit. We are currently in compliance with
all related financial covenants and restrictions.
Net cash used in operating activities was $2.7 million in 1997 and $6.0
million in 1998. Net cash used in operating activities in 1997 and 1998
reflected net losses and, to a lesser extent, accounts receivable, offset in
part by increases in accrued liabilities. Net cash used in operating activities
was $2.2 million in the six months ended June 30, 1999. Net cash used in
operating activities reflected increasing net losses offset in part by
reductions in accounts receivable and increases in accounts payable.
From inception, our investing activities have consisted primarily of
purchases of property and equipment, principally computer hardware and software
for our growing number of employees. Capital expenditures, including those
under capital leases, totaled $176,000, $1.7 million and $561,000 in 1997, 1998
and the six months ended June 30, 1999, respectively. We expect that capital
expenditures will increase with our anticipated growth in operations,
infrastructure and personnel. As of June 30, 1999 we had no material capital
expenditure commitments, other than the acquisition of Lexington Software
Associates, Inc. discussed in Note 9 to our Notes to Financial Statements. We
do not expect to incur significant costs to make our products or internal
information systems Year 2000 compliant because we believe these products and
information systems are designed to function properly through and beyond year
2000.
Net cash provided by financing activities in 1997, 1998 and the first six
months of 1999 was $3.9 million, $15.8 million and $18.9 million, respectively.
Net cash provided by financing activities reflected primarily the proceeds of
issuances of preferred stock in each of these periods, and, in 1998, included
proceeds from a bank line of credit.
We believe that the net proceeds of this offering, together with cash and
cash equivalents, and funds available under existing credit facilities, will be
sufficient to meet our working capital requirements for at least the next 12
months. Thereafter, we may require additional funds to support our working
capital requirements or for other purposes and may seek to raise additional
funds through public or private equity financing or from other sources. There
can be no assurance that additional financing will be available on acceptable
terms, if at all. If adequate funds are not available or are not available on
acceptable terms, we may be unable to develop or enhance our products, take
advantage of future opportunities, or respond to competitive pressures or
unanticipated requirements, which could have a material adverse effect on our
business, financial condition and operating results.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivatives and Hedging
Activities" ("SFAS No. 133"). SFAS 133 is effective for all fiscal quarters
beginning with the quarter ending June 30, 2000. SFAS 133 establishes
accounting and reporting standards for derivative instruments, including
derivative instruments embedded in other contracts, and for hedging activities.
We will adopt SFAS No. 133 in the quarter ending June 30, 2000 and do not
expect its adoption to have an impact on our results of operations, financial
position or cash flows.
26
<PAGE>
Qualitative and Quantitative Disclosures About Market Risk
We develop products in the United States and market our products in North
America, and, to a lesser extent in Europe. As a result, our financial results
could be affected by factors such as changes in foreign currency exchange rates
or weak economic conditions in foreign markets. Since all of our revenue is
currently denominated in U.S. Dollars, a strengthening of the Dollar could make
our products less competitive in foreign markets. Our interest income and
expense is sensitive to changes in the general level of U.S. interest rates,
particularly since the majority of our financial investments are short-term.
Due to the short-term nature of our financial investments, we believe that
there is not a material risk exposure.
Year 2000 Compliance
The Year 2000 issue refers generally to the problems that some software may
have in determining the correct century for the year. For example, software
with date-sensitive functions that is not Year 2000 compliant may not be able
to distinguish whether "00" means 1900 or 2000, which may result in system
failures or erroneous results.
We have conducted a Year 2000 readiness review for the current and prior
versions of our products. The review includes:
. assessment;
. implementation, including remediation, upgrading and replacement of non-
compliant product versions;
. validation testing; and
. contingency planning.
We have completed all phases of our plan, except for contingency planning,
with respect to the current and prior versions of all of our products. As a
result, the current and prior versions of each of our products are Year 2000
compliant when configured and used in accordance with the related
documentation, and provided that the underlying operating system of the host
machine and any other software used with or in the host machine or our products
are also Year 2000 compliant.
We define "Year 2000 compliant" as the ability to:
. correctly handle date information needed for the December 31, 1999 to
January 1, 2000 date change;
. function according to the product documentation provided for this date
change, without changes in operation resulting from the advent of a new
century, assuming correct configuration;
. where appropriate, respond to two-digit date input in a way that
resolves the ambiguity as to century in a disclosed, defined, and
predetermined manner;
. store and provide output of date information in ways that are
unambiguous as to century if the date elements in interfaces and data
storage specify the century; and
. recognize year 2000 as a leap year.
We have not tested our products on all platforms or all versions of
operating systems that our products currently support.
We are testing licensed software, shareware and freeware obtained from third
parties that is incorporated into our products or sold in conjunction with our
products, and have assurances from our vendors that this licensed software is
Year 2000 compliant. Despite our testing, our products may contain undetected
errors or defects associated with Year 2000 date functions. Known or unknown
errors or defects in our products could result in:
. delay or loss of revenue;
. diversion of development resources;
27
<PAGE>
. damage to our reputation;
. increased service and warranty costs; or
. liability from our customers.
Accordingly, errors or defects in our products could seriously harm our
business.
Some commentators have predicted significant litigation regarding Year 2000
compliance issues, and we are aware of lawsuits against other software
vendors. Because of the unprecedented nature of this litigation, it is
uncertain whether or to what extent we will be affected by it.
Our internal systems include both our computer and network systems and
other systems. We have initiated an assessment of our most important computer
and network systems and expect to complete the assessment by December 1999. We
have not yet begun to assess the Year 2000 compliance of our other systems,
but we expect to complete this assessment by December 1999. To the extent that
we are not able to assess the technology provided by third-party vendors, we
are seeking assurances from them that their systems are Year 2000 compliant.
Although we are not currently aware of any material operational issues or
costs associated with preparing these systems for the Year 2000, we may
experience unanticipated problems and costs caused by undetected errors or
defects in the technology used in these systems.
We currently have only limited information concerning the Year 2000
compliance status of our customers. As is the case with other similarly
situated software companies, if our current or future customers fail to
achieve Year 2000 compliance or if they divert technology expenditures,
especially technology expenditures that were reserved for enterprise software,
to address Year 2000 compliance problems, our business could be harmed.
We have funded our Year 2000 plan from available cash and have not
separately accounted for these costs in the past. To date, these costs have
not been material. We expect to incur additional costs related to the Year
2000 plan for:
. administrative personnel to manage the project;
. outside contractor assistance;
. technical support for our products; and
. product engineering and customer satisfaction.
We may experience material problems and costs with Year 2000 compliance
that could harm our business.
We have not yet developed a contingency plan to address situations that may
result if we are unable to achieve Year 2000 readiness of our critical
operations and do not anticipate the need to do so. The cost of developing and
implementing a plan may itself be material. Finally, we are also subject to
external forces that might generally affect industry and commerce, such as
utility or transportation company Year 2000 compliance failures and related
service interruptions.
28
<PAGE>
BUSINESS
Overview
Interwoven is a leading provider of software products and services that help
businesses and other organizations manage the information that makes up the
content of their web sites. In the Internet industry this is often referred to
as "web content management." Our flagship software product, TeamSite, is
designed to help customers develop, maintain and extend large web sites that
are essential to their businesses. TeamSite incorporates widely accepted
Internet industry standards and is designed with an open architecture that
allows it to support a wide variety of web authoring tools and web application
servers. Using TeamSite, our customers can manage web content, control the
versions of their web sites, manage web site contribution and content approval
processes, and develop eBusiness applications. TeamSite allows large numbers of
contributors across an enterprise to add web content in a carefully-managed
process. In addition, our OpenDeploy product allows customers to automate the
distribution of web content across multiple web sites. By using our products,
businesses can accelerate their time-to-web, lower web operating costs,
establish a differentiated presence on the web and attract and retain
customers. Currently, we have licensed our software products to over 85
customers operating in a broad range of industries. Our customers include
AltaVista, AT&T/TCI, BellSouth, Best Buy, Cisco Systems, FedEx, Gap, General
Electric, the U.S. Department of Education, USWeb/CKS, Viacom/Nickelodeon and
Yahoo!/GeoCities.
Industry Background
The use of the Internet to communicate and conduct business is increasing
rapidly. Companies are accelerating their movement to the Internet to
capitalize on new business opportunities, reach broader consumer audiences and
reduce operational costs. Forrester Research estimates that the business-to-
consumer Internet commerce market in the U.S. will grow from $7.8 billion in
1998 to $108.0 billion in 2003. In addition, Forrester Research estimates that
the business-to-business Internet commerce market in the U.S. will grow from
$43.1 billion in 1998 to $1.3 trillion in 2003.
Migrating to the Web. As leading companies demonstrate revenue growth and
achieve competitive advantage by using the Internet, chief executives and other
senior corporate decision makers are realizing that eBusiness initiatives are
critical for the success of their businesses. As a result, many companies are
developing eBusiness applications to enable them to market and sell products
and services to consumers online, offer web-based customer self-service
programs, implement business-to-business supply chain management solutions, and
migrate other operational functions online. IDC estimates that spending on
software applications and services for Internet commerce will grow from
$7.8 billion in 1998 to $53.8 billion in 2002.
Moving Online Successfully. To compete online and to capitalize on Internet
revenue opportunities, businesses must rapidly build a differentiated presence
on the web and must continuously maintain and extend that presence. Since
first-mover advantage is amplified on the web, companies must deploy high
quality eBusiness applications quickly to create an online brand and establish
a loyal base of customers. Accelerating the time required to develop and deploy
eBusiness applications, or time-to-web, is essential to attracting customers
and generating revenue opportunities. In addition, to retain customers, a
company must differentiate its web site from competing sites by offering rich,
accurate and relevant content. Once customers discover value in a web site,
they may be less likely to visit competing web sites. Web site reliability is
also important, since customers are only a click away from competitors' sites
and may lose patience with an incomplete or non-functioning web site. Moreover,
poor quality web sites can easily damage a business' online brand.
Evolving Web Sites. As a result of this competitive environment and the
available online business opportunities, web sites have rapidly evolved from
simple online corporate brochures to complex online storefronts. Early web
sites contained relatively limited content, consisting primarily of static text
and simple graphics. This content was infrequently updated and web sites
required only a few developers to build and maintain them. Today, companies are
seeking to differentiate their online presence and to become leaders on the
Internet by transforming their businesses through sophisticated eBusinesses
applications featuring content-rich web sites. In many cases, the content on
these web sites must be updated on a daily or hourly basis
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to meet consumer expectations and to exploit emerging business opportunities.
For example, a large online retailer may need to showcase tens of thousands of
products through the use of graphic images and product descriptions. All of
this information must be continuously refreshed as products are introduced or
discontinued and as descriptive product information is revised. As the volume
of web content has grown and sophisticated eBusiness applications have emerged,
the responsibility for the development and management of web content has
shifted from a few developers in small web teams to many contributors working
in different departments across the enterprise. Furthermore, the large number
of web authoring tools and web application servers required by these
applications have contributed to the increasing technological complexity
involved in developing these web sites.
Managing Web Content. Web content, such as high-resolution graphics, audio
segments, video clips, hyperlinked text and executable software, is the basis
for every web page and most eBusiness applications. IDC estimates that the
number of web pages will grow from 925 million in 1998 to 13.1 billion in 2003.
In addition, complex eBusiness initiatives may contain hundreds of thousands of
web pages. This dramatic growth in content has created a strong need for
solutions to content management problems. These solutions must be highly
automated to accommodate the volume, complexity and variability of this web
content. In addition, these solutions must leverage existing investments in
information technology, be highly scalable, and enable participation by
increasing numbers of content contributors. IDC estimates that one of the
markets in which we participate, which IDC refers to as the "web development
life-cycle management software" market, will grow from $76.4 million in 1998 to
$1.6 billion in 2003.
Market Opportunity. Until recently, businesses have attempted to satisfy
their web content management needs largely through in-house solutions. In-house
solutions can be expensive and difficult to maintain, which can increase the
risk of delaying the launch of important eBusiness initiatives. For example,
in-house solutions may need to be extensively re-engineered each time a new web
authoring tool or eBusiness application is introduced. Other businesses have
used third-party solutions, typically turning to either workgroup software or
web publishing software. Workgroup software is generally designed to enable
small groups of developers to manage relatively simple web sites. They
generally do not scale to support large numbers of contributors or the
increasing complexity and volume of web content. Using workgroup software may
impair a company's ability to deliver up-to-date and accurate web content. Web
publishing software is generally designed only to collect and display
information on a web site, and because it is often proprietary, does not
accommodate many popular web authoring tools or web application servers. In
addition, other third-party solutions do not allow large numbers of
contributors to add content to a web site, do not allow web teams to work on
applications simultaneously, and do not integrate new web technologies easily,
thereby slowing the deployment of eBusiness initiatives.
With the proliferation of eBusiness initiatives, the need has emerged for a
common infrastructure, or "platform," that can enable large and diverse groups
of content contributors, accommodate popular web authoring tools, and integrate
to leading web application servers. An open architecture for such a platform
enables customers to leverage their existing investments in information
technology and facilitates rapid adoption of new web technologies and
standards.
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The Interwoven Solution
Interwoven is a leading provider of web content management software that
serves as a platform from which our customers may develop multiple eBusiness
applications. Our software products are specifically designed to help our
customers rapidly and efficiently build, maintain and extend large web sites
and eBusiness initiatives that are essential to their businesses.
[graphic representing web software positioning (p. 31)]
A multi-layer graphical representation of web software positioning from
development to delivery. The top layer consists of four boxes. The box on the
far left reads "Customer Relationship Management." The next box to the right
reads "Electronic Commerce." The next box to the right reads "Knowledge
Management." The next box to the right reads "Global Supply Chain." The layer
immediately below the top layer reads "Web Application Servers." The next layer
down contains the Interwoven logo and reads "Deploy," "QA" and "Develop" and a
description to the left of the layer reads "Content Management." The next layer
down reads "Web Authoring Tools." The bottom layer consists of three boxes. The
box on the far left reads "Non-Technical Contributors." The next box to the
right reads "Business Contributors." The next box to the right reads "Technical
Contributors."
Our products offer customers the following primary benefits:
Accelerate eBusiness Revenue Opportunities. Our products enable customers to
migrate their businesses to the web rapidly, thereby increasing their ability
to generate more revenues and compete more effectively. Today, the volume and
complexity of web content and the number of eBusiness applications continue to
grow so rapidly that it can be difficult for businesses to meet their web site
development schedules. Our products enable customers to develop and deploy
multiple eBusiness applications simultaneously. This approach allows companies
to complete their eBusiness initiatives more rapidly. In addition, our products
allow content contributors to perform quality assurance functions on content
modifications, which significantly reduces testing time.
Reduce Cost of Web Operations. Complex web sites can consist of up to
hundreds of thousands of pages containing both static and dynamic content
supplied by departments throughout the enterprise. As a result, these sites can
be expensive to deploy and manage. Our products lower the costs of web
operations primarily by reducing the dependency on specialized web development
personnel and by improving operating efficiency through automation of workflow
processes, such as task assignment, routing, and approval. Automated workflow
processes can reduce the time required to assemble, test and validate new web
content. In addition, our products support evolving web standards and our open
architecture is compatible with third-party web authoring tools and web
application servers. As a result, businesses can productively leverage their
existing information technology infrastructure.
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Create Highly Differentiated Web Sites. To attract and retain online
customers, today's leading web sites continuously enhance their users' online
experience. Businesses seek to achieve this by introducing new web technologies
and refreshing content frequently. The open architecture of our products
facilitates rapid integration of new web technologies and simultaneous
development of multiple eBusiness applications, such as global supply chain
management, customer relationship management, knowledge management and e-
commerce applications. In addition, our products are highly
scalable, permitting the collaborative efforts of hundreds of contributors to
be coordinated as the need arises.
Improve Web Site Quality. Protecting brand and image online has become
critical for companies doing business on the Internet. Non-functioning or poor
quality sites can significantly harm a business' online brand. With TeamSite,
companies can create reliable, high-quality web sites. TeamSite enables our
customers to conduct comprehensive testing of the entire web site as it is
built, updated or extended. In addition, TeamSite promotes individual
accountability, and faster and more accurate authoring, by enabling all web
developers and content contributors to control their own portion of the quality
assurance and test process. This improves a site's overall quality. By using
sophisticated workflow processes to maintain quality control, TeamSite also
ensures that no unauthorized or unapproved content or application is deployed
to the customer's site.
The Interwoven Strategy
Our goal is to establish our software as the platform of choice for web
content management across the enterprise. To achieve this goal, we intend to
pursue the following key strategies:
Extend Our Position as a Leading Provider of Content Management Software
Products. We intend to extend our leadership in content management solutions by
continuing to offer a comprehensive, easy-to-use software products. Our
feature-rich products address our customers' complete eBusiness life-cycle
needs as they build, maintain and extend their web sites. We intend to expand
our leadership position by introducing enhanced web content management products
that assist our customers in accelerating their eBusiness initiatives, and
aggressively increasing our sales and marketing efforts.
Become the Preferred Web Development Platform for Industry-Leading Internet
Technology Vendors. We intend to increase demand for our products among the
customers of industry-leading Internet technology vendors. We intend to do so
by providing a robust web development platform to complement their own
eBusiness production applications. Unlike existing closed-architecture, or
proprietary products, our products are designed to integrate easily with the
products of industry-leading technology providers. This is attractive to
Internet technology vendors because it expands their markets and eliminates
costly integration and customization. We intend to continue to strengthen our
existing relationships with vendors such as Allaire, ATG, BroadVision, IBM,
InterWorld, Microsoft and Netscape. We also intend to enter into additional
relationships with other leading technology providers, including additional
reseller relationships. We believe our products can become widely adopted as a
standard web development platform across Internet technology vendors.
Expand Relationships with Systems Integrators and Internet Professional
Services Firms. We have begun establishing relationships with leading systems
integrators, such as Andersen Consulting, and Internet professional services
firms, such as USWeb/CKS. These firms provide consulting services to assist
their clients in designing and developing eBusiness applications. Our existing
relationships with the leading systems integrators and Internet professional
services firms have allowed us to expand our market reach and increase our
access to senior decision makers. These firms have significant influence on a
customer's technology selection, and their recommendations represent
significant endorsements. We intend to continue to expand and build additional
relationships with key systems integrators and Internet professional services
firms.
Extend our Technology Leadership Through Adherence to Industry
Standards. Our products integrate easily and cost-effectively with web
authoring tools and web application servers offered by other Internet
technology vendors. In addition, our products have been designed to meet the
demanding openness and scalability required of Internet software products. Our
open architecture supports web authoring tools and web application servers that
adhere to industry standards. The scalability of our products allows customers
to manage hundreds of thousands of computer files that contain web content and
enables hundreds of employees throughout the enterprise to contribute web
content. We intend to continue to invest significantly in research
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and development to increase the functionality of our products while adopting
industry standards. We also intend to continue to participate actively in the
promotion of industry standards, such as XML.
Increase International Sales. As the Internet adoption rate accelerates
overseas, we believe that significant international market demand will exist
for content management solutions, especially in Europe and Asia. We intend to
devote significant resources to penetrate international markets. To that end,
we have begun expanding our overseas direct and indirect sales channels and our
international marketing presence. We have recently opened an office in the
United Kingdom, and intend to open offices in Asia during the next twelve
months.
Products and Services
Our product line consists of TeamSite, our web content management product,
and OpenDeploy, our web content replication and syndication product. We
generally license our products on a per-server and per-user basis and
occasionally on an enterprise or site license basis. We also provide services,
including professional services, maintenance and support.
The following table highlights the features of our products:
<TABLE>
<C> <S> <C>
Product Description Server Platforms
</TABLE>
TeamSite 3.1 Server-based content management . Sun Solaris
application . Windows NT
. allows numerous developers and
contributors to add content to a web
site
. interoperates with leading web
authoring tools and web application
servers
. SmartContext Editing allows direct
edits to web site content through a
simple browser interface
. supports simultaneous eBusiness
application development and deployment
. offers real-time testing capability and
sophisticated workflow processes
. offers comprehensive file versioning
and whole-site versioning
- --------------------------------------------------------------------------------
TeamSite Server-based content templating . Sun Solaris
Templating application . Windows NT
. allows content contribution using
standard templates
. promotes participation from non-
technical contributors
. allows contribution through standard
web browsers
. optional software module licensed with
TeamSite
- --------------------------------------------------------------------------------
TeamSite Reporting and auditing application . Sun Solaris
Global . allows administrators to monitor system . Windows NT
Report activity
Center . delivers sophisticated reporting and
auditing functionality
. optional software module licensed with
TeamSite
- --------------------------------------------------------------------------------
OpenDeploy 3.0 Content replication and distribution . Sun Solaris
application . Windows NT
. transfers content among multiple web . IBM AIX
servers simultaneously . Silicon
. enables automated scheduling of web Graphics IRIX
site updates
. ensures conformity of web site roll-out
. offers secure and transactional content
deployment over the Internet
- --------------------------------------------------------------------------------
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TeamSite -- Content Management
Our flagship product, TeamSite, is a software product that is designed to
develop, maintain and extend large web sites.
Web Content Management. TeamSite is designed to version, manage and
control all web content. It supports parallel, distributed content
contribution across the enterprise. TeamSite allows large numbers of
contributors across an enterprise to add web content in a carefully-managed
process. TeamSite is compatible with leading web authoring tools and web
application servers, allowing businesses to leverage existing investments
in information technology systems, content and expertise. This enables a
faster time-to-web for eBusiness initiatives. TeamSite captures and stores
the history of all modifications to the web content. These content
histories, or versions, are managed and tracked for individual web files
and for whole web sites.
Workflow. TeamSite is designed for a diverse group of users, including
non-technical and technical users, participating in building and
contributing content to the web site operations. To facilitate the
management of these web content contributors, TeamSite automates workflow
processes such as task assignment, resource scheduling, content routing,
content approval and web site release.
Web Application Development. TeamSite provides programmers with a
software development system that accommodates their choice of software
development tools. TeamSite's computer file versioning features allow
programmers to track software code modifications. Using TeamSite,
programmers can reduce the time required to build, install and test the
developed software code by working in a copy of the running web site.
The architecture of TeamSite enables businesses to implement it without
making significant changes to their existing web content or systems
architecture, resulting in rapid implementation. Additionally, TeamSite's open
architecture allows customers to use their preferred web content authoring
software, web application servers and other web-based technologies. TeamSite
currently operates on Sun Solaris and Microsoft Windows NT operating systems.
TeamSite was first shipped in May 1997. We first shipped the current version of
TeamSite, TeamSite 3.1, in May 1999.
We also license optional software modules with TeamSite that extend its
functionality. TeamSite Templating allows web content to be contributed using
customer-defined templates, thereby eliminating the need for contributors to be
familiar with HTML or client-side applications. TeamSite Global Report Center
enables TeamSite administrators to generate reports on web operations activity.
OpenDeploy -- Content Replication and Syndication
Our OpenDeploy software product transfers web content from development to
production web servers. OpenDeploy automates the process of synchronizing web
sites through the precise distribution of content across distributed networks
of web production servers. By automating the process of distributing web
content frequently to multiple web servers, business can maximize web site
availability and minimize web site access time. Customers using OpenDeploy can
also automate the scheduled deployment of content. We believe that OpenDeploy
provides the most effective method for distribution and integration of dynamic
content across web sites.
OpenDeploy is typically licensed with TeamSite by our customers, but it may
be used on a stand-alone basis. OpenDeploy encrypts content for secure transfer
over TCP/IP. The version of OpenDeploy shipped within the United States uses
128-bit SSL encryption. Due to U.S. export regulations, the international
version does not utilize encryption. OpenDeploy operates on Sun Solaris,
Microsoft Windows NT, IBM AIX and Silicon Graphics IRIX operating systems. We
first shipped OpenDeploy in January 1998. The current version of OpenDeploy
3.0, was first shipped in May 1999.
Interwoven Services
Our services organization consists of 41 professional employees who utilize
a comprehensive methodology to deliver our web content management products to
our customers. These services professionals may configure
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<PAGE>
each solution they deliver to meet the specific needs of the customer. We sell
our services in conjunction with licenses of our software products and include:
.needs analysis and web operations strategy;
.software installation and configuration support;
.project management;
.workflow mapping;
.content and web site release management; and
.education and training.
In addition to professional services, we offer various levels of product
maintenance to our customers. Maintenance services are typically subject to an
annual, renewable contract and are typically priced as a percentage of product
license fees. Customers under maintenance contracts receive technical product
support and product upgrades as they are released throughout the life of the
maintenance contracts.
Technology
We believe that our technology offers our customers and partners a highly-
scalable web content management solution that is implemented through an open
architecture that incorporates widely accepted Internet industry standards and
supports a wide variety of web-based software applications. Our products are
specifically designed for the web. Our customers typically use our technology
as the platform to manage their enterprise-wide web content operations.
Content Management Process. The following graph illustrates how TeamSite
manages content:
[flow diagram representing web workflow process (p. 35)]
A flow chart consisting of several icons representing the web workflow
process. The column of icons on the far left consists of (from top to bottom)
an icon of cascading pages labeled "Text, graphics, audio;" an icon of
cascading pages labeled "Templates;" an icon of cascading pages labeled
"Executable code & scripts;" and a cylindrical icon labeled "Database." Arrows
lead from this column of icons to two circular icons to the right labeled "Work
Areas." Arrows lead from here through a user approval area to a large
rectangular icon of cascading pages labeled "Staging Area." An arrow leads from
here through a final approval area to another large rectangular icon of
cascading pages labeled "Edition." Three arrows lead to the right from this
icon to a column of cylindrical icons labeled "E-Commerce," "Intranet" and
"syndicated Extranet."
Collaboration Through Work Areas, Staging Areas and Editions. TeamSite
provides a virtual work area for each contributor. A virtual work area is a
local, desktop web site representation that appears to a contributor as a
complete, fully-functioning web site. This provides web developers and
contributors the ability to see changes instantaneously in the development
environment as they would appear in the actual production site.
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This approach improves quality by promoting individual accountability, allowing
web developers to discover costly bugs and helping web contributors prevent
deployment of inaccurate content to the production site. Users submit revised
content from work areas to a common staging area, a pre-production version of
the web site which consolidates web site changes. After the consolidated
changes in the staging area are approved, the next edition of the production
site can be authorized and deployed. This content management process makes
site-level rollbacks, site recovery and site audits possible.
Content Versioning. TeamSite captures the history of modifications to web
content within each contributors' work area as well as the content within the
common staging area. Our comprehensive content versioning technology allows
customers to record and manage all web content modifications and capture
complete histories of all web files. TeamSite Global Report can then be used to
audit and report on historical changes made to a company's web files and site.
Whole-Site Versioning. An extension of our techniques for content versioning
allows TeamSite to capture editions of the entire web site. As the content for
an edition of an entire web site is approved, a full version of this site can
be captured and recorded providing a complete history of whole site editions.
This provides customers with an effective way to review and roll back to
previous editions of their web sites as necessary for audit, disaster recovery
and compliance requirements.
Concurrent Development. TeamSite supports multiple contributors working on a
single project, and multiple teams working on many projects simultaneously, by
utilizing a technique we refer to as branching. A development branch typically
consists of many work areas connected to one staging area. Branches, for
example, might represent a company's intranet and extranet sites. When
required, the content within these independent branches can be synchronized.
Templating
Our TeamSite Templating module enables non-technical content contributors to
add content through customer-specific style templates, allowing a preferred
look and feel to be leveraged where desired.
Product Features
Open Architecture. Our architecture incorporates widely accepted Internet
industry standards and supports a wide variety of web-based software
applications to integrate into our customers' heterogeneous environments. As a
result, TeamSite also integrates with commercially available content web
authoring tools and web application servers that adhere to industry standards.
This allows our customers' content contributors to use their favorite web
authoring software. For example, a graphics designer may use Adobe Photoshop, a
layout expert may use Macromedia Dreamweaver, and a non-technical contributor
may use Microsoft Office 2000, to add content to a site. In addition,
TeamSite's browser interface has been developed primarily in Java and
JavaScript.
Project Management and Workflow. TeamSite allows customers to manage web
development tasks through automated workflow processes, such as task
assignment, resource scheduling, routing and approval. This enables TeamSite
users to build, enforce and automate the business processes necessary to
maintain high-quality web sites.
Ease of Use. Our SmartContext Editing feature provides non-technical users
with a simple and efficient interface for contributing content as they browse
through the web site. With SmartContext Editing, non-technical contributors are
only required to be familiar with a web browser. For web sites with many
content contributors, TeamSite offers an easy to use, sophisticated, technique
for tracking multiple content changes and merging them into a single file.
Deployment and Content Syndication. OpenDeploy allows customers to deploy
content to numerous web sites through a single transaction to ensure consistent
site roll-outs. In addition, it can be used to deploy and run
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<PAGE>
application programs automatically as well as to replicate content from
relational databases. OpenDeploy can also be used in an encrypted mode for the
secure deployment of content over the Internet.
Scalability, Performance and Availability
Scalability and Performance. TeamSite uses a multi-threaded approach to
promote faster server performance through parallel software code execution. It
also uses C++ and object-oriented programming to promote scalability and
performance. In addition, OpenDeploy can distribute content to a single or to
multiple production web servers simultaneously. This content replication
functionality meets the requirements for the most demanding web sites that are
often located on geographically dispersed servers.
Availability. Our design also promotes reliability and availability by
allowing customers to employ their normal data backup and recovery tools. In
addition, critical data is duplicated, providing the necessary redundancy for
data recovery to minimize the potential for data loss.
Industry Standards
Open to All Files, Tools and Applications. Unlike proprietary, closed
implementations, our products have been developed to accommodate industry
leading Internet technologies, such as XML and Java, and other evolving
industry standards. The TeamSite server presents its content through popular
file management systems such as Unix Network File System and Microsoft Windows
Network File System.
eXtensible Markup Language. XML provides customers the ability to integrate
new applications and data with other XML-compliant technologies and legacy
applications. Together with companies such as Microsoft and IBM, we are a
sponsoring member of OASIS, an industry association promoting XML standards.
Our products use and support XML, and promote XML for data and content
exchange.
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Customers
Our products and services are marketed and sold to a diverse group of
customers operating in a broad range of industries. Our customers include both
established companies migrating their operations online and new companies
formed specifically to deliver products and services over the Internet. These
customers typically consider the web and their web operations to be critical
to their future success.
As of August 31, 1999, over 85 companies had licensed our products. In
1998, Cisco Systems accounted for 13% of our total revenues. The following
table is a representative list of our customers. Each of these customers had
purchased more than $50,000 in licenses and services from us. In August 1999
we entered into an enterprise license agreement with General Electric.
<TABLE>
<CAPTION>
Technology Consulting Services Media/Entertainment
---------- ------------------- -------------------
<S> <C> <C>
AIM Technology Dahlin, Smith & White CondeNet
AltaVista DynaMind Discovery Online
Ascend/Lucent iXL Educational Testing Service
Cisco Systems MacLaren McCan Hungry Minds
Documentum USWeb/CKS Los Angeles Times
Doublebill.com M-Path
Electronic Arts Retail MyPlay
Hitachi ------ Netflicks.com
How 2 HQ Best Buy Quokka Sports
MicroAge Gap Sega
NCR Walgreens Viacom/Nickelodeon
Network Associates whynotu.com
Nortel Networks Financial Services
Novell ------------------ Industrial/Transportation
Sun Microsystems AG Edwards -------------------------
TechRepublic BancBoston Boeing
Tivoli BancTec Clorox
Xerox Barclays Global FedEx
Yahoo!/GeoCities E*Trade General Electric
Ford Motor Credit United Airlines
Telecommunications/Utilities John Hancock W.W. Grainger
---------------------------- First American Financial Yellow Services
Alltel Corporation
AT&T/TCI Minnesota Life
BellSouth
Interpath
Salt River Project Health
Telia ------
Blue Cross California
Government Kaiser
---------- PacificCare
U.S. Department of Education
U.S. Postal Service
</TABLE>
Customer Case Studies
The following case studies exemplify eBusiness initiatives that have
utilized our products:
Educational Testing Service. Educational Testing Service, the world's
largest private educational measurement organization, annually administers
almost 11 million tests in 180 countries worldwide. Since 1996, ETS has been
using the Internet to provide a cost-effective, self-service source of updated
information for its international customer base. ETS has moved much of its
traditional business to the web in order to reduce operating costs and improve
customer service. Its multiple web sites provide information on admission
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<PAGE>
to colleges and universities, test registration and preparation, financial aid
planning and services, to hundreds of thousands of students, parents and
educators each year.
Educational Testing Service uses TeamSite to support its online business
initiatives, such as online registration for exams, free online practice exams
and preparatory information, as well as direct sales of its products.
Nortel Networks. Nortel Networks, with 1998 revenues of $17.6 billion and
75,000 employees worldwide, is a leader in voice and data networking equipment.
Nortel has been using TeamSite for over 18 months to manage and control
globally dispersed content contributors for six different web sites. Nortel's
customers include public and private enterprises and institutions, Internet
service providers, local, long-distance, cellular and PCS communications
companies, cable television carriers, and utilities. Nortel uses TeamSite to
deploy content to its corporate web site, e-commerce systems, and a dynamic
personalized customer portal. The content for these sites is developed and
managed by Nortel Networks marketing teams, service teams, and external
agencies but is centrally controlled and supported through TeamSite. The staff
required to manage this initiative is kept to a minimum by leveraging
TeamSite's ability to distribute web publishing responsibilities to many
contributors. Nortel also uses TeamSite to control and support the web
operations of its international divisions.
Today, web contributors from four continents participate in the development
of six multilingual web sites for Nortel, which translates content into many
languages including Chinese, Japanese, French, Spanish and others.
AltaVista. AltaVista is a leading media and commerce network that integrates
unique technology, products and services. AltaVista seeks to deliver best-of-
breed results by integrating content and functionality from both within the
AltaVista network and through external partners. AltaVista has chosen
Interwoven TeamSite as its global content management platform.
Since its foundation four years ago, AltaVista has provided its loyal base
of web users a broad range of Internet services. As part of its infrastructure
requirement, AltaVista required a robust scalable platform to support its
dynamic environment. AltaVista chose TeamSite as its content management
platform. Demonstrating its ease of implementation, AltaVista installed and
implemented TeamSite in less than one week.
TechRepublic. TechRepublic offers a free web service that provides career
insight, community interaction and customized information to information
technology executives and strategists, network administrators, support training
and other enterprise computing professionals. Its web site provides ready
access to critical information through personalized news, analysis and original
content written by expert contributors. TechRepublic selected TeamSite to
develop and manage its rapidly changing web site.
Since TechRepublic offers articles and information which must be published
and frequently updated by contributors who work remotely. This content is
routed through a series of editors for revision and approval before the content
is finally deployed to the site. With near-constant updates, TechRepublic
required a content management solution with robust workflow functionality and
easy remote access. TeamSite provides TechRepublic with an ideal solution to
its workflow problem because it allows timely central approval and publishing
control of the content assigned to outside contributors. TeamSite also uses our
OpenDeploy to provide secure, rules-based web content replication across
multiple servers and distribution over the Internet.
Technology Vendors and Service Providers
Technology Vendors
To ensure that our products are well integrated with related web
technologies, we work with vendors of web authoring tools and web application
servers. Web authoring tools, such as Macromedia's Dreamweaver, Microsoft's
Office 2000 and Adobe's Photoshop, provide the content that we manage. Web
application servers, such as Allaire's ColdFusion, ATG's Dynamo, BroadVision's
One-to-One Commerce, IBM's Net.Commerce
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and Microsoft's SiteServer, distribute the content managed by our software over
the Internet. We have developed specific product interfaces for some of these
companies, such as software and service modules for BroadVision and ATG, and
some companies refer customers to us or resell our products. BroadVision, for
example, resells our products.
Service Providers
We work with leading systems integrators, including Andersen Consulting,
Cambridge Technology Partners, Computer Sciences Corporation, EDS, Ernst &
Young and KPMG, and Internet professional services firms, including iXL, Ogilvy
Interactive and USWeb/CKS. Our prospective customers frequently retain the
services of these firms for the delivery and implementation of eBusiness
applications, and these firms may recommend a content management solution as
part of the eBusiness application they deliver. USWeb/CKS, for example, resells
our products. We intend to devote significant resources to develop these
relationships further.
Sales and Marketing
To date, we have sold our products and services primarily through our direct
sales force in North America and Europe. As of June 30, 1999, we had 30
professionals in our direct sales force, of which 27 were located in the United
States and 3 were in Europe. We intend to increase the size of our direct sales
force and establish additional sales offices domestically and internationally.
In May 1999, we opened our first international sales office in the United
Kingdom to support the management of direct and indirect sales channels in
Europe.
We are also aggressively developing our indirect sales channel by expanding
our relationships with leading Internet technology vendors, Internet
professional services firms and systems integrators that recommend and, when
appropriate, resell our products. For example, BroadVision and USWeb/CKS
currently resell our products.
We believe that demand is increasing for content management solutions such
as those we sell. We may not be able to expand our sales and marketing staff,
either domestically or internationally, to take advantage of any increase in
demand for those solutions. Our failure to expand our sales and marketing
organization or other distribution channels could materially adversely affect
our business. See "Risk Factors--We must attract and retain qualified
personnel, which is particularly difficult for us because we compete with other
Internet-related software companies and are located in the San Francisco Bay
area where competition for personnel is extremely intense."
Research and Development
We invest significantly in research and development to enhance our current
products, and develop new products. Our research and development expenses were
$884,000 in 1997, $1.8 million in 1998 and $1.7 million for the six months
ended June 30, 1999. We expect that we will increase our product development
expenditures substantially in the future. As of June 30, 1999, approximately 25
employees were engaged in research and development activities and we plan to
continue to hire additional engineers to further our research and development
activities. Our business could be harmed if we were not able to hire and retain
the required number of engineers. See "Risk Factors--We must attract and retain
qualified personnel, which is particularly difficult for us because we compete
with other Internet-related software companies and are located in the San
Francisco Bay area where competition for personnel is extremely intense."
We may fail to complete our product development efforts within our
anticipated schedules, and even if completed, the products developed may not
have the features necessary to make them successful in the marketplace. Future
delays or problems in the development or marketing of product enhancements or
new products could harm our business. See "Risk Factors--Difficulties in
introducing new products and upgrades in a timely manner will make market
acceptance of our products less likely."
40
<PAGE>
Competition
The market for content management solutions is rapidly emerging and is
characterized by intense competition. We expect existing competition and
competition from new market entrants to increase dramatically. A growing number
of companies are vying to provide web content management solutions. In this
market, new products are frequently introduced and existing products are often
enhanced. In addition, new companies, or alliances among existing companies,
may be formed that may rapidly achieve a significant market position.
Potential customers may have developed in-house solutions which might make
it more difficult for us to sell products to them. We compete with third-party
content management solution providers, primarily Vignette, and, to a lesser
extent, with workgroup solutions, and content publishing application providers.
We may face increased competition from these providers in the future. Other
potential competitors include client/server software vendors which are
developing or extending existing products which address our market. In
addition, although we currently partner with a number of companies that provide
complementary products such as web tools, enterprise document repositories and
web servers, they may introduce competitive products in the future. Other large
software companies, such as Microsoft and IBM, may also introduce competitive
products. Many of our existing and potential competitors have greater
technical, marketing and financial resources than we do.
We believe that competitive factors in the web content management industry
include:
. the quality, scalability and reliability of software;
. functionality that enables a broad base of contributors to add and
modify web content;
. interoperability with all leading web authoring tools and web
application servers based on industry standards;
. ability to provide advanced workflow functionality;
. the ability to leverage existing information technology infrastructure;
and
. adherence to emerging industry standards, including XML.
We believe our products compete favorably on each of these factors.
Proprietary Rights and Licensing
Our success depends upon our ability to maintain the proprietary aspects of
our technology and operate without infringing the proprietary rights of others.
We rely on a combination of patent, trademark, trade secret and copyright law,
and contractual restrictions, to protect the proprietary aspects of our
technology. We seek to protect our source code for our software, documentation
and other written materials under trade secret and copyright laws. We currently
do not have any issued United States or foreign patents, but we have applied
for one U.S. patent. It is possible that a patent will not issue from our
currently pending patent application. These legal protections afford only
limited protection for our technology. Our license agreements impose
restrictions on our customers' ability to utilize our software. We also seek to
protect our intellectual property by requiring employees and consultants with
access to our proprietary information to execute confidentiality agreements
with us and by restricting access to our source code. There can be no assurance
that all employees or consultants have signed or could sign these agreements.
Due to rapid technological change, we believe that factors such as the
technological and creative skills of our personnel, new product developments
and enhancements to existing products are equally as important as the various
legal protections of our technology to establishing and maintaining a
technology leadership position.
Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our products or to obtain and use information
that we regard as proprietary. Policing unauthorized use of our products is
difficult and while we are unable to determine the extent to which piracy of
our software exists, software piracy can be expected to be a persistent
problem. Litigation may be necessary in the future to enforce
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<PAGE>
our intellectual property rights, to protect our trade secrets, to determine
the validity and scope of the proprietary rights of others or to defend against
claims of infringement or invalidity. However, the laws of many countries do
not protect our proprietary rights to as great an extent as do the laws of the
United States. Any resulting litigation could result in substantial costs and
diversion of resources and could seriously harm our business, operating results
and financial condition. There can be no assurance that our means of protecting
our proprietary rights will be adequate or that our competitors will not
independently develop similar technology. Any failure by us to meaningfully
protect our property could seriously harm our business, operating results and
financial condition.
To date, we have not been notified that our products infringe the
proprietary rights of third parties, but there can be no assurance that third
parties will not claim infringement by us with respect to our current or future
products. We expect that developers of web-based commerce software products
will increasingly be subject to infringement claims as the number of products
and competitors in our industry segment grows and as the functionality of
products in different segments of the software industry increasingly overlaps.
Any claims, with or without merit, could be time-consuming to defend, result in
costly litigation, divert management's attention and resources, cause product
shipment delays or require us to enter into royalty or licensing agreements.
These royalty or licensing agreements, if required, may not be available on
terms acceptable to us or at all. A successful infringement claim against us
and our inability to license the infringed technology or develop or license
technology with comparable functionality could seriously harm our business,
financial condition and operating results. See "Risk Factors--We might not be
able to protect and enforce our intellectual property rights, loss of which
could harm our business."
Employees
As of August 31, 1999, we had a total of 159 employees, including 69 in
sales and marketing, 31 in research and development, 41 in professional
services and 18 in administration and finance. Of these employees, 156 were
located in the United States and 3 were located in the United Kingdom. None of
our employees is represented by a collective bargaining agreement, nor have we
experienced any work stoppage. We consider our relations with our employees to
be good.
Our future operating results depend in significant part on the continued
service of our key technical, sales and senior management personnel. Other than
as described in "Management--Employment and Severance Agreements," none of
these individuals is bound by an employment agreement. Our future success also
depends on our continuing ability to attract and retain highly qualified
technical, sales and senior management personnel. Competition for these
personnel is intense, and we may not be able to retain our key technical, sales
and senior management personnel or attract these personnel in the future. We
have experienced difficulty in recruiting qualified technical, sales and senior
management personnel, and we expect to experience these difficulties in the
future. If we are unable to hire and retain qualified personnel in the future,
this inability could seriously harm our business.
Facilities
Our principal office occupies approximately 27,500 square feet in Sunnyvale,
California, under a lease that expires in May 2003. In addition, we also lease
sales and service offices in the metropolitan areas of Atlanta, Boston,
Chicago, London, Los Angeles, Seattle and Washington, D.C. In July, we moved
our services organization to expanded facilities located in approximately
12,600 square feet in Sunnyvale, California. Our lease for this facility
expires in December 2000. We believe that our existing facilities will not be
adequate for our current needs. We are currently in the process of locating
additional office space for expansion or relocation of our principal offices.
There can be no assurance that suitable additional or alternative space will be
available in the future on commercially reasonable terms.
Legal Proceedings
We are not a party to any material legal proceedings. We could become
involved in litigation from time to time relating to claims arising out of our
ordinary course of business.
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<PAGE>
MANAGEMENT
Executive Officers and Directors
The following table presents information regarding our executive officers
and directors as of June 30, 1999.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Martin W. Brauns............ 39 President, Chief Executive Officer and Director
Peng T. Ong................. 36 Chairman of the Board and Vice President of
Professional Services
David M. Allen.............. 41 Vice President and Chief Financial Officer
Michael A. Backlund......... 45 Vice President of Sales
Jeffrey E. Engelmann........ 37 Vice President of Business Development
Jack S. Jia................. 36 Vice President of Engineering
Jozef Ruck.................. 47 Vice President of Marketing
Kathryn C. Gould............ 49 Director
Mark W. Saul................ 38 Director
Mark C. Thompson............ 41 Director
Ronald E.F. Codd............ 43 Director
</TABLE>
Martin W. Brauns has served as our President, Chief Executive Officer and
member of the Board of Directors since March 1998. Before joining Interwoven,
Mr. Brauns served as President and Chief Operating Officer of Sqribe
Technologies, Inc., a software company from July 1997 to November 1997. From
March 1996 to June 1997, Mr. Brauns served in a number of positions, including
most recently as Vice President of North American Sales, at Informix Software,
Inc., a software company. From 1992 to January 1996, Mr. Brauns served as Vice
President of Worldwide Sales of Adaptec Inc., a hardware and software
manufacturer. Mr. Brauns holds a Bachelor of Science in international business
and a Master of Business Administration from San Jose State University.
Peng T. Ong is our founder, Chairman of our Board of Directors and Vice
President of Professional Services. Prior to founding Interwoven, Mr. Ong was a
founder of Electric Classifieds, Inc., an Internet classifieds company, and its
Chief Architect from March 1994 to May 1995. From 1994 to December 1995, he
served as a consultant to Illustra Information Technologies, Inc., a software
company. Mr. Ong holds a Bachelor of Science in electrical engineering from the
University of Texas at Austin and a Master of Science in computer science from
the University of Illinois at Urbana-Champaign.
David M. Allen has served as our Vice President and Chief Financial Officer
since joining Interwoven in March 1999. Before joining Interwoven, Mr. Allen
served as Vice President and Chief Financial Officer of Object Systems
Integrators, Inc., a telecommunications network management company, from July
1996 to March 1999. From 1985 to July 1996, he served in a number of positions,
including most recently as Vice President and Chief Financial Officer, at
Telecommunications Techniques Corporation, a communications test equipment
manufacturing company. Mr. Allen holds a Bachelor of Science in accounting from
the University of Maryland.
Michael A. Backlund has served as our Vice President of Worldwide Sales
since joining Interwoven in May 1998. From January 1997 to May 1998, Mr.
Backlund served in a number of positions at Computer Associates International,
a software company, including most recently as Vice President of Divisional
Sales. Prior to joining Interwoven, he was a founder of CMS Communications,
Inc., a telecommunications equipment company, and served in a number of
capacities from August 1986 to December 1996, including most recently as Vice
President of Sales and Marketing. Mr. Backlund holds a Bachelor of Arts and a
Master of Arts in economics from the University of Southern California.
Jeffrey E. Engelmann has served as our Vice President of Business
Development since joining Interwoven in January 1999. Before joining
Interwoven, Mr. Engelmann served as Executive Operations Officer of the
Internet division of IBM. From 1991 to December 1997, he served in a number of
development, consulting and
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<PAGE>
sales positions within IBM, including most recently as Business Unit Executive
of eBusiness Solution Sales. Mr. Engelmann holds a Bachelor of Science in
chemical engineering and an Bachelor of Arts in computer science from the
University of Wisconsin at Madison.
Jack S. Jia has served in a variety of positions, including most recently as
our Vice President of Engineering, since joining Interwoven in January 1997.
Prior to joining Interwoven, Mr. Jia was a founder of V-Max America, Inc., a
computer distribution company, and served as the Chief Executive Officer from
June 1993 to October 1998. From May 1995 to January 1997, he served as a
Project Manager at Silicon Graphics, Inc., a computer systems company, and from
January 1993 to May 1995, he served in a number of senior engineering positions
at Sun Microsystems, Inc., a computer systems company. Mr. Jia holds a Bachelor
of Science in electrical engineering and a Master of Science in computer
science from the Northern Jiao-Tong University, Beijing, a Master of Science in
electrical engineering from Polytechnic University of New York, and a Master of
Business Administration from Santa Clara University.
Jozef Ruck has served as our Vice President of Marketing since joining
Interwoven in March 1999. From April 1997 to April 1999, Mr. Ruck served in a
number of positions at Genesys Telecommunications Laboratories, a call center
software company, including most recently as Vice President of Customer
Marketing. From September 1994 to March 1997, he served in a number of
positions, including most recently as Western Region Sales Director, at Network
Appliance, Inc., a data storage company. Mr. Ruck holds a Bachelor of Science
in mechanical engineering from Oregon State University and a Master of Business
Administration from Santa Clara University.
Kathryn C. Gould has been one of our directors since March 1998. She is a
founder of Foundation Capital, a venture capital firm, and has been a member
since December 1995. Since 1989, Ms. Gould has been a general partner of
Merrill, Pickard, Anderson & Eyre, a venture capital firm. Ms. Gould also
serves as a director of Documentum, Inc., a publicly held web-based software
application developer. Ms. Gould holds a Bachelor of Science in physics from
the University of Toronto and a Master of Business Administration from the
University of Chicago.
Mark W. Saul has been one of our directors since July 1997. Since June 1996,
Mr. Saul has served as President and Chief Executive Officer and Chairman of
the Board of Acuity Corporation, a web-based customer interaction solutions
company. From May 1995 to May 1996, Mr. Saul was Vice President of Marketing
for Network Appliance, Inc. From March 1994 to May 1995, he served as Vice
President of World Wide Field Operations of Minerva Systems, Inc., a video
technology company. Mr. Saul holds a Bachelor of Arts in history and a Bachelor
of Science in engineering from Stanford University and a Master of Business
Administration from the Harvard Business School.
Mark C. Thompson has been one of our directors since July 1999. Since 1988,
Mr. Thompson has served in a number of positions with Charles Schwab since
1988, a financial services center, including most recently Senior Vice
President and Executive Producer of Schwab.com. Mr. Thompson holds a Bachelor
of Arts in international relations, and a Master of Arts in new media from
Stanford University.
Ronald E.F. Codd has been one of our directors since July 1999. Mr. Codd has
served as President, Chief Executive Officer and a director of Momentum
Business Applications, Inc., a publicly held software company, since January
1999. From 1991 to December 1998, he served as Senior Vice President, Finance
and Administration, Chief Financial Officer and Secretary of PeopleSoft, Inc.,
an enterprise software developer. Mr. Codd also serves on the board of
directors of Adept Technology, Inc., a robotics manufacturer, Information
Advantage, Inc., a enterprise software developer and marketer, and Intraware,
Inc., a provider of business-to-business e-commerce services. Mr. Codd holds a
Bachelor of Science in accounting from the University of California at Berkeley
and a Master of Management from the J.L. Kellogg Graduate School of Management
(Northwestern University).
There are no family relationships among any of our directors or officers.
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<PAGE>
Board Composition
We currently have six directors. Our amended and restated certificate of
incorporation, which will become effective upon the closing of this offering,
states that our board of directors will be divided into three classes: Class I,
the term for which will expire at the annual meeting of stockholders to be held
in 2000, Class II, the term for which will expire at the annual meeting of
stockholders to be held in 2001, and Class III, the term for which will expire
at the annual meeting of stockholders to be held in 2002. At each annual
meeting of stockholders after the initial classification, the successors to
directors whose terms have expired will be elected to serve from the time of
election and qualification until the third annual meeting following election.
The Class I directors are Messrs. Brauns and Saul; the Class II directors are
Mr. Peng and Ms. Gould; and the Class III directors will be Messrs. Thompson
and Codd.
In addition, our bylaws, as they will be effective upon the closing of this
offering, provide that the authorized number of directors may be changed only
by resolution of the board of directors. Any additional directorships resulting
from an increase in the number of directors will be distributed among the three
classes so that, as nearly as possible, each class will consist of one-third of
the total number of directors.
This classification of the board of directors may have the effect of
delaying or preventing a change in control. See "Description of Capital Stock--
Anti-Takeover Provisions."
Board Committees
Our board of directors has a compensation committee and an audit committee.
Compensation Committee. The current members of our compensation committee
are Mr. Saul and Ms. Gould. The compensation committee reviews and makes
recommendations to our board concerning salaries and incentive compensation for
our officers and employees. The compensation committee also administers our
stock plans.
Audit Committee. The current members of our audit committee are Messrs. Codd
and Thompson. Our audit committee reviews and monitors our financial statements
and accounting practices, makes recommendations to our board regarding the
selection of independent auditors and reviews the results and scope of the
audit and other services provided by our independent auditors.
Compensation Committee Interlocks and Insider Participation
Before April 1, 1998, our board of directors did not have a compensation
committee and all compensation decisions were made by the full board of
directors. In April 1998, the Company formed a compensation committee
consisting of Mr. Brauns, Ms. Gould and Eileen Richardson, a former director.
No compensation decisions were made by this committee in 1998; rather, all
compensation decisions were made by the full board of directors. No
interlocking relationship exists between our board of directors or compensation
committee and the board of directors or compensation committee of any other
company, nor has an interlocking relationship existed in the past.
Director Compensation
Our directors receive no cash compensation for their services as directors
but are reimbursed for their reasonable expenses in attending board and board
committee meetings.
Each eligible director who is not our employee and who is a member of the
board on the completion of this offering will be granted an option to purchase
10,000 shares of common stock under our 1999 Equity Incentive Plan, unless that
director has previously received an option grant before the effective date of
this offering. Each eligible director who is not our employee and who first
becomes a member of our board on or after the completion of this offering will
be granted an option to purchase 20,000 shares of common stock under our 1999
Equity Incentive Plan. Mr. Codd and Mr. Thompson were each granted an option to
purchase 20,000 shares of Common Stock under our 1998 Stock Option Plan in July
1999. Ms. Gould and Mr. Saul will
45
<PAGE>
each be granted an option to purchase 10,000 shares of Common Stock under the
1999 Equity Incentive Plan on the effective date of this offering. Immediately
following each annual meeting of our stockholders, each eligible director will
automatically be granted an additional option to purchase 10,000 shares under
the plan if the director has served continuously as a member of the board for
at least one year. The options will have 10-year terms and will terminate three
months following the date the director ceases to be one of our directors or
consultants or 12 months following that date if the termination is due to death
or disability. All options granted under the plan will be fully vested and
immediately exercisable as of the date of grant.
Executive Compensation
The following table presents compensation information for 1998 paid to or
accrued by each person serving as our chief executive officer in 1998 and each
of our four other most highly compensated executive officers whose salary and
bonus for 1998 was more than $100,000. The restricted stock value is calculated
based upon a $0.39 per share purchase price and assuming that the estimated
fair market value on the date of grant is equal to an assumed initial public
offering price of $11.00 per share.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation Awards
------------------------------ ----------------------
Other Securities
Name and Principal Annual Restricted Underlying
Positions Salary Bonus Compensation Stock Award Options
- ------------------ -------- -------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
Martin W. Brauns......... $206,119 $100,000 $320 $14,146,663 --
President and Chief
Executive Officer
Steven Farber............ 93,060 -- -- -- --
President and Chief
Executive Officer
John Chang............... 134,186 67,167 960 -- 46,666
Vice President of
Marketing
Peng T. Ong.............. 114,315 125,000 -- -- --
Chairman and Vice
President of
Professional Services
Michael A. Backlund...... 80,826 65,450 -- -- 156,666
Vice President of Sales
Jack S. Jia.............. 104,988 55,000 960 -- 96,666
Vice President of
Engineering
</TABLE>
Mr. Farber's employment with us terminated as of August 1, 1998. Mr. Chang's
employment with us terminated as of March 31, 1999. The amounts listed under
the column captioned "Other Annual Compensation" represent payments in lieu of
health insurance premiums paid by us.
Option Grants in 1998
The following table presents the grants of stock options under our 1996
Stock Option Plan and 1998 Stock Option Plan during 1998 to each person serving
as our chief executive officer and each of the persons listed in the Summary
Compensation Table.
All options granted under the 1996 plan and 1998 plan are immediately
exercisable and are either incentive stock options or nonqualified stock
options. We have a right to repurchase the shares issued upon exercise of these
options at the original purchase price if they are unvested at the time the
grantee terminates employment with us. This repurchase right generally lapses
as to 25% of the shares on the first anniversary of the date of grant and the
remainder expire ratably over a 36-month period thereafter. We have also
granted nonqualified stock options that do not contain a repurchase right or
contain repurchase terms that are negotiated between the optionee and us.
Options expire 10 years from the first date of employment. Options were granted
at an exercise price equal to the fair market value of our common stock, as
determined by our board, on the date of grant. In 1998, we granted to our
employees and consultants options to purchase a total of 824,425 shares of our
common stock.
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<PAGE>
The 5% and 10% assumed annual rates of stock price appreciation are required by
the rules of the Securities and Exchange Commission and do not represent our
estimate or projection of future common stock prices. The potential realizable
values at 0%, 5% and 10% appreciation are calculated by assuming that the
estimated fair market value on the date of grant, based upon an assumed initial
public offering price of $11.00 per share, appreciates at the indicated rate
for the entire term of the options and that the option is exercised at the
exercise price and sold on the last day of its term at the appreciated price.
<TABLE>
<CAPTION>
Individual Grants
---------------------------------------------
Potential Realizable
Value at Assumed
Number of Percent of Annual Rates of Stock
Securities Total Options Price Appreciation
Underlying Granted to Exercise for Option Term
Options Employees Price Expiration --------------------------------
Name Granted in 1998 Per Share Date 0% 5% 10%
- ---- ---------- ------------- --------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Martin W. Brauns........ -- -- % $ -- -- $ -- $ -- $ --
Steven Farber........... -- -- -- -- -- -- --
John Chang.............. 46,666 5.7 0.18 3/5/08 504,926 827,754 1,323,036
Peng T. Ong............. -- -- -- -- -- -- --
Michael A. Backlund..... 156,666 19.0 0.21 5/26/08 1,690,426 2,774,217 4,436,964
Jack S. Jia............. 23,333 2.8 0.18 3/5/08 252,436 413,877 661,518
13,333 1.6 0.18 5/7/08 144,263 236,499 378,006
60,000 7.3 0.21 10/15/08 647,400 1,062,470 1,699,270
</TABLE>
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<PAGE>
Aggregate Option Exercises in 1998 and Option Values at December 31, 1998
The following table presents the number of shares acquired and the value
realized upon exercise of stock options during 1998 and the number of shares of
common stock subject to "exercisable" and "unexercisable" stock options held as
of December 31, 1998 by each of the persons listed in the Summary Compensation
Table. Also presented are values of "in-the-money" options, which represent the
positive difference between the exercise price of each outstanding stock option
and an assumed initial public offering price of $11.00 per share. Each of these
options was exercisable immediately upon grant, subject to our right to
repurchase the option shares at the exercise price upon termination of the
optionee's employment. The repurchase right generally expires as to 25% of the
shares on the first anniversary of the date of grant and the remainder expires
ratably over a 36-month period thereafter. The numbers in the columns entitled
"Value Realized" and "Value of Unexercised In-the-Money Options at December 31,
1998" are based on an assumed initial public offering price of $11.00 per share
and net of the exercise price payable for these shares.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Number of Underlying Unexercised In-the-Money Options at
Shares Options at December 31, 1998 December 31, 1998
Acquired on Value ------------------------------- -------------------------
Name Exercise Realized Exercisable(1) Unexercisable(1) Exercisable Unexercisable
- ---- ----------- ---------- -------------- ---------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Martin W. Brauns........ -- $ -- -- -- $ -- $ --
Steven Farber........... 130,666 1,415,166 -- -- -- --
John Chang.............. -- -- 55,000 111,666 600,050 1,214,077
Peng T. Ong............. -- -- -- -- -- --
Michael A. Backlund..... -- -- -- 156,666 -- 1,690,426
Jack S. Jia............. -- -- 28,750 127,916 313,663 1,385,064
</TABLE>
- ---------------------
(1) Options granted under our stock option plans are generally exercisable
immediately but the shares acquired upon exercise are subject to lapsing
rights of repurchase at the exercise price. The heading "exercisable"
refers to shares as to which our right of repurchase has lapsed. The
heading "unexercisable" refers to shares that we still have the right to
repurchase upon termination of the optionee's employment.
Employee Benefit Plans
1996 Stock Option Plan. As of August 31, 1999, options to purchase 22,332
shares of common stock were outstanding under the 1996 Stock Option Plan and
options to purchase 610,994 shares had been exercised, but remain subject to
our repurchase right. No additional options may be granted under this plan.
Options granted under the stock option plan are subject to terms substantially
similar to those described below with respect to options granted under the 1999
Equity Incentive Plan.
1998 Stock Option Plan. As of August 31, 1999, options to purchase 1,017,555
shares of common stock were outstanding under the 1998 Stock Option Plan,
options to purchase 451,273 shares remained available for issuance and options
to purchase 1,189,508 shares had been exercised, but remain subject to our
repurchase right. No additional options may be granted under this plan. Options
granted under the stock option plan are subject to terms substantially similar
to those described below with respect to options granted under the 1999 Equity
Incentive Plan.
1999 Equity Incentive Plan. On July 22, 1999, the board adopted the 1999
Equity Incentive Plan and reserved 2,900,000 shares of common stock to be
issued under this plan. In addition, shares under the 1996 Stock Option Plan
and the 1998 Stock Option Plan not issued or subject to outstanding grants on
the date of this prospectus and any shares issued under these plans that are
forfeited or repurchased by us or that are issuable upon exercise of options
that expire or become unexercisable for any reason without having been
exercised in full will be available for grant and issuance under the equity
incentive plan. Shares will again be available for grant and issuance under the
equity incentive plan that:
. are subject to issuance upon exercise of an option granted under the
equity incentive plan that cease to be subject to the option for any
reason other than exercise of the option;
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<PAGE>
. have been issued upon the exercise of an option granted under the equity
incentive plan that are subsequently forfeited or repurchased by us at
the original purchase price;
. are subject to an award granted pursuant to a restricted stock purchase
agreement under the equity incentive plan that are subsequently
forfeited or repurchased by us at the original issue price; or
. are subject to stock bonuses granted under the equity incentive plan
that terminates without shares being issued.
This plan will become effective on the consummation of this offering and
will terminate on July 21, 2009, unless it is terminated earlier by our board.
The plan will authorize the award of options, restricted stock awards and stock
bonuses. No person will be eligible to receive more than 1,000,000 shares in
any calendar year under the plan other than a new employee who will be eligible
to receive no more than 1,500,000 shares in the calendar year in which the
employee commences employment.
The plan will be administered by our compensation committee, all of the
members of which are "non-employee directors" under applicable federal
securities laws and "outside directors" as defined under applicable federal tax
laws. The compensation committee will have the authority to construe and
interpret the plan, grant awards and make all other determinations necessary or
advisable for the administration of the plan. Also, our non-employee directors
are entitled to receive automatic annual grants of fully vested options to
purchase shares of our common stock, as described under "Management--Director
Compensation."
The plan will provide for the grant of both incentive stock options that
qualify under Section 422 of the Internal Revenue Code and nonqualified stock
options. Incentive stock options may be granted only to our employees or
employees of our parent or subsidiary, if any. All other awards other than
incentive stock options may be granted to employees, officers, directors,
consultants, independent contractors and advisors of ours or of our parent or
subsidiary, if any, provided the consultants, independent contractors and
advisors render bona fide services not in connection with the offer and sale of
securities in a capital-raising transaction. The exercise price of incentive
stock options must be at least equal to the fair market value of our common
stock on the date of grant. The exercise price of incentive stock options
granted to 10% stockholders must be at least equal to 110% of that value. The
exercise price of nonqualified stock options must be at least equal to 85% of
the fair market value of our common stock on the date of grant.
Options may be exercisable only as they vest or may be immediately
exercisable with the shares issued subject to our right of repurchase that
lapses as the shares vest. In general, options will vest over a four-year
period. The maximum term of options granted under the plan is 10 years.
Awards granted under the plan may not be transferred in any manner other
than by will or by the laws of descent and distribution. They may be exercised
during the lifetime of the optionee only by the optionee. The compensation
committee could determine otherwise and provide for these provisions in the
award agreement, but only with respect to awards that are not incentive stock
options. Options granted under the plan generally may be exercised for a period
of time after the termination of the optionee's service to us or to our parent
or subsidiary, if any. Options will generally terminate immediately upon
termination of employment for cause.
The purchase price for restricted stock will be determined by our
compensation committee. Stock bonuses may be issued for past services or may be
awarded upon the completion of certain services or performance goals.
If we are dissolved or liquidated or have a "change in control" transaction,
outstanding awards may be assumed or substituted by the successor corporation,
if any. In the discretion of the compensation committee the vesting of these
awards may accelerate upon one of these transactions.
1999 Employee Stock Purchase Plan. The board has adopted the 1999 Employee
Stock Purchase Plan and has reserved 300,000 shares for issuance under this
plan. This plan will become effective one business day
49
<PAGE>
after consummation of this offering. On each January 1, the aggregate number of
shares reserved for issuance under this plan will increase automatically by a
number of shares equal to 1% of our outstanding shares on December 31 of the
preceding year. The aggregate number of shares reserved for issuance under the
plan may not exceed 3,000,000 shares. The plan will be administered by our
compensation committee, which will have the authority to construe and interpret
the plan.
Employees generally will be eligible to participate in the plan if they are
employed ten days before the beginning of an offering period and they are
customarily employed by us, or our parent or any subsidiaries that we
designate, for more than 20 hours per week and more than five months in a
calendar year and are not, and would not become as a result of being granted an
option under the plan, 5% stockholders of us or our designated parent or
subsidiaries.
Under the plan, eligible employees will be permitted to acquire shares of
our common stock through payroll deductions. Eligible employees may select a
rate of payroll deduction between 2% and 10% of their compensation and are
subject to maximum purchase limitations. Participation in the plan will end
automatically upon termination of employment for any reason.
Each offering period under the plan will be for two years and consist of
four six-month purchase periods. The first offering period is expected to begin
on the first business day on which price quotations for our common stock are
available on the Nasdaq National Market. Offering periods and purchase periods
will begin on February 1 and August 1 of each year. However, because the first
day on which price quotations for our common stock will be available on the
Nasdaq National Market may not be February 1 or August 1, the length of the
first offering period may be more or less than two years, and the length of the
first purchase period may be more or less than six months.
The plan will provide that, in the event of our proposed dissolution or
liquidation, each offering period that commenced prior to the closing of the
proposed event shall continue for the duration of the offering period, provided
that the compensation committee may fix a different date for termination of the
plan. The purchase price for our common stock purchased under the plan is 85%
of the lesser of the fair market value of our common stock on the first day of
the applicable offering period or the last day of the applicable purchase
period. The compensation committee will have the power to change the duration
of offering periods without stockholder approval, if the change is announced at
least 15 days prior to the beginning of the affected offering period.
The plan is intended to qualify as an "employee stock purchase plan" under
Section 423 of the Internal Revenue Code. Rights granted under the plan will
not be transferable by a participant other than by will or the laws of descent
and distribution.
The plan will terminate on July 21, 2009, unless it is terminated earlier
under the terms of the plan. The board will have the authority to amend,
terminate or extend the term of the plan, except that no action may adversely
affect any outstanding shares previously purchased under the plan. Except for
the automatic annual increase of shares described above, stockholder approval
is required to increase the number of shares that may be issued or to change
the terms of eligibility under the plan. The board may make amendments to the
plan as it determines to be advisable if the financial accounting treatment for
the plan is different from the financial accounting treatment in effect on the
date the plan was adopted by the board.
401(k) Plan. We sponsor a defined contribution plan intended to qualify
under Section 401 of the Internal Revenue Code, or a 401(k) plan. All employees
are generally eligible to participate and may enter the plan as of the first
day of each calendar month. Participants may make pre-tax contributions to the
plan of up to 15% of their eligible earnings, subject to a statutorily
prescribed annual limit. Each participant is fully vested in his or her
contributions and the investment earnings. Contributions to the plan by the
participants or by us, and the income earned on these contributions, are
generally not taxable to the participants until withdrawn. Contributions by us,
if any, are generally deductible by us when made. Participant and company
contributions
50
<PAGE>
are held in trust as required by law. Individual participants may direct the
trustee to invest their accounts in authorized investment alternatives.
Employment and Severance Agreements
Mr. Brauns, our President and Chief Executive Officer, entered into an
employment agreement with us in February 1998. This agreement establishes Mr.
Brauns' annual base salary of $250,000 and eligibility for benefits and bonuses
tied to our revenues. This agreement also provides for his election to the
Board of Directors as a condition of employment. This agreement continues until
it is terminated upon written notice by Mr. Brauns or by us. If his employment
is terminated by us for cause or if he voluntarily elects to terminate his
employment, we must pay his salary and other benefits through the date of his
termination. If his employment is terminated by us without cause or if he
terminates his employment under some circumstances, we must pay his benefits
through the date of his termination and his salary for up to 12 additional
months after this date, unless Mr. Brauns is employed full-time by another
employer.
Under this agreement, Mr. Brauns agreed to purchase 1,333,333 shares of
common stock at an exercise price of $0.18 per share. The shares purchased by
Mr. Brauns are subject to our right to repurchase the shares upon termination
of his employment. Our repurchase right expires ratably over a 48 month period.
Our repurchase right also expires as to all of the shares in the event that we
merge or consolidate with another entity or sell all or substantially all of
our assets.
In connection with this stock purchase, we agreed to loan Mr. Brauns the
entire purchase price. This loan has been repaid in full. See "Related Party
Transactions--Loans to Executive Officers."
Mr. Ong's offer letter, dated February 29, 1996, provided for an annual
salary of $48,000 commencing on March 1, 1996. Mr. Ong's employment is at will
and may be terminated at any time, with or without formal cause.
Mr. Allen's offer letter, dated February 12, 1999, provides for an initial
annual salary of $140,000 commencing on March 3, 1999 and eligibility for an
incentive bonus of $35,000. The offer letter also provides for reimbursement
for relocation expenses. Mr. Allen received options to purchase 186,666 shares
of our common stock at an exercise price of $0.39 per share under the 1998
Stock Option Plan, of which options to purchase 46,667 shares vest on March 3,
2000 and the remainder will vest ratably over a 36-month period thereafter.
Half of the unvested portion of these options will vest if we sell the company.
Mr. Allen's employment is at will and may be terminated at any time, with or
without formal cause.
Mr. Backlund's offer letter, dated May 1, 1998, provides for an initial
annual salary of $135,000 commencing on May 26, 1999 and eligibility for an
incentive bonus of up to $100,000. The offer letter also provides for
reimbursement for relocation expenses. Mr. Backlund received options to
purchase 156,666 shares of our common stock at an exercise price of $0.21 per
share under the 1996 Stock Option Plan, of which options to purchase 39,166
shares vested on May 26, 1999 and the remainder will vest ratably over a 36-
month period thereafter. On January 28, 1999, Mr. Backlund received options to
purchase an additional 66,666 shares of our common stock at the price of $0.39
per share as a result of meeting revenue objectives in 1998 and in lieu of a
portion of his cash bonus earned in 1998. Mr. Backlund's employment is at will
and may be terminated at any time, with or without formal cause.
Mr. Engelmann's offer letter, dated December 11, 1998, provides for an
initial annual salary of $130,000 commencing on January 18, 1999 and
eligibility for an incentive bonus of up to $40,000. The offer letter also
provides for reimbursement for relocation expenses. Pursuant to the offer
letter, Mr. Engelmann purchased 183,333 shares of our common stock at the price
of $0.39 per share. The shares purchased by Mr. Engelmann are subject to our
right to repurchase all of the shares of common stock upon termination of his
employment. Our right to repurchase his shares at the original purchase price
upon termination lapses with respect to 45,833 shares on January 18, 2000, and
expires ratably as to the remaining shares over a 36-month period. The
51
<PAGE>
repurchase right will expire as to half of the shares of common stock subject
to repurchase at any given time if we are acquired. If we terminate Mr.
Engelmann's employment without cause, we must pay him an amount equal to two
months base salary. Pursuant to the offer letter, on January 28, 1999, Mr.
Engelmann purchased an additional 86,666 shares of our common stock at the
price of $0.39 per share, subject to attainment of individual and corporate
objectives, and subject to the same repurchase rights as described above. We
loaned Mr. Engelmann $105,300 pursuant to a partial recourse secured promissory
note representing the purchase price for his shares, due in five years or
earlier in the event of our initial public offering, acquisition or Mr.
Engelmann's termination of employment, and bearing interest at the rate of 6%
per year. Mr. Engelmann's employment is at will and may be terminated at any
time, with or without formal cause.
Mr. Jia's offer letter, dated January 6, 1997, provides for an initial
annual salary of $70,000 commencing January 27, 1997. Mr. Jia received options
to purchase 60,000 shares of our common stock at an exercise price of $0.09 per
share under the 1996 Stock Option Plan, of which options to purchase 15,000
shares vested on January 28, 1998 and the remainder will vest ratably over a 36
month period thereafter. Mr. Jia's employment is at will and may be terminated
at any time, with or without formal cause.
Mr. Ruck's offer letter, dated February 18, 1999, provides for an initial
annual salary of $140,000 commencing March 15, 1999 and eligibility for an
incentive bonus of up to $60,000. Pursuant to the offer letter, Mr. Ruck
purchased 213,333 shares of our common stock at the price of $0.39 per share.
The shares purchased by Mr. Ruck are subject to our right to repurchase all of
the shares of common stock upon termination of his employment. Our right to
repurchase his shares upon termination lapses with respect to 53,333 on March
15, 2000, and expires ratably as to the remaining shares over a 36-month
period. If we terminate Mr. Ruck's employment without cause, within his first
year of employment, our right to repurchase his common stock will be equal to
the shares granted less 4,444 shares for each full month of employment for Mr.
Ruck after March 15, 1999. On March 18, 1999, Mr. Ruck purchased an additional
33,333 shares of our common stock at the price of $0.39 per share, subject to
the attainment of individual and corporate objectives, and subject to the same
repurchase rights as described above. Also, pursuant to his offer letter, we
loaned Mr. Ruck $96,200 pursuant to a partial recourse secured promissory note
representing the purchase price for his shares, due in five years or earlier in
the event of our initial public offering, acquisition, or Mr. Ruck's
termination of employment, and bearing interest at the rate of 6% per year. The
loan will be recourse with respect to interest and a combination, as determined
by mutual agreement between the parties, of recourse and non-recourse for the
principal. Mr. Ruck's employment is at will and may be terminated at any time,
with or without formal cause.
Mr. Chang's offer letter, dated January 20, 1997, provides for an initial
annual salary of $125,000 commencing February 3, 1997 and eligibility for
incentive bonus of up to $125,000. Mr. Chang received options to purchase
120,000 shares of our common stock at an exercise price of $0.09 per share
under the 1996 Stock Option Plan, of which 30,000 shares vested upon February
10, 1998 and the remainder will vest ratably over a 36-month period thereafter.
On April 13, 1998, we granted to Mr. Chang options to purchase an additional
46,667 shares of our common stock, subject to the attainment of individual and
corporate objectives.
Mr. Chang entered into a Confidential Separation Agreement and Release with
us in November 1998. This agreement establishes the terms and conditions of the
termination of his employment with us. Under the agreement, Mr. Chang's
employment was terminated as of March 31, 1999. In addition, the agreement
provides that we pay Mr. Chang $11,500 per month, plus a bonus of $64,167. Mr.
Chang's options to purchase common stock continued to vest through March 31,
1999.
Mr. Farber's offer letter, dated June 14, 1997, provides for an initial
annual salary of $120,000. Mr. Farber received options to purchase 320,000
shares of our common stock at an exercise price of $0.18 per share under the
1996 Stock Option Plan, of which 80,000 shares vested on June 16, 1998 and the
remainder will vest ratably over a 36-month period thereafter.
52
<PAGE>
Mr. Farber entered into a Confidential Separation Agreement and Release with
us in February 1998. This agreement establishes the terms and conditions of the
termination of his employment with us. Under the agreement, Mr. Farber's
employment terminated as of August 1, 1998. In addition, the agreement provides
that we pay Mr. Farber $76,071. All 196,000 of Mr. Farber's options to purchase
common stock completely vested as of August 1998.
Indemnification of Directors and Executive Officers and Limitation of
Liability
Our certificate of incorporation includes a provision that eliminates the
personal liability of our directors for monetary damages resulting from breach
of fiduciary duty as a director, except for 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 that involve intentional
misconduct or a knowing violation of law;
. under section 174 of the Delaware General Corporation Law regarding
unlawful dividends and stock purchases; or
. for any transaction from which the director derived an improper personal
benefit.
These provisions are permitted under Delaware law.
Our bylaws provide that:
. we must indemnify our directors and executive officers to the fullest
extent permitted by Delaware law, subject to very limited exceptions;
. we may indemnify our other employees and agents to the same extent that
we indemnify our directors and executive officers, unless otherwise
required by law, our certificate of incorporation, bylaws or agreements;
and
. we must advance expenses, as incurred, to our directors and executive
officers in connection with a legal proceeding to the fullest extent
permitted by Delaware law, subject to very limited exceptions.
Prior to the completion of this offering, we intend to enter into
indemnification agreements with each of our current directors and executive
officers to give them additional contractual assurances regarding the scope of
the indemnification provided in our certificate of incorporation and bylaws and
to provide additional procedural protections. Presently, there is no pending
litigation or proceeding involving any of our directors, executive officers or
employees for which indemnification is sought, nor are we aware of any
threatened litigation that may result in claims for indemnification.
We have liability insurance for our directors and officers.
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<PAGE>
RELATED PARTY TRANSACTIONS
Other than the employment and severance agreements described in
"Management," and the transactions described below, since we were formed there
has not been nor is there currently proposed, any transaction or series of
similar transactions to which we were or will be a party:
. in which the amount involved exceeded or will exceed $60,000; and
. in which any director, executive officer, holder of more than 5% of our
common stock or any member of their immediate family had or will have a
direct or indirect material interest.
Preferred Stock Financings
All of the share and per share purchase price numbers set forth in the
following paragraph represent actual shares sold and reflect the 2-for-3
reverse stock split of our common stock to be effected immediately prior to the
closing of this offering.
In March and June 1996, we sold an aggregate of 1,199,998 shares of Series A
Preferred Stock at a purchase price of $0.30 per share. In May and June 1997,
we sold an aggregate of 2,134,548 shares of Series B Preferred Stock at a
purchase price of $1.9293 per share. In March 1998, we sold an aggregate of
4,161,082 shares of Series C Preferred Stock at a purchase price of $1.6186 per
share, and warrants to purchase 612,079 shares of Series C Preferred Stock at
an exercise price of $1.9293 per share. In October, November and December 1998,
we sold an aggregate of 2,494,142 shares of Series D Preferred Stock at a
purchase price of $2.80668 per share. In June 1999, we sold an aggregate of
2,263,136 shares of Series E Preferred Stock at a purchase price of $8.49 per
share.
Purchasers of our preferred and common stock include, among others, the
following executive officers, directors and holders of more than 5% of our
outstanding stock. All of the share numbers in the following table reflect the
conversion of each outstanding share of Series A Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and Series E Preferred Stock into
two-thirds of a share of common stock and the conversion of each outstanding
share of Series B Preferred Stock into 0.7022705 of a share of common stock.
<TABLE>
<CAPTION>
Shares of Preferred Stock
-------------------------------------------
Series Series Series
A Series B Series C D E
------- --------- --------- ------- -------
<S> <C> <C> <C> <C> <C>
Stockholder
-----------
Kathryn C. Gould
Entities associated with
Foundation Capital.......... -- -- 2,480,419 613,896 146,666
Entities associated with JK&B
Capital....................... -- 1,310,408 650,153 485,233 132,861
Entities associated with Draper
Fisher Jurvetson............. 333,333 167,030 277,410 202,632 1,313
Entities associated with Accel
Partners...................... -- -- 1,063,038 263,098 72,039
Peng T. Ong.................... 66,666 -- -- -- --
Mark W. Saul................... 83,333 13,919 -- -- --
</TABLE>
Ms. Gould, one of our directors, is a member of Foundation Capital and may
be deemed to own beneficially the shares held by entities associated with
Foundation Capital. Mr. Ong disposed of his shares of Series A Preferred Stock
in 1997.
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<PAGE>
Warrants
On January 9, 1997, in connection with a bridge financing, we issued
warrants to purchase shares of our Series B Preferred Stock with an exercise
price of $1.92932 per share to the following executive officers, directors and
holders of more than 5% of our outstanding stock:
<TABLE>
<CAPTION>
Number of shares
Warrant holder subject to warrant Expiration date
-------------- ------------------ ---------------
<S> <C> <C>
Mark W. Saul............................. 3,412 January 9, 2002
Entities associated with Draper Fisher
Jurvetson............................... 40,950 January 9, 2002
</TABLE>
The number of shares of Series B Preferred Stock represented in this table
has been adjusted to reflect conversion to common stock. Each outstanding share
of Series B Preferred Stock is convertible into 1.0534057 shares of common
stock. These warrants have not been exercised but will expire upon the closing
of this offering.
In March 1998, in connection with the Series C Preferred Stock financing, we
issued warrants to purchase shares of our Series C Preferred Stock with an
exercise price of $1.92932 per share to the following executive officers,
directors and holders of more than 5% of our outstanding stock. In October
1998, all warrants to purchase Series C Preferred Stock were exercised by their
respective holders in connection with the Series D Preferred Stock financing.
<TABLE>
<CAPTION>
Number of shares
Warrant holder subject to warrant
-------------- ------------------
<S> <C>
Entities associated with Foundation Capital.............. 318,075
Entities associated with Accel Partners.................. 136,317
Entities associated with JK&B Capital.................... 83,371
Entities associated with Draper Fisher Jurvetson......... 35,573
</TABLE>
Loans to Executive Officers
Martin W. Brauns. In March 1998, we loaned $240,000 to Mr. Brauns, our
President and Chief Executive Officer, secured by a promissory note and stock
pledge agreement, in connection with his purchase of 1,333,333 shares of our
common stock. The note accrued interest at a rate of 6% per year and has been
paid in full.
Jeffrey E. Engelmann. In April 1999, we loaned an aggregate of $105,300 to
Mr. Engelmann, our Vice President of Business Development, secured by two
promissory notes and a stock pledge agreement, in connection with his purchase
of 270,000 shares of our common stock. The notes accrue interest at a rate of
6% per year and are each due and payable on or before April 19, 2004. Interest
is payable annually. In the event of an initial public offering of our common
stock the principal sum of each note will become due and payable in monthly
installments over the remaining term of our right to repurchase the shares. If
Mr. Engelmann breaches his obligations under the notes we may enforce our right
to payment of 25% of the principal and any accrued interest out of any of Mr.
Engelmann's assets, but may enforce our right to payment of the balance due
under the notes only out of the stock subject to the stock pledge agreement. As
of August 31, 1999, $107,617 remained outstanding under the notes.
Jozef Ruck. In April 1999, we loaned an aggregate of $96,200 to Mr. Ruck,
our Vice President of Marketing, secured by two promissory notes and a stock
pledge agreement, in connection with his purchase of 246,666 shares of our
common stock. The notes accrue interest at a rate of 6% per year and are each
due and payable on or before April 2004. Interest is payable annually. In the
event of an initial public offering of our common stock the principal sum of
each note will become due and payable in monthly installments over the
remaining term of our right to repurchase the shares. If Mr. Ruck breaches his
obligations under the notes we may enforce our right to payment of 25% of the
principal and any accrued interest out of any of Mr. Ruck's assets, but may
enforce our right to payment of the balance due under the notes only out of the
stock subject to the stock pledge agreement. As of August 31, 1999, $98,284
remained outstanding under the notes.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table presents information as to the beneficial ownership of
our common stock as of August 31, 1999 and as adjusted to reflect the sale of
the common stock in this offering by:
. each stockholder known by us to be the beneficial owner of more than 5%
of our common stock;
. each of our directors;
. each executive officer listed in the Summary Compensation Table; and
. all executive officers and directors as a group.
<TABLE>
<CAPTION>
Percentage of
Shares
Number of Outstanding
Shares -----------------
Beneficially Before After
Name of Beneficial Owner Owned Offering Offering
------------------------ ------------ -------- --------
<S> <C> <C> <C>
Kathryn C. Gould (1)........................................ 3,240,981 17.0% 14.7%
Foundation Capital entities
70 Willow Road, Suite 200
Menlo Park, CA 94025
JK&B Capital entities (2)................................... 2,578,655 13.6 11.7
205 North Michigan Avenue, Suite 808
Chicago, IL 60601
Peng T. Ong................................................. 1,933,333 10.2 8.8
Martin W. Brauns (3)........................................ 1,419,436 7.5 6.4
Accel Partners entities (4)................................. 1,398,175 7.4 6.4
428 University Avenue
Palo Alto, CA 94301
Draper Fisher Jurvetson entities (5)........................ 1,022,668 5.4 4.6
400 Seaport Court, Suite 250
Redwood City, CA 94063
Michael A. Backlund (6)..................................... 223,332 1.2 1.0
Steven Farber............................................... 186,634 1.0 *
Jack S. Jia (7)............................................. 173,332 * *
Mark W. Saul (8)............................................ 123,997 * *
John Chang.................................................. 74,166 * *
Mark C. Thompson ........................................... 20,000 * *
Ronald E.F. Codd ........................................... 20,000 * *
All eleven directors and executive officers as a group (9)
........................................................... 7,867,744 41.4% 35.7%
</TABLE>
- ---------------------
(1) Includes 2,878,855 shares held by Foundation Capital II, L.P., 91,960
shares held by Foundation Capital II Entrepreneurs Fund, L.L.C., and
270,166 shares held by Foundation Capital II Principals Fund, L.L.C. Ms.
Gould is a managing member of Foundation Management II, L.L.C., the general
partner of each of these entities. The managing members of Foundation
Management II, L.L.C. are deemed to beneficially own the shares held by
each of the Foundation Capital entities and share voting and investment
power of the shares. The managing members of Foundation Management II,
L.L.C. disclaim beneficial ownership of the shares, except to the extent of
their direct pecuniary interest in the shares.
56
<PAGE>
(2) Includes 1,800,630 shares held by JK&B Capital, L.P. and 778,026 shares
held by JK&B Capital II, L.P.
(3) Includes 1,002,770 shares of common stock subject to our repurchase right.
(4) Includes 1,097,568 shares held by Accel V L.P., 145,410 shares held by
Accel Internet/Strategic Technology Fund, L.P., 57,325 shares held by Accel
Keiretsu V L.P., 67,112 held by Accel Investors "97 L.P. and 30,760 held by
Ellmore C. Patterson Partners.
(5) Includes 1,022,668 shares held by Draper Fisher Associates Fund III, L.P.
and 62,382 shares held by Draper Fisher Partners, LLC and 40,950 shares
issuable upon the exercise of warrants to purchase shares of Series B
Preferred Stock held by both entities.
(6) Includes 180,901 shares of common stock subject to our repurchase right.
(7) Includes 125,900 shares of common stock subject to our repurchase right.
(8) Includes 3,412 shares issuable upon the exercise of warrants to purchase
shares of Series B Preferred Stock held by Mr. Saul.
(9) Includes 1,912,903 shares of common stock subject to our repurchase right.
Beneficial ownership is determined under the rules of the Securities and
Exchange Commission and generally includes voting or investment power with
respect to securities. Unless indicated above, to our knowledge, the persons
and entities named in the table have sole voting and sole investment power with
respect to all shares beneficially owned, subject to community property laws
where applicable. Shares of common stock subject to options and warrants that
are currently exercisable or exercisable within 60 days of August 31, 1999 are
deemed to be outstanding and to be beneficially owned by the person holding the
options or warrants for the purpose of computing the percentage ownership of
that person but are not treated as outstanding for the purpose of computing the
percentage ownership of any other person. Unless indicated above, the address
for each listed stockholder is c/o Interwoven, Inc., 1195 West Fremont Avenue,
Suite 2000, Sunnyvale, California 94087.
The number of shares of common stock outstanding after this offering
includes shares of common stock being offered and does not include the shares
which are subject to the underwriters' over-allotment option. The percentage of
common stock outstanding as of August 31, 1999 is based on 22,009,054 shares of
common stock outstanding on that date, assuming that all outstanding preferred
stock has been converted into common stock.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Immediately following the closing of this offering, our authorized capital
stock will consist of 75,000,000 shares of common stock, $0.001 par value per
share, and 5,000,000 shares of preferred stock, $0.001 par value per share.
Immediately before the closing of this offering, we will reincorporate in
the state of Delaware. Following the closing of this offering, we intend to
amend and restate our certificate of incorporation. Our certificate of
incorporation, bylaws and third amended and restated investors' rights
agreement, described below, are included as exhibits to the registration
statement of which this prospectus forms a part.
Common Stock
As of August 31, 1999, there were 19,009,054 shares of common stock
outstanding held by 173 shareholders of record, including 12,542,610 shares
that will be issued upon conversion of all outstanding preferred stock and the
exercise and subsequent conversion to common stock of warrants to purchase
Series B Preferred Stock upon the closing of this offering.
Dividend Rights. Subject to preferences that may apply to shares of
preferred stock outstanding at the time, the holders of outstanding shares of
common stock are entitled to receive dividends out of assets legally available
at the times and in the amounts as our board may from time to time determine.
Voting Rights. Each common stockholder is entitled to one vote for each
share of common stock held on all matters submitted to a vote of stockholders.
Cumulative voting for the election of directors is not provided for in our
certificate of incorporation, which means that the holders of a majority of the
shares voted can elect all of the directors then standing for election.
No preemptive or similar rights. The common stock is not entitled to
preemptive rights and is not subject to conversion or redemption.
Right to receive liquidation distributions. Upon a liquidation, dissolution
or winding-up of Interwoven, the assets legally available for distribution to
stockholders are distributable ratably among the holders of the common stock
and any participating preferred stock outstanding at that time after payment of
liquidation preferences, if any, on any outstanding preferred stock and payment
of other claims of creditors. Each outstanding share of common stock is, and
all shares of common stock to be outstanding upon completion of this offering
will be, fully paid and nonassessable.
Preferred Stock
Upon the closing of this offering, each outstanding share of preferred stock
will be converted into shares of common stock. See Note 6 of Notes to Financial
Statements for a description of this preferred stock.
Following this offering, we will be authorized, subject to the limits
imposed by Delaware law, to issue preferred stock in one or more series, to
establish from time to time the number of shares to be included in each series,
to fix the rights, preferences and privileges of the shares of each wholly
unissued series and any of its qualifications, limitations or restrictions. The
board can also increase or decrease the number of shares of any series, but not
below the number of shares of a given series then outstanding, without any
further vote or action by the stockholders.
The board may authorize the issuance of preferred stock with voting or
conversion rights that could adversely affect the voting power or other rights
of the holders of the common stock. The issuance of preferred stock, while
providing flexibility in connection with possible acquisitions and other
corporate purposes, could, among other things, have the effect of delaying,
deferring or preventing a change in control and may adversely affect the market
price of our common stock and the voting and other rights of the holders of
common stock. We have no current plan to issue any shares of preferred stock.
58
<PAGE>
Warrants
As of August 31, 1999, we had outstanding the following warrants to purchase
our stock:
<TABLE>
<CAPTION>
Total number of
shares Subject Exercise price
Type of stock to Warrants per share Expiration date
- ------------- --------------- -------------- ----------------------------------
<S> <C> <C> <C>
Series B Preferred
Stock.................. 65,519 $1.9293 upon consummation of this offering
Series B Preferred
Stock.................. 6,552 1.9293 September 2004
</TABLE>
In July 1999, we issued warrants to purchase a total of 11,770 shares of
Series E Preferred Stock in connection with our acquisition of Lexington
Software Associates, Inc. The warrants are exercisable at a purchase price of
$8.49 per share after January 1, 2000 and until July 1, 2006. All holders of
warrants to purchase Series E Preferred Stock are afforded registration rights
pursuant to the Third Amended and Restated Investors Rights Agreement.
Registration Rights
The holders of approximately 12,420,390 shares of common stock have the
right to require us to register their shares with the Securities and Exchange
Commission so that those shares may be publicly resold or to include their
shares in any registration statement we file.
Right to demand registration
At any time six months after this offering, these stockholders can request
that we file a registration statement so they can publicly sell their shares.
The underwriters of any underwritten offering will have the right to limit the
number of shares to be included in a registration statement.
Who may make a demand. At any time six months after the closing of this
offering, any holder of shares of common stock issued upon conversion of Series
B Preferred Stock immediately prior to this offering, any number of holders who
together hold an aggregate of at least 954,633 shares of common stock issued
upon conversion of Series C Preferred Stock immediately prior to this offering,
any number of holders who together hold an aggregate of at least 498,829 shares
of common stock issued upon conversion of Series D Preferred Stock immediately
prior to this offering, any number of holders who together hold an aggregate of
at least 452,628 shares of common stock issued upon conversion of Series E
Preferred Stock immediately prior to this offering, or the holders of at least
40% of the shares having registration rights, including some holders of Series
A Preferred Stock, have the right to demand that we file a registration
statement on a form other than Form S-3, so long as the amount of securities to
be sold in that registration exceeds $5,000,000. If we are eligible to file a
registration statement on Form S-3, the same holders of the registration rights
described above will have the right to demand that we file a registration
statement on Form S-3, so long as the amount of securities to be sold in that
registration exceeds $1,000,000.
Number of times holders can make demands. We will only be required to file
one registration statement on a form other than Form S-3 for each of two
registrations. If we are eligible to file a registration statement on Form S-3,
we are not required to file more than one registration statement during any 12
month period.
Postponement. We may postpone the filing of a registration statement for up
to 90 days once in a 12 month period if we determine that the filing would be
seriously detrimental to us or our stockholders.
Piggyback registration rights
If we register any securities for public sale, the same stockholders with
registration rights described above will have the right to include their shares
in the registration statement. The underwriters of any underwritten offering
will have the right to limit the number of shares to be included in a
registration statement.
59
<PAGE>
Expenses of registration
We will pay all of the expenses relating to any demand or piggyback
registration. However, we will not pay for any expenses of any demand
registration if the request is subsequently withdrawn by the holders of a
majority of the shares having registration rights, subject to very limited
exceptions.
Expiration of registration rights
The registration rights described above will expire five years after this
offering is completed. The registration rights will terminate earlier with
respect to a particular stockholder if that holder owns less than 1% of our
outstanding securities or can resell all of its securities in a three month
period under Rule 144 of the Securities Act and we are subject to the reporting
requirements of the Securities Exchange Act of 1934.
Anti-Takeover Provisions
The provisions of Delaware law, our certificate of incorporation and our
bylaws described below may have the effect of delaying, deferring or
discouraging another person from acquiring control of our company.
Delaware Law
We will be subject to the provisions of Section 203 of the Delaware General
Corporation Law regulating corporate takeovers. This section prevents certain
Delaware corporations from engaging, under limited circumstances, in a
"business combination," which includes a merger or sale of more than 10% of the
corporation's assets, with any "interested stockholder," or a stockholder who
owns 15% or more of the corporation's outstanding voting stock, as well as
affiliates and associates of stockholders, for three years following the date
that the stockholder became an "interested stockholder" unless:
. the transaction is approved by the board prior to the date the
"interested stockholder" attained that status;
. upon the closing of the transaction that resulted in the stockholder's
becoming an "interested stockholder," the "interested stockholder" owned
at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced; or
. on or subsequent to the date the "business combination" is approved by
the board and authorized at an annual or special meeting of stockholders
by at least two-thirds of the outstanding voting stock that is not owned
by the "interested stockholder."
A Delaware corporation may "opt out" of this provision with an express
provision in its original certificate of incorporation or an express provision
in its certificate of incorporation or bylaws resulting from a stockholders'
amendment approved by at least a majority of the outstanding voting shares.
However, we have not "opted out" of this provision. Section 203 could prohibit
or delay mergers or other takeover or change-in-control attempts and,
accordingly, may discourage attempts to acquire us.
Charter and Bylaw Provisions
Our amended and restated certificate of incorporation, to be filed upon the
closing of this offering, states that our board of directors is divided into
three classes. The directors in each class will serve for a three-year term,
with our stockholders electing one class each year. For more information on the
classification of our board, please see "Management--Board Composition." This
system of electing and removing directors may tend to discourage a third party
from making a tender offer or otherwise attempting to obtain control of us,
because it generally makes it more difficult for stockholders to replace a
majority of the directors.
Our bylaws provide that any action required or permitted to be taken by our
stockholders at an annual meeting or a special meeting of the stockholders may
only be taken if it is properly brought before the meeting.
60
<PAGE>
Our stockholders may not take any action by written consent instead of by a
meeting. Our certificate of incorporation provides that our board of directors
may issue preferred stock with voting or other rights without stockholder
action. Our bylaws and certificate of incorporation provide that special
meetings of the stockholders may only be called by our board, the chairman of
our board, our chief executive officer or our president.
Our bylaws provide that we will indemnify officers and directors against
losses that they may incur in investigations and legal proceedings resulting
from their services to us, which may include services in connection with
takeover defense measures. These provisions may have the effect of preventing
changes in our management.
Indemnification of Directors and Executive Officers and Limitation of Liability
Our certificate of incorporation limits the liability of directors to the
fullest extent permitted by Delaware law. In addition, our certificate of
incorporation and bylaws provide that we will indemnify our directors and
officers to the fullest extent permitted by Delaware law. We intend to enter
into separate indemnification agreements with our directors and executive
officers that provide them with indemnification protection in the event the
certificate of incorporation is subsequently amended.
Our certificate of incorporation and bylaws provide that we will indemnify
our directors and executive officers against losses that they may incur in
investigations and legal proceedings resulting from their services to us, which
may include services in connection with takeover defense measures. These
provisions may have the effect of preventing changes in the management.
Transfer Agent and Registrar
The Transfer Agent and Registrar for our common stock is ChaseMellon
Shareholder Services, L.L.C., Ridgefield Park, New Jersey.
Listing
We have applied for our common stock to be quoted on The Nasdaq Stock
Market's National Market under the symbol "IWOV."
61
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of our common stock, including shares issued
upon exercise of outstanding warrants or options, in the public market after
this offering could adversely affect market prices prevailing from time to time
and could impair our ability to raise capital through the sale of our equity
securities. Furthermore, as described below, no shares currently outstanding
will be available for sale immediately after this offering due to limited
contractual restrictions on resale. Sales of substantial amounts of our common
stock in the public market after these restrictions lapse could adversely
affect the prevailing market price and our ability to raise equity capital in
the future.
Upon completion of this offering, based on shares outstanding at June 30,
1999, we will have outstanding 21,642,241 shares of common stock, assuming no
exercise of the underwriters' over-allotment option and no exercise of
outstanding options. Of these shares, the 3,000,000 shares sold in this
offering will be freely tradable without restriction under the Securities Act
unless purchased by our "affiliates." The remaining shares will become eligible
for public sale as follows:
<TABLE>
<CAPTION>
Approximate
Number of
Shares
Eligible
for Future
Date Sale Comment
---- ----------- -------
<S> <C> <C>
Date of this prospectus 0 Freely tradable shares
181 days after the date of 15,690,149 Underwriters' lock-up released.
this prospectus These shares may be sold under Rules
144, 144(k) or 701
One year after the date of 2,484,404 These shares may be sold under Rules
this prospectus 144 or 701
At various times thereafter 539,759 These shares may be sold under Rules
144 or 701
</TABLE>
Lock-Up Agreements
All of our officers and directors and substantially all of our stockholders
have signed lock-up agreements under which they agreed not to sell, dispose of,
loan, pledge or grant any rights with respect to any shares of common stock or
any securities convertible into or exercisable or exchangeable for shares of
common stock without the prior written consent of Credit Suisse First Boston
for a period of 180 days after the date of this prospectus.
Credit Suisse First Boston may choose to release some of these shares from
these restrictions prior to the expiration of this 180-day period, though it
has no current intention to do so.
Rule 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, 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 216,422 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 with respect to the sale.
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.
62
<PAGE>
Rule 144(k)
Under Rule 144(k), a person who has not 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, is entitled to sell those
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144. Therefore, unless otherwise
restricted, these shares may be sold immediately upon the completion of this
offering.
Rule 701
Any of our employees, officers, directors or consultants who purchased his
or her shares under a written compensatory plan or contract may be entitled to
sell his or her shares in reliance on Rule 701. Rule 701 permits affiliates to
sell their Rule 701 shares under Rule 144 without complying with the holding
period requirements of Rule 144. Rule 701 further provides that non-affiliates
may sell these shares in reliance on Rule 144 without having to comply with the
holding period, public information, volume limitation or notice provisions of
Rule 144. All holders of Rule 701 shares are required to wait until 90 days
after the date of this prospectus before selling those shares. However, all
shares issued under Rule 701 are subject to lock-up agreements and will only
become eligible for sale when the 180-day lock-up agreements expire.
Registration Rights
Upon completion of this offering, the holders of 12,420,390 shares of common
stock, or their transferees, will be entitled to rights with respect to the
registration of those shares under the Securities Act. For a discussion of
these rights please see "Description of Capital Stock--Registration Rights."
After these shares are registered, they will be freely tradable without
restriction under the Securities Act.
Stock Options
Immediately after this offering, we intend to file a registration statement
under the Securities Act covering 3,200,000 shares of common stock reserved for
issuance under our stock option and employee stock purchase plans. As of August
31, 1999, options to purchase 1,039,887 shares of common stock were issued and
outstanding.
Upon the expiration of the lock-up agreements described above, no shares of
common stock will be subject to vested options, based on options outstanding as
of August 31, 1999. This registration statement is expected to be filed and
become effective as soon as practicable after the effective date of this
offering. Accordingly, shares registered under this registration statement
will, subject to vesting provisions and Rule 144 volume limitations applicable
to our affiliates, be available for sale in the open market immediately after
the 180-day lock up agreements expire.
Warrants
As of August 31, 1999, we had outstanding warrants to purchase 111,167
shares of common stock. When these warrants are exercised and the exercise
price is paid in cash the shares must be held for one year before they can be
sold under Rule 144. Warrants to purchase up to 111,167 shares of common stock
contain "net exercise provisions." These provisions allow a holder to exercise
the warrant for a lesser number of shares of common stock in lieu of paying
cash. The number of shares which would be issued in this case would be based
upon the market price of the common stock at the time of the net exercise. If
the warrant had been held for at least one year, the shares of common stock
could be publicly sold under Rule 144. After the lock-up agreements described
above expire, warrants to purchase 45,648 shares of our common stock, which
also contain net exercise provisions, will have been outstanding for at least
one year.
63
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in the underwriting
agreement dated , 1999, we have agreed to sell to the underwriters named
below, for whom Credit Suisse First Boston Corporation, BancBoston Robertson
Stephens Inc. and Dain Rauscher Wessels, a division of Dain Rauscher
Incorporated, are acting as representatives, the following respective numbers
of shares of common stock:
<TABLE>
<CAPTION>
Number of
Underwriter Shares
----------- ---------
<S> <C>
Credit Suisse First Boston Corporation............................
BancBoston Robertson Stephens, Inc................................
Dain Rauscher Wessels.............................................
---------
Total........................................................... 3,000,000
=========
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering, if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to 450,000 additional shares from us at the initial public
offering price less the underwriting discounts and commissions. The option may
be exercised only to cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $ per share. The underwriters
and selling group members may allow a discount of $ per share on sales to
other broker/dealers. After the initial public offering, the public offering
price and concession and discount to broker/dealers may be changed by the
representatives.
The following table summarizes the compensation and estimated expenses we
will pay.
<TABLE>
<CAPTION>
Per Share Total
------------------------------ -----------------------------
Without With Without With
Over- allotment Over-allotment Over-allotment Over-allotment
--------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting Discounts
and
Commissions paid by
us................... $ $ $ $
Expenses payable by us.. $ $ $ $
</TABLE>
The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.
We, our officers and directors and our stockholders have agreed that we will
not offer, sell, contract to sell, announce our intention to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Securities and
Exchange Commission a registration statement under the Securities Act relating
to any additional shares of our common stock or securities convertible into or
exchangeable or exercisable for any shares of our common stock without the
prior written consent of Credit Suisse First Boston Corporation for a period of
180 days after the date of this prospectus, except in the case of issuances
pursuant to the exercise of employee stock options outstanding on the date of
this prospectus.
64
<PAGE>
The underwriters have reserved for sale, at the initial public offering
price, up to 200,000 shares of common stock for employees, directors and other
persons associated with us who have expressed an interest in purchasing common
stock in the offering. The number of shares available for sale to the general
public in the offering will be reduced to the extent such persons purchase such
reserved shares. Any reserved shares not so purchased will be offered by the
underwriters to the general public on the same terms as the others shares.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act, or contribute to payments which the underwriters may be
required to make in that respect.
We have applied to list the shares of common stock on The Nasdaq Stock
Market's National Market under the symbol "IWOV."
In June 1999, we issued an aggregate of 3,394,719 shares of our Series E
Preferred Stock at a per share price of $5.66 in a private placement. These
shares of Series E Preferred Stock are convertible into an aggregate of
2,263,136 shares of common stock at $8.49 per share. Credit Suisse First Boston
Corporation acted as the placement agent for this private placement, and it
received a customary fee for its services. In addition, Merchant Capital, Inc.,
an affiliate of Credit Suisse First Boston Corporation, purchased 229,682
shares of Series E Preferred Stock. These shares of Series E Preferred Stock
are convertible into 153,121 shares of common stock.
Prior to this offering, there has been no public market for the common
stock. The initial public offering price will be determined by negotiation
between us and the underwriters. The principal factors to be considered in
determining the public offering price include:
. the information set forth in this prospectus and otherwise available to
the underwriters;
. the history and the prospects for the industry in which we will compete;
. the ability of our management;
. the prospects for our future earnings;
. the present state of our development and our current financial condition;
. the general condition of the securities markets at the time of this
offering; and
. the recent market prices of, and the demand for, publicly traded common
stock of generally comparable companies.
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation
M under the Exchange Act.
. Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.
. Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
. Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions.
. Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by such
syndicate member is purchased in a syndicate covering transaction to
cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty
bids may cause the price of the common stock to be higher than it would
otherwise be in the absence of these transactions. These transactions may be
effected on The Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
65
<PAGE>
NOTICE TO CANADIAN RESIDENTS
Resale Restrictions
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common
stock in Canada must be made in accordance with applicable securities laws
which will vary depending on the relevant jurisdiction, and which may require
resales to be made in accordance with available statutory exemptions or
pursuant to a discretionary exemption granted by the applicable Canadian
securities regulatory authority. Purchasers are advised to seek legal advice
prior to any resale of the common stock.
Representations of Purchasers
Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom the
purchase confirmation is received that (i) the purchaser is entitled under
applicable provincial securities laws to purchase the common stock without the
benefit of a prospectus qualified under the securities laws, (ii) where
required by law, that the purchaser is purchasing as principal and not as
agent, and (iii) the purchaser has reviewed the text above under "Resale
Restrictions."
Rights of Action (Ontario Purchasers)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or recission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
Enforcement of Legal Rights
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be
possible for Canadian purchasers to effect service of process within Canada
upon the issuer or these persons. All or a substantial portion of the assets of
the issuer and these persons may be located outside of Canada and, as a result,
it may not be possible to satisfy a judgment against the issuer or these
persons in Canada or to enforce a judgment obtained in Canadian courts against
the issuer or these persons outside of Canada.
Notice to British Columbia Residents
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that the purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by the purchaser in this offering. This report must be in
the form attached to British Columbia Securities Commission Blanket Order BOR
#95/17, a copy of which may be obtained from us. Only one report must be filed
in respect of common stock acquired on the same date and under the same
prospectus exemption.
Taxation and Eligibility for Investment
Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.
66
<PAGE>
LEGAL MATTERS
Fenwick & West LLP, Palo Alto, California, will pass upon the validity of
the issuance of the shares of common stock offered by this prospectus. The
underwriters have been represented by Wilson Sonsini Goodrich & Rosati, Palo
Alto, California.
EXPERTS
The financial statements as of December 31, 1997 and 1998 and for each of
the three years in the period ended December 31, 1998 included in this
Prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission, a registration
statement on Form S-1 under the Securities Act with respect to the common
stock. This prospectus does not contain all of the information set forth in the
registration statement and the exhibits and schedules to the registration
statement. For further information with respect to us and our common stock, we
refer you to the registration statement and the exhibits and schedules filed as
a part of the registration statement. Statements contained in this prospectus
concerning the contents of any contract or any other document are not
necessarily complete. If a contract or document has been filed as an exhibit to
the registration statement, we refer you to the copy of the contract or
document that has been filed. Each statement in this prospectus relating to a
contract or document filed as an exhibit is qualified by the filed exhibit. The
registration statement, including exhibits and schedules, may be inspected
without charge at the principal office of the Securities and Exchange
Commission in Washington, D.C., and copies of all or any part of it may be
obtained from that office after payment of fees prescribed by the Securities
and Exchange Commission. The Securities and Exchange Commission maintains a web
site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Securities
and Exchange Commission at http://www.sec.gov.
We intend to provide our stockholders with annual reports containing
financial statements audited by an independent public accounting firm and
quarterly reports containing unaudited financial data for the first three
quarters of each year.
67
<PAGE>
INTERWOVEN, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants.......................................... F-2
Balance Sheet.............................................................. F-3
Statement of Operations.................................................... F-4
Statement of Changes in Stockholders' Deficit.............................. F-5
Statement of Cash Flows.................................................... F-6
Notes to Financial Statements.............................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The reincorporation described in Note 1 of the financial statements had not
been consummated at June 30, 1999. When it has been consummated, we will be in
a position to furnish the following report:
"To the Board of Directors and
Stockholders of Interwoven, Inc.
In our opinion, the accompanying balance sheet and the related
statements of operations, of stockholders' deficit and of cash flows
present fairly, in all material respects, the financial position of
Interwoven, Inc. (the "Company") at December 31, 1997 and 1998, and the
results of its operations and its cash flows for each of the three
years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles. These financial statements
are the responsibility of the Company's management; our responsibility
is to express an opinion on these financial statements based on our
audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards, which require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
San Jose, California
July 15, 1999"
F-2
<PAGE>
INTERWOVEN, INC.
BALANCE SHEET
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
December 31, Pro Forma
----------------- June 30, June 30,
1997 1998 1999 1999
------- -------- -------- ---------
(unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............ $ 1,019 $ 9,022 $ 25,203
Accounts receivable, net............. 140 2,405 1,885
Prepaid expenses..................... -- 179 230
Other current assets................. 37 80 143
------- -------- --------
Total current assets................ 1,196 11,686 27,461
Property and equipment, net............ 188 1,617 1,882
Restricted cash........................ -- 605 605
------- -------- --------
$ 1,384 $ 13,908 $ 29,948
======= ======== ========
LIABILITIES, MANDATORILY REDEEMABLE
CONVERTIBLE PREFERRED STOCK, AND
STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable..................... $ 213 $ 484 $ 1,489
Accrued liabilities.................. 169 1,473 1,655
Debt and leases, current............. 22 258 511
Deferred revenue, current............ -- 627 1,172
------- -------- --------
Total current liabilities........... 404 2,842 4,827
Debt and leases, long-term........... 87 1,257 1,000
Deferred revenue, long-term.......... -- 97 --
------- -------- --------
491 4,196 5,827
------- -------- --------
Mandatorily redeemable convertible
preferred stock 4,942,133, 15,163,093
and 18,763,092 shares authorized,
respectively; 4,839,505, 15,060,465
and 18,455,184 shares issued and
outstanding, respectively, actual; no
shares authorized, issued or
outstanding pro forma................. 4,627 20,464 45,276 $ --
------- -------- -------- --------
Commitments (Note 4)
Stockholders' Equity (Deficit):
Preferred stock, $0.001 par value, no
shares authorized, issued or
outstanding, actual; 5,000,000
shares authorized, no shares issued
or outstanding, pro forma........... -- -- -- --
Common Stock, 10,000,000, 16,666,667,
26,666,667 (unaudited) and
75,000,000 (unaudited) shares
authorized, respectively; 2,433,333,
4,909,232, 6,230,590 (unaudited) and
18,642,241 (unaudited) shares,
respectively, issued and
outstanding......................... 3 5 6 19
Additional paid-in capital........... (243) 881 1,707 46,970
Notes receivable from stockholders... (3) (240) (202) (202)
Deferred stock-based compensation.... -- (1,090) (6,130) (6,130)
Accumulated deficit.................. (3,491) (10,308) (16,536) (16,536)
------- -------- -------- --------
Total stockholders' equity
(deficit).......................... (3,734) (10,752) (21,155) $ 24,121
------- -------- -------- ========
$ 1,384 $ 13,908 $ 29,948
======= ======== ========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
INTERWOVEN, INC.
STATEMENT OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December Six Months Ended
31, June 30,
------------------------ -----------------
1996 1997 1998 1998 1999
------ ------- ------- ------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
License........................ $ -- $ 84 $ 3,176 $ 624 $ 3,258
Services....................... -- 84 827 262 1,746
------ ------- ------- ------- --------
Total revenues............... -- 168 4,003 886 5,004
Cost of revenues:
License........................ -- -- 59 -- 119
Services....................... -- 95 1,274 350 1,429
------ ------- ------- ------- --------
Total cost of revenues....... -- 95 1,333 350 1,548
Gross profit..................... -- 73 2,670 536 3,456
Operating expenses:
Research and development....... 328 884 1,797 735 1,701
Sales and marketing............ 101 1,519 4,817 1,357 5,225
General and administrative..... 91 530 1,739 572 1,244
Amortization of deferred stock-
based compensation............ -- -- 812 347 1,668
------ ------- ------- ------- --------
Total expenses............... 520 2,933 9,165 3,011 9,838
Loss from operations............. (520) (2,860) (6,495) (2,475) (6,382)
Interest income (expense), net... 10 (88) 151 57 154
------ ------- ------- ------- --------
Net loss......................... $ (510) $(2,948) $(6,344) $(2,418) $ (6,228)
Accretion of mandatorily
redeemable convertible preferred
stock to redemption value....... -- (261) (1,165) (583) (6,350)
------ ------- ------- ------- --------
Net loss attributable to common
stockholders.................... $ (510) $(3,209) $(7,509) $(3,001) $(12,578)
====== ======= ======= ======= ========
Basic and diluted net loss per
share........................... $(0.22) $ (1.36) $ (2.85) $ (1.25) $ (3.66)
====== ======= ======= ======= ========
Shares used in computing basic
and diluted net loss per share.. 2,282 2,356 2,633 2,404 3,435
====== ======= ======= ======= ========
Pro forma basic and diluted net
loss per share.................. $ (0.74) $ (0.44)
======= ========
Shares used in computing pro
forma basic and diluted net loss
per share....................... 8,530 14,000
======= ========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
INTERWOVEN, INC.
STATEMENT OF STOCKHOLDERS' DEFICIT
(in thousands)
<TABLE>
<CAPTION>
Note
Common Stock Additional Receivable Deferred
-------------- Paid-In from Stock-Based Accumulated
Shares Amount Capital Stockholders Compensation Deficit Total
------ ------ ---------- ------------ ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995................... 1,933 $ 2 $ 13 $ -- $ -- $ (33) $ (18)
Issuance of Common Stock
for cash............... 200 -- 3 -- -- -- 3
Issuance of Common Stock
for notes receivable... 233 -- 3 (3) -- -- --
Net loss................ -- -- -- -- -- (510) (510)
----- --- ------ ----- ------- -------- --------
Balance at December 31,
1996................... 2,366 2 19 (3) -- (543) (525)
Repurchase of Common
Stock.................. (33) -- (5) -- -- -- (5)
Issuance of Common Stock
on exercise of stock
options................ 100 1 4 -- -- -- 5
Accretion of mandatorily
redeemable convertible
preferred stock........ -- -- (261) -- -- -- (261)
Net loss................ -- -- -- -- -- (2,948) (2,948)
----- --- ------ ----- ------- -------- --------
Balance at December 31,
1997................... 2,433 3 (243) (3) -- (3,491) (3,734)
Issuance of Common Stock
for notes receivable... 1,333 1 239 (240) -- -- --
Note repayment.......... -- -- -- 3 -- -- 3
Repurchase shares of
Series A mandatorily
redeemable convertible
preferred stock........ -- -- -- -- -- (473) (473)
Accretion of mandatorily
redeemable convertible
preferred stock........ -- -- (1,165) -- -- -- (1,165)
Issuance of Common Stock
on exercise of stock
options................ 1,143 1 148 -- -- -- 149
Deferred stock-based
compensation........... -- -- 1,902 -- (1,902) -- --
Amortization of stock-
based compensation..... -- -- -- -- 812 -- 812
Net loss................ -- -- -- -- -- (6,344) (6,344)
----- --- ------ ----- ------- -------- --------
Balance at December 31,
1998................... 4,909 $ 5 $ 881 $(240) $(1,090) $(10,308) $(10,752)
===== === ====== ===== ======= ======== ========
Issuance of Common Stock
for services .......... 9 -- 27 -- -- -- 27
Issuance of Common Stock
for
notes receivable ...... 517 -- 202 (202) -- -- --
Repurchase of Common
Stock ................. (63) -- (5) -- -- -- (5)
Note repayment.......... -- -- -- 240 -- -- 240
Accretion of mandatorily
redeemable convertible
preferred stock........ -- -- (6,350) -- -- -- (6,350)
Issuance of Common Stock
on exercise of stock
options ............... 859 1 244 -- -- -- 245
Deferred stock-based
compensation........... -- -- 6,708 -- (6,708) -- --
Amortization of stock-
based compensation .... -- -- -- -- 1,668 -- 1,668
Net loss................ -- -- -- -- -- (6,228) (6,228)
----- --- ------ ----- ------- -------- --------
Balance at June 30, 1999
(unaudited)............ 6,231 $ 6 $1,707 $(202) $(6,130) $(16,536) $(21,155)
===== === ====== ===== ======= ======== ========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
INTERWOVEN, INC.
STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Six Months
Year Ended December 31, Ended June 30,
-------------------------- ----------------
1996 1997 1998 1998 1999
------- -------- -------- ------- -------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows used in operating
activities:
Net loss........................ $ (510) $ (2,948) $ (6,344) $(2,418) $(6,228)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and amortization... 17 56 294 87 296
Amortization of deferred stock-
based compensation............. -- -- 812 347 1,668
Issuance of common stock for
services....................... -- -- -- -- 27
Non-cash interest expense....... 7 135 -- -- --
Provisions for doubtful
accounts....................... -- -- 270 -- 18
Changes in assets and
liabilities:
Accounts receivable............ -- (140) (2,535) (435) 502
Prepaid expenses and other
assets........................ (1) (30) (222) (31) (114)
Restricted cash................ -- -- (605) -- --
Accounts payable............... 116 96 271 583 1,005
Accrued liabilities............ 48 121 1,304 115 182
Deferred revenue............... -- -- 724 169 448
------ -------- -------- ------- -------
Net cash used in operating
activities................... (323) (2,710) (6,031) (1,583) (2,196)
------ -------- -------- ------- -------
Cash flows used in investing
activities:
Purchase of property and
equipment...................... (64) (138) (1,723) (1,258) (561)
------ -------- -------- ------- -------
Cash flows from financing
activities:
Proceeds from (repurchases of)
Series A Preferred Stock, net.. 309 -- (632) (632) --
Proceeds from Series B Preferred
Stock, net..................... -- 3,415 -- -- --
Proceeds from Series C Preferred
Stock, net..................... -- -- 7,887 6,712 --
Proceeds from Series D Preferred
Stock, net..................... -- -- 6,944 -- --
Proceeds from Series E Preferred
Stock, net..................... -- -- -- -- 18,462
Proceeds from issuance of Common
Stock.......................... 3 -- -- -- --
Proceeds from exercise of stock
options........................ -- 5 149 123 245
Proceeds from notes payable, net
of discount.................... 75 375 -- -- --
Repayment (issuance) of
stockholders loans............. 10 (11) 3 -- 240
Proceeds from bank borrowings... -- 76 1,500 -- --
Repurchase of Common Stock...... -- (5) -- -- (5)
Principal payments of debt and
leases......................... -- (5) (94) (3) (4)
------ -------- -------- ------- -------
Net cash provided by financing
activities................... 397 3,850 15,757 6,200 18,938
------ -------- -------- ------- -------
Net increase in cash and cash
equivalents..................... 10 1,002 8,003 3,359 16,181
Cash and cash equivalents at
beginning of period............. 7 17 1,019 1,019 9,022
------ -------- -------- ------- -------
Cash and cash equivalents at end
of period....................... $ 17 $ 1,019 $ 9,022 $ 4,378 $25,203
====== ======== ======== ======= =======
Supplemental cash flow
disclosures:
Cash paid for interest.......... $ -- $ -- $ 41 $ 9 $ 64
====== ======== ======== ======= =======
Supplemental non-cash investing
and finance activities:
Property and equipment leases... $ -- $ 38 $ -- $ -- $ --
====== ======== ======== ======= =======
Issuance of Series A Preferred
Stock upon conversion of
stockholder loans.............. $ 50 $ -- $ -- $ -- $ --
====== ======== ======== ======= =======
Common Stock issued for notes
receivable..................... $ 3 $ -- $ 240 $ 240 $ 202
====== ======== ======== ======= =======
Common Stock issued for
services....................... $ -- $ -- $ -- $ -- $ 27
====== ======== ======== ======= =======
Series B Preferred Stock issued
upon conversion of convertible
notes payable and accrued
interest....................... $ -- $ 460 $ -- $ -- $ --
====== ======== ======== ======= =======
Issuance of warrants to purchase
Series B Preferred Stock....... $ -- $ 106 $ -- $ -- $ --
====== ======== ======== ======= =======
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
INTERWOVEN, INC.
NOTES TO FINANCIAL STATEMENTS
Information as of June 30, 1999 and for the six months
ended June 30, 1998 and 1999 is unaudited
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Company
Interwoven, Inc. (the "Company") is a leading provider of software products
and services that help businesses and other organizations manage the
information that makes up the content of their web sites. In the Internet
industry this is often referred to as "web content management." Our flagship
software product, TeamSite, is designed to help customers develop, maintain and
extend large web sites that are essential to their businesses.
Reincorporation
In June 1999, the Company's Board of Directors authorized the
reincorporation of the Company in the State of Delaware. As a result of the
reincorporation, the Company is authorized to issue 75,000,000 shares of $0.001
par value Common Stock and 5,000,000 shares of $0.001 par value Preferred
Stock. The Board of Directors has the authority to issue undesignated Preferred
Stock in one or more series and to fix the rights, preferences, privileges and
restrictions thereof. Share and per share information for each of the periods
presented has been retroactively adjusted to reflect the reincorporation.
Unaudited interim results
The accompanying interim financial statements as of June 30, 1999 and for
the six months ended June 30, 1998 and 1999 are unaudited. The unaudited
interim financial statements have been prepared on the same basis as the annual
financial statements and, in the opinion of management, reflect all
adjustments, which include only normal recurring adjustments, necessary to
present fairly the Company's financial position, results of operations and cash
flows for the six months ended June 30, 1998 and 1999. The financial data and
other information disclosed in these notes to financial statements related to
these periods are unaudited. The results for the six months ended June 30, 1999
are not necessarily indicative of the results to be expected for the year
ending December 31, 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 amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
reported amounts of revenues and expenses during the reporting periods. Actual
results could differ from those estimates.
Revenue recognition
In October 1997 and March 1998, the American Institute of Certified Public
Accountants ("AICPA") issued Statement of Position No. 97-2, "Software Revenue
Recognition" ("SOP No. 97-2") and Statement of Position No. 98-4, "Deferral of
the Effective Date of a Provision of SOP No. 97-2" ("SOP No. 98-4"). SOP 98-4
defers for one year the application of certain provisions of SOP 97-2. In
December 1998, the AICPA issued Statement of Position No. 98-9, "Modification
of SOP No. 97-2 with Respect to Certain Transactions" ("SOP No. 98-9"), which
is effective for transactions entered into beginning April 1, 1999. SOP 98-9
extends the effective date of SOP 98-4 and provides additional interpretive
guidance. The adoption of SOP 97-2, SOP 98-4 and SOP 98-9 have not had and are
not expected to have a material impact on the Company's results of operations,
financial position or cash flows.
The Company's revenues are derived from licenses of its software products
and from services the Company provides to its customers. Revenues are
recognized for the various contract elements based upon vendor-specific
objective evidence of fair value of each element.
F-7
<PAGE>
INTERWOVEN, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Information as of June 30, 1999 and for the six months
ended June 30, 1998 and 1999 is unaudited
License revenues from resellers and end users are recognized when persuasive
evidence of an agreement exists, the product has been delivered, no significant
post-delivery obligations remain, the license fee is fixed or determinable and
collection of the fee is probable. The Company does not offer product return
rights to resellers or end users.
Services revenues consist of professional services and maintenance fees.
Professional services primarily consists of software installation and
integration, business process consulting and training. Professional services
are billed on a time and materials basis and revenues are recognized as the
services are performed. Maintenance agreements are typically priced based on a
percentage of the product license fee and have a one-year term, renewable
annually. Services provided to customers under maintenance agreements include
technical product support and unspecified product upgrades. Deferred revenues
from advanced payments for maintenance agreements are recognized ratably over
the term of the agreement, which is typically one year.
Cash and cash equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less at the date of acquisition to be cash
equivalents. Cash equivalents consist principally of money-market accounts that
are stated at historical cost, which approximates fair value.
Concentration of credit risk
Financial instruments, which potentially subject the Company to a
concentration of credit risk, consist primarily of cash and cash equivalents
and accounts receivable. The Company limits its exposure to credit loss by
placing its cash and cash equivalents with a major financial institution. The
Company's accounts receivable are derived from revenues earned from customers
located in the U.S. and are denominated in U.S. dollars. The Company performs
ongoing credit evaluations of its customers' financial condition and,
generally, requires no collateral from its customers. The Company maintains an
allowance for doubtful accounts receivable based upon expected collectibility
of accounts receivable.
The following table summarizes the revenues from customers in excess of 10%
of the total revenues.
<TABLE>
<CAPTION>
Six Months
Year ended Ended
December 31, June 30,
--------------- -------------
1997 1998 1998 1999
------ ------ ----- -----
(unaudited)
<S> <C> <C> <C> <C>
Company A.................................. 20% --% --% --%
Company B.................................. 20% --% --% --%
Company C.................................. 18% --% 13% --%
Company D.................................. 11% --% --% --%
Company E.................................. 10% --% --% --%
Company F.................................. --% 13% --% --%
Company G.................................. --% --% 17% --%
Company H.................................. --% --% 14% --%
</TABLE>
At December 31, 1997, Company A, B and C accounted for 25%, 22% and 21% of
total accounts receivable, respectively. At December 31, 1998, Company F
accounted for 10% of total accounts receivable. At June 30, 1999 (unaudited) no
customer accounted for 10% of total accounts receivable.
F-8
<PAGE>
INTERWOVEN, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Information as of June 30, 1999 and for the six months
ended June 30, 1998 and 1999 is unaudited
Fair value of instruments
The Company's financial instruments including cash and cash equivalents,
accounts receivable and accounts payable, are carried at cost, which
approximate fair value due to the short-term maturity of these instruments.
Debt and capital lease obligations are carried at cost, which approximates fair
value due to the proximity of the implicit rates of these financial instruments
and the prevailing market rates for similar instruments.
Software development costs
Software development costs incurred in the research and development of new
products and enhancements to existing products are charged to expense as
incurred. Software development costs are capitalized after technological
feasibility has been established. The period between achievement of
technological feasibility, which the Company defines as the establishment of a
working model, until the general availability of such software to customers,
has been short and software development costs qualifying for capitalization
have been insignificant. Accordingly, the Company has not capitalized any
software development costs since its inception.
Capitalization of internal-use software costs
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the Cost
of Computer Software Developed or Obtained for Internal Use". SOP 98-1 is
effective for financial statements for years beginning after December 15, 1998
and provides guidance for the accounting of computer software developed or
obtained for internal use including the requirement to capitalize specified
costs and amortization of such costs. The Company adopted the provisions of SOP
98-1 in its fiscal year beginning January 1, 1999.
Property and equipment
Property and equipment are stated at historical cost less accumulated
depreciation and amortization. Depreciation and amortization are computed using
the straight-line method over the useful lives of the assets, generally five
years or less, or the shorter of the lease term or the estimated useful lives
of the assets, if applicable.
Impairment of long-lived assets
The Company evaluates the recoverability of its long-lived assets in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of." SFAS No. 121 requires recognition of impairment of long-
lived assets in the event the net book value of such assets exceeds the future
undiscounted cash flows attributed to such assets.
Stock-based compensation
The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of Accounting Principles Board ("APB") Opinion No.
25, "Accounting for Stock Issued to Employees," and complies with the
disclosure provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation." Under APB 25, compensation expense is based on the difference,
if any, on the date of grant
F-9
<PAGE>
INTERWOVEN, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Information as of June 30, 1999 and for the six months
ended June 30, 1998 and 1999 is unaudited
between fair value of the Company's stock and the exercise price. The Company
accounts for stock issued to non-employees in accordance with the provisions of
SFAS No. 123 and the Emerging Issues Task Force Consensus on Issue No. 96-18.
Income taxes
Income taxes are accounted for using an asset and liability approach, which
requires the recognition of taxes payable or refundable for the current year
and deferred tax liabilities and assets for the future tax consequences of
events that have been recognized in the Company's financial statements or tax
returns. The measurement of current and deferred tax liabilities and assets are
based on provisions of the enacted tax law; the effects of future changes in
tax laws or rates are not anticipated. The measurement of deferred tax assets
is reduced, if necessary, by the amount of any tax benefits that, based on
available evidence, are not expected to be realized.
Net loss per share
The Company computes net loss per share in accordance with SFAS No. 128,
"Earnings per Share" and SEC Staff Accounting Bulletin ("SAB") No. 98. Under
the provisions of SFAS No. 128 and SAB No. 98, basic net loss per share is
computed by dividing the net loss attributed to common stockholders for the
period by the weighted average number of shares of Common Stock outstanding
during the period excluding shares of Common Stock subject to repurchase. Such
shares of Common Stock subject to repurchase aggregated 73,333, 1,737,435,
1,527,472 (unaudited), and 1,997,580 (unaudited) as of December 31, 1997 and
1998 and June 30, 1998 and 1999, respectively.
The following table sets forth the computation of basic and diluted net loss
per share for the periods indicated (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Year Ended December Six Months
31, Ended June 30,
---------------------- ---------------
1996 1997 1998 1998 1999
------ ------ ------ ------ -------
(unaudited)
<S> <C> <C> <C> <C> <C>
Numerator:
Net loss attributable to common
stockholders................... (510) (3,209) (7,509) (3,001) (12,578)
Denominator:
Weighted average shares......... 2,282 2,405 3,949 3,360 5,549
Weighted average unvested shares
of Common Stock subject to
repurchase..................... -- (49) (1,316) (956) (2,114)
------ ------ ------ ------ -------
Denominator for basic and
diluted calculation............ 2,282 2,356 2,633 2,404 3,435
Net loss per share:
Basic and diluted............... ($0.22) ($1.36) ($2.85) ($1.25) ($ 3.66)
====== ====== ====== ====== =======
</TABLE>
F-10
<PAGE>
INTERWOVEN, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Information as of June 30, 1999 and for the six months
ended June 30, 1998 and 1999 is unaudited
The following table sets forth potential shares of Common Stock that are not
included in the diluted net loss per share calculation above because to do so
would be anti-dilutive for the periods indicated (in thousands):
<TABLE>
<CAPTION>
Six Months
Year Ended Ended June
December 31, 30,
----------------- ------------
1996 1997 1998 1998 1999
----- ----- ----- ----- ------
(unaudited)
<S> <C> <C> <C> <C> <C>
Weighted average effect of Common Stock
equivalents....................................
Series A Preferred Stock...................... 796 1,200 878 1,010 747
Series B Preferred Stock...................... -- 1,235 2,107 2,079 2,135
Series C Preferred Stock...................... -- -- 3,092 2,023 4,773
Series D Preferred Stock...................... -- -- 359 -- 2,494
Series E Preferred Stock...................... -- -- -- -- 344
Warrants to purchase mandatorily redeemable
convertible preferred stock.................. 1 66 71 70 72
Shares of Common Stock subject to repurchase.. -- 49 1,316 956 2,114
Common Stock options.......................... 250 1,480 1,870 2,148 1,074
----- ----- ----- ----- ------
1,047 4,030 9,693 8,286 13,753
===== ===== ===== ===== ======
</TABLE>
Pro forma net loss per share (unaudited)
Pro forma net loss per share is computed using the weighted average number
of shares of Common Stock outstanding, including the pro forma effects of the
exercise of warrants to purchase Series B Preferred Stock and automatic
conversion of the Company's Series A, B, C, D and E Preferred Stock into shares
of the Company's Common Stock effective upon the closing of the Company's
initial public offering as if such conversion occurred at the beginning of the
period, or at the date of issuance, if later. The resulting pro forma
adjustment for the year ended December 31, 1998 and the six months ended June
30, 1999 includes (i) an increase in the weighted average shares used to
compute the basic net loss per share of 5,896,280 and 10,564,993 (unaudited),
respectively, and (ii) a decrease in the net loss attributable to common
stockholders for the accretion of mandatorily redeemable convertible preferred
stock of $1,165,000 and $6,350,000 (unaudited), respectively. The calculation
of diluted net loss per share excludes potential shares of Common Stock as
their effect would be antidilutive. Pro forma potential Common Stock consists
of Common Stock subject to repurchase rights and incremental shares of Common
Stock issuable upon the exercise of stock options.
Pro forma stockholders' equity (unaudited)
Effective upon the closing of the Company's initial public offering, the
outstanding shares of Series A, B, C, D and E Preferred Stock will
automatically convert into 746,664, 2,134,548, 4,773,161, 2,494,142, and
2,263,136 shares of Common Stock, respectively. The pro forma effects of these
transactions are unaudited and have been reflected in the accompanying pro
forma balance sheet at June 30, 1999.
Comprehensive income
Effective January 1, 1998, the Company adopted the provisions of SFAS No.
130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for
reporting comprehensive income and its components in financial statements.
Comprehensive income, as defined, includes all changes in equity (net
F-11
<PAGE>
INTERWOVEN, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Information as of June 30, 1999 and for the six months
ended June 30, 1998 and 1999 is unaudited
assets) during a period from non-owner sources. As of December 31, 1998 and
June 30, 1999, the Company had not had any transactions that are required to be
reported in comprehensive income.
Segment information
Effective January 1, 1998, the Company adopted the provisions of SFAS No.
131, "Disclosure About Segments of an Enterprise and Related Information." The
Company identifies its operating segment based on business activities,
management responsibility and geographic location. During all periods
presented, the Company operated in a single business segment.
Reclassifications
Certain reclassifications have been made to the prior year financial
statements to conform to the current period presentation.
NOTE 2--BALANCE SHEET COMPONENTS (in thousands):
<TABLE>
<CAPTION>
December
31,
----------- June 30,
1997 1998 1999
---- ------ -----------
(unaudited)
<S> <C> <C> <C>
Accounts receivable, net:
Accounts receivable............................... $140 $2,675 $2,173
Less: Allowance for doubtful accounts............. -- (270) (288)
---- ------ ------
$140 $2,405 $1,885
==== ====== ======
</TABLE>
There were no write-offs against the allowance for doubtful accounts in the
years ended December 31, 1997 and 1998 and for the six months ended June 30,
1999 (unaudited).
<TABLE>
<CAPTION>
December
31,
------------ June 30,
1997 1998 1999
---- ------ -----------
(unaudited)
<S> <C> <C> <C>
Property and equipment, net:
Computer equipment and purchased software...... $254 $ 952 $1,505
Furniture and fixtures......................... 10 586 590
Leasehold improvements......................... -- 449 453
---- ------ ------
264 1,987 2,548
Less: Accumulated depreciation and
amortization.................................. (76) (370) (666)
---- ------ ------
$188 $1,617 $1,882
==== ====== ======
</TABLE>
F-12
<PAGE>
INTERWOVEN, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Information as of June 30, 1999 and for the six months
ended June 30, 1998 and 1999 is unaudited
Property and equipment includes $38,000, $23,000 and $23,000 (unaudited) of
fixed assets under capital leases at December 31, 1997 and 1998 and June 30,
1999, respectively. Accumulated depreciation of such assets was $7,000, $8,000
and $12,000 (unaudited) at December 31, 1997 and 1998 and June 30, 1999,
respectively.
<TABLE>
<CAPTION>
December
31,
----------- June 30,
1997 1998 1999
---- ------ -----------
(unaudited)
<S> <C> <C> <C>
Accrued liabilities:
Payroll and related expenses....................... $ 59 $1,247 $1,063
Other.............................................. 110 226 592
---- ------ ------
$169 $1,473 $1,655
==== ====== ======
</TABLE>
NOTE 3--DEBT:
In June 1999, the Company amended a financing agreement (the "Financing
Agreement") originally entered into in June 1998, whereby the bank will loan up
to 80% of eligible accounts receivable up to a maximum of $3,000,000
(unaudited) for working capital purposes. Working capital advances accrue
interest at the bank's prime rate and are payable monthly with principal due
one year subsequent to the date of any advance. The Financing Agreement
provides for additional borrowings of up to $1,500,000 to finance equipment
purchases. Advances for equipment purchases accrue interest at the bank's prime
rate plus .25% and advances are payable monthly for one year subsequent to the
date of any advance. Thereafter, the outstanding balance will be due in 36
monthly installments. The Agreement requires the Company to comply with certain
financial covenants. The Company was in compliance with all covenants at
December 31, 1998 and for the six months ended June 30, 1999 (unaudited).
Future minimum principal payments under the Financing Agreement are as
follows (in thousands):
<TABLE>
<S> <C>
Year Ending December 31,
1999................................................................ $ 250
2000................................................................ 500
2001................................................................ 500
2002................................................................ 250
------
$1,500
======
</TABLE>
In January 1997, the Company issued $375,000 of convertible promissory notes
payable. The notes bore interest at 6% per year. In connection with the
issuance of the notes, the Company issued to the note holders warrants to
purchase 82,219 shares of Series B Preferred Stock at $1.29 per share. The
warrants expire at the earlier of November 2001 or upon an initial public
offering of the Company's Common Stock. The Company recorded a $94,000 discount
to the notes for the value of the warrants, which was recognized in 1997 as
additional interest expense.
In May 1997, the principal amounts and accrued interest outstanding for the
notes were converted into 357,182 shares of Series B Preferred Stock (see Note
6).
F-13
<PAGE>
INTERWOVEN, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Information as of June 30, 1999 and for the six months
ended June 30, 1998 and 1999 is unaudited
NOTE 4--COMMITMENTS:
The Company leases office space and equipment under noncancelable operating
and capital leases with various expiration dates through May 2003. Rent expense
for the year ended December 31, 1997 and 1998 and for the six months ended June
30, 1998 and 1999 totaled $52,000, $557,000, $96,000 (unaudited) and $325,000
(unaudited), respectively.
Future minimum lease payments under noncancelable operating and capital
leases, as of December 31, 1998, are as follows (in thousands):
<TABLE>
<CAPTION>
Capital Operating Sublease
Leases Leases Income
------- --------- --------
<S> <C> <C> <C>
Year Ending December 31,
1999.......................................... $10 $ 938 $356
2000.......................................... 7 951 211
2001.......................................... -- 979 --
2002.......................................... -- 1,009 --
2003.......................................... -- 426 --
--- ------ ----
Total minimum lease payments and sublease
income....................................... 17 $4,303 $567
=== ====== ====
Less: Amount representing interest............ 2
---
Present value of capital lease obligations.... $15
===
</TABLE>
Restricted cash
During fiscal 1998, $605,000 of cash was pledged as collateral on an
outstanding letter of credit relating to the building lease agreement and is
classified as restricted cash on the balance sheet. The restricted cash will be
reduced by $226,875 on the 31st month after the signing of the agreement
provided no event of default has occurred. The Company was in compliance with
all such covenants at December 31, 1998 and June 30, 1999 (unaudited).
F-14
<PAGE>
INTERWOVEN, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Information as of June 30, 1999 and for the six months
ended June 30, 1998 and 1999 is unaudited
NOTE 5--INCOME TAXES:
At December 31, 1998, the Company had approximately $7,181,000 of federal
and $1,178,000 of state net operating tax loss carryforwards available to
reduce future taxable income which expire in 2015 and 2010 for federal and
state tax purposes, respectively. Under the Tax Reform Act of 1986, the amounts
of and benefits from net operating loss carryforwards may be impaired or
limited in certain circumstances. Events which cause limitations in the amount
of net operating losses that the Company may utilize in any one year include,
but are not limited to, a cumulative ownership change of more than 50%, as
defined, over a three year period.
Deferred tax assets consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
---------------- June 30,
1997 1998 1999
------- ------- -----------
(unaudited)
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards............. $ 1,105 $ 2,882 $ 4,250
Accruals and reserves........................ 61 235 250
Research credits............................. 40 120 150
Depreciation................................. 60 128 150
------- ------- -------
1,266 3,365 4,800
Valuation allowance............................ (1,266) (3,365) (4,800)
------- ------- -------
Net deferred tax assets........................ $ -- $ -- $ --
======= ======= =======
</TABLE>
For financial reporting purposes, the Company has incurred a loss in each
year since its inception. Based on the available objective evidence, management
believes it is more likely than not that the net deferred tax assets will not
be fully realizable. Accordingly, the Company has provided for a full valuation
allowance against its net deferred tax assets at December 31, 1997 and 1998 and
June 30, 1999 (unaudited).
F-15
<PAGE>
INTERWOVEN, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Information as of June 30, 1999 and for the six months
ended June 30, 1998 and 1999 is unaudited
NOTE 6--MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK:
At December 31, 1998, mandatorily redeemable convertible preferred stock
consists of the following (in thousands):
<TABLE>
<CAPTION>
Shares
---------------------- Liquidation Redemption
Series Authorized Outstanding Amount Amount
------ ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Series A Preferred Stock...... 1,120 1,120 $ 224 $ 626
Series B Preferred Stock...... 3,142 3,040 3,909 4,756
Series C Preferred Stock...... 7,160 7,160 7,726 7,989
Series D Preferred Stock...... 3,741 3,741 7,000 7,093
------ ------ ------- -------
15,163 15,061 $18,859 $20,464
====== ====== ======= =======
</TABLE>
At June 30, 1999 (unaudited), mandatorily redeemable convertible preferred
stock consists of the following (in thousands):
<TABLE>
<CAPTION>
Shares
---------------------- Liquidation Redemption
Series Authorized Outstanding Amount Amount
------ ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Series A Preferred Stock...... 1,120 1,120 $ 224 $ 1,095
Series B Preferred Stock...... 3,142 3,040 3,909 6,072
Series C Preferred Stock...... 7,160 7,160 7,726 10,987
Series D Preferred Stock...... 3,741 3,741 7,000 8,660
Series E Preferred Stock...... 3,600 3,395 19,214 18,462
------ ------ ------- -------
18,763 18,456 $38,073 $45,276
====== ====== ======= =======
</TABLE>
The holders of Series A, B, C, and D Preferred Stock have certain rights and
privileges as follows:
Warrants
The Company issued warrants to purchase 20,409, 82,219 and 5,480 in 1996,
1997 and 1998, respectively, shares of Series B Preferred Stock at $1.29 per
share to the holders of the warrants. The warrants expire at the earlier of
November 2001 or upon an initial public offering of the Company's Common Stock.
Voting
Each share of Series A, B, C, and D Preferred Stock has voting rights
equivalent to Common Stock on an "as if" converted basis.
Dividends
Holders of Series A, B, C and D Preferred Stock are entitled to receive non-
cumulative annual dividends of $0.01, $0.10, $0.09 and $0.15 per share,
respectively, when and if declared by the Company's Board of Directors.
Dividends on the Series A, B, C and D Preferred Stock shall be payable in
preference and prior to any payment of any dividend on the Common Stock. The
holders of the Series A, B, C and D will also be entitled to participate in
dividends on the Common Stock, when and if declared by the Board of Directors,
on an as-converted to Common Stock basis. No dividends have been declared from
inception through December 31, 1998.
F-16
<PAGE>
INTERWOVEN, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Information as of June 30, 1999 and for the six months
ended June 30, 1998 and 1999 is unaudited
Liquidation
In the event of any liquidation, dissolution, winding up or merger where
less than 50% of the voting power is maintained by the Company, the holders of
the Series A, B, C, and D Preferred Stock shall be entitled to receive, prior
and in preference to any distribution to the holders of the Common Stock, an
amount equal to $0.20, $1.29, $1.08 and $1.87 per share, respectively, plus any
declared but unpaid dividends. Any amounts remaining after such distribution
shall be distributed among the holders of Series B, C and D Preferred Stock,
and Common Stock on an "as if" converted basis until the holders of Series B, C
and D Preferred Stock have received an aggregate liquidation payment of $2.57,
$2.16 and $2.81, thereafter any remaining amounts shall be distributed among
the holders of Common Stock.
Redemption
Upon the request of holders of at least 50% of the outstanding shares of
Series A, B, C or D Preferred Stock, the shares of all of the preferred stock
may be redeemed in four equal installments beginning in May 2002. The
redemption price for Series A, B, C and D Preferred Stock will be the greater
of the original issuance price for Series A, B, C and D Preferred Stock, $0.20,
$1.29, $1.08 and $1.87 per share, respectively, plus any undeclared and unpaid
dividends and an amount equal to that amount which would result in the holder
of such shares realizing an 8% annually compounded return on the purchase price
or the fair market value of Series A, B, C and D Preferred Stock on the first
redemption date.
Conversion
Each share of Series A, C, and D Preferred Stock is convertible at the
option of the holder into two-thirds of a share of Common Stock at any time,
subject to adjustment for antidilution. Each share of Series B Preferred Stock
is convertible at the option of the holders into .7022705 of a share of Common
Stock at any time, subject to adjustment for antidilution. Each share of Series
A, B, C and D Preferred Stock will be automatically converted upon an initial
public offering of the Company's Common Stock with aggregate proceeds in excess
of $20,000,000 and a price per share of not less than $5.79. The Company has
reserved sufficient shares of Common Stock for issuance upon conversion of the
Series A, B, C and D Preferred Stock.
Series E Preferred Stock
Each share of Series E Preferred Stock has voting rights equivalent to
Common Stock on an "as if" converted basis. Holders of Series E Preferred Stock
are entitled to receive non-cumulative annual dividends of $0.45 per share,
when and if declared by the Company's Board of Directors. Dividends on the
Preferred Stock shall be payable in preference and prior to any payment of any
dividend on the Common Stock. The holders of the Series E Preferred Stock will
also be entitled to participate in dividends on the Common Stock, when and if
declared by the Board of Directors, based on the number of shares of Common
Stock held on an as-converted basis. No dividends have been declared from
inception through June 30, 1999 (unaudited).
In the event of any liquidation, dissolution, winding up or merger where
less than 50% of the voting power is maintained by the Company, the holders of
the Series E Preferred Stock shall be entitled to receive, prior and in
preference to any distribution to the holders of the Common Stock, an amount
equal to $5.66 per share, respectively, plus any declared but unpaid dividends.
Any amounts remaining after such distribution shall be distributed among the
holders of Series E Preferred Stock, and Common Stock on an "as if" converted
basis until the holders of Series E have received an aggregate liquidation
payment of $8.49, thereafter any remaining amounts shall be distributed among
the holders of Common Stock (unaudited).
F-17
<PAGE>
INTERWOVEN, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Information as of June 30, 1999 and for the six months
ended June 30, 1998 and 1999 is unaudited
Upon the request of holders of at least 50% of the outstanding shares of
Series E Preferred Stock, the shares of all of the preferred stock may be
redeemed in four equal installments beginning in May 2002. The redemption price
for Series E Preferred Stock will be the greater of the original issuance price
for Series E Preferred Stock, $5.66 per share, respectively, plus any
undeclared and unpaid dividends and an amount equal to that amount which would
result in the holder of such shares realizing an 8% annually compounded return
on the purchase price or the fair market value of Series E Preferred Stock on
the first redemption date (unaudited).
Each share of Series E Preferred Stock is convertible at the option of the
holder into two-thirds of a share of Common Stock at any time, subject to
adjustment for antidilution. Each share of Series E Preferred Stock will be
automatically converted upon an initial public offering of the Company's Common
Stock with aggregate proceeds in excess of $20,000,000 and a price per share of
not less than $8.49. The Company has reserved sufficient shares of Common Stock
for issuance upon conversion of the Series E Preferred Stock (unaudited).
NOTE 7--COMMON STOCK:
In March 1995, the Company issued 1,933,333 shares of Common Stock to its
founder in exchange for $14,500 in total consideration. Additionally, in March
1996, the Company issued 233,333 shares of Common Stock to an employee in
consideration of a $3,500 promissory note. In addition, the Company issued a
further 200,000 shares of Common Stock in consideration of $3,000 in cash.
Under the terms of the stock purchase agreements, the Company has the right to
repurchase up to 2,166,667 shares of such Common Stock at the original issue
price upon termination. The repurchase rights expired as to 25% of such Common
Stock in January 1997 and the remainder expire ratably over a 36 month period
thereafter with 586,667 and 315,972 (unaudited) shares of Common Stock subject
to repurchase at December 31, 1998 and June 30, 1999.
The Company had reserved shares of Common Stock for issuance as follows (in
thousands):
<TABLE>
<CAPTION>
As of
June 30,
1999
-----------
(unaudited)
<S> <C>
Mandatorily redeemable convertible preferred stock:
Series A Preferred Stock....................................... 747
Series B Preferred Stock....................................... 2,135
Series C Preferred Stock....................................... 4,773
Series D Preferred Stock....................................... 2,494
Series E Preferred Stock....................................... 2,263
Exercise of options under stock option plans..................... 945
------
13,357
======
</TABLE>
Notes receivable from stockholders
In March 1998, the Company issued 1,333,333 shares of Common Stock to an
officer of the Company in exchange for a $240,000 note receivable. The note
bore interest at 6% per year. The note was secured by the underlying stock and
is classified as a note receivable from stockholder in the accompanying balance
sheet at December 31, 1998. Under the terms of the agreement, the Company has
the right to repurchase all of the shares of such stock at the original issue
price upon termination. The repurchase rights expire ratably over a 48 month
period with 1,055,555 and 888,889 (unaudited) shares of Common Stock subject to
repurchase at December 31, 1998 and June 30, 1999, respectively. In June 1999,
the note was paid.
F-18
<PAGE>
INTERWOVEN, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Information as of June 30, 1999 and for the six months
ended June 30, 1998 and 1999 is unaudited
In April 1999 the Company issued a total 516,667 shares of Common Stock to
two officers of the Company in exchange for notes receivable totalling $201,500
(unaudited). The notes bear interest at 6% per year and are due upon the
earlier of (i) an acquisition, (ii) an initial public offering, (iii) the
employee's termination or (iv) five years. The notes are secured by the
underlying stock and are classified as notes receivable from stockholders in
the accompanying balance sheet at June 30, 1999. Under the terms of the
agreement, the Company has the right to repurchase all of the shares of such
stock at the original issue price upon termination. The repurchase rights will
expire as to 25% of such Common Stock in April 2000, and the remainder will
expire ratably over a 36 month period thereafter with 516,667 (unaudited)
shares of Common Stock subject to repurchase at June 30, 1999.
NOTE 8--EMPLOYEE STOCK OPTION PLAN:
In August 1996, the Company adopted the 1996 Stock Option Plan (the "1996
Plan") and in March 1998 it adopted the 1998 Stock Option Plan (the "1998
Plan") (collectively, the "Plans"). The Plans provide for grants of stock
options to employees and consultants of the Company. Options granted under the
Plan may be either incentive stock options or nonqualified stock options.
Incentive stock options ("ISO") may be granted only to employees (including
officers and directors who are also employees) of the Company. Nonqualified
stock options may be granted to employees and consultants of the Company.
Options under the Plans may be granted for periods of up to ten years and at
prices no less than 85% of the estimated fair value of the shares on the date
of grant as determined by the Board of Directors, provided, however, that (i)
the exercise price of an ISO shall not be less than 100% of the estimated fair
value of the shares on the date of grant and (ii) the exercise price of an ISO
granted to a 10% stockholder shall not be less than 110% of the estimated fair
value of the shares on the date of grant and are for periods not to exceed five
years. Options are immediately exercisable but are subject to repurchase by the
Company at the original exercise price. The repurchase feature generally
expires for 25% of the shares after the first year of service and then expires
ratably over the next 36 months.
The following table summarizes the activity under the Plans for the years
ended December 31, 1997, 1998 and the six months ended June 30, 1999 (shares in
thousands):
<TABLE>
<CAPTION>
Year Ended December 31, Six months
--------------------------------- ended June 30,
1997 1998 1999
---------------- ---------------- ----------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ -------- ------ -------- ------ --------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of period.............. 487 $0.03 1,276 $0.11 622 $0.17
Granted................. 1,074 0.14 824 0.21 1,333 1.09
Canceled................ (185) 0.09 (334) 0.18 (151) 0.18
Exercised............... (100) 0.05 (1,144) 0.13 (859) 0.32
----- ------ -----
Outstanding at end of
period................. 1,276 0.11 622 0.17 945 1.33
----- ------ -----
Options exercisable at
end of period.......... 1,276 622 945
----- ------ -----
Weighted average fair
value of options
granted during the
period................. $0.03 $0.05 $0.21
===== ===== =====
</TABLE>
F-19
<PAGE>
INTERWOVEN, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Information as of June 30, 1999 and for the six months
ended June 30, 1998 and 1999 is unaudited
The followings table summarizes information about stock options outstanding
and exercisable at December 31, 1998 (shares in thousands):
<TABLE>
<CAPTION>
Options Outstanding at December Options Exercisable
31, 1998 at December 31, 1998
------------------------------------- -----------------------
Weighted
Average
Remaining Weighted Weighted
Range of Contractual Average Average
Exercise Number Life Exercise Number Exercise
Prices Outstanding (Years) Price Exercisable Price
-------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.03-0.09 206 8.0 $0.07 206 $0.07
0.15-0.21 362 9.4 0.19 362 0.19
0.39 54 9.9 0.39 54 0.39
--- ---
622 9.0 0.17 622 0.17
=== ===
</TABLE>
The followings table summarizes information about stock options outstanding
and exercisable at June 30, 1999 (unaudited) (shares in thousands):
<TABLE>
<CAPTION>
Options Outstanding at June 30, Options Exercisable
1999 at June 30, 1999
------------------------------------- -----------------------
Weighted
Average
Remaining Weighted Weighted
Range of Contractual Average Average
Exercise Number Life Exercise Number Exercise
Prices Outstanding (Years) Price Exercisable Price
-------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.15-0.21 144 8.9 $0.19 144 $0.19
0.39-1.20 341 9.7 0.72 341 0.72
1.65-2.25 460 10.0 2.14 460 2.14
--- ---
945 9.7 1.33 945 1.33
=== ===
</TABLE>
Fair value disclosures
The Company calculated the minimum fair value of each option grant on the
date of grant using the Black-Scholes option-pricing model as prescribed by
SFAS No. 123 using the following assumptions:
<TABLE>
<CAPTION>
Year Ended Six Months
December 31, Ended
--------------- June 30,
1997 1998 1999
------ ------ -----------
(unaudited)
<S> <C> <C> <C>
Risk-free interest rates....................... 6.5% 6.5% 5.5%
Expected lives (in years)...................... 4.0 4.0 4.0
Dividend yield................................. 0.0 0.0 0.0
Expected volatility............................ 0.0 0.0 0.0
</TABLE>
The compensation cost associated with the Company's stock-based compensation
plans, determined using the minimum value method prescribed by SFAS No. 123,
did not result in a material difference from the reported net income for the
years ended December 31, 1997 and 1998 and for the six months ended June 30,
1998 and 1999 (unaudited).
F-20
<PAGE>
INTERWOVEN, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Information as of June 30, 1999 and for the six months
ended June 30, 1998 and 1999 is unaudited
Deferred stock-based compensation
In connection with certain stock option grants during the year ended
December 31, 1998 and the six months ended June 30, 1999, the Company
recognized deferred stock-based compensation totaling $1.9 million and $6.7
million (unaudited), respectively, which is being amortized over the vesting
periods of the applicable options. Amortization expense recognized during the
year ended December 31, 1998 and the six months ended June 30, 1999 totaled
approximately $812,000 and $1.7 million (unaudited), respectively.
NOTE 9--SUBSEQUENT EVENTS:
Stock Split
Prior to the effectiveness of the Company's initial public offering, the
Company's Board of Directors intends to effect a two-for-three reverse stock
split of the outstanding shares of Common Stock. All common share and per share
information included in these financial statements have been retroactively
adjusted to reflect this stock split.
Employee Stock Purchase Plan
In July 1999, the Board adopted, subject to stockholder approval, the 1999
Employee Stock Purchase Plan (the "Purchase Plan") and reserved 300,000 shares
of Common Stock for issuance thereunder. On each January 1, the aggregate
number of shares reserved for issuance under this plan will increase
automatically by a number of shares equal to 1% of the Company's outstanding
shares on December 31 of the preceding year. The aggregate number of shares
reserved for issuance under the Purchase Plan shall not exceed 3,000,000
shares. The Purchase Plan will become effective on the first business day on
which price quotations for the Company's Common Stock are available on the
Nasdaq National Market. Employees generally will be eligible to participate in
the Purchase Plan if they are customarily employed by the Company for more than
20 hours per week and more than five months in a calendar year and are not (and
would not become as a result of being granted an option under the Purchase
Plan) 5% stockholders of the Company. Under the Purchase Plan, eligible
employees may select a rate of payroll deduction between 2% and 10% of their W-
2 cash compensation subject to certain maximum purchase limitations. Each
offering period will have a maximum duration of two years and consists of four
six-month Purchase Periods. The first Offering Period is expected to begin on
the first business day on which price quotations for the Company's Common Stock
are available on the Nasdaq National Market. Depending on the Effective Date,
the first Purchase Period may be more or less than six months long. Offering
Periods and Purchase Periods thereafter will begin on February 1 and August 1.
The price at which the Common Stock is purchased under the Purchase Plan is 85%
of the lesser of the fair market value of the Company's Common Stock on the
first day of the applicable offering period or on the last day of that purchase
period. The Purchase Plan will terminate after a period of ten years unless
terminated earlier as permitted by the Purchase Plan.
1999 Equity Incentive Plan
In July 1999, the Board adopted, subject to stockholder approval, the 1999
Equity Incentive Plan (the "1999 Plan") and reserved 2,900,000 shares of Common
Stock for issuance thereunder. The 1999 Plan authorized the award of options,
restricted stock awards and stock bonuses (each an "Award"). No person will be
eligible to receive more than 1,000,000 shares in any calendar year pursuant to
Awards under the 1999 Plan other than a new employee of the Company who will be
eligible to receive no more than 1,500,000 shares in the calendar year in which
such employee commences employment. Options granted under the 1999 Plan may
F-21
<PAGE>
INTERWOVEN, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Information as of June 30, 1999 and for the six months
ended June 30, 1998 and 1999 is unaudited
be either incentive stock options ("ISO") or nonqualified stock options
("NSO"). ISOs may be granted only to Company employees (including officers and
directors who are also employees). NSOs may be granted to Company employees,
officers, directors, consultants, independent contractors and advisors of the
Company.
Options under the Plan may be granted for periods of up to ten years and at
prices no less than 85% of the estimated fair value of the shares on the date
of grant as determined by the Board of Directors, provided, however, that (i)
the exercise price of an ISO may not be less than 100% of the estimated fair
value of the shares on the date of grant, and (ii) the exercise price of an ISO
granted to a 10% stockholder may not be less than 110% of the estimated fair
value of the shares on the date of grant. The maximum term of options granted
under the 1999 Plan is ten years.
Members of the Board who are not employees of the Company, or any parent,
subsidiary or affiliate of the Company, are eligible to participate in the 1999
Plan. The option grants under the 1999 Plan are automatic and nondiscretionary,
and the exercise price of the options must be 100% of the fair market value of
the Common Stock on the date of grant. Each eligible director who first becomes
a member of the Board on or after the effective date of the Registration
Statement of which this Prospectus forms a part (the "Effective Date") will
initially be granted an option to purchase 20,000 shares (an "Initial Grant")
on the date such director first becomes a director. Immediately following each
Annual Meeting of the Company, each eligible director will automatically be
granted an additional option to purchase 10,000 shares if such director has
served continuously as a member of the Board since the date of such director's
Initial Grant or, if such director was ineligible to receive an Initial Grant,
since the Effective Date. The term of such options is ten years, provided that
they will terminate 7 months following the date the director ceases to be a
director or a consultant of the Company (twelve months if the termination is
due to death or disability). All options granted under the Directors Plan will
vest 100% of the shares upon the date of issuance.
Acquisition
Effective July 1, 1999, the Company acquired all the assets and liabilities
of Lexington Software Associates Incorporated, which is a provider of
configuration management solutions and development methodologies, including
consulting and education. The acquisition has been accounted for using the
purchase method of accounting and accordingly, the purchase price has been
allocated to the tangible and intangible assets acquired and liabilities
assumed on the basis of their respective fair values at the acquisition date.
The total purchase price of approximately $769,000 consisted of 88,339
shares of the Company's Series E Preferred Stock (estimated fair value of
$500,000), seven-year warrants to purchase 17,668 shares of Series E Preferred
Stock at $5.66 per share (estimated fair value of $77,000), and other
acquisition-related expenses of approximately $192,000.
Of the total purchase price, approximately $794,000 was allocated to
goodwill, which will be amortized over its estimated useful life of 48 months.
The remainder of the purchase price was allocated to net tangible liabilities
assumed of $25,000.
F-22
<PAGE>
[inside back cover]
A man (whose legs and feet only are visible) standing on a sphere representing
the earth.
<PAGE>
[LOGO OF INTERWOVEN APPEARS HERE]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth the costs and expenses to be paid by the
Registrant in connection with the sale of the shares of common stock being
registered hereby. All amounts are estimates except for the Securities and
Exchange Commission registration fee, the NASD filing fee and the Nasdaq
National Market filing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.............. $ 13,900
NASD filing fee.................................................. 5,500
Nasdaq National Market filing fee................................ 95,000
Accounting fees and expenses..................................... 225,000
Legal fees and expenses.......................................... 425,000
Road show expenses............................................... 35,000
Printing and engraving expenses.................................. 250,000
Blue sky fees and expenses....................................... 10,000
Transfer agent and registrar fees and expenses................... 10,000
Miscellaneous.................................................... 120,600
----------
Total.......................................................... $1,190,000
==========
</TABLE>
- ---------------------
* To be completed by amendment.
Item 14. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's board of directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933, as amended (the
"Securities Act").
As permitted by the Delaware General Corporation Law, the Registrant's
Certificate of Incorporation includes a provision that eliminates the personal
liability of its directors for monetary damages for breach of fiduciary duty
as a director, except for liability:
. for any breach of the director's duty of loyalty to the Registrant or
its stockholders,
. for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law,
. under section 174 of the Delaware General Corporation Law (regarding
unlawful dividends and stock purchases), or
. for any transaction from which the director derived an improper personal
benefit.
As permitted by the Delaware General Corporation Law, the Registrant's
Bylaws provide that:
. the Registrant is required to indemnify its directors and officers to
the fullest extent permitted by the Delaware General Corporation Law,
subject to certain very limited exceptions,
. the Registrant may indemnify its other employees and agents as set forth
in the Delaware General Corporation Law,
. the Registrant is required to advance expenses, as incurred, to its
directors and officers in connection with a legal proceeding to the
fullest extent permitted by the Delaware General Corporation Law,
subject to certain very limited exceptions, and
. the rights conferred in the Bylaws are not exclusive.
II-1
<PAGE>
The Registrant intends to enter into Indemnity Agreements with each of its
current directors and officers to give such directors and officers additional
contractual assurances regarding the scope of the indemnification set forth in
the Registrant's Amended and Restated Certificate of Incorporation and to
provide additional procedural protections. At present, there is no pending
litigation or proceeding involving a director, officer or employee of the
Registrant regarding which indemnification is sought, nor is the Registrant
aware of any threatened litigation that may result in claims for
indemnification.
Reference is also made to Section 7 of the draft Underwriting Agreement to
be entered into between the Registrant and the underwriters, which will
provide for the indemnification of officers, directors and controlling persons
of the Registrant against certain liabilities. The indemnification provisions
in the Registrant's Amended and Restated Certificate of Incorporation, Bylaws
and the Indemnity Agreements to be entered into between the Registrant and
each of its directors and officers may be sufficiently broad to permit
indemnification of the Registrant's directors and officers for liabilities
arising under the Securities Act.
The Registrant maintains directors' and officers' liability insurance.
See also the undertakings set out in response to Item 17.
Reference is made to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification provisions described
above and elsewhere herein:
<TABLE>
<CAPTION>
Exhibit Document Number
---------------- ------
<S> <C>
Form of Underwriting Agreement...................................... 1.01
Registrant's Amended and Restated Certificate of Incorporation...... 3.03
Registrant's Restated Bylaws........................................ 3.04
Third Amended and Restated Investors' Rights Agreement dated June
10, 1999........................................................... 4.02
Form of Indemnity Agreement......................................... 10.01
</TABLE>
Item 15. Recent Sales of Unregistered Securities.
Since inception we have issued and sold the following securities:
1. We granted stock options to purchase 4,124,036 shares of our common
stock at exercise prices ranging from $0.03 to $10.01 per share to our
employees, consultants, directors, and other service providers under our 1996
Stock Option Plan and 1998 Stock Option Plan. Through August 31, 1999, we
issued and sold an aggregate of 2,372,629 shares of our common stock to
employees, consultants, directors, and other service providers at prices
ranging from $0.03 to $10.01 per share under direct issuances or exercises of
options granted under our 1996 Stock Option Plan and 1998 Stock Option Plan.
All shares purchased under our 1996 Stock Option Plan and 1998 Stock Option
Plan are subject to our right to repurchase such shares at their original
exercise price. The repurchase feature generally expires for 25% of the shares
after the first year of service and then expires ratably over the next 36
months.
2. In March and June 1996, we issued and sold an aggregate of 1,800,000
shares of our Series A Preferred Stock to private investors for an aggregate
purchase price of approximately $360,000. In March 1998, we repurchased
680,000 shares of our Series A Preferred Stock at $0.93 per share. The
1,120,000 shares of Series A Preferred Stock outstanding are convertible into
an aggregate of 746,664 shares of common stock.
3. In August 1996, we issued a warrant to a certain bank in connection with
a loan agreement. The warrant is exercisable for 9,330 shares of Series B
Preferred Stock, which shares are convertible into 9,828 shares of Preferred
Stock. These shares of Series B Preferred Stock are convertible into an
aggregate of up to 6,552 shares of common stock.
4. In January 1997, in connection with a bridge loan that converted into
Series B Preferred Stock, we issued warrants to private investors to purchase
93,298 shares of Series B Preferred Stock at an exercise price of
II-2
<PAGE>
$1.2862 per share. These shares of Series B Preferred Stock are convertible
into an aggregate of up to 65,519 shares of common stock.
5. In May and June 1997, we issued and sold an aggregate of 3,039,505
shares of our Series B Preferred Stock to private investors for an aggregate
purchase price of approximately $3,890,566. These shares of Series B Preferred
Stock are convertible into an aggregate of up to 2,134,548 shares of common
stock.
6. In March 1998, we issued and sold an aggregate of 6,241,619 shares of
our Series C Preferred Stock to private investors for an aggregate purchase
price of approximately $6,375,181, and warrants to purchase 918,124 shares of
Series C Preferred Stock at an exercise price of $1.2862 per share. In
connection with the Series D Preferred Stock financing, all warrants to
purchase Series C Preferred Stock were exercised for an aggregate purchase
price of approximately $1,180,891. These shares of Series C Preferred Stock
are convertible into an aggregate of 4,773,161 shares of common stock.
7. In October, November and December 1998, we issued and sold an aggregate
of 3,741,217 shares of our Series D Preferred Stock to private investors for
an aggregate purchase price of approximately $6,996,075. These shares of
Series D Preferred Stock are convertible into an aggregate of 2,494,142 shares
of common stock.
8. In June 1999, we issued and sold an aggregate of 3,394,719 shares of our
Series E Preferred Stock to private investors for an aggregate purchase price
of approximately $19,214,109. These shares of Series E Preferred Stock are
convertible into an aggregate of 2,263,136 shares of common stock.
9. In July 1999, we issued 88,339 shares of Series E Preferred Stock and
warrants to purchase 17,668 shares of Series E Preferred Stock to certain
shareholders of Lexington Software Associates, Inc. in exchange for their
shares of that company. These shares of Series E Preferred Stock are
convertible into an aggregate of up to 58,888 shares of common stock and
warrants to purchase up to 11,770 shares of Series E Preferred Stock.
All sales of common stock made pursuant to the exercise of stock options
were made in reliance on Rule 701 under the Securities Act or on Section 4(2)
of the Securities Act.
All sales of preferred stock and warrants to purchase preferred stock were
made in reliance on Section 4(2) of the Securities Act and/or Regulation D
promulgated under the Securities Act. These sales were made without general
solicitation or advertising. Each purchaser was a sophisticated investor with
access to all relevant information necessary to evaluate the investment and
represented to the Registrant that the shares were being acquired for
investment.
Item 16. Exhibits and Financial Statement Schedules.
(a) The following exhibits are filed herewith:
<TABLE>
<CAPTION>
Number Exhibit Title
------ -------------
<C> <S>
1.01 Form of Underwriting Agreement.
3.01** Registrant's Certificate of Incorporation.
3.02 Registrant's Amended and Restated Certificate of Incorporation (to
be filed in connection with our reincorporation from California
to Delaware prior to consummation of this offering).
3.03* Registrant's Amended and Restated Certificate of Incorporation (to
be filed upon the closing of this offering).
3.04 Registrant's Restated Bylaws to be adopted in connection with our
reincorporation from California to Delaware prior to consummation
of this offering).
3.05 Registrant's Certificate of Designation (to be filed in connection
with our reincorporation from California to Delaware prior to
consummation of this offering).
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Number Exhibit Title
------ -------------
<C> <S>
4.01* Form of Certificate for Registrant's common stock.
4.02 Third Amended and Restated Investors' Rights Agreement, dated June
10, 1999.
5.01* Opinion of Fenwick & West LLP regarding legality of the securities
being registered.
10.01** Form of Indemnity Agreement between Registrant and each of its
directors and executive officers.
10.02** 1996 Stock Option Plan and related agreements.
10.03** 1998 Stock Option Plan and related agreements.
10.04 1999 Equity Incentive Plan and related agreements.
10.05 1999 Employee Stock Purchase Plan and related agreements.
10.06** Regional Prototype Profit Sharing Plan and Trust/Account Standard
Plan Adoption Agreement AA #001.
10.07** Employment Agreement between Interwoven, Inc. and Martin W. Brauns
dated February 27, 1998.
10.08** Offer Letter to David M. Allen from Interwoven, Inc. dated
February 12, 1999.
10.09** Offer Letter to Michael A. Backlund from Interwoven, Inc. dated
May 1, 1998.
10.10** Offer Letter to John Chang from Interwoven, Inc. dated January 20,
1997.
10.11** Offer Letter to Jeffrey E. Engelmann from Interwoven, Inc. dated
December 11, 1998.
10.12** Offer Letter to Steven Farber from Interwoven, Inc. dated June 14,
1997.
10.13** Offer Letter to Jack S. Jia from Interwoven, Inc. dated January 3,
1997.
10.14** Offer Letter to Peng T. Ong from Interwoven, Inc. dated February
29, 1996.
10.15** Offer Letter to Jozef Ruck from Interwoven, Inc. dated February
18, 1999.
10.16** Confidential Separation Agreement and Release, between Interwoven,
Inc. and John Chang dated November 25, 1998.
10.17** Confidential Separation Agreement and Release, between Interwoven,
Inc. and Steven Farber dated February 12, 1998.
10.18** Secured Promissory Notes between Interwoven, Inc. and Jeffrey E.
Engelmann, dated as of April 19, 1999.
10.19** Secured Promissory Notes between Interwoven, Inc. and Jozef Ruck,
dated as of April 21, 1999.
10.20** Built-To-Suit Lease Agreement dated March 18, 1997 between
Sunnyvale Partners Limited Partnership and First Data Merchant
Services Corporation.
10.21** Sublease dated April 24, 1998 between First Data Merchant Services
Corporation and Interwoven, Inc.
10.22** Loan and Security Agreement, dated October 1997, as amended,
between Interwoven, Inc. and Silicon Valley Bank.
10.23** Agreement and Plan of Reorganization, dated June 30, 1999, by and
among Interwoven, Inc., Lexington Software Associates, Inc. and
certain Stockholders of Lexington Software Associates, Inc.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Number Exhibit Title
------ -------------
<C> <S>
10.24+ Standard Sales Agreement effective as of July 28, 1999 between
Registrant and General Electric Company.
10.25+ Preferred Stock Warrant to Purchase Shares of Series E Preferred
Stock of Registrant.
21.01 Subsidiaries of the Registrant
23.01* Consent of Fenwick & West LLP (included in Exhibit 5.01).
23.02 Consent of PricewaterhouseCoopers LLP, independent accountants.
24.01** Power of Attorney.
27.01 Financial Data Schedule.
</TABLE>
- ---------------------
* To be filed by amendment
** Previously filed
+ Confidential treatment requested as to certain portions of this exhibit
Other financial statement schedules are omitted because the information
called for is not required or is shown either in the financial statements or
the notes thereto.
Item 17. Undertakings.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 14 above, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment to its Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of San Mateo, State
of California, on this 2nd day of September, 1999.
INTERWOVEN, INC.
/s/ David M. Allen
By: _________________________________
David M. Allen
Vice President and Chief
Financial Officer
Pursuant to the requirements of the Securities Act, this Amendment to
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
Principal Executive Officer
<S> <C> <C>
*Martin W. Brauns President, Chief Executive September 2, 1999
______________________________________ Officer and a director
Martin W. Brauns
Principal Financial Officer and Principal
Accounting Officer:
/s/ David M. Allen Vice President and Chief September 2, 1999
______________________________________ Financial Officer
David M. Allen
Additional Directors:
*Peng T. Ong Chairman of the Board September 2, 1999
______________________________________
Peng T. Ong
*Kathryn C. Gould Director September 2, 1999
______________________________________
Kathryn C. Gould
*Mark W. Saul Director September 2, 1999
______________________________________
Mark W. Saul
*Mark C. Thompson Director September 2, 1999
______________________________________
Mark C. Thompson
Director
______________________________________
Ronald E.F. Codd
</TABLE>
*By: /s/ David M. Allen
____________________________
David M. Allen Attorney-in-
fact
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Number Exhibit Title
------ -------------
<C> <S>
1.01 Form of Underwriting Agreement.
3.02 Registrant's Amended and Restated Certificate of Incorporation (to
be filed in connection with to our reincorporation from California
to Delaware prior to consummation of this offering).
3.04 Registrant's Restated Bylaws (to be adopted in connection with our
reincorporation from California to Delaware prior to consummation
of this offering).
3.05 Registrant's Certificate of Designation (to be filed in connection
with our reincorporation from California to Delaware prior to
consummation of this offering).
4.02 Third Amended and Restated Investors' Rights Agreement, dated June
10, 1999.
10.04 1999 Equity Incentive Plan and related agreements.
10.05 1999 Employee Stock Purchase Plan and related agreements.
10.24+ Standard Sales Agreement effective as of July 28, 1999 between
Registrant and General Electric Company.
10.25+ Preferred Stock Warrant to Purchase Shares of Series E Preferred
Stock of Registrant.
21.01 Subsidiaries of the Registrant.
23.02 Consent of PricewaterhouseCoopers LLP, independent accountants.
27.01 Financial Data Schedule.
</TABLE>
- ---------------------
+ Confidential treatment requested as to certain portions of this exhibit.
<PAGE>
EXHIBIT 1.01
_________ Shares
INTERWOVEN, INC.
Common Stock, par value $0.001 per share
UNDERWRITING AGREEMENT
----------------------
September __, 1999
Credit Suisse First Boston Corporation
BancBoston Robertson Stephens Inc.
Dain Rauscher Wessels,
A Division of Dain Rauscher Incorporated,
As Representatives of the Several Underwriters,
c/o Credit Suisse First Boston Corporation,
Eleven Madison Avenue,
New York, N.Y. 10010-3629
Dear Sirs:
1. Introductory. Interwoven, Inc., a Delaware corporation ("Company"),
------------ -------
proposes to issue and sell [________] shares ("Firm Securities") of its Common
---------------
Stock, par value $0.001 per share ("Securities") and also proposes to issue and
----------
sell to the Underwriters, at the option of the Underwriters, an aggregate of not
more than [________] additional shares ("Optional Securities") of its Securities
-------------------
as set forth below. The Firm Securities and the Optional Securities are herein
collectively called the "Offered Securities." As part of the offering
------------------
contemplated by this Agreement, [____________________] (the "Designated
----------
Underwriter") has agreed to reserve out of the Firm Securities purchased by it
- -----------
under this Agreement, up to [_________________] shares, for sale to the
Company's directors, officers, employees and other parties associated with the
Company (collectively, "Participants"), as set forth in the Prospectus (as
------------
defined herein) under the heading "Underwriters" (the "Directed Share Program").
----------------------
The Firm Securities to be sold by the Designated Underwriter pursuant to the
Directed Share Program (the "Directed Shares") will be sold by the Designated
---------------
Underwriter pursuant to this Agreement at the public offering price. Any
Directed Shares not orally confirmed for purchase by a Participant by the end of
the business day on which this Agreement is executed will be offered to the
public by the Underwriters as set forth in the Prospectus. The Company hereby
agrees with the several Underwriters named in Schedule A hereto ("Underwriters")
------------
as follows:
2. Representations and Warranties of the Company. The Company represents
---------------------------------------------
and warrants to, and agrees with, the several Underwriters that:
(a) A registration statement (No. 333-______) relating to the Offered
Securities, including a form of prospectus, has been filed with the Securities
and Exchange Commission ("Commission") and either (i) has been declared
----------
effective under the Securities Act of 1933, as amended ("Act") and is not
---
proposed to be amended or (ii) is proposed to be amended by amendment or post-
effective amendment. If such registration statement ("initial registration
--------------------
statement") has been declared effective, either (i) an additional registration
- ---------
statement ("additional registration statement") relating to the Offered
---------------------------------
Securities may have been filed with the Commission pursuant to Rule 462(b)
("Rule 462(b)") under the Act and, if so filed, has become effective upon filing
-----------
pursuant to such Rule and the Offered Securities all have been duly registered
under the Act pursuant to the initial registration statement and, if applicable,
the additional registration statement or (ii) such an additional registration
statement is proposed to be filed with the Commission pursuant to Rule 462(b)
and will become effective upon filing pursuant to such Rule and upon such filing
the Offered Securities will all have been duly registered under the Act pursuant
to the initial registration statement and such additional registration
statement. If the Company does not propose to amend the initial registration
statement or if an additional registration statement has been filed and the
Company does not propose to amend it, and if any post-effective amendment to
either such registration statement has
<PAGE>
been filed with the Commission prior to the execution and delivery of this
Agreement, the most recent amendment (if any) to each such registration
statement has been declared effective by the Commission or has become effective
upon filing pursuant to Rule 462(c) ("Rule 462(c)") under the Act or, in the
-----------
case of the additional registration statement, Rule 462(b). For purposes of this
Agreement, "Effective Time" with respect to the initial registration statement
--------------
or, if filed prior to the execution and delivery of this Agreement, the
additional registration statement means (i) if the Company has advised the
Representatives that it does not propose to amend such registration statement,
the date and time as of which such registration statement, or the most recent
post-effective amendment thereto (if any) filed prior to the execution and
delivery of this Agreement, was declared effective by the Commission or has
become effective upon filing pursuant to Rule 462(c), or (ii) if the Company has
advised the Representatives that it proposes to file an amendment or post-
effective amendment to such registration statement, the date and time as of
which such registration statement, as amended by such amendment or post-
effective amendment, as the case may be, is declared effective by the
Commission. If an additional registration statement has not been filed prior to
the execution and delivery of this Agreement but the Company has advised the
Representatives that it proposes to file one, "Effective Time" with respect to
--------------
such additional registration statement means the date and time as of which such
registration statement is filed and becomes effective pursuant to Rule 462(b).
"Effective Date" with respect to the initial registration statement or the
--------------
additional registration statement (if any) means the date of the Effective Time
thereof. The initial registration statement, as amended at its Effective Time,
including all information contained in the additional registration statement (if
any) and deemed to be a part of the initial registration statement as of the
Effective Time of the additional registration statement pursuant to the General
Instructions of the Form on which it is filed and including all information (if
any) deemed to be a part of the initial registration statement as of its
Effective Time pursuant to Rule 430A(b) ("Rule 430A(b)") under the Act, is
------------
hereinafter referred to as the "Initial Registration Statement". The additional
------------------------------
registration statement, as amended at its Effective Time, including the contents
of the initial registration statement incorporated by reference therein and
including all information (if any) deemed to be a part of the additional
registration statement as of its Effective Time pursuant to Rule 430A(b), is
hereinafter referred to as the "Additional Registration Statement". The Initial
---------------------------------
Registration Statement and the Additional Registration Statement are herein
referred to collectively as the "Registration Statements" and individually as a
-----------------------
"Registration Statement". The form of prospectus relating to the Offered
----------------------
Securities, as first filed with the Commission pursuant to and in accordance
with Rule 424(b) ("Rule 424(b)") under the Act or (if no such filing is
-----------
required) as included in a Registration Statement, is hereinafter referred to as
the "Prospectus". No document has been or will be prepared or distributed in
----------
reliance on Rule 434 under the Act.
(b) If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement: (i) on the Effective Date
of the Initial Registration Statement, the Initial Registration Statement
conformed in all respects to the requirements of the Act and the rules and
regulations of the Commission ("Rules and Regulations") and did not include any
---------------------
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading,
(ii) on the Effective Date of the Additional Registration Statement (if any),
each Registration Statement conformed, or will conform, in all respects to the
requirements of the Act and the Rules and Regulations and did not include, or
will not include, any untrue statement of a material fact and did not omit, or
will not omit, to state any material fact required to be stated therein or
necessary to make the statements therein not misleading and (iii) on the date of
this Agreement, the Initial Registration Statement and, if the Effective Time of
the Additional Registration Statement is prior to the execution and delivery of
this Agreement, the Additional Registration Statement each conforms, and at the
time of filing of the Prospectus pursuant to Rule 424(b) or (if no such filing
is required) at the Effective Date of the Additional Registration Statement in
which the Prospectus is included, each Registration Statement and the Prospectus
will conform, in all respects to the requirements of the Act and the Rules and
Regulations, and neither of such documents includes, or will include, any untrue
statement of a material fact or omits, or will omit, to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading. If the Effective Time of the Initial Registration Statement is
subsequent to the execution and delivery of this Agreement: on the Effective
Date of the Initial
-2-
<PAGE>
Registration Statement, the Initial Registration Statement and the Prospectus
will conform in all respects to the requirements of the Act and the Rules and
Regulations, neither of such documents will include any untrue statement of
material fact or will omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, and no
Additional Registration Statement has been or will be filed. The two preceding
sentences do not apply to statements in or omissions from a Registration
Statement or the Prospectus based upon written information furnished to the
Company by any Underwriter through the Representatives specifically for use
therein, it being understood and agreed that the only such information is that
described as such in Section 7(b) hereof.
(c) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Delaware, with power
and authority (corporate and other) to own its properties and conduct its
business as described in the Prospectus; and the Company is duly qualified to do
business as a foreign corporation in good standing in all other jurisdictions in
which its ownership or lease of property or the conduct of its business requires
such qualification.
(d) Each subsidiary of the Company has been duly incorporated and is
an existing corporation in good standing under the laws of the jurisdiction of
its incorporation, with power and authority (corporate and other) to own its
properties and conduct its business as described in the Prospectus; and each
subsidiary of the Company is duly qualified to do business as a foreign
corporation in good standing in all other jurisdictions in which its ownership
or lease of property or the conduct of its business requires such qualification;
all of the issued and outstanding capital stock of each subsidiary of the
Company has been duly authorized and validly issued and is fully paid and
nonassessable; and the capital stock of each subsidiary owned by the Company,
directly or through subsidiaries, is owned free from liens, encumbrances and
defects.
(e) The Offered Securities and all other outstanding shares of
capital stock of the Company have been duly authorized; all outstanding shares
of capital stock of the Company are, and, when the Offered Securities have been
delivered and paid for in accordance with this Agreement on each Closing Date
(as defined below), such Offered Securities will have been, validly issued,
fully paid and nonassessable and will conform to the description thereof
contained in the Prospectus; and the stockholders of the Company have no
preemptive rights with respect to the Securities.
(f) Except as disclosed in the Prospectus, there are no contracts,
agreements or understandings between the Company and any person that would give
rise to a valid claim against the Company or any Underwriter for a brokerage
commission, finder's fee or other like payment in connection with this offering.
(g) There are no contracts, agreements or understandings between the
Company and any person granting such person the right to require the Company to
file a registration statement under the Act with respect to any securities of
the Company owned or to be owned by such person or to require the Company to
include such securities in the securities registered pursuant to a Registration
Statement or in any securities being registered pursuant to any other
registration statement filed by the Company under the Act.
(h) The Offered Securities have been approved for listing on The
Nasdaq Stock Market's National Market, subject to notice of issuance.
(i) No consent, approval, authorization, or order of, or filing with,
any governmental agency or body or any court is required for the consummation of
the transactions contemplated by this Agreement in connection with the issuance
and sale of the Offered Securities by the Company, except such as have been
obtained and made under the Act and such as may be required under state
securities laws.
(j) The execution, delivery and performance of this Agreement, and
the issuance and sale of the Offered Securities will not result in a breach or
violation of any of the terms and provisions of,
-3-
<PAGE>
or constitute a default under, any statute, any rule, regulation or order of any
governmental agency or body or any court, domestic or foreign, having
jurisdiction over the Company or any subsidiary of the Company or any of their
properties, or any agreement or instrument to which the Company or any such
subsidiary is a party or by which the Company or any such subsidiary is bound or
to which any of the properties of the Company or any such subsidiary is subject,
or the charter or by-laws of the Company or any such subsidiary, and the Company
has full power and authority to authorize, issue and sell the Offered Securities
as contemplated by this Agreement.
(k) This Agreement has been duly authorized, executed and delivered
by the Company.
(l) Except as disclosed in the Prospectus, the Company and its
subsidiaries have good and marketable title to all real properties and all other
properties and assets owned by them, in each case free from liens, encumbrances
and defects that would materially affect the value thereof or materially
interfere with the use made or to be made thereof by them; and except as
disclosed in the Prospectus, the Company and its subsidiaries hold any leased
real or personal property under valid and enforceable leases with no exceptions
that would materially interfere with the use made or to be made thereof by them.
(m) The Company and its subsidiaries possess adequate certificates,
authorities or permits issued by appropriate governmental agencies or bodies
necessary to conduct the business now operated by them and have not received any
notice of proceedings relating to the revocation or modification of any such
certificate, authority or permit that, if determined adversely to the Company or
any of its subsidiaries, would individually or in the aggregate have a material
adverse effect on the condition (financial or other), business, properties or
results of operations of the Company and its subsidiaries taken as a whole
("Material Adverse Effect").
-----------------------
(n) No labor dispute with the employees of the Company or any
subsidiary exists or, to the knowledge of the Company, is imminent that might
have a Material Adverse Effect.
(o) The Company and its subsidiaries own, possess or can acquire on
reasonable terms, adequate trademarks, trade names and other rights to
inventions, know-how, patents, copyrights, confidential information and other
intellectual property, including applications licensed directly from third
parties (collectively, "intellectual property rights") necessary to conduct the
----------------------------
business now operated by them, or presently employed by them, and have not
received any notice of infringement of or conflict with asserted rights of
others with respect to any intellectual property rights that, if determined
adversely to the Company or any of its subsidiaries, would individually or in
the aggregate have a Material Adverse Effect. The discoveries, inventions,
products or processes of the Company referred to in the Prospectus do not, to
the Company's knowledge, infringe or conflict with any intellectual property
right of any third party.
(p) Except as disclosed in the Prospectus, neither the Company nor
any of its subsidiaries is in violation of any statute, any rule, regulation,
decision or order of any governmental agency or body or any court, domestic or
relating to the use, disposal or release of hazardous or toxic substances or
relating to the protection or restoration of the environment or human exposure
to hazardous or toxic substances (collectively, "environmental laws"), owns or
------------------
operates any real property contaminated with any substance that is subject to
any environmental laws, is liable for any off-site disposal or contamination
pursuant to any environmental laws, or is subject to any claim relating to any
environmental laws, which violation, contamination, liability or claim would
individually or in the aggregate have a Material Adverse Effect; and the Company
is not aware of any pending investigation which might lead to such a claim.
(q) Except as disclosed in the Prospectus, there are no pending
actions, suits or proceedings against or affecting the Company, or any of its
subsidiaries or any of their respective properties that, if determined adversely
to the Company or any of its subsidiaries, would individually or in the
aggregate have a Material Adverse Effect, or would materially and adversely
affect the ability of the Company to perform its obligations under this
Agreement, or which are otherwise material in the context
-4-
<PAGE>
of the sale of the Offered Securities; and no such actions, suits or proceedings
are threatened or, to the Company's knowledge, contemplated.
(r) The financial statements included in each Registration Statement
and the Prospectus present fairly the financial position of the Company and its
consolidated subsidiaries as of the dates shown and their results of operations
and cash flows for the periods shown, and such financial statements have been
prepared in conformity with the generally accepted accounting principles in the
United States applied on a consistent basis and the schedules included in each
Registration Statement present fairly the information required to be stated
therein; and the assumptions used in preparing the pro forma financial
statements included in each Registration Statement and the Prospectus provide a
reasonable basis for presenting the significant effects directly attributable to
the transactions or events described therein, the related pro forma adjustments
give appropriate effect to those assumptions, and the pro forma columns therein
reflect the proper application of those adjustments to the corresponding
historical financial statement amounts.
(s) Except as disclosed in the Prospectus, since the date of the
latest audited financial statements included in the Prospectus there has been no
material adverse change, nor any development or event involving a prospective
material adverse change, in the condition (financial or other), business,
properties or results of operations of the Company and its subsidiaries taken as
a whole, and, except as disclosed in or contemplated by the Prospectus, there
has been no dividend or distribution of any kind declared, paid or made by the
Company on any class of its capital stock.
(t) The execution and delivery of the Agreement and Plan of Merger
dated as of __________ ____, 1999 (the "Merger Agreement") between Interwoven,
----------------
Inc., a California corporation (the "California Corporation"), and the Company,
----------------------
effecting the reincorporation of the California Corporation under the laws of
the State of Delaware, was duly authorized by all necessary corporate action on
the part of each of the California Corporation and the Company. Each of the
California Corporation and the Company had all corporate power and authority to
execute and deliver the Merger Agreement, to file the Merger Agreement with the
Secretary of State of California and the Secretary of State of Delaware and to
consummate the reincorporation contemplated by the Merger Agreement, and the
Merger Agreement at the time of execution and filing constituted a valid and
binding obligation of each of the California Corporation and the Company.
(u) The Company is not and, after giving effect to the offering and
sale of the Offered Securities and the application of the proceeds thereof as
described in the Prospectus, will not be an "investment company" as defined in
the Investment Company Act of 1940.
(v) The Company (i) has notified each holder of a currently
outstanding option issued under the Company's 1996 Stock Option Plan, 1998 Stock
Option Plan and 1999 Equity Incentive Plan, and each person who has acquired
Securities pursuant to the exercise of any option granted under such option
plans that pursuant to the terms of such option plans, none of such options or
shares may be sold or otherwise transferred or disposed of for a period of 180
days after the date of the initial public offering of the Offered Securities and
(ii) has imposed a stop-transfer instruction with the Company's transfer agent
in order to enforce the foregoing lock-up provision imposed pursuant to the
Option Plan.
(w) Except as disclosed in the Prospectus, all outstanding
Securities, and all securities convertible into or exercisable or exchangeable
for Securities, are subject to valid and binding agreements (collectively,
"Lock-up Agreements") that restrict the holders thereof from selling, making any
------------------
short sale of, granting any option for the purchase of, or otherwise
transferring or disposing of, any of such Securities, or any such securities
convertible into or exercisable or exchangeable for Securities, for a period of
180 days after the date of the Prospectus without the prior written consent of
Credit Suisse First Boston Corporation ("CSFBC").
-----
-5-
<PAGE>
(x) The Company (i) has notified each stockholder who is party to the
Third Amended and Restated Investors Rights Agreement dated June 10, 1999 (the
"Rights Agreement"), that pursuant to the terms of the Rights Agreement, none of
----------------
the shares of the Company's capital stock held by such stockholder may be sold
or otherwise transferred or disposed of for a period of 180 days after the date
of the initial public offering of the Offered Securities and (ii) has imposed a
stop-transfer instruction with the Company's transfer agent in order to enforce
the foregoing lock-up provision imposed pursuant to the Rights Agreement.
(y) Neither the Company nor any of its affiliates does business with
the government of Cuba or with any person or affiliate located in Cuba within
the meaning of Section 517.075, Florida Statutes and the Company agrees to
comply with such Section if prior to the completion of the distribution of the
Offered Securities it commences doing such business.
(z) The Company has not offered, or caused the Underwriters to offer,
any offered Securities to any person pursuant to the Directed Share Program with
the specific intent to unlawfully influence (i) a customer or supplier of the
Company to alter the customer's or supplier's level or type of business with the
Company or (ii) a trade journalist or publication to write or publish favorable
information about the Company or its products.
Furthermore, the Company represents and warrants to the Underwriters that
(i) the Registration Statement, the Prospectus and any preliminary prospectus
comply, and any further amendments or supplements thereto will comply, with any
applicable laws or regulations of foreign jurisdictions in which the Prospectus
or any preliminary prospectus, as amended or supplemented, if applicable, are
distributed in connection with the Directed Share Program, and that (ii) no
authorization , approval, consent, license, order, registration or qualification
of or with any government, governmental instrumentality or court, other than
such as have been obtained, is necessary under the securities law and
regulations or foreign jurisdictions in which the Directed Shares are offered
outside the United States.
3. Purchase, Sale and Delivery of Offered Securities. On the basis of the
-------------------------------------------------
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company agrees to sell to the
Underwriters, and the Underwriters agree, severally and not jointly, to purchase
from the Company, at a purchase price of $[____] per share, the respective
numbers of shares of Firm Securities set forth opposite the names of the
Underwriters in Schedule A hereto.
The Company will deliver the Firm Securities to the Representatives for
the accounts of the Underwriters, at the office of CSFBC, Eleven Madison Avenue,
New York, New York, against payment of the purchase price in Federal (same day)
funds by official bank check or checks or wire transfer to an account at a bank
acceptable to CSFBC drawn to the order of the Company at the office of Fenwick &
West LLP ("Fenwick & West"), Two Palo Alto Square, Palo Alto, California, at
10:00 A.M., New York time, on September [__], 1999, or at such other time not
later than seven full business days thereafter as CSFBC and the Company
determine, such time being herein referred to as the "First Closing Date." For
------------------
purposes of Rule 15c6-1 under the Exchange Act , the First Closing Date (if
later than the otherwise applicable settlement date) shall be the settlement
date for payment of funds and delivery of securities for all the Offered
Securities sold pursuant to the offering. The certificates for the Firm
Securities so to be delivered will be in definitive form, in such denominations
and registered in such names as CSFBC requests and will be made available for
checking and packaging at the above office of CSFBC in New York at least 24
hours prior to the First Closing Date.
In addition, upon written notice from CSFBC given to the Company from time
to time not more than 30 days subsequent to the date of the Prospectus, the
Underwriters may purchase all or less than all of the Optional Securities at the
purchase price per Security to be paid for the Firm Securities. The Company
agrees to sell to the Underwriters the number of shares of Optional Securities
specified in such notice and the Underwriters agree, severally and not jointly,
to purchase such Optional Securities. Such Optional Securities shall be
purchased for the account of each Underwriter in the same proportion as the
number of
-6-
<PAGE>
shares of Firm Securities set forth opposite such Underwriter's name bears to
the total number of shares of Firm Securities (subject to adjustment by CSFBC to
eliminate fractions) and may be purchased by the Underwriters only for the
purpose of covering over-allotments made in connection with the sale of the Firm
Securities. No Optional Securities shall be sold or delivered unless the Firm
Securities previously have been, or simultaneously are, sold and delivered. The
right to purchase the Optional Securities or any portion thereof may be
exercised from time to time and to the extent not previously exercised may be
surrendered and terminated at any time upon notice by CSFBC to the Company.
Each time for the delivery of and payment for the Optional Securities,
being herein referred to as an "Optional Closing Date," which may be the First
---------------------
Closing Date (the First Closing Date and each Optional Closing Date, if any,
being sometimes referred to as a "Closing Date"), shall be determined by CSFBC
------------
but shall be not later than five full business days after written notice of
election to purchase Optional Securities is given. The Company will deliver the
Optional Securities being purchased on each Optional Closing Date to the
Representatives for the accounts of the several Underwriters, at the above
office of CSFBC in New York, against payment of the purchase price therefor in
Federal (same day) funds by official bank check or checks or wire transfer to an
account at a bank acceptable to CSFBC drawn to the order of the Company at the
above office of Fenwick & West. The certificates for the Optional Securities
being purchased on each Optional Closing Date will be in definitive form, in
such denominations and registered in such names as CSFBC requests upon
reasonable notice prior to such Optional Closing Date and will be made available
for checking and packaging at the above office of CSFBC at a reasonable time in
advance of such Optional Closing Date.
4. Offering by Underwriters. It is understood that the several
------------------------
Underwriters propose to offer the Offered Securities for sale to the public as
set forth in the Prospectus.
5. Certain Agreements of the Company. The Company agrees with the several
---------------------------------
Underwriters that:
(a) If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement, the Company will file the
Prospectus with the Commission pursuant to and in accordance with subparagraph
(1) (or, if applicable and if consented to by CSFBC, subparagraph (4)) of Rule
424(b) not later than the earlier of (A) the second business day following the
execution and delivery of this Agreement or (B) the fifteenth business day after
the Effective Date of the Initial Registration Statement.
The Company will advise CSFBC promptly of any such filing pursuant to
Rule 424(b). If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement and an additional
registration statement is necessary to register a portion of the Offered
Securities under the Act but the Effective Time thereof has not occurred as of
such execution and delivery, the Company will file the additional registration
statement or, if filed, will file a post-effective amendment thereto with the
Commission pursuant to and in accordance with Rule 462(b) on or prior to 10:00
P.M., New York time, on the date of this Agreement or, if earlier, on or prior
to the time the Prospectus is printed and distributed to any Underwriter, or
will make such filing at such later date as shall have been consented to by
CSFBC.
(b) The Company will advise CSFBC promptly of any proposal to amend or
supplement the initial or any additional registration statement as filed or the
related prospectus or the Initial Registration Statement, the Additional
Registration Statement (if any) or the Prospectus and will not effect such
amendment or supplementation without CSFBC's consent; and the Company will also
advise CSFBC promptly of the effectiveness of each Registration Statement (if
its Effective Time is subsequent to the execution and delivery of this
Agreement) and of any amendment or supplementation of a Registration Statement
or the Prospectus and of the institution by the Commission of any stop order
proceedings in respect of a Registration Statement and will use its best efforts
to prevent the issuance of any such stop order and to obtain as soon as possible
its lifting, if issued.
-7-
<PAGE>
(c) If, at any time when a prospectus relating to the Offered
Securities is required to be delivered under the Act in connection with sales by
any Underwriter or dealer, any event occurs as a result of which the Prospectus
as then amended or supplemented would include an untrue statement of a material
fact or omit to state any material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, or if it is necessary at any time to amend the Prospectus to comply
with the Act, the Company will promptly notify CSFBC of such event and will
promptly prepare and file with the Commission, at its own expense, an amendment
or supplement which will correct such statement or omission or an amendment
which will effect such compliance. Neither CSFBC's consent to, nor the
Underwriters' delivery of, any such amendment or supplement shall constitute a
waiver of any of the conditions set forth in Section 6.
(d) As soon as practicable, but not later than the Availability Date
(as defined below), the Company will make generally available to its
securityholders an earnings statement covering a period of at least 12 months
beginning after the Effective Date of the Initial Registration Statement (or, if
later, the Effective Date of the Additional Registration Statement) which will
satisfy the provisions of Section 11(a) of the Act. For the purpose of the
preceding sentence, "Availability Date" means the 45th day after the end of the
-----------------
fourth fiscal quarter following the fiscal quarter that includes such Effective
Date, except that, if such fourth fiscal quarter is the last quarter of the
Company's fiscal year, "Availability Date" means the 90th day after the end of
-----------------
such fourth fiscal quarter.
(e) The Company will furnish to the Representatives copies of each
Registration Statement (four of which will be signed and will include all
exhibits), each related preliminary prospectus, and, so long as a prospectus
relating to the Offered Securities is required to be delivered under the Act in
connection with sales by any Underwriter or dealer, the Prospectus and all
amendments and supplements to such documents, in each case in such quantities as
CSFBC requests. The Prospectus shall be so furnished on or prior to 3:00 P.M.,
New York time, on the business day following the later of the execution and
delivery of this Agreement or the Effective Time of the Initial Registration
Statement. All other documents shall be so furnished as soon as available. The
Company will pay the expenses of printing and distributing to the Underwriters
all such documents.
(f) The Company will arrange for the qualification of the Offered
Securities for sale under the laws of such jurisdictions as CSFBC designates and
will continue such qualifications in effect so long as required for the
distribution.
(g) During the period of five years hereafter, the Company will
furnish to the Representatives and, upon request, to each of the other
Underwriters, as soon as practicable after the end of each fiscal year, a copy
of its annual report to stockholders for such year; and the Company will furnish
to the Representatives (i) as soon as available, a copy of each report and any
definitive proxy statement of the Company filed with the Commission under the
Exchange Act or mailed to stockholders, and (ii) from time to time, such other
information concerning the Company as CSFBC may reasonably request.
(h) The Company will pay all expenses incident to the performance of
its obligations under this Agreement, for any filing fees and other expenses
(including fees and disbursements of counsel) incurred in connection with
qualification of the Offered Securities for sale under the laws of such
jurisdictions as CSFBC designates and the printing of memoranda relating
thereto, for the filing fee incident to, and the reasonable fees and
disbursements of counsel to the Underwriters in connection with, the review by
the National Association of Securities Dealers, Inc. of the Offered Securities,
for any travel expenses of the Company's officers and employees and any other
expenses of the Company in connection with attending or hosting meetings with
prospective purchasers of the Offered Securities and for expenses incurred in
distributing preliminary prospectuses and the Prospectus (including any
amendments and supplements thereto) to the Underwriters.
(i) For a period of 180 days after the date of the initial public
offering of the Offered Securities, the Company will not offer, sell, contract
to sell, pledge or otherwise dispose of, directly or
-8-
<PAGE>
indirectly, or file with the Commission a registration statement under the Act
relating to, any additional shares of its Securities or securities convertible
into or exchangeable or exercisable for any shares of its Securities, or
publicly disclose the intention to make any such offer, sale, pledge,
disposition or filing, without the prior written consent of CSFBC, except
issuances of Securities pursuant to the conversion of convertible securities or
the exercise of warrants, in each case outstanding on the date hereof, grants of
employee stock options pursuant to the terms of a plan in effect on the date
hereof, issuances of Securities pursuant to the exercise of such options or the
exercise of any other employee stock options outstanding on the date hereof.
(j) The Company agrees to use its best efforts to cause (i) each of
its directors, officers and stockholders and (ii) each person who acquires
Securities of the Company pursuant to the exercise of any option or right
granted under the Company's 1996 Stock Option Plan, 1998 Stock Option Plan or
the 1999 Equity Incentive Plan to sign a Lock-up Agreement, which states that
such person will not offer, sell, contract to sell, pledge or otherwise dispose
of, directly or indirectly, any shares of Securities or securities convertible
into or exchangeable or exercisable for any shares of Securities, or publicly
disclose the intention to make any such offer, sale, pledge or disposal, for a
period of 180 days after the date of the Prospectus without the prior written
consent of CSFBC; and the Company will (i) enforce the terms of each such Lock-
up Agreement and (ii) issue and impose a stop-transfer instruction with the
Company's transfer agent in order to enforce the foregoing Lock-up Agreements.
(k) Except with the prior written consent of CSFBC, the Company
agrees (i) not to amend or terminate, or waive any right under, any Lock-up
Agreement, or take any other action that would directly or indirectly have the
same effect as an amendment or termination, or waiver of any right under any
Lock-up Agreement, that would permit any holder of Securities, or any securities
convertible into, or exercisable or exchangeable for, Securities, to make any
short sale of, grant any option for the purchase of, or otherwise transfer or
dispose of, any such Securities or other securities, prior to the expiration of
the 180 days after the date of the Prospectus and (ii) not to consent to any
sale, short sale, grant of an option for the purchase of, or other disposition
or transfer of shares of Securities, or securities convertible into or
exercisable or exchangeable for Securities, subject to a Lock-up Agreement.
(l) In connection with the Directed Share Program, the Company will
ensure that the Directed Shares will be restricted to the extent required by the
National Association of Securities Dealers, Inc. (the "NASD") or the NASD rules
----
from sale, transfer, assignment, pledge or hypothecation for a period of three
months following the date of the effectiveness of the Registration Statement.
The Designated Underwriter will notify the Company as to which Participants will
need to be so restricted. The Company will direct the transfer agent to place
stop transfer instructions upon such securities for such period of time.
(m) The Company will pay all fees and disbursements of counsel
incurred by the Underwriters in connection with the Directed Share Program and
stamp duties, similar taxes or duties or other taxes, if any, incurred by the
Underwriters in connection with the Directed Share Program.
6. Conditions of the Obligations of the Underwriters. The obligations of
-------------------------------------------------
the several Underwriters to purchase and pay for the Firm Securities on the
First Closing Date and the Optional Securities to be purchased on each Optional
Closing Date will be subject to the accuracy of the representations and
warranties on the part of the Company herein, to the accuracy of the statements
of Company officers made pursuant to the provisions hereof, to the performance
by the Company of its obligations hereunder and to the following additional
conditions precedent:
(a) The Representatives shall have received a letter, dated the date
of delivery thereof (which, if the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement, shall be on
or prior to the date of this Agreement or, if the Effective Time of the Initial
Registration Statement is subsequent to the execution and delivery of this
Agreement, shall be prior to the filing of the amendment or post-effective
amendment to the registration statement to be filed shortly prior to such
Effective Time), of PricewaterhouseCoopers LLP confirming that they are
independent public
-9-
<PAGE>
accountants within the meaning of the Act and the applicable published Rules and
Regulations thereunder and stating to the effect that:
(i) in their opinion the financial statements and schedules
examined by them and included in the Registration Statements comply as to
form in all material respects with the applicable accounting requirements
of the Act and the related published Rules and Regulations;
(ii) they have performed the procedures specified by the
American Institute of Certified Public Accountants for a review of interim
financial information as described in Statement of Auditing Standards No.
71, Interim Financial Information, on the unaudited financial statements
included in the Registration Statements;
(iii) on the basis of the review referred to in clause (ii)
above, a reading of the latest available interim financial statements of
the Company, inquiries of officials of the Company who have responsibility
for financial and accounting matters and other specified procedures,
nothing came to their attention that caused them to believe that:
(A) the unaudited financial statements included in the
Registration Statements do not comply as to form in all material
respects with the applicable accounting requirements of the Act and
the related published Rules and Regulations or any material
modifications should be made to such unaudited financial statements
for them to be in conformity with generally accepted accounting
principles;
(B) at the date of the latest available balance sheet
read by such accountants, or at a subsequent specified date not more
than three business days prior to the date of such letter, there was
any change in the capital stock or any increase in short-term or long-
term debt, total or current liabilities or total stockholders'
deficit, or any decrease in current assets or total assets of the
Company and its consolidated subsidiaries, as compared with amounts
shown on the latest balance sheet included in the Prospectus; or
(C) for the period from the closing date of the latest
statement of operations included in the Prospectus to a specified date
not more than three business days prior to the date of such letter,
there were any decreases, as compared with the corresponding period of
the previous year and with the period of corresponding length in the
previous quarter, in total revenues, or increases in loss from
operations, comprehensive loss or the total or per share amounts of
basic net loss;
except in all cases set forth in clauses (B) and (C) above for changes,
increases or decreases which the Prospectus discloses have occurred or may occur
or which are described in such letter; and
(iv) they have compared specified dollar amounts (or
percentages derived from such dollar amounts) and other financial
information contained in the Registration Statements (in each case to the
extent that such dollar amounts, percentages and other financial and
statistical information are derived from the general accounting records of
the Company and its subsidiaries subject to the internal controls of the
Company's accounting system or are derived directly from such records by
analysis or computation) with the results obtained from inquiries, a
reading of such general accounting records and other procedures specified
in such letter and have found such dollar amounts, percentages and other
financial and statistical information to be in agreement with such results,
except as otherwise specified in such letter.
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<PAGE>
For purposes of this subsection, (i) if the Effective Time of the Initial
Registration Statement is subsequent to the execution and delivery of this
Agreement, "Registration Statements" shall mean the initial registration
-----------------------
statement as proposed to be amended by the amendment or post-effective amendment
to be filed shortly prior to its Effective Time, (ii) if the Effective Time of
the Initial Registration Statement is prior to the execution and delivery of
this Agreement but the Effective Time of the Additional Registration is
subsequent to such execution and delivery, "Registration Statements" shall mean
the Initial Registration Statement and the additional registration statement as
proposed to be filed or as proposed to be amended by the post-effective
amendment to be filed shortly prior to its Effective Time, and (iii)
"Prospectus" shall mean the prospectus included in the Registration Statements.
----------
(b) The Company shall have received from PricewaterhouseCoopers LLP
(and furnished to the Representatives) an examination report with respect to
Management's Discussion and Analysis of Financial Condition and Results of
Operations of the Company for the three fiscal years ending December 31, 1998 in
accordance with Statement on Standards for Attestation Engagement No. 8 issued
by the Auditing Standards Board of the American Institute of Certified Public
Accountants, and such examination report shall be included in the Registration
Statement.
(c) If the Effective Time of the Initial Registration Statement is
not prior to the execution and delivery of this Agreement, such Effective Time
shall have occurred not later than 10:00 P.M., New York time, on the date of
this Agreement or such later date as shall have been consented to by CSFBC. If
the Effective Time of the Additional Registration Statement (if any) is not
prior to the execution and delivery of this Agreement, such Effective Time shall
have occurred not later than 10:00 P.M., New York time, on the date of this
Agreement or, if earlier, the time the Prospectus is printed and distributed to
any Underwriter, or shall have occurred at such later date as shall have been
consented to by CSFBC. If the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement, the
Prospectus shall have been filed with the Commission in accordance with the
Rules and Regulations and Section 5(a) of this Agreement. Prior to such Closing
Date, no stop order suspending the effectiveness of a Registration Statement
shall have been issued and no proceedings for that purpose shall have been
instituted or, to the knowledge of the Company or the Representatives, shall be
contemplated by the Commission.
(d) Subsequent to the execution and delivery of this Agreement,
there shall not have occurred (i) any change, or any development or event
involving a prospective change, in the condition (financial or other), business,
properties or results of operations of the Company or its subsidiaries taken as
one enterprise which, in the judgment of a majority in interest of the
Underwriters including the Representatives, is material and adverse and makes it
impractical or inadvisable to proceed with completion of the public offering or
the sale of and payment for the Offered Securities; (ii) any downgrading in the
rating of any debt securities of the Company by any "nationally recognized
statistical rating organization" (as defined for purposes of Rule 436(g) under
the Act), or any public announcement that any such organization has under
surveillance or review its rating of any debt securities of the Company (other
than an announcement with positive implications of a possible upgrading, and no
implication of a possible downgrading, of such rating); (iii) any material
suspension or material limitation of trading in securities generally on the New
York Stock Exchange, or any setting of minimum prices for trading on such
exchange, or any suspension of trading of any securities of the Company on any
exchange or in the over-the-counter market; (iv) any banking moratorium declared
by U.S. Federal or New York authorities; or (v) any outbreak or escalation of
major hostilities in which the United States is involved, any declaration of war
by Congress or any other substantial national or international calamity or
emergency if, in the judgment of a majority in interest of the Underwriters
including the Representatives, the effect of any such outbreak, escalation,
declaration, calamity or emergency makes it impractical or inadvisable to
proceed with completion of the public offering or the sale of and payment for
the Offered Securities.
(e) The Representatives shall have received an opinion, dated such
Closing Date, of Fenwick & West, counsel for the Company, to the effect that:
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<PAGE>
(i) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Delaware, with
corporate power and authority to own its properties and conduct its
business as described in the Prospectus; and the Company is duly qualified
to do business as a foreign corporation in good standing in all other
jurisdictions in which its ownership or lease of property or the conduct of
its business requires such qualification;
(ii) Each subsidiary of the Company has been duly incorporated
and is an existing corporation in good standing under the laws of the
jurisdiction of its incorporation, with corporate power and authority to
own its properties and conduct its business as described in the Prospectus;
and each subsidiary of the Company is duly qualified to do business as a
foreign corporation in good standing in all other jurisdictions in which
its ownership or lease of property or the conduct of its business requires
such qualification; all of the issued and outstanding capital stock of each
subsidiary of the Company has been duly authorized and validly issued and
is fully paid and nonassessable; and the capital stock of each subsidiary
owned by the Company, direct or through subsidiaries, is owned free from
liens, encumbrances and defects;
(iii) The Offered Securities delivered on such Closing Date and
all other outstanding shares of the capital stock of the Company have been
duly authorized and validly issued, are fully paid and nonassessable and
conform to the description thereof contained in the Prospectus; and the
stockholders of the Company have no preemptive rights with respect to the
Securities;
(iv) Except as disclosed in the Prospectus, there are no
contracts, agreements or understandings known to such counsel between the
Company and any person granting such person the right to require the
Company to file a registration statement under the Act with respect to any
securities of the Company owned or to be owned by such person or to require
the Company to include such securities in the securities registered
pursuant to the Registration Statement or in any securities being
registered pursuant to any other registration statement filed by the
Company under the Act;
(v) The Company is not and, after giving effect to the
offering and sale of the Offered Securities and the application of the
proceeds thereof as described in the Prospectus, will not be an "investment
company" as defined in the Investment Company Act of 1940.
(vi) No consent, approval, authorization or order of, or filing
with, any governmental agency or body or any court is required for the
consummation of the transactions contemplated by this Agreement in
connection with the issuance or sale of the Offered Securities by the
Company, except such as have been obtained and made under the Act and such
as may be required under state securities laws;
(vii) The execution, delivery and performance of this Agreement
and the issuance and sale of the Offered Securities will not result in a
breach or violation of any of the terms and provisions of, or constitute a
default under, any statute, any rule, regulation or order of any
governmental agency or body or any court having jurisdiction over the
Company or any subsidiary of the Company or any of their properties, or any
agreement or instrument to which the Company or any such subsidiary is a
party or by which the Company or any such subsidiary is bound or to which
any of the properties of the Company or any such subsidiary is subject, or
the charter or by-laws of the Company
-12-
<PAGE>
or any such subsidiary, and the Company has full power and authority to
authorize, issue and sell the Offered Securities as contemplated by this
Agreement;
(viii) The Initial Registration Statement was declared effective
under the Act as of the date and time specified in such opinion, the
Additional Registration Statement (if any) was filed and became effective
under the Act as of the date and time (if determinable) specified in such
opinion, the Prospectus either was filed with the Commission pursuant to
the subparagraph of Rule 424(b) specified in such opinion on the date
specified therein or was included in the Initial Registration Statement or
the Additional Registration Statement (as the case may be), and, to the
best of the knowledge of such counsel, no stop order suspending the
effectiveness of a Registration Statement or any part thereof has been
issued and no proceedings for that purpose have been instituted or are
pending or contemplated under the Act, and each Registration Statement and
the Prospectus, and each amendment or supplement thereto, as of their
respective effective or issue dates, complied as to form in all material
respects with the requirements of the Act and the Rules and Regulations;
such counsel have no reason to believe that any part of a Registration
Statement or any amendment thereto, as of its effective date or as of such
Closing Date, contained any untrue statement of a material fact or omitted
to state any material fact required to be stated therein or necessary to
make the statements therein not misleading or that the Prospectus or any
amendment or supplement thereto, as of its issue date or as of such Closing
Date, contained any untrue statement of a material fact or omitted to state
any material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading; the
descriptions in the Registration Statements and Prospectus of statutes,
legal and governmental proceedings and contracts and other documents are
accurate and fairly present the information required to be shown; and such
counsel do not know of any legal or governmental proceedings required to be
described in a Registration Statement or the Prospectus which are not
described as required or of any contracts or documents of a character
required to be described in a Registration Statement or the Prospectus or
to be filed as exhibits to a Registration Statement which are not described
and filed as required; it being understood that such counsel need express
no opinion as to the financial statements or other financial data contained
in the Registration Statements or the Prospectus;
(ix) The statements set forth under the heading "Description
of Capital Stock" in the Prospectus, insofar as such statements purport to
summarize certain provisions of the capital stock of the Company, provide a
fair summary of such provisions; and the statements set forth under the
headings "Risk Factors-We Have Various Mechanisms in Place to Discourage
Takeover Attempts," "Management-Director Compensation," "Management--
Employment Agreements," "Management-Indemnification of Directors and
Executive Officers and Limitation of Liability," "Certain Transactions" and
"Shares Eligible For Future Sale" in the Prospectus, insofar as such
statements constitute a summary of the legal matters, documents or
proceedings referred to therein, have been reviewed by such counsel and
fairly present the information called for with respect to such legal
matters, documents and proceedings in all material respects as required by
the Act and the rules and regulations thereunder;
(x) This Agreement has been duly authorized, executed and
delivered by the Company;
(xi) The execution and delivery of the Merger Agreement,
effecting the reincorporation of the California Corporation under the laws
of the State of Delaware, was duly authorized by all necessary corporate
action on the part of each of the California Corporation and the Company;
and
-13-
<PAGE>
(xii) Under the provisions of Rule 152 promulgated under the
Act, the Company's issuance of Series E Preferred Stock on June 10, 1999 is
not integrated with the offering contemplated hereby. Such issuance was
exempt from the registration requirements of Section 5 of the Act pursuant
to Section 4(2) thereof.
(f) The Representatives shall have received from Wilson Sonsini
Goodrich & Rosati, counsel for the Underwriters, such opinion or opinions,
dated such Closing Date, with respect to the incorporation of the Company,
the validity of the Offered Securities delivered on such Closing Date, the
Registration Statements, the Prospectus and other related matters as the
Representatives may require, and the Company shall have furnished to such
counsel such documents as they request for the purpose of enabling them to
pass upon such matters.
(g) The Representatives shall have received a certificate, dated such
Closing Date, of the President or any Vice President and a principal
financial or accounting officer of the Company in which such officers, to
the best of their knowledge after reasonable investigation, shall state
that: the representations and warranties of the Company in this Agreement
are true and correct; the Company has complied with all agreements and
satisfied all conditions on its part to be performed or satisfied hereunder
at or prior to such Closing Date; no stop order suspending the
effectiveness of any Registration Statement has been issued and no
proceedings for that purpose have been instituted or are contemplated by
the Commission; the Additional Registration Statement (if any) satisfying
the requirements of subparagraphs (1) and (3) of Rule 462(b) was filed
pursuant to Rule 462(b), including payment of the applicable filing fee in
accordance with Rule 111(a) or (b) under the Act, prior to the time the
Prospectus was printed and distributed to any Underwriter; and, subsequent
to the date of the most recent financial statements in the Prospectus,
there has been no material adverse change, nor any development or event
involving a prospective material adverse change, in the condition
(financial or other), business, properties or results of operations of the
Company and its subsidiaries taken as a whole except as set forth in or
contemplated by the Prospectus or as described in such certificate.
(h) The Representatives shall have received a letter, dated such
Closing Date, of PricewaterhouseCoopers LLP which meets the requirements of
subsection (a) of this Section, except that the specified date referred to
in such subsection will be a date not more than three days prior to such
Closing Date for the purposes of this subsection.
The Company will furnish the Representatives with such conformed copies of
such opinions, certificates, letters and documents as the Representatives
reasonably request. CSFBC may in its sole discretion waive on behalf of the
Underwriters compliance with any conditions to the obligations of the
Underwriters hereunder, whether in respect of an Optional Closing Date or
otherwise.
7. Indemnification and Contribution. (a) The Company will indemnify and
--------------------------------
hold harmless each Underwriter, its partners, directors and officers and each
person, if any, who controls such Underwriter within the meaning of Section 15
of the Act, against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter 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 Registration Statement,
the Prospectus, or any amendment or supplement thereto, or any related
preliminary prospectus, or arise out of or are based upon 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, and will reimburse
each Underwriter for any legal or other expenses reasonably incurred by such
Underwriter in connection with investigating or defending any such loss, claim,
damage, liability or action as such expenses are incurred; 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 in or
-14-
<PAGE>
omission or alleged omission from any of such documents in reliance upon and in
conformity with written information furnished to the Company by any Underwriter
through the Representatives specifically for use therein, it being understood
and agreed that the only such information furnished by any Underwriter consists
of the information described as such in subsection (b) below.
The Company agrees to indemnify and hold harmless the Designated
Underwriter and each person, if any, who controls the Designated Underwriter
within the meaning of either Section 15 of the Act or Section 20 of the Exchange
Act (the "Designated Entities"), from and against any and all losses, claims,
-------------------
damages and liabilities (including, without limitation, any legal or other
expenses reasonably incurred in connection with defending or investigating any
such action or claim) (i) caused by any untrue statement or alleged untrue
statement of a material fact contained in any material prepared by or with the
consent of the Company for distribution to Participants in connection with the
Directed Share Program or caused by 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; (ii) caused by the failure of any Participant
to pay for and accept delivery of Directed Shares that the Participant agreed to
purchase; or (iii) related to, arising out of, or in connection with the
Directed Share Program, other than losses, claims, damages or liabilities (or
expenses relating thereto) that are finally judicially determined to have
resulted from the bad faith or gross negligence of the Designated Entities.
(b) Each Underwriter will severally and not jointly indemnify and
hold harmless the Company, its directors and officers and each person, if any
who controls the Company within the meaning of Section 15 of the Act, against
any losses, claims, damages or liabilities to which the Company 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 Registration Statement, the Prospectus, or any amendment or supplement
thereto, or any related preliminary prospectus, 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 reliance upon and in conformity with written information furnished to the
Company by such Underwriter through the Representatives specifically for use
therein, and will reimburse any legal or other expenses reasonably incurred by
the Company in connection with investigating or defending any such loss, claim,
damage, liability or action as such expenses are incurred, it being understood
and agreed that the only such information furnished by any Underwriter consists
of the following information in the Prospectus furnished on behalf of each
Underwriter: the concession and reallowance figures appearing in the fourth
paragraph under the caption "Underwriting" and the information regarding sales
to discretionary accounts and stabilizing transactions contained in the sixth
and thirteenth paragraphs, respectively, under the caption "Underwriting".
(c) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under subsection (a) or (b) above, notify the indemnifying party 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 subsection (a) or (b) above. In case any such action is
brought against any indemnified party and it notifies the indemnifying party of
the commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent that it may wish, jointly with any other indemnifying
party similarly notified, to assume the defense thereof, with counsel
satisfactory to such indemnified party (who shall not, except with the consent
of the indemnified party, be counsel to the indemnifying 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 Section for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation. Notwithstanding anything
contained herein to the contrary, if indemnity may be sought pursuant to the
last paragraph in Section 7(a) hereof in respect of such action or proceeding,
then in addition to such separate firm for the indemnified parties, the
indemnifying party shall be liable for the reasonable fees and expenses
-15-
<PAGE>
of not more than one separate firm (in addition to any local counsel) for the
Designated Underwriter for the defense of any losses, claims, damages and
liabilities arising out of the Directed Share Program, and all persons, if any,
who control the Designated Underwriter within the meaning of either Section 15
of the Act or Section 20 of the Exchange Act. No indemnifying party shall,
without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened action in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party unless such settlement (i) includes
an unconditional release of such indemnified party from all liability on any
claims that are the subject matter of such action and (ii) does not include a
statement as to, or an admission of, fault, culpability or a failure to act by
or on behalf of an indemnified party.
(d) If the indemnification provided for in this Section is
unavailable or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above, then each indemnifying party shall contribute to
the amount paid or payable by such indemnified party as a result of the losses,
claims, damages or liabilities referred to in subsection (a) or (b) above (i) in
such proportion as is appropriate to reflect the relative benefits received by
the Company on the one hand and the Underwriters on the other from the offering
of the Securities or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Company on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand
and the Underwriters on the other shall be deemed to be in the same proportion
as the total net proceeds from the offering (before deducting expenses) received
by the Company bear to the total underwriting discounts and commissions received
by the Underwriters. The relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company or the Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission. The amount paid by an indemnified
party as a result of the losses, claims, damages or liabilities referred to in
the first sentence of this subsection (d) shall be deemed to include any legal
or other expenses reasonably incurred by such indemnified party in connection
with investigating or defending any action or claim which is the subject of this
subsection (d). Notwithstanding the provisions of this subsection (d), no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Securities underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations in
this subsection (d) to contribute are several in proportion to their respective
underwriting obligations and not joint.
(e) The obligations of the Company under this Section shall be in
addition to any liability which the Company may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls any
Underwriter within the meaning of the Act; and the obligations of the
Underwriters under this Section shall be in addition to any liability which the
respective Underwriters may otherwise have and shall extend, upon the same terms
and conditions, to each director of the Company, to each officer of the Company
who has signed a Registration Statement and to each person, if any, who controls
the Company within the meaning of the Act.
8. Default of Underwriters. If any Underwriter or Underwriters default in
-----------------------
their obligations to purchase Offered Securities hereunder on either the First
or any Optional Closing Date and the aggregate number of shares of Offered
Securities that such defaulting Underwriter or Underwriters agreed but failed to
purchase does not exceed 10% of the total number of shares of Offered Securities
that the Underwriters are obligated to purchase on such Closing Date, CSFBC may
make arrangements satisfactory to the Company for the purchase of such Offered
Securities by other persons, including any of the Underwriters,
-16-
<PAGE>
but if no such arrangements are made by such Closing Date, the non-defaulting
Underwriters shall be obligated severally, in proportion to their respective
commitments hereunder, to purchase the Offered Securities that such defaulting
Underwriters agreed but failed to purchase on such Closing Date. If any
Underwriter or Underwriters so default and the aggregate number of shares of
Offered Securities with respect to which such default or defaults occur exceeds
10% of the total number of shares of Offered Securities that the Underwriters
are obligated to purchase on such Closing Date and arrangements satisfactory to
CSFBC and the Company for the purchase of such Offered Securities by other
persons are not made within 36 hours after such default, this Agreement will
terminate without liability on the part of any non-defaulting Underwriter or the
Company, except as provided in Section 9 (provided that if such default occurs
with respect to Optional Securities after the First Closing Date, this Agreement
will not terminate as to the Firm Securities or any Optional Securities
purchased prior to such termination). As used in this Agreement, the term
"Underwriter" includes any person substituted for an Underwriter under this
Section. Nothing herein will relieve a defaulting Underwriter from liability for
its default.
9. Survival of Certain Representations and Obligations. The respective
---------------------------------------------------
indemnities, agreements, representations, warranties and other statements of the
Company or its officers and of the several Underwriters set forth in or made
pursuant to this Agreement will remain in full force and effect, regardless of
any investigation, or statement as to the results thereof, made by or on behalf
of any Underwriter, the Company or any of their respective representatives,
officers or directors or any controlling person, and will survive delivery of
and payment for the Offered Securities. If this Agreement is terminated pursuant
to Section 8 or if for any reason the purchase of the Offered Securities by the
Underwriters is not consummated, the Company shall remain responsible for the
expenses to be paid or reimbursed by it pursuant to Section 5 and the respective
obligations of the Company and the Underwriters pursuant to Section 7 shall
remain in effect, and if any Offered Securities have been purchased hereunder
the representations and warranties in Section 2 and all obligations under
Section 5 shall also remain in effect. If the purchase of the Offered Securities
by the Underwriters is not consummated for any reason other than solely because
of the termination of this Agreement pursuant to Section 8 or the occurrence of
any event specified in clause (iii), (iv) or (v) of Section 6(c), the Company
will reimburse the Underwriters for all out-of-pocket expenses (including fees
and disbursements of counsel) reasonably incurred by them in connection with the
offering of the Offered Securities.
10. Notices. All communications hereunder will be in writing and, if sent
-------
to the Underwriters, will be mailed, delivered or telegraphed and confirmed to
the Representatives c/o Credit Suisse First Boston Corporation, Eleven Madison
Avenue, New York, N.Y. 10010-3629, Attention: Investment Banking Department--
Transactions Advisory Group, or, if sent to the Company, will be mailed,
delivered or telegraphed and confirmed to it 1195 West Fremont Avenue, Suite
2000, Sunnyvale, California 94087, Attention: David Allen; provided, however,
that any notice to an Underwriter pursuant to Section 7 will be mailed,
delivered or telegraphed and confirmed to such Underwriter.
11. Successors. This Agreement will inure to the benefit of and be binding
----------
upon the parties hereto and their respective successors and the officers and
directors and controlling persons referred to in Section 7, and no other person
will have any right or obligation hereunder.
12. Representation of Underwriters. The Representatives will act for the
------------------------------
several Underwriters in connection with this financing, and any action under
this Agreement taken by the Representatives jointly or by CSFBC will be binding
upon all the Underwriters.
13. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
14. Applicable Law. This Agreement shall be governed by, and construed in
--------------
accordance with, the laws of the State of New York, without regard to principles
of conflicts of laws.
-17-
<PAGE>
The Company hereby submits to the non-exclusive jurisdiction of the Federal
and state courts in the Borough of Manhattan in The City of New York in any suit
or proceeding arising out of or relating to this Agreement or the transactions
contemplated hereby.
-18-
<PAGE>
If the foregoing is in accordance with the Representatives' understanding of
our agreement, kindly sign and return to the Company one of the counterparts
hereof, whereupon it will become a binding agreement between the Company and the
several Underwriters in accordance with its terms.
Very truly yours,
Interwoven, Inc.
----------------------------------
By:
The foregoing Underwriting Agreement is hereby
confirmed and accepted as of the date first above
written.
Credit Suisse First Boston Corporation
BancBoston Robertson Stephens Inc.
Dain Rauscher Wessels,
A Division of Dain Rauscher Incorporated
Acting on behalf of themselves and as the
Representatives of the several
Underwriters
By: Credit Suisse First Boston Corporation
By:
----------------------------------------
Title: Managing Director
-----------------
-19-
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Underwriter Firm Securities
- ----------- ---------------
<S> <C>
Credit Suisse First Boston Corporation.........................................
BancBoston Robertson Stephens, Inc.............................................
Dain Rauscher Wessels..........................................................
Total........................................................... $
</TABLE>
-20-
<PAGE>
Exhibit 3.02
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
INTERWOVEN, INC.
Interwoven, Inc., a Delaware corporation, hereby certifies that the
Amended and Restated Certificate of Incorporation of the corporation attached
hereto as Exhibit "A", which is incorporated herein by this reference, has been
-----------
duly adopted by the corporation's Board of Directors and stockholders in
accordance with Sections 242 and 245 of the Delaware General Corporation Law,
with the approval of the corporation's stockholders having been given by written
consent without a meeting in accordance with Section 228 of the Delaware General
Corporation Law.
IN WITNESS WHEREOF, said corporation has caused this Amended and
Restated Certificate of Incorporation to be signed by its duly authorized
officer.
Dated: ______ __, 1999
INTERWOVEN, INC.
---------------------------
Martin W. Brauns,
President and Chief Executive Officer
<PAGE>
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
INTERWOVEN, INC.
ARTICLE I
The name of the corporation is Interwoven, Inc.
ARTICLE II
The address of the registered office of the corporation in the State of
Delaware is 1013 Centre Road, City of Wilmington, County of New Castle. The
name of its registered agent at that address is Corporation Service Company.
ARTICLE III
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 the State of Delaware.
ARTICLE IV
The total number of shares of all classes of stock which the corporation
has authority to issue is One Hundred Million (100,000,000) shares, consisting
of two classes: Seventy-Five Million (75,000,000) shares of Common Stock,
$0.001 par value per share, and Twenty-Five Million (25,000,000) shares of
Preferred Stock, $0.001 par value per share.
The Board of Directors is authorized, subject to any limitations prescribed
by the law of the State of Delaware, to provide for the issuance of the shares
of Preferred Stock in one or more series, and, by filing a Certificate of
Designation pursuant to the applicable law of the State of Delaware, to
establish from time to time the number of shares to be included in each such
series, to fix the designation, powers, preferences and rights of the shares of
each such series and any qualifications, limitations or restrictions thereof,
and to increase or decrease the number of shares of any such series (but not
below the number of shares of such series then outstanding). The number of
authorized shares of Preferred Stock may also be increased or decreased (but not
below the number of shares thereof then outstanding) by the affirmative vote of
the holders of a majority of the stock of the corporation entitled to vote,
unless a vote of any other holders is required pursuant to a Certificate or
Certificates establishing a series of Preferred Stock.
Except as otherwise expressly provided in any Certificate of Designation
designating any series of Preferred Stock pursuant to the foregoing provisions
of this Article IV, any new series
<PAGE>
of Preferred Stock may be designated, fixed and determined as provided herein by
the Board of Directors without approval of the holders of Common Stock or the
holders of Preferred Stock, or any series thereof, and any such new series may
have powers, preferences and rights, including, without limitation, voting
rights, dividend rights, liquidation rights, redemption rights and conversion
rights, senior to, junior to or pari passu with the rights of the Common Stock,
the Preferred Stock, or any future class or series of Preferred Stock or Common
Stock.
ARTICLE V
The Board of Directors of the corporation shall have the power to
adopt, amend or repeal the Bylaws of the corporation.
ARTICLE VI
For the management of the business and for the conduct of the affairs
of the corporation, and in further definition, limitation and regulation of the
powers of the corporation, of its directors and of its stockholders or any class
thereof, as the case may be, it is further provided that:
(A) The conduct of the affairs of the corporation shall be managed
under the direction of its Board of Directors. The number of directors shall be
fixed from time to time exclusively by resolution of the Board of Directors.
(B) Election of directors need not be by written ballot unless the
Bylaws of the corporation shall so provide.
ARTICLE VII
To the fullest extent permitted by law, no director of the corporation
shall be personally liable for monetary damages for breach of fiduciary duty as
a director. Without limiting the effect of the preceding sentence, if the
Delaware General Corporation Law is hereafter amended to authorize the further
elimination or limitation of the liability of a director, then the liability of
a director of the corporation shall be eliminated or limited to the fullest
extent permitted by the Delaware General Corporation Law, as so amended.
Neither any amendment nor repeal of this Article VII, nor the adoption
of any provision of this Certificate of Incorporation inconsistent with this
Article VII, shall eliminate, reduce or otherwise adversely affect any
limitation on the personal liability of a director of the corporation existing
at the time of such amendment, repeal or adoption of such an inconsistent
provision.
<PAGE>
EXHIBIT 3.04
- --------------------------------------------------------------------------------
RESTATED BYLAWS
OF
INTERWOVEN, INC.
(a Delaware corporation)
As Adopted _________, 1999
- --------------------------------------------------------------------------------
<PAGE>
RESTATED BYLAWS
OF
INTERWOVEN, INC.
(a Delaware corporation)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I - STOCKHOLDERS............................................... 1
Section 1.1: Annual Meetings.................................... 1
Section 1.2: Special Meetings................................... 1
Section 1.3: Notice of Meetings................................. 1
Section 1.4: Adjournments....................................... 1
Section 1.5: Quorum............................................. 2
Section 1.6: Organization....................................... 2
Section 1.7: Voting; Proxies.................................... 2
Section 1.8: Fixing Date for Determination of Stockholders
of Record.......................................... 3
Section 1.9: List of Stockholders Entitled to Vote.............. 3
Section 1.10: Action by Written Consent of Stockholders.......... 4
Section 1.11: Inspectors of Elections............................ 5
Section 1.12: Notice of Stockholder Business; Nominations........ 6
ARTICLE II - BOARD OF DIRECTORS........................................ 8
Section 2.1: Number; Qualifications............................. 8
Section 2.2: Election; Resignation; Removal; Vacancies.......... 8
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Section 2.3: Regular Meetings................................... 8
Section 2.4: Special Meetings................................... 9
Section 2.5: Telephonic Meetings Permitted...................... 9
Section 2.6: Quorum; Vote Required for Action................... 9
Section 2.7: Organization....................................... 9
Section 2.8: Written Action by Directors........................ 9
Section 2.9: Powers............................................. 9
Section 2.10: Compensation of Directors.......................... 9
ARTICLE III - COMMITTEES............................................... 10
Section 3.1: Committees......................................... 10
Section 3.2: Committee Rules.................................... 10
ARTICLE IV - OFFICERSA................................................. 11
Section 4.1: Generally.......................................... 11
Section 4.2: Chief Executive Officer............................ 11
Section 4.3: Chairman of the Board.............................. 12
Section 4.4: President.......................................... 12
Section 4.5: Vice President..................................... 12
Section 4.6: Chief Financial Officer............................ 12
Section 4.7: Treasurer.......................................... 12
Section 4.8: Secretary.......................................... 12
Section 4.9: Delegation of Authority............................ 12
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Section 4.10: Removal............................................ 13
ARTICLE V - STOCK...................................................... 13
Section 5.l: Certificates....................................... 13
Section 5.2: Lost, Stolen or Destroyed Stock Certificates;
Issuance of New Certificate........................ 13
Section 5.3: Other Regulations.................................. 13
ARTICLE VI - INDEMNIFICATION........................................... 13
Section 6.1: Indemnification of Officers and Directors.......... 13
Section 6.2: Advance of Expenses................................ 14
Section 6.3: Non-Exclusivity of Rights.......................... 14
Section 6.4: Indemnification Contracts.......................... 14
Section 6.5: Effect of Amendment................................ 14
ARTICLE VII - NOTICES.................................................. 15
Section 7.l: Notice............................................. 15
Section 7.2: Waiver of Notice................................... 15
ARTICLE VIII - INTERESTED DIRECTORS.................................... 15
Section 8.1: Interested Directors; Quorum....................... 15
ARTICLE IX - MISCELLANEOUS............................................. 16
Section 9.1: Fiscal Year........................................ 16
Section 9.2: Seal............................................... 16
Section 9.3: Form of Records.................................... 16
Section 9.4: Reliance Upon Books and Records.................... 16
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Section 9.5: Certificate of Incorporation Governs............... 16
Section 9.6: Severability....................................... 16
ARTICLE X - AMENDMENT.................................................. 17
Section 10.1: Amendments......................................... 17
</TABLE>
<PAGE>
RESTATED BYLAWS
OF
INTERWOVEN, INC.
(a Delaware corporation)
As Adopted _________, 1999
ARTICLE I
STOCKHOLDERS
Section 1.1: Annual Meetings. An annual meeting of stockholders shall be
----------- ---------------
held for the election of directors at such date, time and place, either within
or without the State of Delaware, as the Board of Directors shall each year fix.
Any other proper business may be transacted at the annual meeting.
Section 1.2: Special Meetings. Special meetings of stockholders for any
----------- ----------------
purpose or purposes may be called at any time by the Chairman of the Board, the
Chief Executive Officer, the holders of shares of the Corporation that are
entitled to cast not less than a ten percent (10%) of the total number of votes
entitled to be cast by all stockholders at such meeting (the "Ten Percent
-----------
Stockholders"), or by a majority of the members of the Board of Directors.
- ------------
Special meetings may not be called by any other person or persons. If a special
meeting of stockholders is called by any person or persons other than by a
majority of the members of the Board of Directors, then such person or persons
shall call such meeting by delivering a written request to call such meeting to
each member of the Board of Directors, and the Board of Directors shall then
determine the time, date and place of such special meeting, which shall be held
not more than one hundred twenty (120) nor less than thirty-five (35) days after
the written request to call such special meeting was delivered to each member of
the Board of Directors. Following the closing of the corporation's initial
public offering pursuant to an effective registration statement under the
Securities Act of 1933, as amended, covering the offer and sale of Common Stock
to the public (the "Initial Public Offering"), Ten Percent Stockholders may not
-----------------------
call a Special Meeting of Stockholders.
Section 1.3: Notice of Meetings. Written notice of all meetings of
----------- ------------------
stockholders shall be given stating the place, date and time of the meeting and,
in the case of a special meeting, the purpose or purposes for which the meeting
is called. Unless otherwise required by applicable law or the Certificate of
Incorporation of the Corporation, such notice shall be given not less than ten
(10) nor more than sixty (60) days before the date of the meeting to each
stockholder entitled to vote at such meeting.
Section 1.4: Adjournments. Any meeting of stockholders may adjourn from
----------- ------------
time to time to reconvene at the same or another place, and notice need not be
given of any such
<PAGE>
adjourned meeting if the time, date and place thereof are announced at the
meeting at which the adjournment is taken; provided, however, that if the
-------- -------
adjournment is for more than thirty (30) days, or if after the adjournment, a
new record date is fixed for the adjourned meeting, then a notice of the
adjourned meeting shall be given to each stockholder of record entitled to vote
at the meeting. At the adjourned meeting, the Corporation may transact any
business that might have been transacted at the original meeting.
Section 1.5: Quorum. At each meeting of stockholders, the holders of a
----------- ------
majority of the shares of stock entitled to vote at the meeting, present in
person or represented by proxy, shall constitute a quorum for the transaction of
business, except if otherwise required by applicable law. If a quorum shall
------
fail to attend any meeting, the chairman of the meeting or the holders of a
majority of the shares entitled to vote who are present, in person or by proxy,
at the meeting may adjourn the meeting. Shares of the Corporation's stock
belonging to the Corporation (or to another corporation, if a majority of the
shares entitled to vote in the election of directors of such other corporation
are held, directly or indirectly, by the Corporation), shall neither be entitled
to vote nor be counted for quorum purposes; provided, however, that the
-------- -------
foregoing shall not limit the right of the Corporation or any other corporation
to vote any shares of the Corporation's stock held by it in a fiduciary
capacity.
Section 1.6: Organization. Meetings of stockholders shall be presided
----------- ------------
over by such person as the Board of Directors may designate, or, in the absence
of such a person, the Chairman of the Board, or, in the absence of such person,
the President of the Corporation, or, in the absence of such person, such person
as may be chosen by the holders of a majority of the shares entitled to vote who
are present, in person or by proxy, at the meeting. Such person shall be
chairman of the meeting and, subject to Section 1.12 hereof, shall determine the
order of business and the procedure at the meeting, including such regulation of
the manner of voting and the conduct of discussion as seems to him or her to be
in order. The Secretary of the Corporation shall act as secretary of the
meeting, but in his or her absence, the chairman of the meeting may appoint any
person to act as secretary of the meeting.
Section 1.7: Voting; Proxies. Unless otherwise provided by law or the
----------- ---------------
Certificate of Incorporation of the Corporation, and subject to the provisions
of Section 1.8 of these Bylaws, each stockholder shall be entitled to one (1)
vote for each share of stock held by such stockholder. Each stockholder entitled
to vote at a meeting of stockholders, or to express consent or dissent to
corporate action in writing without a meeting, may authorize another person or
persons to act for such stockholder by proxy. Such a proxy may be prepared,
transmitted and delivered in any manner permitted by applicable law. Voting at
meetings of stockholders need not be by written ballot unless such is demanded
at the meeting before voting begins by a stockholder or stockholders holding
shares representing at least one percent (1%) of the votes entitled to vote at
such meeting, or by such stockholder's or stockholders' proxy; provided,
--------
however, that an election of directors shall be by written ballot if demand is
- -------
so made by any stockholder at the meeting before voting begins. If a vote is to
be taken by written ballot, then each such ballot shall state the name of the
stockholder or proxy voting and such other information as the chairman of the
meeting deems appropriate. Directors shall be elected by a plurality of the
votes of the shares present in person or represented by proxy at the meeting and
-2-
<PAGE>
entitled to vote on the election of directors. Unless otherwise provided by
applicable law, the Certificate of Incorporation of the Corporation or these
Bylaws, every matter other than the election of directors shall be decided by
the affirmative vote of the holders of a majority of the shares of stock
entitled to vote thereon that are present in person or represented by proxy at
the meeting and are voted for or against the matter.
Section 1.8: Fixing Date for Determination of Stockholders of Record.
----------- -------------------------------------------------------
(a) Generally. In order that the Corporation may determine the
---------
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not precede the date upon which the resolution fixing the record
date is adopted by the Board of Directors and which shall not be more than sixty
(60) nor less than ten (10) days before the date of such meeting, nor more than
sixty (60) days prior to any other action. If no record date is fixed by the
Board of Directors, then the record date shall be as provided by applicable law.
A determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
--------
however, that the Board of Directors may fix a new record date for the adjourned
- -------
meeting.
(b) Stockholder Request for Action by Written Consent. For such period of
-------------------------------------------------
time as stockholders are authorized to act by written consent pursuant to the
provisions of the Certificate of Incorporation of the Corporation and Section
1.10 hereof, any stockholder of record seeking to have the stockholders
authorize or take corporate action by written consent without a meeting shall,
by written notice to the Secretary of the Corporation, request the Board of
Directors to fix a record date for such consent. Such request shall include a
brief description of the action proposed to be taken. The Board of Directors
shall, within ten (10) days after the date on which such a request is received,
adopt a resolution fixing the record date. Such record date shall not precede
the date upon which the resolution fixing the record date is adopted by the
Board of Directors, and shall not be more than ten (10) days after the date upon
which the resolution fixing the record date is adopted by the Board of
Directors. If no record date has been fixed by the Board of Directors within ten
(10) days after the date on which such a request is received, then the record
date for determining stockholders entitled to consent to corporate action in
writing without a meeting, when no prior action by the Board of Directors is
required by applicable law, shall be the first date on which a signed written
consent setting forth the action taken or proposed to be taken is delivered to
the Corporation by delivery to its registered office in the State of Delaware,
to its principal place of business or to any officer or agent of the Corporation
having custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the Corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested. If no record date
has been fixed by the Board of Directors and prior action by the Board of
Directors is required by applicable law, then the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting
-3-
<PAGE>
shall be at the close of business on the date on which the Board of Directors
adopts the resolution taking such prior action.
Section 1.9: List of Stockholders Entitled to Vote. A complete list of
----------- -------------------------------------
stockholders entitled to vote at any meeting of stockholders, arranged in
alphabetical order and showing the address of each stockholder and the number of
shares registered in the name of each stockholder, shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof and may be inspected by any stockholder who is present at the meeting.
Section 1.10: Action by Written Consent of Stockholders.
------------ -----------------------------------------
(a) Procedure. Unless otherwise provided by the Certificate of
---------
Incorporation of the Corporation, and except as set forth in Section 1.8(b)
above, any action required or permitted to be taken at any annual or special
meeting of the stockholders may be taken without a meeting, without prior notice
and without a vote, if a consent or consents in writing, setting forth the
action so taken, shall be signed by the holders of outstanding stock having not
less than the number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted; provided, however, that effective immediately after the closing of an
-------- -------
underwritten public offering of shares of the Corporation's Common Stock
pursuant to a registration statement filed with and declared effective by the
Securities and Exchange Commission, any action required or permitted to be taken
by the Corporation's stockholders shall be taken only at a duly called annual or
special meeting of such stockholders, and the Corporation's stockholders shall
not be able to act by written consent. For such period of time as written
stockholder consents are permitted, such consents shall bear the date of
signature of each stockholder who signs the consent and shall be delivered to
the Corporation by delivery to its registered office in the State of Delaware,
to its principal place of business or to any officer or agent of the Corporation
having custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the Corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested. No written
consent shall be effective to take the action set forth therein unless, within
sixty (60) days of the earliest dated consent delivered to the Corporation in
the manner provided above, written consents signed by a sufficient number of
stockholders to take the action set forth therein are delivered to the
Corporation in the manner provided above.
(b) Notice of Consent. Prompt notice of the taking of corporate action by
-----------------
stockholders without a meeting by less than unanimous written consent of the
stockholders shall be given to those stockholders who have not consented thereto
in writing and, in the case of a Certificate Action (as defined below), if the
Delaware General Corporation Law so requires, such notice shall be given prior
to filing of the certificate in question. If the action which is consented to
requires the filing of a certificate under the Delaware General Corporation Law
(a "Certificate Action"), then if the Delaware General Corporation Law so
------------------
requires, the
-4-
<PAGE>
certificate so filed shall state that written stockholder consent has been given
in accordance with Section 228 of the Delaware General Corporation Law and that
written notice of the taking of corporate action by stockholders without a
meeting as described herein has been given as provided in such section.
Section 1.11: Inspectors of Elections.
------------ -----------------------
(a) Applicability. Unless otherwise provided in the Corporation's
-------------
Certificate of Incorporation or required by the Delaware General Corporation
Law, the following provisions of this Section 1.11 shall apply only if and when
the Corporation has a class of voting stock that is: (i) listed on a national
securities exchange; (ii) authorized for quotation on an interdealer quotation
system of a registered national securities association; or (iii) held of record
by more than 2,000 stockholders; in all other cases, observance of the
provisions of this Section 1.11 shall be optional and at the discretion of the
Corporation.
(b) Appointment. The Corporation shall, in advance of any meeting of
-----------
stockholders, appoint one or more inspectors of election to act at the meeting
and make a written report thereof. The Corporation may designate one or more
persons as alternate inspectors to replace any inspector who fails to act. If
no inspector or alternate is able to act at a meeting of stockholders, the
person presiding at the meeting shall appoint one or more inspectors to act at
the meeting.
(c) Inspector's Oath. Each inspector of election, before entering
----------------
upon the discharge of his duties, shall take and sign an oath faithfully to
execute the duties of inspector with strict impartiality and according to the
best of his or her ability.
(d) Duties of Inspectors. At a meeting of stockholders, the
--------------------
inspectors of election shall (i) ascertain the number of shares outstanding and
the voting power of each share, (ii) determine the shares represented at a
meeting and the validity of proxies and ballots, (iii) count all votes and
ballots, (iv) determine and retain for a reasonable period of time a record of
the disposition of any challenges made to any determination by the inspectors
and (v) certify their determination of the number of shares represented at the
meeting and their count of all votes and ballots. The inspectors may appoint or
retain other persons or entities to assist the inspectors in the performance of
the duties of the inspectors.
(e) Opening and Closing of Polls. The date and time of the opening
----------------------------
and the closing of the polls for each matter upon which the stockholders will
vote at a meeting shall be announced by the inspectors at the meeting. No
ballot, proxies or votes, nor any revocations thereof or changes thereto, shall
be accepted by the inspectors after the closing of the polls unless the Court of
Chancery upon application by a stockholder shall determine otherwise.
(f) Determinations. In determining the validity and counting of
--------------
proxies and ballots, the inspectors shall be limited to an examination of the
proxies, any envelopes submitted with those proxies, any information provided in
connection with proxies in accordance with Section 212(c)(2) of the Delaware
General Corporation Law, the ballots and the regular books and
-5-
<PAGE>
records of the Corporation, except that the inspectors may consider other
------
reliable information for the limited purpose of reconciling proxies and ballots
submitted by or on behalf of banks, brokers, their nominees or similar persons
that represent more votes than the holder of a proxy is authorized by the record
owner to cast or more votes than the stockholder holds of record. If the
inspectors consider other reliable information for the limited purpose permitted
herein, the inspectors at the time they make their certification of their
determinations pursuant to this Section 1.11 shall specify the precise
information considered by them, including the person or persons from whom they
obtained the information, when the information was obtained, the means by which
the information was obtained and the basis for the inspectors' belief that such
information is accurate and reliable.
Section 1.12: Notice of Stockholder Business; Nominations.
------------ -------------------------------------------
(a) Annual Meeting of Stockholders.
------------------------------
(i) Nominations of persons for election to the Board of Directors and
the proposal of business to be considered by the stockholders shall be made at
an annual meeting of stockholders (A) pursuant to the Corporation's notice of
such meeting, (B) by or at the direction of the Board of Directors or (C) by any
stockholder of the Corporation who was a stockholder of record at the time of
giving of the notice provided for in this Section 1.12, who is entitled to vote
at such meeting and who complies with the notice procedures set forth in this
Section 1.12.
(ii) For nominations or other business to be properly brought before
an annual meeting by a stockholder pursuant to clause (C) of subparagraph (a)(i)
of this Section 1.12, the stockholder must have given timely notice thereof in
writing to the Secretary of the Corporation and such other business must
otherwise be a proper matter for stockholder action. To be timely, a
stockholder's notice must be delivered to the Secretary at the principal
executive offices of the Corporation not later than the close of business on the
sixtieth (60th) day nor earlier than the close of business on the ninetieth
(90th) day prior to the first anniversary of the preceding year's annual
meeting; provided, however, that in the event that the date of the annual
-------- -------
meeting is more than thirty (30) days before or more than sixty (60) days after
such anniversary date, notice by the stockholder, to be timely, must be so
delivered not earlier than the close of business on the ninetieth (90th) day
prior to such annual meeting and not later than the close of business on the
later of the sixtieth (60th) day prior to such annual meeting or the close of
business on the tenth (10th) day following the day on which public announcement
of the date of such meeting is first made by the Corporation. Such
stockholder's notice shall set forth: (a) as to each person whom the stockholder
proposes to nominate for election or reelection as a director all information
relating to such person that is required to be disclosed in solicitations of
proxies for election of directors, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), including such person's written consent to being named in
------------
the proxy statement as a nominee and to serving as a director if elected; (b) as
to any other business that the stockholder proposes to bring before the meeting,
a brief description of the business desired to be brought before the meeting,
the reasons for conducting such business at the meeting and any material
interest in such business of such stockholder and the beneficial owner, if any,
on whose behalf the proposal is made; and (c) as to
-6-
<PAGE>
the stockholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is made, (1) the name and address of such
stockholder, as they appear on the Corporation's books, and of such beneficial
owner and (2) the class and number of shares of the Corporation that are owned
beneficially and held of record by such stockholder and such beneficial owner.
(iii) Notwithstanding anything in the second sentence of subparagraph
(a)(ii) of this Section 1.12 to the contrary, in the event that the number of
directors to be elected to the Board of Directors of the Corporation is
increased and there is no public announcement by the Corporation naming all of
the nominees for director or specifying the size of the increased board of
directors at least seventy (70) days prior to the first anniversary of the
preceding year's annual meeting (or, if the annual meeting is held more than
thirty (30) days before or sixty (60) days after such anniversary date, at least
seventy (70) days prior to such annual meeting), a stockholder's notice required
by this Section 1.12 shall also be considered timely, but only with respect to
nominees for any new positions created by such increase, if it shall be
delivered to the Secretary of the Corporation at the principal executive office
of the Corporation not later than the close of business on the tenth (10th) day
following the day on which such public announcement is first made by the
Corporation.
(b) Special Meetings of Stockholders. Only such business shall be
--------------------------------
conducted at a special meeting of stockholders as shall have been brought before
the meeting pursuant to the Corporation's notice of such meeting. Nominations
of persons for election to the Board of Directors may be made at a special
meeting of stockholders at which directors are to be elected pursuant to the
Corporation's notice of such meeting (i) by or at the direction of the Board of
Directors or (ii) provided that the Board of Directors has determined that
directors shall be elected at such meeting, by any stockholder of the
Corporation who is a stockholder of record at the time of giving of notice of
the special meeting, who shall be entitled to vote at the meeting and who
complies with the notice procedures set forth in this Section 1.12. In the
event the Corporation calls a special meeting of stockholders for the purpose of
electing one or more directors to the Board of Directors, any such stockholder
may nominate a person or persons (as the case may be), for election to such
position(s) as specified in the Corporation's notice of meeting, if the
stockholder's notice required by subparagraph (a)(ii) of this Section 1.12 shall
be delivered to the Secretary of the Corporation at the principal executive
offices of the Corporation not earlier than the ninetieth (90th) day prior to
such special meeting and not later than the close of business on the later of
the sixtieth (60th) day prior to such special meeting or the tenth (10th) day
following the day on which public announcement is first made of the date of the
special meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting.
(c) General.
-------
(i) Only such persons who are nominated in accordance with the
procedures set forth in this Section 1.12 shall be eligible to serve as
directors and only such business shall be conducted at a meeting of stockholders
as shall have been brought before the meeting in accordance with the procedures
set forth in this Section 1.12. Except as otherwise provided by law or these
Bylaws, the chairman of the meeting shall have the power and duty to determine
-7-
<PAGE>
whether a nomination or any business proposed to be brought before the meeting
was made or proposed, as the case may be, in accordance with the procedures set
forth in this Section 1.12 and, if any proposed nomination or business is not in
compliance herewith, to declare that such defective proposal or nomination shall
be disregarded.
(ii) For purposes of this Section 1.12, the term "public
------
announcement" shall mean disclosure in a press release reported by the Dow
- ------------
Jones News Service, Associated Press or comparable national news service or in a
document publicly filed by the Corporation with the Securities and Exchange
Commission pursuant to sections 13, 14 or 15(d) of the Exchange Act.
(iii) Notwithstanding the foregoing provisions of this Section 1.12,
a stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth herein. Nothing in this Section 1.12 shall be deemed to affect any rights
of stockholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act.
ARTICLE II
BOARD OF DIRECTORS
Section 2.1: Number; Qualifications. The Board of Directors shall consist
----------- ----------------------
of one or more members. The initial number of directors shall be six (6), and
thereafter shall be fixed from time to time by resolution of the Board of
Directors. No decrease in the authorized number of directors constituting the
Board of Directors shall shorten the term of any incumbent director. Directors
need not be stockholders of the Corporation.
Section 2.2: Election; Resignation; Removal; Vacancies. Effective
----------- -----------------------------------------
immediately on such date, if ever, that the Corporation becomes a listed
corporation within the meaning of Section 301.5 of the California Corporations
Code, the directors shall be divided, with respect to the time for which they
severally hold office, into three classes designated as Class I, Class II and
Class III, respectively. Directors shall be assigned to each class in
accordance with a resolution or resolutions adopted by the Board of Directors,
with the number of directors in each class to be divided as equally as
reasonably possible. The term of office of the Class I directors shall expire
at the corporation's first annual meeting of stockholders following the closing
of the Initial Public Offering, the term of office of the Class II directors
shall expire at the corporation's second annual meeting of stockholders
following the closing of the Initial Public Offering, and the term of office of
the Class III directors shall expire at the corporation's third annual meeting
of stockholders following the closing of the Initial Public Offering. At each
annual meeting of stockholders commencing with the first annual meeting of
stockholders following the closing of the Initial Public Offering, directors
elected to succeed those directors of the class whose terms then expire shall be
elected for a term of office to expire at the third succeeding annual meeting of
stockholders after their election. Prior to the closing of the Initial Public
Offering, each director shall hold office until the next annual meeting of
stockholders and until such director's successor is elected and qualified, or
until such director's
-8-
<PAGE>
earlier death, resignation or removal. Any director may resign at any time upon
written notice to the Corporation. Subject to the rights of the holders of any
series of Preferred Stock, any vacancy occurring in the Board of Directors for
any cause, and any newly created directorship resulting from any increase in the
authorized number of directors, shall, unless (i) the Board of Directors
determines by resolution that any such vacancies or newly created directorships
shall be filled by the stockholders, or (ii) as otherwise provided by law, be
filled only by the affirmative vote of a majority of the directors then in
office, although less than a quorum, or by a sole remaining director, and not by
the stockholders. Notwithstanding the preceding sentence, in any election of
directors, the stockholders of the corporation shall have the rights set forth
in subdivisions (a), (b) and (c) of Section 708 of the California Corporations
Code; provided, however, that the rights set forth in this sentence shall
-------- -------
terminate to the extent permitted by applicable law immediately on such date, if
ever, that the Corporation becomes a listed corporation within the meaning of
Section 301.5 of the California Corporations Code. Any director elected in
accordance with the two preceding sentences shall hold office for the remainder
of the full term of the director for which the vacancy was created or occurred.
Subject to the rights of any holders of Preferred Stock, any director or the
entire Board of Directors may be removed, with or without cause, by the holders
of a majority of the shares then entitled to vote at an election of directors;
provided, however, that a director may not be removed without cause if the votes
- -------- -------
cast against removal of the director, or not consenting in writing to the
removal, would be sufficient to elect the director if voted cumulatively
(without regard to whether shares may otherwise be voted cumulatively) at an
election at which the same total number of votes were cast (or, if the action is
taken by written consent, all shares entitled to vote were voted) and either the
number of directors elected at the most recent annual meeting of stockholders,
or if greater, the number of directors for whom removal is being sought, were
then being elected.
Section 2.3: Regular Meetings. Regular meetings of the Board of
----------- ----------------
Directors may be held at such places, within or without the State of Delaware,
and at such times as the Board of Directors may from time to time determine.
Notice of regular meetings need not be given if the date, times and places
thereof are fixed by resolution of the Board of Directors.
Section 2.4: Special Meetings. Special meetings of the Board of
----------- ----------------
Directors may be called by the Chairman of the Board, the President or a
majority of the members of the Board of Directors then in office and may be held
at any time, date or place, within or without the State of Delaware, as the
person or persons calling the meeting shall fix. Notice of the time, date and
place of such meeting shall be given, orally or in writing, by the person or
persons calling the meeting to all directors at least four (4) days before the
meeting if the notice is mailed, or at least twenty-four (24) hours before the
meeting if such notice is given by telephone, hand-delivery, telegram, telex,
mailgram, facsimile or similar communication method. Unless otherwise indicated
in the notice, any and all business may be transacted at a special meeting.
Section 2.5: Telephonic Meetings Permitted. Members of the Board of
----------- -----------------------------
Directors, or any committee of the Board of Directors, may participate in a
meeting of the Board or such committee by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and participation in a meeting
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<PAGE>
pursuant to conference telephone or similar communications equipment shall
constitute presence in person at such meeting.
Section 2.6: Quorum; Vote Required for Action. At all meetings of the
----------- --------------------------------
Board of Directors a majority of the total number of authorized directors shall
constitute a quorum for the transaction of business. Except as otherwise
provided herein or in the Certificate of Incorporation of the Corporation, or
required by law, the vote of a majority of the directors present at a meeting at
which a quorum is present shall be the act of the Board of Directors.
Section 2.7: Organization. Meetings of the Board of Directors shall be
----------- ------------
presided over by the Chairman of the Board, or in his or her absence by the
President, or in his or her absence by a chairman chosen at the meeting. The
Secretary shall act as secretary of the meeting, but in his or her absence, the
chairman of the meeting may appoint any person to act as secretary of the
meeting.
Section 2.8: Written Action by Directors. Any action required or
----------- ---------------------------
permitted to be taken at any meeting of the Board of Directors, or of any
committee thereof, may be taken without a meeting if all members of the Board of
Directors or such committee, as the case may be, consent thereto in writing and
the writing or writings are filed with the minutes of proceedings of the Board
or committee, respectively.
Section 2.9: Powers. The Board of Directors may, except as otherwise
------------ ------
required by law or the Certificate of Incorporation of the Corporation, exercise
all such powers and do all such acts and things as may be exercised or done by
the Corporation.
Section 2.10: Compensation of Directors. Directors, as such, may
------------ -------------------------
receive, pursuant to a resolution of the Board of Directors, fees and other
compensation for their services as directors, including without limitation their
services as members of committees of the Board of Directors.
ARTICLE III
COMMITTEES
Section 3.1: Committees. The Board of Directors may, by resolution
----------- ----------
passed by a majority of the whole Board of Directors, designate one or more
committees, each committee to consist of one or more of the directors of the
Corporation. The Board of Directors may designate one or more directors as
alternate members of any committee who may replace any absent or disqualified
member at any meeting of the committee. In the absence or disqualification of a
member of the committee, the member or members thereof present at any meeting of
such committee who are not disqualified from voting, whether or not he, she or
they constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in place of any such absent or disqualified
member. Any such committee, to the extent provided in a resolution of the Board
of Directors, shall have and may exercise all the powers and authority of the
Board of Directors in the management of the business and affairs of the
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<PAGE>
Corporation and may authorize the seal of the Corporation to be affixed to all
papers that may require it; but no such committee shall have the power or
authority in reference to amending the Certificate of Incorporation of the
Corporation (except that a committee may, to the extent authorized in the
------
resolution or resolutions providing for the issuance of shares of stock adopted
by the Board of Directors as provided in subsection (a) of Section 151 of the
Delaware General Corporation Law, fix the designations and any of the
preferences or rights of such shares relating to dividends, redemption,
dissolution, any distribution of assets of the Corporation, or the conversion
into, or the exchange of such shares for, shares of any other class or classes
or any other series of the same or any other class or classes of stock of the
Corporation, or fix the number of shares of any series of stock or authorize the
increase or decrease of the shares of any series, adopting an agreement of
merger or consolidation under Sections 251 or 252 of the Delaware General
Corporation Law, recommending to the stockholders the sale, lease or exchange of
all or substantially all of the Corporation's property and assets, recommending
to the stockholders a dissolution of the Corporation or a revocation of a
dissolution, or amending these Bylaws; and unless the resolution of the Board of
Directors expressly so provides, no such committee shall have the power or
authority to declare a dividend, authorize the issuance of stock or adopt a
certificate of ownership and merger pursuant to section 253 of the Delaware
General Corporation Law.
Section 3.2: Committee Rules. Unless the Board of Directors otherwise
----------- ---------------
provides, each committee designated by the Board of Directors may make, alter
and repeal rules for the conduct of its business. In the absence of such rules,
each committee shall conduct its business in the same manner as the Board of
Directors conducts its business pursuant to Article II of these Bylaws.
ARTICLE IV
OFFICERS
Section 4.1: Generally. The officers of the Corporation shall consist of
----------- ---------
a Chief Executive Officer and/or a President, one or more Vice Presidents, a
Secretary, a Treasurer and such other officers, including a Chairman of the
Board of Directors and/or Chief Financial Officer, as may from time to time be
appointed by the Board of Directors. All officers shall be elected by the Board
of Directors; provided, however, that the Board of Directors may empower the
-------- -------
Chief Executive Officer of the Corporation to appoint officers other than the
Chairman of the Board, the Chief Executive Officer, the President, the Chief
Financial Officer or the Treasurer. Each officer shall hold office until his or
her successor is elected and qualified or until his or her earlier death,
resignation or removal. Any number of offices may be held by the same person.
Any officer may resign at any time upon written notice to the Corporation. Any
vacancy occurring in any office of the Corporation by death, resignation,
removal or otherwise may be filled by the Board of Directors.
Section 4.2: Chief Executive Officer. Subject to the control of the
----------- -----------------------
Board of Directors and such supervisory powers, if any, as may be given by the
Board of Directors, the powers and duties of the Chief Executive Officer of the
Corporation are:
-11-
<PAGE>
(a) To act as the general manager and, subject to the control of the
Board of Directors, to have general supervision, direction and control of the
business and affairs of the Corporation;
(b) To preside at all meetings of the stockholders;
(c) To call meetings of the stockholders to be held at such times and,
subject to the limitations prescribed by law or by these Bylaws, at such places
as he or she shall deem proper; and
(d) To affix the signature of the Corporation to all deeds, conveyances,
mortgages, guarantees, leases, obligations, bonds, certificates and other papers
and instruments in writing which have been authorized by the Board of Directors
or which, in the judgment of the Chief Executive Officer, should be executed on
behalf of the Corporation; to sign certificates for shares of stock of the
Corporation; and, subject to the direction of the Board of Directors, to have
general charge of the property of the Corporation and to supervise and control
all officers, agents and employees of the Corporation.
The President shall be the Chief Executive Officer of the Corporation unless the
Board of Directors shall designate another officer to be the Chief Executive
Officer. If there is no President, and the Board of Directors has not
designated any other officer to be the Chief Executive Officer, then the
Chairman of the Board shall be the Chief Executive Officer.
Section 4.3: Chairman of the Board. The Chairman of the Board shall have
----------- ---------------------
the power to preside at all meetings of the Board of Directors and shall have
such other powers and duties as provided in these Bylaws and as the Board of
Directors may from time to time prescribe.
Section 4.4: President. The President shall be the Chief Executive
----------- ---------
Officer of the Corporation unless the Board of Directors shall have designated
another officer as the Chief Executive Officer of the Corporation. Subject to
the provisions of these Bylaws and to the direction of the Board of Directors,
and subject to the supervisory powers of the Chief Executive Officer (if the
Chief Executive Officer is an officer other than the President), and subject to
such supervisory powers and authority as may be given by the Board of Directors
to the Chairman of the Board and/or to any other officer, the President shall
have the responsibility for the general management and control of the business
and affairs of the Corporation and the general supervision and direction of all
of the officers, employees and agents of the Corporation (other than the Chief
Executive Officer, if the Chief Executive Officer is an officer other than the
President) and shall perform all duties and have all powers that are commonly
incident to the office of president or that are delegated to the President by
the Board of Directors.
Section 4.5: Vice President. Each Vice President shall have all such
----------- --------------
powers and duties as are commonly incident to the office of Vice President or
that are delegated to him or her by the Board of Directors or the Chief
Executive Officer. A Vice President may be designated by
-12-
<PAGE>
the Board to perform the duties and exercise the powers of the Chief Executive
Officer in the event of the Chief Executive Officer's absence or disability.
Section 4.6: Chief Financial Officer. Subject to the direction of the
----------- -----------------------
Board of Directors and the President, the Chief Financial Officer shall perform
all duties and have all powers that are commonly incident to the office of chief
financial officer.
Section 4.7: Treasurer. The Treasurer shall have custody of all monies
------------ ---------
and securities of the Corporation. The Treasurer shall make such disbursements
of the funds of the Corporation as are authorized and shall render from time to
time an account of all such transactions. The Treasurer shall also perform such
other duties and have such other powers as are commonly incident to the office
of a treasurer or as the Board of Directors or the President may from time to
time prescribe.
Section 4.8: Secretary. The Secretary shall issue or cause to be issued
----------- ---------
all authorized notices for, and shall keep or cause to be kept, minutes of all
meetings of the stockholders and the Board of Directors. The Secretary shall
have charge of the corporate minute books and similar records and shall perform
such other duties and have such other powers as are commonly incident to the
office of secretary or as the Board of Directors or the President may from time
to time prescribe.
Section 4.9: Delegation of Authority. The Board of Directors may from
----------- -----------------------
time to time delegate the powers or duties of any officer to any other officers
or agents, notwithstanding any provision hereof.
Section 4.10: Removal. Any officer of the Corporation shall serve at
------------ -------
the pleasure of the Board of Directors and may be removed at any time, with or
without cause, by the Board of Directors. Such removal shall be without
prejudice to the contractual rights of such officer, if any, with the
Corporation.
ARTICLE V
STOCK
Section 5.1: Certificates. Every holder of stock shall be entitled to
----------- ------------
have a certificate signed by or in the name of the Corporation by the Chairman
or Vice-Chairman of the Board of Directors, or the President or a Vice
President, and by the Treasurer or an Assistant Treasurer, or the Secretary or
an Assistant Secretary, of the Corporation, certifying the number of shares
owned by such stockholder in the Corporation. Any or all of the signatures on
the certificate may be a facsimile.
Section 5.2: Lost, Stolen or Destroyed Stock Certificates; Issuance of
----------- ---------------------------------------------------------
New Certificates. The Corporation may issue a new certificate of stock in the
- ----------------
place of any certificate previously issued by it that is alleged to have been
lost, stolen or destroyed, and the Corporation may require
-13-
<PAGE>
the owner of the lost, stolen or destroyed certificate, or such owner's legal
representative, to agree to indemnify the Corporation and/or to give the
Corporation a bond sufficient to indemnify it against any claim that may be made
against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate.
Section 5.3: Other Regulations. The issue, transfer, conversion and
----------- -----------------
registration of stock certificates shall be governed by such other regulations
as the Board of Directors may establish.
ARTICLE VI
INDEMNIFICATION
Section 6.1: Indemnification of Officers and Directors. Each person who
----------- -----------------------------------------
was or is made a party to, or is threatened to be made a party to, or is
involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (a "proceeding"), by reason of the fact that he
----------
or she (or a person of whom he or she is the legal representative) is or was a
director or officer of the Corporation or a Reincorporated Predecessor (as
defined below) or is or was serving at the request of the Corporation or a
Reincorporated Predecessor (as defined below) as a director or officer of
another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, shall be
indemnified and held harmless by the Corporation to the fullest extent permitted
by the Delaware General Corporation Law against all expenses, liability and loss
(including attorneys' fees, judgments, fines, ERISA excise taxes and penalties
and amounts paid or to be paid in settlement) reasonably incurred or suffered by
such person in connection therewith, and such indemnification shall continue as
to a person who has ceased to be a director or officer and shall inure to the
benefit of his or her heirs, executors and administrators; provided, however,
-------- -------
that the Corporation shall indemnify any such person seeking indemnity in
connection with a proceeding (or part thereof) initiated by such person only if
such proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation; provided, further, that the Corporation shall not be required
-------- -------
to indemnify a person for amounts paid in settlement of a proceeding unless the
Corporation consents in writing to such a settlement (such consent not to be
unreasonably withheld). As used herein, the term "Reincorporated Predecessor"
--------------------------
means a corporation that is merged with and into the Corporation in a statutory
merger where (a) the Corporation is the surviving corporation of such merger and
(b) the primary purpose of such merger is to change the corporate domicile of
the Reincorporated Predecessor, and shall include Interwoven, Inc., a California
corporation.
Section 6.2: Advance of Expenses. The Corporation shall pay all expenses
----------- -------------------
(including attorneys' fees) incurred by such a director or officer in defending
any such proceeding as such expenses are incurred in advance of its final
disposition; provided, however, that if the Delaware General Corporation Law
-------- -------
then so requires, the payment of such expenses incurred by such a director
or officer 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
-14-
<PAGE>
entitled to be indemnified under this Article VI or otherwise; and provided,
--------
further, that the Corporation shall not be required to advance any expenses to a
- -------
person against whom the Corporation directly brings a claim, in a proceeding,
alleging that such person has breached his or her duty of loyalty to the
Corporation, committed an act or omission not in good faith or that involves
intentional misconduct or a knowing violation of law, or derived an improper
personal benefit from a transaction.
Section 6.3: Non-Exclusivity of Rights. The rights conferred on any
------------ -------------------------
person in this Article VI shall not be exclusive of any other right that such
person may have or hereafter acquire under any statute, provision of the
Certificate of Incorporation of the Corporation, these Bylaws, agreement, vote
or consent of stockholders or disinterested directors, or otherwise.
Additionally, nothing in this Article VI shall limit the ability of the
Corporation, in its discretion, to indemnify or advance expenses to persons whom
the Corporation is not obligated to indemnify or advance expenses pursuant to
this Article VI.
Section 6.4: Indemnification Contracts. The Board of Directors is
----------- -------------------------
authorized to cause the Corporation to enter into indemnification contracts with
any director, officer, employee or agent of the Corporation, or any person
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, including employee benefit plans, providing indemnification and
related rights to such person. Such rights may be greater than those provided
in this Article VI.
Section 6.5: Effect of Amendment. Any amendment, repeal or modification
----------- -------------------
of any provision of this Article VI shall be prospective only, and shall not
adversely affect any right or protection conferred on a person pursuant to this
Article VI and existing at the time of such amendment, repeal or modification.
ARTICLE VII
NOTICES
Section 7.1: Notice. Except as otherwise specifically provided herein or
----------- ------
required by law, all notices required to be given pursuant to these Bylaws shall
be in writing and may in every instance be effectively given by hand delivery
(including use of a delivery service) by depositing such notice in the mail,
postage prepaid, or by sending such notice by prepaid telegram, telex, overnight
express courier, mailgram or facsimile. Any such notice shall be addressed to
the person to whom notice is to be given at such person's address as it appears
on the records of the Corporation. The notice shall be deemed given (i) in the
case of hand delivery, when received by the person to whom notice is to be given
or by any person accepting such notice on behalf of such person, (ii) in the
case of delivery by mail, upon deposit in the mail, (iii) in the case of
delivery by overnight express courier, on the first business day after such
notice is dispatched, and (iv) in the case of delivery via telegram, telex,
mailgram or facsimile, when dispatched.
-15-
<PAGE>
Section 7.2: Waiver of Notice. Whenever notice is required to be given
----------- ----------------
under any provision of these Bylaws, a written waiver of notice, signed by the
person entitled to notice, whether before or after the time stated therein,
shall be deemed equivalent to notice. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting, except when the person attends a
meeting for the express purpose of objecting at the beginning of the meeting to
the transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders, directors or members of a
committee of directors need be specified in any written waiver of notice.
ARTICLE VIII
INTERESTED DIRECTORS
Section 8.1: Interested Directors; Quorum. No contract or transaction
----------- ----------------------------
between the Corporation and one or more of its directors or officers, or between
the Corporation and any other corporation, partnership, association or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof that
authorizes the contract or transaction, or solely because his, her or their
votes are counted for such purpose, if: (i) the material facts as to his, her or
their relationship or interest and as to the contract or transaction are
disclosed or are known to the Board of Directors or the committee, and the Board
of Directors or committee in good faith authorizes the contract or transaction
by the affirmative votes of a majority of the disinterested directors, even
though the disinterested directors be less than a quorum; (ii) the material
facts as to his, her or their relationship or interest and as to the contract or
transaction are disclosed or are known to the stockholders entitled to vote
thereon, and the contract or transaction is specifically approved in good faith
by vote of the stockholders; or (iii) the contract or transaction is fair as to
the Corporation as of the time it is authorized, approved or ratified by the
Board of Directors, a committee thereof or the stockholders. Common or
interested directors may be counted in determining the presence of a quorum at a
meeting of the Board of Directors or of a committee which authorizes the
contract or transaction.
ARTICLE IX
MISCELLANEOUS
Section 9.1: Fiscal Year. The fiscal year of the Corporation shall be
----------- -----------
determined by resolution of the Board of Directors.
Section 9.2: Seal. The Board of Directors may provide for a corporate
----------- ----
seal, which shall have the name of the Corporation inscribed thereon and shall
otherwise be in such form as may be approved from time to time by the Board of
Directors.
-16-
<PAGE>
Section 9.3: Form of Records. Any records maintained by the Corporation
----------- ---------------
in the regular course of its business, including its stock ledger, books of
account and minute books, may be kept on, or be in the form of, magnetic tape,
diskettes, photographs, microphotographs or any other information storage
device, provided that the records so kept can be converted into clearly legible
--------
form within a reasonable time. The Corporation shall so convert any records so
kept upon the request of any person entitled to inspect the same.
Section 9.4: Reliance Upon Books and Records. A member of the Board of
----------- -------------------------------
Directors, or a member of any committee designated by the Board of Directors
shall, in the performance of his or her duties, be fully protected in relying in
good faith upon records of the Corporation and upon such information, opinions,
reports or statements presented to the Corporation by any of the Corporation's
officers or employees, or committees of the Board of Directors, or by any other
person as to matters the member reasonably believes are within such other
person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Corporation.
Section 9.5: Certificate of Incorporation Governs. In the event of any
----------- ------------------------------------
conflict between the provisions of the Corporation's Certificate of
Incorporation and Bylaws, the provisions of the Corporation's Certificate of
Incorporation shall govern.
Section 9.6: Severability. If any provision of these Bylaws shall be held
----------- ------------
to be invalid, illegal, unenforceable or in conflict with the provisions of the
Corporation's Certificate of Incorporation, then such provision shall
nonetheless be enforced to the maximum extent possible consistent with such
holding and the remaining provisions of these Bylaws (including, without
limitation, all portions of any section of these Bylaws containing any such
provision held to be invalid, illegal, unenforceable or in conflict with the
Corporation's Certificate of Incorporation that are not themselves invalid,
illegal, unenforceable or in conflict with the Corporation's Certificate of
Incorporation) shall remain in full force and effect.
ARTICLE X
AMENDMENT
Section 10.1: Amendments. Stockholders of the Corporation holding a
------------ ----------
majority of the Corporation's outstanding voting stock shall have the power to
adopt, amend or repeal Bylaws. To the extent provided in the Corporation's
Certificate of Incorporation, the Board of Directors of the Corporation shall
also have the power to adopt, amend or repeal Bylaws of the Corporation, except
insofar as Bylaws adopted by the stockholders shall otherwise provide.
-17-
<PAGE>
CERTIFICATION OF RESTATED BYLAWS
OF
INTERWOVEN, INC.
(a Delaware corporation)
KNOW ALL BY THESE PRESENTS:
I, Matthew P. Quilter, certify that I am Corporate Secretary of
Interwoven, Inc., a Delaware corporation (the "Company"), that I am duly
-------
authorized to make and deliver this certification and that the attached Bylaws
are a true and correct copy of the Bylaws of the Company in effect as of the
date of this certificate.
Dated: __________, 1999
______________________________________________
Matthew P. Quilter, Assistant Secretary
<PAGE>
EXHIBIT 3.05
INTERWOVEN INC.
Certificate of Designation
of
Preferred Stock
Pursuant to Section 151 of
the Delaware General Corporation Law
Interwoven, Inc., a Delaware corporation, (the "Corporation"), does hereby
-----------
certify that, pursuant to the authority contained in Article IV of its
Certificate of Incorporation, and in accordance with the provisions of Section
151 of the Delaware General Corporation Law, the Corporation's Board of
Directors has duly adopted the following resolution creating five separate
series of Preferred Stock designated as Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock.
Resolved, that the Corporation hereby designates and creates five (5)
separate series of the authorized Preferred Stock designated respectively, as
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock and Series E Preferred Stock as follows:
A. Series of Preferred Stock. Of the twenty five million (25,000,000)
-------------------------
shares of Preferred Stock, par value $0.001 per share, authorized to be issued
by the Corporation, one million one hundred twenty thousand (1,120,000) shares
are hereby designated as "Series A Preferred Stock," three million one hundred
------------------------
forty two thousand one hundred thirty three (3,142,133) shares are hereby
designated as "Series B Preferred Stock," seven million one hundred fifty nine
------------------------
thousand seven hundred forty three (7,159,743) shares are hereby designated as
"Series C Preferred Stock", three million seven hundred forty one thousand two
- -------------------------
hundred seventeen (3,741,217) shares are hereby designated "Series D Preferred
------------------
Stock" and three million six hundred thousand (3,600,000) shares are designated
- -----
"Series E Preferred Stock." The rights, preferences, privileges and
------------------------
restrictions granted to and imposed upon the respective classes and series of
the Corporation's capital stock are set forth below in Article B.
B. Rights, Preference and Restrictions of Preferred Stock. The rights,
------------------------------------------------------
preferences, restrictions and other matters relating to the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock and Series E Preferred Stock are as follows:
1. Definitions. For purposes of this Section B, the following definitions
-----------
shall apply:
1.1 "Common Stock" shall mean the Common Stock, $0.001 par value, of
------------
the Corporation.
<PAGE>
1.2 "Preferred Stock" shall mean the Series A Preferred Stock, the
---------------
Series B Preferred Stock, the Series C Preferred Stock, the Series D Preferred
Stock and the Series E Preferred Stock.
2. Dividend Rights.
---------------
2.1 The holders of Preferred Stock shall each be entitled to receive,
out of any funds legally available therefor, dividends on each outstanding share
of Preferred Stock at an annual rate of (i) $0.01 per share of Series A
Preferred held by them, adjusted for any combinations, consolidations,
subdivisions, or stock splits with respect to such shares, payable when and as
declared by the Board of Directors, in preference and priority to any payment of
any dividend on any shares of Common Stock (other than those payable solely in
Common Stock or involving the repurchase of shares of Common Stock from
terminated employees, officers, directors, or consultants pursuant to
contractual arrangements), (ii) $0.102896 per share of Series B Preferred held
by them, adjusted for any combinations, consolidations, subdivisions, or stock
splits with respect to such shares, payable when and as declared by the Board of
Directors, in preference and priority to any payment of any dividend on any
shares of Common Stock (other than those payable solely in Common Stock, or
involving the repurchase of shares of Common Stock from terminated employees,
officers, directors, or consultants, pursuant to contractual arrangements),
(iii) $0.086326 per share of Series C Preferred held by them, adjusted for any
combinations, consolidations, subdivisions, or stock splits with respect to such
shares, payable when and as declared by the Board of Directors, in preference
and priority to any payment of any dividend on any shares of Common Stock (other
than those payable solely in Common Stock, or involving the repurchase of shares
of Common Stock from terminated employees, officers, directors, or consultants
pursuant to contractual arrangements), (iv) $0.149684 per share of Series D
Preferred held by them, adjusted for any combinations, consolidations,
subdivisions, or stock splits with respect to such shares, payable when and as
declared by the Board of Directors, in preference and priority to any payment of
any dividend on any shares of Common Stock (other than those payable solely in
Common Stock, or involving the repurchase of shares of Common Stock from
terminated employees, officers, directors, or consultants pursuant to
contractual arrangements) and (v) $0.4528 per share of Series E Preferred held
by them, adjusted for any combinations, consolidations, subdivisions, or stock
splits with respect to such shares, payable when and as declared by the Board of
Directors, in preference and priority to any payment of any dividend on any
shares of Common Stock (other than those payable solely in Common Stock, or
involving the repurchase of shares of Common Stock from terminated employees,
officers, directors, or consultants pursuant to contractual arrangements). No
dividends shall be declared on the Series A Preferred, Series B Preferred,
Series C Preferred, Series D Preferred or Series E Preferred unless dividends
are declared on each such series of Preferred Stock. In the event dividends are
paid to the holders of Series A Preferred, Series B Preferred, Series C
Preferred, Series D Preferred and Series E Preferred that are less than the full
amounts to which such holders are entitled pursuant to this Section 2, such
holders shall share ratably in the total amount of dividends paid according to
the respective amounts which would be payable in respect of the shares held by
them if the dividends payable on or with respect to said shares were paid in
full. The right to such dividends shall not be cumulative, and no right shall
accrue to holders of Series A Preferred, Series B Preferred, Series C Preferred,
Series D Preferred and Series E
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<PAGE>
Preferred by reason of the fact that dividends on such shares are not declared
or paid in any prior year whether or not the earnings of the Corporation in that
prior year were sufficient to pay such dividends in whole or in part. The
Preferred Stock shall participate on any distribution of dividends on the Common
Stock (based on the number of shares of Common Stock into which such share of
Preferred Stock is convertible on the date the dividend is declared). In the
event that the Corporation shall have declared but unpaid dividends outstanding
immediately prior to, and in the event of, a conversion of Preferred Stock (as
provided in Section 6 hereof), the Corporation shall, at the option of the
holder, pay in cash to the holder(s) of Preferred Stock subject to conversion
the full amount of any such dividends or allow such dividends to be converted
into Common Stock in accordance with, and pursuant to the terms specified in,
Section 6 hereof.
2.2 Dividends shall be paid by forwarding a check, postage prepaid,
to the address of each holder (or, in the case of joint holders, to the address
of any such holder) of Series E Preferred, Series D Preferred, Series C
Preferred, Series B Preferred, and Series A Preferred as shown on the books of
the Corporation, or to such other address as such holder specifies for such
purpose by written notice to the Corporation. The forwarding of such check
shall satisfy all obligations of the Corporation with respect to such dividends,
unless such check is not paid upon timely presentation.
3. Liquidation Preference. In the event of any liquidation, dissolution,
----------------------
or winding up of the Corporation (each a "Liquidation Event"), whether voluntary
-----------------
or involuntary, distributions to the shareholders of the Corporation shall be
made in the following manner.
3.1 The holders of Preferred Stock shall be entitled to receive,
prior and in preference to any distribution of any of the assets or surplus
funds of the Corporation to the holders of the Common Stock, by reason of their
ownership of such stock, an amount per share equal to the sum of (i) $0.20 (the
"Original Series A Issue Price") for each share of Series A Preferred then held
-----------------------------
by them, adjusted for any combinations, consolidations, subdivisions, or stock
splits with respect to such shares and, in addition, all accrued but unpaid
dividends on such shares of Series A Preferred (the "Series A Preference"), (ii)
-------------------
$1.2862 (the "Original Series B Issue Price") for each share of Series B
-----------------------------
Preferred then held by them, adjusted for any combinations, consolidations,
subdivisions, or stock splits with respect to such shares and, in addition, all
accrued but unpaid dividends on such shares of Series B Preferred (the "Series B
--------
Preference"), (iii) $1.079076 (the "Original Series C Issue Price") for each
- ---------- -----------------------------
share of Series C Preferred then held by them, adjusted for any combinations,
consolidations, subdivisions, or stock splits with respect to such shares and,
in addition, all accrued but unpaid dividends on such shares of Series C
Preferred (the "Series C Preference"), (iv) $1.87105 (the "Original Series D
-------------------
Issue Price") for each share of Series D Preferred then held by them, adjusted
for any combinations, consolidations, subdivisions, or stock splits with respect
to such shares and, in addition, all accrued but unpaid dividends on such shares
of Series D Preferred (the "Series D Preference") and (v) $5.66 (the "Original
------------------- --------
Series E Issue Price") for each share of Series E Preferred then held by them,
- --------------------
adjusted for any combinations, consolidations, subdivisions, or stock splits
with respect to such shares and, in addition, all accrued but unpaid dividends
on such shares of Series E Preferred (the "Series E Preference"). The Series A
-------------------
Preferred, Series B
-3-
<PAGE>
Preferred, Series C Preferred, Series D Preferred and Series E Preferred shall
rank on a pari passu basis as to the receipt of the respective preferential
amounts for each such series upon the occurrence of such event. If the assets
and funds thus distributed among the holders of the Series A Preferred, Series B
Preferred, Series C Preferred, Series D Preferred and Series E Preferred shall
be insufficient to permit the payment to such holders of the full aforesaid
Series A Preference, Series B Preference, Series C Preference, Series D
Preference and Series E Preference, then the entire assets and funds of the
Corporation legally available for distribution shall be distributed among the
holders of the Series A Preferred, Series B Preferred, Series C Preferred,
Series D Preferred and Series E Preferred in proportion to the total
preferential amount owed to each holder under this Section 3.1.
3.2 After payment of the Series A Preference, Series B Preference,
Series C Preference, Series D Preference and Series E Preference has been made
to the holders of the Series A Preferred, Series B Preferred, Series C
Preferred, Series D Preferred and Series E Preferred of the full amounts to
which they are entitled pursuant to Section 3.1 above, the remaining assets and
funds of the Corporation available for distribution shall be distributed ratably
among all holders of Series B Preferred, Series C Preferred, Series D Preferred
and Series E Preferred and holders of Common Stock based on the number of shares
of Common Stock held by each such holder (assuming conversion of all Series B
Preferred, Series C Preferred, Series D Preferred and Series E Preferred).
Notwithstanding the foregoing sentence, the right to receive the remaining
assets so described shall cease (i) as to the holders of Series B Preferred at
such time as the holders of Series B Preferred have received an aggregate of
$2.5724 per share of Series B Preferred held by them (including amounts
previously paid as the Series B Preference), (ii) as to the holders of Series C
Preferred at such time as the holders of Series C Preferred have received an
aggregate of $2.158152 per share of Series C Preferred held by them (including
amounts previously paid as the Series C Preference), (iii) as to the holders of
Series D Preferred at such time as the holders of Series D Preferred have
received an aggregate of $2.806575 per share of Series D Preferred held by them
(including amounts previously paid as the Series D Preference) and (iv) as to
the holders of Series E Preferred at such time as the holders of Series E
Preferred have received an aggregate of $8.49 per share of Series E Preferred
held by them (including amounts previously paid as the Series E Preference).
Thereafter, the remaining assets and funds of the Corporation available for
distribution shall be distributed ratably among all holders of Common Stock
(including shares of Common Stock into which the Preferred Stock is converted
prior to the commencement of the Liquidation Event distribution described in
this Section 3).
3.3 Notwithstanding the foregoing Sections 3.1 and 3.2, the entire
liquidation amount payable with respect to a share of Series B Preferred, a
share of Series C Preferred, a share of Series D Preferred and a share of Series
E Preferred upon a liquidation, dissolution or winding up shall, in each
instance, be equal to the greater of (i) the amount that would be distributable
under Sections 3.1 and 3.2 with respect to such share, and (ii) the amount that
would be distributable under Sections 3.1 and 3.2 in respect of the shares of
Common Stock issuable upon conversion of such share, assuming that such share
were converted into Common Stock pursuant to Section 6.1 immediately prior to
such liquidation, dissolution or winding up of the Corporation.
-4-
<PAGE>
3.4 For purposes of this Section 3, any transaction or series of
transactions, including without limitation a merger, consolidation, or other
corporate reorganization of the Corporation with or into any other corporation
or corporations in which more than fifty percent (50%) of the outstanding voting
power of this Corporation is disposed of, or a sale of all or substantially all
of the assets of the Corporation, shall be treated as a Liquidation Event,
irrespective of the form of payment made in such transaction or series of
transactions.
3.5 Each holder of Preferred Stock shall, by virtue of its acceptance
of a stock certificate evidencing Preferred Stock, be deemed to have consented
to distributions made by this Corporation in connection with the repurchase by
this Corporation of its Common Stock pursuant to its agreements with certain of
the holders thereof.
3.5 The value of securities and property paid or distributed pursuant
to this Section 3 shall be computed at fair market value at the time of payment
as determined by the Board of Directors in the good faith exercise of its
reasonable business judgment, provided that (i) if such securities are listed on
any established stock exchange or a national market system, their fair market
value shall be the mean between the high and low prices for such securities as
quoted on such system or exchange (or the largest such exchange) for the 5
trading days immediately preceding and including the date the value is to be
determined (or if there are no sales for such date, then for the 5 trading days
immediately preceding such date), as reported in the Wall Street Journal or
-------------------
similar publication, (ii) if such securities are regularly quoted by a
recognized securities dealer but selling prices are not reported, their fair
market value shall be the mean between the high bid and low asked prices for
such securities on the 5 business days immediately preceding and including the
date the value is to be determined (or if there are no quoted prices for such
dates, then for the 5 last preceding business days on which there were quotes
prices), and (iii) if a majority of the directors elected by the holders of
Series B Preferred and Series C Preferred pursuant to Section 5.2 hereof (the
---
"Preferred Directors") does not approve the Board of Directors' valuation of
- --------------------
securities and property paid or distributed, the Corporation shall promptly
engage competent independent appraisers from a nationally recognized accounting
firm reasonably acceptable to the Preferred Directors (and with no prior
business relationship with the Corporation), or such other appraisers which are
agreed to by the Board of Directors and the Preferred Directors, to determine
the value of such securities and property paid or distributed, which
determination shall be final and binding; and provided, further, that if the
-------- -------
securities described in (i) or (ii) are subject to restrictions on transfer, the
Board of Directors shall apply an appropriate discount in determining the value
thereof.
3.6 Nothing hereinabove set forth shall affect in any way the right
of each holder of Preferred Stock to convert such shares into Common Stock in
accordance with Section 6 hereof at any time prior to the commencement of the
distribution of assets and funds described above.
4. Redemption Rights.
-----------------
4.1 Series A Preferred. At the election in writing by the holders of
------------------
more than fifty percent (50%) of the outstanding shares of Series A Preferred,
the Corporation shall redeem,
-5-
<PAGE>
on the terms and conditions stated herein, out of funds legally available
therefor, all of the Series A Preferred in four (4) annual installments
beginning on May 9, 2002 (the "Initial Redemption Date"), and continuing
-----------------------
thereafter on the first, second and third anniversaries of the Initial
Redemption Date (each a "Series A Redemption Date" and, together with each
------------------------
Series B Redemption Date (as defined below), Series C Redemption Date (as
defined below), Series D Redemption Date (as defined below), and Series E
Redemption Date (as defined below), a "Redemption Date"), by paying in cash
---------------
therefor a sum equal to the greater of (i) the Original Series A Issue Price for
each share of Series A Preferred, plus all declared but unpaid dividends thereon
(as adjusted for any stock dividends, combinations, splits, recapitalizations
and the like with respect to such shares) and an amount equal to 8% of the
Original Series A Issue Price compounded per annum from the date on which the
first share of Series A Preferred was issued to the Series A Redemption Date,
and (ii) the fair market value of the Series A Preferred on the Initial
Redemption Date as determined in the manner in which the value of a security is
determined in Section 3.5 hereof (the "Series A Redemption Price"). The number
-------------------------
of shares of Series A Preferred that the Corporation shall be required to redeem
under this paragraph (a) on any one Series A Redemption Date shall be equal to
the amount determined by dividing (x) the aggregate number of shares of Series A
Preferred outstanding immediately prior to the Series A Redemption Date by (y)
the number of remaining Series A Redemption Dates (including the Series A
Redemption Date to which such calculation applies).
4.2 Series B Preferred. At the election in writing by the holders of
------------------
more than fifty percent (50%) of the outstanding shares of Series B Preferred,
the Corporation shall redeem, on the terms and conditions stated herein, out of
funds legally available therefor, all of the Series B Preferred in four (4)
annual installments beginning on the Initial Redemption Date, and continuing
thereafter on the first, second and third anniversaries of the Initial
Redemption Date (each a "Series B Redemption Date"), by paying in cash therefor
------------------------
a sum equal to the greater of (i) the Original Series B Issue Price for each
share of Series B Preferred, plus all declared but unpaid dividends thereon (as
adjusted for any stock dividends, combinations, splits, recapitalizations and
the like with respect to such shares) and an amount equal to 8% of the Original
Series B Issue Price compounded per annum from the date on which the first share
of Series B Preferred was issued (the "Series B Original Issue Date") to the
----------------------------
Series B Redemption Date, and (ii) the fair market value of the Series B
Preferred on the Initial Redemption Date as determined in the manner in which
the value of a security is determined in Section 3.5 hereof (the "Series B
--------
Redemption Price"). The number of shares of Series B Preferred that the
- ----------------
Corporation shall be required to redeem under this paragraph (b) on any one
Series B Redemption Date shall be equal to the amount determined by dividing (x)
the aggregate number of shares of Series B Preferred outstanding immediately
prior to the Series B Redemption Date by (y) the number of remaining Series B
Redemption Dates (including the Series B Redemption Date to which such
calculation applies).
4.3 Series C Preferred. At the election in writing by the holders of
------------------
more than fifty percent (50%) of the outstanding shares of Series C Preferred,
the Corporation shall redeem, on the terms and conditions stated herein, out of
funds legally available therefor, all of the Series C Preferred in four (4)
annual installments beginning on the Initial Redemption Date, and continuing
thereafter on the first, second and third anniversaries of the Initial
Redemption Date
-6-
<PAGE>
(each a "Series C Redemption Date") by paying in cash therefor a sum equal to
------------------------
the greater of (i) the Original Series C Issue Price for each share of Series C
Preferred, plus all declared but unpaid dividends thereon (as adjusted for any
stock dividends, combinations, splits, recapitalizations and the like with
respect to such shares) and an amount equal to 8% of the Original Series C Issue
Price compounded per annum from the date on which the shares of Series C
Preferred to be redeemed were issued (the "Series C Original Issue Date") to the
----------------------------
Series C Redemption Date, and (ii) the fair market value of the Series C
Preferred on the Initial Redemption Date as determined in the manner in which
the value of a security is determined in Section 3.5 hereof (the "Series C
--------
Redemption Price"). The number of shares of Series C Preferred that the
- ----------------
Corporation shall be required to redeem under this paragraph (c) on any one
Series C Redemption Date shall be equal to the amount determined by dividing (x)
the aggregate number of shares of Series C Preferred and standing immediately
prior to the Series C Redemption Date by (y) the number of remaining Series C
Redemption Dates (including the Series C Redemption Date to which such
calculation applies).
4.4 Series D Preferred. At the election in writing by the holders of
------------------
more than fifty percent (50%) of the outstanding shares of Series D Preferred,
the Corporation shall redeem, on the terms and conditions stated herein, out of
funds legally available therefor, all of the Series D Preferred in four (4)
annual installments beginning on the Initial Redemption Date, and continuing
thereafter on the first, second and third anniversaries of the Initial
Redemption Date (each a "Series D Redemption Date") by paying in cash therefor a
------------------------
sum equal to the greater of (i) the Original Series D Issue Price for each share
of Series D Preferred, plus all declared but unpaid dividends thereon (as
adjusted for any stock dividends, combinations, splits, recapitalizations and
the like with respect to such shares) and an amount equal to 8% of the Original
Series D Issue Price compounded per annum from the date on which the shares of
Series D Preferred to be redeemed were issued (the "Series D Original Issue
-----------------------
Date") to the Series D Redemption Date, and (ii) the fair market value of the
Series D Preferred on the Initial Redemption Date as determined in the manner in
which the value of a security is determined in Section 3.5 hereof (the "Series D
--------
Redemption Price"). The number of shares of Series D Preferred that the
- ----------------
Corporation shall be required to redeem under this paragraph (d) on any one
Series D Redemption Date shall be equal to the amount determined by dividing (x)
the aggregate number of shares of Series D Preferred and standing immediately
prior to the Series D Redemption Date by (y) the number of remaining Series D
Redemption Dates (including the Series D Redemption Date to which such
calculation applies).
4.5 Series E Preferred. At the election in writing by the holders of
------------------
more than fifty percent (50%) of the outstanding shares of Series E Preferred,
the Corporation shall redeem, on the terms and conditions stated herein, out of
funds legally available therefor, all of the Series E Preferred in four (4)
annual installments beginning on the Initial Redemption Date, and continuing
thereafter on the first, second and third anniversaries of the Initial
Redemption Date (each a "Series E Redemption Date") by paying in cash therefor a
------------------------
sum equal to the greater of (i) the Original Series E Issue Price for each share
of Series E Preferred, plus all declared but unpaid dividends thereon (as
adjusted for any stock dividends, combinations, splits, recapitalizations and
the like with respect to such shares) and an amount equal to 8% of the Original
Series E Issue Price compounded per annum from the date on which the shares of
Series
-7-
<PAGE>
E Preferred to be redeemed were issued (the "Series E Original Issue Date") to
----------------------------
the Series E Redemption Date, and (ii) the fair market value of the Series E
Preferred on the Initial Redemption Date as determined in the manner in which
the value of a security is determined in Section 3.5 hereof (the "Series E
--------
Redemption Price"). The number of shares of Series E Preferred that the
- ----------------
Corporation shall be required to redeem under this paragraph (d) on any one
Series E Redemption Date shall be equal to the amount determined by dividing (x)
the aggregate number of shares of Series E Preferred and standing immediately
prior to the Series E Redemption Date by (y) the number of remaining Series E
Redemption Dates (including the Series E Redemption Date to which such
calculation applies).
4.6 The Corporation shall use its best efforts to be legally able to
redeem the full number of shares of Preferred Stock to be redeemed on any
Redemption Date, including, but not limited to, a sale of the Corporation (by
merger or otherwise) or sale of all or substantially all of its assets. In the
event that the Corporation is unable to redeem the full number of shares of
Preferred Stock to be redeemed on any Redemption Date, the shares not redeemed
shall be redeemed by this Corporation as provided in this Section 4 as soon as
practicable after funds are legally available therefor. Any redemption effected
pursuant to this Section 4.6 shall be made ratably among the holders of the
Preferred Stock in proportion to the aggregate Series A Redemption Price, Series
B Redemption Price, Series C Redemption Price, Series D Redemption Price and
Series E Redemption Price, as applicable, to which each holder is entitled under
Sections 4.1, 4.2, 4.3, 4.4 and 4.5.
4.7 If the holders of Series A Preferred, Series B Preferred, Series
C Preferred, Series D Preferred and/or Series E Preferred have elected to have
the shares of Preferred Stock that they hold redeemed as provided in Sections
4.1, 4.2, 4.3, 4.4, and 4.5 above, then at least thirty (30) but no more than
sixty (60) days prior to each Redemption Date, the Corporation shall give
written notice by certified or registered mail, postage prepaid, to all holders
of outstanding Preferred Stock whose shares are being redeemed, at the address
last shown on the records of the Corporation for such holder, stating such
Redemption Date, the Series A Redemption Price, the Series B Redemption Price,
the Series C Redemption Price, the Series D Redemption Price and the Series E
Redemption Price, as applicable, the then current conversion rate (as provided
in Section 6.1)) for such shares, and the date of termination of the right to
convert (which date shall not be earlier than (30) days after the written notice
by the Corporation has been given) and shall call upon such holder to surrender
to the Corporation on such Redemption Date at the place designated in the
notice, such holder's certificate or certificates representing the shares to be
redeemed. On or after the Redemption Date stated in such notice, the holder of
each share of Preferred Stock called for redemption shall surrender the
certificate evidencing such shares to the Corporation at the place designated in
such notice and shall thereupon be entitled to receive payment of the Series A
Redemption Price, Series B Redemption Price, Series C Redemption Price, Series D
Redemption Price or Series E Redemption Price, as the case may be, for the
shares surrendered. If less than all the shares represented by any such
surrendered certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares. If such notice of redemption shall have
been duly given, and if on such Redemption Date funds necessary for the
redemption shall be available therefor, then, as to any certificates evidencing
any Preferred Stock so called for redemption and not surrendered, all rights of
the holders of such shares so called for
-8-
<PAGE>
redemption and not surrendered shall cease with respect to such shares, except
only the right of the holders to receive the Series A Redemption Price, Series B
Redemption Price, Series C Redemption Price, Series D Redemption Price and
Series E Redemption Price for the Preferred Stock which they hold, without
interest, upon surrender of their certificates therefor.
4.8 Notwithstanding anything herein to the contrary, if, on or prior
to a Redemption Date (and after a redemption election has been made pursuant to
this Section 4), the Corporation deposits, with any bank or trust company in the
State of California having aggregate capital and surplus in excess of
$100,000,000, as a trust fund, a sum sufficient to redeem on such Redemption
Date the shares called for redemption, with irrevocable instructions and
authority to the bank or trust company to give the notice of redemption thereof
(or to complete the giving of such notice if theretofore commenced) and to pay,
on or after the Redemption Date or prior thereto, the Series A Redemption Price,
Series B Redemption Price, Series C Redemption Price, Series D Redemption Price
and Series E Redemption Price of the shares to their respective holders upon the
surrender of their share certificates, then from and after the date of the
deposit (although prior to such Redemption Date), the shares so called for
redemption on such Redemption Date (but not any subsequent Redemption Date)
shall be redeemed. The deposit of such sum shall constitute full payment of
such shares to their holders and from and after the date of the deposit such
shares shall no longer be outstanding, and the holders thereof shall cease to be
stockholders with respect to such shares, and shall have no rights with respect
thereto except the right to receive from the bank or trust company payment of
the Series A Redemption Price, the Series B Redemption Price, the Series C
Redemption Price, Series D Redemption Price and Series E Redemption Price for
the Preferred Stock called for redemption on such Redemption Date without
interest, upon the surrender of their certificates therefor and the right to
convert said shares as provided herein at any time up to but not after the close
of business on the fifth day prior to the Redemption Date of such shares (which
conversion date will not be earlier than thirty (30) days after the written
notice of redemption has been given). Any monies so deposited on account of the
Series A Redemption Price, Series B Redemption Price, Series C Redemption Price,
Series D Redemption Price and Series E Redemption Price of the Preferred Stock
converted into Common Stock subsequent to the making of such deposit shall be
repaid to the Corporation forthwith upon the conversion of such Preferred Stock.
Any interest accrued on any funds so deposited shall be the property of, and
paid to, the Corporation. If the holders of Preferred Stock so called for
redemption shall not, at the end of two (2) years after the applicable
Redemption Date, have claimed any funds so deposited, such bank or trust company
shall thereupon pay over to the Corporation such unclaimed funds, and such bank
or trust company shall thereafter be relieved of all responsibility in respect
thereof to such holders and such holders shall look only to the Corporation for
payment of the Series A Redemption Price, Series B Redemption Price, Series C
Redemption Price, Series D Redemption Price and Series E Redemption Price for
the Preferred Stock which they hold.
5. Voting Rights.
-------------
5.1 Except as otherwise required by law or hereunder, the holder of
each share of Common Stock issued and outstanding shall have one vote and the
holder of each share of Preferred Stock shall be entitled to the number of votes
equal to the number of shares of
-9-
<PAGE>
Common Stock into which such share of Preferred Stock could be converted at the
record date for determination of the shareholders entitled to vote on such
matters, or, if no such record date is established, at the date such vote is
taken or any written consent of shareholders is solicited, such votes to be
counted together with all other shares of stock of the Corporation having
general voting power and not separately as a class. Fractional votes by the
holders of Preferred Stock shall not, however, be permitted and any fractional
voting rights shall (after aggregating all shares into which shares of Preferred
Stock held by each holder could be converted) be rounded to the nearest whole
number (with one half being rounded upward). Holders of Common Stock and
Preferred Stock shall be entitled to notice of any shareholders' meeting in
connection with the Bylaws of the Corporation.
5.2 Notwithstanding the provisions of paragraph (a), at each annual
or special meeting called for the purpose of electing directors, (i) the holders
of the Series B Preferred, voting as a separate class, shall be entitled to
elect one (1) member of the Board of Directors for so long as at least 1,000,000
originally issued shares of Series B Preferred remain outstanding (as adjusted
for stock dividends, combinations, splits, recapitalizations and the like with
respect to such shares) and (ii) the holders of the Series C Preferred, Series D
Preferred and Series E Preferred, voting together as a single class, shall be
entitled to elect one (1) member of the Board of Directors for so long as at
least 1,000,000 originally issued shares of Series C Preferred, Series D
Preferred and/or Series E Preferred remain outstanding (as adjusted for stock
dividends, combinations, splits, recapitalizations and the like with respect to
such shares), (iii) the holders of Common Stock, voting as a separate class,
shall be entitled to elect two (2) members of the Board of Directors, and (iv)
the holders of Preferred Stock and Common Stock, voting together as a single
class and on an as-converted basis, shall be entitled to elect the remaining
directors. In the case of any vacancy in the office of a director elected
pursuant to clauses (i), (ii), or (iii) of the preceding sentence, a successor
shall be elected to hold office for the unexpired term of such director by the
affirmative vote of a majority of the shares of such specified group given at a
special meeting of such shareholders duly called (or by a written consent in
lieu thereof) for that purpose. Subject to Section 141(k) of the Delaware
General Corporation Law, any director who shall have been elected by a specified
group of shareholders may be removed during the aforesaid term of office, either
for or without cause, by, and only by, the holders of a majority of the shares
of such specified group, given at the a special meeting of such stockholders
duly called (or by a written consent in lieu thereof) for that purpose, and such
vacancy thereby created may be filled by the vote of the holders of a majority
of shares of such specified group represented at such meeting (or in such
consent).
6. Conversion. The holders of Preferred Stock shall have conversion
----------
rights as follows (the "Conversion Rights"):
6.1 Right to Convert. Each share of Preferred Stock shall be
----------------
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share at the office of the Corporation or any transfer agent
for such Preferred Stock. Each share of Preferred Stock shall be convertible
into such number of fully-paid and non-assessable shares of Common Stock as (i)
in the case of the Series A Preferred is determined by dividing the Original
Series A Issue Price by the Series A Preferred Conversion Price (the "Series A
--------
Conversion Price"), determined
- ----------------
-10-
<PAGE>
as hereinafter provided, in effect at the time of conversion, (ii) in the case
of the Series B Preferred is determined by dividing the Original Series B Issue
Price by the Series B Preferred Conversion Price (the "Series B Conversion
-------------------
Price"), determined as hereinafter provided, in effect at the time of
- -----
conversion, (iii) in the case of the Series C Preferred is determined by
dividing the Original Series C Issue Price by the Series C Preferred Conversion
Price (the "Series C Conversion Price"), determined as hereinafter provided, in
-------------------------
effect at the time of conversion, (iv) in the case of the Series D Preferred is
determined by dividing the Original Series D Issue Price by the Series D
Preferred Conversion Price (the "Series D Conversion Price"), determined as
-------------------------
hereinafter provided, in effect at the time of conversion and (v) in the case of
the Series E Preferred is determined by dividing the Original Series E Issue
Price by the Series E Preferred Conversion Price (the "Series E Conversion
-------------------
Price"), determined as hereinafter provided, in effect at the time of
- -----
conversion. The initial Series A Preferred Conversion Price shall be $0.20 per
share, the initial Series B Conversion Price shall be $1.2862 per share, the
initial Series C Conversion Price shall be $1.079076 per share, the initial
Series D Conversion Price shall be $1.87105 per share, and the initial Series E
Conversion Price shall be $5.66 per share. Each of these Conversion Prices shall
be subject to adjustment as provided in accordance with Section 6.4.
6.2 Automatic Conversion. Each share of Series A Preferred, Series B
--------------------
Preferred, Series C Preferred, Series D Preferred and Series E Preferred shall
automatically be converted into shares of Common Stock at the then effective
Conversion Price for such series of Preferred Stock upon the closing of a firm
commitment underwritten public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended, covering the offer and
sale of Common Stock for the account of the Corporation to the public with
aggregate proceeds to the Company in excess of Twenty Million Dollars
($20,000,000) (before deduction for underwriters commissions and expenses) and a
per share price not less than $8.49 per share (appropriately adjusted for any
stock combination, stock split, stock dividend, recapitalization, or other
similar transaction) (an "Automatic Conversion"). In the event of an Automatic
Conversion of the Preferred Stock upon a public offering as aforesaid, the
person(s) entitled to receive the Common Stock issuable upon such conversion of
Preferred Stock shall not be deemed to have converted such Preferred Stock until
immediately prior to the closing of such sale of securities.
6.3 Mechanics of Conversion. No fractional shares of Common Stock
-----------------------
shall be issued upon conversion of Preferred Stock. All shares of Common Stock
(including fractions thereof) issuable upon conversion of more than one share of
Preferred Stock by a holder thereof shall be aggregated for purposes of
determining whether the conversion would result in the issuance of any
fractional share. If, after the aforementioned aggregation, the conversion
would result in the issuance of a fraction of a share of Common Stock, the
Corporation shall, in lieu of issuing any fractional shares to which the holder
would otherwise be entitled, pay cash equal to such fraction multiplied by the
then effective Conversion Price for such series of Preferred Stock. Before any
holder of Preferred Stock shall be entitled to convert the same into full shares
of Common Stock and to receive certificates therefor, such holder shall
surrender the certificate or certificate therefor, duly endorsed, at the office
of the Corporation or of any transfer agent for the Preferred Stock, and shall
given written notice to the Corporation at such office that he or she
-11-
<PAGE>
elects to convert the same; provided, however, that in the event of an Automatic
Conversion pursuant to Section 6.2, the outstanding shares of Preferred Stock
shall be converted automatically without any further action by the holders of
such shares and whether or not the certificates representing such shares are
surrendered to the Corporation or its transfer agent, and provided further that
the Corporation shall not be obligated to issue certificates evidencing the
shares of Common Stock issuable upon such Automatic Conversions unless the
certificates evidencing such shares of Preferred Stock are either delivered to
the Corporation or its transfer agents as provided above, or the holder notifies
the Corporation or its transfer agent that such certificates have been lost,
stolen, or destroyed and executes an agreement satisfactory to the Corporation
to indemnify the Corporation from any loss incurred by it in connection with
such certificates. The Corporation shall, as soon as practicable after such
delivery, or such agreement and indemnification in the case of a lost
certificate, issue and deliver at such office to such holder of Preferred Stock,
a certificate or certificates for the number of shares of Common Stock to which
such holder shall be entitled as aforesaid and check payable to the holder in
the amount of any cash amounts payable as the result of a conversion into
fractional shares of Common Stock. 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 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 shares
of Common Stock on such date.
6.4 Adjustments to Conversion Price.
-------------------------------
(i) Adjustments for Dividends, Splits, Subdivisions,
-----------------------------------------------
Combinations, or Consolidation of Common Stock. In the event the outstanding
----------------------------------------------
shares of Common Stock shall be increased by stock dividend payable in Common
Stock, stock split, subdivision, or other similar transaction occurring after
the filing of these Amended and Restated Articles of Incorporation into a
greater number of shares of Common Stock, the Conversion Price then in effect
for each series of Preferred Stock shall, concurrently with the effectiveness
of such event, be decreased in proportion to the percentage increase in the
outstanding number of shares of Common Stock. In the event the outstanding
shares of Common Stock shall be decreased by reverse stock split, combination,
consolidation, or other similar transaction occurring after the filing of this
Certificate of Designation into a lesser number of shares of Common Stock, the
Conversion Price then in effect for each series of Preferred Stock shall,
concurrently with the effectiveness of such event, be increased in proportion
to the percentage decrease in the outstanding number of shares of Common Stock.
(ii) Adjustments for Other Distributions. In the event the
-----------------------------------
Corporation at any time or from time to time makes, or fixes a record date for
the determination of holders of Common Stock entitled to receive, any
distribution payable in securities of the Corporation other than shares of
Common Stock and other than as otherwise adjusted in this Section 6, then and in
each such event provision shall be made so that the holders of Preferred Stock
shall receive upon conversion thereof, in addition to the number of shares of
Common Stock receivable thereupon, the amount of securities of the Corporation
which they would have received had their Preferred Stock been converted into
Common Stock on the date of such event and had they thereafter,
-12-
<PAGE>
during the period from the date of such event to and including the date of
conversion, retained such securities receivable by them as aforesaid during such
period, subject to all other adjustments called for during such period under
this Section 6 with respect to the rights of the holders of the Preferred Stock.
(iii) Adjustments for Reclassification, Exchange and Substitution.
-----------------------------------------------------------
If the Common Stock issuable upon conversion of the 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
above), the Conversion Price then in effect for each series of Preferred Stock
shall, concurrently with the effectiveness of such reorganization or
reclassification, be proportionately adjusted such that the 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 such Preferred Stock immediately before that change.
(iv) Adjustments of Series B Conversion Price, Series C Conversion
-------------------------------------------------------------
Price, Series D Conversion Price and Series E Conversion Price Upon Issuance of
- -------------------------------------------------------------------------------
Additional Stock. If the Corporation shall issue "Additional Stock" (as defined
- ----------------
below) for a consideration per share less than the Series B Conversion Price,
the Series C Conversion Price, the Series D Conversion Price or the Series E
Conversion Price then in effect on the date and immediately prior to such issue,
then and in each such event, such Conversion Price shall be reduced concurrently
with such issue, to a price (calculated to three decimal places) determined by
multiplying such Conversion Price by a fraction (1) the numerator of which shall
be the number of shares of Common Stock outstanding immediately prior to such
issue (including all shares of Common Stock issuable upon conversion of the
outstanding Preferred Stock and upon exercise of all outstanding options) plus
the number of shares of Common Stock which the aggregate consideration received
by the Corporation for the total number of Additional Stock so issued (or deemed
to be issued) would purchase at such Conversion Price; and (2) the denominator
of which shall be the number of shares of Common Stock outstanding immediately
prior to such issue (including all shares of Common Stock issuable upon
conversion of the outstanding Preferred Stock and upon exercise of all
outstanding options) plus the number of shares of Additional Stock so issued.
For purposes of this subsection (iv) "Additional Stock" shall mean all Common
Stock issued by the Corporation after the Series B Original Issue Date other
than Common Stock issued or issuable at any time (1) upon conversion of the
Preferred Stock, (2) up to a total of 5,754,206 shares (net of repurchases and
option expirations or terminations) to officers, directors, and employees of,
and consultants to, the Corporation after the Series B Original Issue Date as
designated and approved by the Board of Directors, or such larger number of
shares as may hereafter be approved by the Board of Directors including the
affirmative vote of the member elected by the holders of Series B Preferred or
the member elected by the holders of Series C Preferred, Series D Preferred and
Series E Preferred; (3) in connection with equipment leasing or bank financing
transactions approved by the Corporation's Board of Directors; (4) as a dividend
or distribution with respect to the Preferred Stock; (5) upon the
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<PAGE>
issuance of shares of Series C Preferred Stock in excess of 5,560,314 shares; or
(6) as described in subparagraphs (i), (ii) and (iii) of this Section 4.6
For the purpose of making any adjustment in the Series B Conversion
Price, Series C Conversion Price, Series D Conversion Price or Series E
Conversion Price as provided above, the consideration received by the
Corporation for any issue or sale of Common Stock will be computed:
(1) to the extent it consists of cash, as the amount of cash
received by the Corporation before deduction of any offering expenses payable by
the Corporation and any underwriting or similar commissions, compensation, or
concessions paid or allowed by the Corporation in connection with such issue or
sale;
(2) to the extent it consists of property other than cash, at
the fair market value of that property as determined in good faith in the manner
in which the value of such property is determined in Section 3.5; and
(3) if Common Stock is issued or sold together with other stock
or securities or other assets of the Corporation for a consideration which
covers both, as the portion of the consideration so received that may be
reasonably determined in good faith by the Board of Directors to be allocable to
such Common Stock.
If the Corporation (1) grants any rights or options to subscribe for,
purchase, or otherwise acquire shares of Common Stock, or (2) issues or sells
any security convertible into shares of Common Stock, then, in each case, the
price per share of Common Stock issuable on the exercise of the rights or
options or the conversion of the securities will be determined by dividing the
total amount, if any, received or receivable by the Corporation as consideration
for the granting of the rights or options or the issue or sale of the
convertible securities, plus the minimum aggregate amount of additional
consideration payable to the Corporation on exercise or conversion of the
securities, by the maximum number of shares of Common Stock issuable on the
exercise of conversion. Such granting or issue or sale will be considered to be
an issue or sale for cash of the maximum number of shares of Common Stock
issuable on exercise or conversion at the price per share determined under this
subsection, and the Conversion Price for such Series B Preferred, Series C
Preferred, Series D Preferred or Series E Preferred will be adjusted as above
provided to reflect (on the basis of that determination) the issue or sale. No
further adjustment of the Conversion Price for such Series B Preferred, Series C
Preferred, Series D Preferred or Series E Preferred will be made as a result of
the actual issuance of shares of Common Stock on the exercise of any such rights
or options or the conversion of any such convertible securities.
Upon the redemption or repurchase of any such securities or the
expiration or termination of the right to convert into, exchange for, or
exercise with respect to, Common Stock, the Conversion Price for the Series B
Preferred, the Series C Preferred, the Series D Preferred and the Series E
Preferred, as applicable, will be readjusted to such price as would have been
obtained had the adjustment made upon their issuance been made upon the basis of
the issuance of only the number of such securities as were actually converted
into, exchanged for, or
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<PAGE>
exercised with respect to, Common Stock. If the purchase price or conversion or
exchange rate provided for in any such security changes at any time, then, upon
such change becoming effective, the Conversion Price for the Series B Preferred,
the Series C Preferred, the Series D Preferred or the Series E Preferred as
applicable, then in effect will be readjusted forthwith to such price as would
have been obtained had the adjustment made upon the issuance of such securities
been made upon the basis of (1) the issuance of only the number of shares of
Common Stock theretofore actually delivered upon the conversion, exchange or
exercise of such securities, and the total consideration received therefor, and
(2) the granting or issuance, at the time of such change, of any such securities
then still outstanding for the consideration, if any, received by the Company
therefor and to be received on the basis of such changed price or rate.
6.5 No Impairment. Except as provided in Section 7, the Corporation will
-------------
not, by amendment of its Certificate of Designation 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 6 and in the taking of all
such action as may be necessary or appropriate in order to protect the
conversion rights of the holders of the Preferred Stock against impairment.
6.6 Certificate as to Adjustments. Upon the occurrence of each adjustment
-----------------------------
or readjustment of the Conversion Price of each series of Preferred Stock
pursuant to this Section 6, the Corporation at its expense shall promptly
compute such adjustment or readjustment in accordance with the terms hereof and
furnish to each holder of Preferred Stock a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the written
request of any holder of Preferred Stock, furnish or cause to be furnished to
such holder a like certificate setting forth (i) such adjustments and
readjustments, (ii) the 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 Preferred Stock.
(a) Notices of Record Date. In the event that this 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 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 its property or business, or
to liquidate, dissolve, or wind
-15-
<PAGE>
up; then, in connection with each such event, this Corporation shall send to the
holders of the Preferred Stock:
(1) at least 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 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 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 or the record date for the
determination of such holders if such record date is earlier).
Each such written notice shall be delivered personally or given by
first class mail, postage prepaid, addressed to the holders of the Preferred
Stock at the address for each such holder as shown on the books of this
Corporation.
(h) Issue Taxes. The Corporation shall pay any and all issue and other
-----------
taxes (other than income taxes) that may be payable in respect of any issue or
delivery of shares of Common Stock on conversion of shares of 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.
(i) 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 Preferred Stock such number of its shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding shares of Preferred Stock, 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 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
shareholder approval of any necessary amendment to its Articles of
Incorporation.
(j) Status of Converted Stock. No share of Preferred Stock acquired by
-------------------------
the Corporation by reason of redemption, purchase, conversion or otherwise shall
be reissued and all such shares shall be cancelled, retired or eliminated from
the shares which the Corporation is authorized to issue.
7. Covenants.
---------
7.1 In addition to any other rights provided by law, this Corporation
shall not without first obtaining the affirmative vote or written consent of the
holders of more than fifty percent (50%) of the outstanding shares of Preferred
Stock (voting on an as-converted basis):
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<PAGE>
(i) amend or repeal any provision of, or add any provision
to, this Corporation's Articles of Incorporation if such action would adversely
alter or change the preferences, rights, privileges, or powers of, or the
restrictions provided for the benefit of or imposed upon, the Preferred Stock;
(ii) increase the authorized number of shares of Preferred
Stock;
(iii) authorize or issue shares of any class or series of stock
having any rights, preferences or privileges superior to or on a parity with any
rights, preferences or privileges of the Preferred Stock;
(iv) undertake any transaction or series of transactions as
described in Section 3.4 hereof; or
(v) amend the Corporation's Bylaws.
7.2 In addition to any other rights provided by law and in addition to
the provisions of Section 7(a), this Corporation shall not without first
obtaining the affirmative vote or written consent of the holders of more than
sixty percent (60%) of the outstanding shares of Series B Preferred, Series C
Preferred, Series D Preferred and Series E Preferred, voting together as a
single class and on an as-converted basis:
(vi) increase the authorized number of shares of Series B
Preferred, Series C Preferred, Series D Preferred or Series E Preferred;
(vii) amend or repeal any provision of, or add any provision to,
this Corporation's Articles of Incorporation if such action would adversely
alter or change the preferences, rights, privileges, or powers of, or the
restrictions provided for the benefit of or imposed upon, the Series B
Preferred, the Series C Preferred, the Series D Preferred or the Series E
Preferred;
(viii) pay or declare any dividends on the Common Stock or
Preferred Stock;
(ix) authorize or issue shares of any class or series of stock
having any rights, preferences or privileges superior to any rights, preferences
or privileges of the Series B Preferred, the Series C Preferred, the Series D
Preferred or the Series E Preferred;
(x) undertake any transaction or series of transactions as
described in Section 3.4 hereof; or
(xi) redeem, repurchase or otherwise acquire (including, without
limitation, payment into a sinking fund for such purpose) any share or shares of
Common Stock or Preferred Stock; provided, however, that this restriction shall
not apply to (A) redemptions in accordance with Section 3 of this Article
Fourth, or (B) repurchases by the Company of shares of Common Stock held by
employees, officers, directors, consultants, independent contractors,
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<PAGE>
advisors, or other persons performing services for the Company or a subsidiary
that are subject to restricted stock purchase agreements or stock option
exercise agreements under which the Company has the option to repurchase such
shares: (1) at cost, upon the occurrence of certain events, such as the
termination of employment or services; or (2) at any price pursuant to the
Company's exercise of a right of first refusal to repurchase such shares, and
such repurchase is approved by the Board of Directors.
8. Residual Rights. All rights accruing to the outstanding shares of the
---------------
Corporation not expressly provided for to the contrary herein shall be vested to
the Common Stock. The Common Stock shall not be redeemable.
In Witness Whereof, the Corporation has caused this Certificate of
Designation to be signed and attested by its duly authorized officer this ___day
of August, 1999.
______________________________
Martin Brauns,
Chief Executive Officer and
President
I declare under penalty of perjury under the of the State of California,
the State of Delaware and the United States of America that the foregoing is
true and correct and that this declaration was executed on _____________,1999
at Sunnyvale, California.
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<PAGE>
EXHIBIT 4.02
THIRD AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
This THIRD AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT (the "Agreement")
is made as of June 10, 1999, by and among Interwoven, Inc., a California
corporation (the "Company"), the persons listed on the attached Schedule A who
become signatories to this Agreement (collectively, the "Investors").
R E C I T A L S
---------------
A. The Company and the Investors have entered into one or more agreements
for sale by the Company and purchase by the Investors of the Company's Preferred
Stock and other securities.
B. In connection with the purchase and sale of the Company's securities,
the Company and the Investors desire to provide for the rights of the Investors
with respect to information about the Company and registration of the Common
Stock issued upon conversion or exercise of the securities according to the
terms of this Agreement. In addition, the Investors who were parties to the
Second Amended and Restated Investor Rights Agreement made as of October 30,
1998, as amended (the "Prior Agreement"), desire to restate the Prior Agreement
as set forth below, and consent to the addition, as parties to this Agreement,
of the Investors who purchase the Company's Series E Preferred Stock, such that
this Agreement is the only agreement governing the information and registration
rights of the holders of the Company's Preferred Stock.
THE PARTIES AGREE AS FOLLOWS:
1. Certain Definitions. As used in this Agreement, the following terms
-------------------
shall have the following respective meanings:
(a) "Commission" shall mean the U.S. Securities and Exchange
----------
Commission or any other federal agency at the time administering the Securities
Act.
(b) "Convertible Securities" shall mean securities of the Company
----------------------
convertible into or exercisable or exchangeable for Common Stock of the Company,
or into other securities that are convertible into or exercisable or
exchangeable for Common Stock.
(c) "Exchange Act" shall mean the Securities and Exchange Act of 1934,
------------
as amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
(d) "Form S-3" shall mean Form S-3 issued by the Commission or any
--------
substantially similar form then in effect.
<PAGE>
(e) "Holder" shall mean any holder of outstanding Registrable
------
Securities which have not been sold to the public pursuant to a public offering,
but only if such holder is one of the Investors or an assignee or transferee of
Registration rights as permitted by Section 12.
(f) "Initiating Holders" shall mean Holders (a) who in the aggregate
------------------
hold at least forty percent (40%) of the Registrable Securities, or (b) who hold
any of the Company's outstanding Series B Preferred which are Registrable
Securities, or (c) who in the aggregate hold at least twenty percent (20%) of
the Company's outstanding Series C Preferred which are Registrable Securities,
or (d) who in the aggregate hold at least twenty percent (20%) of the Company's
outstanding Series D Preferred which are Registrable Securities, or (e) who in
the aggregate hold at least twenty percent (20%) of the Company's outstanding
Series E Preferred which are Registrable Securities.
(g) "Major Investor" shall mean an investor that, together with any
--------------
affiliates, holds not less than 300,000 shares of the Convertible Securities
and/or Registrable Securities (as equitably adjusted for stock splits,
subdivisions, stock dividends, changes, combinations, or the like).
(h) "Material Adverse Event" shall mean an occurrence having a
----------------------
consequence that either (a) is materially adverse as to the business,
properties, prospects, or financial condition of the Company or (b) is
reasonably foreseeable, has a reasonable likelihood of occurring, and if it were
to occur might materially adversely affect the business, properties, prospects,
or financial condition of the Company.
(i) The terms "Register", "Registered", and "Registration" refer to a
-------- ---------- ------------
registration effected by preparing and filing a registration statement in
compliance with the Securities Act ("Registration Statement"), and the
declaration or ordering of the effectiveness of such Registration Statement.
(j) "Registrable Securities" shall mean all Common Stock issued or
----------------------
issuable upon conversion of the Company's Convertible Securities purchased by or
issued to the Investors, including Common Stock issued pursuant to stock splits,
stock dividends and similar distributions, and any securities of the Company
granted registration rights pursuant to Section 11 of this Agreement unless (a)
such Common Stock has previously been sold to the public, or (b) registration
rights with respect to such Common Stock have expired in accordance with Section
7 hereof.
(k) "Registration Expenses" shall mean all expenses incurred by the
---------------------
Company in complying with Sections 4 or 5 of this Agreement, including, without
limitation, all federal and state registration, qualification, and filing fees,
printing expenses, fees and disbursements of counsel for the Company, blue sky
fees and expenses, reasonable fees and expenses of special counsel for the
Holders, and the expense of any special audits incident to or required by any
such registration.
(l) "S-C Group" shall mean Quantum Industrial Partners LDC, S-C .
---------
Phoenix Holdings, L.L.C., Winston Partners II LDC, Winston Partners II LLC, and
their affiliates. For
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<PAGE>
purposes of this Agreement, "affiliates" of the S-C Group shall include one or
more of Purnendu Chatterjee, Chatterjee Fund Management, George Soros or Soros
Fund Management LLC or affiliates thereof, and any person or entity for which
any such person or entity acts as investment advisor or investment manager.
(m) "Securities Act" shall mean the Securities Act of 1933, as
--------------
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
(n) "Selling Expenses" shall mean all underwriting discounts, selling
----------------
commissions and stock transfer taxes applicable to the sale of Registrable
Securities pursuant to this Agreement.
2. Financial Statements and Reports to Major Preferred Investors.
-------------------------------------------------------------
2.1 The Company shall deliver to each holder who, together with
affiliates, holds a total of more than (x) 680,000 shares of Series B Preferred,
Series C Preferred, or Series D Preferred (or Common Stock issued upon
conversion of Series B Preferred, Series C Preferred, Series D Preferred), or
(y) 100,000 shares of Series E Preferred (or Common Stock issued upon conversion
of Series E Preferred), and to the S-C Group (each a "Major Preferred
Investor"):
(a) As soon as practicable after the end of each fiscal quarter after
the Closing, and in any event within 30 days thereafter, consolidated balance
sheets of the Company and its subsidiaries, if any, as of the end of such
quarter, and consolidated statements of income and cash flow for such quarter
and for the current fiscal year to date, prepared in accordance with generally
accepted accounting principles (other than for accompanying notes), consistently
applied with prior practice for earlier periods, and signed by the Chief
Financial Officer or President of the Company certifying that they fairly and
accurately present the financial condition and results of operation of the
Company, subject to changes resulting from year-end audit adjustment;
(b) As soon as practicable after the end of each fiscal year of the
Company, and in any event within 90 days thereafter, an audited consolidated
balance sheet of the Company as of the end of such year and audited consolidated
statements of income, shareholders' equity and cash flow for such year, which
year-end financial reports shall be in reasonable detail and shall be prepared
in accordance with generally accepted accounting principles, consistently
applied with prior practice for earlier periods, and accompanied by the opinion
of independent public accountants of nationally recognized standing selected by
the Company;
(c) As soon as practicable following submission to and approval by the
Board of Directors of the Company (such submission to be prior to the end of
each fiscal year) an operating budget and business plan (the "Plan") respecting
the next fiscal year and a summary of such Plan, together with any update of the
Plan as such update is prepared and approved by the Board of Directors; and
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<PAGE>
(d) A copy of each report or document of the Company delivered to a
majority of the holders of Common Stock (including Common Stock issuable upon
conversion of Preferred Stock);
(e) An annual capitalization summary; and
(f) Prompt notice of any litigation or any material adverse claims or
disputes involving the Company.
2.2 The covenants of the Company set forth in this Section 2 shall
terminate and be of no further effect with respect to each Major Preferred
Investor upon the closing of the first public offering of the Common Stock of
the Company that is effected pursuant to a Registration Statement filed with,
and declared effective by, the Commission under the Securities Act (other than
either a public offering limited solely to employees of the Company or an
offering pursuant to Rule 145 under the Securities Act).
3. Right of First Refusal.
----------------------
3.l The Company hereby grants to each Major Investor the right of
first refusal to purchase up to its Pro Rata Share of the New Securities (as
defined below) which the Company may, from time to time, propose to sell and
issue in a transaction or series of related transactions involving aggregate
proceeds to the Company of $1,000,000 or more. The Major Investors may purchase
said New Securities on the same terms and at the same price at which the Company
proposes to sell the New Securities. The "Pro Rata Share" of each Major
Investor, for purposes of this right of first refusal, is the ratio of (i) the
total number of shares of Common Stock held by such Major Investor (including
any shares of Common Stock into which shares of the Convertible Securities held
by such Major Investor are convertible) to (ii) the total number of shares of
Common Stock outstanding immediately prior to the issuance of the New Securities
(including any shares of Common Stock into which outstanding shares of the
Convertible Securities are convertible and treating as outstanding the maximum
number of shares of Common Stock that can be issued under the Company's Stock
Option Plan).
3.2 "New Securities" shall mean any capital stock of the Company,
whether authorized or not, and any rights, options, or warrants to purchase said
capital stock, and securities of any type whatsoever that are, or may become,
convertible into said capital stock; provided that "New Securities" does not
include (i) the Series E Preferred Stock issued pursuant to that certain Series
E Preferred Stock Purchase Agreement of even date herewith (the "Stock Purchase
Agreement"), or the Common Stock issuable upon conversion of the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock or such Series E Preferred Stock; (ii) securities offered
pursuant to a registration statement filed under the Securities Act; (iii)
securities issued by the Company pursuant to the acquisition of another
corporation by merger, purchase of substantially all of the assets, or other
reorganization; (iv) securities issued by the Company to a strategic corporate
partner pursuant to a strategic corporate partnership; provided such issuances
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 preceeding twelve month period do not exceed 1% of the then
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<PAGE>
outstanding Common Stock of the Company (assuming full conversion and exercise
of all convertible and exercisable securities); (v) shares issued or issuable to
employees, directors, consultants, advisers and others performing services for
the Company or its subsidiaries, pursuant to a plan or arrangement approved by
the Company's Board of Directors; (vi) shares issued without consideration
pursuant to a stock dividend, stock split, or similar transaction; (vii)
warrants, and shares issuable upon exercise of such warrants, issued in
connection with equipment leasing or credit transactions with commercial lending
institutions and approved by the Company's Board of Directors; and (viii)
Registrable Securities issued or issuable upon conversion, exercise, or exchange
of New Securities.
3.3 In the event the Company proposes to undertake an issuance of New
Securities, it shall give to each Major Investor written notice (the "Notice")
of its intention, describing the type of New Securities, the price, the terms
upon which the Company proposes to issue the same, the number of shares which
Major Investor is entitled to purchase, and a statement that each Major Investor
shall have twenty (20) days to respond to such Notice. Each Major Investor
shall have twenty (20) days from the date of receipt of the Notice to agree to
purchase any portion of or all of its Pro Rata Share of the New Securities for
the price and upon the terms specified in the Notice by giving written notice to
the Company and stating therein the quantity of New Securities to be purchased
and forwarding payment for such New Securities to the Company if immediate
payment is required by such terms.
3.4 In the event a Major Investor fails to exercise in full the right
of first refusal within said twenty (20) day period, the Company shall have
sixty (60) days thereafter to sell or enter into an agreement (pursuant to which
the sale of New Securities covered thereby shall be closed, if at all, within
thirty (30) days from date of said agreement) to sell the New Securities
respecting which such Major Investor's rights were not exercised, at a price and
upon general terms no more favorable to the purchaser thereof than specified in
the Notice. In the event the Company has not sold the New Securities within
said sixty (60) day period (or sold and issued New Securities in accordance with
the foregoing within thirty (30) days from the date of said agreement), the
Company shall not thereafter issue or sell any New Securities without first
offering such securities to such Major Investor in the manner provided above.
3.5 The right of first refusal granted under this Section 3 is
assignable by the Major Investors and their affiliates to (i) any transferee of
a minimum of 100,000 shares of Common Stock (including any shares of Common
Stock into which shares of Convertible Securities then held by it are
convertible), (ii) any wholly owned subsidiary or parent of, or any corporation
or entity that is, within the meaning of the Securities Act, controlling,
controlled by or under common control with, any such Major Investor, or (iii)
any Major Investor.
3.6 The covenants of the Company set forth in this Section 3 shall be
terminated and be of no further force or effect immediately prior to the closing
of the first public offering of the Common Stock of the Company that is effected
pursuant to a Registration Statement filed with, and declared effective by, the
Commission under the Securities Act (other than either a public offering limited
solely to employees of the Company or an offering pursuant to Rule 145 under the
Securities Act), and such covenants shall terminate as to any Major
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<PAGE>
Investor as of the date such Major Investor no longer holds any shares of the
capital stock of the Company.
4. Demand Registration.
-------------------
4.1 Request for Registration on Form Other Than Form S-3. Subject to
----------------------------------------------------
the terms of this Agreement, in the event that the Company shall receive from
the Initiating Holders at any time after the earlier of (a) May 9, 2001 and (b)
six (6) months after the closing of the Company's initial public offering of
shares of Common Stock under a Registration Statement, a written request that
the Company effect any Registration with respect to all or a part of the
Registrable Securities on a Form other than Form S-3 for an offering with a
reasonably anticipated aggregate offering price to the public exceeding
$5,000,000, the Company shall (i) promptly give written notice of the proposed
Registration to all other Holders and shall (ii) use its best efforts to effect
as soon as practicable, and in any event within sixty (60) days of the receipt
of such request, Registration of the Registrable Securities specified in such
request, together with any Registrable Securities of any Holder joining in such
request as are specified in a written request given within twenty (20) days
after written notice from the Company. The Company shall not be obligated to
take any action to effect any such registration pursuant to this Section 4.1 (i)
for the one hundred eighty (180) day period immediately following the closing of
the Company's initial public offering of shares of Common Stock under a
Registration Statement, (ii) after the Company has effected two such
Registrations pursuant to this Section 4.1 and such Registrations have been
declared effective, or (iii) if the Company, within thirty (30) days of the
receipt of the request of the Initiating Holders, gives notice of its bona fide
intention to effect the filing of a Registration Statement with the Commission
within sixty (60) days of receipt of such request (other than with respect to a
Registration Statement relating to a Rule 145 transaction or an offering solely
to employees), provided that the Company is actively employing in good faith all
best efforts to cause such Registration Statement to become effective. The
substantive provisions of Section 4.5 shall be applicable to each Registration
initiated under this Section 4.1.
4.2 Right of Deferral of Registration on Form Other Than Form S-3. If
-------------------------------------------------------------
the Company shall furnish to all such Holders who joined in the request 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 for any Registration to be effected as requested
under Section 4.1, the Company shall have the right, exercisable not more than
once in any twelve-month period, to defer the filing of a Registration Statement
with respect to such offering for a period of not more than ninety (90) days
from delivery of the request of the Initiating Holders.
4.3 Request for Registration on Form S-3.
------------------------------------
(a) If one or more Initiating Holders requests that the Company
file a Registration Statement on Form S-3 (or any successor form to Form S-3)
for a public offering of shares of Registrable Securities the reasonably
anticipated aggregate price to the public of which would not be less than
$1,000,000, and the Company is a registrant entitled to use Form S-3 to register
the Registrable Securities for such an offering, the Company shall (i) promptly
give
-6-
<PAGE>
written notice of the proposed registration to all other Holders, and (ii) as
soon as practicable effect such registration and all qualifications and
compliance as may be so requested and as would permit or facilitate the sale and
distribution of all of such portion of such Holder's or Holders' Registrable
Securities as are specified in such request; provided, however, that the Company
shall not be required to effect more than one Registration pursuant to this
Section 4.3 in any six (6) month period. The substantive provisions of Section
4.5 shall be applicable to each Registration initiated under this Section 4.3.
(b) Notwithstanding the foregoing, the Company shall not be obligated
to file a registration statement pursuant to this Section 4.3:
(i) in any particular jurisdiction in which the Company would be
required to execute a general consent to service of process in effecting such
registration, qualification, or compliance unless the Company is already subject
to service in such jurisdiction and except as may be required by the Securities
Act;
(ii) if the Company, within thirty (30) days of the receipt of
the request of the Initiating Holders, gives notice of its bona fide intention
to effect the filing of a Registration Statement with the Commission within
sixty (60) days of receipt of such request (other than with respect to a
Registration Statement relating to a Rule 145 transaction or an offering solely
to employees), provided that the Company is actively employing in good faith all
reasonable efforts to cause such Registration Statement to become effective
provided that the foregoing is limited to one time in any twelve (12) month
period;
(iii) within one hundred eighty (180) days immediately following
the effective date of any Registration Statement pertaining to the securities of
the Company (other than a registration of securities in a Rule 145 transaction
or with respect to an employee benefit plan); or
(iv) if the Company shall furnish to such Initiating Holders a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors it would be seriously detrimental to
the Company or its shareholders for a Registration Statement to be filed in the
near future, then the Company's obligation to use its best efforts to file a
Registration Statement shall be deferred for a period not to exceed 90 days from
the receipt of the request to file such registration by such Holder provided
that the Company shall not exercise the right contained in this paragraph (iv)
more than once in any twelve (12) month period.
4.4 Registration of Other Securities in Demand Registration. Any
-------------------------------------------------------
Registration Statement filed pursuant to the request of the Initiating Holders
under this Section 4 may, subject to the provisions of Section 4.5, include
securities of the Company other than Registrable Securities.
-7-
<PAGE>
4.5 Underwriting in Demand Registration.
-----------------------------------
4.5.1 Notice of Underwriting. If the Initiating Holders intend to
----------------------
distribute the Registrable Securities covered by their request by means of an
underwriting, they shall so advise the Company as a part of their request made
pursuant to this Section 4, and the Company shall include such information in
the written notice referred to in Section 4.1 or 4.3. The right of any Holder to
Registration pursuant to Section 4 shall be conditioned upon such Holder's
agreement to participate in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting.
4.5.2 Inclusion of Other Holders in Demand Registration. If the
-------------------------------------------------
Company, officers, or directors of the Company holding Common Stock other than
Registrable Securities, or holders of securities other than Registrable
Securities, request inclusion in such Registration, the Initiating Holders, to
the extent they deem advisable and consistent with the goals of such
Registration and subject to Section 4.5.4, may, in their sole discretion, on
behalf of all Holders, offer to any or all of the Company, such officers or
directors, and such holders of securities other than Registrable Securities that
such securities other than Registrable Securities be included in the
underwriting and may condition such offer on the acceptance by such persons of
the terms of this Section 4. In the event, however, that the number of shares so
included exceeds the number of shares of Registrable Securities requested to be
included by all Holders, such Registration shall be treated as governed by
Section 5 hereof rather than Section 4, and it shall not count as a Registration
for purposes of Section 4.1 or Section 4.3 hereof.
4.5.3 Selection of Underwriter in Demand Registration. The Company
-----------------------------------------------
shall (together with all Holders and other security holders, if any, proposing
to distribute their securities through such underwriting) enter into an
underwriting agreement with the representative ("Underwriter's Representative")
of the underwriter or underwriters selected for such underwriting by the Company
and reasonably acceptable to the Holders of a majority of the Registrable
Securities being registered by the Initiating Holders.
4.5.4 Marketing Limitation in Demand Registration. In the event the
-------------------------------------------
Underwriter's Representative advises the Initiating Holders in writing that
market factors (including, without limitation, the aggregate number of shares of
Common Stock requested to be Registered, the general condition of the market,
and the status of the persons proposing to sell securities pursuant to the
Registration) require a limitation of the number of shares to be underwritten,
the underwriter and the Company may limit the number of Registrable Securities
to be included in the Registration and underwriting; provided, however, that no
Registrable Securities shall be so excluded unless (i) first, the Common Stock
(other than Registrable Securities) held by officers or employees of the
Company, (ii) second, the securities other than Registrable Securities (other
than those described in paragraph (iii) below), and (iii) third, the securities
requested to be registered by the Company, shall be excluded from such
Registration to the extent required by such limitation. If a limitation of the
number of shares is still required, the Company shall so advise all Holders and
the number of shares of Registrable Securities that may be included in the
Registration and underwriting shall be allocated among all Holders in
proportion, as nearly as practicable, to the respective amounts of Registrable
Securities otherwise
-8-
<PAGE>
entitled to inclusion in such Registration held by such Holders at the time of
filing the Registration Statement. No Registrable Securities or other securities
excluded from the underwriting by reason of this Section 4.5.4 shall be included
in such Registration Statement.
4.5.5 Right of Withdrawal in Demand Registration. If any Holder of
------------------------------------------
Registrable Securities, or a holder of other securities entitled (upon request)
to be included in such Registration, disapproves of the terms of the
underwriting, such person may elect to withdraw therefrom by written notice to
the Company, the Underwriter's Representative and the Initiating Holders
delivered at least seven days prior to the effective date of the Registration
Statement. The securities so withdrawn shall also be withdrawn from the
Registration Statement. If the remaining Holders are not Initiating Holders,
then the Company may discontinue the Registration.
4.6 Blue Sky in Demand Registration. In the event of any Registration
-------------------------------
pursuant to this Section 4, the Company will exercise its best efforts to
Register and qualify the securities covered by the Registration Statement under
such other securities or Blue Sky laws of such jurisdictions as shall be
reasonably appropriate for the distribution of such securities; provided,
however, that (i) the Company shall not be required 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 Securities Act, and (ii)
notwithstanding anything in this Agreement to the contrary, in the event any
jurisdiction in which the securities shall be qualified imposes a non-waivable
requirement that expenses incurred in connection with the qualification of the
securities be borne by selling shareholders, such expenses shall be payable pro
rata by selling shareholders.
5. Piggyback Registration.
----------------------
5.1 Notice of Piggyback Registration and Inclusion of Registrable
-------------------------------------------------------------
Securities. Subject to the terms of this Agreement, in the event the Company
- ----------
decides to Register any of its Common Stock (either for its own account or the
account of a security holder or holders exercising their respective demand
registration rights other than pursuant to Section 4 hereof) on a form that
would be suitable for a registration involving Registrable Securities, the
Company will: (i) promptly give 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 (ii) include in such Registration (and any related qualification under
Blue Sky laws or other compliance), and in any underwriting involved therein,
all the Registrable Securities specified in a written request delivered to the
Company by any Holder within twenty (20) days after delivery of such written
notice from the Company.
5.2 Underwriting in Piggyback Registration.
--------------------------------------
5.2.1 Notice of Underwriting in Piggyback Registration. 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 Section 5.1. In such event, the
right of any Holder to Registration shall be conditioned upon such underwriting
and the inclusion of such Holder's Registrable Securities in
-9-
<PAGE>
such underwriting to the extent provided in this Section 5. All Holders
proposing to distribute their securities through such underwriting shall
(together with the Company and the other holders distributing their securities
through such underwriting) enter into an underwriting agreement with the
Underwriter's Representative for such offering. The Holders shall have no right
to participate in the selection of the underwriters for an offering pursuant to
this Section 5.
5.2.2 Marketing Limitation in Piggyback Registration. In the event
----------------------------------------------
the Underwriter's Representative advises the Company that market factors
(including, without limitation, the aggregate number of shares of Common Stock
requested to be Registered, the general condition of the market, and the status
of the persons proposing to sell securities pursuant to the Registration)
require a limitation of the number of shares to be underwritten, the
Underwriter's Representative and the Company (subject to the allocation priority
set forth in Section 5.2.3) may:
(i) in the case of the Company's initial Registered public
offering, exclude some or all Registrable Securities from such registration and
underwriting; and
(ii) in the case of any Registered public offering subsequent
to the initial public offering, limit the number of shares of Registrable
Securities to be included in such Registration and underwriting to not less than
thirty percent (30%) of the securities included in such Registration (based on
aggregate market values).
5.2.3 Allocation of Shares in Piggyback Registration. In the event
----------------------------------------------
that the Underwriter's Representative and the Company limit the number of shares
to be included in a Registration pursuant to Section 5.2.2, the shares (other
than Registrable Securities) held by officers or employees of the Company shall
be excluded from such registration and underwriting to the extent required by
such limitation. If a limitation of the number of shares is still required after
such exclusion, the number of shares held by all other holders of securities
(including Registrable Securities) requesting and legally entitled to include
such securities in such Registration shall be excluded from such registration
and underwriting to the extent required by such limitation, in proportion, as
nearly as practicable, to the respective amounts of securities which such other
holders would otherwise be entitled to include in such Registration; provided,
however, that the number of shares of Registrable Securities held by the Holders
to be included in such Registration and underwriting shall not be limited to
less than thirty percent (30%) of the securities included in such Registration
(based on aggregate market value). No Registrable Securities or other securities
excluded from the underwriting by reason of this Section 5.2.3 shall be included
in the Registration Statement.
5.2.4 Withdrawal in Piggyback Registration. If any Holder
------------------------------------
disapproves of the terms of any such underwriting, such person may elect to
withdraw therefrom by written notice to the Company and the Underwriter's
Representative delivered at least seven days prior to the effective date of the
Registration Statement. Any Registrable Securities or other securities excluded
or withdrawn from such underwriting shall be withdrawn from such Registration.
5.3 Blue Sky in Piggyback Registration. In the event of any Registration
----------------------------------
of Registrable Securities pursuant to this Section 5, the Company will exercise
its best efforts to
-10-
<PAGE>
Register and qualify the securities covered by the Registration Statement under
such other securities or Blue Sky laws of such jurisdictions as shall be
reasonably appropriate for the distribution of such securities; provided,
however, that (i) the Company shall not be required 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 Securities Act, and (ii)
notwithstanding anything in this Agreement to the contrary, in the event any
jurisdiction in which the securities shall be qualified imposes a non-waivable
requirement that expenses incurred in connection with the qualification of the
securities be borne by selling shareholders, such expenses shall be payable pro
rata by selling shareholders.
6. Expenses of Registration. All Registration Expenses incurred in
------------------------
connection with all Registrations pursuant to Section 4 and Section 5 shall be
borne by the Company. Notwithstanding the above, the Company shall not be
required to pay for any expenses of any registration proceeding begun pursuant
to Section 4 if the registration request is subsequently withdrawn at the
request of the Holders of a majority of the Registrable Securities to be
registered (which Holders shall bear such expenses unless the Holders of a
majority of the Registrable Securities agree to forfeit their right to such
registration), provided however, that if at the time of such withdrawal, the
Holders have learned of a Material Adverse Event with respect to the condition,
business, or prospects of the Company not known to the Holders at the time of
their request, then the Holders shall not be required to pay any of such
expenses and shall retain their rights pursuant to Section 4. All Selling
Expenses shall be borne by the holders of the securities Registered Pro Rata on
the basis of the number of shares Registered.
7. Termination of Registration Rights. The rights to cause the
----------------------------------
Company to register securities granted under Sections 4 and 5 of this Agreement
shall terminate, with respect to each Holder five years after the closing date
of the Company's initial public offering; provided, however, that a Holder's
rights provided for under Sections 4 and 5 shall terminate earlier when (i) such
Holder owns less than one percent (1%) of the outstanding securities of the
Company, (ii) such Holder may sell all its shares in a three (3) month period
under Rule 144 of the Act, and (iii) the Company is then subject to the
reporting requirements of Section 13(a) or 15(d) of the Exchange Act.
8. Registration Procedures and Obligations. Whenever required under
---------------------------------------
this Agreement to effect the registration of any Registrable Securities, the
Company shall, as expeditiously as reasonably possible:
(a) Prepare and file with the Commission 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 one hundred eighty (180) days,
provided, however, that such one hundred eighty (180) 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.
-11-
<PAGE>
(b) Prepare and file with the Commission 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 for up to one hundred eighty
(180) days.
(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 unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Act.
(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 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 such obligation to continue for one hundred eighty (180) days.
(g) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant to such Registration Statement and a CUSIP number
for all such Registrable Securities, in each case not later than the effective
date of such registration.
(h) Furnish, at the request of any Holder requesting registration of
Registrable Securities pursuant to this Agreement, on the date that such
Registrable Securities are delivered for sale in connection with a registration
pursuant to this Agreement, (i) 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 if any and to the Holders requesting registration of Registrable
Securities, and (ii) a letter dated such date, from the independent certified
public accountants of the Company, in form and substance as is customarily given
by independent certified public accountants to underwriters in an underwritten
public offering, addressed to the underwriters if any and to the Holders
requesting registration of Registrable Securities.
-12-
<PAGE>
(i) Cause all Registrable Securities registered pursuant hereunder to
be listed on each securities exchange on which similar securities issued by the
Company are then listed.
9. Information Furnished by Holder. It shall be a condition precedent of
-------------------------------
the Company's obligations under this Agreement, with respect to each Holder,
that such Holder of Registrable Securities included in any Registration furnish
to the Company such information regarding such Holder and the distribution
proposed by such Holder or Holders as shall be required to effect the
registration of such Holder's Registrable Securities.
10. Indemnification.
---------------
10.1 Company's Indemnification of Holders. To the extent permitted
------------------------------------
by law, the Company will indemnify each Holder, each of its officers, directors,
and constituent partners, legal counsel for the Holders, and each person
controlling such Holder (within the meaning of the Securities Act), with respect
to which Registration, qualification, or compliance of Registrable Securities
has been effected pursuant to this Agreement, and each underwriter, if any, and
each person who controls any underwriter against all claims, losses, damages, or
liabilities (or actions in respect thereof) to the extent such claims, losses,
damages, or liabilities arise out of or are based upon any untrue statement (or
alleged untrue statement) of a material fact contained in any prospectus or
other document (including any related Registration Statement) incident to any
such Registration, qualification, or compliance, or are based on 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, or any
violation by the Company of any rule or regulation promulgated under the
Securities Act or the Exchange Act applicable to the Company and relating to
action or inaction required of the Company in connection with any such
Registration, qualification, or compliance; and the Company will reimburse each
such Holder, each such underwriter, and each person who controls any such Holder
or underwriter, for any legal and any other expenses reasonably incurred, as
such expenses are incurred, in connection with investigating or defending any
such claim, loss, damage, liability, or action; provided, however, that the
indemnity contained in this Section 10.1 shall not apply to amounts paid in
settlement of any such claim, loss, damage, liability, or action if settlement
is effected without the consent of the Company (which consent shall not
unreasonably be withheld); and provided, further, that if the Company and the
Holder disagree as to the reasonableness of the settlement terms, they shall
mutually agree upon an independent counsel to review the matter and resolve the
dispute with the cost of such counsel to be split between the Company and the
Holder; and provided, further, that the Company will not be liable in any such
case to the extent that any such claim, loss, damage, liability, or expense
arises out of or is based upon any untrue statement or omission based upon
written information furnished to the Company by such Holder, underwriter, or
controlling person and stated to be for use in connection with the offering of
securities of the Company.
10.2 Holder's Indemnification of Company. To the extent permitted by
-----------------------------------
law, each Holder will, if Registrable Securities held by such Holder are
included in the securities as to which such Registration, qualification or,
compliance is being effected pursuant to this Agreement, indemnify the Company,
each of its directors and officers, each legal counsel and
-13-
<PAGE>
independent accountant of the Company, each underwriter, if any, of the
Company's securities covered by such a Registration Statement, each person who
controls the Company or such underwriter within the meaning of the Securities
Act, and each other such Holder, each of its officers, directors, and
constituent partners, and each person controlling such other Holder (within the
meaning of the Securities Act), against all claims, losses, damages, and
liabilities (or actions in respect thereof) arising out of or based upon 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, or any violation by such Holder of any rule or regulation
promulgated under the Securities Act or the Exchange Act applicable to such
Holder and relating to action or inaction required of such Holder in connection
with any such Registration, qualification, or compliance, and will reimburse the
Company, such Holders, such directors, officers, partners, persons, law and
accounting firms, underwriters or control persons for any legal and any other
expenses reasonably incurred in connection with investigating or defending any
such claim, loss, damage, liability, or action, in each case to the extent, but
in each case 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 such Holder
and stated to be specifically for use in connection with the offering of
securities of the Company, provided, however, that the indemnity contained in
this Section 10.2 shall not apply to amounts paid in settlement of any such
claim, loss, damage, liability or action if settlement is effected without the
consent of such Holder (which consent shall not be unreasonably withheld) and
provided, further, that each Holder's liability under this Section 10.2 shall
not exceed such Holder's net proceeds from the offering of securities made in
connection with such Registration.
10.3 Indemnification Procedure. Promptly after receipt by an
-------------------------
indemnified party under this Section 10 of notice of the commencement of any
action, such indemnified party will, if a claim in respect thereof is to be made
against an indemnifying party under this Section 10, notify the indemnifying
party in writing of the commencement thereof and generally summarize such
action. The indemnifying party shall have the right to participate in and to
assume the defense of such claim; provided, however, that the indemnifying party
shall be entitled to select counsel for the defense of such claim with the
approval of any parties entitled to indemnification, which approval shall not be
unreasonably withheld; provided further, however, that if either party
reasonably determines that there may be a conflict between the position of the
Company and the Holders in conducting the defense of such action, suit, or
proceeding (such conflict being related to claims for indemnity under this
Section 10), then counsel for such party whose reasonable fees and expenses
shall be borne by the indemnifying party shall be entitled to conduct the
defense to the extent reasonably determined by such counsel to be necessary to
protect the interest of such party. The failure to notify an indemnifying party
promptly of the commencement of any such action, if prejudicial to the ability
of the indemnifying party to defend such action, shall relieve such indemnifying
party, to the extent so prejudiced, of any liability to the indemnified party
under this Section 10, but the omission so to notify the indemnifying party will
not relieve such party of any liability that such party may have to any
indemnified party otherwise other than under this Section 10.
-14-
<PAGE>
10.4 Contribution. If the indemnification provided for in this
------------
Section 10 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.
10.5 The obligations of the Company and Holders under this Section 10
shall survive the completion of any offering of Registrable Securities in a
registration statement under this Agreement.
11. Limitations on Registration Rights Granted to Other Securities. From
--------------------------------------------------------------
and after the date of this Agreement, the Company shall not enter into any
agreement with any holder or prospective holder of any securities of the Company
providing for the granting to such holder of any Registration rights that are
superior to such rights provided to the Holders under this Agreement without the
consent of the holders of at least two-thirds of the Registrable Securities.
With the consent of the Holders of a majority of the Registrable Securities then
outstanding, additional holders may be added as parties to this Agreement with
regard to any or all securities of the Company held by them. Any such
additional parties shall execute a counterpart of this Agreement, and upon
execution by such additional parties and by the Company, shall be considered an
Investor for all purposes of this Agreement. The additional parties and the
additional Registrable Securities shall be identified in an amendment to
Schedule A hereto.
12. Transfer of Rights.
------------------
12.1 The right to cause the Company to Register Securities granted
by the Company to the Investors under this Agreement may be assigned by any
Holder to (i) any partner, member or other owner or retired partner, member or
other owner of any Holder which is a partnership or limited liability company,
(ii) any family member or trust for the benefit of any individual Holder, or
(iii) any transferee or assignee of any Convertible Securities or Registrable
Securities not sold to the public pursuant to a public offering acquiring at
least 300,000 shares of such Holder's Registrable Securities (equitably adjusted
for any stock splits, subdivisions, stock dividends, changes, combinations or
the like); provided, however, that the Company must receive written notice prior
to the time of said transfer, stating the name and address of said transferee or
assignee and identifying the securities with respect to which such information
and Registration rights are being assigned, and the transferee or assignee of
such rights must not be a person deemed by the Board of Directors of the
Company, in its best judgment, to be a competitor or potential competitor of the
Company.
-15-
<PAGE>
12.2 Notwithstanding the limitation set forth in the foregoing
Section 12.1, any Holder which is a partnership, a limited liability company or
a limited duration company may transfer such Holder's Registration rights to
such Holder's constituent partners or members (or any affiliates) without
restriction as to the number or percentage of shares acquired by any such
constituent partner or member and any Holder who is an individual may transfer
such rights to a member of Holder's immediate family or to a trust for the
benefit of Holder or of a member of Holder's immediate family without
restriction as to the number or percentage of shares acquired by any such person
or trust.
13. Market Standoff. Each Holder hereby agrees that, if so requested by
---------------
the Company and the Underwriter's Representative (if any) in connection with the
Company's initial public offering, such Holder shall not sell, make any short
sale of, loan, grant any option for the purchase of, or otherwise transfer or
dispose (other than to partners, affiliates or shareholders of such Holder who
shall be bound by the provisions of this Section 13) of any Registrable
Securities without the prior written consent of the Company and the
Underwriter's Representative for such offerings for such period of time (not to
exceed one hundred eighty (180) days) following the effective date of a
Registration Statement of the Company filed under the Securities Act as may be
requested by such Underwriter's Representative. The obligations of Holders under
this Section 13 shall be conditioned upon similar agreements being in effect
with each other shareholder who is an employee, officer, director or 1%
shareholder of the Company. Furthermore, with respect to any shares of the
Company offered or traded in the public market (including pursuant to the
Company's initial public offering or any market that may develop pursuant to
Rule 144A promulgated under the Securities Act) there shall be no restriction on
the acquisition or disposition of such shares pursuant to the Transactional
Agreements (as defined in the Stock Purchase Agreement).
14. No-Action Letter or Opinion of Counsel in Lieu of Registration;
---------------------------------------------------------------
Conversion of Preferred Stock. Notwithstanding anything else in this Agreement,
- -----------------------------
if the Company shall have obtained from the Commission a "no-action" letter in
which the Commission has indicated that it will take no action if, without
Registration under the Securities Act, any Holder disposes of Registrable
Securities covered by any request for Registration made under this Section in
the specific manner in which such Holder proposes to dispose of the Registrable
Securities included in such request (such as including, without limitation,
inclusion of such Registrable Securities in an underwriting initiated by either
the Company or the holders) and that such Registrable Securities may be sold to
the public without Registration, or if in the opinion of counsel for the Company
concurred in by counsel for such Holder, which concurrence shall not be
unreasonably withheld, no Registration under the Securities Act is required in
connection with such disposition and that such Registrable Securities may be
sold to the public without Registration, the Registrable Securities included in
such request shall not be eligible for Registration under this Agreement;
provided, however, that any Registrable Securities not so disposed of shall be
eligible for Registration in accordance with the terms of this Agreement with
respect to other proposed dispositions to which this Section 14 does not apply.
The Registration rights of the Holders of the Registrable Securities set forth
in this Agreement are conditioned upon the conversion of the Registrable
Securities with respect to which Registration is sought into Common Stock
immediately prior to the effectiveness of the Registration Statement.
-16-
<PAGE>
15. Reports Under Exchange Act. With a view to making available to
--------------------------
the Holders the benefits of Rule 144 promulgated under the Securities Act and
any other rule or regulation of the Commission 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 Rule 144 after the date that the Company becomes
subject to the periodic reporting requirements of the Exchange Act;
(b) take such action, including the voluntary registration of its
Common Stock under Section 12 of the Exchange 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 first Registration Statement
filed by the Company for the offering of its securities to the general public is
declared effective;
(c) file with the Commission in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange 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 Rule 144, the Securities Act,
and the Exchange 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 so filed by the Company, and (iii) such other information as may
be reasonably requested in availing any Holder of any rule or regulation of the
Commission which permits the selling of any such securities without Registration
or pursuant to such form.
16. Capital Expenditures. The Company covenants that it will not
--------------------
undertake any corporate action involving capital expenditures greater than
$200,000 (other than such action included in a budget previously approved by the
Company's Board of Directors) without first obtaining the affirmative vote or
written consent of the holders of more than fifty percent (50%) of the
outstanding shares of Series A Preferred, Series B Preferred, Series C
Preferred, Series D Preferred and Series E Preferred (voting on an as-converted
to Common Stock basis), voting together as a single class.
17. Miscellaneous.
-------------
17.1 Entire Agreement; Successors and Assigns; Waiver of Rights of
-------------------------------------------------------------
First Refusal. This agreement constitutes the entire contract between the
- -------------
Company and the Investors relative to the subject matter hereof. Any previous
agreement between the Company and any Investor concerning registration rights
and rights to information is superseded by this Agreement. Subject to the
exceptions specifically set forth in this Agreement, the terms and conditions of
this Agreement shall inure to the benefit of and be binding upon the respective
executors, administrators, heirs, successor, and assigns of the parties.
Investors who are parties to the Prior Agreement, who constitute a majority of
the Registrable Securities thereunder, hereby waive on
-17-
<PAGE>
behalf of all the Holders under the Prior Agreement (i) the notice periods set
forth in Section 3 of the Prior Agreement with respect to their Right of First
Refusal, and (ii) the Right of First Refusal with respect to shares of Series E
Preferred that the Holders are not acquiring hereunder.
17.2 Governing Law. This Agreement shall be governed by, and
-------------
construed in accordance with, the laws of the State of California excluding
those laws that direct the application of the laws of another jurisdiction.
17.3 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.
17.4 Headings. The headings of the Sections of this Agreement are
--------
for convenience and shall not by themselves determine the interpretation of
this Agreement.
17.5 Notices. Any notice required or permitted hereunder shall be
-------
given in writing and shall be conclusively deemed effectively given upon
personal delivery, or five days after deposit in the United States mail, by
registered or certified mail, postage prepaid, addressed (i) if to the Company,
as set forth below the Company's name on the signature page of this Agreement,
and (ii) if to an Investor, at such Investor's address as set forth on Schedule
A, or at such other address as the Company or such Investor may designate by ten
(10) days advance written notice to the Investors or the Company, respectively.
17.6 Amendment of Agreement. Any provision of this Agreement may be
----------------------
amended (and the rights of first refusal provided in Section 3 waived) only by a
written instrument signed by the Company and by persons holding a majority of
the Registrable Securities as defined in Section 1 of this Agreement; provided,
however, that no provision of this Agreement may be amended such that the rights
hereunder of any Holder of Registrable Securities are adversely affected
relative to the rights of any other such Holder without the approval of the
Holders of at least two-thirds of the Registrable Securities adversely affected;
provided, however, that no amendment shall be effective as to any investment
company without its approval.
17.7 Severability. In case any provision of this Agreement shall be
------------
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
17.8 Prior Agreements. Any and all prior agreements between the
----------------
Company and the parties hereto governing information and registration rights are
hereby superseded and replaced.
17.9 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.
-18-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Third
Amended and Restated Investor Rights Agreement as of the day and year first
above written.
Company: INTERWOVEN, INC.,
a California corporation
By: /s/ Martin Brauns
------------------------------------
Martin Brauns, President and Chief
Executive Officer
Address: 1195 West Fremont Avenue,
Suite 2000
Sunnyvale, CA 94087
INVESTOR: Foundation Capital II, L.P.
By: Foundation Capital Management II, L.L.C.
By: /s/ Kathryn C. Gould
-----------------------------------------
Kathryn C. Gould, Manager
Foundation Capital II Entrepreneurs' Fund, L.L.C.
By: Foundation Capital Management II, L.L.C.
By: /s/ Kathryn C. Gould
-----------------------------------------
Kathryn C. Gould, Manager
Foundation Capital II Principals Fund, L.L.C.
By: Foundation Capital Management II, L.L.C.
By: /s/ Kathryn C. Gould
-----------------------------------------
Kathryn C. Gould, Manager
ACCEL VL.P.
By: ACCEL V ASSOCIATES L.L.C.
ITS GENERAL PARTNER
By: /s/ Carter Sednaoui
-----------------------------------------
MANAGING MEMBER
Accel Internet/Strategic Technology Fund L.P.
By: Accel Internet/Strategic Technology Fund
Associates L.L.C.
Its General Partner
By: /s/ Carter Sednaoui
-----------------------------------------
Managing Member
Accel Keiretsu V L.P.
By: Accel Keiretsu V Associates L.L.C.
Its General Partner
By: /s/ Carter Sednaoui
-----------------------------------------
Managing Member
ACCEL INVESTORS '97 L.P.
By: /s/ Carter Sednaoui
-----------------------------------------
Managing Partner
Ellmore C. Patterson Partners
By: /s/ Arthur C. Patterson
-----------------------------------------
Arthur C. Patterson
General Partner
By: /s/ Eileen Richardson
-----------------------------------------
(Signature)
JK&B Capital, L.P.
-----------------------------------------
(Name of Entity or Individual)
-----------------------------------------
(Name and Title of Authorized Signatory)
By: /s/ Eileen Richardson
-----------------------------------------
(Signature)
JK&B Capital II, L.P.
-----------------------------------------
(Name of Entity or Individual)
-----------------------------------------
(Name and Title of Authorized Signatory)
By: /s/ Ron Hiram
-----------------------------------------
(Signature)
Quantum Industrial Partners LDC
Ron Hiram
-----------------------------------------
(Name of Entity or Individual)
Attorney-in-Fact
-----------------------------------------
(Name and Title of Authorized Signatory)
By: /s/ Michael C. Neus
-----------------------------------------
(Signature)
Michael C. Neus
Attorney-in-Fact
-----------------------------------------
(Name of Entity or Individual)
S-C Phoenix Holdings LLC
-----------------------------------------
(Name and Title of Authorized Signatory)
By: /s/ Peter A. Hurwitz
-----------------------------------------
(Signature)
Winston Partners II LDC
-----------------------------------------
(Name of Entity or Individual)
Peter A. Hurwitz
Attorney in Fact
-----------------------------------------
(Name and Title of Authorized Signatory)
By: /s/ Peter A. Hurwitz
-----------------------------------------
(Signature)
Winston Partners II LLC by Chatterjee Advisors LLC
Its Manager
-----------------------------------------
(Name of Entity or Individual)
/s/ Peter A. Hurwitz, Manager
-----------------------------------------
(Name and Title of Authorized Signatory)
By: /s/ A. Barr Dolan
-----------------------------------------
(Signature)
Charter Ventures III LLC
-----------------------------------------
(Name of Entity or Individual)
-----------------------------------------
(Name and Title of Authorized Signatory)
By: /s/ Steve Jurvetson
-----------------------------------------
(Signature)
Draper Fisher Associates Fund III, L.P.
-----------------------------------------
(Name of Entity or Individual)
Steve Jurvetson, Managing Director
-----------------------------------------
(Name and Title of Authorized Signatory)
By: /s/ Steve Jurvetson
-----------------------------------------
(Signature)
Draper Fisher Partners LLC
-----------------------------------------
(Name of Entity or Individual)
Steve Jurvetson, Managing Director
-----------------------------------------
(Name and Title of Authorized Signatory)
By: Integral Capital Management IV, LLC
Its General Partner
By: /s/ Pamela Hagenah
-----------------------------------------
(Signature)
Integral Capital Partners IV, L.P.
Pamela K. Hagenah
-----------------------------------------
(Name of Entity or Individual)
Manager
-----------------------------------------
(Name and Title of Authorized Signatory)
By: Integral Capital Partners NBT, LLC
Its General Partner
By: /s/ Pamela Hagenah
-----------------------------------------
(Signature)
Integral Capital Partners IV MS Side Fund, L.P.
Pamela K. Hagenah
-----------------------------------------
(Name of Entity or Individual)
Manager
-----------------------------------------
(Name and Title of Authorized Signatory)
Merchant Capital, Inc.
By: /s/ John M. Carroll
-----------------------------------------
(Signature)
John M. Carroll
-----------------------------------------
(Name of Entity or Individual)
Vice President
-----------------------------------------
By: /s/ Michael Huffman
-----------------------------------------
(Signature)
Michael Huffman
-----------------------------------------
(Name of Entity or Individual)
-----------------------------------------
(Name and Title of Authorized Signatory)
By: /s/ S. M.S. Boswick
-----------------------------------------
(Signature)
Seligman Communication and Information Fund
-----------------------------------------
(Name of Entity or Individual)
S. M. S. Boswick, Managing Director
-----------------------------------------
(Name and Title of Authorized Signatory)
By: /s/ Garrett Van Wagoner
-----------------------------------------
(Signature)
Van Wagoner Capital Management
-----------------------------------------
(Name of Entity or Individual)
Garrett Van Wagoner, President
-----------------------------------------
(Name and Title of Authorized Signatory)
CAMBRIDGE TECHNOLOGY CAPITAL FUND I L.P.
By: Cambridge Technology GPLP, L.P.
By: Cambridge Technology CGP, Inc.
By: /s/ Barry Rosenbaum
-----------------------------------------
Name: Barry Rosenbaum
Title: Managing Director
By: /s/ William James Bell
-----------------------------------------
(Signature)
William James Bell 1993 Trust
-----------------------------------------
(Name of Entity or Individual)
William James Bell - Trustee
-----------------------------------------
(Name and Title of Authorized Signatory)
By: /s/ Steven P. Bird
-----------------------------------------
(Signature)
Charter Growth Capital, L.P.
-----------------------------------------
(Name of Entity or Individual)
Steven P. Bird, G.P of the G.P.
-----------------------------------------
(Name and Title of Authorized Signatory)
By: /s/ Steven P. Bird
-----------------------------------------
(Signature)
Charter Growth Capital Co. - Investment Fund, L.P.
-----------------------------------------
(Name of Entity or Individual)
Steven P. Bird, G.P. of the G.P.
-----------------------------------------
(Name and Title of Authorized Signatory)
By: /s/ Steven P. Bird
-----------------------------------------
(Signature)
CGC Investors, L.P.
-----------------------------------------
(Name of Entity or Individual)
Steven P. Bird, G.P. of the G.P.
-----------------------------------------
(Name and Title of Authorized Signatory)
STAR BAY PARTNERS, L.P., a California Limited
Partnership
By: APH Capital Management LLC. A California
Limited Liability Company, its General Partner
By: Levensohn Capital Management LLC, a California
Limited Liabililty Company, its Managing Member
By: /s/ Pascal N. Levensohn
-----------------------------------------
Pascal N. Levensohn
Managing Member
By: /s/ James P. Labe
-----------------------------------------
(Signature)
COMDISCO, INC.
-----------------------------------------
(Name of Entity or Individual)
James P. Labe, President
Comdisco Ventures Division
-----------------------------------------
(Name and Title of Authorized Signatory)
By: /s/ M. Waldron
-----------------------------------------
(Signature)
Lion Investments Limited
-----------------------------------------
(Name of Entity or Individual)
Michael Waldron - Director
-----------------------------------------
(Name and Title of Authorized Signatory)
By: /s/ M. Waldron
-----------------------------------------
(Signature)
Westpool Investment Trust plc
-----------------------------------------
(Name of Entity or Individual)
Michael Waldron - Director
-----------------------------------------
(Name and Title of Authorized Signatory)
By: /s/ Eugene M. Weber, Trustee
-----------------------------------------
(Signature)
Weber Family Trust dated 1/6/89
-----------------------------------------
(Name of Entity or Individual)
Eugene M. Weber, Trustee
-----------------------------------------
(Name and Title of Authorized Signatory)
By: /s/ David Leyrer
-----------------------------------------
(Signature)
Nexus Capital Partners I, LP
-----------------------------------------
(Name of Entity or Individual)
David Leyrer, Gen. Partner
-----------------------------------------
(Name and Title of Authorized Signatory)
By: /s/ David Leyrer
-----------------------------------------
(Signature)
Porcelain Partners, LP
-----------------------------------------
(Name of Entity or Individual)
David Leyrer, Gen. Partner
-----------------------------------------
(Name and Title of Authorized Signatory)
-19-
<PAGE>
SCHEDULE A
----------
SCHEDULE OF INVESTORS
<TABLE>
<CAPTION>
Number of Aggregate
--------- ---------
Investor Shares Purchase Price
- -------- ------ --------------
<S> <C> <C>
Foundation Capital II, L.P. 187,000 $1,058,420.00
Foundation Capital II Entrepreneurs Fund, LLC 22,000 $ 124,520.00
Foundation Capital II Principals Fund, LLC 11,000 $ 62,260.00
Foundation Capital Subtotal: 220,000 $1,245,200.00
c/o Foundation Capital
70 Willow Road, Suite 200
Menlo Park, CA 94025
Attn: Kathryn Gould
- ----------------------------------------------------------------------------------------
Accel V L.P. 84,827 480,120.82
Accel Internet/Strategic Technology Fund L.P. 11,238 63,607.08
Accel Keiretsu V L.P. 4,430 25,073.80
Accel Investors `97 L.P. 5,187 29,358.42
Ellmore C. Patterson Partners 2,377 13,453.82
Accel Partners Subtotal: 108,059 $ 611,613.94
c/o Accel Partners
428 University Ave.
Palo Alto, CA 94301
Attn: John Partridge
with copies to:
Accel Partners
One Palmer Square
Princeton, NJ 08542-3718
Attn: Carter Sednaoui
- ----------------------------------------------------------------------------------------
JK&B Capital, L.P. 132,862 $ 751,998.92
JK&B Capital II, L.P. 66,431 $ 375,999.46
JK&B Capital Subtotal: 199,293 $1,127,998.38
JK&B Capital
205 North Michigan Avenue, Suite 808
Chicago, IL 60601
Attn: Eileen Richardson
with copies to:
c/o JK&B Capital
Corporate Centre/West Bay Road
Leeward 1
P.O. Box 31106 SMB
Grand Cayman, Cayman Islands
Attn: William Keunen
- ----------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SCHEDULE A
----------
SCHEDULE OF INVESTORS (Cont'd)
<TABLE>
<CAPTION>
Number of Aggregate
-------- ---------
Investor Shares Purchase Price
- -------- ------ --------------
<S> <C> <C>
Quantum Industrial Partners LDC 20,742 $117,399.72
c/o Curacao Corporation Company, N.V.
Kava Flamhoyan 9
Willemstad, Curacao
Netherlands Antilles
with copies to:
Soros Fund Management LLC
888 Seventh Avenue
New York, New York 10106
Attention: Michael C. Neus
Akin, Gump, Strauss, Hauer & Feld L.L.P
590 Madison Avenue
New York. New York 10022
Attention: Patrick J. Dooley
- ---------------------------------------------------------------------------------
S-C Phoenix Holdings LLC 13,828 $ 78,266.48
c/o Soros Fund Management LLC
888 Seventh Avenue
New York, New York 10106
Attention Michael C Neus
with a copy to
Akin, Gump, Straus, Hauer & Feld L.L.P.
590 Madison Avenue
New York, New York 10022
Attention: Patrick J Dooley
- ---------------------------------------------------------------------------------
Winston Partners II LDC 4,609 $ 26,086.94
c/o Curacao Corporation Company, N V
Kaya Flamboyan 9
Willemstad, Curacao
Netherlands Antilles
with copies to
The Chatterjee Group
888 Seventh Avenue
New York, New York 10106
Attention Dan Alexander/Peter Hurwitz
Akin, Gump, Strauss, Hauer & Feld L.L.P
590 Madison Avenue
New York New York 10022
Attention: James E. Kaye
- ---------------------------------------------------------------------------------
Winston Partners II LLC 2,305 $ 13,046.30
c/o Chatterjee Advisors L.L.C.
888 Seventh Avenue
New York, New York 10106
Attention: Dan Alexander/Peter Hurwitz
with a copy to:
Akin, Gump, Strauss, Hauer & Feld L.L.P
590 Madison Avenue
New York, New York 10022
Attention: James E. Kaye
- ---------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
SCHEDULE A
----------
SCHEDULE OF INVESTORS (Cont'd)
<TABLE>
<CAPTION>
Number of Aggregate
--------- ---------
Investor Shares Purchase Price
- -------- ------ --------------
<S> <C> <C>
Charter Ventures III LLC 45,000 $ 254,700.00
c/o Charter Venture Capital
525 University Avenue, Suite 1500
Palo Alto, CA 94301
Attn: A. Barr Dolan
- -----------------------------------------------------------------------------------
Draper Fisher Partners, LLC 120 679.20
Draper Fisher Associates Fund III, L.P. 1849 10,465.34
Draper Fisher Subtotal: 1,969 $ 11,144.54
c/o Draper Fisher Jurvetson
400 Seaport Court, Suite 250
Redwood City, CA 94063
Attn: Steve Jurvetson
- -----------------------------------------------------------------------------------
Integral Capital Partners IV, L.P. 57,746 $ 326,842.36
Integral Capital Partners IV MS Side Fund, L.P. 320 $ 1,811.20
Integral Capital Partners Subtotal: 58,066 $ 328,653.56
c/o Integral Capital Partners
2750 Sand Hill Road
Menlo Park, CA 94025
Attn: Pamela Hagenah
- -----------------------------------------------------------------------------------
Merchant Capital, Inc. 229,682 $1,300,000.12
11 Madison Avenue, 26th Floor
New York, NY 10010-3629
Attn: John Carroll
- -----------------------------------------------------------------------------------
Michael Huffman 8,834 $ 50,000.44
6595 Stonehill Drive
San Jose, CA 95120
- -----------------------------------------------------------------------------------
Seligman Communications and Information Fund, Inc. 706,714 $4,000,001.24
100 Park Avenue, 7th Floor
New York, NY 10017
Attn: Paul B. Goucher, Esq.
- -----------------------------------------------------------------------------------
Van Wagoner Capital Management 706,714 $4,000,001.24
345 California Street, Suite 2450
San Francisco, CA 94104
Attn: Garrett Van Wagoner
- -----------------------------------------------------------------------------------
Cambridge Technology Capital Fund I L.P. 176,678 $ 999,997.48
8 Cambridge Center
Cambridge, MA 02412
Attn: Scott Johnson
- -----------------------------------------------------------------------------------
William James Bell 1993 Trust 132,510 $ 750,006.60
10539 Bellagio Road
Bel Air, CA 90077
- -----------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
SCHEDULE A
----------
SCHEDULE OF INVESTORS (Cont'd)
<TABLE>
<CAPTION>
Number of Aggregate
--------- ---------
Investor Shares Purchase Price
- -------- ------ --------------
<S> <C> <C>
Charter Growth Capital, L.P. 141,343 $ 800,001.38
Charter Growth Capital Co-Investment Fund, L.P. 26,501 $ 149,995.66
CGC Investors, L.P. 8,834 $ 50,000.44
Charter Growth Capital Subtotal 176,678 $ 999,997.48
525 University Avenue, Suite 1400
Palo Alto, CA 94301
Attn: Steven Bird
- -------------------------------------------------------------------------------
Star Bay Partners, L.P. 88,339 $ 499,998.74
c/o Levensohn Capital Management
44 Montgomery Street, Suite 1200
San Francisco, CA 94104
Attn: Frank Brown
- -------------------------------------------------------------------------------
Comdisco, Inc. 88,339 $ 499,998.74
6111 North River Road
Rosemont, IL 60018
Attn: Venture Group
- -------------------------------------------------------------------------------
Lion Investments Limited 176,678 $ 999,997.48
c/o London Merchant Securities plc
33 Robert Adam Street
London WIM 5AH, England
Attn: Michael Bennett
- -------------------------------------------------------------------------------
Westpool Investment Trust plc 84,806 $ 480,001.96
c/o London Merchant Securities plc
33 Robert Adam Street
London WIM 5AH, England
Attn: Michael Bennett
- -------------------------------------------------------------------------------
Weber Family Trust Dated 1/6/89 3,534 $ 20,002.44
c/o Bluewater Capital Management
50 California Street, Suite 3200
San Francisco, CA 94111
Attn: Eugene Weber
- -------------------------------------------------------------------------------
Nexus Capital Partners I, L.P. 88,339 $ 499,998.74
201 Spear Street, Suite 1700
San Francisco, CA 94105
Attn: David Leyrer
- -------------------------------------------------------------------------------
Porcelain Partners, L.P. 53,003 $ 299,996.98
201 Spear Street, Suite 1700
San Francisco, CA 94105
Attn: David Leyrer
- -------------------------------------------------------------------------------
_________ ______________
TOTAL: 3,394,719 $19,214,109.54
</TABLE>
4
<PAGE>
EXHIBIT 10.04
INTERWOVEN, INC.
1999 EQUITY INCENTIVE PLAN
As Adopted July 22, 1999
1. PURPOSE. The purpose of this Plan is to provide incentives to
-------
attract, retain and motivate eligible persons whose present and potential
contributions are important to the success of the Company, its Parent and
Subsidiaries, by offering them an opportunity to participate in the Company's
future performance through awards of Options, Restricted Stock and Stock
Bonuses. Capitalized terms not defined in the text are defined in Section 23.
2. SHARES SUBJECT TO THE PLAN.
--------------------------
2.1 Number of Shares Available. Subject to Sections 2.2 and 18,
--------------------------
the total number of Shares reserved and available for grant and issuance
pursuant to this Plan will be 2,900,000 Shares plus Shares that are subject to:
(a) issuance upon exercise of an Option but cease to be subject to such Option
for any reason other than exercise of such Option; (b) an Award granted
hereunder but are forfeited or are repurchased by the Company at the original
issue price; and (c) an Award that otherwise terminates without Shares being
issued. In addition, any authorized shares not issued or subject to outstanding
grants under the 1996 Stock Option Plan and the 1998 Stock Option Plan (the
"Prior Plans") on the Effective Date (as defined below) and any shares issued
under the Prior Plans that are forfeited or repurchased by the Company or that
are issuable upon exercise of options granted pursuant to the Prior Plans that
expire or become unexercisable for any reason without having been exercised in
full, will no longer be available for grant and issuance under the Prior Plans,
but will be available for grant and issuance under this Plan. At all times the
Company shall reserve and keep available a sufficient number of Shares as shall
be required to satisfy the requirements of all outstanding Options granted under
this Plan and all other outstanding but unvested Awards granted under this Plan.
2.2 Adjustment of Shares. In the event that the number of
--------------------
outstanding shares is changed by a stock dividend, recapitalization, stock
split, reverse stock split, subdivision, combination, reclassification or
similar change in the capital structure of the Company without consideration,
then (a) the number of Shares reserved for issuance under this Plan, (b) the
Exercise Prices of and number of Shares subject to outstanding Options, and (c)
the number of Shares subject to other outstanding Awards will be proportionately
adjusted, subject to any required action by the Board or the stockholders of the
Company and compliance with applicable securities laws; provided, however, that
-------- -------
fractions of a Share will not be issued but will either be replaced by a cash
payment equal to the Fair Market Value of such fraction of a Share or will be
rounded up to the nearest whole Share, as determined by the Committee.
3. ELIGIBILITY. ISOs (as defined in Section 5 below) may be granted
-----------
only to employees (including officers and directors who are also employees) of
the Company or of a Parent or Subsidiary of the Company. All other Awards may be
granted to employees, officers, directors, consultants, independent contractors
and advisors of the Company or any Parent or Subsidiary of the Company; provided
--------
such consultants, contractors and advisors render bona fide services not in
connection with the offer and sale of securities in a capital-raising
transaction. No person will be eligible to receive more than 1,000,000 Shares in
any calendar year under this Plan pursuant to the grant of Awards hereunder,
other than new employees of the Company or of a Parent or Subsidiary of the
Company (including new employees who are also officers and directors of the
Company or any Parent or Subsidiary of the Company), who are eligible to receive
up to a maximum of 1,500,000 Shares in the calendar year in which they commence
their employment. A person may be granted more than one Award under this Plan.
4. ADMINISTRATION.
--------------
4.1 Committee Authority. This Plan will be administered by the
-------------------
Committee or by the Board acting as the Committee. Except for automatic grants
to Outside Directors pursuant to Section 9 hereof, and
<PAGE>
subject to the general purposes, terms and conditions of this Plan, and to the
direction of the Board, the Committee will have full power to implement and
carry out this Plan. Except for automatic grants to Outside Directors pursuant
to Section 9 hereof, the Committee will have the authority to:
(a) construe and interpret this Plan, any Award Agreement and any
other agreement or document executed pursuant to this Plan;
(b) prescribe, amend and rescind rules and regulations relating to
this Plan or any Award;
(c) select persons to receive Awards;
(d) determine the form and terms of Awards;
(e) determine the number of Shares or other consideration subject to
Awards;
(f) determine whether Awards will be granted singly, in combination
with, in tandem with, in replacement of, or as alternatives to,
other Awards under this Plan or any other incentive or
compensation plan of the Company or any Parent or Subsidiary of
the Company;
(g) grant waivers of Plan or Award conditions;
(h) determine the vesting, exercisability and payment of Awards;
(i) correct any defect, supply any omission or reconcile any
inconsistency in this Plan, any Award or any Award Agreement;
(j) determine whether an Award has been earned; and
(k) make all other determinations necessary or advisable for the
administration of this Plan.
4.2 Committee Discretion. Except for automatic grants to Outside
--------------------
Directors pursuant to Section 9 hereof, any determination made by the Committee
with respect to any Award will be made in its sole discretion at the time of
grant of the Award or, unless in contravention of any express term of this Plan
or Award, at any later time, and such determination will be final and binding on
the Company and on all persons having an interest in any Award under this Plan.
The Committee may delegate to one or more officers of the Company the authority
to grant an Award under this Plan to Participants who are not Insiders of the
Company.
5. OPTIONS. The Committee may grant Options to eligible persons and
-------
will determine whether such Options will be Incentive Stock Options within the
meaning of the Code ("ISO") or Nonqualified Stock Options ("NQSOs"), the number
of Shares subject to the Option, the Exercise Price of the Option, the period
during which the Option may be exercised, and all other terms and conditions of
the Option, subject to the following:
5.1 Form of Option Grant. Each Option granted under this Plan
--------------------
will be evidenced by an Award Agreement which will expressly identify the Option
as an ISO or an NQSO ("Stock Option Agreement"), and, except as otherwise
required by the terms of Section 9 hereof, will be in such form and contain such
provisions (which need not be the same for each Participant) as the Committee
may from time to time approve, and which will comply with and be subject to the
terms and conditions of this Plan.
5.2 Date of Grant. The date of grant of an Option will be the
-------------
date on which the Committee makes the determination to grant such Option, unless
otherwise specified by the Committee. The Stock Option Agreement and a copy of
this Plan will be delivered to the Participant within a reasonable time after
the
2
<PAGE>
granting of the Option.
5.3 Exercise Period. Options may be exercisable within the times
---------------
or upon the events determined by the Committee as set forth in the Stock Option
Agreement governing such Option; provided, however, that no Option will be
-------- -------
exercisable after the expiration of ten (10) years from the date the Option is
granted; and provided further that no ISO granted to a person who directly or by
----------------
attribution owns more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or of any Parent or Subsidiary of the
Company ("Ten Percent Stockholder") will be exercisable after the expiration of
five (5) years from the date the ISO is granted. The Committee also may provide
for Options to become exercisable at one time or from time to time, periodically
or otherwise, in such number of Shares or percentage of Shares as the Committee
determines.
5.4 Exercise Price. The Exercise Price of an Option will be
--------------
determined by the Committee when the Option is granted and may be not less than
85% of the Fair Market Value of the Shares on the date of grant; provided that:
(i) the Exercise Price of an ISO will be not less than 100% of the Fair Market
Value of the Shares on the date of grant; and (ii) the Exercise Price of any ISO
granted to a Ten Percent Stockholder will not be less than 110% of the Fair
Market Value of the Shares on the date of grant. Payment for the Shares
purchased may be made in accordance with Section 8 of this Plan.
5.5 Method of Exercise. Options may be exercised only by
------------------
delivery to the Company of a written stock option exercise agreement (the
"Exercise Agreement") in a form approved by the Committee (which need not be the
same for each Participant), stating the number of Shares being purchased, the
restrictions imposed on the Shares purchased under such Exercise Agreement, if
any, and such representations and agreements regarding Participant's investment
intent and access to information and other matters, if any, as may be required
or desirable by the Company to comply with applicable securities laws, together
with payment in full of the Exercise Price for the number of Shares being
purchased.
5.6 Termination. Notwithstanding the exercise periods set forth
-----------
in the Stock Option Agreement, exercise of an Option will always be subject to
the following:
(a) If the Participant is Terminated for any reason except death or
Disability, then the Participant may exercise such Participant's
Options only to the extent that such Options would have been
exercisable upon the Termination Date no later than three (3)
months after the Termination Date (or such shorter or longer time
period not exceeding five (5) years as may be determined by the
Committee, with any exercise beyond three (3) months after the
Termination Date deemed to be an NQSO), but in any event, no
later than the expiration date of the Options.
(b) If the Participant is Terminated because of Participant's death
or Disability (or the Participant dies within three (3) months
after a Termination other than for Cause or because of
Participant's Disability), then Participant's Options may be
exercised only to the extent that such Options would have been
exercisable by Participant on the Termination Date and must be
exercised by Participant (or Participant's legal representative
or authorized assignee) no later than twelve (12) months after
the Termination Date (or such shorter or longer time period not
exceeding five (5) years as may be determined by the Committee,
with any such exercise beyond (a) three (3) months after the
Termination Date when the Termination is for any reason other
than the Participant's death or Disability, or (b) twelve (12)
months after the Termination Date when the Termination is for
Participant's death or Disability, deemed to be an NQSO), but in
any event no later than the expiration date of the Options.
(c) Notwithstanding the provisions in paragraph 5.6(a) above, if a
Participant is terminated for Cause, neither the Participant, the
Participant's estate nor such other person who may then
3
<PAGE>
hold the Option shall be entitled to exercise any Option with
respect to any Shares whatsoever, after termination of service,
whether or not after termination of service the Participant may
receive payment from the Company or Subsidiary for vacation pay,
for services rendered prior to termination, for services rendered
for the day on which termination occurs, for salary in lieu of
notice, or for any other benefits. In making such determination,
the Board shall give the Participant an opportunity to present to
the Board evidence on his behalf. For the purpose of this
paragraph, termination of service shall be deemed to occur on the
date when the Company dispatches notice or advice to the
Participant that his service is terminated.
5.7 Limitations on Exercise. The Committee may specify a
-----------------------
reasonable minimum number of Shares that may be purchased on any exercise of an
Option, provided that such minimum number will not prevent Participant from
exercising the Option for the full number of Shares for which it is then
exercisable.
5.8 Limitations on ISO. The aggregate Fair Market Value
------------------
(determined as of the date of grant) of Shares with respect to which ISO are
exercisable for the first time by a Participant during any calendar year (under
this Plan or under any other incentive stock option plan of the Company, Parent
or Subsidiary of the Company) will not exceed $100,000. If the Fair Market
Value of Shares on the date of grant with respect to which ISO are exercisable
for the first time by a Participant during any calendar year exceeds $100,000,
then the Options for the first $100,000 worth of Shares to become exercisable in
such calendar year will be ISO and the Options for the amount in excess of
$100,000 that become exercisable in that calendar year will be NQSOs. In the
event that the Code or the regulations promulgated thereunder are amended after
the Effective Date of this Plan to provide for a different limit on the Fair
Market Value of Shares permitted to be subject to ISO, such different limit will
be automatically incorporated herein and will apply to any Options granted after
the effective date of such amendment.
5.9 Modification, Extension or Renewal. The Committee may
----------------------------------
modify, extend or renew outstanding Options and authorize the grant of new
Options in substitution therefor, provided that any such action may not, without
the written consent of a Participant, impair any of such Participant's rights
under any Option previously granted. Any outstanding ISO that is modified,
extended, renewed or otherwise altered will be treated in accordance with
Section 424(h) of the Code. The Committee may reduce the Exercise Price of
outstanding Options without the consent of Participants affected by a written
notice to them; provided, however, that the Exercise Price may not be reduced
-------- -------
below the minimum Exercise Price that would be permitted under Section 5.4 of
this Plan for Options granted on the date the action is taken to reduce the
Exercise Price.
5.10 No Disqualification. Notwithstanding any other provision in
-------------------
this Plan, no term of this Plan relating to ISO will be interpreted, amended or
altered, nor will any discretion or authority granted under this Plan be
exercised, so as to disqualify this Plan under Section 422 of the Code or,
without the consent of the Participant affected, to disqualify any ISO under
Section 422 of the Code.
6. RESTRICTED STOCK. A Restricted Stock Award is an offer by the
----------------
Company to sell to an eligible person Shares that are subject to restrictions.
The Committee will determine to whom an offer will be made, the number of Shares
the person may purchase, the price to be paid (the "Purchase Price"), the
restrictions to which the Shares will be subject, and all other terms and
conditions of the Restricted Stock Award, subject to the following:
6.1 Form of Restricted Stock Award. All purchases under a
------------------------------
Restricted Stock Award made pursuant to this Plan will be evidenced by an Award
Agreement ("Restricted Stock Purchase Agreement") that will be in such form
(which need not be the same for each Participant) as the Committee will from
time to time approve, and will comply with and be subject to the terms and
conditions of this Plan. The offer of Restricted Stock will be accepted by the
Participant's execution and delivery of the Restricted Stock Purchase Agreement
and full payment for the Shares to the Company within thirty (30) days from the
date the Restricted Stock Purchase Agreement is delivered to the person. If
such person does not execute and deliver the Restricted Stock Purchase Agreement
along with full payment for the Shares to the Company within thirty (30) days,
then the offer will terminate,
4
<PAGE>
unless otherwise determined by the Committee.
6.2 Purchase Price. The Purchase Price of Shares sold pursuant
--------------
to a Restricted Stock Award will be determined by the Committee on the date the
Restricted Stock Award is granted, except in the case of a sale to a Ten Percent
Stockholder, in which case the Purchase Price will be 100% of the Fair Market
Value. Payment of the Purchase Price may be made in accordance with Section 8
of this Plan.
6.3 Terms of Restricted Stock Awards. Restricted Stock Awards
--------------------------------
shall be subject to such restrictions as the Committee may impose. These
restrictions may be based upon completion of a specified number of years of
service with the Company or upon completion of the performance goals as set out
in advance in the Participant's individual Restricted Stock Purchase Agreement.
Restricted Stock Awards may vary from Participant to Participant and between
groups of Participants. Prior to the grant of a Restricted Stock Award, the
Committee shall: (a) determine the nature, length and starting date of any
Performance Period for the Restricted Stock Award; (b) select from among the
Performance Factors to be used to measure performance goals, if any; and (c)
determine the number of Shares that may be awarded to the Participant. Prior to
the payment of any Restricted Stock Award, the Committee shall determine the
extent to which such Restricted Stock Award has been earned. Performance
Periods may overlap and Participants may participate simultaneously with respect
to Restricted Stock Awards that are subject to different Performance Periods and
having different performance goals and other criteria.
6.4 Termination During Performance Period. If a Participant is
-------------------------------------
Terminated during a Performance Period for any reason, then such Participant
will be entitled to payment (whether in Shares, cash or otherwise) with respect
to the Restricted Stock Award only to the extent earned as of the date of
Termination in accordance with the Restricted Stock Purchase Agreement, unless
the Committee will determine otherwise.
7. STOCK BONUSES.
-------------
7.1 Awards of Stock Bonuses. A Stock Bonus is an award of Shares
-----------------------
(which may consist of Restricted Stock) for services rendered to the Company or
any Parent or Subsidiary of the Company. A Stock Bonus may be awarded for past
services already rendered to the Company, or any Parent or Subsidiary of the
Company pursuant to an Award Agreement (the "Stock Bonus Agreement") that will
be in such form (which need not be the same for each Participant) as the
Committee will from time to time approve, and will comply with and be subject to
the terms and conditions of this Plan. A Stock Bonus may be awarded upon
satisfaction of such performance goals as are set out in advance in the
Participant's individual Award Agreement (the "Performance Stock Bonus
Agreement") that will be in such form (which need not be the same for each
Participant) as the Committee will from time to time approve, and will comply
with and be subject to the terms and conditions of this Plan. Stock Bonuses may
vary from Participant to Participant and between groups of Participants, and may
be based upon the achievement of the Company, Parent or Subsidiary and/or
individual performance factors or upon such other criteria as the Committee may
determine.
7.2 Terms of Stock Bonuses. The Committee will determine the
----------------------
number of Shares to be awarded to the Participant. If the Stock Bonus is being
earned upon the satisfaction of performance goals pursuant to a Performance
Stock Bonus Agreement, then the Committee will: (a) determine the nature,
length and starting date of any Performance Period for each Stock Bonus; (b)
select from among the Performance Factors to be used to measure the performance,
if any; and (c) determine the number of Shares that may be awarded to the
Participant. Prior to the payment of any Stock Bonus, the Committee shall
determine the extent to which such Stock Bonuses have been earned. Performance
Periods may overlap and Participants may participate simultaneously with respect
to Stock Bonuses that are subject to different Performance Periods and different
performance goals and other criteria. The number of Shares may be fixed or may
vary in accordance with such performance goals and criteria as may be determined
by the Committee. The Committee may adjust the performance goals applicable to
the Stock Bonuses to take into account changes in law and accounting or tax
rules and to make such adjustments as the Committee deems necessary or
appropriate to reflect the impact of extraordinary or unusual items, events or
circumstances to avoid windfalls or hardships.
5
<PAGE>
7.3 Form of Payment. The earned portion of a Stock Bonus may be
---------------
paid currently or on a deferred basis with such interest or dividend equivalent,
if any, as the Committee may determine. Payment may be made in the form of cash
or whole Shares or a combination thereof, either in a lump sum payment or in
installments, all as the Committee will determine.
8. PAYMENT FOR SHARE PURCHASES.
---------------------------
8.1 Payment. Payment for Shares purchased pursuant to this Plan
-------
may be made in cash (by check) or, where expressly approved for the Participant
by the Committee and where permitted by law:
(a) by cancellation of indebtedness of the Company to the
Participant;
(b) by surrender of shares that either: (1) have been owned by
Participant for more than six (6) months and have been paid for
within the meaning of SEC Rule 144 (and, if such shares were
purchased from the Company by use of a promissory note, such note
has been fully paid with respect to such shares); or (2) were
obtained by Participant in the public market;
(c) by tender of a full recourse promissory note having such terms as
may be approved by the Committee and bearing interest at a rate
sufficient to avoid imputation of income under Sections 483 and
1274 of the Code; provided, however, that Participants who are
-------- -------
not employees or directors of the Company will not be entitled to
purchase Shares with a promissory note unless the note is
adequately secured by collateral other than the Shares;
(d) by waiver of compensation due or accrued to the Participant for
services rendered;
(e) with respect only to purchases upon exercise of an Option, and
provided that a public market for the Company's stock exists:
(1) through a "same day sale" commitment from the Participant
and a broker-dealer that is a member of the National
Association of Securities Dealers (an "NASD Dealer") whereby
the Participant irrevocably elects to exercise the Option
and to sell a portion of the Shares so purchased to pay for
the Exercise Price, and whereby the NASD Dealer irrevocably
commits upon receipt of such Shares to forward the Exercise
Price directly to the Company; or
(2) through a "margin" commitment from the Participant and a
NASD Dealer whereby the Participant irrevocably elects to
exercise the Option and to pledge the Shares so purchased to
the NASD Dealer in a margin account as security for a loan
from the NASD Dealer in the amount of the Exercise Price,
and whereby the NASD Dealer irrevocably commits upon receipt
of such Shares to forward the Exercise Price directly to the
Company; or
(f) by any combination of the foregoing.
8.2 Loan Guarantees. The Committee may help the Participant pay
---------------
for Shares purchased under this Plan by authorizing a guarantee by the Company
of a third-party loan to the Participant.
9. AUTOMATIC GRANTS TO OUTSIDE DIRECTORS.
--------------------------------------
9.1 Types of Options and Shares. Options granted under this Plan
----------------------------
and subject to this Section 9 shall be NQSOs.
6
<PAGE>
9.2 Eligibility. Options subject to this Section 9 shall be
-----------
granted only to Outside Directors.
9.3 Annual Grants. Each Outside Director who was a member of
-------------
the Board before the Effective Date will automatically be granted an Option for
10,000 Shares on the Effective Date, unless such Outside Director received a
grant of Options before the Effective Date. Each Outside Director who first
becomes a member of the Board on or after the Effective Date will automatically
be granted an Option for 20,000 Shares on the date such Outside Director first
becomes a member of the Board. Immediately following each annual meeting of
stockholders, all Outside Directors will automatically be granted an Option for
10,000 Shares, provided the Outside Director is a member of the Board on such
date and has served continuously as a member of the Board for a period of at
least one year since the date when such Outside Director first became a member
of the Board (the "Annual Grant").
9.4 Vesting. Each Annual Grant shall be 100% vested and
-------
immediately exercisable as of the date of grant.
9.5 Exercise Price. The exercise price of an Annual Grant shall
--------------
be the Fair Market Value of the Shares, at the time that the Option is granted.
10. WITHHOLDING TAXES.
-----------------
10.1 Withholding Generally. Whenever Shares are to be issued in
---------------------
satisfaction of Awards granted under this Plan, the Company may require the
Participant to remit to the Company an amount sufficient to satisfy federal,
state and local withholding tax requirements prior to the delivery of any
certificate or certificates for such Shares. Whenever, under this Plan,
payments in satisfaction of Awards are to be made in cash, such payment will be
net of an amount sufficient to satisfy federal, state, and local withholding tax
requirements.
10.2 Stock Withholding. When, under applicable tax laws, a
-----------------
Participant incurs tax liability in connection with the exercise or vesting of
any Award that is subject to tax withholding and the Participant is obligated to
pay the Company the amount required to be withheld, the Committee may in its
sole discretion allow the Participant to satisfy the minimum withholding tax
obligation by electing to have the Company withhold from the Shares to be issued
that number of Shares having a Fair Market Value equal to the minimum amount
required to be withheld, determined on the date that the amount of tax to be
withheld is to be determined. All elections by a Participant to have Shares
withheld for this purpose will be made in accordance with the requirements
established by the Committee and be in writing in a form acceptable to the
Committee
11. TRANSFERABILITY.
---------------
11.1 Except as otherwise provided in this Section 11, Awards
granted under this Plan, and any interest therein, will not be transferable or
assignable by Participant, and may not be made subject to execution, attachment
or similar process, otherwise than by will or by the laws of descent and
distribution or as determined by the Committee and set forth in the Award
Agreement with respect to Awards that are not ISOs.
11.2 All Awards other than NQSO's. All Awards other than NQSO's
-----------------------------
shall be exercisable: (i) during the Participant's lifetime, only by (A) the
Participant, or (B) the Participant's guardian or legal representative; and (ii)
after Participant's death, by the legal representative of the Participant's
heirs or legatees.
11.3 NQSOs. Unless otherwise restricted by the Committee, an NQSO
-----
shall be exercisable: (i) during the Participant's lifetime only by (A) the
Participant, (B) the Participant's guardian or legal representative, (C) a
Family Member of the Participant who has acquired the NQSO by "permitted
transfer;" and (ii) after Participant's death, by the legal representative of
the Participant's heirs or legatees. "Permitted transfer" means, as authorized
by this Plan and the Committee in an NQSO, any transfer effected by
7
<PAGE>
the Participant during the Participant's lifetime of an interest in such NQSO
but only such transfers which are by gift or domestic relations order. A
permitted transfer does not include any transfer for value and neither of the
following are transfers for value: (a) a transfer of under a domestic relations
order in settlement of marital property rights or (b) a transfer to an entity in
which more than fifty percent of the voting interests are owned by Family
Members or the Participant in exchange for an interest in that entity.
12. PRIVILEGES OF STOCK OWNERSHIP; RESTRICTIONS ON SHARES..
------------------------------------------------------
12.1 Voting and Dividends. No Participant will have any of the
--------------------
rights of a stockholder with respect to any Shares until the Shares are issued
to the Participant. After Shares are issued to the Participant, the Participant
will be a stockholder and have all the rights of a stockholder with respect to
such Shares, including the right to vote and receive all dividends or other
distributions made or paid with respect to such Shares; provided, that if such
--------
Shares are Restricted Stock, then any new, additional or different securities
the Participant may become entitled to receive with respect to such Shares by
virtue of a stock dividend, stock split or any other change in the corporate or
capital structure of the Company will be subject to the same restrictions as the
Restricted Stock; provided, further, that the Participant will have no right to
-------- -------
retain such stock dividends or stock distributions with respect to Shares that
are repurchased at the Participant's Purchase Price or Exercise Price pursuant
to Section 12.
12.2 Financial Statements. The Company will provide financial
--------------------
statements to each Participant prior to such Participant's purchase of Shares
under this Plan, and to each Participant annually during the period such
Participant has Awards outstanding; provided, however, the Company will not be
-------- -------
required to provide such financial statements to Participants whose services in
connection with the Company assure them access to equivalent information.
12.3 Restrictions on Shares. At the discretion of the Committee,
-----------------------
the Company may reserve to itself and/or its assignee(s) in the Award Agreement
a right to repurchase a portion of or all Unvested Shares held by a Participant
following such Participant's Termination at any time within ninety (90) days
after the later of Participant's Termination Date and the date Participant
purchases Shares under this Plan, for cash and/or cancellation of purchase money
indebtedness, at the Participant's Exercise Price or Purchase Price, as the case
may be.
13. CERTIFICATES. All certificates for Shares or other securities
------------
delivered under this Plan will be subject to such stock transfer orders, legends
and other restrictions as the Committee may deem necessary or advisable,
including restrictions under any applicable federal, state or foreign securities
law, or any rules, regulations and other requirements of the SEC or any stock
exchange or automated quotation system upon which the Shares may be listed or
quoted.
14. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a
------------------------
Participant's Shares, the Committee may require the Participant to deposit all
certificates representing Shares, together with stock powers or other
instruments of transfer approved by the Committee, appropriately endorsed in
blank, with the Company or an agent designated by the Company to hold in escrow
until such restrictions have lapsed or terminated, and the Committee may cause a
legend or legends referencing such restrictions to be placed on the
certificates. Any Participant who is permitted to execute a promissory note as
partial or full consideration for the purchase of Shares under this Plan will be
required to pledge and deposit with the Company all or part of the Shares so
purchased as collateral to secure the payment of Participant's obligation to the
Company under the promissory note; provided, however, that the Committee may
-------- -------
require or accept other or additional forms of collateral to secure the payment
of such obligation and, in any event, the Company will have full recourse
against the Participant under the promissory note notwithstanding any pledge of
the Participant's Shares or other collateral. In connection with any pledge of
the Shares, Participant will be required to execute and deliver a written pledge
agreement in such form as the Committee will from time to time approve. The
Shares purchased with the promissory note may be released from the pledge on a
pro rata basis as the promissory note is paid.
8
<PAGE>
15. EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at any time or
-----------------------------
from time to time, authorize the Company, with the consent of the respective
Participants, to issue new Awards in exchange for the surrender and cancellation
of any or all outstanding Awards. The Committee may at any time buy from a
Participant an Award previously granted with payment in cash, Shares (including
Restricted Stock) or other consideration, based on such terms and conditions as
the Committee and the Participant may agree.
16. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Award will not
----------------------------------------------
be effective unless such Award is in compliance with all applicable federal and
state securities laws, rules and regulations of any governmental body, and the
requirements of any stock exchange or automated quotation system upon which the
Shares may then be listed or quoted, as they are in effect on the date of grant
of the Award and also on the date of exercise or other issuance.
Notwithstanding any other provision in this Plan, the Company will have no
obligation to issue or deliver certificates for Shares under this Plan prior to:
(a) obtaining any approvals from governmental agencies that the Company
determines are necessary or advisable; and/or (b) completion of any registration
or other qualification of such Shares under any state or federal law or ruling
of any governmental body that the Company determines to be necessary or
advisable. The Company will be under no obligation to register the Shares with
the SEC or to effect compliance with the registration, qualification or listing
requirements of any state securities laws, stock exchange or automated quotation
system, and the Company will have no liability for any inability or failure to
do so.
17. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Award
-----------------------
granted under this Plan will confer or be deemed to confer on any Participant
any right to continue in the employ of, or to continue any other relationship
with, the Company or any Parent or Subsidiary of the Company or limit in any way
the right of the Company or any Parent or Subsidiary of the Company to terminate
Participant's employment or other relationship at any time, with or without
cause.
18. CORPORATE TRANSACTIONS.
----------------------
18.1 Assumption or Replacement of Awards by Successor. In the
------------------------------------------------
event of (a) a dissolution or liquidation of the Company, (b) a merger or
consolidation in which the Company is not the surviving corporation (other than
a merger or consolidation with a wholly-owned subsidiary, a reincorporation of
the Company in a different jurisdiction, or other transaction in which there is
no substantial change in the stockholders of the Company or their relative stock
holdings and the Awards granted under this Plan are assumed, converted or
replaced by the successor corporation, which assumption will be binding on all
Participants), (c) a merger in which the Company is the surviving corporation
but after which the stockholders of the Company immediately prior to such merger
(other than any stockholder that merges, or which owns or controls another
corporation that merges, with the Company in such merger) cease to own their
shares or other equity interest in the Company, (d) the sale of substantially
all of the assets of the Company, or (e) the acquisition, sale, or transfer of
more than 50% of the outstanding shares of the Company by tender offer or
similar transaction, any or all outstanding Awards may be assumed, converted or
replaced by the successor corporation (if any), which assumption, conversion or
replacement will be binding on all Participants. In the alternative, the
successor corporation may substitute equivalent Awards or provide substantially
similar consideration to Participants as was provided to stockholders (after
taking into account the existing provisions of the Awards). The successor
corporation may also issue, in place of outstanding Shares of the Company held
by the Participants, substantially similar shares or other property subject to
repurchase restrictions no less favorable to the Participant. In the event such
successor corporation (if any) refuses to assume or substitute Awards, as
provided above, pursuant to a transaction described in this Subsection 18.1,
such Awards will expire on such transaction at such time and on such conditions
as the Committee will determine. Notwithstanding anything in this Plan to the
contrary, the Committee may, in its sole discretion, provide that the vesting of
any or all Awards granted pursuant to this Plan will accelerate upon a
transaction described in this Section 18. If the Committee exercises such
discretion with respect to Options, such Options will become exercisable in full
prior to the consummation of such event at such time and on such conditions as
the Committee determines, and if such Options are not exercised prior to the
consummation of the corporate transaction, they shall terminate at such time as
determined by the Committee.
9
<PAGE>
18.2 Other Treatment of Awards. Subject to any greater rights
-------------------------
granted to Participants under the foregoing provisions of this Section 18, in
the event of the occurrence of any transaction described in Section 18.1, any
outstanding Awards will be treated as provided in the applicable agreement or
plan of merger, consolidation, dissolution, liquidation, or sale of assets.
18.3 Assumption of Awards by the Company. The Company, from time
-----------------------------------
to time, also may substitute or assume outstanding awards granted by another
company, whether in connection with an acquisition of such other company or
otherwise, by either; (a) granting an Award under this Plan in substitution of
such other company's award; or (b) assuming such award as if it had been granted
under this Plan if the terms of such assumed award could be applied to an Award
granted under this Plan. Such substitution or assumption will be permissible if
the holder of the substituted or assumed award would have been eligible to be
granted an Award under this Plan if the other company had applied the rules of
this Plan to such grant. In the event the Company assumes an award granted by
another company, the terms and conditions of such award will remain unchanged
(except that the exercise price and the number and nature of Shares issuable
------
upon exercise of any such option will be adjusted appropriately pursuant to
Section 424(a) of the Code). In the event the Company elects to grant a new
Option rather than assuming an existing option, such new Option may be granted
with a similarly adjusted Exercise Price.
19. ADOPTION AND STOCKHOLDER APPROVAL. This Plan will become
---------------------------------
effective on the date on which the registration statement filed by the Company
with the SEC under the Securities Act registering the initial public offering of
the Company's Common Stock is declared effective by the SEC (the "Effective
Date"). This Plan shall be approved by the stockholders of the Company
(excluding Shares issued pursuant to this Plan), consistent with applicable
laws, within twelve (12) months before or after the date this Plan is adopted by
the Board. Upon the Effective Date, the Committee may grant Awards pursuant to
this Plan; provided, however, that: (a) no Option may be exercised prior to
-------- -------
initial stockholder approval of this Plan; (b) no Option granted pursuant to an
increase in the number of Shares subject to this Plan approved by the Board will
be exercised prior to the time such increase has been approved by the
stockholders of the Company; (c) in the event that initial stockholder approval
is not obtained within the time period provided herein, all Awards granted
hereunder shall be cancelled, any Shares issued pursuant to any Awards shall be
cancelled and any purchase of Shares issued hereunder shall be rescinded; and
(d) in the event that stockholder approval of such increase is not obtained
within the time period provided herein, all Awards granted pursuant to such
increase will be cancelled, any Shares issued pursuant to any Award granted
pursuant to such increase will be cancelled, and any purchase of Shares pursuant
to such increase will be rescinded.
20. TERM OF PLAN/GOVERNING LAW. Unless earlier terminated as provided
--------------------------
herein, this Plan will terminate ten (10) years from the date this Plan is
adopted by the Board or, if earlier, the date of stockholder approval. This
Plan and all agreements thereunder shall be governed by and construed in
accordance with the laws of the State of California.
21. AMENDMENT OR TERMINATION OF PLAN. The Board may at any time
--------------------------------
terminate or amend this Plan in any respect, including without limitation
amendment of any form of Award Agreement or instrument to be executed pursuant
to this Plan; provided, however, that the Board will not, without the approval
-------- -------
of the stockholders of the Company, amend this Plan in any manner that requires
such stockholder approval.
22. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of this Plan by
--------------------------
the Board, the submission of this Plan to the stockholders of the Company for
approval, nor any provision of this Plan will be construed as creating any
limitations on the power of the Board to adopt such additional compensation
arrangements as it may deem desirable, including, without limitation, the
granting of stock options and bonuses otherwise than under this Plan, and such
arrangements may be either generally applicable or applicable only in specific
cases.
23. DEFINITIONS. As used in this Plan, the following terms will have
-----------
the following meanings:
10
<PAGE>
"Award" means any award under this Plan, including any Option,
Restricted Stock or Stock Bonus.
"Award Agreement" means, with respect to each Award, the signed
written agreement between the Company and the Participant setting forth the
terms and conditions of the Award.
"Board" means the Board of Directors of the Company.
"Cause" means the commission of an act of theft, embezzlement,
fraud, dishonesty or a breach of fiduciary duty to the Company or a Parent or
Subsidiary of the Company.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means the Compensation Committee of the Board.
"Company" means Interwoven, Inc. or any successor corporation.
"Disability" means a disability, whether temporary or permanent,
partial or total, as determined by the Committee.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exercise Price" means the price at which a holder of an Option
may purchase the Shares issuable upon exercise of the Option.
"Fair Market Value" means, as of any date, the value of a share
of the Company's Common Stock determined as follows:
(a) if such Common Stock is then quoted on the Nasdaq National
Market, its closing price on the Nasdaq National Market on the
date of determination as reported in The Wall Street Journal;
-----------------------
(b) if such Common Stock is publicly traded and is then listed on a
national securities exchange, its closing price on the date of
determination on the principal national securities exchange on
which the Common Stock is listed or admitted to trading as
reported in The Wall Street Journal;
-----------------------
(c) if such Common Stock is publicly traded but is not quoted on the
Nasdaq National Market nor listed or admitted to trading on a
national securities exchange, the average of the closing bid and
asked prices on the date of determination as reported in The Wall
--------
Street Journal;
--------------
(d) in the case of an Award made on the Effective Date, the price per
share at which shares of the Company's Common Stock are initially
offered for sale to the public by the Company's underwriters in
the initial public offering of the Company's Common Stock
pursuant to a registration statement filed with the SEC under the
Securities Act; or
(e) if none of the foregoing is applicable, by the Committee in good
faith.
"Family Member" includes any of the following:
(a) child, stepchild, grandchild, parent, stepparent, grandparent,
spouse, former spouse, sibling, niece, nephew, mother-in-law,
father-in-law, son-in-law, daughter-in-law,
11
<PAGE>
brother-in-law, or sister-in-law of the Participant, including
any such person with such relationship to the Participant by
adoption;
(b) any person (other than a tenant or employee) sharing the
Participant's household;
(c) a trust in which the persons in (a) and (b) have more than fifty
percent of the beneficial interest;
(d) a foundation in which the persons in (a) and (b) or the
Participant control the management of assets; or
(e) any other entity in which the persons in (a) and (b) or the
Participant own more than fifty percent of the voting interest.
"Insider" means an officer or director of the Company or any
other person whose transactions in the Company's Common Stock are subject to
Section 16 of the Exchange Act.
"Option" means an award of an option to purchase Shares pursuant
to Section 5.
"Outside Director" means a member of the Board who is not an
employee of the Company or any Parent, Subsidiary or Affiliate of the Company.
"Parent" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company if each of such
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
"Participant" means a person who receives an Award under this
Plan.
"Performance Factors" means the factors selected by the Committee
from among the following measures to determine whether the performance goals
established by the Committee and applicable to Awards have been satisfied:
(a) Net revenue and/or net revenue growth;
(b) Earnings before income taxes and amortization and/or
earnings before income taxes and amortization growth;
(c) Operating income and/or operating income growth;
(d) Net income and/or net income growth;
(e) Earnings per share and/or earnings per share growth;
(f) Total stockholder return and/or total stockholder return
growth;
(g) Return on equity;
(h) Operating cash flow return on income;
(i) Adjusted operating cash flow return on income;
(j) Economic value added; and
12
<PAGE>
(k) Individual confidential business objectives.
"Performance Period" means the period of service determined by
the Committee, not to exceed five years, during which years of service or
performance is to be measured for Restricted Stock Awards or Stock Bonuses.
"Plan" means this Interwoven, Inc. 1999 Equity Incentive Plan, as
amended from time to time.
"Restricted Stock Award" means an award of Shares pursuant to
Section 6.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Shares" means shares of the Company's Common Stock reserved for
issuance under this Plan, as adjusted pursuant to Sections 2 and 18, and any
successor security.
"Stock Bonus" means an award of Shares, or cash in lieu of
Shares, pursuant to Section 7.
"Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
"Termination" or "Terminated" means, for purposes of this Plan
with respect to a Participant, that the Participant has for any reason ceased to
provide services as an employee, officer, director, consultant, independent
contractor, or advisor to the Company or a Parent or Subsidiary of the Company.
An employee will not be deemed to have ceased to provide services in the case of
(i) sick leave, (ii) military leave, or (iii) any other leave of absence
approved by the Committee, provided, that such leave is for a period of not more
than 90 days, unless reemployment upon the expiration of such leave is
guaranteed by contract or statute or unless provided otherwise pursuant to
formal policy adopted from time to time by the Company and issued and
promulgated to employees in writing. In the case of any employee on an approved
leave of absence, the Committee may make such provisions respecting suspension
of vesting of the Award while on leave from the employ of the Company or a
Subsidiary as it may deem appropriate, except that in no event may an Option be
exercised after the expiration of the term set forth in the Option agreement.
The Committee will have sole discretion to determine whether a Participant has
ceased to provide services and the effective date on which the Participant
ceased to provide services (the "Termination Date").
"Unvested Shares" means "Unvested Shares" as defined in the Award
Agreement.
"Vested Shares" means "Vested Shares" as defined in the Award
Agreement.
13
<PAGE>
No. ______
INTERWOVEN, INC.
1999 EQUITY INCENTIVE PLAN
STOCK OPTION AGREEMENT
----------------------
This Stock Option Agreement (this "Agreement") is made and entered
into as of the Date of Grant set forth below (the "Date of Grant") by and
between Interwoven, Inc., a Delaware corporation (the "Company"), and the
Optionee named below ("Optionee"). Capitalized terms not defined herein shall
have the meanings ascribed to them in the Company's 1999 Equity Incentive Plan
(the "Plan").
Optionee: __________________________________________
Social Security Number: __________________________________________
Optionee's Address: __________________________________________
Total Option Shares: __________________________________________
Exercise Price Per Share: __________________________________________
Date of Grant: __________________________________________
Vesting Start Date: __________________________________________
Expiration Date: __________________________________________
(unless earlier terminated under Section 3 hereof)
Type of Stock Option
(Check one): [ ] Incentive Stock Option
[ ] Nonqualified Stock Option
1. Grant of Option. The Company hereby grants to Optionee an option
---------------
(this "Option") to purchase up to the total number of shares of Common Stock of
the Company set forth above as Total Option Shares (collectively, the "Shares")
at the Exercise Price Per Share set forth above (the "Exercise Price"), subject
to all of the terms and conditions of this Agreement and the Plan. If
designated as an Incentive Stock Option above, this Option is intended to
qualify as an "incentive stock option" ("ISO") within the meaning of Section 422
of the Internal Revenue Code of 1986, as amended (the "Code"), to the extent
permitted under Code Section 422.
2. Vesting; Exercise Period.
------------------------
2.1 Vesting of Shares. This Option shall be exercisable as it
-----------------
vests. Subject to the terms and conditions of the Plan and this Agreement, this
Option shall vest and become exercisable as to portions of the Shares as
follows: (a) this Option shall not be exercisable with respect to any of the
Shares until _________________, 19___ (the "First
<PAGE>
Stock Option Agreement
1999 Equity Incentive Plan
Vesting Date"); (b) if Optionee has continuously provided services to the
Company, or any Parent or Subsidiary of the Company, then on the First Vesting
Date, this Option shall become exercisable as to twenty-five percent (25%) of
the Shares; and (c) thereafter this Option shall become exercisable as to an
additional 2.08333% of the Shares on each monthly anniversary of the First
Vesting Date, provided that Optionee has continuously provided services to the
Company, or any Parent or Subsidiary of the Company, at all times during the
relevant month. This Option shall cease to vest upon Optionee's Termination and
Optionee shall in no event be entitled under this Option to purchase a number of
shares of the Company's Common Stock greater than the "Total Option Shares."
2.2 Vesting of Options. Shares that are vested pursuant to the
------------------
schedule set forth in Section 2.1 hereof are "Vested Shares." Shares that are
not vested pursuant to the schedule set forth in Section 2.1 hereof are
"Unvested Shares."
2.3 Expiration. This Option shall expire on the Expiration Date
----------
set forth above and must be exercised, if at all, on or before the earlier of
the Expiration Date or the date on which this Option is earlier terminated in
accordance with the provisions of Section 3 hereof.
3. Termination.
-----------
3.1 Termination for Any Reason Except Death, Disability or Cause.
------------------------------------------------------------
If Optionee is Terminated for any reason except Optionee's death, Disability or
Cause, then this Option, to the extent (and only to the extent) that it is
vested in accordance with the schedule set forth in Section 2.1 hereof on the
Termination Date, may be exercised by Optionee no later than three (3) months
after the Termination Date, but in any event no later than the Expiration Date.
3.2 Termination Because of Death or Disability. If Optionee is
------------------------------------------
Terminated because of death or Disability of Optionee (or the Optionee dies
within three (3) months after Termination other than for Cause or because of
Disability), then this Option, to the extent that it is vested in accordance
with the schedule set forth in Section 2.1 hereof on the Termination Date, may
be exercised by Optionee (or Optionee's legal representative or authorized
assignee) no later than twelve (12) months after the Termination Date, but in
any event no later than the Expiration Date. Any exercise after three months
after the Termination Date when the Termination is for any reason other than
Optionee's death or disability, within the meaning of Code Section 22(e)(3),
shall be deemed to be the exercise of a nonqualified stock option.
3.3 Termination for Cause. If Optionee is Terminated for Cause,
---------------------
this Option will expire on the Optionee's date of Termination.
3.4 No Obligation to Employ. Nothing in the Plan or this
-----------------------
Agreement shall confer on Optionee any right to continue in the employ of, or
other relationship with, the Company or any Parent or Subsidiary of the Company,
or limit in any way the right of the Company or any Parent or Subsidiary of the
Company to terminate Optionee's employment or other relationship at any time,
with or without Cause.
<PAGE>
Stock Option Agreement
1999 Equity Incentive Plan
4. Manner of Exercise.
------------------
4.1 Stock Option Exercise Agreement. To exercise this Option,
-------------------------------
Optionee (or in the case of exercise after Optionee's death, Optionee's
executor, administrator, heir or legatee, as the case may be) must deliver to
the Company an executed stock option exercise agreement in the form attached
hereto as Exhibit A, or in such other form as may be approved by the Company
---------
from time to time (the "Exercise Agreement"), which shall set forth, inter alia,
----- ----
Optionee's election to exercise this Option, the number of shares being
purchased, any restrictions imposed on the Shares and any representations,
warranties and agreements regarding Optionee's investment intent and access to
information as may be required by the Company to comply with applicable
securities laws. If someone other than Optionee exercises this Option, then
such person must submit documentation reasonably acceptable to the Company that
such person has the right to exercise this Option.
4.2 Limitations on Exercise. This Option may not be exercised
-----------------------
unless such exercise is in compliance with all applicable federal and state
securities laws, as they are in effect on the date of exercise. This Option may
not be exercised as to fewer than 100 Shares unless it is exercised as to all
Shares as to which this Option is then exercisable.
4.3 Payment. The Exercise Agreement shall be accompanied by
-------
full payment of the Exercise Price for the Shares being purchased in cash (by
check), or where permitted by law:
(a) by cancellation of indebtedness of the Company to the Optionee;
(b) by surrender of shares of the Company's Common Stock that either: (1)
have been owned by Optionee for more than six (6) months and have been
paid for within the meaning of SEC Rule 144 (and, if such shares were
purchased from the Company by use of a promissory note, such note has
been fully paid with respect to such shares); or (2) were obtained by
Optionee in the open public market; and (3) are clear of all liens,
---
claims, encumbrances or security interests;
(c) by waiver of compensation due or accrued to Optionee for services
rendered;
(d) provided that a public market for the Company's stock exists: (1)
through a "same day sale" commitment from Optionee and a broker-dealer
that is a member of the National Association of Securities Dealers (an
"NASD Dealer") whereby Optionee irrevocably elects to exercise this
Option and to sell a portion of the Shares so purchased to pay for the
Exercise Price and whereby the NASD Dealer irrevocably commits upon
receipt of such Shares to forward the exercise price directly to the
Company; or (2) through a "margin" commitment from Optionee and an NASD
--
Dealer whereby Optionee irrevocably elects to exercise this Option and
to pledge the Shares so purchased to the NASD Dealer in a margin
account as security for a loan from the NASD Dealer in the amount of
the Exercise Price, and whereby the
<PAGE>
Stock Option Agreement
1999 Equity Incentive Plan
NASD Dealer irrevocably commits upon receipt of such Shares to forward
the Exercise Price directly to the Company;
(f) by any combination of the foregoing.
4.4 Tax Withholding. Prior to the issuance of the Shares upon
---------------
exercise of this Option, Optionee must pay or provide for any applicable federal
or state withholding obligations of the Company. If the Committee permits,
Optionee may provide for payment of withholding taxes upon exercise of this
Option by requesting that the Company retain Shares with a Fair Market Value
equal to the minimum amount of taxes required to be withheld. In such case, the
Company shall issue the net number of Shares to the Optionee by deducting the
Shares retained from the Shares issuable upon exercise.
4.5 Issuance of Shares. Provided that the Exercise Agreement
------------------
and payment are in form and substance satisfactory to counsel for the Company,
the Company shall issue the Shares registered in the name of Optionee,
Optionee's authorized assignee, or Optionee's legal representative, and shall
deliver certificates representing the Shares with the appropriate legends
affixed thereto.
5. Notice of Disqualifying Disposition of ISO Shares. To the extent
-------------------------------------------------
this Option is an ISO, if Optionee sells or otherwise disposes of any of the
Shares acquired pursuant to the ISO on or before the later of (a) the date two
(2) years after the Date of Grant, and (b) the date one (1) year after transfer
of such Shares to Optionee upon exercise of this Option, then Optionee shall
immediately notify the Company in writing of such disposition.
6. Compliance with Laws and Regulations. The exercise of this Option
------------------------------------
and the issuance and transfer of Shares shall be subject to compliance by the
Company and Optionee with all applicable requirements of federal and state
securities laws and with all applicable requirements of any stock exchange on
which the Company's Common Stock may be listed at the time of such issuance or
transfer. Optionee understands that the Company is under no obligation to
register or qualify the Shares with the SEC, any state securities commission or
any stock exchange to effect such compliance.
7. Nontransferability of Option. This Option may not be transferred
----------------------------
in any manner other than by will or by the laws of descent and distribution and
may be exercised during the lifetime of Optionee only by Optionee. The terms of
this Option shall be binding upon the executors, administrators, successors and
assigns of Optionee.
8. Tax Consequences. Set forth below is a brief summary as of the
----------------
date the Board adopted the Plan of some of the federal tax consequences of
exercise of this Option and disposition of the Shares. THIS SUMMARY IS
NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE.
OPTIONEE SHOULD CONSULT A TAX ADVISOR BEFORE EXERCISING THIS OPTION OR DISPOSING
OF THE SHARES.
<PAGE>
Stock Option Agreement
1999 Equity Incentive Plan
8.1 Exercise of Incentive Stock Option. To the extent this
----------------------------------
Option qualifies as an ISO, there will be no regular federal income tax
liability upon the exercise of this Option, although the excess, if any, of the
fair market value of the Shares on the date of exercise over the Exercise Price
will be treated as a tax preference item for federal income tax purposes and may
subject the Optionee to the alternative minimum tax in the year of exercise.
8.2 Exercise of Nonqualified Stock Option. To the extent this
-------------------------------------
Option does not qualify as an ISO, there may be a regular federal income tax
liability upon the exercise of this Option. Optionee will be treated as having
received compensation income (taxable at ordinary income tax rates) equal to the
excess, if any, of the fair market value of the Shares on the date of exercise
over the Exercise Price. The Company may be required to withhold from
Optionee's compensation or collect from Optionee and pay to the applicable
taxing authorities an amount equal to a percentage of this compensation income
at the time of exercise.
8.3 Disposition of Shares. The following tax consequences may
---------------------
apply upon disposition of the Shares.
a. Incentive Stock Options. If the Shares are held for
-----------------------
more than twelve (12) months after the date of the transfer of the Shares
pursuant to the exercise of an ISO and are disposed of more than two (2) years
after the Date of Grant, any gain realized on disposition of the Shares will be
treated as capital gain for federal income tax purposes. If Shares purchased
under an ISO are disposed of within the applicable one (1) year or two (2) year
period, any gain realized on such disposition will be treated as compensation
income (taxable at ordinary income rates) to the extent of the excess, if any,
of the fair market value of the Shares on the date of exercise over the Exercise
Price.
b. Nonqualified Stock Options. If the Shares are held for
--------------------------
more than twelve (12) months after the date of the transfer of the Shares
pursuant to the exercise of an NQSO, any gain realized on disposition of the
Shares will be treated as long-term capital gain.
c. Withholding. The Company may be required to withhold
-----------
from Participant's compensation or collect from the Participant and pay to the
applicable taxing authorities an amount equal to a percentage of this
compensation income.
9. Privileges of Stock Ownership. Optionee shall not have any of the
-----------------------------
rights of a stockholder with respect to any Shares until the Shares are issued
to Optionee.
10. Interpretation. Any dispute regarding the interpretation of this
--------------
Agreement shall be submitted by Optionee or the Company to the Committee for
review. The resolution of such a dispute by the Committee shall be final and
binding on the Company and Optionee.
11. Entire Agreement. The Plan is incorporated herein by reference.
----------------
This Agreement and the Plan and the Exercise Agreement constitute the entire
agreement and understanding of the parties hereto with respect to the subject
matter hereof and supersede all prior understandings and agreements with respect
to such subject matter.
<PAGE>
Stock Option Agreement
1999 Equity Incentive Plan
12. Notices. Any notice required to be given or delivered to the
-------
Company under the terms of this Agreement shall be in writing and addressed to
the Corporate Secretary of the Company at its principal corporate offices. Any
notice required to be given or delivered to Optionee shall be in writing and
addressed to Optionee at the address indicated above or to such other address as
such party may designate in writing from time to time to the Company. All
notices shall be deemed to have been given or delivered upon: personal
delivery; three (3) days after deposit in the United States mail by certified or
registered mail (return receipt requested); one (1) business day after deposit
with any return receipt express courier (prepaid); or one (1) business day after
transmission by facsimile.
13. Successors and Assigns. The Company may assign any of its rights
----------------------
under this Agreement. This Agreement shall be binding upon and inure to the
benefit of the successors and assigns of the Company. Subject to the
restrictions on transfer set forth herein, this Agreement shall be binding upon
Optionee and Optionee's heirs, executors, administrators, legal representatives,
successors and assigns.
14. Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the internal laws of the State of California, without regard
to that body of law pertaining to choice of law or conflict of law.
15. Acceptance. Optionee hereby acknowledges receipt of a copy of the
----------
Plan and this Agreement. Optionee has read and understands the terms and
provisions thereof, and accepts this Option subject to all the terms and
conditions of the Plan and this Agreement. Optionee acknowledges that there may
be adverse tax consequences upon exercise of this Option or disposition of the
Shares and that the Company has advised Optionee to consult a tax advisor prior
to such exercise or disposition.
<PAGE>
Stock Option Agreement
1999 Equity Incentive Plan
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
in duplicate by its duly authorized representative and Optionee has executed
this Agreement in duplicate as of the Date of Grant.
INTERWOVEN, INC. OPTIONEE
By:_________________________________ _____________________________________
(Signature)
____________________________________ _____________________________________
(Please print name) (Please print name)
____________________________________
(Please print title)
<PAGE>
EXHIBIT A
---------
STOCK OPTION EXERCISE AGREEMENT
<PAGE>
Exhibit A
---------
INTERWOVEN, INC.
1999 EQUITY INCENTIVE PLAN (the "Plan")
STOCK OPTION EXERCISE AGREEMENT
-------------------------------
I hereby elect to purchase the number of shares of Common Stock of
INTERWOVEN, INC. (the "Company") as set forth below:
<TABLE>
<S> <C>
Optionee_________________________________________ Number of Shares Purchased:_________________________________
Social Security Number:__________________________ Purchase Price per Share:___________________________________
Address:_________________________________________ Aggregate Purchase Price:___________________________________
_________________________________________ Date of Option Agreement:___________________________________
_________________________________________
Type of Option: [ ] Incentive Stock Option Exact Name of Title to Shares:______________________________
[ ] Nonqualified Stock Option ____________________________________________________________
</TABLE>
1. Delivery of Purchase Price. Optionee hereby delivers to the Company the
Aggregate Purchase Price, to the extent permitted in the Option Agreement (the
"Option Agreement") as follows (check as applicable and complete):
[ ] in cash (by check) in the amount of $_____________________, receipt of
which is acknowledged by the Company;
[ ] by cancellation of indebtedness of the Company to Optionee in the amount
of $___________________________________;
[ ] by delivery of ______________________________ fully-paid, nonassessable
and vested shares of the Common Stock of the Company owned by Optionee for
at least six (6) months prior to the date hereof (and which have been paid
for within the meaning of SEC Rule 144), or obtained by Optionee in the
open public market, and owned free and clear of all liens, claims,
encumbrances or security interests, valued at the current Fair Market Value
of $____________________ per share;
[ ] by the waiver hereby of compensation due or accrued to Optionee for
services rendered in the amount of $____________________________________ ;
[ ] through a "same-day-sale" commitment, delivered herewith, from Optionee and
the NASD Dealer named therein, in the amount of $______________________; or
[ ] through a "margin" commitment, delivered herewith from Optionee and the
NASD Dealer named therein, in the amount $________________________________.
2. Market Standoff Agreement. Optionee, if requested by the Company and an
underwriter of Common Stock (or other securities) of the Company, agrees not to
sell or otherwise transfer or dispose of any Common Stock (or other securities)
of the Company held by Optionee during the period requested by the managing
underwriter following the effective date of a registration statement of the
Company filed under the Securities Act, provided that all officers and directors
of the Company are required to enter into similar agreements. Such agreement
shall be in writing in a form satisfactory to the Company and such underwriter.
The Company may impose stop-transfer instructions with respect to the shares (or
other securities) subject to the foregoing restriction until the end of such
period.
3. Tax Consequences. OPTIONEE UNDERSTANDS THAT OPTIONEE MAY SUFFER ADVERSE
TAX CONSEQUENCES AS A RESULT OF OPTIONEE'S PURCHASE OR DISPOSITION OF THE
SHARES. OPTIONEE REPRESENTS THAT OPTIONEE HAS CONSULTED WITH ANY TAX
CONSULTANT(S) OPTIONEE DEEMS ADVISABLE IN CONNECTION WITH THE PURCHASE OR
DISPOSITION OF THE SHARES AND THAT OPTIONEE IS NOT RELYING ON THE COMPANY FOR
ANY TAX ADVICE.
4. Entire Agreement. The Plan and Option Agreement are incorporated herein by
reference. This Exercise Agreement, the Plan and the Option Agreement
constitute the entire agreement and understanding of the parties and supersede
in their entirety all prior understandings and agreements of the Company and
Optionee with respect to the subject matter hereof, and are governed by
California law except for that body of law pertaining to choice of law or
conflict of law.
Date:__________________________________ ____________________________________
Signature of Optionee
<PAGE>
Spousal Consent
I acknowledge that I have read the foregoing Stock Option Exercise
Agreement (the "Agreement") and that I know its contents. I hereby consent to
and approve all of the provisions of the Agreement, and agree that the shares of
the Common Stock of Interwoven, Inc. purchased thereunder (the "Shares") and any
interest I may have in such Shares are subject to all the provisions of the
Agreement. I will take no action at any time to hinder operation of the
Agreement on these Shares or any interest I may have in or to them.
____________________________________ Date:______________________
Signature of Optionee's Spouse
____________________________________
Spouse's Name - Typed or Printed
____________________________________
Optionee's Name - Typed or Printed
23
<PAGE>
EXHIBIT 10.04
No. ______
INTERWOVEN, INC.
1999 EQUITY INCENTIVE PLAN
STOCK OPTION AGREEMENT
----------------------
(For Non-Employee Directors)
This Stock Option Agreement (this "Agreement") is made and entered
into as of the Date of Grant set forth below (the "Date of Grant") by and
between Interwoven, Inc., a Delaware corporation (the "Company"), and the
Optionee named below ("Optionee"). Capitalized terms not defined herein shall
have the meanings ascribed to them in the Company's 1999 Equity Incentive Plan
(the "Plan").
Optionee: ________________________________________
Social Security Number: ________________________________________
Optionee's Address: ________________________________________
Total Option Shares: ________________________________________
Exercise Price Per Share: ________________________________________
Date of Grant: ________________________________________
Expiration Date: ________________________________________
(unless earlier terminated under Section 3 hereof)
Type of Stock Option: Nonqualified Stock Option
________________________________________
1. Grant of Option. The Company hereby grants to Optionee an option
---------------
(this "Option") to purchase up to the total number of shares of Common Stock of
the Company set forth above as Total Option Shares (collectively, the "Shares")
at the Exercise Price Per Share set forth above (the "Exercise Price"), subject
to all of the terms and conditions of this Agreement and the Plan.
2. Vesting; Exercise Period.
------------------------
2.1 Vesting of Shares. Subject to the terms and conditions of
-----------------
the Plan and this Agreement, this Option shall be 100% vested and exercisable as
to the Shares as of the Date of Grant.
2.2 Expiration. This Option shall expire on the Expiration
----------
Date set forth above and must be exercised, if at all, on or before the earlier
of the Expiration Date or the date on which this Option is earlier terminated in
accordance with the provisions of Section 3 hereof.
3. Termination. Except as provided below in this Section, this
-----------
Option shall terminate and may not be exercised if Optionee ceases to be a
member of the Board of Directors
<PAGE>
Stock Option Agreement
For Non-Employee Directors
1999 Equity Incentive Plan
of the Company ("Board Member"). The date on which Optionee ceases to be a Board
Member shall be referred to as the "Termination Date."
3.1 Termination for Any Reason Except Death or Disability. If
-----------------------------------------------------
Optionee ceases to be a Board Member for any reason except Death or Disability,
then this Option may be exercised by Optionee no later than three (3) months
after the Termination Date, but in any event no later than the Expiration Date.
3.2 Termination Because of Death or Disability. If Optionee
------------------------------------------
ceases to be a Board Member for any reason except Death or Disability, then this
Option may be exercised by Optionee (or Optionee's legal representative or
authorized assignee) no later than twelve (12) months after the Termination
Date, but in any event no later than the Expiration Date.
4. Manner of Exercise.
------------------
4.1 Stock Option Exercise Agreement. To exercise this Option,
-------------------------------
Optionee (or in the case of exercise after Optionee's death, Optionee's
executor, administrator, heir or legatee, as the case may be) must deliver to
the Company an executed stock option exercise agreement in the form attached
hereto as Exhibit A, or in such other form as may be approved by the Company
---------
from time to time (the "Exercise Agreement"), which shall set forth, inter alia,
----- ----
Optionee's election to exercise this Option, the number of shares being
purchased, any restrictions imposed on the Shares and any representations,
warranties and agreements regarding Optionee's investment intent and access to
information as may be required by the Company to comply with applicable
securities laws. If someone other than Optionee exercises this Option, then such
person must submit documentation reasonably acceptable to the Company that such
person has the right to exercise this Option.
4.2 Limitations on Exercise. This Option may not be exercised
-----------------------
unless such exercise is in compliance with all applicable federal and state
securities laws, as they are in effect on the date of exercise. This Option may
not be exercised as to fewer than 100 Shares unless it is exercised as to all
Shares as to which this Option is then exercisable.
4.3 Payment. The Exercise Agreement shall be accompanied by
-------
full payment of the Exercise Price for the Shares being purchased in cash (by
check), or where permitted by law:
(a) by cancellation of indebtedness of the Company to the Optionee;
(b) by surrender of shares of the Company's Common Stock that either: (1)
have been owned by Optionee for more than six (6) months and have been
paid for within the meaning of SEC Rule 144 (and, if such shares were
purchased from the Company by use of a promissory note, such note has
been fully paid with respect to such shares); or (2) were obtained by
Optionee in the open public market; and (3) are clear of all liens,
---
claims, encumbrances or security interests;
2
<PAGE>
Stock Option Agreement
For Non-Employee Directors
1999 Equity Incentive Plan
(c) by waiver of compensation due or accrued to Optionee for services
rendered;
(d) provided that a public market for the Company's stock exists: (1)
through a "same day sale" commitment from Optionee and a broker-dealer
that is a member of the National Association of Securities Dealers (an
"NASD Dealer") whereby Optionee irrevocably elects to exercise this
Option and to sell a portion of the Shares so purchased to pay for the
Exercise Price and whereby the NASD Dealer irrevocably commits upon
receipt of such Shares to forward the exercise price directly to the
Company; or (2) through a "margin" commitment from Optionee and an NASD
--
Dealer whereby Optionee irrevocably elects to exercise this Option and
to pledge the Shares so purchased to the NASD Dealer in a margin
account as security for a loan from the NASD Dealer in the amount of
the Exercise Price, and whereby the NASD Dealer irrevocably commits
upon receipt of such Shares to forward the Exercise Price directly to
the Company;
(f) by any combination of the foregoing.
4.4 Tax Withholding. Prior to the issuance of the Shares upon
---------------
exercise of this Option, Optionee must pay or provide for any applicable federal
or state withholding obligations of the Company. If the Committee permits,
Optionee may provide for payment of withholding taxes upon exercise of this
Option by requesting that the Company retain Shares with a Fair Market Value
equal to the minimum amount of taxes required to be withheld. In such case, the
Company shall issue the net number of Shares to the Optionee by deducting the
Shares retained from the Shares issuable upon exercise.
4.5 Issuance of Shares. Provided that the Exercise Agreement
------------------
and payment are in form and substance satisfactory to counsel for the Company,
the Company shall issue the Shares registered in the name of Optionee,
Optionee's authorized assignee, or Optionee's legal representative, and shall
deliver certificates representing the Shares with the appropriate legends
affixed thereto.
5. Compliance with Laws and Regulations. The exercise of this Option
------------------------------------
and the issuance and transfer of Shares shall be subject to compliance by the
Company and Optionee with all applicable requirements of federal and state
securities laws and with all applicable requirements of any stock exchange on
which the Company's Common Stock may be listed at the time of such issuance or
transfer. Optionee understands that the Company is under no obligation to
register or qualify the Shares with the SEC, any state securities commission or
any stock exchange to effect such compliance.
6. Nontransferability of Option. This Option may not be transferred
----------------------------
in any manner other than under the terms and conditions of the Plan or by will
or by the laws of descent and distribution and may be exercised during the
lifetime of Optionee only by Optionee. The
3
<PAGE>
Stock Option Agreement
For Non-Employee Directors
1999 Equity Incentive Plan
terms of this Option shall be binding upon the executors, administrators,
successors and assigns of Optionee.
7. Tax Consequences. Set forth below is a brief summary as of the
----------------
date the Board adopted the Plan of some of the federal tax consequences of
exercise of this Option and disposition of the Shares. THIS SUMMARY IS
NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE.
OPTIONEE SHOULD CONSULT A TAX ADVISOR BEFORE EXERCISING THIS OPTION OR DISPOSING
OF THE SHARES.
7.1 Exercise of Nonqualified Stock Option. To the extent this
-------------------------------------
Option does not qualify as an ISO, there may be a regular federal income tax
liability upon the exercise of this Option. Optionee will be treated as having
received compensation income (taxable at ordinary income tax rates) equal to the
excess, if any, of the fair market value of the Shares on the date of exercise
over the Exercise Price. The Company may be required to withhold from Optionee's
compensation or collect from Optionee and pay to the applicable taxing
authorities an amount equal to a percentage of this compensation income at the
time of exercise.
7.2 Disposition of Shares. The following tax consequences may
---------------------
apply upon disposition of the Shares.
a. Nonqualified Stock Options. If the Shares are
--------------------------
held for more than twelve (12) months after the date of the transfer of the
Shares pursuant to the exercise of an NQSO, any gain realized on disposition of
the Shares will be treated as long-term capital gain.
b. Withholding. The Company may be required to
------------
withhold from Optionee's compensation or collect from the Optionee and pay to
the applicable taxing authorities an amount equal to a percentage of this
compensation income.
8. Privileges of Stock Ownership. Optionee shall not have any of the
-----------------------------
rights of a stockholder with respect to any Shares until the Shares are issued
to Optionee.
9. Interpretation. Any dispute regarding the interpretation of this
--------------
Agreement shall be submitted by Optionee or the Company to the Committee for
review. The resolution of such a dispute by the Committee shall be final and
binding on the Company and Optionee.
10. Entire Agreement. The Plan is incorporated herein by reference.
----------------
This Agreement and the Plan and the Exercise Agreement constitute the entire
agreement and understanding of the parties hereto with respect to the subject
matter hereof and supersede all prior understandings and agreements with respect
to such subject matter.
11. Notices. Any notice required to be given or delivered to the
-------
Company under the terms of this Agreement shall be in writing and addressed to
the Corporate Secretary of the Company at its principal corporate offices. Any
notice required to be given or delivered to
4
<PAGE>
Stock Option Agreement
For Non-Employee Directors
1999 Equity Incentive Plan
Optionee shall be in writing and addressed to Optionee at the address indicated
above or to such other address as such party may designate in writing from time
to time to the Company. All notices shall be deemed to have been given or
delivered upon: personal delivery; three (3) days after deposit in the United
States mail by certified or registered mail (return receipt requested); one (1)
business day after deposit with any return receipt express courier (prepaid); or
one (1) business day after transmission by facsimile.
12. Successors and Assigns. The Company may assign any of its rights
----------------------
under this Agreement. This Agreement shall be binding upon and inure to the
benefit of the successors and assigns of the Company. Subject to the
restrictions on transfer set forth herein, this Agreement shall be binding upon
Optionee and Optionee's heirs, executors, administrators, legal representatives,
successors and assigns.
13. Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the internal laws of the State of California, without regard
to that body of law pertaining to choice of law or conflict of law.
14. Acceptance. Optionee hereby acknowledges receipt of a copy of the
----------
Plan and this Agreement. Optionee has read and understands the terms and
provisions thereof, and accepts this Option subject to all the terms and
conditions of the Plan and this Agreement. Optionee acknowledges that there may
be adverse tax consequences upon exercise of this Option or disposition of the
Shares and that the Company has advised Optionee to consult a tax advisor prior
to such exercise or disposition.
5
<PAGE>
Stock Option Agreement
For Non-Employee Directors
1999 Equity Incentive Plan
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
in duplicate by its duly authorized representative and Optionee has executed
this Agreement in duplicate as of the Date of Grant.
INTERWOVEN, INC. OPTIONEE
By:_______________________ _______________________
(Signature)
__________________________ _______________________
(Please print name) (Please print name)
__________________________
(Please print title)
6
<PAGE>
EXHIBIT A
---------
STOCK OPTION EXERCISE AGREEMENT
<PAGE>
Exhibit A
---------
INTERWOVEN, INC.
1999 EQUITY INCENTIVE PLAN (the "Plan")
STOCK OPTION EXERCISE AGREEMENT
-------------------------------
(For Non-Employee Directors)
I hereby elect to purchase the number of shares of Common Stock of
INTERWOVEN, INC. (the "Company") as set forth below:
<TABLE>
<S> <C>
Optionee______________________________________________ Number of Shares Purchased:_________________________________
Social Security Number:_______________________________ Purchase Price per Share:___________________________________
Address:______________________________________________ Aggregate Purchase Price:___________________________________
______________________________________________ Date of Option Agreement:___________________________________
______________________________________________
Type of Option: Nonqualified Stock Option Exact Name of Title to Shares:______________________________
____________________________________________________________
</TABLE>
1. Delivery of Purchase Price. Optionee hereby delivers to the Company the
Aggregate Purchase Price, to the extent permitted in the Option Agreement (the
"Option Agreement") as follows (check as applicable and complete):
[ ] in cash (by check) in the amount of $_____________________, receipt of
which is acknowledged by the Company;
[ ] by cancellation of indebtedness of the Company to Optionee in the amount
of $___________________________________;
[ ] by delivery of ______________________________ fully-paid, nonassessable
and vested shares of the Common Stock of the Company owned by Optionee for
at least six (6) months prior to the date hereof (and which have been paid
for within the meaning of SEC Rule 144), or obtained by Optionee in the
open public market, and owned free and clear of all liens, claims,
encumbrances or security interests, valued at the current Fair Market Value
of $____________________ per share;
[ ] by the waiver hereby of compensation due or accrued to Optionee for
services rendered in the amount of $____________________________________ ;
[ ] through a "same-day-sale" commitment, delivered herewith, from Optionee
and the NASD Dealer named therein, in the amount of
$_______________________________; or
[ ] through a "margin" commitment, delivered herewith from Optionee and the
NASD Dealer named therein, in the amount of $___________________________.
2. Market Standoff Agreement. Optionee, if requested by the Company and an
underwriter of Common Stock (or other securities) of the Company, agrees not to
sell or otherwise transfer or dispose of any Common Stock (or other securities)
of the Company held by Optionee during the period requested by the managing
underwriter following the effective date of a registration statement of the
Company filed under the Securities Act, provided that all officers and directors
of the Company are required to enter into similar agreements. Such agreement
shall be in writing in a form satisfactory to the Company and such underwriter.
The Company may impose stop-transfer instructions with respect to the shares (or
other securities) subject to the foregoing restriction until the end of such
period.
3. Tax Consequences. OPTIONEE UNDERSTANDS THAT OPTIONEE MAY SUFFER ADVERSE
TAX CONSEQUENCES AS A RESULT OF OPTIONEE'S PURCHASE OR DISPOSITION OF THE
SHARES. OPTIONEE REPRESENTS THAT OPTIONEE HAS CONSULTED WITH ANY TAX
CONSULTANT(S) OPTIONEE DEEMS ADVISABLE IN CONNECTION WITH THE PURCHASE OR
DISPOSITION OF THE SHARES AND THAT OPTIONEE IS NOT RELYING ON THE COMPANY FOR
ANY TAX ADVICE.
4. Entire Agreement. The Plan and Option Agreement are incorporated herein by
reference. This Exercise Agreement, the Plan and the Option Agreement
constitute the entire agreement and understanding of the parties and supersede
in their entirety all prior understandings and agreements of the Company and
Optionee with respect to the subject matter hereof, and are governed by
California law except for that body of law pertaining to choice of law or
conflict of law.
Date:__________________________________ ____________________________________
Signature of Optionee
<PAGE>
Spousal Consent
I acknowledge that I have read the foregoing Stock Option Exercise
Agreement (the "Agreement") and that I know its contents. I hereby consent to
and approve all of the provisions of the Agreement, and agree that the shares of
the Common Stock of Interwoven, Inc. purchased thereunder (the "Shares") and any
interest I may have in such Shares are subject to all the provisions of the
Agreement. I will take no action at any time to hinder operation of the
Agreement on these Shares or any interest I may have in or to them.
_____________________________________ Date:__________________
Signature of Optionee's Spouse
_____________________________________
Spouse's Name - Typed or Printed
_____________________________________
Optionee's Name - Typed or Printed
<PAGE>
EXHIBIT 10.05
INTERWOVEN, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
As Adopted July 22, 1999
1. Establishment of Plan. Interwoven, Inc. (the "Company") proposes to
grant options for purchase of the Company's Common Stock to eligible employees
of the Company and its Participating Subsidiaries (as hereinafter defined)
pursuant to this Employee Stock Purchase Plan (this "Plan"). For purposes of
this Plan, "Parent Corporation" and "Subsidiary" shall have the same meanings as
"parent corporation" and "subsidiary corporation" in Sections 424(e) and 424(f),
respectively, of the Internal Revenue Code of 1986, as amended (the "Code").
"Participating Subsidiaries" are Parent Corporations or Subsidiaries that the
Board of Directors of the Company (the "Board") designates from time to time as
corporations that shall participate in this Plan. The Company intends this Plan
to qualify as an "employee stock purchase plan" under Section 423 of the Code
(including any amendments to or replacements of such Section), and this Plan
shall be so construed. Any term not expressly defined in this Plan but defined
for purposes of Section 423 of the Code shall have the same definition herein. A
total of 300,000 shares of the Company's Common Stock is reserved for issuance
under this Plan. In addition, on each January 1, the aggregate number of shares
of the Company's Common Stock reserved for issuance under the Plan shall be
increased automatically by a number of shares equal to 1% of the total number of
outstanding shares of the Company Common Stock on the immediately preceding
December 31; provided that the aggregate number of shares issued over the term
--------
of this Plan shall not exceed 3,000,000 shares. Such number shall be subject to
adjustments effected in accordance with Section 14 of this Plan.
2. Purpose. The purpose of this Plan is to provide eligible employees of
the Company and Participating Subsidiaries with a convenient means of acquiring
an equity interest in the Company through payroll deductions, to enhance such
employees' sense of participation in the affairs of the Company and
Participating Subsidiaries, and to provide an incentive for continued
employment.
3. Administration. This Plan shall be administered by the Compensation
Committee of the Board (the "Committee"). Subject to the provisions of this Plan
and the limitations of Section 423 of the Code or any successor provision in the
Code, all questions of interpretation or application of this Plan shall be
determined by the Committee and its decisions shall be final and binding upon
all participants. Members of the Committee shall receive no compensation for
their services in connection with the administration of this Plan, other than
standard fees as established from time to time by the Board for services
rendered by Board members serving on Board committees. All expenses incurred in
connection with the administration of this Plan shall be paid by the Company.
4. Eligibility. Any employee of the Company or the Participating
Subsidiaries is eligible to participate in an Offering Period (as hereinafter
defined) under this Plan except the following:
(a) employees who are not employed by the Company or a Participating
Subsidiary (10) days before the beginning of such Offering Period, except that
employees who are employed on the Effective Date of the Registration Statement
filed by the Company with the Securities and Exchange Commission ("SEC") under
the Securities Act of 1933, as amended (the "Securities Act") registering the
initial public offering of the Company's Common Stock shall be eligible to
participate in the first Offering Period under the Plan;
(b) employees who are customarily employed for twenty (20) hours or
less per week;
(c) employees who are customarily employed for five (5) months or less
in a calendar year;
(d) employees who, together with any other person whose stock would be
attributed to such employee pursuant to Section 424(d) of the Code, own stock or
hold options to purchase stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of the Company or any of
its Participating Subsidiaries or who, as a result of being granted an option
under this Plan with respect to such Offering Period, would own stock or hold
options to purchase stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of the Company or any of
its Participating Subsidiaries; and
<PAGE>
(e) individuals who provide services to the Company or any of its
Participating Subsidiaries as independent contractors who are reclassified as
common law employees for any reason except for federal income and employment tax
------ ---
purposes.
5. Offering Dates. The offering periods of this Plan (each, an "Offering
Period") shall be of twenty-four (24) months duration commencing on February 1
and August 1 of each year and ending on January 31 and July 31 of each year;
provided, however, that notwithstanding the foregoing, the first such Offering
- -------- -------
Period shall commence on the first business day on which price quotations for
the Company's Common Stock are available on the Nasdaq National Market (the
"First Offering Date") and shall end on July 31, 2001. Except for the first
Offering Period, each Offering Period shall consist of four (4) six month
purchase periods (individually, a "Purchase Period") during which payroll
deductions of the participants are accumulated under this Plan. The first
Offering Period shall consist of no more than five and no fewer than three
Purchase Periods, any of which may be greater or less than six months as
determined by the Committee. The first business day of each Offering Period is
referred to as the "Offering Date". The last business day of each Purchase
Period is referred to as the "Purchase Date". The Committee shall have the power
to change the duration of Offering Periods with respect to offerings without
stockholder approval if such change is announced at least fifteen (15) days
prior to the scheduled beginning of the first Offering Period to be affected.
6. Participation in this Plan. Eligible employees may become participants
in an Offering Period under this Plan on the first Offering Date after
satisfying the eligibility requirements by delivering a subscription agreement
to the Company's treasury department (the "Treasury Department") not later than
five (5) days before such Offering Date. Notwithstanding the foregoing, the
Committee may set a later time for filing the subscription agreement authorizing
payroll deductions for all eligible employees with respect to a given Offering
Period. An eligible employee who does not deliver a subscription agreement to
the Treasury Department by such date after becoming eligible to participate in
such Offering Period shall not participate in that Offering Period or any
subsequent Offering Period unless such employee enrolls in this Plan by filing a
subscription agreement with the Treasury Department not later than five (5) days
preceding a subsequent Offering Date. Once an employee becomes a participant in
an Offering Period, such employee will automatically participate in the Offering
Period commencing immediately following the last day of the prior Offering
Period unless the employee withdraws or is deemed to withdraw from this Plan or
terminates further participation in the Offering Period as set forth in Section
11 below. Such participant is not required to file any additional subscription
agreement in order to continue participation in this Plan.
7. Grant of Option on Enrollment. Enrollment by an eligible employee in
this Plan with respect to an Offering Period will constitute the grant (as of
the Offering Date) by the Company to such employee of an option to purchase on
the Purchase Date up to that number of shares of Common Stock of the Company
determined by dividing (a) the amount accumulated in such employee's payroll
deduction account during such Purchase Period by (b) the lower of (i) eighty-
five percent (85%) of the fair market value of a share of the Company's Common
Stock on the Offering Date (but in no event less than the par value of a share
of the Company's Common Stock), or (ii) eighty-five percent (85%) of the fair
market value of a share of the Company's Common Stock on the Purchase Date (but
in no event less than the par value of a share of the Company's Common Stock),
provided, however, that the number of shares of the Company's Common Stock
- -------- -------
subject to any option granted pursuant to this Plan shall not exceed the lesser
of (x) the maximum number of shares set by the Committee pursuant to Section
10(c) below with respect to the applicable Purchase Date, or (y) the maximum
number of shares which may be purchased pursuant to Section 10(b) below with
respect to the applicable Purchase Date. The fair market value of a share of the
Company's Common Stock shall be determined as provided in Section 8 below.
8. Purchase Price. The purchase price per share at which a share of
Common Stock will be sold in any Offering Period shall be eighty-five percent
(85%) of the lesser of:
(a) The fair market value on the Offering Date; or
(b) The fair market value on the Purchase Date.
2
<PAGE>
For purposes of this Plan, the term "Fair Market Value" means, as of
any date, the value of a share of the Company's Common Stock determined as
follows:
(a) if such Common Stock is then quoted on the Nasdaq National Market,
its closing price on the Nasdaq National Market on the date of
determination as reported in The Wall Street Journal;
-----------------------
(b) if such Common Stock is publicly traded and is then listed on a
national securities exchange, its closing price on the date of
determination on the principal national securities exchange on
which the Common Stock is listed or admitted to trading as
reported in The Wall Street Journal;
-----------------------
(c) if such Common Stock is publicly traded but is not quoted on the
Nasdaq National Market nor listed or admitted to trading on a
national securities exchange, the average of the closing bid and
asked prices on the date of determination as reported in The Wall
--------
Street Journal; or
--------------
(d) if none of the foregoing is applicable, by the Board in good
faith, which in the case of the First Offering Date will be the
price per share at which shares of the Company's Common Stock are
initially offered for sale to the public by the Company's
underwriters in the initial public offering of the Company's
Common Stock pursuant to a registration statement filed with the
SEC under the Securities Act.
9. Payment Of Purchase Price; Changes In Payroll Deductions; Issuance Of
Shares.
(a) The purchase price of the shares is accumulated by regular payroll
deductions made during each Offering Period. The deductions are made as a
percentage of the participant's compensation in one percent (1%) increments not
less than two percent (2%), nor greater than ten percent (10%) or such lower
limit set by the Committee. Compensation shall mean all W-2 cash compensation,
including, but not limited to, base salary, wages, commissions, overtime, shift
premiums and bonuses, plus draws against commissions, provided, however, that
-------- -------
for purposes of determining a participant's compensation, any election by such
participant to reduce his or her regular cash remuneration under Sections 125 or
401(k) of the Code shall be treated as if the participant did not make such
election. Payroll deductions shall commence on the first payday of the Offering
Period and shall continue to the end of the Offering Period unless sooner
altered or terminated as provided in this Plan.
(b) A participant may increase or decrease the rate of payroll
deductions during an Offering Period by filing with the Treasury Department a
new authorization for payroll deductions, in which case the new rate shall
become effective for the next payroll period commencing more than fifteen (15)
days after the Treasury Department's receipt of the authorization and shall
continue for the remainder of the Offering Period unless changed as described
below. Such change in the rate of payroll deductions may be made at any time
during an Offering Period, but not more than one (1) change may be made
effective during any Purchase Period. A participant may increase or decrease the
rate of payroll deductions for any subsequent Offering Period by filing with the
Treasury Department a new authorization for payroll deductions not later than
fifteen (15) days before the beginning of such Offering Period.
(c) A participant may reduce his or her payroll deduction percentage
to zero during an Offering Period by filing with the Treasury Department a
request for cessation of payroll deductions. Such reduction shall be effective
beginning with the next payroll period commencing more than fifteen (15) days
after the Treasury Department's receipt of the request and no further payroll
deductions will be made for the duration of the Offering Period. Payroll
deductions credited to the participant's account prior to the effective date of
the request shall be used to purchase shares of Common Stock of the Company in
accordance with Section (e) below. A participant may not resume making payroll
deductions during the Offering Period in which he or she reduced his or her
payroll deductions to zero.
3
<PAGE>
(d) All payroll deductions made for a participant are credited to his
or her account under this Plan and are deposited with the general funds of the
Company. No interest accrues on the payroll deductions. All payroll deductions
received or held by the Company may be used by the Company for any corporate
purpose, and the Company shall not be obligated to segregate such payroll
deductions.
(e) On each Purchase Date, so long as this Plan remains in effect and
provided that the participant has not submitted a signed and completed
withdrawal form before that date which notifies the Company that the participant
wishes to withdraw from that Offering Period under this Plan and have all
payroll deductions accumulated in the account maintained on behalf of the
participant as of that date returned to the participant, the Company shall apply
the funds then in the participant's account to the purchase of whole shares of
Common Stock reserved under the option granted to such participant with respect
to the Offering Period to the extent that such option is exercisable on the
Purchase Date. The purchase price per share shall be as specified in Section 8
of this Plan. Any cash remaining in a participant's account after such purchase
of shares shall be refunded to such participant in cash, without interest;
provided, however that any amount remaining in such participant's account on a
Purchase Date which is less than the amount necessary to purchase a full share
of Common Stock of the Company shall be carried forward, without interest, into
the next Purchase Period or Offering Period, as the case may be. In the event
that this Plan has been oversubscribed, all funds not used to purchase shares on
the Purchase Date shall be returned to the participant, without interest. No
Common Stock shall be purchased on a Purchase Date on behalf of any employee
whose participation in this Plan has terminated prior to such Purchase Date.
(f) As promptly as practicable after the Purchase Date, the Company
shall issue shares for the participant's benefit representing the shares
purchased upon exercise of his or her option.
(g) During a participant's lifetime, his or her option to purchase
shares hereunder is exercisable only by him or her. The participant will have no
interest or voting right in shares covered by his or her option until such
option has been exercised.
10. Limitations on Shares to be Purchased.
(a) No participant shall be entitled to purchase stock under this Plan
at a rate which, when aggregated with his or her rights to purchase stock under
all other employee stock purchase plans of the Company or any Subsidiary,
exceeds $25,000 in fair market value, determined as of the Offering Date (or
such other limit as may be imposed by the Code) for each calendar year in which
the employee participates in this Plan. The Company shall automatically suspend
the payroll deductions of any participant as necessary to enforce such limit
provided that when the Company automatically resumes such payroll deductions,
the Company must apply the rate in effect immediately prior to such suspension.
(b) No more than two hundred percent (200%) of the number of shares
determined by using eighty-five percent (85%) of the fair market value of a
share of the Company's Common Stock on the Offering Date as the denominator may
be purchased by a participant on any single Purchase Date.
(c) No participant shall be entitled to purchase more than the Maximum
Share Amount (as defined below) on any single Purchase Date. Not less than
thirty (30) days prior to the commencement of any Offering Period, the Committee
may, in its sole discretion, set a maximum number of shares which may be
purchased by any employee at any single Purchase Date (hereinafter the "Maximum
Share Amount"). Until otherwise determined by the Committee, there shall be no
Maximum Share Amount. In no event shall the Maximum Share Amount exceed the
amounts permitted under Section 10(b) above. If a new Maximum Share Amount is
set, then all participants must be notified of such Maximum Share Amount prior
to the commencement of the next Offering Period. The Maximum Share Amount shall
continue to apply with respect to all succeeding Purchase Dates and Offering
Periods unless revised by the Committee as set forth above.
(d) If the number of shares to be purchased on a Purchase Date by all
employees participating in this Plan exceeds the number of shares then available
for issuance under this Plan, then the Company will make a pro rata allocation
of the remaining shares in as uniform a manner as shall be reasonably
practicable and as the Com-
4
<PAGE>
mittee shall determine to be equitable. In such event, the Company shall give
written notice of such reduction of the number of shares to be purchased under a
participant's option to each participant affected.
(e) Any payroll deductions accumulated in a participant's account
which are not used to purchase stock due to the limitations in this Section 10
shall be returned to the participant as soon as practicable after the end of the
applicable Purchase Period, without interest.
11. Withdrawal.
(a) Each participant may withdraw from an Offering Period under this
Plan by signing and delivering to the Treasury Department a written notice to
that effect on a form provided for such purpose. Such withdrawal may be elected
at any time at least fifteen (15) days prior to the end of an Offering Period.
(b) Upon withdrawal from this Plan, the accumulated payroll deductions
shall be returned to the withdrawn participant, without interest, and his or her
interest in this Plan shall terminate. In the event a participant voluntarily
elects to withdraw from this Plan, he or she may not resume his or her
participation in this Plan during the same Offering Period, but he or she may
participate in any Offering Period under this Plan which commences on a date
subsequent to such withdrawal by filing a new authorization for payroll
deductions in the same manner as set forth in Section 6 above for initial
participation in this Plan.
(c) If the Fair Market Value on the first day of the current Offering
Period in which a participant is enrolled is higher than the Fair Market Value
on the first day of any subsequent Offering Period, the Company will
automatically enroll such participant in the subsequent Offering Period. Any
funds accumulated in a participant's account prior to the first day of such
subsequent Offering Period will be applied to the purchase of shares on the
Purchase Date immediately prior to the first day of such subsequent Offering
Period, if any.
12. Termination of Employment. Termination of a participant's employment
for any reason, including retirement, death or the failure of a participant to
remain an eligible employee of the Company or of a Participating Subsidiary,
immediately terminates his or her participation in this Plan. In such event, the
payroll deductions credited to the participant's account will be returned to him
or her or, in the case of his or her death, to his or her legal representative,
without interest. For purposes of this Section 12, an employee will not be
deemed to have terminated employment or failed to remain in the continuous
employ of the Company or of a Participating Subsidiary in the case of sick
leave, military leave, or any other leave of absence approved by the Board;
provided that such leave is for a period of not more than ninety (90) days or
- --------
reemployment upon the expiration of such leave is guaranteed by contract or
statute.
13. Return of Payroll Deductions. In the event a participant's interest in
this Plan is terminated by withdrawal, termination of employment or otherwise,
or in the event this Plan is terminated by the Board, the Company shall deliver
to the participant all payroll deductions credited to such participant's
account. No interest shall accrue on the payroll deductions of a participant in
this Plan.
14. Capital Changes. Subject to any required action by the stockholders of
the Company, the number of shares of Common Stock covered by each option under
this Plan which has not yet been exercised and the number of shares of Common
Stock which have been authorized for issuance under this Plan but have not yet
been placed under option (collectively, the "Reserves"), as well as the price
per share of Common Stock covered by each option under this Plan which has not
yet been exercised, shall be proportionately adjusted for any increase or
decrease in the number of issued and outstanding shares of Common Stock of the
Company resulting from a stock split or the payment of a stock dividend (but
only on the Common Stock) or any other increase or decrease in the number of
issued and outstanding shares of Common Stock effected without receipt of any
consideration by the Company; provided, however, that conversion of any
-------- -------
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration". Such adjustment shall be made by the
Committee, whose determination shall be final, binding and conclusive. Except as
expressly provided herein, no issue by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number or price of shares of Common Stock subject to an option.
5
<PAGE>
In the event of the proposed dissolution or liquidation of the Company, the
Offering Period will terminate immediately prior to the consummation of such
proposed action, unless otherwise provided by the Committee. The Committee may,
in the exercise of its sole discretion in such instances, declare that this Plan
shall terminate as of a date fixed by the Committee and give each participant
the right to purchase shares under this Plan prior to such termination. In the
event of (i) a merger or consolidation in which the Company is not the surviving
corporation (other than a merger or consolidation with a wholly-owned
subsidiary, a reincorporation of the Company in a different jurisdiction, or
other transaction in which there is no substantial change in the stockholders of
the Company or their relative stock holdings and the options under this Plan are
assumed, converted or replaced by the successor corporation, which assumption
will be binding on all participants), (ii) a merger in which the Company is the
surviving corporation but after which the stockholders of the Company
immediately prior to such merger (other than any stockholder that merges, or
which owns or controls another corporation that merges, with the Company in such
merger) cease to own their shares or other equity interest in the Company, (iii)
the sale of all or substantially all of the assets of the Company or (iv) the
acquisition, sale, or transfer of more than 50% of the outstanding shares of the
Company by tender offer or similar transaction, the Plan will continue with
regard to Offering Periods that commenced prior to the closing of the proposed
transaction and shares will be purchased based on the Fair Market Value of the
surviving corporation's stock on each Purchase Date, unless otherwise provided
by the Committee consistent with pooling of interests accounting treatment.
The Committee may, if it so determines in the exercise of its sole
discretion, also make provision for adjusting the Reserves, as well as the price
per share of Common Stock covered by each outstanding option, in the event that
the Company effects one or more reorganizations, recapitalizations, rights
offerings or other increases or reductions of shares of its outstanding Common
Stock, or in the event of the Company being consolidated with or merged into any
other corporation.
15. Nonassignability. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under this Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 22 below) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be void and
without effect.
16. Reports. Individual accounts will be maintained for each participant
in this Plan. Each participant shall receive promptly after the end of each
Purchase Period a report of his or her account setting forth the total payroll
deductions accumulated, the number of shares purchased, the per share price
thereof and the remaining cash balance, if any, carried forward to the next
Purchase Period or Offering Period, as the case may be.
17. Notice of Disposition. Each participant shall notify the Company in
writing if the participant disposes of any of the shares purchased in any
Offering Period pursuant to this Plan if such disposition occurs within two (2)
years from the Offering Date or within one (1) year from the Purchase Date on
which such shares were purchased (the "Notice Period"). The Company may, at any
time during the Notice Period, place a legend or legends on any certificate
representing shares acquired pursuant to this Plan requesting the Company's
transfer agent to notify the Company of any transfer of the shares. The
obligation of the participant to provide such notice shall continue
notwithstanding the placement of any such legend on the certificates.
18. No Rights to Continued Employment. Neither this Plan nor the grant of
any option hereunder shall confer any right on any employee to remain in the
employ of the Company or any Participating Subsidiary, or restrict the right of
the Company or any Participating Subsidiary to terminate such employee's
employment.
19. Equal Rights And Privileges. All eligible employees shall have equal
rights and privileges with respect to this Plan so that this Plan qualifies as
an "employee stock purchase plan" within the meaning of Section 423 or any
successor provision of the Code and the related regulations. Any provision of
this Plan which is inconsistent with Section 423 or any successor provision of
the Code shall, without further act or amendment by the Company, the Committee
or the Board, be reformed to comply with the requirements of Section 423. This
Section 19 shall take precedence over all other provisions in this Plan.
6
<PAGE>
20. Notices. All notices or other communications by a participant to the
Company under or in connection with this Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
21. Term; Stockholder Approval. After this Plan is adopted by the Board,
this Plan will become effective on the First Offering Date (as defined above).
This Plan shall be approved by the stockholders of the Company, in any manner
permitted by applicable corporate law, within twelve (12) months before or after
the date this Plan is adopted by the Board. No purchase of shares pursuant to
this Plan shall occur prior to such stockholder approval. This Plan shall
continue until the earlier to occur of (a) termination of this Plan by the Board
(which termination may be effected by the Board at any time), (b) issuance of
all of the shares of Common Stock reserved for issuance under this Plan, or (c)
ten (10) years from the adoption of this Plan by the Board.
22. Designation of Beneficiary.
(a) A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account under
this Plan in the event of such participant's death subsequent to the end of an
Purchase Period but prior to delivery to him of such shares and cash. In
addition, a participant may file a written designation of a beneficiary who is
to receive any cash from the participant's account under this Plan in the event
of such participant's death prior to a Purchase Date.
(b) Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant and in
the absence of a beneficiary validly designated under this Plan who is living at
the time of such participant's death, the Company shall deliver such shares or
cash to the executor or administrator of the estate of the participant, or if no
such executor or administrator has been appointed (to the knowledge of the
Company), the Company, in its discretion, may deliver such shares or cash to the
spouse or to any one or more dependents or relatives of the participant, or if
no spouse, dependent or relative is known to the Company, then to such other
person as the Company may designate.
23. Conditions Upon Issuance of Shares; Limitation on Sale of Shares.
Shares shall not be issued with respect to an option unless the exercise of such
option and the issuance and delivery of such shares pursuant thereto shall
comply with all applicable provisions of law, domestic or foreign, including,
without limitation, the Securities Act, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange or automated quotation system 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.
24. Applicable Law. The Plan shall be governed by the substantive laws
(excluding the conflict of laws rules) of the State of California.
25. Amendment or Termination of this Plan. The Board may at any time
amend, terminate or extend the term of this Plan, except that any such
termination cannot affect options previously granted under this Plan, nor may
any amendment make any change in an option previously granted which would
adversely affect the right of any participant, nor may any amendment be made
without approval of the stockholders of the Company obtained in accordance with
Section 21 above within twelve (12) months of the adoption of such amendment (or
earlier if required by Section 21) if such amendment would:
(a) increase the number of shares that may be issued under this Plan; or
(b) change the designation of the employees (or class of employees)
eligible for participation in this Plan.
Notwithstanding the foregoing, the Board may make such amendments to the
Plan as the Board determines to be advisable, if the continuation of the Plan or
any Offering Period would result in financial accounting treatment for the Plan
that is different from the financial accounting treatment in effect on the date
this Plan is adopted by the Board.
7
<PAGE>
INTERWOVEN, INC. 1999 EMPLOYEE STOCK PURCHASE PLAN
ENROLLMENT FORM
Check One: Complete:
[ ] New Enrollment or Re-enrollment Social Security No._______________
[ ] Change Employee No.______________________
<TABLE>
<S> <C>
[ ] Change in How Shares Are to Be Held in Account
[ ] Increase in Payroll Deduction Level [ ] this Purchase Period [ ] next Offering Period
[ ] Decrease in Payroll Deduction Level [ ] this Purchase Period [ ] next Offering Period
[ ] Suspension of Payroll Deductions for Open Offering Period (Attach Completed Suspension Form)
[ ] Withdrawal (Attach Completed Withdrawal Form)
[ ] Beneficiary Change
</TABLE>
1. Name of Participant________________________________________________________
2. Shares purchased under the Plan should be held in account with the Plan
Broker in my name or in my name together with the name(s) indicated below:
Name___________________________ Social Security No._____________________
Name___________________________ Social Security No._____________________
There may be tax consequences for naming individuals other than your spouse on
the account in which Shares purchased under the Plan are held. If spouse
(circle one): Joint Tenants/Community Property.
Please notify the Plan Broker directly to transfer or sell your stock.
3. Payroll Deduction Level (from 2% to 10% in whole percentages):____________
(the percentage deduction will be made from your W-2 compensation including
base salary, commissions, overtime, shift premiums, bonuses and draws against
commissions)
4. I confirm my spouse's interest (if married) in the community property herein,
and I hereby designate the following person(s) as my beneficiary(ies) to
receive all payments and/or stock attributable to my interest under the Plan:
<TABLE>
<CAPTION>
NAME *To be divided ADDRESS
as follows:
<S> <C> <C>
____________________________________ _______________ ____________________________________
Last First M.I. Number Street
_____________________________________ _____________________________________
Social Security No. Relationship City State Zip
____________________________________ _______________ _____________________________________
Last First M.I. Number Street
____________________________________ ______________________________________
Social Security No. Relationship City State Zip
</TABLE>
* If more than one beneficiary: (1) insert "in equal shares", or (2) insert
percentage to be paid to each beneficiary.
5. The information provided on this Enrollment Form will remain in effect
unless and until I complete and submit to the Treasury Department a new
enrollment form.
<TABLE>
INTERWOVEN, INC. OFFICE USE:
<S> <C>
Signature:__________________ Date received by the Treasury Department.:_________________
Name:______________________________ Date entered into system:___________________________________
Date:_______________________________ Please return this completed form to the
Treasury Department
</TABLE>
<PAGE>
INTERWOVEN, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
1. I elect to participate in the Interwoven, Inc. (the "Company") 1999 Employee
Stock Purchase Plan (the "Plan") and to subscribe to purchase shares of the
Company's Common Stock (the "Shares") in accordance with this Subscription
Agreement and the Plan.
2. I authorize payroll deductions from each of my paychecks in that percentage
of my base salary, commissions, overtime, shift premiums, bonuses and draws
against commissions as shown on my Enrollment Form, in accordance with the
Plan.
3. I understand that such payroll deductions shall be accumulated for the
purchase of Shares under the Plan at the applicable purchase price determined
in accordance with the Plan. I further understand that except as otherwise
set forth in the Plan, Shares will be purchased for me automatically at the
end of each Purchase Period unless I withdraw from the Plan or otherwise
become ineligible to participate in the Plan.
4. I understand that this Subscription Agreement will automatically re-enroll me
in all subsequent Offering Periods unless I withdraw from the Plan or I
become ineligible to participate in the Plan.
5. I acknowledge that I have a copy of and am familiar with the Company's most
recent Prospectus which describes the Plan. A copy of the complete Plan and
the Prospectus is on file with the Company. (In the case of the initial Plan
Purchase Period, the Prospectus will be on file on the first day of the
Offering Period.)
6. I understand that Shares purchased for me under the Plan will be held in a
personal account with the Plan Broker unless I request otherwise.
7. I hereby agree to be bound by the terms of the Plan. The effectiveness of
this Subscription Agreement is dependent upon my eligibility to participate
in the Plan.
8. I have read and understood this Subscription Agreement.
Signature:_______________________
Name:____________________________
Date:____________________________
Please return this completed form to the Treasury Department.
<PAGE>
INTERWOVEN, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
I, _________________________, the undersigned participant in the
Offering Period of the Interwoven, Inc. 1999 Employee Stock Purchase Plan (the
"Plan") which began on _______________, hereby notify Interwoven, Inc. (the
"Company") that I wish to withdraw from the Offering Period. I direct the
Company to pay to me as promptly as practicable all payroll deductions credited
to my account with respect to such Offering Period. I understand and agree that
my participation in the Plan will terminate and no shares will be purchased for
me at the end of the Purchase Period so long as I submit this Notice of
Withdrawal to the Company at least 15 days prior to the end of the Purchase
Period. I understand and agree that if I submit this Notice of Withdrawal to
the Company less than 15 days prior to the end of the Purchase Period, shares
----
will be purchased for me at the end of the Purchase Period, and my participation
in the Plan will end at the beginning of the next Purchase Period or Offering
Period, as the case may be. I further understand that no additional payroll
deductions will be made for the purchase of shares in the current Offering
Period, and I shall be eligible to participate in succeeding Offering Periods
only by timely delivering to the Company a new Subscription Agreement and
Enrollment Form.
Name and address of Participant (please print):
Name:______________________________________________________________________
Street Address or P.O. Box:________________________________________________
City, State ZIP:___________________________________________________________
__________________________________ __________________________________
Signature Date
Please return this form to the Treasury Department.
<PAGE>
INTERWOVEN, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF SUSPENSION
I, _________________________, the undersigned participant in the
Offering Period of the Interwoven, Inc. 1999 Employee Stock Purchase Plan (the
"Plan") which began on _______________, hereby notify Interwoven, Inc. (the
"Company") that I wish to suspend my payroll deductions to the Plan for the
remainder of the Offering Period. I understand and agree that my request will
be effective beginning with the next payroll period commencing more than 15 days
after the Human Resources Department receives this Notice of Suspension. I
understand and agree that payroll deductions credited to my account prior to the
date this Notice of Suspension is effective will be used to purchase shares on
the next Purchase Date. I further understand that no additional payroll
deductions will be made for the purchase of shares in the current Offering
Period, and I will be eligible to participate in succeeding Offering Periods
only by timely delivering to the Company a new Subscription Agreement and
Enrollment Form.
Name and address of Participant (please print):
Name:______________________________________________________________________
Street Address or P.O. Box:________________________________________________
City, State ZIP:___________________________________________________________
_________________________________ ____________________________________
Signature Date
Please return this form to the Treasury Department.
<PAGE>
[LETTERHEAD OF INTERWOVEN]
Exhibit 10.24
INTERWOVEN, INC.
----------------
1195 W. Fremont Ave., #2000
Sunnyvale, CA 94087
Telephone: (408)774-2000
Fax: (408)774-2003
STANDARD SALES AGREEMENT
------------------------
CUSTOMER: LEGAL NAME: GENERAL ELECTRIC COMPANY
------------------------
ADDRESS: 3135 Easton Turnpike
---------------------
CITY/STATE/ZIP: Fairfield, CT 064231
---------------------
STATE OF INCORPORATION: New York
---------
TELEPHONE NUMBER: (203) 373-2148
---------------
FAX NUMBER: (203)373-3968
-------------
CONTACT PERSON: Mark Mastrianni
---------------
This Agreement is entered into by and between "Interwoven," a California
corporation and the "Customer" set forth above. In consideration of the terms
and conditions contained in the Standard Terms and Conditions, the Schedules
listed below and this Facing Page (collectively "Agreement") the parties agree
to be bound herein.
ATTACHMENTS:
STANDARD TERM AND CONDITIONS
SCHEDULES:
Schedule 1 Software Product Overview, Description and Fees
Schedule 2 Technical Support Services
Schedule 3 Software Update Services
IN WITNESS WHEREOF, THE PARTIES LISTED BELOW HAVE EXECUTED THIS AGREEMENT AS OF
THE EFFECTIVE DATE.
INTERWOVEN, INC. CUSTOMER: GENERAL ELECTRIC COMPANY
-------------------------
By: /s/ MARTIN BRAUNS By: /s/ MARK MASTRIANNI
- ------------------------------ ------------------------------
Printed: Martin Brauns Printed: Mark Mastrianni
--------------------- -------------------------
Title: President and CEO Title: Manager, Technology
----------------------- --------------------------
Effective Date: July 28, 1999 Date: July 27, 1999
--------------- ---------------------------
1
<PAGE>
STANDARD TERMS AND CONDITIONS
-----------------------------
1. DEFINITIONS:
-----------
"Content Management" shall mean for the purposes of this Agreement, content
staging (such as the ability to bundle a set of changes together for
content approval, quality assurance and deployment), content promotion
(such as the ability to review, approve and deploy an entire body of staged
content), content deployment (such as ability to transfer web assets to a
reproduction server machine), content workflow (such as ability to bundle a
set of changes for review and approval), version control (such as the
ability to maintain a history of all file versions that are available to
revert to), content rollback (such as the ability to take an entire known
state of the website and revert any number of files to the appropriate
version number to reconstruct the website at that point in time), content
change tracking (such as the ability to track who changed what and when),
content templating (such as the ability to capture test content from a non-
technical user to create standard web pages), content reporting (such as
ability to query software event information to determine what activity has
occurred over a given time period and content quality assurance (such as
the ability to preview an entire set of web changes in the content of the
website to enable approval, promotion, version control and deployment).
"Customer" shall mean the entity named as "Customer" on the Facing Page and
all General Electric components, businesses, subsidiaries, affiliates, and
joint-venture partners worldwide under the common ownership and control of
GE and not a competitor of Interwoven. For purposes of this definition
"competitor of Interwoven" shall mean those companies who offer competitive
products to Interwoven's products in the web Content Management
environment. As of the Effective Date of this Agreement, Interwoven
acknowledges that no such competitors are within the definition of Customer
as used herein.
"Enterprise License" shall mean the license grant to access and use the
Software by an unlimited number of simultaneous users, with no limitation
on the number of copies which may be made by Customer.
"Major Business Units" shall mean individual operating businesses or
divisions of GE, which operating divisions at the time of this Agreement
include: GE Aircraft Engines, GE Appliances, GE Capital Services, GE
Industrial Systems, GE Information Services, GE Lighting, GE Medical
Systems, GE Motors, GE Plastics, GE Supply, GE Transportation Systems, NBC
and GE Corporate (which includes GE Corporate Research & Development, and
all other Corporate and support components which components provide, among
other things, international trade support, market development, licensing
and investments for various GE businesses).
"Non-Production Use" shall mean any use or installation of the Software for
failover, disaster recovery, development, staging, technology integration,
testing, and/or other such purposes, whether by Customer or by Third
Parties acting strictly on behalf of Customer. Customer shall not be
subject to any requirement by Interwoven to pay Software Update or
Technical Support Fees on a per use or installation basis, provided that
there shall be a requirement that such Fees shall be applicable to at least
one instance of an Operational deployment in cases where a Major Business
Unit is undertaking any such Non-Production Use or installation of the
Software and does not yet otherwise have an Operational deployment in place
and Customer seeks the benefit of Software Updates and/or Technical Support
Services.
"Operational" shall mean, under the Enterprise License, for the Software
installations, only those server installations of Software which are
deployed for operational ("production") use in support of Customer. After
December 31, 2000 and at Customer's option and request as set forth herein
such Operational Software shall only be subject to annual Software Updates
and/or Technical Support Fees under the Agreement, including Customer's
right to change Technical Support Services upgrades to different Support
levels or to change the number of Technical Contacts, as described on
Schedule 1.
"Software" shall mean a machine executable copy of the object code of the
Interwoven Content Management software products, including all additional
options and further including the related user manuals, documentation, and
training materials, in either printed or electronic form, described on the
attached Schedule 1 for the Software.
"Software Update" shall mean a successor version of the given Software
whether the successor version is characterized as a change in the one's,
tenth's, hundredth's, or after hundredth's digit of the Software version
number, or by such other means, and which successor version if generally
available incorporates corrections, upgrades and/or enhancements to the
Software, whether or not such corrections, upgrades and/or enhancements are
marketed separately by Interwoven. Software Updates shall include, for
example, migration from 32-bit Software to 64-bit Software, and migration
from one platform generation to the next generation.
Software Updates shall further include the migration by Interwoven of
Software from one localized language (e.g.: U.S. English) to any other
localized language (e.g.: German) to the extent that Interwoven has made
such migration available to other licensed users of the Software. Software
Updates shall further include, but not be limited to, such new releases of
functionality (whether marketed separately or as part of a more
comprehensive release) as outlined on Schedule 3 of this Agreement.
For Software that connects to and stores information on a database and
where Interwoven has made available to Customer optional licenses for
Customer to use Sybase SQLA which interfaces with Software, Customer shall
3
<PAGE>
have the right to migrate from a license of one database option to another
Customer database license option at no charge. The databases for which this
option applies are Informix, Sybase, MS SQLA Server or Oracle. There shall
be no new warranty period on the new Software.
If Interwoven removes a feature or function from the Software that existed
as of the Effective Date of this Agreement, or which resulted from a
Software Update during the term of this Agreement, and Interwoven then
distributes the removed feature or function as a stand-alone or other
product, then such new stand alone product shall be deemed to be a Software
Update for purposes of this Agreement. In such instances when the removed
feature or function is enhanced with considerably different functionality,
then such new stand alone product shall be considered a new product and
will not be considered a Software Update.
If Interwoven develops other software products with incremental
improvements to the Software with similar functionality and Interwoven then
distributes the other software product, then such other software product
will be considered a Software Update. However, if Interwoven develops,
other software products outside the Content Management space, it shall be
at Interwoven's discretion as to whether or not the other software products
are distributed as a Software Update.
Interwoven expressly acknowledges and agrees that it is Customer's intent,
by virtue of this Agreement, to license a comprehensive Content Management
solution for Customer's Major Business Units globally, and the parties
acknowledge that since Content Management solutions are still evolving
Interwoven has a material obligation to provide Customer with all such
evolving Content Management solutions under Customer's right to Software
Update Services.
"Software Update Services" shall mean the services provided under
Interwoven's Software Update Services Program as further described on
Schedule 3.
"Technical Support Services" shall mean the services provided under
Interwoven's Technical Support Services Program in effect on the date such
services are ordered by Customer which, in the event of any change, shall
be no less favorable to Customer than the terms in effect on the Effective
Date. A copy of the current Technical Support Services Program ordered by
Customer is attached as Schedule 2.
2. LICENSE RIGHTS:
--------------
A. Scope of This Agreement: This Agreement shall apply to Customer wherever
-- -----------------------
situated, and Software may be used by Customer and its officers and,
employees engaged in work on behalf of Customer, so long as above are
not competitors of Interwoven, whether on or off premises, worldwide.
This Agreement shall also apply to Third Parties provided that such
Third Parties have entered into a written agreement that i) any such
Software accessed or utilized by a Third Party of Customer is executed
only on equipment operated under the control of Customer, and ii) such
written agreement restricts such Third Party's access and/or utilization
of such Software to activities related to either business between
Customer and such Third Party and/or in conjunction with services being
provided to Customer by such Third Party for Customer's benefit. "Third
Parties" shall be defined as agents, contractors, customers and
suppliers. Notwithstanding, Software may also be accessed and utilized
by any end user in the world for purposes of obtaining application
services provided by the Software and such access shall not be subject
to the written agreement requirement set forth in this Section 2(A)
above.
B. License Grant: In consideration of payment to be made by Customer to
-- -------------
Interwoven pursuant to Schedule 1 of this Agreement, Interwoven grants
and agrees to grant Customer an unlimited, non-exclusive, worldwide
Enterprise License to use, operate, copy and install the Software.
Customer will copy or reproduce all proprietary markings, trademark and
copyright notices onto all full or partial copies of the Software made
by Customer.
3. LICENSE RESTRICTIONS. Except as permitted under this Agreement, Customer
--------------------
may not: (i) distribute, copy, modify, reverse engineer, decompile,
translate, disassemble or create a source code equivalent of the Software
or allow others to do so, (ii) use the Software to provide time-sharing or
service bureau services to third parties, or (iii) permit any party,
without the prior written consent of Interwoven (which may be withheld for
any reason), to access the Software, or any portion thereof, except for
employees of Customer or third party contractors retained by Customer on a
"work-made-for-hire" basis, provided, however, that such access, in each
-------- -------
such case, is limited solely to access on or through premises or equipment
leased, owned, or controlled by Customer.
4. PAYMENTS: FEES; EXPENSES; TAXES. License, Technical Support Services and
--------------------------------
Software Update Services fees ("Fees") are described on the attached
Schedule 1. For purposes of the calculation of any Fees based upon
installations of copies of the Software, all Non-Production Use Copies of
Software shall be disregarded. With the exception of the initial Software
Fees listed on Schedule 1 due on the Effective Date, all Fees and expenses
are due and payable by Customer forty-five (45) days from the date of
issuance of Interwoven's invoice. All payment of Fees and expenses shall be
in U.S. currency. Overdue payments shall bear interest at a rate of 1 1/2%
per month or the maximum rate allowed by applicable law. Customer is
responsible for all taxes covering the Software and/or Services, excluding
taxes for Interwoven's income.
5. DELIVERY. Interwoven agrees to deliver the Software as specified on the
--------
Schedule attached, FOB Destination. Additionally, Interwoven will use the
Internet to deliver Software, Software Updates and to augment Technical
Support Services under this Agreement.
4
<PAGE>
6. TECHNICAL SUPPORT SERVICES. In consideration for Technical Support
--------------------------
Services, as described in the attached Schedule 2, Customer agrees to pay
the corresponding Fees pursuant to the terms of this Agreement. Technical
Support Services will begin with delivery of the Software and will continue
through the Technical Support Services term. Subsequently, Customer's Major
Business Units (through its Major Business Units) may select different
levels of Technical Support Services offered by Interwoven. Interwoven will
invoice Technical Support Services term(s) at least thirty (30) days before
the expiration of the prior Technical Support Services term to each Major
Business Unit, unless terminated pursuant to this Agreement. Customer's
Major Business Units, at their option, may adjust the level of Support
Coverage in any election for a new support term. Invoices shall be based
upon an accounting provided by Customer, as of the date of any such
renewal, setting forth the components of the Technical Support Services
Fees, as set forth on the applicable Schedule, which such accounting shall
be provided by Customer no less than forty five (45) days prior to the
expiration of the prior Technical Support Services Term. Reinstatement of
lapsed Technical Support Services will be subject to the payment of
Technical Support Services Fees in accordance with Schedule 1.
7. SOFTWARE UPDATE SERVICES. In consideration for the Software Update
------------------------
Services, as described in the attached Schedule 3, Customer agrees to pay
the corresponding Fees pursuant to the terms of this Agreement. [*], as
indicated on the attached Schedule 1. Interwoven will automatically invoice
renewal Software Update Services term(s) at least thirty (30) days before
the expiration of the prior Software Update Services term, unless
terminated pursuant to this Agreement. Such invoice shall be based upon an
accounting provided by Customer, as of the date of such renewal, setting
forth the components of the Software Update Services Fees, as set forth on
the applicable Schedule, which such accounting shall be provided by
Customer no less than forty five (45) days prior to the expiration of the
prior Software Update Services Term.
8. AUDIT. Customer agrees to implement reasonable controls to ensure compliance
-----
with the intended use of Software, Technical Support Services, and Software
Update Services authorized by this Agreement. Interwoven agrees to apply
reasonable efforts to minimize reporting requirements in the administration
of this Agreement. However, at such times as Interwoven may reasonably
request on an as needed basis, but not more than once in every twelve (12)
consecutive months, Interwoven reserves the right to perform a compliance
audit of Customer's deployment and use of the Software at any time during
Customer's normal business hours, upon reasonable written notice and at
Interwoven's expense.
9. WARRANTIES AND DISCLAIMERS:
--------------------------
A. Title. Interwoven represents and warrants it has title and the authority
-----
to grant the license to the Software.
B. Limited Software Warranty. Interwoven represents and warrants for a period
-------------------------
of one hundred twenty (120) days after the date of successful installation
and subsequent incremental installations of the Software (i) the media on
which each copy of the Software is furnished will be free of defects in
manufacture and material and (ii) the Software will operate
substantially in accordance with the published specifications,
instructions, end-user manuals that describe installation, use, and/or
operation of the Software. For any breach of this warranty, Interwoven
will promptly repair or replace any defective media or Software, which
fails to comply with such warranty. However, Customer may request a full
refund for all applicable license Fees paid, and upon the return of the
nonconforming Software, Customer will be refunded those license Fees
which it paid for the nonconforming Software.
C. Code Integrity Warranty. Interwoven warrants that the Software contains
-----------------------
no "computer viruses" or "time bombs" as those terms are commonly
understood in the information processing industry. Specifically,
Interwoven warrants that the Software contains no code or instructions
(including any code or instructions provided by third parties) that may
be used to access, modify, delete, damage, or disable any computer,
associated equipment, computer programs, data files or other
electronically stored information operated or maintained by Customer.
Interwoven hereby expressly waives and disclaims any right or remedy it
may have at law or in equity to de-install, disable or repossess (except
as may otherwise be expressly provided in this Agreement) any Software,
in the event Interwoven fails to perform any of its obligations under
this Section C.
D. Documentation Warranty. Any documentation furnished as part of the
-----------------------
Software hereunder will be in form and substance at least equal to
comparable materials generally in use in the industry. If at any time
such original documentation is revised or supplemented by additional
documentation, thereupon Interwoven shall deliver to Customer copies of
such revised or additional documentation at no charge in a quantity
equivalent to the quantity of such original documentation then in
Customer's possession. Customer shall have the right to reproduce all
documentation supplied hereunder provided such reproduction shall be
solely for the use of Customer.
E. Year 2000 Warranty. Interwoven represents and warrants that any
-------------------
Software or support provided by Interwoven hereunder, including, without
limitation, each item of hardware, software, or firmware; any system,
equipment, or products consisting of or containing one or more thereof;
and any and all enhancements, upgrades, customizations,
5
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
maintenance and the like shall be Year 2000 Compliant at the time of
delivery and at all times thereafter and in all subsequent updates or
revisions of any kind. For purposes of this Agreement, Year 2000
Compliant means that (1) the Software and services accurately process,
provide and/or receive date data (including without limitation
calculating, comparing, and sequencing), within, from, into, and between
centuries (including without limitation the twentieth and twenty-first
centuries), including leap year calculations, and (2) neither the
performance nor the functionality of Software and services will be
affected by dates prior to, on, after, or spanning January 1, 2000, so
long as all other hardware, software and firmware working in combination
with Software is also Year 2000 Compliant.
The Software and services shall include, without limitation, date data
century recognition, calculations that accommodate same century and
multi-century formulae and date values, and date data interface values
that reflect the century. In particular, but without limitation, (i) no
value for current date will cause any error, interruption, or decreased
performance in the operation of such Software and services, (ii) all
manipulations of date-related data (including, but not limited to,
calculating, comparing, sequencing, processing, and outputting) will
produce correct results for all valid dates, including when used in
combination with other products, (iii) date elements in interfaces and
data storage will specify the correct century to eliminate date
ambiguity without human intervention, including Leap Year calculations,
(iv) where any date element is represented without a century, the
correct century will be unambiguous for all manipulations involving that
element, (v) authorization codes, passwords, and zaps (purge functions)
should function normally and in the same manner prior to, on, after and
spanning January 1, 2000, including, without limitation, the manner in
which they function with respect to expiration dates and CPU serial
numbers.
If at any time the Software and/or services are found not to be Year
2000 Compliant, then Interwoven shall, at no additional charge to
Customer and by no later than thirty (30) days after receipt of a report
of noncompliance, render the Software and/or services Year 2000
Compliant, and shall thereafter distribute such corrected version to
Customer, and, at Customer's option, install such corrected version free
of charge. In doing so, Interwoven shall not require Customer to make
any changes to the Software and/or services except to install or have
installed any changes provided by Interwoven, shall not require or cause
to be made any changes to Customer's data unless Customer in its sole
discretion approves such changes, and shall not require or cause to be
made any changes to any other product or service that Customer uses in
its business operations.
In addition to Interwoven's obligations as set forth above, Interwoven's
liability as to the remedy of any deficiencies of this provision shall
be to repair or replace the non-conforming Software and/or service.
Notwithstanding anything herein to the contrary, the liability of
Interwoven for a breach of Interwoven's Year 2000 Compliant
representation and warranty [*].
F. Customer Standards. Interwoven represents and warrants that for the
------------------
period Customer is entitled to Software Update Services and pays the
applicable Fees, the Software will connect to and store database
information in Oracle databases.
G. Disclaimers. EXCEPT AS SET FORTH IN THIS SECTION, INTERWOVEN EXPRESSLY
-----------
DISCLAIMS ALL WARRANTIES, WHETHER EXPRESS, IMPLIED OR STATUTORY AS TO
ANY ASPECTS OF THE SOFTWARE OR TO ANY SERVICES RENDERED INCLUDING THE
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
INTERWOVEN DOES NOT WARRANT THE OPERATION OF THE SOFWARE WILL BE
UNINTERRUPTED OR ERROR FREE.
10.INDEMNIFICATION. Interwoven represents and warrants that it is the sole
----------------
owner of the Software, or has procured the Software under valid licenses
from the owners thereof, and Interwoven further represents and warrants
that it has full power and authority to grant the rights herein granted
without the consent of any other person. Interwoven shall indemnify and
hold Customer harmless against and shall handle and defend against any
claim, suit, or other proceeding brought against Customer based on an
allegation that the Software or any elements thereof, or the use of any
Software furnished by Interwoven pursuant to this Agreement constitutes a
violation or infringement of a worldwide copyright, trade secret,
proprietary information right or U.S. patent provided that Interwoven is
notified promptly in writing of such allegation, suit, or proceeding and
given full and complete authority, information and assistance (at
Interwoven's expense) for the defense of same. Interwoven shall pay without
limitation all actual damages and costs incurred by Customer with respect
to such suits or proceedings, but Interwoven shall not be responsible for
any compromise made by Customer or its agents without Interwoven's consent.
Interwoven shall have no liability for any claim of infringement based on
alterations or modifications of the Software, unless authorized and under
the direction of Interwoven, or the combination, operation or use of any
Software furnished under this Agreement with programs or data or hardware
not furnished by Interwoven, if such infringement would have been avoided
by the use of the Software without
6
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
such programs or data or hardware. If such Software is held by a court of
competent jurisdiction to constitute infringement, and its use is enjoined,
Interwoven shall, at its own expense without limitation, either promptly
procure the right for continued use of such Software by Customer, or, if
the performance thereof will not thereby be materially adversely affected
promptly replace or modify such product(s) so that it becomes non-
infringing. If neither of the actions specified for Interwoven in the
preceding sentence is commercially feasible, then as a last resort,
Interwoven shall accept return of such Software and refund to Customer all
Fees paid by Customer for such Software, plus any unused Software Update
and/or Technical Support Fees paid for the Software. During the pendency of
any claim against Interwoven or Customer with respect to Interwoven's
ownership or authority, Customer may withhold payment of any sum otherwise
required to be paid hereunder.
11.LIMITATION OF LIABILITY. EXCEPT AS PROVIDED FOR IN THE INDEMNIFICATION
-----------------------
SECTION 10.0, THE YEAR 2000 WARRANTY SECTION 9.0 E, AND DAMAGES TO BODILY
INJURY (INCLUDING DEATH) AND DAMAGES TO REAL PROPERTY AND TANGIBLE PERSONAL
PROPERTY, INTERWOVEN'S LIABILITY FOR DIRECT DAMAGES UNDER THIS AGREEMENT
SHALL IN NO EVENT EXCEED THE AGGREGATE AMOUNT PAID OR IS PAYABLE BY
CUSTOMER TO INTERWOVEN UNDER THIS AGREEMENT FOR THE SOFTWARE OR THE
SERVICES AS TO WHICH THE CLAIM AROSE. INTERWOVEN SHALL NOT BE LIABLE FOR
DIRECT, INDIRECT, INCIDENTIAL, SPECIAL OR CONSEQUENTIAL DAMAGES, INCLUDING
BUT NOT LIMITED TO LOST DATA OR LOST PROFITS, HOWEVER ARISING, EVEN IF IT
HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES OR FOR ANY SIMILAR
CLAIM AGAINST CUSTOMER BY ANY OTHER PARTY. THE PARTIES AGREE TO THE
ALLOCATION OF LIABILITY RISK, WHICH IS SET FORTH IN THIS SECTION. SOME
STATES DO NOT ALLOW THE EXCLUSION OR LIMITATION OF LIABILITY FOR
CONSEQUENTIAL OR INCIDENTAL DAMAGES; THE ABOVE LIMITATION MAY NOT APPLY.
12.TITLE; OWNERSHIP; EQUITABLE RELIEF. Interwoven, or its suppliers or
----------------------------------
licensors, retains title to all portions of the Software and any full or
partial copies thereof. Except as provided under this Agreement, no right,
title or interest to the Software is transferred to Customer. Each party
acknowledges that any breach of its obligations with respect to the
proprietary rights of the other party may cause such other party
irreparable injury, for which there may be inadequate remedy at law and,
therefore, such other party will be entitled to equitable relief in
addition to all other rights and remedies available to it.
13.CONFIDENTIALITY. The parties agree to hold each other's Confidential
---------------
Information in confidence for the term of this Agreement or five (5) years
after its termination. Confidential Information means any information, data
or know-how of either party identified as confidential or proprietary by
the disclosing party, disclosed in writing, orally or by access to the
disclosing party's premises. The parties further agree not to make the
other party's Confidential Information in any form available to third
parties, other than employees on a need to know basis and consultants under
nondisclosure agreements, who are not competitors of the disclosing party.
The receiving party is liable for all misuse by consultants of disclosing
party's Confidential Information, or for the use of the disclosing party's
Confidential Information for any purpose not contemplated by this
Agreement. Confidential Information does not include that which: (i) is in
the receiving party's possession at the time of disclosure; (ii) is or
becomes part of the public knowledge or literature, not as a result of any
action or inaction of the receiving party; (iii) is approved for release by
written authorization of the disclosing party or (iv) is independently
developed by the receiving party without access to the Confidential
Information. In the event the receiving party is required to disclose
Confidential Information pursuant to a judicial or governmental order, such
party will promptly notify the other party to allow intervention in
response to such order.
14.TERM; TERMINATION.
-----------------
A. Term. The term of the license grant is perpetual unless terminated
----
pursuant to the terms of this Agreement. The terms for the initial
Technical Support Services and Software Update Services are specified on
Schedule 1. Subsequent optional renewal of Technical Support Services
and/or Software Update Services term(s) will commence at the expiration
of the prior term and continue for one (1) year terms thereafter, unless
terminated pursuant to the terms of this Agreement.
B. Termination:
-----------
1. Convenience. Customer may terminate the Agreement and/or any Software
-----------
license at any time upon written notice and return of the Software to
Interwoven; however, Interwoven has no obligation to return license
or initial Technical Support Services and Software Update Services
Fees to Customer. With the exception of the initial Technical Support
Services and Software Update Services Fees, Customer may terminate
any subsequent Technical Support Services and Software Update
Services term(s) upon sixty (60) days' prior written notice to
Interwoven. Customer shall be responsible for Technical Support
Services and Software Update Services Fees through the effective date
of termination and shall receive a pro rata refund of any unused
prepaid Technical Support Services and Software Update Services Fees,
excluding the initial Technical Support Services and Software Update
Services Fees. Interwoven may terminate Technical Support Services
and/or
7
<PAGE>
Software Update Services but only as to the Major Business Units in
default in the event Customer fails to pay Fees and fails to cure
within forty five (45) days from date of written notice.
2. Cause. Either party may terminate this Agreement upon written notice
-----
if the other party materially breaches this Agreement and fails to
cure such breach within forty-five (45) days written notice
specifying the breach in detail. Termination pursuant to this Section
does not relieve Customer of its obligation to pay Fees or Interwoven
to provide Technical Support and/or Software Update Services on a pro-
rata basis, accrued prior to the effective date of termination.
3. Survival. Sections that by their nature survive expiration or
--------
termination shall survive any expiration or termination of this
Agreement.
15.NOTICE. All notices shall be in writing, sent to the addresses listed on
------
the facing page of the Agreement and sent by overnight mail, courier, first-
class mail or facsimile (followed by confirmation copy by mail). Notice
shall be deemed received upon personal delivery when sent by overnight
mail, courier, and first-class mail or confirmation copy when a facsimile
is sent .
16.ASSIGNMENT. Either party may assign or sublicense its rights under this
----------
Agreement with written notice to the other party in the event of a merger,
consolidation or other reorganization. Either party may assign this
Agreement to any subsidiary or affiliate or entity owned or controlled by
the other party without regard to jurisdiction of incorporation of said
subsidiary, affiliate or entity, or as part of the sale of that part of its
business which includes the hardware or any substantial portion of its data
processing facilities, or pursuant to any merger, consolidation or other
reorganization, so long as said assignment is not to a competitor of the
other party. An assignee of either party, if authorized hereunder, shall be
deemed to have all of the rights and obligations of the assigning party set
forth in this Agreement. It is understood that no assignment shall release
the assigning party from any of its obligations.
17.GOVERNING LAW. This Agreement shall be governed and construed by the laws
-------------
of the State of New York, excluding its conflict of law rules.
18.ATTORNEY'S FEES. In the event legal action is required to enforce or
---------------
interpret any terms and conditions of this Agreement, the prevailing party
in such legal action shall recover all reasonable costs and expenses,
including attorney's fees, incurred in connection with such action.
19.ENTIRE AGREEMENT. This Agreement, together with the Schedules and any
----------------
addenda attached, which has been signed by both parties, constitutes the
entire agreement between the parties regarding Customer's use of the
Software. No purchase orders, other ordering documentation, email or any
hand written or typewritten text which purports to modify or supplement
this Agreement shall add to or vary the terms and conditions of this
Agreement unless signed or initialed by an authorized officer of each
party. This Agreement replaces and supersedes any prior verbal
understanding, written communications or representations made by the
parties regarding the subject matter contained in this Agreement.
20.EXPORT COMPLIANCE. Customer will comply with all applicable laws and
-----------------
regulations in its use of the Software. Customer may not export, re-export
or otherwise transfer the Software to any territory outside of the United
States except with the prior written consent of Interwoven, and then, only
in full compliance with the provisions of the U.S. Export Administration
Act and Regulations.
21.GOVERNMENT USES. If Customer is an agency of the U.S. Government, the
---------------
following will apply: The Software has been developed entirely at private
expense, is regularly used for non-governmental purposes and has been
licensed to the public. The Software is a "commercial item" as that term is
defined in 48 C.F.R. 2.101 (Oct. 1995), consisting of "commercial computer
software" and "commercial computer software documentation" as those terms
are used in 48 C.F.R. 12.212 (Sept. 1995) or as "commercial computer
software" as that term is defined in 48 C.F.R. 252.227-7014 (June 1995) or
any equivalent agency regulation or contract clause, whichever is
applicable. Consistent with 48 C.F.R. 12.212 and 48 C.F.R. 227.7202-1
through 227.7202-4 (June 1995), all U.S. Government agencies acquire only
those rights to the Software as are expressly set forth herein.
22.AMENDMENTS. In the event Interwoven develops other or new software products
----------
which are not Software Updates and if GE elects to license such new
software products, the parties agree to endeavor in good faith to amend
this Agreement to add such other software products under the same discount
levels and similar terms and conditions as hereby offered to Customer on
the Effective Date of this Agreement. All amendments and modifications to
this Agreement or the Schedules shall be in a signed writing to be binding
on the parties.
23.PUBLICITY. As a material obligation of this Agreement, neither party shall
----------
use the name of the other in publicity, advertising, or similar activity
without the prior written consent of the other. Interwoven understands that
Customer does not contemplate providing any such consent and is under no
obligation, express or implied, to provide any such consent, and, in the
event that any such consent should be granted for a particular
communication, Customer shall not be under any further obligation to
provide consent in any future request. Customer will consider participation
in
8
<PAGE>
Interwoven's marketing programs from time to time but is under no
obligation to participate. Both parties to this Agreement agree not to
disclose the existence or terms of this Agreement to any third party
without the prior written approval of the other, except a party may
disclose this Agreement to an Assignee pursuant to the Assignment Section
hereof.
24.SECURITY. In the event that any Interwoven personnel are physically
---------
present at a Customer location pursuant to this Agreement, any such
physical presence shall be subject to Customer's security requirements, and
Interwoven shall indemnify Customer against any claims of any nature
whatsoever that may arise because of such physical presence.
25.QUALITY.
--------
A. Industry Standards. Interwoven represents that any Software, Software
Update Services and Technical Support Services will be performed promptly,
diligently and in a professional manner in accordance with the highest
commercial industry standards. This clause shall not be interpreted as an
extension to the warranty in Section 9(B), as the latter is the warranty
for the Software.
B. Liquidated Damages. Interwoven acknowledges that its responsibility for
paid Software, Software Update Services and Technical Support Services
hereunder is a material obligation. Per the terms of the Technical
Support Services described on Schedule 2,beyond the agreed response
times for the different levels of Support subscribed to by Customer's
Major Business Unit, (1) the failure by Interwoven to respond to
Customer's Priority Error One request and provide a Fix, workaround or
action plan to said Error within twenty four (24) hours or (2) the
failure by Interwoven to respond to Customer's Priority Error Two
request and provide a Fix, workaround or action plan to said Error
within forty eight (48) hours, is a material breach of the Agreement.
Additionally, failure by Interwoven to provide Software Updates to
Customer to correct a Priority One Error and/or Priority Two Error, as
described in Schedule 2, within a normal product development cycle
(generally, a 12 month cycle) represents a material breach of this
Agreement. The above-described material breaches by Interwoven will
result in damage to Customer, which will be very difficult to calculate.
To offset and partially compensate Customer for damages due to
Interwoven's material breach as described above, Interwoven will pay to
Customer as liquidated damages and not as a penalty, an amount equal to
the sum of [*]. After a final decision to the amount of the liquidated
damages, the amount shall be payable as cash payments due within forty
five (45) days following a written request sent to Interwoven by Customer.
26.GENERAL. Neither party shall be liable for any failure to perform due to
--------
causes beyond its reasonable control. The failure to enforce any right will
not be deemed a waiver of such or any other right, including the right to
enforce a subsequent breach of the same obligation. The parties are
independent contractors and this Agreement will not be construed as a
teaming agreement, joint venture or other business relationship. This
Agreement may be executed in counterparts, each of which will be considered
an original, but all counterparts together will constitute one agreement. A
facsimile of a signed copy of this Agreement received from Customer may be
relied upon as an original. The parties executing this Agreement represent
and warrant that they have the authority to enter into this Agreement on
behalf of their respective party.
9
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
SCHEDULE 1
----------
SOFTWARE PRODUCT OVERVIEW, DESCRIPTION AND FEES
A. CONTENT MANAGEMENT SOFTWARE PRODUCT OVERVIEW:
- ------------------------------------------------
Interwoven currently produces two main products in the Content Management
space, TeamSite and OpenDeploy. These products and all associated options
(Software) provide Content Management capabilities for web environments.
TeamSite currently provides the functionality to enable users to edit web file
system content within the context of their own virtualized workspace. TeamSite
provides workflow to enable the allocation of files to workers as well as
implementing simple approval processes. TeamSite provides a staging area where
the content can be assembled into a single edition. TeamSite provides authors
with the ability to visually compare the contents of two files and highlight
those areas that are changed. The merge tool steps through these changes to
provide a single final file that can be moved to production. TeamSite provides
for multiple teams to work together by supporting separate branches of
development that can later be incorporated into a single development stream.
TeamSite Global Report Center is an additional option that allows TeamSite
event information to be stored in a relational database for event reporting.
TeamSite Templating is an additional option that supports the use of
customizable HTML templates for end users to employ in conjunction with
TeamSite. OpenDeploy transfers web related assets from development to
production and can synchronize the deployment of web pages, executable code
and databases. This deployment is securely encrypted with 128bit key within
the US only and unencrypted for all other international markets.
B. LICENSED SOFTWARE DESCRIPTION:
- ---------------------------------
The [*] Enterprise License granted to Customer under this Agreement shall vest
to Customer the rights to copy, install and use the Software, which includes by
definition corresponding documentation, and is described as TeamSite 3.0,
OpenDeploy 3.0, TeamSite-Documentum Interface and TeamSite-Broadvision Interface
and all options commercially available as of the Effective Date including such
options described above in Content Management Software Product Overview. The
manuals include Administering TeamSite, Using TeamSite, Author Card,
Administering OpenDeploy, Using OpenDeploy and Documentum and Broadvision
Interface manuals. The Software includes the following products:
-------------------------------------------------------------
TeamSite Server, Workgroup, Single CPU
-------------------------------------------------------------
TeamSite Server, Departmental, Dual CPU
-------------------------------------------------------------
TeamSite Server, Enterprise, Unlimited CPU
-------------------------------------------------------------
TeamSite-Documentum Interface Per TeamSite Server
-------------------------------------------------------------
TeamSite-Broadvision Interface Per TeamSite Server
-------------------------------------------------------------
Templating
-------------------------------------------------------------
Per Named Client User - Master
-------------------------------------------------------------
Per Named Client User - Administrator
-------------------------------------------------------------
Per Named Client User - Editor
-------------------------------------------------------------
Per Named Client User - Author
-------------------------------------------------------------
Per OpenDeploy Server Process on Target Server (Included)
-------------------------------------------------------------
Per OpenDeploy Server Process on Target Server Add'l.
-------------------------------------------------------------
Global Report Center - Ten Named Client Users (NOTE)
-------------------------------------------------------------
-------------------------------------------------------------
-------------------------------------------------------------
NOTE: Interwoven will license Customer Global Report Center Software in object
- --------------------------------------------------------------------------------
code form to (a) connect to and store Software event information in a relational
- --------------------------------------------------------------------------------
database and (b) connect to and generate reports from event information in a
- ----------------------------------------------------------------------------
relational database. This Interwoven Software product requires a license to a
- ------------------------------------------------------------------------------
relational database such as (Oracle, Informix or Sybase) to store the Software
- ------------------------------------------------------------------------------
event information. The Ten Named Client Users refers to Operational Software
- ----------------------------------------------------------------------------
10
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
installations and there are no restrictions on the Non-Production Use Software
- ------------------------------------------------------------------------------
users under the Agreement. The Ten Named Client Users restriction only applies
- -------------------------------------------------------------------------------
to those TeamSite Servers storing event information in an Interwoven provided
- -----------------------------------------------------------------------------
embedded Sybase SQLA relational database.
- -----------------------------------------
C. FEES:
- --------
1. LICENSE FEES
------------
The license Fees and payment schedule for the Software license Fees are as
follows:
----------------------------------------------------
Payment Due Date Payment Amount
----------------------------------------------------
Upon Effective Date of this [*]
Agreement
----------------------------------------------------
January 30, 2000 [*]
----------------------------------------------------
January 30, 2001 [*]
----------------------------------------------------
2. TECHNICAL SUPPORT SERVICES AND FEES
-----------------------------------
Fees for Technical Support Services shall be as set forth in the following
table for the corresponding levels of Support (Standard, Gold or Platinum),
as fully described in the attached Schedule 2. Under the Standard level of
Support, the Fee for each Technical Contact [*] is [*]. The Fees for
upgrading the level of Support is calculated on [*] as set forth in the
table below.
---------------------------------------------------------------------------
Support Level Per Technical Contact Fees Per Installation of
Operational Software
---------------------------------------------------------------------------
Standard [*] [*]
---------------------------------------------------------------------------
Gold [*] [*]
---------------------------------------------------------------------------
Platinum [*] [*]
---------------------------------------------------------------------------
Through the period commencing on the Effective Date and ending on December
31, 2000, Interwoven [*] per Operational Software Installation. In the
event Customer requests additional Technical Contacts during this
referenced period, the corresponding Fees due by Customer shall be invoiced
by Interwoven to Customer. After December 31, 2000, Technical Support
Services shall be an option on a per installation of Operation Software
basis and Customer shall have the ability to change the Support Level in
accordance with the Fees for such Support Level stated in the table above.
Within fourteen (14) days prior to the end of any annual calendar term in
which Technical Support Services were provided by Interwoven to Customer,
Customer shall provide Interwoven with a written report in accordance with
Section 8 of this Agreement of any additions or changes in the Technical
Contacts or Operational Software Installations or Support level upgrades
added during such annual term. Interwoven shall invoice Customer for the
applicable Fees during the annual calendar term
3. SOFTWARE UPDATE SERVICES AND FEES
----------------------------------
Commencing on January 1, 2001, the optional annual Fees for Software Update
Services shall be: a minimum of [*] per annual term but not in excess of
[*] per annual term based on [*] per installation of Operational Software
in excess of twenty-five installations, which is listed in the table below.
------------------------------------------------------
Minimum Annual Fee [*]
------------------------------------------------------
Per Installation in Excess of 25 [*]
------------------------------------------------------
Maximum Annual Fee [*]
------------------------------------------------------
11
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
Through the period commencing on the Effective Date and ending December 31,
2000, Interwoven [*].
Within fourteen (14) days prior to the end of any annual calendar term,
during which Software Update Services were provided by Interwoven to
Customer, Customer shall provide Interwoven with a written report in
accordance with Section 8 of this Agreement of any additional installations
of the Operational Software (excluding Non-Production copies of the
Software) installed during the annual term. Interwoven shall invoice
Customer for the amount of the applicable Software Update Services Fee
corresponding to the number of installations of Operational Software during
the annual term as described above .
4. MAILING ADDRESS: All invoices, expense reports, delivery of Software,
---------------
final Agreements or future Amendment(s) will be mailed to Customer's
address on the Facing Page unless otherwise specified below:
Billing Address: General Electric Company Shipping Address:
ATTN: Elizabeth Hankamp ATTN:
3135 Easton Turnpike
Fairfield, CT 06431
5. PURCHASE ORDER: If a Customer Purchase Order is required for this
--------------
transaction:
[_] YES - Provide Purchase Order #:_________________
[X] NO - Provide Authorized Customer: Signature: /s/ Mark Mastrianni
------------------------
Printed Name: Mark Mastrianni
---------------------
12
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
SCHEDULE 2
----------
TECHNICAL SUPPORT SERVICE PROGRAM
STANDARD OF CARE
For such periods as Customer fully pays the Annual Support Fee, as set
forth on the Fee Schedule, applicable to the level of support selected by
Customer, Interwoven will provide Technical Support Services ("Support")
described herein pursuant to the terms and conditions in the Agreement and as
stated herein. During the initial Support term set forth in the Fee Schedule
each installation of the Software, which is not an installation of a Non-
Production Use Copy of the Software, shall receive the "Standard" level of
Support described below. During such term Customer may elect to upgrade any
installation of the Software, which is not an installation of a Non-Production
Use Copy of the Software, to a higher level of Support (i.e., "Gold" or
"Platinum") by providing notice to Interwoven and payment, for each such
installation, of the pro-rata portion of the annual fee for such higher level
of Support corresponding to the period of time remaining in such term.
1. DEFINITIONS
"Error" means a material failure of the Software to conform to its
functional specifications as described in the Product Specifications. Errors do
not include, and Interwoven will have no responsibility for, any of the
following circumstances which adversely impact the operation of Software or the
ability of Interwoven provide Support: (i) the Software has been modified or
damaged in any manner by any person or entity other than Interwoven; (ii) the
Software has been used outside of the scope of the license granted under this
Agreement; (iii) any failure of the computer hardware, the computer operating
system and/or third party software utilized by Customer; (iv) the Software has
been installed or operated other than in accordance with Interwoven's
installation and operations instructions, including, without limitation, on
computer hardware, or operating systems other than for which that System Release
was designed; (v) Customer has failed to install the most recent New Release
made available to Customer pursuant to the Software Update Services and
Interwoven affirms to Customer that the Error in question has been corrected in
such New Release.
"Fix" means, in Interwoven's discretion, either an Interim Release designed
to correct an Error, or a temporary work-around, patch or bypass supplied by
Interwoven, or temporary implementation by Customer of a data input or
operational procedure in order to diminish or avoid the effect of an Error.
"Priority 1 Error" means an Error that: (1) renders the Software
inoperative; or (2) poses imminent danger to Customer's equipment or data.
"Priority 2 Error" means an Error that materially degrades performance of
the Software or materially impairs substantial functions of the Software, but
which is not a Priority 1 Error.
"Priority 3 Error" means any Error other than a Priority 1 Error or
Priority 2 Error.
"Dedicated Support Engineer" means a senior technical support engineer who
is dedicated to managing the technical requirements of specific Interwoven
customer accounts. Interwoven, may, in its discretion, substitute one or more
product specialists on a Dedicated Support Engineer Team, or designate a
different Dedicated Support Engineer to provide Support to Customer.
"Technical Contacts" Customer engineers who: (i) serve as the contacts with
the Support Team (in the case of Standard or Gold Support) or the Dedicated
Support Engineer Team (in the case of Platinum Support) on all Support matters;
(ii) are responsible for administration of the Software; and (iii) have been
trained and certified by Interwoven as "Enterprise Web Production
Administrators" within ninety (90) days of the Effective Date of this Agreement.
13
<PAGE>
1. SUPPORT COVERAGE
a. TELEPHONE/E-MAIL SUPPORT. A member of the Support Team (in the case
------------------------
of Standard or Gold Support) or a Dedicated Support Engineer (in the case of
Platinum Support) will be available by telephone (408-774-2000) or E-mail
(support requests should be sent to [email protected]) excluding major
holidays, during the times set forth below for the level of Support received by
a particular installation, to assist the Technical Contact in the installation
and operation of the Software, and to receive reports of Error conditions.
Customer must direct all calls or E-mails to a member of the Support Team (in
the case of Standard or Gold Support) or a Dedicated Support Engineer (in the
case of Platinum Support). Such Support Team member or Dedicated Support
Engineer will communicate to the Technical Contact (by telephone, E-mail or fax)
to assist the situation, gather additional information, or report the status of
Interwoven's efforts to correct an Error within the time specified in herein.
Telephone/E-Mail Support is available as follows:
Standard during normal business hours from Monday to Friday
--------
(excluding major holidays) between 6:00am to 5:00pm
Pacific Time.
Gold anytime between 00:01 Monday Pacific Time through 23:59
----
Friday Pacific Time (excluding major holidays).
Platinum twenty-four (24) hours a day, seven (7) days a week.
--------
b. EMERGENCY ON-SITE SUPPORT. Under most circumstances, Interwoven will
-------------------------
provide Support remotely. However, in the event that Customer reports a
Priority 1 Error which cannot be resolved remotely within a reasonable period of
time, Interwoven will provide emergency, on-site support. The necessity and
timing for providing such on-site support will be mutually determined and agreed
to by the respective management teams of Interwoven and Customer.
2. ERROR CORRECTION
a. ERROR PROCEDURES. A member of the Support Team (in the case of
----------------
Standard or Gold Support) or a Dedicated Support Engineer (in the case of
Platinum Support) will respond to reports of Error conditions brought to
Interwoven's attention within the allotted time described below of receiving a
report. Interwoven will further exercise commercially reasonable efforts to
correct any Error reported by Customer in accordance with the following
procedures. Interwoven will reasonably determine the priority classification of
any Error in its sole discretion.
(1) Priority 1 Errors: Interwoven will respond to Error reports received
by Customer as follows:
Standard within two (2) business hours of receiving a report.
--------
Gold within two (2) business hours of direct contact and verbal
----
acknowledgment from the Support Team member.
Platinum within one (1) hour of direct contact and verbal
--------
acknowledgment from the Dedicated Support Engineer.
Interwoven will assign one or more senior engineers to attempt to replicate the
Error. If the Error can be replicated, Interwoven will: (1) notify its
senior management that such Error has been reported and the steps being
taken to correct the Error; (2) commence work to provide Customer with a
Fix; and (3)
14
<PAGE>
provide Customer with periodic reports on the status of such Fix.
Interwoven will use commercially reasonable efforts to deliver a Fix to
Priority 1 Errors within two (2) business days of Customer's request for
assistance.
(2) Priority 2 Errors: Interwoven will respond to Error reports received
by Customer as follows:
Standard within four (4) business hours of receiving a report.
--------
Gold within three (3) business hours of direct contact and verbal
----
acknowledgment from the Support Team Member.
Platinum within one (1) hour of direct contact and verbal
--------
acknowledgment from the Dedicated Support Engineer.
Interwoven will use commercially reasonable efforts to correct such Error
in future New Releases.
(3) Priority 3 Errors: Interwoven will respond to Error reports received
by Customer as follows:
Standard within two (2) business days of receiving a report.
--------
Gold within four (4) business hours of direct contact and verbal
----
acknowledgment from the Dedicated Support Engineer.
Platinum within three (3) hours of direct contact and verbal
--------
acknowledgment from the Dedicated Support Engineer.
Interwoven may correct such Error in future Version Releases.
b. ESCALATION. In those instances where: (i) Interwoven cannot provide
----------
a Fix to a Priority 1 Error within two (2) business days of Customer's request
for assistance, or (ii) Customer is not satisfied with the progress attained
after two (2) business days in an instance of a Priority 1 Error (in the case of
Platinum Support) or a Priority 2 Error (in the case of Standard or Gold
Support), Interwoven will review its plan for addressing such Error with
Customer. Customer will have the right to escalate the matter to Interwoven's
senior management, if, in the reasonable opinion of Customer, the plan of action
does not demonstrate that Interwoven is making commercially reasonable efforts
to correct the Error in light of its impact on Customer's business.
3. SCOPE OF SERVICES
a. ADDITIONAL SOFTWARE. Interwoven will provide Support as set forth in
-------------------
this Agreement for the Software. Support for additional Interwoven products
acquired after the Effective Date will be provided upon terms to be mutually
agreed upon in writing by the parties.
b. ADDITIONAL SUPPORT. In the event Customer's technical environments,
------------------
facilities or Interwoven product mix changes such that Customer is not satisfied
with the Support provided under this Agreement, Customer and Interwoven will
meet and discuss options to improve the provision of Support. Customer
understands that greater Support than that provided hereunder may be accompanied
by an increase in fees.
c. SUPPORT PROVIDED TO PERSON OTHER THAN TECHNICAL CONTACTS. In the
--------------------------------------------------------
event Interwoven provides Support to anyone other than Technical Contacts,
except as expressly provided herein,
15
<PAGE>
and the reported problem is later determined not to be an Error, Customer
agrees to pay Interwoven for time and materials spent in providing such
Support at Interwoven's then current rates.
4. New Releases
Interwoven's obligations with respect to Technical Support Services are
expressly conditioned upon the installation and use by Customer of either: (i)
the most current version of the Software; or (ii) the release immediately
preceding the New Release.
16
<PAGE>
SCHEDULE 3
----------
SOFTWARE UPDATE SERVICE PROGRAM
As of the Effective Date of this Agreement and until December 31, 2000 and
thereafter, provided that Customer, at its option, fully pays the applicable
Annual Software Update Fees corresponding to the number of Operational
installations of the Software which are not installations of Non-Production Use
Copies of the Software, Customer shall receive Software Updates as defined in
Section 1 of this Agreement which updates shall include but not be limited to
the types of Software defined and described below.
SOFTWARE UPDATE DEFINITIONS AND DESCRIPTIONS
"Interim Release" means an interim release version of the Software in which
one or more previously identified Errors have been corrected. A new Interim
Release typically will be indicated by the addition of one (1) to the third
digit of the release number (e.g. v.X.X.2 would be the next Interim Release
after v.X.X.1).
"New Release" is either a Version Release or Interim Release but does not
include a System Release or computer programs that, in Interwoven's sole
determination, contain substantially new or different functions and/or features
relative to the Software.
"System Release" means a release of the Software which is designed to
operate on designated combinations of computer hardware and operating systems. A
new System Release typically will be indicated by the addition of one (1) to the
first digit of the release number (e.g. v.2.X.X would be the next System Release
after v.1.X.X).
"Version Release" means an updated version of the Software with a limited
number of new or enhanced functions and/or features. A new Version Release
typically will be indicated by the addition of one (1) to the second digit of
the release number (e.g. v.X.2.X would be the next Version Release after
v.X.1.X).
NEW RELEASES
When Software Updates to the Software, as generally described in Schedule 1,
are available, such Software Updates will be made available to Customer. Upon
delivery to Customer and payment of all applicable Fees, the Software Updates
will be considered "Software" for purposes of this Agreement.
In the event Interwoven offers to its customers Content Management software in
the future, whether as enhancements or new products separate from the licensed
Software as described on Schedule 1, the same will be offered to Customer under
the Software Update Service Program. Such Software Updates, if and when
available, and in part based upon Interwoven's current technology roadmap, may
include, but not be limited to the following:
[*]
17
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
[*]
18
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
Exhibit 10.25
PREFERRED STOCK WARRANT TO PURCHASE
[*] SHARES OF SERIES E PREFERRED STOCK
OF
INTERWOVEN, INC.
(Void after July 22, 2006)
Preferred Stock Warrant: PEW-___
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED AND MAY NOT BE
OFFERED OR SOLD EXCEPT IN COMPLIANCE THEREWITH. THIS
WARRANT AND THE SHARES PURCHASABLE HEREUNDER ARE
SUBJECT TO RESTRICTIONS ON TRANSFER AS SET FORTH
HEREIN.
This certifies that General Electric Company ("GE") each of GE and any
successor or assign being a "Holder"), for consideration the sufficiency and
receipt of which is hereby acknowledged, is entitled to purchase from
Interwoven, Inc., a California corporation (the "Company"), subject to the terms
set forth below, [*], newly issued, fully paid and nonassessable shares (subject
to adjustment as provided herein) of the Company's Series E Preferred Stock, no
par value per share (the "Warrant Shares") for cash at a price of [*] (as
adjusted as provided herein, the "Exercise Price") or pursuant to the cashless
exercise terms in Section 1.2 at any time or from time to time up to and
including 5:00 p.m. (Pacific Time) July 22, 2006, or if such day is not a
Business Day, then on the next succeeding Business Day, such day being referred
to herein as the "Expiration Date," upon surrender to the Company at its
principal office (or at such other location as the Company may advise the
Holder in writing) of this Warrant properly endorsed with the Form of
Subscription attached hereto duly filled in and signed and upon payment in cash
or by check of the aggregate Exercise Price for the number of shares for which
this Warrant is being exercised determined in accordance with the provisions
hereof. [*]. The Exercise Price is subject to adjustment as provided in
Section 3 of this Warrant and the right to purchase the Warrant Shares and the
number of Warrant Shares that may be purchased hereunder are subject to the
contingencies set forth in this Warrant.
This Warrant is subject to the following terms and conditions:
1. Exercise, Issuance of Certificates, Reduction in Number of Warrant
------------------------------------------------------------------
Shares.
------
1.1 General. Except as provided in Section 1.2, this Warrant is
-------
exercisable at the option of the Holder of record hereof on or prior to the
Expiration Date, at any time or from time to time, for all or any part of the
Warrant Shares (but not for a fraction of a share) which may be purchased
hereunder, as that number may be adjusted pursuant to Sections 1.2 or 3 of
this Warrant. The Company agrees that the Warrant Shares purchased under this
Warrant shall be and are deemed to be issued to the Holder hereof as the
record owner of such Warrant Shares as
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
of the close of business on the date on which this Warrant shall have been
surrendered, the completed and executed Form of Subscription delivered, and
payment of the Exercise Price in cash or by certified check, or if applicable,
submission of the cashless exercise calculation pursuant to Section 1.2 for
such Warrant Shares. In addition, with respect to the Warrant Shares, Holder
will make the representations and warranties set forth in Section 6.1 and
Company will make representations and warranties with respect to due
authorization, valid issuance and otherwise as set forth in Section 9.4
(excluding Section 9.4(c)), including the absence of pre-emptive rights and
the absence of conflict with the Company's constituent documents. Certificates
for the Warrant Shares so acquired, together with any other securities or
property (including any money) to which the Holder hereof is entitled upon
such exercise, shall be delivered to the Holder or its transferee designated
in writing to the Company by the Company at the Company's expense not later
than ten (10) days after the rights represented by this Warrant have been so
exercised. In case of a purchase of less than all the Warrant Shares which may
be purchased under this Warrant, the Company shall cancel this Warrant and
promptly execute and deliver to the Holder or its transferee designated in
writing to the Company a new Warrant or Warrants of like tenor for the balance
of the Warrant Shares purchasable under the Warrant surrendered upon such
purchase. Each stock certificate so delivered shall be registered in the name
of such Holder. The Company shall pay all documentary, stamp or similar issue
or transfer taxes payable in respect of the issue or delivery of the Warrant
Shares.
1.2 Net Issue Exercise of Warrant. Notwithstanding any provisions
-----------------------------
herein to the contrary, if the fair market value of one share of Series E
Preferred Stock is greater than the Exercise Price (at the date of calculation
as set forth below), in lieu of exercising this Warrant for cash, Holder may
elect to receive shares of Series E Preferred Stock 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 Form of Subscription in which event the Company shall
issue to the Holder a number of shares of Series E Preferred Stock computed
using the following formula:
X = Y (A-B)
---------
A
Where X = the number of shares of Series E
Preferred Stock to be issued to Holder
Y = the number of shares of Series E
Preferred 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 Series E Preferred Stock
(at the date of such calculation)
B = Exercise Price (as adjusted to the date
of such calculation)
2
<PAGE>
2. Reservation of Shares. The Company hereby agrees that at all times
---------------------
there shall be reserved for issuance and delivery upon exercise of this
Warrant such number of authorized but unissued Warrant Shares (and Common
Stock into which such Warrant Shares are convertible) as will be sufficient to
permit the full exercise of this Warrant. The Company covenants and agrees
that all Warrant Shares, and all shares of Common Stock issuable upon
conversion of such Warrant Shares, shall be duly authorized and, upon issuance
in accordance herewith, shall be validly issued, fully paid and nonassessable,
and free of all liens, security interests, charges and other encumbrances or
restrictions upon sale and free and clear of preemptive or similar rights,
except for restrictions on transfer provided for herein, under the Rights
Agreement or under applicable federal and state securities laws.
3. Adjustment of Exercise Price and Number of Shares for Equity Events.
-------------------------------------------------------------------
The Exercise Price and the total number of Warrant Shares shall be subject to
adjustment from time to time upon the occurrence of certain events described
in this Section 3. Upon each adjustment of the Exercise Price, the Holder of
this Warrant shall thereafter be entitled to purchase, at the Exercise Price
resulting from such adjustment, the number of shares obtained by multiplying
the Exercise Price in effect immediately prior to such adjustment by the
number of shares purchasable pursuant hereto immediately prior to such
adjustment, and dividing the product thereof by the Exercise Price resulting
from such adjustment.
3.1 Dividends; Subdivision or Combination of Stock.
----------------------------------------------
(a) In the case the Company shall at any time after the date
hereof (i) declare a dividend or make a distribution on Series E Preferred
Stock payable in Series E Preferred Stock, (ii) subdivide or split the
outstanding Series E Preferred Stock, (iii) combine or reclassify the
outstanding Series E Preferred Stock into a smaller number of shares, or (iv)
issue any shares of its capital stock in a reclassification of Series E
Preferred Stock (including any such reclassification in connection with a
consolidation or merger in which the Company is the continuing corporation),
the Exercise Price in effect at the time of the record date for such dividend
or distribution or of the effective date of such subdivision, split,
combination or reclassification shall be proportionately adjusted so that the
exercise of this Warrant after such time shall entitle the holder to receive
the aggregate number of shares of Series E Preferred Stock or other securities
of the Company (or shares of any security into which such shares of Series E
Preferred Stock have been reclassified pursuant to clause 3.1(a)(iii) or
3.1(a)(iv) above) which, if this Warrant had been exercised immediately prior
to such time, such holder would have owned upon such exercise and been
entitled to receive by virtue of such dividend, distribution, subdivision,
split, combination or reclassification. Such adjustment shall be made
successively whenever any event listed above shall occur.
(b) In case the Company shall fix a record date for the
issuance of rights, options or warrants to the holders of its Series E
Preferred Stock or other securities entitling such holders to subscribe for or
purchase for a period expiring within 60 days of such record date shares of
Series E Preferred Stock (or securities convertible into share of Series E
Preferred Stock) at a price per share of Series E Preferred Stock (or having a
conversion price per share of Series E Preferred Stock, if a security
convertible into shares of Series E Preferred Stock) less than the Current
Market Price Per Series E Preferred Share on such record date, the maximum
number of shares of Series E Preferred Stock issuable upon exercise of such
rights,
3
<PAGE>
options or warrants (or conversion of such convertible securities) shall be
deemed to have been issued and outstanding as of such record date and the
Exercise Price shall be adjusted in the manner set forth in the following
sentence, as through such maximum number of shares of Series E Preferred Stock
had been so issued for an aggregate consideration payable by the holders of
such rights, options, warrants or convertible securities prior to their
receipt of such shares of Series E Preferred Stock. The adjusted Exercise
Price shall be determined by multiplying the Exercise Price in effect
immediately prior to such record date by a fraction, the numerator of which
shall be the sum of (x) the number of shares of Series E Preferred Stock
outstanding immediately prior to the time of such issuance or sale multiplied
by the Current Market Price Per Series E Preferred Shares immediately prior to
such record date and (y) the aggregate consideration, if any, to be received
by the Company upon such issuance or sale, and the denominator of which shall
be the product of the aggregate number of shares of Series E Preferred Stock
outstanding immediately after such record date and the Current Market Price
Per Series E Preferred Share immediately prior to such issuance. In case any
portion of the consideration to be received by the Company shall be in a form
other than cash, the fair market value of such noncash consideration shall be
utilized in the foregoing computation. Such fair market value shall be
determined by the Board of Directors of the Company; provided that if the
Holder shall object to any such determination, the Board of Directors shall
retain an independent appraiser reasonably satisfactory to the Holder to
determine such fair market value. The Holder shall be notified promptly of any
consideration other than cash to be received by the Company and furnished with
a description of the consideration and the fair market value thereof, as
determined by the Board of Directors. Such adjustment shall be made
successively whenever such record date is fixed; and in the event that such
rights, options or warrants are not so issued or expire unexercised, or in the
event of a change in the number of shares of Series E Preferred Stock to which
the holders of such rights, options or warrants are entitled (other then
pursuant to adjustment provisions therein comparable to those contained in
this paragraph 3.1), the Exercise Price shall again be adjusted to be the
Exercise Price which would then be in effect if such record date had not been
fixed, in the former event, or the Exercise Price which would then be in
effect if such holder had initially been entitled to such changed number of
shares of Common Stock, in the latter event.
(c) In the case the Company shall fix a record date for the
making of a distribution to holders of Series E Preferred Stock (including any
such distribution made in connection with a consolidation or merger in which
the Company is the continuing corporation) of evidences of indebtedness,
assets or other property (other than dividends payable in Series E Preferred
Stock or rights, options or warrants referred to in, and for which an
adjustment is made pursuant to, paragraph 3(b) hereof), the Exercise Price to
be in effect after such record date shall be determined by multiplying the
Exercise Price in effect immediately prior to such record date by a fraction,
the numerator of which shall be the Current Market Price Per Series E
Preferred Share on such record date, less the fair market value (determined as
set forth in paragraph 3.1(d) hereof) of the portion of the assets, other
property or evidence of indebtedness so to be distributed which is applicable
to one share of Series E Preferred Stock, and the denominator of which shall
be such Current Market Price Per Series E Preferred Share. Such adjustments
shall be made successively whenever such a record date is fixed; and in the
event that such distribution is not so made, the Exercise Price shall again be
adjusted to be the Exercise Price which would then be in effect if such record
date had not been fixed.
4
<PAGE>
(d) For the purchase of any computation under paragraph 1.2 or
paragraph 3.1(b), or 3.1(c) hereof, on any determination date (i) on or prior
to the Company's initial public offering, the Current Market Price Per Series
E Preferred Share shall, subject to the penultimate sentence of this paragraph
3.1(d), be the fair market value per share of the applicable class of Series E
Preferred Stock as reasonably determined by the Board of Directors of the
Company, and (ii) after the Company's initial public offering, the Current
Market Price Per Series E Preferred Share shall be deemed to be the product of
(i) the average (weighted by daily trading volume) of the Daily Prices (as
defined below) per share of the applicable class of Common Stock for the 20
consecutive trading days immediately prior to such date and (ii) the number of
shares of Common Stock into which each share of Series E Preferred Stock is
then convertible into. "Daily Price" means (A) if the shares of such class of
Common Stock then are listed and traded on the New York Stock Exchange, Inc.
("NYSE"), the closing price on such day as reported on the NYSE Composite
Transactions Tape; (B) if the shares of such class of Common Stock then are
not listed and traded on the NYSE, the closing price on such day as reported
by the principal national securities exchange on which the shares are listed
and traded; (C) if the shares of such class of Common Stock then are not
listed and traded on any such securities exchange, the last reported sale
price on such day on the National Market of the National Association of
Securities Dealers, Inc. Automated Quotation System ("NASDAQ"); or (D) if the
shares of such class of Common Stock then are not traded on the NASDAQ
National Market, the average of the highest reported bid and lowest reported
asked price on such day as reported by NASDAQ. If on any determination date
the shares of such class of Stock are not quoted by any such organization, the
Current Market Price Per Share shall be the fair market value of such shares
on such determination date as determined by the Board of Directors. If the
Holder shall object to any determination by the Board of Directors on or prior
to the Company's initial public offering of the Current Market Price Per
Series E Preferred Share, the Current Market Price Per Series E Preferred
Share shall be the fair market value per share of the applicable class of
Series E Preferred Stock as determined by an independent appraiser retained by
the Company at its expense and reasonably acceptable to the Holder. For
purposes of any computation under this paragraph 3.1, the number of shares of
Series E Preferred Stock outstanding at any given time shall not include
shares owned or held by or for the account of the Company.
(e) In the event that, at any time as a result of the
provisions of this paragraph 3.1 the Holder of this Warrant upon subsequent
exercise shall become entitled to receive any shares of capital stock of the
Company other than Series E Preferred Stock, the number of such other shares
so receivable upon exercise of this Warrant shall, as more fully provided in
Section 9.3, thereafter be subject to adjustment from time to time in a manner
and on terms as nearly equivalent as practicable to the provisions contained
herein.
(f) Upon each adjustment of the Exercise Price as a result of
the calculations made in paragraphs 3.1(a), 3.1(b), or 3.1(c) hereof, the
number of shares for which this Warrant is exercisable immediately prior to
the making of such adjustment shall thereafter evidence the right to purchase,
at the adjusted Exercise Price, that number of shares of Series E Preferred
Stock obtained by (i) multiplying the number of shares covered by this Warrant
immediately prior to this adjustment of the number of shares by the Exercise
Price in effect immediately prior to such adjustment of the Exercise Price and
(ii) dividing the product so obtained by the Exercise Price in effect
immediately after such adjustment of the Exercise Price.
5
<PAGE>
3.2 [Intentionally Omitted]
---------------------
3.3 Notice of Adjustment. Upon any adjustment of the Exercise Price
--------------------
or any increase or decrease in the number of Warrant Shares, the Company shall
give written notice thereof, by first class mail postage prepaid, addressed to
the registered Holder of this Warrant at the address of such Holder as shown
on the books of the Company. The notice shall be prepared by the independent
public accountants then auditing the books of the Company and signed by the
Company's Chief Financial Officer and the Company's Secretary and shall state
the Exercise Price resulting from such adjustment and the adjusted number of
shares if applicable, purchasable at such price upon the exercise of this
Warrant, setting forth in reasonable detail the method of calculation and the
facts requiring such adjustment upon which such calculation is based. A copy
of such notice shall be kept in the custody of the Company's Secretary or
Assistant Secretary at its principal office and with its stock transfer agent.
4. Consolidation, Merger, or Sale of Assets. In case of any
----------------------------------------
consolidation of the Company with, or merger of the Company into, any other
Person, any merger of another Person into the Company (other than a merger
which does not result in any reclassification, conversion, exchange or
cancellation of outstanding shares of Series E Preferred Stock) or any sale or
transfer of all or substantially all of the assets of the Company or of the
Person formed by such consolidation or resulting from such merger or which
acquires such assets, as the case may be, the Holder shall have the right
thereafter to exercise this Warrant for the kind and amount of securities,
cash and other property receivable upon such consolidation, merger, sale or
transfer by a holder of the number of shares of Series E Preferred Stock for
which this Warrant may have been exercised immediately prior to such
consolidation, merger, sale or transfer, assuming (i) such holder of Series E
Preferred Stock is not a person with which the Company consolidated or into
which the Company merged or which merged into the Company or to which such
sale or transfer was made, as the case may be ("constituent person"), or an
Affiliate of a constituent person and (ii) in the case of a consolidation,
merger, sale or transfer which includes an election as to the consideration to
be received by the holders, such holder of Series E Preferred Stock failed to
exercise its rights of election, as to the kind or amount of securities, cash
and other property receivable upon such consolidation, merger, sale or
transfer (provided that if the kind or amount of securities, cash and other
property receivable upon such consolidation, merger, sale or transfer is not
the same for each share of Series E Preferred Stock held immediately prior to
such consolidation, merger, sale or transfer by other than a constituent
person or an Affiliate thereof and in respect of which such rights of election
shall not have been exercised ("non-electing share"), then for the purpose of
this paragraph 4 the kind and amount of securities, cash and other property
receivable upon such consolidation, merger, sale or transfer by each non-
electing share shall be deemed to be the kind and amount so receivable per
share by a plurality of the non-electing shares). Adjustments for events
subsequent to the effective date of such a consolidation, merger and sale of
assets shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Warrant. In any such event, effective provisions shall be
made in the certificate or articles of incorporation of the resulting or
surviving corporation, in any contract of sale, conveyance, lease or transfer,
or otherwise so that the provisions set forth herein for the protection of the
rights of the Holder shall thereafter continue to be applicable; and any such
resulting or surviving corporation shall expressly assume the obligation to
deliver, upon exercise, such shares of stock, other securities, cash and
property. The provisions of this paragraph 4 shall similarly apply to
successive consolidations, mergers, sales, leases or transfers.
6
<PAGE>
5. No Voting or Dividend Rights. Nothing contained in this Warrant
----------------------------
shall be construed as conferring upon the Holder hereof the right, prior to
the exercise of the Warrant, to vote or to consent to receive notice as a
shareholder of the Company on any other matters or any rights whatsoever as a
shareholder of the Company. No dividends or interest shall be payable or
accrued in respect of this Warrant or the interest represented hereby or the
shares purchasable hereunder until, and only to the extent that, this Warrant
shall have been exercised.
6. Compliance with Securities Act; Transferability of Warrant;
-----------------------------------------------------------
Disposition of Warrant Shares or Common Stock.
- ---------------------------------------------
6.1 Compliance with Securities Act. The Holder of this Warrant, by
------------------------------
acceptance hereof, agrees that this Warrant is being acquired for investment
and that it will not offer, sell, or otherwise dispose of this Warrant, any
Warrant Shares, or any shares of Common Stock to be issued upon conversion of
the Warrant Shares except under circumstances which will not result in a
violation of the Securities Act of 1933, as amended (the "Act"), or any
applicable state securities laws. All Warrant Shares and all shares of Common
Stock issued upon conversion of the Warrant Shares (unless registered under
the Act) shall, subject to Section 6.3 be stamped or imprinted with a legend
in substantially the following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR THE
SECURITIES OR BLUE SKY LAWS OF ANY STATE. THEY MAY
NOT BE OFFERED OR SOLD IN THE ABSENCE OF A
REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE
SECURITIES UNDER SUCH ACT OR AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF SUCH ACT.
6.2 Warrant Transferable. Subject to compliance with applicable
--------------------
federal and state securities laws under which this Warrant was purchased, this
Warrant and all rights hereunder are transferable, in whole or in part,
without charge to the Holder (except for transfer taxes), upon surrender of
this Warrant properly endorsed; provided, however, that the Holder shall
notify the Company in writing in advance of any proposed transfer and shall
not transfer this Warrant or any rights hereunder to any person or entity
which is then known to the Holder to be principally engaged in a business in
direct and substantial competition with the Company.
6.3 Disposition of Warrant Shares and Common Stock. With respect to
----------------------------------------------
any offer, sale, or other disposition of the Warrant, any Warrant Shares, or
of any shares of Common Stock issued upon conversion of the Warrant Shares
prior to registration of such shares, the Holder hereof and each subsequent
Holder of this Warrant agrees to give written notice to the Company prior
thereto, describing briefly the manner thereof, together with a written
opinion of such Holder's counsel, if reasonably requested by the Company, to
the effect that such offer, sale or other disposition may be effected without
registration under the Act or any applicable state law then in effect of such
Warrant, Warrant Shares or Common Stock, as the case may be, or that such
Warrant, Warrant Shares or Common Stock are no longer subject to the
restrictive legends referred to herein. Promptly upon receiving such written
notice and opinion, the Company, as promptly as practicable, shall notify such
Holder that such Holder may sell or otherwise dispose of such Warrant, Warrant
Shares or Common Stock, all in accordance with the terms of the
7
<PAGE>
notice delivered to the Company. If a determination has been made pursuant to
this subparagraph 6.3 that the opinion of the counsel for the Holder is not
reasonably satisfactory to the Company, the Company shall so notify the Holder
promptly after such determination has been made and provide a written legal
opinion of the Company's outside counsel explaining the reasons for such
determination. Notwithstanding the foregoing, such Warrant, Warrant Shares or
Common Stock may be offered, sold or otherwise disposed of in accordance with
Rule 144 under the Act, provided that the Company shall have been furnished
with such information as the Company may request to provide reasonable
assurance that the provisions of Rule 144 have been satisfied. Each
certificate representing the Warrant, Warrant Shares or Common Stock thus
transferred (except a transfer pursuant to Rule 144) shall bear a legend as to
the applicable restrictions on transferability in order to insure compliance
with the Act, unless in the aforesaid opinion of counsel for the Holder, such
legend is not required in order to insure compliance with the Act. If
appropriate in the circumstances, the Company may issue stop transfer
instructions to its transfer agent in connection with such restrictions.
7. Modification and Waiver. This Warrant and any provision hereof may
-----------------------
be amended, changed, waived, discharged, or terminated only by an instrument
in writing signed by the party against which enforcement of the same is
sought. Except as expressly provided herein, no failure or delay by either
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. The rights and remedies herein provided shall be cumulative and not
exclusive of any rights or remedies provided by law.
8. Notices. Any notice, request, or other document required or
-------
required or permitted to be given or delivered to the Holder hereof or the
Company shall be in writing and shall be given to the Holder or the Company at
its address or telecopier number set forth below or such other address or
telecopier number as either may from time to time provide to the other.
Address/Telecopier (Company):
Interwoven, Inc.
1195 West Fremont Ave., Suite 2000
Sunnyvale, CA 94087
Fax: (408) 774-2002
Attn: David Allen
Address/Telecopier (Holder):
General Electric Company
3135 Easton Turnpike
Fairfield, CT 06431
Fax: (203) 373-3707
Attn: Gary Reiner
8
<PAGE>
With a copy to:
Pamela Daley
VP - Senior Counsel for Transactions
Fax: (203) 373-3008
Each such notice, request or other document shall be effective (i) if given
by telecopy, when such telecopy is properly transmitted and the intended
recipient confirms receipt of such telecopy or (ii) if given by any other means,
when received at the address specified herein or, subsequently notified to the
other party in writing.
9. Representations and Warranties and Covenants of the Company.
-----------------------------------------------------------
9.1 Notice of Certain Events. If at any time:
------------------------
(i) the Company shall declare any cash dividend upon its
Series E Preferred Stock;
(ii) the Company shall declare any dividend upon its Series E
Preferred Stock payable in stock or make any special dividend or other
distribution to the holders of its Series E Preferred Stock;
(iii) the Company shall offer for subscription pro rata to the
holders of its Series E Preferred Stock any additional shares of stock of any
class or other rights;
(iv) there shall be any capital reorganization or
reclassification of the capital stock of the Company, or consolidation or
merger of the Company with, or sale of all or substantially all of its assets
to, another corporation;
(v) there shall be a voluntary or involuntary dissolution,
liquidation, or winding-up of the Company; or
(vi) there shall be an initial public offering of Company
securities;
then, in any one or more of said cases, the Company shall give, by first class
mail, postage prepaid, addressed to the Holder of this Warrant at the address of
such Holder as shown on the books of the Company, (a) at least ten (10) days'
prior written notice of the date on which the books of the Company shall close
or a record shall be taken for such dividend, distribution, or subscription
rights or for determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up, and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation, winding-up, or public
offering, at least ten (10) days' prior written notice of the date when the same
shall take place. Any notice given in accordance with the foregoing clause (a)
shall also specify, in the case of any such dividend, distribution, or
subscription rights, the date on which the holders of Series E Preferred Stock
shall be entitled thereto. Any notice given in accordance with the foregoing
clause (b) shall also specify the proposed date of such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation,
winding-up, conversion, or public offering, as the case may be.
9
<PAGE>
9.2 Registrable Securities. Upon exercise of this Warrant, the
----------------------
Warrant Shares shall be Registrable Securities under that Third Amended and
Restated Investor Rights Agreement dated as of June 10, 1999, to which the
Company and holders of its Preferred Stock are parties ("Rights Agreement") and
the Holder of this Warrant shall be a Holder under the Rights Agreement. By its
receipt of this Warrant, Holder agrees to be bound by the terms of Sections 4
through 13 and Section 15 of the Rights Agreement.
9.3 Replacement Warrant Upon IPO. In the event of conversion of all
----------------------------
of the Company's Series E Preferred Stock into Common Stock in connection with
an initial public offering, (i) this Warrant shall be exercisable for Common
Stock, not for Series E Preferred Stock, and (ii) Holder shall, following
receipt of proper notice from the Company of such conversion, surrender this
Warrant to the Company and the Company shall cancel this Warrant and execute
and promptly deliver to Holder a replacement Warrant, dated the date of the
conversion and having substantially the same terms as those contained herein,
with such modifications as are appropriate to give effect to the changes in
the Company's capital structure. Holder and the Company shall cooperate to
agree on such terms and such replacement Warrant shall be exercisable for such
number of shares of Common Stock as would be issuable had the Warrant Shares
been outstanding on the date of conversion.
9.4 Representations and Warranties of the Company to Investors.
----------------------------------------------------------
Except as set forth in the Schedule of Exceptions attached as Exhibit B to the
---------
Series E Preferred Stock Purchase Agreement dated as of June 10, 1999, the
Company hereby represents and warrants to Holder that:
(a) Corporate Organization and Authority. The Company:
------------------------------------
(i) is a corporation duly organized, validly existing,
authorized to exercise all its corporate powers, rights and privileges, and in
good standing in the State of California;
(ii) has the corporate power and corporate authority to
own and operate its properties and to carry on its business as now conducted
and as proposed to be conducted;
(iii) is qualified as a foreign corporation in all
jurisdictions in which such qualification is required and where its failure to
qualify would have a material adverse effect on the business, properties,
prospects or financial condition of the Company.
(b) Capitalization. As of June 30, 1999, the authorized
--------------
capital of the Company consisted of: 40,000,000 shares of Common Stock, of
which 9,642,834 were issued and outstanding, and 25,000,000 shares of
Preferred Stock (the "Preferred") of which (a) 1,120,000 shares have been
designated Series A Preferred, 1,120,000 of which are issued and outstanding,
(b) 3,142,133 shares have been designated Series B Preferred, 3,039,505 of
which are issued and outstanding, (c) 7,159,743 shares have been designated
Series C Preferred, all of which are issued and outstanding, (d) 3,741,217
shares have been designated Series D Preferred Stock, all of which are issued
and outstanding, and (e) 3,600,000 shares have been designated Series E
Preferred, 3,394,719 of which are issued or outstanding. The Preferred shall
have the
10
<PAGE>
rights, preferences, privileges, and restrictions set forth in the Articles.
The outstanding shares have been duly authorized and validly issued
(including, without limitation, issued in compliance with applicable federal
and state securities laws), and are fully-paid and non-assessable. The Company
has reserved 1,120,000 shares of Common Stock for issuance upon conversion of
the Series A Preferred, an additional 3,309,940 shares of Common Stock for
issuance upon conversion of the Series B Preferred, of which 3,201,832 are
reserved for issuance upon conversion of the Series B Preferred and 108,108
are reserved for issuance upon the conversion of the Series B Preferred
issuable upon exercise of outstanding warrants to purchase Series B Preferred,
an additional 7,159,743 shares of Common Stock for issuance upon conversion of
the Series C Preferred, an additional 3,741,217 shares of Common Stock for
issuance upon conversion of the Series D Preferred, and an additional
3,400,000 are reserved for issuance upon conversion of the Series E Preferred.
Except as set forth herein, and in the Rights Agreement, there are no
outstanding warrants, options, conversion privileges, preemptive rights, or
other rights or agreements to purchase or otherwise acquire or issue any
equity securities of the Company other than rights pursuant to the Company's
Stock Option Plan and other Board approved equity compensation arrangements
and the Warrants listed in the Schedule of Exceptions to the Series E
Preferred Stock Purchase Agreement, nor has the issuance of any of the
aforesaid rights to acquire securities of the Company been authorized. Since
June 30, 1999, there have been no share issuances other than in connection
with (i) the Company's acquisition of Lexington Software Associates, Inc. and
(ii) option exercises under the Company's Stock Option Plans.
(c) Subsidiaries. The Company does not presently own, have any
------------
investment in, or control, directly or indirectly, any Subsidiaries,
associations, or other business entities. The Company is not a participant in
any joint venture, limited liability company ("L.L.C."), or partnership.
(d) Authorization. All corporate action on the part of the
-------------
Company, its officers, directors, and shareholders necessary for the
authorization, execution, delivery, and performance of all obligations under
this Warrant and under the Rights Agreement and for the authorization,
issuance, and delivery of the Warrant, the Warrant Shares and the Common Stock
issuable upon conversion of the Warrant Shares has been taken, and this
Warrant and the Rights Agreement (collectively, the "Transactional
Agreements"), constitute legally binding and valid obligations of the Company
enforceable in accordance with their terms.
(e) Corporate Power. The Company has all requisite legal and
---------------
corporate power and authority to execute, issue and deliver the Warrant, to
issue the Warrant Shares and the Common Stock issuable upon conversion of the
Warrant Shares, and to carry out and perform its obligations under the terms of
the Transactional Agreements.
(f) Validity of Shares. The Warrant is duly and validly issued
------------------
(including, without limitation, issued in compliance with applicable federal and
state securities laws), fully paid and non-assessable. The Warrant Shares and
the Common Stock issuable upon conversion of the Warrant Shares have been duly
and validly reserved and, assuming such Warrant Shares and Common Stock are
issued as contemplated by this Warrant, upon issuance in accordance with the
Restated Articles will be duly and validly issued (including, without
limitation, issued in compliance with all applicable federal and state
securities laws) and
11
<PAGE>
non-assessable and will be free of any liens or encumbrances other than any
liens or encumbrances created by or imposed thereon by the holders; provided,
however, that the Warrant, the Warrant Shares (and the Common Stock issuable
upon conversion thereof) shall be subject to restrictions on transfer under
state and/or federal securities laws. The Warrant, the Warrant Shares and the
Common Stock issuable upon conversion of the Warrant Shares are not subject to
any preemptive rights or rights of first refusal, except as otherwise so
agreed to by the holders thereof.
(g) No Conflict with Other Instruments. The execution,
----------------------------------
delivery, and performance of the Transactional Agreements will not result in
any violation of, be in conflict with, or constitute a default under, with or
without the passage of time or the giving of notice: (i) any provision of the
Company's Restated Articles or Bylaws; (ii) any provision of any judgment,
decree, or order to which the Company is a party or by which it is bound or an
event which results in the creation of any material lien, charge or
encumbrance upon any material assets of the Company; (iii) any material
contract, obligation, or commitment to which the Company is a party or by
which it is bound; or (iv) any statute, rule, or governmental regulation
applicable to the Company.
10. Governing Law. This Warrant shall be construed and enforced in
-------------
accordance with, and the rights of the parties shall be governed by, the laws
of the State of California.
11. Lost Warrants. The Company represents and warrants to the Holder
-------------
hereof that upon receipt of evidence reasonably satisfactory to the Company of
the loss, theft, destruction, or mutilation of this Warrant and, in the case
of any such loss, theft or destruction, upon receipt of an indemnity
reasonably satisfactory to the Company, or in the case of any such mutilation
upon surrender and cancellation of such Warrant, the Company, at its expense,
will make and deliver a new Warrant, of like tenor and date, in lieu of the
lost, stolen, destroyed or mutilated Warrant.
12. Fractional Shares. No fractional shares or scrip representing
-----------------
fractional shares shall be issued upon exercise of this Warrant and in lieu
thereof the Company shall pay the Holder an amount in cash equal to such
fraction multiplied by the fair market value of a Warrant Share on the date of
exercise of this Warrant.
13. No Impairment. The Company represents and warrants that the terms of
-------------
this Warrant (other than exercise price and expiration date), taken as a whole
or in any material respect, are not less favorable to Holder than the terms of
the other warrants issued by the Company. The Company will not, by charter
amendment or by 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 terms of this Warrant,
but will at all times in good faith assist in the carrying out of all such
terms and in the taking of all such action as may be necessary or appropriate
in order to protect the rights of the Holder against impairment. Upon the
request of the Holder, the Company will at any time during the period this
Warrant is outstanding acknowledge in writing, in form satisfactory to Holder,
the continued validity of this Warrant and the Company's obligations
hereunder.
14. Successors and Assigns. This Warrant and the rights evidenced hereby
----------------------
shall inure to the benefit of and be binding upon the successors of the
Company and the successors and
12
<PAGE>
assigns of Holder. The provisions of this Warrant are intended to be for the
benefit of all Holders from time to time of this Warrant, and shall be
enforceable by any such Holder.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed
by its officer, thereunto duly authorized as of this 28 day of July 1999.
INTERWOVEN, INC.
a California corporation
/s/ MARTIN BRAUNS
-------------------------------
Martin Brauns
President and Chief Executive
Officer
13
<PAGE>
FORM OF SUBSCRIPTION
--------------------
(To be signed only upon exercise of Warrant)
To:
[_] Check this box and fill out Item (B) if the undersigned is electing to
----------------------------------------------------------------------
utilize the Net Issue Exercise provisions of Section 1.2 of the attached
------------------------------------------------------------------------
Preferred Stock Warrant.
-----------------------
(A) The undersigned, the holder of the attached Preferred Stock
Warrant, hereby irrevocably elects to exercise the purchase right represented
by such Warrant for, and to purchase thereunder, (1) ( ) shares of
---------------------
Series E Preferred Stock of Interwoven, Inc. (the "Company") and herewith makes
payment of _____________________ Dollars ($_________) therefor, and requests
certificates for such shares be issued in the name of, and delivered to,
___________________________ whose address is __________________________________.
(B) The undersigned, the holder of the attached Preferred Stock
Warrant, hereby irrevocably elects, in accordance with Section 1.2 of such
Warrant, to exercise the purchase right represented by such Warrant for, and
to purchase thereunder, (2) ( ) shares of Series E Preferred
----------------------
Stock of Interwoven, Inc. (the "Company") and herewith makes payment in the
form of the surrender of the Warrant and the cancellation of the portion of
the Warrant representing (3) ( ) shares of Series E Preferred
---------------------
Stock, and requests certificates for such shares be issued in the name of, and
delivered to, __________________ whose address is _____________________________.
In exercising its right to exercise the Warrant, the undersigned hereby
confirms and acknowledges the investment representations and covenants made in
Section 6.1 of the Warrant.
DATED: _______________
________________________________
(Signature must conform in all respects
to name of Holder as specified on the
face of the Warrant)
_________________________________
_________________________________
(1) Insert here the number of shares called for on the face of the Warrant
(or, in the case of a partial exercise, the portion thereof as to which the
Warrant is being exercised), in either case without making any adjustment for
additional Preferred Stock or any other stock or other securities or property
or cash which, pursuant to the adjustment provisions of the Warrant, may be
deliverable upon exercise.
(2) Insert here the number of shares to be issued to the undersigned as
determined in accordance with Section 1.2 of the attached Preferred Stock
Warrant (such number of shares shall be equal to X as determined in such
Section 1.2).
(3) Insert here the number of shares called for on the face of the Warrant
(or, in the case of a partial exercise, the portion thereof as to which the
Warrant is being exercised), in either case without making any adjustment for
additional Preferred Stock or any other stock or other securities or property
or cash which, pursuant to the adjustment provisions of the Warrant, may be
deliverable upon exercise (such number being representing Y as set forth in
Section 1.2 of the attached Preferred Stock Warrant).
14
<PAGE>
EXHIBIT 21.01
Interwoven, Inc. has the following subsidiary:
Interwoven Ltd.
<PAGE>
Exhibit 23.02
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of
our report dated July 15, 1999, relating to the financial statements of
Interwoven, Inc., which appears in such Registration Statement. We also consent
to the references to us under the headings "Experts" and "Selected Financial
Data" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
San Jose, California
September 2, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from December 31,
1998 and June 30, 1999 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR 6-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1997 JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1997 DEC-31-1998 JUN-30-1999
<CASH> 1,019 9,022 25,203
<SECURITIES> 0 0 0
<RECEIVABLES> 140 2,675 2,173
<ALLOWANCES> 0 270 288
<INVENTORY> 0 22 0
<CURRENT-ASSETS> 37 237 373
<PP&E> 264 1,987 2,548
<DEPRECIATION> 76 370 666
<TOTAL-ASSETS> 1,384 13,908 29,948
<CURRENT-LIABILITIES> 404 2,842 4,827
<BONDS> 0 0 0
4,627 20,464 45,276
0 0 0
<COMMON> 3 5 6
<OTHER-SE> (3,737) (10,757) (21,161)
<TOTAL-LIABILITY-AND-EQUITY> 1,384 13,908 29,948
<SALES> 84 3,176 3,258
<TOTAL-REVENUES> 168 4,003 5,004
<CGS> 0 59 119
<TOTAL-COSTS> 95 1,333 1,548
<OTHER-EXPENSES> 2,933 9,165 9,838
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 88 41 64
<INCOME-PRETAX> (2,948) (6,344) (6,228)
<INCOME-TAX> 0 0 0
<INCOME-CONTINUING> (2,948) (6,344) (6,228)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (2,948) (6,344) (6,228)
<EPS-BASIC> (1.36) (2.85) (3.66)
<EPS-DILUTED> (1.36) (2.85) (3.66)
</TABLE>
